Boris Jordan on Cannabis

The Curaleaf Chair shares his latest takes.

Curaleaf Chairman Boris Jordan spoke tonight with Mayor Toby about the U.S. and global cannabis markets, the likelihood and impact of Schedule III and the latest on SAFE Banking. It is certainly worth a read/ listen.

Almost a year since Biden requested FDA / HHS review canna rescheduling.  

Boris isn’t surprised of HHS review news.

Surprised that they kept to a timetable.  

Only 1 case where DEA has gone against recommendation of HHS.

A lot of politics. Treaty needs to be dealt with.  

Expect the DEA to come out within around 90 days w/ a response.

DEA can take almost a year if they want.  

Politics in play.

Don’t think this is an accident, everything happening into an election period.

Activity on SAFE + rescheduling.

A lot at stake for this election.

Biden did run on cannabis.

Democratic party has been pro-cannabis.

Fully expecting to hear from DEA within a reasonable point in time, can’t predict, but think 90 days/maybe longer for recommendation to the administration.  

Expect the DEA to come out w/ recommendation to Sched 3.

Think it comes out at the same time as Garland letter to DOJ, explaining how all of this will work RE: the states.  

Does Biden run on this / sign in advance of election?

Or sign when the recommendation comes in.

A political issue on timing. 

All a very positive sign for Boris.

First major positive federal decision.  

Can’t underestimate how important it is for HHS/FDA to recommend Sched 3.

Don’t think many people understand how important that is.  

INTL treaty has been violated already.

All over the US, enforced at a state level.

CDN violating treaty.

GRMY about to violate treaty by removing canna from narcotics list. 

Believe GRMY will pass rescheduling canna by a large margin.  

Don’t think INTL treaty will be a major issue.

US tries to play within rule of law, might find a way through Garland letter or elsewhere.

Believe we get a recommendation to Schedule 3.  

Boris thinks they deal w/ International treaty through the Garland memo.  

CURLF spends a lot of money in DC.

Will have more clarity on intl treaty over the coming months but hear that the DEA will make the recommendation and then the DOJ will deal w/ the treaty through Garland memo or a change in the controlled substances act.  

Unlikely that they make the recommendation just to have it fail. Don’t typically do that.

CURLF view that they’ve already thought this through / will implement this.

Think they see light at the end of the tunnel / decision is already made on how they do this.  

Since recommendation came, timing of recommendation, fact that were heading into an election period.

Reading between the lines, all very good things.  

In Boris’ experience in emerging industries, when the situation is most dire is when you get change.  

Don’t think these recommendations have been made, just to be thrown away.

These are very serious bureaucracies that take this work very seriously.

Don’t think this recommendation would have been made to not get done.  

Sched 2 doesn’t fix the industry issues. Doesn’t help.

Would be better for them to keep it sched 1. Doesn’t do anything for anybody.

Historically the DEA has recommended Sched 2 if going to do anything but given there is a recommendation from the HHS for Sched 3, they’re telling them what they want.

Don’t see it going to Sched 2; could be wrong, but don’t see it.  

Rescheduling is the most important decision for the future viability of the sector; more than uplisting, SAFE banking, etc.

Mainly important because it allows cannabis companies to behave / act as any other co in the US, from a tax perspective.  

Ran numbers on rescheduling to sched 3 / 280e savings for CURLF.

Next year/ ‘24 savings for CURLF would be $150m at federal level + $20m at local level.

$140m approx. on ’23 savings, if done this year.

Will transform business.  

Will change the business for everyone, but more so for the companies at scale.  

Allows larger companies an ability to tax plan like any other companies in the space.

Savings could be higher.

Companies today can’t do any tax planning.

Every corp tax plans, CURLF cant do that.

Will change the landscape dramatically.  

Think rescheduling is single biggest / most important decision that could be made towards the canna industry.  

Poison products in the illicit market sold today.

Rescheduling will give FDA the ability to shut that down.  

THC-P is something that is 30x more potent than normal THC, it’s synthetic.

Being put in all of these D8/D9 vapes.

Can overdose on this stuff. Very dangerous.

Concerned about the illicit market because this is what’s happening in that market today.

Rescheduling will allow FDA to stop that from happening.  

Think FDA will work closely with the states.

Think people producing tested / safe products will benefit from this.

Positive for the sector.  

Enormous amount of short interest.

Even after the rally that we’ve had.

A lot of it coming from Canada.

A lot of Canadian funds are upside down on this.

Though these stocks were going to 0.

