The Regulatory Landscape with Canopy Growth

David Culver, VP, Global Government Relations at Canopy Growth joins Tobacco & Cannabis Analyst, Vivien Azer to discuss David’s deep involvement in the U.S. Cannabis Council. Join us to hear David’s perspectives as a lobbyist for Cannabis reform on the lack of regulatory progress at the federal level, the impact of the Biden administration, the opportunities he sees at the state level, and what to watch for the remainder of 2022. Press play to listen to the podcast.

Transcript

Speaker 1:

Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Vivien Azer:

Hi, this is Vivian Azer, Cowen’s beverages, tobacco and cannabis analyst, doing our South by Southwest podcast. Delighted to be joined by Canopy Growth’s VP of government relations, David Culver. Hi, David.

David Culver:

Hey, how are you? Great to be with you.

Vivien Azer:

So great to see you. We just had a fun panel, so I’m excited to follow up on that. One of the things that you’ve talked about, obviously, you’re a lobbyist for the industry.

David Culver:

I am, yes.

Vivien Azer:

Explain to our audience what that means.

David Culver:

Well, I’m one of the many advocates that the industry has hired. Individual companies, either in-house or as a contract situation that is in Washington, DC, that is in state capitals, that is really advocating for all things cannabis reform. And that’s what I do all day long, every day.

Vivien Azer:

And that’s on the heels of spending 16 years doing that for the alcohol industry, but it’s got to be a night and day experience.

David Culver:

It is night and day, although there are a lot of parallels. The alcohol industry, I think the model, the regulatory model that the alcohol industry has, is going to be something that’s very similar to where we end up, eventually, with cannabis. There’ll be a fairly light touch on the federal level. And then of course the bulk of the regulations will be left to the states to deal with. That’s how alcohol does it. That’s how I spent my career for 15 years, was in those lanes. So I’ve been able to take a lot of those parallels and I’ve been able to use them as we’re starting to think about shaping state markets. And of course, what that federal overlay will eventually look like.

David Culver:

We also have, in the beverage alcohol space, as you know, because you follow all this so closely, we’ve got a lot of these companies that have invested in the cannabis space, including my company, which Constellation Brands has invested very heavily into Canopy Growth. So there are some parallels, but I’d say the bulk of my day is vastly different from what I was doing in the beverage alcohol space.

Vivien Azer:

I mean, I think that federal overlay is so important. If I had to guess that’s probably the biggest divide. So how do you build consensus in cannabis, because it exists in alcohol?

David Culver:

Yeah, it does. And it’s one of the things that when I started in the cannabis space, I immediately saw that we needed to unify better. We needed to come together underneath one big umbrella, and this is everybody under the sun. We needed to be making sure that all of the armies that are out there advocating for cannabis reform are marching in the same direction. So, through relationships that I had developed right off the bat, we began and we developed and we actually stood up about a little over a year ago, the US Cannabis Council, which is a trade association inside the beltway. We have built it out over the last year, and the whole idea there is to create unity within the industry.

David Culver:

The reason why this is so important is that when I did work in Washington and/or state capitals, if the industry was divided, the politicians never wanted to touch it. It doesn’t matter what the issue was, whether it was Sunday sales or a tax reduction, if the industry was at odds with one another, then the legislation was going to fail. If we were united, then I think, well I know, that we have a real opportunity for success. So building that coalition out is something that I spend a lot of my time on. And that’s really what this is.

David Culver:

We’re going to have to deal with the lowest common denominator, of course, because we have so many different groups underneath one umbrella, but I’m excited about what we’ve done with USCC. I’m excited about some of the pro bono positions that we put on the board. Last Prisoner Project is one of them, they’re here in Texas and we had a great event with them yesterday. I’m so thrilled with the work they’re doing. Responsibility.org is another. They focus on underage consumption and also traffic safety. Those are incredibly important issues for the cannabis industry. We need to be leaders in that space before we have federal legalization.

David Culver:

Those are just a couple examples. We’ve got many others. I’m excited about the direction that that group is going. And eventually it’s going to be the distilled spirits council of the cannabis space. I’m excited about that. And I appreciate you asking about that.

Vivien Azer:

Well, I’m excited to hear about it too, because Cowen is a corporate sponsor of LPP. It was a great event last night. But making sure that those constituents have a seat at the table, arm and arm with you guys as you’re working to make progress, I think it’s so important. And I think really it validates the purpose that everyone speaks to, but is perhaps maybe a little bit harder to see. And one of the reasons it might be hard to see is because, yes, every talks about social equity when they write legislation, but we haven’t seen it yet. So let’s talk about that in state level reform.

