Buckle in to hear insights from one of the pioneers of the global cannabis industry.
Conor O’Brien, Prohibition Partners
28th May 2021
Patricia: Hello. That’s almost a little bit anticlimactic after all that music and the exciting? So, hello, everybody who’s watching. My name is Patricia Nilsson. I’m a reporter with The Financial Times. I cover the cannabis industry. And I’m here with Boris Jordan, who is the chairman and founder of Curaleaf. Hello, Boris. How are you doing today?
Boris: I’m very well, Patricia. Glad to be here. I hope you’re well too.
Patricia: Yeah, I’m well. I’m well as well. It’s kind of funny, because it feels like you’re joining me live in my kitchen.
Boris: Well, I’m not in the kitchen, but I’m in a home office.
Patricia: Okay, good. Well, so let’s get started. We have a lot to talk about and not that much time. And one of the questions I wanted to ask you today to kind of go with the theme of this whole session is Curaleaf, obviously, made this very interesting acquisition into EMMAC, you’ve entered Europe. And so, I wanted to ask, why Europe? Why now?
Boris: Well, very similarly to the way we approach the US market, we were early arrivals. We started buying companies across the United States back in sort of 2014, ‘15, ‘16 and onwards. And the reason we did was we felt that you can’t build either national or global brands unless you have the distribution capability and manufacturing capability in those markets. And so, I always feel that the cost of these businesses, at least in my 30 years of experience, go up as these industries grow, and the cost starts to rise dramatically. And so, getting in early really, really gives you, 1, a head start from the development and knowledge of the market, but 2, it also get you in early before the prices go up.
And so, we were able to enter Europe at less than 3% of our market cap, 2.8% of our market cap. And we were to raise financing at the European level, in order to be able to finance the expansion of that business. And so, we de-risked it a little bit at the same time, and we got in early. And so, we’re very, very excited about that. And we’ve put our flag into the European market. We’re now learning that market, as we build the business. And we really feel that the European market will be a contributor 23, 24, 25. And let’s be honest, European economies is bigger than the US economy, when you look at as a whole. It has its challenges, given the structure of the European Union, but it is a very large market. We estimate the cannabis market to be over $200 billion in Europe and the areas around Europe, if you include Israel, Morocco, and other countries, Eastern Europe, Ukraine, they’re looking to legalize. And so, we thought it was a very a big enough opportunity that could not be ignored. And we want to be the largest player in the world. We are now. And we will want to maintain that position, so we wanted to get into the European market.
Patricia: And can you, as you mentioned, the European market is quite, quite big, quite diverse. And can you walk us through which markets in Europe are in active phases of new medical programs? I mean, do we have any adult use programs? Where do you potentially see that happening in the next few years?
Boris: Sure. So, Europe is largely today in medical market. There are some initiatives in both Switzerland and in Holland for adult use, but I’ll address those later. The biggest markets in Europe (and I’m going to include Israel in that) are Germany, UK, Israel, and Italy today, in terms of size. And those are still quite small markets. I mean, Germany is probably 200 million euros. Israel is probably the biggest out of those 4. But Spain is reviewing a program now, Portugal has just approved the program. And so, we feel there’s certainly CBD programs in places like Poland and Italy. There’s also a medical THC program, cannabis program in Italy that’s largely controlled by the military, actually, in Italy. But we feel that, like the United States, a lot of these countries will start to liberalize and expand these programs. And so, they will start to grow. And we’re seeing that in the UK actually. We’re seeing very, very strong month-on-month, almost 40% growth in patient growth in the UK on the cannabis side. And that really is starting to reflect a little bit of what the US looked like when we got started in in 2016, 2017 with real markets there.
So, we’re excited about the progress that’s being made. Yes, the Europeans are taking a more careful approach to this and a much more pharmaceutical medical approach than the United States did. But that’s fine too, because we think that the R&D that’s being done in order to provide these products is actually making these products safer, and it’s giving them more knowledge base, not only for the consumer, but also for the regulators about how to build the industry around cannabis. And so, we think it’s an exciting market, and we’re more than pleased that we made the decision that we did.
