About a year ago Matt Darin was named CEO of Curaleaf, taking over from Joe Bayern who moved to run a separate Curaleaf project. Darin was a co-founders of one of Curaleaf’s biggest cash cows, the Grassroots dispensaries in Illinois, which Curaleaf purchased from Darin and his partners in 2020 for $830 million.
Curaleaf is now indisputably the largest cannabis company in the United States and perhaps the world, as it’s been launching hemp and cannabis projects in the United Kingdom and Germany. And, Darin seems to be thinking far beyond the United States, saying “The goal is really to be the global industry leader.”
Because of its size, what Curaleaf does, matters to everyone in the cannabis business. To get a better sense of what the company is planning, and how it thinks about the current market landscape, we had a one-on-one interview with Darin earlier this week.
This interview was edited for grammar and clarity.
Grown In: You’re originally a real estate guy, and you’re still a principal with Frontline Real Estate Partners, a company that specializes in distressed properties. How did that prepare you for working in cannabis?
Darin: I’m not involved in Frontline at this point. My Curaleaf role is more than a full-time job, but I was one of the founders of Frontline in Chicago.
There’s a lot of people with a real estate background in cannabis. In the early days I think the background in capital raising and deal structuring was very beneficial. Especially back in 2013 and 2014, there was very little capital available for this new industry. Having the ability to put deals together and raise capital was an advantage.
A lot of the work still to this day is doing the site selection, the community relations, zoning work, all to identify good locations and municipalities that are supportive of cannabis. It was a lot more controversial back in that era than it is today, but having that background, knowing how to meet with cities, how to get zoning done, how to do construction and how to identify sites was a great background to have.
Grown In: Curaleaf now has 144 dispensaries in 21 states. You are by far the company with the broadest retail reach. What’s the goal from an investor perspective?
Darin: The goal is really to be the global industry leader. We are the only MSO [multi-state operator] with a presence in Europe. So when we say global, it’s actually a real thing. We are a global company at this point. When we talk about industry leadership, there are financial metrics there, and as an industry leader we’re focused on continuing to scale the business and drive growth, profitability and really be stewards of capital for our shareholders.
And there are other elements of industry leadership that we take very seriously. The work we do in government relations. I would consider us an industry leader for the work being done in Washington, D.C., as well as at the state level with trade associations with the work that’s being done at the state level. I think the corporate social responsibility work that we do, our Rooted In Good program is industry leading and a lot of the good works in the communities we operate in. We’ve really taken a leadership position.
Also on the innovation side. We’re on the front end of where the industry is headed in terms of new products, new hardware. I think we’re continuing to raise the bar for what’s available for legal cannabis and continue to provide a compelling offering for consumers and medical patients.
Grown In: Thinking more about your company, from your last annual statement, your cash position dropped to about half of what it was a year ago but your revenues only climbed about 7.5%, 8% in that same period. Have you reached a plateau for a company your size? Do you now have to look for other ways to grow beyond simple retail locations?
Darin: I think the industry – I would not call it mature because there’s many states that do allow legal adult use cannabis, including those that have laws passed that are in the process of getting implemented, like New York.
One one hand, I would say definitely we’re in a later state of maturity than we were three years ago when we were putting up 35 locations a year. Because in many markets they have caps on how many licenses you can have. We’re at those caps with no further growth to be had in those markets.
So, on one hand I’d say there’s some truth to that in that we’re more mature in the cycle. In our CapEx cycle our new store opening cycle. On the same token I still consider this to be the early innings of legal cannabis in the United States. There’s still major catalysts ahead of us that have not taken place yet and growth to come from that.
We still have major examples, like Florida, my new home state. With adult use that’s going to come in a few years, the growth that’s going to come from that, the potential for new locations from there is immense. Florida is the market that we’ve been opening up the most new locations most recently.
There’s also other catalysts, like New York with adult use on the near horizon. And looking at some new markets that continue to open up. I would say that it’s not what it was in the early stages of this industry, but there’s still a lot of growth to be seen ahead.
Grown In: Your company reports 270 different cultivars under production in 26 grow sites. Is Curaleaf attempting to create a brand experience that’s consistent across states, or is the fact that you have all these cultivars a signifier that consistent brand experience is just a fool’s errand?