David Culver:

Yeah. That’s been something that states have really struggled with. And I think that the intention when states have legalized has been very good, but it’s really about the implementation. I’ll highlight New York because that’s the most recent example. Everybody in the industry is watching New York State very closely. We’re hoping that they’re able to have first sale in Q1 of 2023, or some point close thereafter. The staff’s working really hard on it and were excited about the work that they’re doing.

David Culver:

But what they announced last week was that, and this is the office of cannabis management, was that the first 100 plus retail licenses are going to people that have had cannabis convictions and/or a family member that’s had it. So this is really an opportunity. It’s a very unique approach. It’s an opportunity by the state to try to create opportunity for folks in New York State that have been living with this burden for the bulk of their lives. So I’m very, very pleased to support this. My company’s pleased to support it. And again, it’s just about, is the state going to be able to implement it properly?

Vivien Azer:

Well, and are you going to be able to find actual candidates for these business licenses? Because in theory, it is nice to find 100 applicants that have a cannabis conviction, but they also have to have a 10% stake in a business that ran profitably for two years.

David Culver:

That’s right. That’s a tricky wicket, that one. Because we’re spending a lot of time talking about what should the involvement be, whether you’re a multi-state operator, whether you’re a large company like Canopy that has the backing of a large alcohol company, a company that has the capital to actually help small business succeed. What’s our role in this that’s appropriate? We don’t want to see, I know from my company perspective, we don’t want to have a figurehead that’s there on the retail side. We want to make sure that this is something that is successful for that individual and for the team of people that they grow, but I do think that the capital question is one that we’re going to have to get right, and one that I think we could be very helpful with going forward.

Vivien Azer:

Yeah. I mean, and that’s not unique to New York.

David Culver:

No, not at all.

Vivien Azer:

We saw coming out of the 2020 election how powerful ballot initiatives are, in terms of driving state level change. And so hopefully there’s opportunities in other new to transition markets like in New Jersey,

David Culver:

For sure. Yeah, new Jersey’s another good one. They were supposed to come online by February ’22. They’re running a little bit behind. This is hard to stand up. I mean, it’s hard to set up a whole new regulatory structure for a whole new industry. Governor’s said, it’s going to be a few weeks on, I think, February 24. So we have a little bit of time left. Maybe he’s a little bit over his few weeks, but they’re getting close in New Jersey.

David Culver:

But if we back up, Vivian, and we think about the states, that’s probably the most important conversation that we can have right now in the cannabis space, because it’s where you’re seeing the most momentum. And coming off the 2020 election, there were five ballot initiatives. They were all successful. That was an incredible amount of momentum that we saw. Then going into 2021, we had seven states that tackled cannabis reform, even more that looked at it. That was an enormous amount of momentum.

David Culver:

2022, we have the possibility again, to have another 5, 6, 7, maybe even more states come online or that’s adult use or expanding their medical markets. So the momentum in the states is something that I could not be happier with, and I think that we are not going to slow this train down in the states at all, because the economic argument is about to come into play. Keep in mind that all these governors right now are sitting on just vast amounts of budget to spend because of the post COVID and the funds they’ve received from the federal government. That’s not going to be the case next year with tax coffers. They’re going to be depleted. So they’re going to be looking for new sources of revenue, new industry.

David Culver:

Cannabis also is exciting because it’s going to keep young people in their state. So there are a lot of states, especially the rural ones that are losing their population, their young population to other states, other cities, and to keep young people around, I think cannabis is a really good way to do it. There was an elected official that I knew very well, that he would always funnel everything through that lens. How do we attract young people? How do we keep young people? And I do think that cannabis is an answer to that in communities all across the US.

Vivien Azer:

Yeah. And hopefully that does drive the momentum, because the momentum that you laid out 2020, 2021, 2022, that’s not been lost on investors at all. I think the big surprise however, was that we got the results of the five ballot initiatives on election night in 2020. We had the Georgia special. It felt like state level momentum was finally going to translate into federal momentum. Where is the Biden administration?

David Culver:

Yeah, well, I absolutely thought that everything in the states was going to translate into federal momentum. I absolutely thought that the post Georgia special election results was going to mean that we had this democratically controlled Congress, White House. We were literally dealt the perfect hand, and that we were going to see significant momentum. But the bottom line is that we haven’t. And the memo that I wrote at the beginning of 2021 to my leadership could not have been further off. It’s one of those embarrassing political memos that I wrote that I wish I could find a trash can for, and it could never see the light of day again.

David Culver:

I think the biggest reason, to your question, that we haven’t seen the momentum that we were expecting is the Biden administration. And I don’t understand why the president hasn’t acted on this yet. He obviously has had a lot on his plate. He’s had to get the pandemic under control. We’ve got just ridiculous inflation right now. We have the situation in Ukraine. These are massive issues that can really suck all the oxygen out of the room politically for any administration. So they’ve got a lot to tackle.