Patricia: You mentioned UK. Obviously, I am in the UK, I talked to cannabis companies here on almost daily basis. And when you talk to cannabis companies here, they’re actually… they complain quite a bit that there’s too much regulation or not too much. I mean, it’s the wrong type of regulation, and that it’s just hampering the rollout of medical. And some are arguing that the UK has medical cannabis industry is a little bit under threat, unless we see a new regulatory framework. Do you share those thoughts, or do you think that time will [inaudible]?
Boris: So, if you’d ask most American companies, they would complain about the same thing. “The regulations are opaque. We can’t even bank in our own country. We have to raise capital outside of the country.” So, there’s lots of issues. We have to, in Europe, it’s what I call a capital light model. We can build out our facilities in Portugal and Spain, and then we could distribute the product to Germany and the UK, we can export. Whereas in the US, in every single State, we have to grow, we have to manufacture, and we have to sell, and we cannot cross even State lines in United States.
So, I think that, listen, there’s a tremendous amount of stigma around cannabis. The facts are the facts. The facts are that cannabis has been used for medicinal reasons for over 1000 years. They found cannabis and in Egyptian tombs. It was certainly used by American Indians. We know that. And it was a stigma that was created. It’s a non-addictive product. It’s healthier to the human body certainly than opiates, and certainly than alcohol from a recreational perspective. And it was a stigma that was created by big business, particularly the alcohol companies and the pharmaceutical companies in the 1920s. And then again, in the 1970s, because it was a competitive biological plant, that you couldn’t really control who grew it. And so, they wanted to control these markets. And so, they lobbied their way to get rid of cannabis.
The fact is, is that the science is on our side. And I always believe that science wins. And I’m absolutely sure that we’re going to see liberalization in all the European markets over time. It just takes time, and one has to be able to play the long game, has to have the capital structure to play the long game. But you do get paid, because what happens is that you get into the market, and you really get to know it really well from the inside from early days. I mean, just the same way, I’ve operated in emerging markets my whole career. And when I was very early on, I went to Russia in the early 1990s. And the reason we were successful there was because we were there early, way before any investors came to Russia, before there were any stock markets or anything like that. We actually wrote the laws for the first stock markets. We built the first markets. And because we did that, we had a head start on everybody else when they arrived. And we did very well for that reason.
It’s the same thing in cannabis. We got in at the ground floor early on. A lot of frustration, a lot of difficulty working with the regulators. But you have to have the patience, the markets will come. And the reason they’ll come is because just let’s look at the illicit markets. The illicit market in United States was over 100 billion. In Europe, it’s over 100 billion as well. These are facts. And so, people are using cannabis today. And the smart strategy is to legalize it, tax it and make it safe by regulating it, rather than having people use illicit products. And I believe that’s a trend that’s taking place across the world in cannabis. And I think it’s one that’s going to take place in Europe as well. And it’s already taking place in Europe. As I said, you’ve got Switzerland and Holland, looking at adult use programs and their countries. And once the first country makes that step, it’s going to be like a domino in Europe. It’s just going to escalate very, very quickly. And so, that’s what we’re really there for. We’re there to be on the ground to learn, to get to know the regulators, for them to get to know us, to learn how to work with them, and then we’re going to start building our business on the back of it.
Patricia: Do you think we’re going to see more North American companies come in and invest in Europe, or do you think the European market is going to be relatively independent, or are they going to [inaudible]?
Boris: I think that eventually, they will come once the program is bigger. A lot of the US companies are capital constrained. But more importantly (because capital you can find), they don’t know Europe very well. I mean, I’ve spent my whole adult business career in Europe, whether it be in Eastern Europe first, and then in Western Europe through my involvement in TELUS city, the data center business. And so, I worked in multiple countries in Europe. And so, I feel a lot more comfortable. I live there for 27 years. So, I feel very comfortable in Europe to me. As matter of fact, to me, the United States when I came back a few years ago was more foreign actually than Europe, because I built my whole adult career in European markets.
