TerrAscend Corp. (TSND) Earnings Call Transcript & Summary

Welcome to the 33rd Annual ROTH Virtual Capital Conference here in today's cannabis panel of the state of the industry. As a reminder, we'll be recording this webinar, and there is a Q&A line to ask questions, and we'll potentially get to them at the end, if we can. My name is Scott Fortune, the senior research analyst here for ROTH Capital Partners covering the consumer health and wellness sector, which includes cannabis and CBD operators in the U.S., Canada and globally. I would like to give a special acknowledgment to the conference sponsors today and the track sponsors of Dorsey & Whitney LLP and Marcum LLP. So -- but first, I want to set the table, and thank you for joining us to give a better understanding of what we believe is a multiyear robust growth story that is occurring now and expanding globally. I will be moderating the panel for the next hour, as the panel today will dig into the framework of the state of the U.S. cannabis industry, an outlook for how top cannabis companies that we have represented today are best positioned operationally within the burgeoning cannabis industry. Operating a cannabis industry business today, in most states, is complex and challenging, even without a pandemic on top of it. And thus, this session will gain insight on how these operators are handling the challenges, building scale and synergies and executing a growth strategy for the future. So we're joined today by 3 industry-leading pioneers and companies looking in the cannabis industry: we have Jennifer Drake with Ayr Wellness; we have Joe Bayern with Curaleaf; and Jason Ackerman with TerrAscend. Also joining us is Sativa Rasmussen from Dorsey, a leading legal adviser, providing services to the cannabis industry; and Sougata Banerjee with Marcum, providing tax and audit advisory services. But real quick, I want to lay the framework. There's a lot of catalysts and drivers to look forward to from state adoption and legal consumer demand driving fundamental growth, and that continues to strengthen. We have the SAFE Act. We have potentially new Cole Memo, which all suggest its decriminalization. The states are needing tax revenues and jobs, and then more importantly, the uplisting or the new kind of institutional investment opportunities as these operators are able to get on these exchanges. So these are all kind of the fundamental drivers that's driving this industry. We conservatively estimate this as a $80 billion legal cannabis market once fully legalized. I think that's very conservative. But from a fundamental investment standpoint, we see the 3 primary drivers of growth is, one, consumer demand as they shift from the $60 billion illicit U.S. market, according to New Frontier Data, to what was a $17.5 billion legal market in 2020. And we expect rapid new consumers to adopt recreational in cannabis. And then secondly, the state legalization expands the total addressable market. We saw 5 new states come on board with the election. We're seeing potentially, who knows, New York later today. But it's potentially another 3 or 4 states, primarily in the East Coast, coming on board towards state legislative legalization, potentially here in 2021. These 5 new states that were added, we expect another $5 billion in sales opportunity for operators going forward. And then third, last catalyst that's really driven a lot of sentiment since the Senate flip has been the federal legalization side. We believe we'll see positive incremental policy coming out of Washington, and clearly, with the Senate Majority Leader Schumer really leading the charge to implement more progressive policy. But we remain cautious on kind of the 50-50 Senate side of things. But we think, incrementally, the SAFE Banking Act moves forward.

And just to kind of start off the discussion, I'd like to open this up with Sativa Rasmussen from Dorsey, a perfect name for the industry, by the way, to lay out the federal cannabis policy discussion, is always the first question on top of investors' mind. So, Sativa, kind of step us through what you're hearing kind of how federal legalization moves forward here, if you can.

Sure, of course. Thanks for the interaction, Scott. So as you mentioned, we saw 5 new states coming online following the November elections. And by the most recent Gallup, we've got 68% of Americans that are generally in favor of legalization. So I think it really is not a question of if but when we see federal legalization at this point. And so as you mentioned, there are a few key pieces of legislation that would greatly affect the cannabis industry if they were passed and would have a significant impact. And the first, as you mentioned, is SAFE Banking, otherwise known as the secure and fair enforcement act -- banking act. And this act is really a direct response to the financial service issues that are plaguing state legal cannabis companies operating within the U.S. Similar bills have been introduced in every Congress since, I believe, 2013. And this has been folded into coronavirus relief measures twice by the House, that was in here as 1 and 2. And most recently passed in the House in September of 2019, but wasn't able to get a vote in the Senate because at the time we had Mitch McConnell leading the Senate. And really what this does is it aims to prevent federal regulators from interfering in the actions of a depository institutions dealing with legal cannabis businesses. More plainly, it protects depository institutions that elect to do business with cannabis companies in states where marijuana is legal. So the bill, if passed, would prohibit federal regulators from interfering or punishing depository institutions for the sole reason of working with legitimate cannabis-related businesses. It would lift the banking restrictions in those states, free up banking and deposit and traditional lending practices. It does -- it provides a safe harbor for depository institutions, including commercial banks, savings and loans institutions, credit unions and as well as insurance companies providing financial services to those businesses. It also removes liability for depository institution directors, officers and employees. And it removes the threat of criminal, civil and administrative forfeiture of any legal interest in collateral that they may have; and protect ancillary businesses, specifically the proceeds from transactions involving activities of cannabis-related legitimate businesses will not be considered proceeds from an unlawful activity, which really removes this threat of the looming violation of anti-money laundering statutes. But I do think just as important as what SAFE Banking does is what it doesn't do. And I think there is a lot of industry confusion on this point. And so SAFE Banking does not change the status of cannabis at the federal level. It does not facilitate any sort of interstate commerce of cannabis. It does not address the relationship between the small business association and cannabis companies. It does not eliminate the 280E issues that these companies are plagued with. And as it is written currently, it does not allow cannabis companies to be listed on U.S. securities exchanges or given access to capital markets.

