Curaleaf Holdings, Inc. (CURA) Earnings Call Transcript & Summary

Good afternoon, everyone. Thanks for joining us today. We've got our U.S. MSO CEO panel and very excited to have Ben Kovler from Green Thumb; Steve White from Harvest; Joe Lusardi from Curaleaf; and Charlie Bachtell from Cresco. We'll start off just let them each describe their business a little bit and how they're positioned and differentiated. And we can go in that order. Ben, we'll kick it off with you.

Sure. Thanks, Michael. I assume you guys can hear me. If there's a problem, somebody wave their hands or something. But great to be here virtually and share the story and excited for this panel. So Green Thumb, I started the business in 2014 founded on the simple principle that this is Prohibition 2.0. We've seen this movie before and that brands distributed at scale is going to be how to win. And we've slowly, methodically and diligently executed on that plan. We're operational in 12 different states across the country with large-scale production, making branded consumer products like Rhythm and Dogwalkers, et cetera, as well as a retail chain across the country. We have 45 open stores today, mostly called Rise. And we're really excited about where we are. The big thing lately in the business has been the legalization in Illinois, which verifies the thesis that this is a credible, large-scale, multibillion-dollar consumer products industry that will generate jobs and massive tax revenue for states. And so we're excited as the future unrolls here. So I'll stop there, but thanks for having me.

Steve?

Thank you. Harvest is a multistate operator like Green Thumb. We're also vertically integrated. We're one of the oldest operators in the legal cannabis sector, having been around since 2011 when I founded the company with a couple of friends. We've grown since 2011 to become one of the larger U.S. operators through a combination of organic license wins and some targeted acquisitions. Right now as a company, we're focused on deepening our operations in 4 key markets: Arizona, Florida, Maryland and Pennsylvania. All 4 of those states, as many people know, are limited license medical markets that have strong growth potential and an opportunity for significant upside when it eventually converts to adult-use in those states.

Thank you. Joe?

Good afternoon. I'm Joe Lusardi. I'm the CEO of Curaleaf. I've been in the cannabis industry since 2010. I'm the CEO of Curaleaf for the last 4 years. We are the largest multistate operator in the country, operating in 17 states, 57 dispensaries. When we close the Grassroots transaction here in June, we'll be operating over 100 dispensaries coast to coast. We believe deeply in vertical integration. In almost every market, we're vertical. We control the supply chain. We believe that's critical to not only enjoying margins across the whole supply chain, but also being able to brand our products and control quality. We're incredibly optimistic about the industry. I think we have the best capitalized balance sheet in the industry. We raised $300 million earlier this year. And I think we see a lot of opportunities for consolidation in the near term. And we're looking forward to having not only robust organic growth, but also being able to continue to consolidate across the country and build a large cannabis footprint.

Charlie?

Good afternoon. Thanks for having me here today. Charlie Bachtell, Co-Founder, CEO of Cresco Labs, also a multistate operator based out of Chicago and also believe in vertical integration, currently operating in 9 states. A point of differentiation, I think, is a more tailored focus on the middle 2 verticals of the value chain with branded products and the distribution of those branded products into third-party stores. Happy to be here.

Thanks, all of you. Let's start with maybe a little bit of a look into the crystal ball. Just your thoughts on regulatory changes, either federal law allowing states, federal permissibility or legalization and maybe shy of that banking reform. Just your thoughts on when that may come, what's some of the key things to watch are, how significant is it that these businesses have been -- your businesses have been deemed essential during the -- maybe we'll kind of just go reverse order, starting back with you, Charlie.

Look, I'm bullish on regulatory reform as a whole. And I do think you have to look at it in different components. I think you're going to continue to see the progression of greater access to cannabis on a state level throughout this year and into next year. But at a federal level, look, I think we are -- my colleagues on the phone and other members of the professional regulated cannabis industry are doing what we need to do in order to put this subject matter in a position where it becomes overly logical and rational to be seen as a part of the way of addressing some pretty significant federal problems that have developed here in the country over the last few months. This country, at a local level, at a state level and nationwide, have a critical need of job creation and tax revenue generation, everything that our local, state and federal government has been doing over the last 3-plus months is dollars out or delaying revenue collection. And we have an industry here that we have been developing over the last few years with, I would say, 1.5 hands tied behind our back that currently employs 0.25 million people across the country, has the ability to expand that to over 1 million in the next couple of years, generate hundreds of billions of dollars in economic impact, $100 billion in tax revenue and it doesn't need a dollar of bailout or stimulus. Really all it needs is the exact same access to capital and banking as cannabis operators from Canada currently enjoy in the U.S. You don't have to federally legalize it either. You have to create this same parity in access to banking that other cannabis companies from other countries currently enjoy in our own country. I think we're getting to a point here where it becomes a question of why wouldn't we as opposed to why would we.