And so, it was a logical progression for Curaleaf, because 1, we had the capital, and 2, we understood Europe. I understand Europe, I think, a bit better than a lot of my colleagues. And I felt more comfortable making that entry into the European market. Albeit early, but I felt a lot more comfortable that we could build it. And I knew, from my experience, that if you really want to build a robust business, you have to be in there early and learn the markets. You just can’t arrive into Europe and say, “Hey, I’m this big American company. We’re going to rule the roost here. That doesn’t work in Europe. It’s a very nationalistic place, not only from an EU perspective, but much more so on an individual country perspective. And you’ve got to play by European rules, not by American rules.
And so, that’s why I’m here. That’s why we kept the European management team in place. Because we want to build it within the European Framework, rather than coming in as an elephant and trying to shop and try to teach people how to do it.
Patricia: That’s very interesting. And so, tell us, why am EMMAC? Why did you choose EMMAC? And what is this? What’s been going on there now when it transitions from EMMAC to Curaleaf International?
Boris: Well, for 2 reasons. The main reason, we’re actually going to keep, EMMAC is going to be renamed Curaleaf International. But we’re going to keep the management team and the business completely ring fenced from the US business. There’s actually a legal reason for that too. The European business is totally legal within Europe, whereas the US business is legal on a State-by-State basis, but has this quirkiness where it’s still not legal on a federal basis. That could put the European business under threat with regulators. And so, what we did was we structured this deal from our holding company in Canada, where it’s absolutely legal, Federally legal in Canada. So, we bought the company from there, and we capitalized the European subsidiary with money out of Europe. So, there is no money flow between the US companies and the European companies. So, it’s going to be run as an independent company with its own board, its own management team in Europe, run by Europeans. And I will be there, like I am at Curaleaf as the founder, I’ll be there on the board as chairman mentoring the team in the way we build it out.
And of course, there will be some cross fertilization and R&D. There’ll be some branding that will be lumped together and some marketing that’ll be done together. But we’re not going to have any kind of financial integration from that perspective, and we’re really going to run the business. I mean, Antonio is going to continue. He was the founder of EMMAC, and he’s going to continue to be. He’s very highly incentivized, and he’s going to stay as the CEO of that business, and he’s going to run that business in Europe separately. So, that’s the way we’ve decided to build it. And frankly, I think it’s the right way. I think many American companies sometimes have made mistakes when they’ve gone abroad and trying to bring their business practices everywhere, and it doesn’t work. And since I actually started my career in Europe and spent the bulk of my career in Europe, I see it a little bit differently. And so, I really want to build a European Curaleaf business, which may be a bit different than the US business.
Patricia: And so, what’s the Curaleaf US bringing to Curaleaf? International. So, I mean, EMMAC, they’ve already operated in space, they were doing good job, what can they learn from you? Or how [inaudible]?
Boris: We brought capital, first of all, or access to capital. I mean, I’ve been in the capital markets for 30 years. So, I mean, EMMAC had never had an investment the size of the one that we did right away. We did $130 million placement before we even closed the deal in order to finance the development of that business. So, we brought that.
We also bring a tremendous amount of knowledge because we’ve been doing this longer than they have. So, the base business practices in cannabis, the knowledge of the plant, the science behind the plant, a lot of the R&D work, a lot of the products that we develop for the medical market in United States, we can now share with EMMAC or Curaleaf International in the European markets. And so, I think we bring that as well. And so, I think it was they needed our branding. We’ve invested a tremendous amount of branding, our packaging and things like that. So, we bring a tremendous amount of knowledge to EMMAC in the business, which they can lean on in building up the business. And they, of course, from our perspective, bring us a footprint in Europe, which is something we really want it to happen. And so that was the reasoning behind it.