Do you want to -- please expand on that because that's a big issue for -- people talk about Safe Banking plus where we can potentially get safe harbor language in there. Do you want to expand on that for U.S. listings fed things?

Of course. So in my view, the bill fall short because it fails to explicitly protect U.S. capital market activity relating to the cannabis industry. Congress really should not be limiting the bill to protecting depository institutions and providing services to U.S. companies. As drafted, there isn't a single mention of U.S. stock exchanges. And this would really be a missed opportunity if the act does not extend the protection from federal's inference to U.S. stock exchanges to list U.S. cannabis companies. SAFE Banking would allow JPMorgan and Bank of America to provide their full range of services to U.S. cannabis companies. So why shouldn't the NASDAQ be able to list those companies? The act really should include some specific language affording the same protection to U.S. exchanges that are being afforded to banks. And it should extend the safe harbor protection to capital market activity to protect U.S. investors who currently finance the vast majority of the industry.

Yes. The biggest [ fish ] is both custodian and holding it and then also being -- trade on these exchanges for the institutional investors. What's kind of your sense of timing potentially for SAFE Banking? And then potentially if we do get SAFE Banking as an incremental step towards language with [ FinCEN ] and moving towards the U.S. exchanges listing, any sort of timing and then kind of real quick a little more act going forward, too.

Yes. So I think that we saw cannabis reform stall in 2020 a bit because of the pandemic. But given the Democratic control of the house, the Senate and the White House, I think that will change moving forward. The combined strength of Vice President Harris and Senator Schumer as now the Senate Majority, you're going to see some changes that will be forthcoming. I think having a Senate Majority Leader back cannabis reform is really kind of unprecedented in recent times. Access to banking services and the capital market -- U.S. capital markets simultaneously would be monumentally transformative for the industry. And so my sense is that it's a tough sell for a number of people in Congress to get to any sort of full descheduling or legalization right off the bat. I would agree with you that we see an incremental federal legislation starting with banking reform in the form of SAFE Banking. I think we'll see Schumer propose that again, and potentially SAFE Banking plus some additional language. And then hopefully, I think the next thing we see is potentially a change with respect to taxes and to EDE. So maybe we see SAFE even as soon as before the summer recess, with taxes to follow. I do suspect that we may then see some aspects of the MORE Act make it through the legislative process, maybe piecemeal, particularly on the criminal justice reform and social equity side of things. As everyone on this call is probably aware that Controlled Substances Act has had a decidedly adverse impact on people of color. And so I think that there is going to be a very strong push for some incorporation of those criminal justice reforms and social equity aspects of the MORE Act. But I do think that will be a little bit further down the road, maybe in the first part of next year with decriminalization and interstate commerce or full legalization still being a couple of years off.

That's great. I really appreciate the update. That kind of sets the tone. Joe, kind of how is Curaleaf looking at maybe incrementally legislation coming through, but kind of your business moving forward and kind of what are you hearing on the legislation side of things from those standpoint?

Yes. I think our perspective is very similar to Sativa's that we're hopeful that we get something around SAFE Banking Act in 2021. And then either in '22 or perhaps after the midterm elections, a more progressive move towards a full federal legalization. But I think everybody is hopeful that given the focus at the Senate level now that we'll be able to get something fast this year. As far as Curaleaf, we're preparing to operate in either environment. We continue to build out our foundation on a state-by-state basis. We really look at investing across 3 different time horizons. We need to continue to move our business forward every day. So we're building out capacity on a state-by-state model while we prepare for what could be the next horizon around federal legalization and interstate commerce. So we continue to balance that investment across our portfolio. And then most recently, we announced that we're embarking on the next phase of our journey into Europe because we think that could be a compelling market over the next several years.

That's great. Jen, when SAFE Banking comes on board, kind of help spell it out what that helps Ayr do, lower cost of capital, just kind of everything that you guys have been handcuffed by -- with the continued regulation so far.

I think you've hit on the key, which is, as currently drafted anyway, which is lower cost of capital, particularly on the debt side. You've already seen debt spreads come in a ton, probably most cannabis companies, the best they could do in terms of borrowing rates was -- had double digits. And now you're seeing things well in kind of inside 10% and kind of 9%-ish kind of levels. So that's a big difference. And obviously, right now, there's nothing in the legislation regarding a safe harbor for the exchanges. But if there were, the ability to list in the U.S., I think, would be really -- it would be really material. It would really kind of be a sea change for the cost of capital for the business, which would be excellent for a lot of the build-outs that we're in the process of doing for our business. We are now in 7 states, and we are building out New Jersey as it moves to adult use. We're building out Florida to expand our footprint. We'll see what happens with respect to Florida. So in 2022, maybe that will be another adult use state in a couple of years. Certainly, Pennsylvania might go the same way. And Arizona, we're in the process of expanding in also. So there are a lot of things on the horizon that are -- that will be good uses of capital for us. And if we can get that capital at a lower rate, even better for our shareholders.

Okay. And I'll open up to Jason, kind of what's your guys' outlook on the legalization side of things and how you're steering your business, TerrAscend. You have assets in Canada, too, that is a little broad from that standpoint.

