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Interview, Part 1: David Klein, CEO, Canopy Growth

August 4, 2020

Constellation Brands has never been shy about placing big bets on what it considers the next major growth opportunity in beverage alcohol, but perhaps its boldest move to date came in 2018 when it invested $4 billion in Canadian cannabis company Canopy Growth.While Canada’s recreational cannabis market has suffered growing pains in the early going, Constellation continues to see vast potential in the category. Canopy Growth saw revenues soar 76% to C$399 million ($294m) in its fiscal year through March, but posted an adjusted EBITDA loss of C$443 million ($326m). Early this year, former Constellation CFO David Klein was appointed chief executive of Canopy, aiming to sharpen the company’s focus on the cannabis consumer, new products, and the efficiency of its production pipeline as it strives for profitability. SND executive editor Daniel Marsteller caught up with Klein for an update on progress.

SND: How do you see Canada’s cannabis market evolving from a big-picture perspective?

Klein: When we first entered the recreational market we were all about doing things ‘first,’ which was beneficial in that we gained a lot of brand awareness through our efforts. The market is quickly shifting from one in which it was great just to be able to purchase legal weed to one in which consumers demand high-quality, differentiated product offerings. Our strategy has since shifted to focus on knowing everything we can about our consumers and creating differentiated, high-quality products to meet their needs.

SND: What signs are encouraging at the moment, and where do you see potential obstacles to growth?

Klein: The growing pains in Canada are largely the result of unrealistic estimates of how quickly the provinces could issue licenses to open retail stores. Ontario, for example, had been a laggard in issuing licenses. That has shifted and the retail footprint in Ontario is now rapidly expanding. At Canopy, we’ve had to continually adapt our supply chain to changes in consumer demand, provincial processes, and the retail model. In terms of obstacles, strict regulations around marketing and promotion of cannabis products adds a layer of complexity for Canadian producers, but the past 22 months have demonstrated that legalization has not led to an increase in crime, substance abuse, or other negative societal effects that were predicted by those opposed to legalization. This has gone a long way to reduce the stigma around cannabis production and cannabis use.

SND: How do you see consumers responding to cannabis drinks and edibles versus flower and other form factors?

Klein: Research shows that the consumers most interested in cannabis beverages are new to the category. These are people who may have never tried cannabis before and may have been intimidated by the category in the past. They likely won’t enter the category through smoking. We’re focused on this new consumer and want to give them a good experience by delivering a small dose of THC in each serving so they can purposefully control their consumption. Many of our drinks contain enough THC to provide an effect similar to a serving of beer or wine. Our technology can distill any cannabis flower into a liquid—with zero calories, zero sugar, and an onset time that approximates the time it takes to feel the effect of alcohol. This creates a tremendous platform to deliver amazing consumer products and a true alternative to traditional adult beverages.

SND: How important do you think the ingestibles segment will become in Canada and, down the road, in the U.S.?

Klein: We believe the sky’s the limit in terms of bringing new consumers to the category. Currently existing beverage formats have established occasions in which they’re consumed. Creatively, our marketing strategy mirrors traditional beverage ads. We want to show consumers that our drinks can be a part of their life in similar ways that alcohol is—without some of the negative effects. We’ve seen incredible response from consumers in Canada with our beverages and edible products. We think drinks and edibles will be a small part of the consumption routine of existing cannabis users, but will make up a large part of the market for new consumers.

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