Joe?

Yes. I largely agree with what Charlie said. But the reality is, the federal government, legislative bodies, frankly, short of Illinois, have done a very poor job of passing cannabis laws. What I'm confident in is the ballot box. I'm absolutely confident that in November, you're going to see an adult-use law getting passed in New Jersey. You're going to see an adult-use law passed in Arizona. Steve can speak to Arizona being his home state more than I can, but we've been working very closely on a ballot initiative there. I think we're both probably confident it's going to pass. And people are going to keep going to the ballot box and voting for cannabis laws regardless of what the federal government does. And so at some point, as Charlie's pointed out, just becomes so overwhelming. I mean every state in the country will have this cannabis law. And so that's really what I'm hanging my hat on. I think more importantly, what's going to happen on the East Coast, so Massachusetts, and that's an adult-use program. Maine will follow suit later this year. And as soon as a state like New Jersey goes adult use, the whole Mid-Atlantic is going to fall like dominoes. I think New York will do a program. Pennsylvania will go. And many of these operators have businesses in those states, too. And I think we're going to all enjoy a very huge growth curve over the next 24 months as the people, their voices are heard in the ballot box.

Steve?

Yes. I agree with what both Charlie and Joe said. And for me, this is always a challenging question because for the last couple of years, I've been asked the same question and I've been giving, particularly as it relates to timing, the wrong answer. And what you start to learn over time is that, as Joe mentioned, the ballot box is easy, right, because we're asking citizens, yes or no, is this something they want. And when you're aimed on the legislature or legislative bodies that make decisions, oftentimes what we get are decisions that are politically prudent but not necessarily what is something they should do. It's about the partnership transfer or power is how some of these get beat. And so what Charlie was talking about, about how we change the conversation and your question about being deemed an essential business, those things become particularly important as you have to be because at some point we have to start changing that conversation on the federal level and on the state level in the various legislatures so that we can count on legislative bodies doing the right thing and not relying exclusively on ballot boxes.

Ben, anything to add?

Nothing major to add except Illinois has been a very successful launch and I think the eyes are on Illinois. It's gone well. We're producing -- and it depends whose lens you look through, but producing over $10 million of tax revenue a month, which is strong. And the next chapter will be social equity licenses that come out and hopefully successful new entrepreneurs and new opportunity into the space. And I literally think these other states are going to look at Illinois the same way they did medical markets and carbon copy a lot of the successful parts of the adult-use market. So we think we can see a little bit. You mentioned the crystal ball. I think it's playing out right in Illinois for everybody.

Sounds good. So shifting gears a little bit to capital and balance sheets. This has been relevant in the recent months and a few quarters as the landscape has evolved, there's been a bit of a crunch, but could you each give us a sense of how you're positioned and what your watch outs are? What are some of the steps you're taking and your outlook for the next, say, 12 or so months? We'll start with you, Ben.

Sure. We love our balance sheet. We've been first movers and early movers in the capital markets, seeing what's going on, going public early, raising capital, doing a couple of follow-ons at the right time. Last April, I think it was April '19, markets were strong, we raised $105 million of debt, which was good timing looking back on it. And we continue to fund the balance sheet with sale/leasebacks and otherwise, so the business is fully funded for the growth plans, have access to capital as we need. We like where we are. It's important to note last quarter did over $100 million in revenue with over $25 million of EBITDA and free cash flow. So it puts us in a very fortunate position ahead of these monstrous new markets that are growing at rapid rates.

Steve?

Yes. So as we outlined on our last call in mid-May, we have about $70 million in cash in the balance sheet. It's always important for all of us to actively manage our liquidity. And so for us part of that is people always ask the question, are you guys looking to raise money? Anyone who'd answer that question as no is lying. Everybody is looking at the right terms to raise additional capital because of the opportunities that Ben referenced. For us, we have a number of sources of additional capital that we expect to come in, in the near future. And then we have a lot of things available to us that we haven't tapped into yet where we are late to the party on things like refinancing and things like that. But we do have a number of notes receivable, the ability to push back some of our debt and change some additional financing arrangements as well.

Joe?