Darin: I would not say it’s a fool’s errand. I think it’s a goal and an objective to provide brand consistency, product consistency across the country. Where if you’re going to provide Curaleaf or a Grassroots Select product in Nevada or Illinois, you’re going to be able to expect a comparable experience.
I think the reality is we still live in a state-by-state industry. The regulations are different. The rules on packaging and products are different. The ability to do things in all these different markets.
The word I focus on while we’re in this federal illegality is “harmonization”. Standardization is a great goal and something we are striving for – to be fully standardized in the way we cultivate and the way we do all of our manufacturing. But given some of the state-by-state regulations standardization is not feasible all the time. But harmonization is, where we have consistent ways we do things. We have best practices, standard operating procedures, things like that.
So, that’s very doable and how we’ve been building things for a number of years.
On your question of cultivars and the number of strains, I think there’s a balance. On one hand we want to drive towards consistency where we’ve got our core portfolio of products and brands that are available in all of our markets. On the same token this industry still operates a bit regionally, state-by-state. We do want to combine having that national programming to get economies of scale, and that consistency to build those brands.
We also need to be locally relevant in each of these markets. California operates much differently than New Jersey. We need to have local relevance in each of those markets.
Grown In: So, talking about what’s going on with the federal government, President Joe Biden requested his agencies to reschedule cannabis. That could result in either a small or somewhat big change in how the feds regulate weed. How is Curaleaf preparing for those potential changes?
Darin: We are very encouraged that President Biden is following through on some of his campaign promises to address federal reform. I think there are still a lot of questions to be asked in terms of what the law that gets passed will look like, what descheduling or rescheduling looks like. The timing of the different things.
I would say we’re planning for all scenarios. In the more immediate term being able to get SAFE Banking passed to get basic protections and have access to the capital markets and banking will certainly be a very positive movement from what we’ve been dealing with for the last number of years. There’s some other major implications including rescheduling to remove 280E, which would benefit the industry. We’re hopeful to see that happen in the near-term future.
Longer term, I think that we don’t know what the time horizon is, things like interstate commerce and if that affects laws regulating cannabis, we’re doing things to prepare for that future in the way that we operate the facilities, setting up a more national footprint.
We’re also working on the realities of today. We’re still operating within state borders. I think it’s a balancing act between executing on the laws as they stand today while also forecasting what the market will look like 3, 5, 10 years out.
Grown In: You were talking earlier about maturing markets. For instance Michigan and Massachusetts, operators in both states are telling me about $250 pound wholesale flower prices are becoming standard there. What is a sustainable wholesale price for a company like yours?
Darin: That’s too much of a general question to answer across markets. It very much depends on market positioning, market share. There is no rule of thumb necessarily.
I would say a general law in today’s world of having to operate state-by-state and some of the tax structure and some of the compliance costs, having to sell wholesale pounds at $250 is not a recipe for operating a highly profitable business. Part of what we’re seeing take place [in] Michigan and Massachusetts, the reality is those are very different markets, in terms of some of the history.
The reality is Massachusetts is a market we know well, it’s where Curaleaf got its start. It’s a medical market, with limited licenses, the supply and demand was very healthy, but over time with adult use licenses and new supply coming on line, the markets have matured where there’s no shortage of supply in the market. You have a lot of new brands with companies that have entered from out of state or new brands.
You also have neighboring states that have continued to regulate adult use. Before in Massachusetts you’d see a lot of people come from out of state to purchase adult use cannabis, as other states legalized some of that diminished.
I think there’s natural laws of economics that’s taking place with supply and demand that I do think ultimately will settle into a rational place. We’re seeing that on the West Coast which has even more challenges than Massachusetts or Michigan. You’re seeing the market regulate itself. You’ve got the operators that are not operating strong businesses, you’ve got plant count decreasing, things like that.
I think over the course of time the laws of economics will play out in all these markets.
Grown In: You mentioned California. Do you view projects like Glasshouse’s multi-million square foot grow facility as a competitive threat?
Darin: Not necessarily. I think Glasshouse is making a big bet on interstate commerce at some point. Being able to serve the California market is a big opportunity. It’s a $5 billion market today with a lot more opportunity to grow as the business flows from the illicit market to the legal market over time.