Yes. Well, Canada has been an interesting marketplace even under federal legalization. So that's not going to solve all of the supply-demand dynamics. Like all of us, we're pretty confident that SAFE is going to make its way through, not a ton of confidence about the NASDAQ, but I think it might be the New York Stock Exchange. So I think one of them is going to get it personally, and the rest will fall down. So I think it's going to eventually happen. But when we think about our business at the end of the day, what we compete with most today is the illicit marketplace. It's making sure that we have pricing that is close to it because we're a little bit less competing with each other, a bit more competing. We're trying to convert people to the legal market. And as we know that this is an asset-intensive business at some level, which is to get into the state and the ability to get mortgages and traditional long-term financing at low cost of capital as we build out capacity is really important for us to kind of bridge the gap between the pricing and efficient tax structures that exist. So I think that the more that things like this happen, the narrow spreads will be and where we're going to convert customers to walk into the stores locally. And that's really what we're all shooting for.

Now let's stay on that, Jason. We've seen a lot of capital raises in the industry, right, going forward. We know this is a very capital-intensive business to build out vertical models state-by-state right now the way it is. We'll get into interstate commerce down the road. But kind of your sense of investors -- new investors coming onboard into your company. And kind of what your sense of M&A, the consolidation moving forward, and how do you guys look at the capital raises and M&A side from TerrAscend side of things.

Okay. I think the world has changed dramatically over the last 3 months and compared to last year. I think, obviously, Georgia has set up a different pace in people's mindset of expectations. I remember a year ago, when we were trying to raise $15 million, we probably had to make 100 phone calls and put our tin can out and help to [ flag ] the $0.5 million checks at a time over a couple of months. And in January with 4 phone calls, we raised $200 million overnight. So -- and then the cost of capital is coming down. So I'd say it's a pretty dramatic shift. The size of funds or the type of funds we're participating are quite different. People are getting comfortable with compliance. So to me, the SAFE Act is a continuation, but we believe that the money is coming into the sector. We've seen the amount that's raised. So even that's been huge positive gains. And I think all companies were performing well with the growth to have access to capital. It's not the cheapest cost of capital, but relative to where we are. So the cost of capital is only even better. So I'm pretty optimistic in how this is shaping up for everybody.

Yes, it's amazing. You mentioned cannabis, right? And we have to add a few percents because it's a cannabis business. You think it'd be coming down even lower, but hopefully, the SAFE Act will really help that from that standpoint. M&A standpoint, Jen. Obviously, everyone has seen Ayr expand from 2 states to 7 states. I think investors are kind of waiting to see on how the integration goes. But kind of step through kind of your strategy in M&A in these states and how that's progressing going forward and kind of the outlook for M&A potentially moving forward?

Yes. So we've always had the view that we wanted to address states that we -- where we thought we could penetrate, have a very material market presence and generate a lot of cash flow. The definition of that for us is a certain set of criteria. We want our states to be -- allow vertical integration. We'd like adult use to be either legal or really on the cusp of being legal. We want -- we prefer limited license states and a large addressable population. So to us, those are the ingredients for a really strong cash flow-generative business. And when we were first buying our initial assets, there were only 2 states that fit those criteria, and that's Massachusetts and Nevada. And now there are many more. As we expanded into Arizona, New Jersey, Ohio, Pennsylvania and Florida, all of which fit those criteria. And there are even more states that are attractive by the same criteria: Michigan; Illinois; Virginia is potentially interesting now; Maryland. And we're always looking in California, but it's hard to find good stuff in California. Not that there's not good stuff there, it's a challenging environment for a lot of reasons. So we think the M&A landscape is still very attractive. We had a good amount of success, both buying private businesses and rolling them into kind of the Ayr family, as well as we bought a public -- we did a public-to-public transaction for our Florida assets with Liberty Health, which we disclosed a couple of weeks ago, actually. So we think -- we don't like to limit ourselves in terms of what we'll look at. We want to find the best value for our shareholders and the best addition to our company wherever we can get it. And we love to get great assets with great talent attached. So we -- the people are really, really, really important. And I think you'll see that more and more and more in this industry. You'll see cannabis become less of an industry about cash flow, because I think now a lot of us are starting to generate free cash flow. Ayr been generating free cash flow from day 1, but a lot of other people are now turning on their assets. And you're seeing the separation of the really good operators. As Jason mentioned, capital is available to them. There are maybe half a dozen of them, and then separating the wheat from the chaff. And of those people at the top, I think you'll really find that it's culture, it's team, it's the way you engage and interact with your teammates, your customers and your community that's really going to drive success going forward. So we're super focused on getting great people with our assets.

Yes. It's not easy. Obviously, M&A is not easy to bring that in and integrate together. Look at Curaleaf, Joe, you obviously -- you've built huge national footprint, and a lot of it's been on very good, disciplined M&A strategy. Putting your plant -- your flagpoles in different states and then now scaling those states. And then most recent, you guys are looking to expand to Europe. But kind of your sense of the M&A with your size, where are the opportunities for you and kind of explain how -- we see cannabis 3.0 as more the medical G&P side of things for that, and that's more of the European play that kind of expand upon your recent M&A activity, Joe.