Yes. Much like Ben, we've been very timely in our capital raise. As I mentioned at the introduction, we did a $300 million debt raise, $200 million was new money. So we came into the year with a pretty well-funded balance sheet. We have some real estate that we could refinance if we want to. And we're also generating cash flow in our business. We are seeing strong growth and I think that in this environment, money is going to start flowing to the highest-quality operator. So I think the people on this call are in a good position to be able to raise money and have money flow to it. It is a capital-constrained environment. So I think the squeeze is going to be in operators that are frankly earlier than we are, can't generate cash flow and have a weaker balance sheet. So that's sort of our position is that we feel good. We can raise money if we have to, but we're certainly funded to do all of our organic growth and acquisitions.

Charlie? I think you're muted.

The Zoom sin of muting myself. I think similar to the rest of the guys on the panel here, comfortable with the balance sheet, strong, put a lot of effort into raising capital over prior quarters through several different vehicles, equity deals, sale/leasebacks, a credit facility to make sure that we had funding for everything that's under the umbrella and also near the inflection point of being able to create that free cash flow. It will allow funding of future opportunities. I think like Steve also mentioned, though, I think it's all relative depending on the opportunities that might present themselves in the near future. I think you're going to see some very interesting things. While we're all very focused, head down, executing on what's in front of us, I think we're going to see some pretty interesting opportunities come into this market from the less well capitalized, maybe operators that have good assets that haven't executed quite as well. So high-quality assets with distressed owners. So it will be interesting to see how the opportunities come over the next 6, 9 and 12 months but feeling really good.

So this is interesting, I want to touch on a little bit more. And Joe, of course, you mentioned some of the competitive dynamics and people under stress and Charlie did, too. What's the trade-offs? Obviously, distressed assets, you can inherit some of these problems, but yet, of course, at the same time, one man's trash could be someone else's treasure. How do you balance that? Is it as simple as somebody who can't sustain operations may have valuable licenses that would be worth buying? How do you think about an M&A or competitive shakeout landscape and what looks attractive to you in that kind of environment? Anybody can kick that off.

I mean I'm happy to start. I mean, for us, I think that like, the reality is that this is a capital-intensive industry. It just simply is. I mean there's going to be a huge demand. Illinois, they're seeing huge demand. We're seeing huge demand in Massachusetts, the whole East Coast, but you can only fulfill that demand by adding capacity, as anybody on this call will tell you. And so that means you need capital to build more capacity. You need to build grow ops. You need to build manufacturing, more stores. And in a capital-constrained environment, only certain people can do that. So I think that it's really a function of some operators getting over their skis. They don't have the capital to actually meet the demand curve and may realize that a consolidation is going to happen. It only makes sense to hitch your wagon to someone with a stronger balance sheet. So I don't think -- I think frankly a lot of these operators have good assets and it doesn't mean they're bad operators, there's just not enough cash to go around. I think I can probably speak for my colleagues here that we're probably all disappointed in the pace of the federal regulations that we haven't gotten. I think we all would have expected by now we'd at least have banking, a way to lower our cost of capital and get more investors into the industry which hasn't happened. And so as a result, only the strong are going to survive in the near term.

Anyone else have anything to add? So looking at just the recent months, certainly seeing, at a minimum, some stockpiling, looks like a relatively sustained bump during the coronavirus period. What have you seen from an operating standpoint that stood out to you as far as how you've adapted? And what type of changes do you think might last? Is there anything that's been more efficient in terms of online ordering or things that may be useful to kind of push or embrace as it led to higher costs that you'll be happy to see go, is it a bit of both? What's the sort of landscape looking like as it changes and the reaction to all that?

I'm happy to take that.

Yes. Ben, you can start.

Sure. I can start and anybody can jump in. Demand for the product has gone nowhere but up. I wouldn't say it's inflected up for the user, but marginally increased, so that means less frequent visits to the store with a higher ticket as sales continue to grow. I think the data has shown that all around. So that's strong. I think in terms of the operational flow, there's been a lot of revamps and editing and iterating and evolving the SOPs. I think we as an industry are really good at that. We're operating in change all the time. So adding things like curbside and preorder and delivery and temp checks and sanitary procedures and wipe downs and various changes like that, we can roll with it as a team and execute on behalf of the customer thinking all the time with some patient or customer's eyes on how to operate that well. So I would just say, it's been an acceleration in several kind of the omnichannel pieces that you mentioned depending on each market. But on the ground, strong demand from the consumer as we believe and think broadly that this product helps people. This is an enabler of well-being for people in times of uncertainty and high stress. And I think we're seeing it on the ground every day.