David Culver:

But the president said during the campaign that he was going to decriminalize, he was also going to reschedule cannabis for additional research purposes. We know that he’s not comfortable with the plant. His son had a problem with drugs and alcohol. He also legislated on cannabis for 50 plus years on the war on drugs. And that’s… Not on cannabis, sorry. On the war on drugs. But those are two things that, shaking the idea that it’s a gateway drug and shaking the idea that the war on drugs wasn’t the right thing to do after that many decades of legislating on it, those are very difficult. But his inaction has consequences and the consequences are threefold.

David Culver:

Number one, we are missing the opportunity to keep young people in their states and to create an economic market and jobs. I think that the number of jobs that we could create if we legalize federally would be over a million in addition to the 400 plus thousand that we already have. Number two, is that there are still going to be hundreds of thousands of people that are going to be arrested for cannabis in this country this year. That is just not right. That’s not acceptable. And then number three, there are hundreds of thousands of people across this country that are living with nonviolent cannabis related offenses. And it takes away their opportunity. It takes away their ability to get good paying jobs, their ability to get a mortgage, to get a car loan, things that you and I probably take advantage or take for granted, but they have never been able to do it. And I am not okay with that. I don’t know why the president is, but in my mind, that inaction is just completely unacceptable.

Vivien Azer:

So that leaves us with Congress. I mean, the good news, I guess, is that as more states legalize, there are more representatives. There are more senators where cannabis is a reality for them and their constituencies. So where do we sit there? Maybe let’s start with the house.

David Culver:

Yeah, sure. So first to your point, about more and more red states and their members. As more and more red states come online, they have a direct impact on their federally elected officials. So the work that we need to be doing this year and next to bring more and more conservative states into the cannabis fold, whether it’s medical or full adult use, that is critically important because it will have a direct influence on those conservative members and how they tackle cannabis. So that’s important work.

David Culver:

In terms of Congress itself, I think we need to think about three pieces of legislation that are of primary importance, and I’ll start in the House. The first, and this is all democratically led pieces of legislation. The first is the More Act. We talked a lot about this over the years, you and I, and the media talks a lot about this. This is a bill that was entered as a comprehensive reform package, and it would take cannabis off schedule completely. It has a very robust social equity aspect to it. The regulatory piece of it is not quite as exciting because it just punts it to the tobacco model, in layman’s terms. But this bill passed the House of Representatives under chairman Nadler’s leadership in December of 2020. And we are going to see the House address this bill again and pass it, in my opinion, probably late this month, if not early April. Okay? That’s going to happen in the House.

David Culver:

That bill then will go to the Senate, and almost around the same time we’re going to see Senator Schumer, he’s the majority leader in the US Senate, along with his colleagues, Senator Wyden, he’s the chairman of the finance committee, and Senator Booker, he’s from New Jersey, long time cannabis advocate, the three of them will be introducing a bill in April that was out for public comment in the summer last summer. The industry commented on it. It’s also a comprehensive reform package, takes cannabis completely off schedule. It has a very robust regulatory structure that they’ve spent a lot of time thinking about, including tax rate and all the other bells and whistles that you’re going to need. And that bill is going to get introduced, most likely, per Senator Schumer’s last comments, in April of this year. When that happens, it’s going to get a lot of attention.

Vivien Azer:

Maybe around 4/20.

David Culver:

If they do it on 4/20… Yeah.

Vivien Azer:

It’ll be April for a reason.

David Culver:

Yeah.

Vivien Azer:

Well, maybe for more than one reason.

David Culver:

Well, I do have a game with my staff. We have an over and under on 4/20. I’m taking the over, most of them took the under. A lot of them wanted to take right on. We’ve got a really nice tweed hoodie that the winner’s going to get, so the infamous Canopy Growth tweed hoodies that we give for all of our prizes. But, that bill’s going to get introduced. It’s going to get national attention. And by that, I mean the Today Show and the New York Times and CNN, they’re going to be out there talking about this all day every day, because it’s a really good issue for the party. They know that going into the elections, this is going to help them with their primaries, because it’s a very progressive issue, it’s also going to help them going into the general election and potentially help to stop what should be a pretty significant bloodbath for the Democrats going into the midterm elections.

David Culver:

So they’re using this as a wedge issue. They see it as a winner. Ultimately, I think it goes to the floor and it fails. The Democrats then come back. They will almost certainly lose the House. They may or may not lose the Senate. Although, I’m leaning towards that they will. The Senate’s going to be much closer. And then the question is what do they do in the lame duck? And the third piece of legislation comes into play then. And that is the Safe Banking Act. And the lame duck period, by the way, is that period after the election, until the new Congress takes over.