Yes. I think, as you said, we have a pretty broad footprint today. We're in 23 states. So for us, M&A is really more about bolt-on acquisitions and going deeper in the states that we find attractive, very similar criteria to Jennifer. We look for pretty attractive markets. So we want to build presence in those markets. But we are very focused on building a national platform for our brands. I mean our focus is really about building national brands, both the select brand and the Curaleaf brand from a health and wellness side and from a lifestyle side. So everything we do is focused on building out the platform to be able to bring those brands and our products to market. As you said, we are now expanding into Europe, because we believe Europe is where the U.S. was probably 3 years ago. And you may have heard our Chairman Boris talk about the analogy of when they went out and raised capital. For Curaleaf, 3 years ago, we were about the same size as EMMAC is today. So very similar in how we think that market will evolve. And we're very enthusiastic about the platform it gives us to build off in Europe, which, as you said, is medicinal today. But again, in the U.S., we're really thinking about bolt-on acquisitions going deeper in core markets and then building capability for what we're calling Curaleaf 2.0, which is getting ready for a national platform.

Now let's expand the -- kind of segues into the next one is, eventually, there's going to be interstate commerce, right, longer term. We've always said it is about brands and products and distribution down over the long run. How are you setting up building the business for kind of interstate commerce long run? It seems Curaleaf's transitioning a little bit away from less retail, but you're still growing the retail, but more on the wholesale side, like you said, building brands. And then how do you look at your assets from indoor grows and outdoor grows and everything to prepare for kind of the interstate commerce opportunity going forward?

Yes. At Curaleaf, we really consider ourselves a consumer product company. We just happen to use cannabis as one of our ingredients. So we're always looking at omnichannel distribution. We're looking at distribution of our products through our retail dispensaries, through third-party dispensaries and eventually potentially into mainstream retail channels and e-commerce. So we're building capability in all -- across all those fronts and in distribution across all those fronts to be able to really take what we want to build our strong national brands with differentiated products that are relevant to the consumers in the marketplace. And so as we look at things like national cultivation, we're building out the ability to scale in key markets, building genetic libraries, building the ability to do large-scale outdoor cultivation at some point, which will be a balance of indoor kind of boutique, flower cultivation and then biomass through outdoor. So we're building that capability. We're building our national research and development, putting $10 million into our research and development facility in Massachusetts to build out the science behind the products. We're building a national manufacturing site in Kentucky. So each of these assets will add to the overall capability in the marketplace over the next few years, but it's also preparing us for a more national interstate model down the road.

Yes. We'll get into kind of brand-building asset. Jen, Ayr has been really focused on premium growth, indoor growth. And since a lot of your states are kind of your specialty high-quality cannabis goes into the states, that's a vertical model, right? And there'll always be indoor grow, how are you guys preparing for more maybe potentially interstate commerce? With brands, are you looking to outsource growth or controlling that completely? Kind of how do you look at the future from that standpoint?

Well, we think that cannabis is a really unique consumer product where it all starts with the quality of the plant. And you can put the most beautiful, beautiful packaging together. But if what you put in the package is not high quality and is not a consistent excellent experience for the consumer, they're not going to buy your package again. So we think -- we take the view that it all starts with the plant. You have to have very, very high-quality inputs or you're never going to have a great product. And then you build upon that with your branding strategy. And today, certainly, the most important branding strategy in pretty much west of the -- sorry, east of the Rockies is your budtender. And there's plenty of research on this in the U.S. There's even some research that I'm sure Jason might have a view on it in Canada that most people were coming in and most consumers who come in for an excellent customer experience, the biggest determinant of that experience is their budtender. And the budtenders are the most enthusiastic users of the product, in many cases. So they know their weed. And if you are selling -- if you aren't selling great products through an educated budtender who's then going to help bring the consumer along on their journey, you're missing out on the most important branding opportunity in our view. So we absolutely think long term about the CPG nature of this business. And today's nature of the business is really all about the plant and the relationship between the consumer and the budtender.

Yes. It's been tough. We haven't seen dominant brands. Yes, I'm curious trying -- you get the select brand out there, obviously, but you hear of cookies and stuff. But there's still a lot of brand building that needs to be done. Jason, kind of your sense, I agree that budtender post COVID, it's had to change a little bit from a D2C kind of people are able to go online now with the menu. And from your sense and kind of your background, we'll get into that a little bit more. But how do you sense [ TerrAscend ] building brands and interstate commerce and kind of the different omnichannel approach that's going to start occurring here?

Yes. I think we all agree that this will eventually become like any consumer product that's out there. I spent 20-plus years operating in grocery, and we want to talk about competitive -- it's just competitive as it gets. And what were -- it's an extraordinary consumer-centric approach. Do you understand your customer, whether it's at the retail level? Are your products constantly evolving? I know that in food that we had to rotate 20% of our products every single year because they wanted new. What's new is old, and still you have to be innovative all the time. So there is a road map out there about how CPG and retail businesses evolve. And I don't think the cannabis is going to be much different. But with respect to D2C, I think it's critical. Spending most of my lifetime trying to convince people to buy fish through the Internet, that's hard. Buying meat online, that might not be quite as hard. And I think it's a very natural category. We've seen categories have migrated towards 60%, 70% online. I think cannabis is very ripe for that -- all the characteristics for that. Today, more than half of our revenue that comes through our stores initiates online. There is an opportunity to take advantage, as Jennifer speaks about the relationship with the budtender. It's really about that customers are looking for that advice as they're getting introduced to the space. And I do think in the earlier days, like with why people want help, and I think that D2C can play an enormous role. I looked at in my business prior to that, 40% of all the card transactions were driven by the recommendation engines and merchandising and products that were us suggesting things. So I think that tech can play an increasing role to scale the knowledge of the budtender and the personalization level for that experience, which will never take away from the in-house experience. I do believe omnichannel is important. It's not just about online. So I do think that tech, like anyone in the last mile and local point of distribution and communication, is going to be huge. Obviously, for us, and being also a tech guy, it's a big part of our strategy. It's building proprietary view of how to approach that.