Yes. Just to piggyback on what Ben said, I think the omnichannel approach to providing the consumer with what the consumer needs and the way that the consumer wants it is something in general that will continue to stick with the industry going forward. I think all of us have probably found efficiencies in all aspects of our operations to accommodate sort of the other inefficiencies that were stemming from some of the COVID responsible procedures that we also had to implement. So I think, to a certain extent, I don't want to speak for everybody on the phone, but I'd feel confident that all of us have found ways to make our organizations better during this time. And there's definitely some things that we'll keep and then some things that we'll look forward to returning somewhat to normalcy as the COVID event passes.

One of the things that we found really interesting in this process is the industry and big operators within the industry, they do evolve very quickly. And I've watched companies pivot in ways that you don't see in other industries. The biggest challenge that we've always had to our ability to do that is the constraints that have been placed upon us by different regulations. What was really unique about this last few months is you saw regulatory bodies actually decided they needed also to have some flexibility, and that's not something that I've ever seen in the 10 years that I've been involved in this. And so you've seen regulators paired with operators trying to figure out how to best deliver products to customers. And the hope is that, that's going to allow those relationships to flourish and allow regulators to understand that part of their job is to create an environment that's for customers and for patients and that they can work with operators to do that. We saw it in a number of states that were otherwise reticent to look at their own regulations and be flexible.

Have you seen form factor evolution in terms of what the consumer demand has shifted to or from? How has that evolved as far as during this crisis? Has there been any noticeable shifts?

I can speak to that a little bit. You might think with a respiratory crisis, you would see people move away from smokeable products and inhalables. And that has not come to fruition the way we would have thought. Whereas, at the end of last year, the third, fourth quarter was vapegate when there was all the vape issues and health crises. We saw consumer trend shift away from vape. But now we see continued demand on flower just as before, along with vape.

Yes. I would agree, Ben. We haven't seen much in the way of customers switching to other form factors. And this is maybe stating the obvious, but I think it's important to say that. I've been in the industry for 10 years and the fact that this industry was deemed essential in every market has been a massive validator. All 4 of these companies are growing through a global pandemic. I mean we're all adding customers, we're adding employees. If there was any doubt about cannabis' staying power or that it's a consumer staple that's going to be around for a long time, hopefully, this answered that in a big way. I'll be candid. I mean we all hopped on our phone call in March and were like, oh, my god, the sky is falling, what are we going to do? And we were sharing ideas like we do. But 10 weeks later, I've never felt better about my business ever. We're stronger. We've definitely made some changes, but we've grown through a pandemic, and I think that's a huge deal.

I was glad I was able to calm everybody down on that call in March.

And then as you look at the recession factor, that piece of all this disruption, can you just give us a sense of what you anticipate and how you're preparing to adjust, if at all? And Steve, maybe we'll start with you.

Yes. So this is one that you would think that we've seen high unemployment claims, and we've actually continued to grow through that environment early on. And so as a whole, you would hope that we could draw the conclusion that the demand for cannabis isn't going to meaningfully change and that the businesses are going to continue to grow. I always with this kind of issue a word of caution which is, it is true that people will continue to consume cannabis, and they may continue to consume cannabis at higher rates than they did previously, but you don't have a history where we've seen high unemployment or a recession and how that affects the regulated cannabis marketplace. So you can talk about the cannabis marketplace in total, but it could be true that the regulated cannabis marketplace is affected more so than the illicit market would be. Like I said, we haven't seen it to date, but that's something that we've been really cautious about from the beginning. We're constantly looking at our data to figure out if there is anything that is changing. And so far, we don't have anything to report, but this is, it's a new frontier for us.

Anybody else? With the stimulus checks and elevated unemployment benefits, it may be hard yet to have a read on how things look, say, later this year. But you also have a cannabis consumer who -- a legal regulated cannabis consumer who is willing to pay a premium for a legal product versus illicit trade. And do you have a sense that they typically -- that your consumer relative to illicit trade skews a little bit higher end or might be more likely to be in the types of jobs and professions that are somewhat more insulated so far in the just economic outlook?

Yes. I don't know that I have the greatest line of sight to it, but I would say that the cannabis consumer that we've gotten to know over the years truly runs the gamut and is a giant cross-section of the local population, wherever your store is. I would say it's very, very average and very reflective of the community that you're in.