And again, it wasn’t our priority. Still continues to be the United States, there’s no question. We see the growth areas exponential over the next 30 years. But my vision is, as we see growth start to taper in the United States, at least from these hyper levels that we’re seeing now, I think there’s going to be growth for a long period of time in the sector, but at least the hyper growth, we’re going to start seeing that kind of growth in Europe. And so, it fit really well in terms of my long-term plan for the development of the business that we get into the European market. So, just as I think competition starts building in the US, I think you’re going to start seeing the European market opening up, more countries going recreational, more countries building robust medical programs. And don’t forget, Europe also gives us a landing spot for Egypt, which is considering this Morocco, which is considering this Asia, which is considering it. So, it really acts as a hub for us. And looking at the cannabis industry, not only in Europe, but also outside of Europe.
Patricia: And you mentioned this 130-million investment. Can you tell us a little bit more about that? Why and who? Who are these people and what are they bringing?
Boris: It’s confidential. It’s a very well known, very large investor in Europe who’s invest a lot. But we have a confidentiality. We’re not allowed to disclose it. They wanted that. But it’s a very large institutional player that’s made investments in all different types of industries in Europe. And they are big believers, they are invested in Curaleaf. Proper as well. And so, they really believe in the industry. They believe in what we’re doing. And they’ve seen the success that we’ve had in United States. And so, as a matter of fact, in many ways, they were pushing us in Europe as well. They approached us and said, “Have you guys looked at Europe?” And we had known EMMAC, because I had an investor at EMMAC through investment that I have, a very small investment, but I was an invested in EMMAC. And so, they said, “We would be very keen on backing you guys on a European venture.” And so, we kind of started looking at it more seriously because of that. And then when we did find the target eventually to acquire, which we felt was a very good one because we liked Antonio, we liked this team, and we liked the way they build their business, we approached them and said, “Would you guys be interested in investing in the business?” and they said, “Yes.” And so, that’s how the transaction came about.
Patricia: Okay. And when we talk about Europe, can we get a bit more granular in terms of which countries are going to lead the way when it comes to further regulation? It will be great to kind of have the where is CBD interesting and where is medical? And what are we seeing in adult use?
Boris: So, CBD is pretty widespread to be honest through all of Europe. So, almost every country in Europe now allows CBD with very low levels of THC, negligible levels of THC. So, there are shops all over Italy, there are shops everywhere. You can buy it at booths. You can buy it all over Europe you can buy CBD products. So, the CBD market is fairly robust and growing. But CBD as a product in and of itself is effective to some extent, but nowhere near some of the other cannabinoids that you have within the cannabis plant, medicinal cannabis. So, CBD, CBN, CBG mixed with certain dosages of THCv, THCa, and THC really bring about the medicinal properties in the plant.
And so, where we see there, as I said, were seeing the UK program starting to accelerate in terms of patient growth. And we’re quite excited about that. It took a while, but it’s now starting to accelerate. Europe slowed down and Germany slowed down a little bit during COVID. But now as its reopening, we fully expect that program to start accelerating as well. There’s also a lot of talk in Germany right now about a path to adult use. With Angela Merkel stepping down in September, there’s quite a lot of debate within Germany as to whether or not they should move that market into an adult use market. And so, we think so. I mean, Spain also just launched a study in a commission to study the international medical programs and find the structure for Spain. I mean, Spain is one of the largest cannabis, illicit cannabis their population in the world. And I mean, you just have to walk down the beach in Barcelona and that’s all you smell is this cannabis. So, it’s an obvious one for them.
