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Interview, Part 2: Canopy Growth CEO David Klein

August 11, 2020

Ontario-based Canopy Growth Corp. saw net revenues increase 22% to C$110 million ($82m) year-on-year in its fiscal first quarter ended in June, with its adjusted EBITDA loss narrowing slightly to C$92 million ($69m).Strong medical sales in Canada and Germany as well as progress for its Storz & Bickel vaporizer business offset a pandemic-related decline in Canadian recreational revenue. Canopy has made no secret of the fact that it sees cannabis beverages as a major growth opportunity, and the company has now shipped more than 1.2 million cans of beverages across Canada under its Tweed, Houseplant, and DeepSpace brands since their launch in late March. In part two of our interview, CEO David Klein discusses cannabis beverages, CBD offerings in the U.S., and other areas of focus for the group.

SND: Which products in the Canopy portfolio are best positioned for growth?

Klein: As consumers become more accustomed to the idea of infused beverages, we see the potential for tremendous growth for this category. Beverages are a format already familiar to consumers who are accustomed to drinking for a variety of reasons including to socialize, connect, and unwind. Alcohol is currently the No.-1 psychoactive substance in Canada, with eight out of 10 Canadians consuming alcohol in 2017. However, one in two Canadians have indicated that they’re cutting back on alcohol, and this opens up a major opportunity for new players in the beverages space. We also think the CBD space represents a huge opportunity. The U.S. CBD market is anticipated to be $10 billion by 2023. 57% of the U.S. population indicates an interest in using CBD. We’re planning to launch 70 SKUs in the U.S. over the next year.

SND: Canopy has a range of celebrity partnerships within its portfolio. What role are those playing, and are any showing particular promise early on?

Klein: We’re fortunate to have brand partnerships with a number of influential artists and celebrities, which help to bring a level of trust and connectivity between our brands and our consumers. For example, we’ve partnered with Seth Rogen and Evan Goldberg with their Houseplant brand. With Martha Stewart we see an incredible opportunity to engage a new set of consumers who trust Martha’s products. Through the collaboration with Martha Stewart, we’ll release CBD edibles in the U.S. over the next few months.

SND: What do you feel is a reasonable estimate of when the U.S. might move on federal legalization, and how is Canopy preparing for that?

Klein: I think we can expect to see legalization happen by 2022. The tax revenue opportunity is massive, and as we see more and more states move to legalization for medical and recreational use, the benefits for states have become even more apparent. Our approach to the U.S. is twofold. First, we’ll build our CBD business through brands like First & Free, BioSteel, and ThisWorks!. Second, we continue to gather consumer insights across North America, create great products from those insights, and then roll out products in Canada. This allows us to both test the consumer proposition and to build brand awareness. We’ll be prepared to bring those brands to the U.S. upon permissibility. We also have licensed our IP to Acreage Holdings, which can bring any of our products to the U.S. now if they so desire.

SND: If and when the U.S. does legalize at the federal level, how do you expect adult-use cannabis to interact with beverage alcohol in the market?

Klein: There has been a big shift with consumers over the past few years who are more and more interested in low calorie beverage options with great taste. The drinks Canopy has in the marketplace now offer that option. We think THC drinks will be the next seltzer trend. When we surveyed consumers who tried our beverages, over 75% of them said they would buy the product again. 20% of those people said they would use it to replace an alcohol occasion, and I think that number is only going to increase in the long term. I see huge opportunities for beverage alcohol wholesalers to play in this space. However, the timing of that will depend upon how quickly cannabis retail evolves to look more like the alcohol model. It’s also not clear how cannabis will roll out in the on-premise.

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