Yes. I would agree with Charlie completely. It's all walks of life. I mean our average patient age last year was 53. So our customers skew older. But as we can get more adult-use programs, it starts to skew younger, but it's all cross-sections. And short of the governor in Massachusetts slowing us down for 10 weeks, every one of our states is up month-over-month. So steady demand, new customers coming in the category all the time. Ben referenced it, but anxiety is at an all-time high, right? I mean people can't sleep. I think there's a recognition that even in adult-use programs, people look to cannabis to get some of those benefits. And so it's hard to predict the future, but I expect the demand is going to continue to be pretty strong.

And some of this, I assume you figure out as you go, that touches on some of the data component, obviously, with at least in your own stores, you have a lot of visibility on what the consumer is buying. How much of an asset is that? How are you able to use it? What are some of the ways that informs your decision-making? And does it shape things like pricing or product offering? And how can you give us a sense of how that looks?

Yes. I mean visibility into what's going on in the business, who the consumer is, what they're buying, what their habits are and who they are can drive more efficiency into the business, more profitability and more transactions. So doing thousands and thousands of transactions every day, we're able to look in there and see. One is simply the interaction with the consumer, with the patient upfront and up close and personal really can drive a lot of those product. And the ability to do controlled studies or watch the trends can just drive a lot of efficiencies and a lot of informed decision-making.

So over time, I think we've all, as we've accumulated data, that information informs how you reach patients or customers, how you treat them as they walk in the door, what they see when they walk into your retail facilities. And then when they leave, how you make efforts to bring them back into the store. So to the extent that -- one of the things that's great about being a larger operator is that you have a wider breadth of that information to use in all aspects of your business. And the better that you use it, the more operationally efficient you are and the more profitable you'd be able to be.

And except for in Florida, obviously, you have visibility on competitors' products that are sold in your own stores as well. How much do you -- how does that impact some of what you think about as product offerings or how you differentiate or innovate or add or trim SKUs? You've got really a kind of a look at the whole landscape beyond just your own products. How do you use that information to influence your planning?

Yes. I'll add. I think we're using data at a macro level and at a very acute specific level, too, more than we ever have previously. And it was something that I think all of us probably recognize the value of it early on. You have to develop it. You have to build it. You have to customize a lot of things to be able to create it, too. So you also have to have the talent to support it. Data is nothing if you don't have the people who know what to do with data when you collect it. So I'm just really encouraged by where we're at as an organization and improvements that we've made even year-to-date in the ability to use data to help us make these decisions, strategic decisions and very specific acute day-to-day decisions. It's where I wanted to get to for a while. So it's really important and a major component of how we think about strategy going forward.

Yes. I would agree. And stating the obvious, again, in the medical arena, you're required to capture a person's data. So unlike other retailers, you know a lot about these people. You know their age, their demographics, their buying behavior. To your point, in a state where you're not a vertical, you can also see the consumer preference on products, form factors, even if they're not your own. So that can inform your supply chain. So we're gaining huge insights every single month that we're using to try to improve the business. I mean I think we're all -- this is early days for all of these companies, and so we'll get better over time. But it's definitely a data-rich environment. We're getting a lot of information on our customers every day through thousands of transactions.

And just going back to the capital picture. Clearly, you can only really specifically plan for what you know and the market status that they currently have. But if New Jersey, Arizona, et cetera, some of these add rec in the coming year or 2, what's your planning approach to some of those? And how much would you anticipate trying to raise money, borrow money, self-fund? It's hypothetical so I realize we don't know yet how all that plays out. But maybe, Steve, can you start just how you approach that from a planning perspective?

Yes. So we're lucky in that Arizona is our leading market and a recent poll came out showing that -- and I'm not making this up, a 40 point lead going in November. And so for us, because it is -- it is really easy for us to invest money in that state, whether or not you're going to see recreational cannabis because what a lot of the folks on this video have demonstrated is that going deep in a particular state is the way that you really make money, right? And so for us, that we're making that bet on Arizona. That's why we've been involved in the process from the very beginning to ensure the transition, and we would love to have a transition that looks like Illinois. Charlie and Ben can speak to how successful that's been. And it really has been great for everybody to watch. But for us, it's just easy when you're already at scale in a state and it's going to go rec it's really some limited incremental dollars necessary to account for the additional demand. So for us, that's an easy one. New Jersey, unfortunately, is one where it's not one that we're choosing to play. But for us, if we're not already making the investments for those market transitions then we're too late, which is why we would say we skip New Jersey and we're already investing in Arizona because if you look at Arizona, you're going to be in Q1 when you're going to see recreational sales, if you need to develop cultivation capacity for sales in Q1, you better be making those investments today.