Can see operators trying to knock these stocks down.  

SAFE is exactly where it was.

Continuing to work through senate banking committee.

Boris more positive today than ever that it will get a mark up.

Think we get news over the coming days.

Think it comes before Oct 6, should happen earlier.

Will exit committee stage w/ a majority vote, with substantial republican support.

Think mid-Oct it is in the hands of Schumer when we get a floor vote.

Think it passes w/ 14-15 Repub votes on the Senate floor.

That’s what CURLF thinks happens.

Don’t think committee is a problem.

Think Schumer pushing this strongly.

Don’t think he wants this to fail on his watch.  

Schumer last year was told by McConnell to get off because it wasn’t brought through the proper channels. Now that has been done.

Schumer allowed it to go through proper channels in committee / senate, will go to floor vote, will pass.

When that happens, lots of things happen; Schumer can send it down to the House, or Schumer can go back to McConnell and say it is a must pass bill that must go through by EOY because Schumer went through proper channels.  

Think a lot can get done w/ SAFE to get it across the line.

Think we are closer than ever before.  

House has voted on this 7 times and passed it.

Most of those people are still there.  

Could also get attached to a diff bill. 

Think it can get done in a variety of ways, once Senate pushes it through, that this could get done.  

Senate holds 200-year traditions, don’t veer from them.

Usually takes longer to get through Senate than the House.

A number of ways to go through the House if that’s what they need to do.

Or could attach to a must pass year end bill.  

Republicans cant complain this time.

Has gone through the proper channels and has bipartisan voting.

Very different situation than last year.  

Political process can get dragged out closer to the elections.

In theory, could happen through House / put into law by EOY.

Question is about the politics.

Will there be impeachment hearings / shut down?

Boris doesn’t think a shutdown, but don’t think McConnell wants to shut down the government.

Don’t know how long continuing resolution will be for, but question is how long (1mo, 2mo, 3mo).  

Split congress/senate, no way an impeachment happens.

A lot of noise surrounding that. Depends on how distracting it is.  

Couldn’t get debt forgiveness done for students.

Need something for the young vote.

Think cannabis is the Dem’s horse.

Think they will be pushing for it.  

Think SAFE / rescheduling impacted each other.

Don’t think it is happening by accident.

Think it was all planned.

Whether the plan works or not is a different issue but think this was all planned.

Think SAFE moving, moved from July to September.

1 year closer to Biden’s announcement for rescheduling.

Heading into an election period.

Think it’s all happening for a reason / not by accident.

Think hearing about a Garland memo not by accident either.

Could hear about Garland memo on 1 year anniversary of Biden’s rescheduling announcement.

(me: that’s October 6^th)

Don’t think any of this is by accident.  

Capital markets protection could get done through Garland memo.

DOJ could give guidance and then FINCEN would use that guidance for the exchanges / banks.  

Boris’ opinion.

If there needs to be clarification on SAFE / Sched 3, think it happens through Garland memo, not anything else.

Think the law is fully baked / done.

Think only got postponed because they’re finalizing Sect 10 language.

Otherwise, Boris thinks SAFE is done; don’t expect any other changes vs. July.

SAFE has safe harbor language for financial institutions, which is a lot.  

For exchanges, it’s what the intention of the government is.

Where it’s heading.

When COLE memo came out, CURLF used to bank at Citi Bank.

Reason banks were banking cannabis was because there was a COLE memo, not law, but guidance; then FINCEN hung its guidance on the COLE memo.

When rescinded COLE memo, was no law they could reference RE: cannabis.

Think FINCEN hangs its guidance on the back of Garland memo when it comes out.  

Think the laws on the books RE: SAFE / rescheduling might give FINCEN enough to give guidance to financial institutions.  

Think companies need to continue to right-size, shed assets that are underperforming, focus on profitability.

Can’t right-size / cut to profitability, must grow. This is a growth industry.  

Where CURLF takes a different approach to others, a balanced approach between profitability and growth.

Business will grow for many years, so many new markets coming online, consolidation will occur; want to have a strong balance sheet, but don’t want to give up on growth, something CURLF will never do.

CURLF has a strong shareholder base that can afford, if necessary, to finance the business, even if no capital market around.

No chance CURLF doesn’t continue operations and continue to grow / develop.

Boris committed to this industry.  

Think CURLF growth over the next 3yrs will outpace the industry, given investments in critical markets coming online in next 3yrs. EU will only benefit CURLF.  

FL coming online, should happen, might not.