How do you -- yes, expand upon that with your FreshDirect in New York. I know TerrAscend in New York, but kind of as they shape the regulations there, there's a sense there's a huge infrastructure built up there with delivery being a big thing in New York. How does technology adding on delivery and DTC and such? And then kind of, If you talk about the New York market, how do you see that potentially playing out from a regulatory standpoint since that's a big market, obviously?

Yes. And I've been working on the legislative in New York for the last several years. And if you can look that at delivery has already been embraced by all the regulators. So there's a lot of reasons why -- we know the local street dealer. They're not growing. They're distributing. how are they doing it? They're delivering it. I think that delivery is incredibly important in urban environments to be part of the social equity program. It's part of how urban environments delivers. So it's critical. All the conversations I've had in New Jersey, New York and these other states, once we start educating them on the role, that natural way that products are consumed and delivered and interacted, that it's a necessity. And so I think it will be part -- if you look at all the products, even if you follow Prime Amazon, the major urban environment have a much higher penetration of home delivery than the suburban environments do. So as we think about the role that cannabis plays, the more urban, the more important that still is, the more suburban making more pickup. So it's -- there's not one answer to the equation. But New York embraces, and I'm pretty confident that all states will over time as well.

Okay. Joe, how do you guys look -- how is Curaleaf looking at New York as they potentially roll out the regulations here? We're not -- you only have 4 licenses for 4 stores, right, in there, and you have to kind of be a little more creative delivery or DTC. How do you see the future of delivery? At the end of the day, all the consumer wants is easy access, right? They're -- a good price and the quality. How do you see kind of New York and Curaleaf strategy there potentially?

Yes. I think it's very similar to our strategy everywhere else around the U.S., which is, again, we're looking at building omnichannel distribution, whether that's through our own retail outlets, third-party outlets or direct-to-consumer and even mainstream retail outlets eventually. So I think as Jason said, e-commerce is going to be a big part of the overall solution in the ecosystem of cannabis over time. And we want to make sure that we have products and partnerships to be able to get our products to those consumers in the most efficient way possible. I think for us, the challenge is going to be the cost of the last mile as Jason could attest to. That's a challenge, right? It's not the technology stack necessarily. It's how do we actually ensure that we're getting product to the consumer in a way that's compliant with the regulations in New York and other states around the U.S., which means they have to be there to sign for it. We have to check proof of age and the economics have to be right. The drop sizes have to be right. So I think eventually, all of that will settle out, and it will be a big part of the ecosystem. But today, we're very focused on moving our products through our retail and our wholesale channels. And we think New York is going to be a really compelling marketplace. We think this could potentially be one of the best markets not only in the U.S. but in the world. Obviously, it's a large population, addressable market with disposable income. So it's -- back to Jennifer's point, it's a very attractive market. If the regulators take a responsible approach to rolling out the program, I think it could be a very compelling market for the industry.

Yes. That's the hardest part in this industry, right? There's no standards and you're dealing with 50 different states. And I know a lot want to kind of move ahead in New York and start the cultivation, start to planning for that, but you have no idea what the rules are, and so that's in place. But I don't think we see much moving -- capital moving there yet until we get the rules from that standpoint. With that said, kind of let's step into everyone, the key -- we have these great footprints now. The key 2021 and as people look at them in 2022, it's about scaling and each of these state footprints. Building consistency for our product from that. Talk about, Joe, kind of the drivers for Curaleaf and the scaling side of things. How you go deeper into each state from that building a consistent brand and the operational execution parts and the challenges of doing that in so many different states.

Yes, it's obviously challenging. We're continuing to build scale in major markets, including New York because we think capacity is still going to be one of the predetermining factors for success. Eventually, I mean, ultimately, you have to have product available on the market to be able to hit your revenue targets. And so most of the markets we're servicing are still undersupplied to a great extent. So we're continuing to build out capacity in places like New York and New Jersey to get ready for adult-use. We're very enthusiastic about the Northeast corridor. It's kind of our home. We started in the Northeast, and we feel we're well positioned to capitalize on the opportunity of not only New York and New Jersey, but eventually, as we talked about, Pennsylvania going adult-use, Connecticut, obviously, we have a good platform in Massachusetts. So we're excited about that. But we're building -- we're also at the same time, building the ability to launch products across multiple markets. At the end of this month, we're going to be launching our first kind of national product launch in 17 different markets over a 2-week period. So what we're doing is taking our science -- we're taking that science and rolling it into product development to create differentiated products and then we're creating a national distribution platform. And this will be the first example of that. At the end of the month, we're very excited about rolling out a product called Select Squeeze, which is going to be a beverage enhancer, very portable, user-friendly because you could control your own dosing and very discrete and convenient. So we think it could be a really compelling product, not only for existing consumers, but also bringing new consumers into the category. So we'll see how that goes in the next couple of weeks.