Yes. I would agree with what Steve said. We just completed our strategic review for 2021. We're investing heavily ahead of New Jersey adult-use, New York adult-use, Arizona. We're the #1 operator in New York and in New Jersey. We're #2 in Arizona, Steve, but we're trying to catch you. I think that and Charlie will echo this, you have to have capacity ahead of the market. The irony in Illinois is it's been incredibly successful, but I think they would both agree, it happened so fast. It was so successful that the operators were trying to catch up, and we know they will, and they're going to absolutely crush it, but you've got to be thinking almost 1.5 years, 2 years ahead and making bets on what's going to happen because it does take time to build these facilities and capture that demand.

Maybe just to echo your point right there, 1.5 years is a legit time frame for those listening today. I mean if we're thinking about building out additional capacity, you've got anywhere between -- at the minimum 9, probably 12 months' worth of construction and then you've got 4 to 5 months' worth of growing, harvesting, manufacturing, packaging, testing, shipping, and that's your first harvest out of those things. So it's 18 months minimum before you're seeing the results of that decision that you made to expand in a state.

And just as you talk and think about growth and those expansion or opportunities coupled a little bit, maybe even with the macro outlook that we were just touching on in some of the regulatory momentum or just general acceptance. How has talent acquisition evolved? Is it easier to recruit and hire people kind of at all levels, but I guess anything that stands out? How has that picture changed either more recently or over time or a bit of both?

Yes. I can take that. I mean I think everybody agrees that the team is the most important piece of the puzzle here and getting the right people in place is crucial. So over the last few years, to your question, there's been more acceptance. 3, 4 years ago, trying to recruit somebody from an establishment business was difficult. As people would make the plunge, they were thought of as foolish and now they're thought of as first mover or smart anywhere in the organization, particularly at the executive level, Board level and otherwise. In terms of just recruiting, we're doing a lot of hiring, having hired over 500 people this year all throughout the organization, but as other sectors, whether it's hospitality or food and beverage, have excess capacity of labor, we're certainly looking to hire great individuals to join the team. So it's been interesting to see more acceptance and more interest. We have a really high bar for who can join the team. And there are a lot of people out there looking for work. So it's an exciting spot. And especially as you zoom after states that are looking for jobs, here comes the cannabis industry, going to provide thousands and thousands of full-time jobs, tons of labor and construction spend and then hundreds of millions of dollars of tax spend or tax revenue behind it. So it sets us well.

It's actually funny to buttress something that Ben said. I can remember, it was literally 4 years ago, begging people to come into the cannabis industry and arguing with them over dinner about what their parents are going to think or whether that was going to destroy their career because they're going to have this hole in their resume that shows that they did something really bad and naughty. And now it has become in vogue as people are starting to recognize, oh, wow, there's this great opportunity in U.S. cannabis. Now they are actually looking to come over. But I remember many a dinner where I was having to have a conversation with somebody about literally the conversation they're going to have with their elderly parents about whether they've just completely gone off the deep end. And fortunately, we don't ever have those conversations anymore, and I don't think we'll ever have them again.

And then just looking a little sort of high level/further out, some of the strategic thinking, just love your thoughts on where you see the key value drivers. Charlie, I think you touched on this briefly at the beginning, but maybe where you see the most critical pieces of the value chain and how it evolves? And maybe if possible, any sense of when one of the things we've touched on recently is comparing and contrasting to other CPG categories, partly thinking of things like pricing power, brands historically have driven that, but there's some degree to which it feels like scarcity is also part of that equation today. How do you just think about all that and where do you see it going? And then, of course, how do you position yourself for that? And maybe, Charlie, we'll start with you.

And Michael, just to continue even the sort of examples that you included in there. Sure. I think those are all part of the discussion and figuring out sort of the verticals of the value chain that you want to be in and at what time? I think, again, we're all going to have slightly different views on this, but also fairly consistent. I think all of us recognize the value in vertical integration right now. You don't have an established supply chain. It doesn't exist. Based on the regulatory nature, state-by-state structure of this industry, you're on little islands in some states more so than others, you're responsible for taking care of all elements of it. And it's just, I think, prudent right now to control every aspect of the supply chain, both from a security standpoint, a reliability standpoint. And then also from a margin standpoint, you could see it in certain markets where vertical integration is not only less normal, but not needed at all, like a market like California. But if you're only in one little component of the supply chain, there's not much margin there for you either. So it's the good and the bad of that structure. From our perspective, I can only speak for ourselves, absolutely, you have to be proficient in all aspects, all verticals of the value chain right now. And I think going forward, too, I think for the foreseeable future, you're going to want to be vertically integrated in all your markets. But I think as we look longer term -- in long term and cannabis is shorter than most people's definition of long term. Those middle 2 verticals, having the ability to create those branded products and get them distributed into other people's stores is going to be a big driver of future value for us.

