Canopy Growth Reports Third Quarter Fiscal Year 2024 Financial Results; Achieves Third Quarter of Sequential Revenue Growth across Canada Cannabis Businesses and a Record Quarter for Medical Sales
Canada adult-use cannabis business-to-business net revenue up 9% year-over-year; Canada medical cannabis net revenue up 11% year-over-year
Focused execution drove sustained margin improvement with second quarter of consolidated gross margins exceeding 30%
Canopy USA strategy moving forward; special shareholder meeting scheduled for April 12, 2024
SMITHS FALLS, ON, Feb. 9, 2024 /PRNewswire/ - Canopy Growth Corporation ("Canopy Growth" or the "Company") (TSX: WEED) (Nasdaq: CGC) today announces its financial results for the third quarter ended December 31, 2023. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.
-- Achieved consolidated gross margins of 36% in Q3 FY2024, with Canada
cannabis gross margins increasing to 28% in Q3 FY2024, up from (11)% in
Q3 FY2023.
-- Excluding the impact of the divestiture of the Canada national retail
business in Q3 FY2023, Q3 FY2024 consolidated net revenue grew by 6%
year-over-year. Delivered Q3 FY2024 consolidated net revenue of $79MM
representing a decline of 7% year-over-year.
-- Rest-of-World cannabis revenue in Q3 FY2024 increased 81%
year-over-year, led by continued strong growth in Australia, return to
growth in Europe driven by new products and improved sales execution,
and lapping negative revenue impacts in non-core markets during the
prior year.
-- Storz & Bickel(®) net revenue in Q3 FY2024 increased 54% sequentially
driven by strong sales of the new VENTY portable vaporizer,
traditionally strong seasonal sales, including the most successful Black
Friday sales event in the brand's 20-year history.
-- Free cash flow from continuing operations of $(34)MM in Q3 FY2024,
representing a 57% improvement year-over-year.
-- Cash and short-term investments balance of $186MM as at December 31,
2023. Reduced overall debt by $69MM during Q3 FY2024.
-- Management reaffirms expectation to achieve positive Adjusted EBITDA in
each business unit exiting FY2024.
"This is the dawn of a new era at Canopy Growth. We're singularly focused on cannabis and demonstrating growth across all of our business units. With our Canopy USA strategy now moving forward, we expect to be the first and only U.S. listed company offering shareholders a unique opportunity to gain exposure to the fastest growing cannabis market in the world."
David Klein, Chief Executive Officer
"Our Q3 FY2024 results demonstrate the substantial improvement in profitability and reduction in cash burn compared to the previous year as well as Q2 FY2024. Our right-sized business is consistently delivering profitability improvements as well as sequential growth. These results, paired with our ongoing actions to strengthen Canopy Growth's balance sheet, reinforce our confidence in continued performance along this path for a sustainable, profitable future."
Judy Hong, Chief Financial Officer
(in millions of Canadian Net Revenue Gross margin Adjusted Net loss
from Adjusted Free cash
dollars, unaudited) percentage gross margin continuing EBITDA(2) flow(3)
percentage(1) operations
Reported $78.5 36 % 36 % $(230.3) $(9.0) $(33.9)
vs. Q3 FY2023 (7 %) 3,000 bps 2,700 bps (2 %) 82 % 57 %
-- Canada adult-use cannabis business-to-business revenue increased 9%
year-over-year to $23MM in Q3 FY2024 driven by growth in the large
format products of Tweed flower as well as the addition of the Wana(®)
brand edibles to the portfolio.
-- Canadian medical cannabis generated record net revenue in Q3 FY2024,
with revenue increasing 11% compared to the prior year primarily
attributable to an increase in the average size of medical orders placed
by our customers. Canadian medical cannabis revenue increase was due
largely to a shift in our customer mix and a larger assortment of
cannabis product choices offered to our customers.