Ayr has been great with operational excellence, right? And executing, very profitable business. Now you're in 7 different states, right? But I think at the end of the day, you're saying it gets down to the production and getting that quality right. How do you guys continue to operate and execute at a high level with these new states coming? But what's the key to our scaling, Jen, in these new states for your business?

Well, I mean, it definitely starts with a plan for sure, and that is something that we stress a lot. I think I would be remiss if I didn't, though, call out how great our retail operations are. I mean we do -- I think we surpassed 6,000 transactions per day in Nevada this past weekend, which is a huge number. It's a level of throughput that just people do not see in the state, and it's because we do such a good job of something that Jason mentioned, which is providing excellent products, rotating our products, providing choice and excitement every time people come into our dispensaries. We doubled our Massachusetts dispensary sales because we started treating our Massachusetts dispensaries, which are still medical because they're in Boston, and everybody who's in Massachusetts knows it's been hard in Greater Boston to get their stores open. But we started treating them more like recreational stores, more like adult-use stores with more exciting products and a greater -- a better product mix and a rotating product mix. So the way that we keep our assets so productive is by starting with great input, starting with great ingredients in terms of our cultivation and moving that through like just a really compelling customer experience in the store, and we're not recreating the wheel. Certainly, other consumer and retail businesses have done this before, creating excitement, creating -- giving choice. And that really, if you can put those 2 things together, at least we have found in our business, is a great driver of profitability, a great driver of volume. And I would say we've had a real advantage having such a big part of our business, early days be in one of those established Western states because if you can make in West of Mississippi, you can make it anywhere. It's really challenging. It can be a difficult environment, but we've done a great job and we take that -- those best practices. We take that great know-how and we bring it to the East Coast.

Perfect. Jason, kind of follow up on that. You're in California, it is tough. It's a complex market to be successful there. But you've probably taken bad experience, like Jen said, and applying that SOPs and everything else, and implying that in the other markets. But how should we look at TerrAscend and its scaling and its footprint currently in building a brand or a national brand or the consistency level from that standpoint. Jason, you're on mute.

Yes, I apologize. Yes, if you look at where our concentrated focus is mostly, we have our greatest depth in the -- right in the kind of Northeast New Jersey, Pennsylvania and as we're building out of Maryland. And so at the moment, we have what we call kind of a bit of a superregional perspective. Having worked and grow there, there's a lot of crossover customers in that area still for us. We're looking at building a very consistent retail experience up and down the eastern seaboard as people are very much commuting around and are familiar with both the brands the retail experience. And that's where our focus -- we're out in California. It's a very different markets than the East Coast. One thing we love about having the California asset is it's a window embedded to the future about what's selling and what's moving. And in all states like other players, we have gone fairly substantial in depth. In Pennsylvania, while we're 1 of 21 licensing stores, we're about 20% of the wholesale sales of the marketplace. So we're using to figure out how to go a very, very large scale with very low cost of operations, and we tend to try to lead as kind of the sharpest prices in the marketplace. So there's that balance of scaling your operations to your low cost, and you can be both have best quality and great prices. And you've got to constantly innovate. And so we're a little a simpler story, a bit different than -- as we think of more of a super regional play than the national play at the moment. But we're all continuing with the same level, which is winning the hearts of customers. And the strategy is the same. It's really about executing and executing, executing those.

All right. Perfect. Well, again, the valuation will bring in Sougata here. As far as one of the biggest challenges is 280E, right, to the tax side. And I still get investors to call me up and say, hey, how come we can't -- there's no bottom line to these businesses. Is there great growth, good margins and what's happening on the bottom line side? But Sougata, I mean, can you step us through in how operators are working to kind of alleviate the 280E and any insight on the kind of the elimination of 280E where these companies can really start to generate free cash flow and grow from an internal standpoint?

Sure. And I'll talk about it in 2 different fronts because I'm an auditor by profession. So I got to think about it from a tax practitioner standpoint as well as from an audit standpoint. As a tax practitioner, we have a lot more leeway into what we can do because all we have to do is make sure there's a reasonable basis of what we can deduct. So one of the things that we look at is the full absorption costing that the company is using, is that appropriate or is that set at a reasonable basis or a reasonable level. And one of the things that we go and look for is sometimes we have even seen when we do the tax returns is the company is not absorbing enough costs into the cost of goods sold. And so some of the things we would advise to the company is how you can do that. Because otherwise, if you do not absorb enough cost into the costing, then obviously it cannot deduct it, that's a whole problem with 280E. The other challenge with 280E is the lack of enough guidance from IRS or lack of rules around -- or lack of private rulings around this issue. And what we are seeing, as everybody is aware of on this panel is the issues around alternative health care act, the [indiscernible] case or the Harborside case. We're seeing that more and more. And in terms of how to figure out which corporate expenses can be deducted and which ones cannot. And we try to advice our clients as much as possible to push the expenses to the [ client facing ] entities. And that way, you can then figure out if any of those can be absorbed in cost of goods sold. And then we can think about the corporate expenses. The corporate entity is truly a separate entry that -- whose expenses might be a reasonable basis to deduct. So that's all fair from a tax practitioner standpoint. When it comes to the audits and now stepping into my auditor hat, I have to be a little more conservative. And that's where the challenge becomes, in terms of debate with our clients, wait a minute, as a tax practitioner when you file my tax return, you set this for deductible, and that's where the educator find that there's a distinction between how we're doing from an audit standpoint versus tax practitioner standpoint. And there, the challenge is a more likely than not basis that this will be allowed if there is an examination by the IRS. And that's where the challenge is. And you're seeing the bigger issues, not so much on the allocation of what goes into cost of goods sold versus SG&A, but more so around the corporate company expenses. And that's a debate that we have been constantly having. Unfortunately, at this point, there is no guidance around this. And so we're all leaning towards a reasonable judgment, how we can allocate corporate expenses such that those are outside of the business activities related to trafficking, and then we can deduct that. One of things that like Joe mentioned, Curaleaf has other products other than cannabis. So that does help that we could allocate based on your business lines. If you have a non-cannabis business, and that's a regional basis to allocate which we do here. We also look for if you're involved in M&A activities or other kind of public company type activities. There might be evidence of that basis, do not call it a cannabis-related expense. So those are different areas we are focused on. But again, it's a wishful thinking on my part that the IRS will come out with something, but I doubt it. So we are hopeful that there's some limiting fees.