Joe?

Yes. Much like Charlie, I think it's frankly critical to be vertical at this point for margin, to control the supply chain. And I agree, I think that will be the case for many years to come. But like Charlie, we do believe that brand is where the value will ultimately live in this industry. Cannabis is a commodity. At some point, it will be commoditized. And frankly, already is commoditized on the West Coast, and it will be nationally at some point. When we acquired Select earlier this year, we made a commitment to make that a national adult-use brand. It's already in 8 markets. It's going to be in 20 markets is our goal by the end of the year. And we really think that brand and distribution is going to be critical for future value. So while we are vertical and we're building a lot of capacity, we are also thinking about brand building and establishing consumer preference with that brand nationwide.

Steve?

Yes. So I always look at this question and we always end up -- the conversation always ends with the brand conversation. And so I agree with both Joe and Charlie. The question, though, is always going to be, how long is that going to take? And the answer to that is always totally dependent on the state that you're in and the regulatory environment. And so we look at the opportunity in the near term to make money in individual states where those opportunities exist. They may exist by putting manufactured products on other people's shelves, they may be by having more retail storefronts than somebody else, and they may have, in some instances, more cultivation capacity than others. For the very near future, there's not one answer to that question. But in the long term, and we do joke about this all the time, long term means something different in cannabis than it does anywhere else. Brands will prevail. But in the meantime, it's really a state-by-state patchwork of where the opportunities lie.

Ben?

I agree with really what's been said. I guess the other piece of it is the consumer experience, which is currently or dominantly off premises, and there's no on-prem consumption. Basically, it's beginning in different markets. But I think that will be interesting on who can own that consumer experience and how that works. On the front end, obviously, everybody is building a lot of technology, a lot of omnichannel for the delivery effectively. This industry under current rules can't be Amazon, obviously, but I think that will be an interesting place to watch how brand works and is there value. How does on-prem look in 3, 5, 7 years in the U.S.

Yes. I also want to just -- I think it's important, something Steve said, so I want to highlight it that, this is a state-by-state framework. Cannabis can't cross state lines. So we all agree brands are important. And I frankly think there is a bit of a narrative, a false narrative that brands are going to come out of California. That's where all the brand is going to come. I don't believe that narrative at all because even the best brand in the world, in California, if it doesn't have a license in Arizona, it's irrelevant. So I think the companies on this call are the ones that are most likely to be able to build brand because we have the footprint and the capacity to do it. If you don't own the shelves, it's pretty hard to get your brand out there. And I think that's just something that I sort of get fatigued about these brand conversations because there's a lot of excitement about brands that aren't going to wind up being and go anywhere beyond the state of the operation.

You raised an issue we haven't talked about as much for a while, but what is your thinking on how the market evolves, when federal law changes with respect to interstate commerce? I think there's a few ways you can think about it. And it may just be a question again of when and how it changes, assuming it does over time. But do you have a view on how interstate commerce develops or doesn't and how that plays out?

Yes. I can start. If you look at a lot of the laws that are on the books today, there's not an expressed prohibition against importation. But if you look at the State of Illinois, for example, you can't sell something, Ben can't sell something in his retail store in Illinois that was grown and overseen by a regulator other than the one in Illinois. So if there is a federal change, you then have to look to a lot of subsequent state changes to allow that process to happen. And in a number of instances, it's not going to be possible if you have some of the ballot initiative processes that don't allow easy changes to the state regulatory regimes. So I don't foresee a real fast knocking down of the walls. One of the examples we always give is, we operate a cultivation facility in a little town in Western Maryland. And literally, if they allowed the importation of cannabis from Oregon or from California, it's not just that, that facility becomes obsolete, it's that the school in that community shuts down, right? And it's that the local people there lose a number of jobs. I don't know how politically popular it's going to be for someone in the legislature in Maryland to allow that to happen just because somebody says that interstate commerce is desirable.