The other thing is you have to remember that it’s very interesting. We’re being sponsored by prohibition partners, because if you remember prohibition in the United States, alcohol prohibition in the United States, the reason it was lifted when it was because of the Great Depression. And tax revenues were incredibly, incredibly important. Now, you have this massive illegal market that’s run by criminal organizations all over Europe, because of this very, very stupid, in my opinion, law of prohibition on cannabis. And why not bring it out, regulate it, and tax it? It creates a massive tax base for the governance and after the pandemic. Because as we all know, economies are struggling. Cannabis industry in the United States is number 1 hirer right now of people. It’s the fastest-growing industry in the United States at the moment, and it hires more people than any other industry at the moment in the United States. I can tell you that Curaleaf in the last 3 years has gone from like 300 employees to 5000 deployments. And most of them have been hired in the last 12 months. So, it’s an incredible pace of hiring that’s taking place.
And Europe has an unemployment. And Spain, particularly amongst its youth, it has like a 25% unemployment rate. I think it gets as high as 40% in certain regions. So, if you allow the cannabis industry that has a natural customer base already that’s using it to come out and become a legitimate open business, I think that you could solve 2 birds with one stone. 1 is it gets rid of the criminal organizations that are doing this. 2, it’s going to employ the youth in the industry because the youth love this industry. I can tell you that. And 3, it helps with the economic issues in the country with taxation. So, it creates a whole new industry from a taxation perspective.
So, to me, it’s obvious. I mean, in the United States, cannabis for medical reasons polls that 93%. The United States is maybe the most divided country in the world now. There’s 1 issue that the country is united on. Really, it’s just it’s funny, but it’s cannabis. Every cannabis initiative is passed with a massive bipartisan vote in every single State. The only thing holding it back is the old war on drugs, which was misguided and funded by alcohol and pharmaceutical companies. Well, now alcohol is flipped, the alcohol industry is flipped because they’re under threat. Every State in the United States where adult use cannabis has been legalized, today, cannabis tax revenues are substantially higher than alcohol revenues, and alcohol use has substantially dropped in every one of those States.
So, it’s something that they realize now that the genies out of the bottle and us they have to embrace because they want to get into the business. So, now, the alcohol companies were lobbying for the legalization on a Federal level of cannabis. The same exact thing is going to happen in Europe, in my opinion. And eventually, as soon as synthetic cannabis comes around, you’re going to see pharmaceutical companies jump on the bandwagon as well, because it’s an incredibly healing plant from many perspectives. So, I think that the genies out of the bottle, as they say, I think you can’t turn this back now. And I think it’s just a matter of getting over some of the stigmas and getting some of the politicians to stand up to big pharma and say, “We are going to legalize this.” And I think that’s the last impediment that surely there.
Patricia: And when you put it like that, one could ask, “Why is it taking so long?” But as you also mentioned, the reason probably stigma. So, if we go back to one of the examples, you mentioned, I’m used to this conversation happening in Germany right now, I mean, in terms of timelines, how quickly do you think it will take for… I mean, I’m assuming you think that Germany will one day legalize adult use, when do you think that will be?
Boris: I think that the elections in September, I think the debate starts soon after, I think you could probably get a law passed in ‘22. And then I think, after they write the rules, it probably gets washed in ‘23. So, I think realistically speaking, you could get adult use cannabis in Germany, and in 2023, maybe towards the back end of it, but I think you could. And if Germany goes, there goes the rest of the Union, in my opinion. But I think Spain is very seriously considering it. France is, considering it. France has got a medical program under test. We’re involved in that Medical program as we speak. And so, I think most of these countries, I mean, Israel probably wouldn’t be adult use now. It has a very robust MediCal program. It wouldn’t be adult use, if not for the fact that they can’t form a government. Of course, the current issues plaguing Israel are going to obviously slow that process down, because not a priority. I think also, Patricia, COVID slowed a lot of things down. COVID slowed because regulated… I mean, let’s be honest, these businesses are regulated by the departments of Ministries of Health in most countries. And those ministries have been backlogged with COVID issues. I mean, they can’t even get, in many of these countries, they can’t even get vaccinated. So, cannabis is definitely not at the top priority for them at the moment.