OH going to happen.

PA going to happen.

NY happened today.

NY now opened the door for RO’s to get into the market; CURLF more prepared than anyone else.  

Huge amount of growth catalysts coming over the next 3 years.

Will come in ’24 / ’25 / ’26.

Think ’23 the last year of reasonably flat growth.

Mainly because of some price compression / consolidation, a tougher environment where people are cutting costs, harder to focus on growth.

Think ’24 > ’26 the industry should see healthy 10-25% growth rates. 

NY #1 catalyst.

Rules written today.

RO’s can, by paying $10m, launch 1 store for A/U + launch wholesale operations.  

CURLF owns 50% of the medical market, 100k sq ft of cultivation ready to go.

Only MSO fully scaled.

Everyone else will be rushing now to build.

CURLF in good shape for the next 12-18 mo as the largest supplier in the market.

Will open other 2 stores next year. 

NY largely a wholesale opportunity.

Limited to 3 stores.  

Many things NY has done wrong.

One person was fired months ago. Another today.

People that are prioritizing their personal views of how this market should develop, allowed NY to become the largest illicit market in the country. Think that will change.  

A lot of the illicit products in NY are dangerous.

THC-P is the fentanyl of cannabis and people need to be careful.

Hidden in these products.

Hidden in gummies / vapes, synthetic, easier to make, 30x more powerful than THC, very dangerous.

Think tested/clean products will prevail in NY marketplace.

Think as operators enter, will put a sizable dent in the illicit market.  

Think the entire NY market is $5-6b.

Illicit market a majority of that.

Legal market less than $200-300m.  

CAURD program halted.

Will eventually be settled / opened up.

Think NY will have 2,000 legal stores.

NY is launching overall program now, CAURD applicants can apply under regular program and probably get expedited / launched.  

Boris understands NY veteran’s lawsuit.

Why were veterans or MSOs singled out?

NY took a separate approach than every other state, failed and are suffering because of it.

NY is behind.

Boris is adamant that they failed the NY program, should not have happened, failed the medical program, did it for political reasons that didn’t help anyone (including S/E licenses).  

Think RO’s entrance into the market only helps S/E players.

RO’s can help, finance them, give them quality products (vs what is sold today).

Think it will help the overall market.  

Cautiously optimistic that NY is going to be a good market for CURLF.  

Think OH will pass this Nov on the ballot.

Think rule writing will take some time.

OH launches prob in ’24. 

Kim thinks if FL doesn’t respond by April, automatically goes on the ballot.

Polls very tight.

FL needs a 60% threshold, polling at 60% now.

Heavy lift to get it done.

Once get go ahead from supreme court challenge, think all companies will push for getting FL A/U across the line and over 60%.

Pretty bulled up that politically can get past biased supreme court today (DeSantis leaning supreme court), if can get through that process, don’t think how they’d be able to rule against cannabis; no legal reason for them to rule against this.  

Republicans are missing the plot on cannabis.

The country is 88% for the legalization of cannabis.

Think the republicans just don’t get it.

Think it’s just pharma that lobbies for Republicans on this issue.  

Think we get FL.

Think Kim/TCNNF has done a great job.

Think it gets done, unless it’s political.  

Think PA gets done.

Surrounded by A/U states, think it must get done.

Think it will happen over the next 12 months.  

’24 is OH + NY, 2 major markets. ’25 could get FL + PA. 4 giant markets that will go.  

Jan a major event in EU.

GRMY will go medical-light, which will increase the market by 3-5x over next 2yrs, 5-10x over 3-5.

Market is 82m people.

CURLF the largest operator in that market.

Process of getting a card will be very simple.

Over 2,000 distribution centers already operational. Telemedicine will be a major player.  

CURLF shipping into Poland now.

Did 2nd shipment into Poland. Will enter domestic market, but wholesaling into Poland.  

Excited about UK. 

Started a business in Sweden.  

Think everyone (MSOs) missed the opportunity in EU.

CURLF is the largest operator in GRMY, 23% share, next largest operator is 15%.

Doing more consolidation in GRMY.

 A lot of hard work.

 Boris is there now.

There all the time. Spending 55-60% of his time there.  

Boris thinks EU opportunity is as big, if not larger than US opportunity over next 5 years.

If CURLF doing $1.4b in US, growing over next few years to $2b.

Think EU is a $1-2b opportunity over a 5-year period.

Almost a doubling of CURLF size over next 5-7 years.

Growth industry. Growth is what it’s all about at this early stage of the industry.