Anybody else? So then maybe just one more. We'll go around the horn again. And just love your thoughts on what you see as the most interesting catalyst or catalysts over the next 12, maybe 18 months? Joe, I think you said you've just wrapped up some of your 2021 planning. Kind of the question being, what excites you next year the most? It doesn't necessarily have to be a catalyst per se, but a catalyst, a market, an opportunity, just some of what you see that investors might be wanting to focus on over, let's say, 1 year, 1.5 years. Joe, maybe we can start with you.

I mean, for us, it's the progression of cannabis laws state by state. So again, Arizona is going to pass adult use, I'm certain of it, so will New Jersey, that will put pressure in New York and Connecticut and Pennsylvania to do the same thing. I think as long as we continue to build our capacity and have a presence there, we're going to capture that demand curve. So to me, it's more of the state-by-state stuff. I'm not putting a lot of faith on the federal government. But just as an example, in Connecticut, and I know Ben has a business up there, too. They just approved chronic pain. That may not seem like a big deal, that's a massive deal. That medical market is going to double in Connecticut in the next 24 months just for adding chronic pain. And when they add adult use, it will triple again. So those things are all on the come in all of our businesses. And so those are the things that as an investor I'd be looking at is state-by-state regulatory reform that we can all capitalize on.

I mean now Joe is getting excited about state-by-state regulatory reform. Sorry, I didn't mean to jump in front.

No, sorry, go ahead.

I would just add to that. I think he's right. I think I like to look at catalysts even as incremental wins. So there's all of these little steps that it takes to create big change. And I think it starts with state regulatory changes. I think a catalyst that transcends just the state impact of it is New York. I mean when New York does adopt an adult-use law, it's such an influential state. And then at that point, you're talking about, depending on what happens here in 2020, but probably the 3 leading candidates for the Democratic ticket in 2024 being Pritzker, Cuomo and Newsom now in California now with legalized adult-use laws in their states, I think that's compelling. That just, again, shows the progression. You've got 3 of the 5 largest states in the country. It's big. So I think the state wins create bigger opportunities for bigger wins, definitely at a federal level, too.

And Charlie, just to put now your comment in context for people. I mean, so Ben, Curaleaf, you have an operation in New York. There's 20 million people in New York. If that state goes adult use, it's going to be a multibillion-dollar cannabis market almost overnight. And there's 10 companies in the entire state. So that catalyst cannot be underestimated. It's going to be massive. And with just one example of what's in the future for these companies.

Yes. I very much agree. It's going to be big markets. It's really how and when, not if. So totally on the same page. I guess just to add another catalyst, like the thing I'm most excited about is the realization of this multibillion-dollar industry. Nobody really understands how big this is and how big these companies can be and will be, all of us on here. And I think the other catalyst in here is the new institutional ownership that is coming into the space and has warmed up now 2 years and 8 quarters and a continued conversation. And oh, now you're a positive EBIT. Oh, now there's free cash flow positive and here's how it works. And oh, you're registered with the SEC. And this is setting up very well for early mover institutional investors. You're starting to see them come into the space as we think it's only just the very, very beginning. So the market caps are too low. And as access to capital comes in, whether or not it's listed in the U.S. and how it works into the CARES Act and other sorts of things, it's all going to come this way. The animal spirits in capitalism are far too real and these businesses are far too big and in a world that is so thirsty for growth and it's massive. And so all of us together can put the right kind of credibility around the industry as this thing unrolls and really becomes a benefit for lots of people involved.

Steve?

Yes. So that, I mean, Ben really hit on what is probably the single biggest catalyst for all cannabis companies when that transition does occur. And Joe and Charlie are both right about state by state. I look at it as, who is positioned to catch the next Illinois? All right. Illinois is a great example of a really challenging medical market that turned into a rec market more quickly than the operators could actually even adjust to despite the fact that they were working at warp speed to do it. And so the opportunity there lasts over the course of a number of years for them to really see outsized returns. There are a number of states that are positioned to do exactly that. And for investors, I think it's really critical to me if you're trying to pick amongst a herd who is positioned to take advantage of a lot of those or some of the ones that are going to hit.

Lots of acceleration on the horizon, it sounds like, for sure, and it's exciting times. Any other thoughts? Anybody wants to add just to wrap up? I can let anybody else add another two cents if you've got something we missed. But yes, otherwise, I think that's a great taste of what's ahead and thank you all so much for your thoughts. This has been great. Thanks for your time and very much appreciated.

Thanks, Michael.

Thank you.

And yes, so next year come back, we'll do this in person and can have cocktails afterwards. Unfortunately, we can't really do that today, but thanks again and much appreciated.

Thanks, Michael.

Thank you.