But I do think that you’ll find that that will change very, very quickly as we come out of this COVID situation. And I think you’ll see an acceleration in Europe, of Ministries of Health, looking at cannabis and starting to liberalize certain aspects of it around it. So, I’m very, very optimistic, but it’s not going to be fast. It’s going to take a little bit of time, because Europe is behind the United States on this. But if the United States, for instance, passes any kind of legalization legislation over the next 2 years, I think, almost very quickly after that, we could see legislation in Europe on that basis.
Patricia: To kind of take a step back and talk a little bit about the whole industry. So, I mean, Curaleaf’s business model, at least in the US, is quite rapidly shifting from medical to recreational. And so, I wanted to ask you, how does Curaleaf but the whole industry managed this overlap or merger between medical and recreational? Because they’re completely different things in a way and have different audiences and different markets. And I think if you look at more conservative voices, there is a slight hesitancy towards medical cannabis, perhaps as well, because it is felt that this is something that is being lobbied for to actually achieve recreational legalization. And so, how does an industry that kind of straddling both, how do you manage that?
Boris: Well, I think we have to deal with first the hypocrisy of all of this. The hypocrisy is, there’s over $100 billion illicit market in Europe today? So, politicians in Europe, your populations are smoking a lot of cannabis. And frankly, they’re buying it. It’s unregulated. It’s unsafe. You don’t know what’s in the various products that are being made in basements. And you’re sponsoring criminal groups. So, let’s be honest about what’s actually happening today in Europe and the United States, for that matter. At least in the United States, we’re dealing with it by reducing the illicit market, an increase in the legal regulated market through the programs that are there today.
In Europe, however, it’s an early stage, but the fact is, the illicit market is booming in Europe in every single country. Eastern Europe, Western Europe, Northern Europe, Southern Europe, everywhere, there’s a lot of illicit cannabis. And so, we have to deal with the hypocrisy from a political level. They know it’s there. They’re allowing it to happen. There’s virtually no arrests taking place in the sector anymore, because it’s not accepted from the population. So, let’s deal with that first.
The second thing is, I think that the industry will be split into eventually into 3 categories. There’s going to be an adult use category, which will be regulated in terms of level of THC, etc., etc., just like alcohol is. Then there will be a nutraceutical market, which will be something between the pharma market and the recreational market. And that’s kind of like vitamins are right and additives and dietary supplements and things like that. And then there will be a pharmaceutical market. The pharmaceutical market, at least in the US, pharmaceutical companies, Europe is changing a little bit on this front, but in the US pharmaceutical companies largely work with synthetic products because they need to have a stable supply chain and they want to make sure biologicals, a plant can grow depending on its climate differently every time it grows. Even with all the DNA modification and genetics that they’ve done, you could still get… and you could get bad weather. So, you have a supply chain that’s not stable. Whereas in pharmaceuticals, the they need supply chain. That’s what most pharmaceutical companies work with synthetic products. And there’s a lot of money going into synthetic cannabis now in Europe and in the United States, a matter of fact, maybe more in Europe for development of the pharmaceutical levels, pharmaceutical products.
So, I think that that’s how it’s going to look. And if you look at Curaleaf, Curaleaf really is working on wellness. So, wer’e in the nutraceutical business in the US, and we’re in the… and then the adult use market. We’re not at the moment, nor do I foresee us anytime soon, getting into the pharma. Now, we may be pushed into form in Europe, and we are looking potentially at making some acquisitions in that space. But at the moment, Curaleaf strategy is very much wellness, creams, nutraceutical products, using cannabis and…
Patricia: I’m very sorry to interrupt you, but I’m getting some threatening messages here from the moderator. We’ve run out of time. But I do hope that this is conversation that we can continue some other time and hopefully that more people can hear it as well. Thank you very much for taking the time to speak with me.
Boris: It was great, Patricia. Thank you.
Patricia: I’ll speak to you soon. Bye.
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