Need to get brands out there.  

Understand why investors are skeptical.

Canadian operators used to speak to EU, but no markets / frameworks existed back then.

Now have existing frameworks / demand.

A high growth market now.

Think it could rival the size of the US market.

750m people vs. 350m in the US. A huge opportunity in EU.  

Boris in Turkey today. A huge cannabis program, 82m people. CURLF leaving no stone unturned. 

More margin pressure for CURLF because CURLF is investing.

Keeping cash on balance sheet is done.

Need to keep cash in your business.

As long as managing expenses, don’t want to keep cash on the balance sheet; not getting paid to keep cash on balance sheet, can’t even earn an interest rate on that.  

Some players need to put more money to work in the US, some have done that and can look to other markets (EU).

Think companies have expensive debt that they can refinance (on 280e removal).

Think big operators will benefit quicker / more meaningfully on CF improvement.  

On multiples, CURLF trading 9-10x, put $150m and a 10x multiple on that, a few billion dollars in added value.

If growth returns to the sector and multiples expand, should see exponential growth in value. 

Think growth will be meaningful.

Think 280e removal opens up cash flows, allowing further refinancing, credit opps, M&A opps, new market opps.

Doesn’t mean companies should stop focusing on being more efficient.

Think operators becoming more automated is positive.  

Just finished major review of CURLF over the next 2 mo. Focused on efficiency improvements.  

With more cash flows, brings on additional opportunities for growth for all operators.  

Think will get large scale investment back in.

Have had outreach from large scale investors looking to enter the sector.

At these valuations, CURLF is not interested in doing anything.

CURLF feels comfortable where they are, significant CF generation coming online. Feel pretty good. 

Think smaller players could have some capital raises.

People are covering shorts.

Not substantial, should be very costly now.  

Show & tell market.

People want to see reg changes happening.

Think it needs to get closer to something happening to see big players looking at raising.  

CURLF is basically ready to uplist to the TSX.

Weighing whether want to do that.

Major catalyst.

Allows access to much larger capital.

US banks custodying on TSX.

Boris is watching TSNDF story. Very impressive.

Volumes went up substantially, some due to rescheduling news, some happened well before that (almost 3x initially).

CURLF the highest volume trader, can imagine what that would mean to CURLF.

If CURLF vol went up 3x, would be significant numbers.

Large scale investors need liquidity, anything to improve liquidity is strong.

CURLF reviewing now if SAFE / sched 3 happens, does CURLF need to do TSX restructurings, as they are very cumbersome.

Going to shareholders in early oct for final approval, but also looking at legality of changes happening on US side that could allow CURLF to avoid the restructuring changes required by the TSX. 

Think capital enters the market.

When CURLF became public, 96% was large money center institutions (blackrock, fidelity), only 4% retail participation.

Within 9mo of that, had almost no institutions left in the cap structure due to the repeal of COLE memo, people removing custody (pershing, BoA, JPM).

Everyone had to sell down their positions.

If Blackrock comes in, don’t come in for less than $200m, given their size.

Big money will come into this sector once get over hurdles of legality + custody.

Whether sched 3 + SAFE gets them there, don’t know, but well on their way.

Won’t happen overnight, will take time for large shops to get in, but many will front run them.

Many who haven’t spoken to CURLF in 1.5 years are now calling to enter the sector.

No plans to raise money right now, but those who will can attract some of these people.  

Don’t think refining of businesses is over.

Companies need to get better every day.

Companies have bad models.

Silo’d state models.

Incredible inefficiencies.

Constantly trying to improve.

Can’t lose sight of the big prize.

Can’t stop growing.

The mistake people make is to reduce and stop growing. Need to invest to grow.

People worried about that.

That’s the big issue.

Boris is not afraid to risk / grow.

People worried on Boris cash position, if Boris not worried about it, they shouldn’t be.

Boris invested more in this sector than anyone.

CURLF managing cash position, know what is required, must continue to invest.

Can’t keep cash on the balance sheet to keep people comfortable, need to be investing cash to grow the business.

Time is what we have the least of, money is available if you need it.  

CURLF has the cheapest debt in the industry.

Less than 8%.

If Boris is not worried, don’t know why others are worried about it.

Many of Boris’ friends own pieces of debt. 

Cautiously optimistic that ’24 / ’25 / ’26 look pretty good.

Confident that the sector gets out of its slump and moves back into greener pastures.  

/end

CB1 has a positions in Curaleaf and nothing contained herein should be considered advice.