But to build that many millions of square feet of greenhouse is clearly an expectation of interstate commerce at some point.
Look, I think I don’t view Glasshouse or any one company as a threat. I think companies have different strategies and time horizons and views on how ultimately what that might look like in a more nationalized industry. And that will be inevitable ultimately. None of us have a crystal ball on how all that will play out. If we did, you’d see the industry look a lot different already. You’ve got a lot of different companies making bets and plans on what this industry looks like 5, 10 years from now.
Grown In: I’m going to rattle off some states, and for each one give me a few words on how you view the opportunity there.
Michigan
One of the biggest markets in the country. Great cannabis history dating back to the caregiver program that existed prior to the regulated program. Has a tremendous cannabis culture, a huge demand for quality cannabis and brands. It has certain elements that are more consistent with the West Coast in terms of the lack of barriers to entry and things like that and the amount of supply available.
We are there, committed to Michigan, it’s a huge opportunity, and think there’s a big opportunity to grow brands in Michigan.
Illinois
I think Illinois was the model in many ways for what an adult use program could look like, and really how the medical program started with a merit-based application process that yielded some very strong companies and entrepreneurs and that. I think it’s no accident that many of the top companies in the industry came out of the Illinois medical program. I’m proud to be part of that group.
I think Illinois has a lot more potential on the adult use side with the new social equity licenses that are going to be issued here in the course of the next year. Illinois has needed more distribution, more diversity, all of the things that were intended in the adult use law but were delayed due to litigation.
Illinois is a $2 billion market today, it still has a lot of growth potential especially with Covid behind us and all the tourism industry in Chicago. Definitely bullish on Illinois with more distribution opening up.
New York
Curaleaf was one of the founders of the medical program there, one of the RO’s there. I think we’ve been the largest player in the medical space. We are very looking forward to this adult use launch. We view it as a big enough market that there’s a role to play for everyone. The new social equity license holders that we’re extremely supportive of and working with many of those companies as well as the legacy medical operators that have the capacity, experience, and products available to serve the adult use markets.
It doesn’t have to be one or the other. I think there’s a large enough market for all of us to participate and we are working closely with the regulators and the state. I think New York can be a great example of what a great adult use launch can look like.
Florida
Still one of the fastest growing markets. It still has a medical market, like 700,000 patients. A really successful medical program. It’s successful for patients, a wide variety of medical products available. We’ve got strong companies that have operated here. I think it’s suited very well for whenever adult use happens, hopefully in the next few years.
Florida with 40 million tourists and the amount of demographic shift, relocating here from the Northeast and the Midwest. I think Florida will ultimately be the biggest market in the country. Ultimately adult use will even surprise some people in terms of how big it can be.
California
Unfortunately, due to a variety of factors, the adult use program has not been set up for success. You’ve got various things that have not been set in place. The tax structure set up that has to compete with the most thriving illicit market in the world, was not set up for success. It’s not a level playing field and it’s not an environment that encourages consumers to go purchase in the legal market versus continuing in the illicit market.
I think the state has recognized that and they are now making some changes to enforce the illicit market, to revisit the tax structures, that’s all good things.
The other issue has been that something like 70% of the municipalities in California have not zoned for adult use. So you have 900 dispensaries open in California, it should be many more the geography and number of residents. It’s been an under-distribution of legal cannabis products in many large segments of that state. I think you’re gonna see a positive impact.
Longer term, I think California is still going to be the epicenter of cannabis in the United States and still be a huge opportunity for companies like ours.
Grown In: Pure play cannabis companies tend to have an end goal of acquisition by some CPG, tobacco or beverage company once U.S. federal law changes. Is that the end goal for Curaleaf?
Darin: We are always open and looking at strategic opportunities across adjacent industries and everybody’s talked for years about whether it’s going to be pharma, or liquor, or tobacco and those types of things. It’s incumbent on us to be always evaluating where there might be great opportunities to partner and to look at those things.
Our immediate focus here is executing on the opportunity in front of us. I do think as we get on the other side of federal reform, and there are already a lot swirling around because other industries have been interested in getting into cannabis but have not been able to because of federal illegality, that’s going to change as soon as we get some federal reform.
There’s a lot of opportunity for growth as we continue to optimize the business we have.