David Culver:

So the Democrats are going to have to make a decision do we try to do something before we leave? And that would be the Safe Banking Act, which would provide access for those that are legal operators, in legal states to have access to the banks, so we don’t have to do this cash business thing that we’ve been doing for so long, which is dangerous and just horrible from a business point of view to have to deal with it. So, we’re hopeful that that will get done. That’s probably the only thing that we’re going to get done this year, that congress will get done this year. The wild card in all of this is Joe Biden, and I’ll circle back to him.

David Culver:

If he acts on this in any way, shape or form to try to help the party in the midterms, if he decides to decriminalize it, if he even says a word about cannabis, which he hasn’t yet, or if he even puts a person on his staff that is responsible for cannabis, because there is not one person inside the White House responsible for cannabis reform. And I don’t understand that either, but if he does do it, then it’s a very, very different ballgame. And you and I would be having a very different conversation if he had said something this morning.

Vivien Azer:

Yeah. But, to your point, that is an if, and you’ve laid out not a great setup for the Democrats going into to 2022. So if the Democrats do lose the House and possibly lose the Senate, is there any hope for cannabis between ’22 and ’24?

David Culver:

Yeah, I think they’re is, and there is a very courageous Congresswoman from the state of South Carolina. Her name is Nancy Mace and she’s from Charleston. She’s a new member. And she ran on cannabis reform. And as soon as she got into Congress, she started working on cannabis reform and in fact, she introduced the state’s reform act fairly recently. This is a, also, a comprehensive cannabis reform package that would take it off schedule. It establishes a regulatory structure, which she and her staff spent a lot of time thinking about. It expunges federal records. It does a lot of the things that I was mentioning earlier that the White House could do on their own, but her bill also does, to really create opportunity for people of color and to remove that burden that is nonviolent cannabis offenses.

David Culver:

I think Nancy’s bill is going to be important if the Republicans take control, because it’s going to give them a landing spot to have the conversation about it and what’s the reasonable approach for them as a party. She has a low tax rate. That’s a theme for Republicans. It’s a state’s rights bill. That’s a theme for Republicans. She and her colleague representative Dave Joyce from Ohio, they’re leaders in this space in the House. I think we’re going to see some leaders in the Senate pop up, because the electability on this is so good. So I’m not discouraged about Republicans taking control. I think we have a lot more spade work to do with them, but I do think that they’re going to come out of the woodwork and look to work on this issue. And I also think the state efforts that I mentioned earlier are going to drive all this.

David Culver:

Also, on the White House side of things, 2023 could be the year that President Biden decides that he’s going to engage on this and set himself up to use this for his own political gain for 2024. Now, I may be giving his political team too much credit, but that’s what I would do if I were them. Because using this as a midterm election, that doesn’t help him get reelected, but using it going into 2024 will, whether he likes it or not. So basically, I would put together a bipartisan commission, 2023. I would review it. I’d put a 12 month period on it. I would come back in 2024 and I would begin to act. I would decriminalize at the right time politically. I would begin to put the wheels of government in motion to reschedule, because that’s what he is comfortable doing.

David Culver:

And that’s a whole separate topic of conversation, but politically that would be such a winner for him, that I think it would give him an enormous boost in the polls as he goes into what should be a very difficult reelection period for him and his party.

Vivien Azer:

Well, it doesn’t seem like all is lost, I guess, is the message, right? There are certainly a number of different pathways that we should be watching, which I think is encouraging, at a minimum. And to your point, we still have the states.

David Culver:

Yeah.

Vivien Azer:

And that momentum is progressing absent of any kind of federal intervention. So I guess, that’s the good news. Last question for me, you’ve been so generous with your time.

David Culver:

Sure.

Vivien Azer:

Any high level impressions on South by Southwest?

David Culver:

Well, I’ve had just an absolutely fabulous experience here and I’ve met so many people from all across the board. So whether it’s a new app that I’m using to rent cars, or whether it’s somebody that has a new and innovative healthcare technology that they’re bringing to market, I’ve really met just an unusually strong group of interesting people here. All of those people are as interested in the cannabis space as I am in the work that they’re doing and the work that I don’t quite understand. That gives me a great deal of hope and something that I think I will end on a very positive note with you by saying that the world is interested in this. The world wants cannabis. It doesn’t matter what line of work you’re in. And the American public certainly does. We just need to get our politicians out of their own way. And then I think slowly but surely we will get to the point of reform. So I’ve had a wonderful time here and I hope to be back.

Vivien Azer:

It was so great to have you on. This is Vivian Azer, Cowen’s beverages, tobacco and cannabis analyst, delighted to be joined by Canopy Growth’s David Culver, VP of government relations. Thank you, David.

Speaker 1:

Thanks for joining us. Stay tuned for the next episode of Cowen Insights.

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