Times are testing. You've grown a business of your hands to tied behind your back of 280E. And for those who -- just a reminder, their tax at the gross profit level is not able to deduct business expenses stuff, that happens. Just kind of on valuation real quick. The question came are you, in a sense, always cheaper or undervalued compared to the LPs. As we look at it, you're undervalued compared to a lot of the CPG other industries out there from that standpoint. And the federal, obviously, legality and not being able to be on the exchanges. But throw this out to each of you, partnerships, you'll say interstate commerce comes on board, federal legalization here. How do you see this playing out partnerships JVs with alcohol, tobacco, these CPG companies, medical 3.0 and the pharma companies, kind of they're all lobbying to get involved with this. Are you seeing rumblings or partnerships, potentially investments coming in your space? I'll open up to you, Joe, as we look out to the future going forward here.

Yes, I think it's natural that the -- what we call strategics, will be looking at this space. I think it's early on for them now because of the limitations on a state-by-state basis, but haven't been on the other side when I ran strategy for Cadbury. These are the types of opportunities you'll look for as growth opportunities in the marketplace when many of those other sectors are slow growth to flat growth in the U.S. So looking at a market that's growing at the pace that the U.S. cannabis industry is growing is obviously attractive. I think part of the challenge for us is just understanding where we fit into that landscape. When you talk about tobacco and alcohol companies versus a traditional CPG person like a Procter & Gamble or a J&J and then pharmaceuticals, I mean part of the opportunity and part of the challenge is cannabis applies across all of those frontiers, right? We could play in health and wellness, we could play in lifestyle and leisure, we could play in alcohol and there are applications for cannabis in all of those segments, which creates what I think even larger total addressable market, then your $80 billion, I think it's well north of $100 billion. When you think about all the other usage occasions that can be converted into the cannabis industry is publicly almost double that. So -- but that also creates a little bit of challenge for strategics looking at where they fit into that landscape. And as most companies, Curaleaf is building out different parts of our model. We're cultivators because we have to be. We're vertically integrated because we have to be, right? So it's understanding where the value is going to be created in the marketplace, where strategics will be looking for value. And that's why we're very focused on brands. Eventually, we think cultivation will go to big ag and even retail will become dominated by big retail players. I mean, we have 100 retail outlets today. But we're in over 1,700 dispensaries across the U.S. Our mission is getting our products into every possible outlook we can. And so -- but the market will segment. Cultivation will be carved off, retail will probably be carved off. And what we're focused on is building great brands and brands people love and great products that meet the needs of our consumers. And I think that will fit into a consumer product line.

Jen, I'll throw it to you. As alcohol is being substituted in a way, right, the tobacco or consumers are adopting, we got kind of curious new consumers coming on board. How does Ayr look at positioning with new alcohol or CPG companies coming into the space? Work in partnerships? Investment in -- how are you guys positioning for that?

Look, I think the sector -- the cannabis sector is incredibly attractive to a wide variety of strategics, right? Certainly, when you look at states where cannabis has been legal for some time for adult use, you definitely see beer sales going down, Colorado is a classic case in point. So there's a little bit of substitution going on and that makes it somewhat maybe perhaps more critical for people like the alcohol companies, whether it's beer, AB InBev, Piaggio, obviously, constellations already made their move. That's probably more of a business imperative, but the growth is super attractive to any CPG company and a wellness company. And more of a -- there's obviously more of a pharma angle as well potentially. So it's just a huge -- it's a sector that's extremely attractive across the board. But it is also a really unique sector where the amount of kind of know-how within the sector is pretty different to, I think, many, many, many kind of other areas and fairly unique, and it's a very different -- it's a different animal than what a lot of the CPG companies have experienced in the past. And so for that reason, we think it will be a complex market. But we think it will be a market where the attractiveness of cannabis to strategic is just absolutely, like it's is a no-brainer. But I think it may not play out exactly as people expect on the time frame they expected, meaning we may not see breaking up of vertical integration. We may not see the breaking up of kind of cultivation from retail and brands because it may be that states don't want to give up their tax revenue and their job creation anytime soon. I mean, there was something on CNBC this morning about, I think, 77,000 jobs created in the cannabis sector in 2020. That's very attractive. The state of New Jersey doesn't want to give that up. The state of Massachusetts doesn't want to get that up. State of Illinois doesn't want to give that up. And interstate commerce means they will. And it also means that cannabis can come in from Mexico and Colombia because you can't keep it from crossing international lines if you let across state lines. So I just -- I do think that while 50 years from now, maybe 25 years from now, I think you probably all agree that we will have a federally legalized landscape. It may be more than 3 or 5 years from now. It may take longer than that for us to really separate the pieces of the value chain that we all think is in the future, and we're pretty sure about that. But the time frame is uncertain.

That's a good point. We agree completely. It is going to be state dominated to start for a while here, and it allows beginners to really build their value, continue to scale and build out on this opportunity. Jason, I hate to put you on the spot, maybe the LP perspective, the Canadian LPs and what they're looking at as we see them getting into the CBD side and starting to try and get into the U.S. They're all hoping that it comes a bit quicker. But that doesn't seem to be the case, kind of your thoughts around maybe the Canadian LP side getting into the space.

Yes. I think part of the question is who needs to and who would like to. On a need to, I'd say, for all the reasons Jen has said, alcohol, right, the consumptions [ go found ], it's a potential play. They've got to get into it. They are the most logical strategic competitors for them. CPGs, it's a nice to have, but it's growth -- but it's not a need to have. The same thing with Canada LPs, right? Let's not forget, Canada is a big place. But it's about the size of California from a population, it's another state. So if you're constrained by that size of market, where do you want to go and the money is in the U.S., so it an absolute imperative for them. So that's why that's a need to have because Canada is being fought out with a bunch of players, not a huge marketplace. So that's why there are so many interested in getting in and applying that back in the States. So those are -- they're desperate to get into the U.S. And the U.S. is turning out to be a much more practically regulated environment in terms of the ability to make money and the national competitiveness you go to build brands, which is very hard in Canada, which doesn't allow them to distinguish. It's all about low cost as opposed to pleasing consumers [indiscernible]. So LP Canada is very anxious and so is alcohol.

Well, with the time left, we're getting towards the end. I really appreciate this discussion. It's great to bring us up on kind of say the industry. I'll give final thoughts to each one of you, a quick minute on kind of how you see the next couple of years out or strategy. Or what people are missing about the cannabis trade from valuation or whatever for each of your company. Joe, you can start us off on kind of key for Curaleaf and what maybe people are missing about this industry right now as investors?

Yes. I think it's just -- we're poised for growth. I think coming out of the pandemic, we see '21 as being a lot of momentum behind us with legislation, with the sentiment -- consumer sentiment around the cannabis sector. And we're just very excited that we've had a busy year in 2020. We did 8 acquisitions. We were recapping 2020, 8 acquisitions. We moved from 800 to over 1,700 retail wholesale dispensaries. We went from 50 of our own retail dispensaries to 100. So we think we're uniquely positioned to capitalize on the growth in '21, and we're very excited about, not only some of the legislation that's happening, but more importantly, consumer sentiment towards the category and being able to bring new users into the marketplace.

Jason, I'll go to you. Any states that people are not looking at? Or kind of any other things are missing? Or how do you look at TerrAscend going forward here?

Yes. Again, having coming outside of the industry as an investment perspective. It's very hard to find an industry that's gone from $6 billion to $17 billion and will get to $100 billion in size, that's real. And while the playbook is going to continue to shake out, what's not unclear is the consumption and demand for the product itself. And as we think about the long term, if we look at the generation of 20, 30-year olds, they don't have the same signatures that exists in kind of more my generation. So the comfort, the adaptation, the kind of being more in front versus behind is only going to increase in the sector. So if you just look broadly at sectoral trends outside, there are very few places. And as people get more and more comfortable to invest, it's really hard to find a better place than cannabis out there. And from our perspective, we think we've got a sound strategy. It comes in the spaces about very competitive industry, and that's really simple, which is focus on the customer. But really deep where you place, you've got scale. And at the end of the day, it's about your doors, it's about other people's doors and it's about having great products. But this is going to play out. But what's going to happen is it going to be big and it's going to continue growth. That's for sure.

Okay. And Jen, I'll let you bring us home tonight or today. So your thoughts.

Yes, listen, I think this sector, it goes without saying, it's an understood thing that this sector is poised for huge growth, both within the individual space and by actually expanding the customer base materially. I mean we've talked about getting to $100 billion, let's call it as a market, that doesn't even include adding this, let's call it, half of the population who hasn't really tried cannabis or is just dabbled and doesn't really include it very much in their every day. And there's no product, probably except for sugar, that has so much universal appeal. Tons of different use occasions, tons of different dayparts, wellness, kind of wonder, as we call it. It's an incredible, incredible sector with incredible tailwinds. And from the standpoint of our company, our goal is just to be the best business that we can be to have the best team, to have the best products, to have the best customer experience and continue investing in the foundation of our company so that we can grow extremely successfully and continue to have some of the best-performing assets, if not the best-performing assets in the industry. And it all comes down to the plant and it all comes down to the people.

Well said. Well, thank you, everyone. This has been a great discussion. We'll look back 10 years from now as pioneers in this industry, right? It's going to be rapidly changing. But I appreciate the opportunity to bring us up to speed on what's going on in the U.S. and the cannabis trade here. And thank you again for participating, and we look forward to future discussions down the road.

Thanks, Scott.

Thanks, Scott.

Thanks, everyone.

Thanks, everyone.