-- Canada cannabis segment gross margins improved to 28% in Q3 FY2024,
compared to (11)% in Q3 FY2023, driven by lower excess and obsolete
inventory charges, lower operating costs resulting from the cost
reduction actions taken to date, and the opportunistic use of lower cost
inputs.
-- Despite a decrease in revenues compared to Q3 FY2023, Storz & Bickel(®)
net revenue in Q3 FY2024 increased 54% sequentially driven by strong
sales of the new VENTY portable vaporizer, traditionally strong seasonal
sales, including the brand's most successful Black Friday sales event to
date. Gross margins improved to 51% in Q3 FY2024, compared to 45% in Q3
FY2023, driven primarily by lower input costs and a positive shift in
product mix to higher-margin newly launched products.
-- Selling, general and administrative expenses were $54MM in Q3 FY2024,
down from $90MM in Q3 FY2023.
-- Operating loss from continuing operations of $60MM in Q3 FY2024,
compared to a loss of $113MM in Q3 FY2023. Adjusted EBITDA loss was $9MM
in Q3 FY2024, representing an improvement of 82% compared to the $50MM
Adjusted EBTIDA loss in Q3 FY2023, the narrowest loss since FY2017,
driven primarily by lower operating costs resulting from the cost
reduction actions taken to date.
Demand for quality products driving profitable growth of Canada cannabis business
-- The Company held its ranking of top 3 supplier of cannabis flower(4) in
British Columbia and added over 900 points of distribution nationally
for flower in Q3 FY2024.
-- The Company's re-introduction of Wana(®) brand cannabis edibles in Q3
FY2024 has re-established robust distribution nationally and returned
distribution to growth in Ontario driven by key accounts. Wana(®) brand
cannabis gummies delivered top 3 and 4 market share in British Columbia
and Ontario, respectively.
Strong demand for proven flower strains is driving growth in our Rest-of-World medical cannabis business
-- Canopy Growth's Australian medical cannabis business has generated 12
straight quarters of revenue growth.
-- Shipments of proven Canadian strains Kush Mints, Tiger Cake and OG
Delux, and increased engagements with medical practitioners contributed
to growth in the Australian and German medical cannabis markets in Q3
FY2024.
Strong demand for new Storz & Bickel(®) Venty portable vaporizer helped drive strong sequential revenue growth
-- Demand for the new Venty vaporizer, a device priced at the top of the
range for comparable portable devices, has exceeded expectations, and a
second production shift was added to help meet demand. In the critical
holiday sales window of December 2023, the Venty vaporizer was Storz &
Bickel(®)'s best-selling device, selling approximately double the
number of the next highest selling device.
-- The Venty vaporizer has been positively reviewed by leading vape and
vaporizer-related publications and influencers.(5)
-- Black Friday sales were the most successful in Storz & Bickel(®)'s over
20-year history with device sales increasing 55% over the number of
devices sold during the prior year's Black Friday event.
Advancing Canopy USA, LLC ("Canopy USA") strategy with special shareholder meeting scheduled for April 12, 2024
-- The Company expects to file its definitive proxy statement with the U.S.
Securities and Exchange Commission ("SEC") on or about February 13, 20
24 and to host a special meeting (the "Special Meeting") of the
Company's shareholders (the "Shareholders") on April 12, 2024. At the
Special Meeting, Shareholders will be asked to consider a special
resolution authorizing an amendment to its articles of incorporation to,
among other things, create a new class of non-voting, non-participating
exchangeable shares in the capital of the Company (the "Exchangeable
Shares").
-- Upon creation of the Exchangeable Shares, and Canopy USA's acquisition
of U.S. THC businesses, the Company's investors are expected to have an
opportunity to participate in the U.S. cannabis market through Canopy
Growth's non-controlling interest in Canopy USA.
Revenue by Channel
(in millions of Canadian dollars, unaudited) Q3 FY2024 Q3 FY2023 Vs. Q3 FY2023
Canada cannabis
Canadian adult-use cannabis
Business-to-business7 $23.4 $21.5 9 %
Business-to-consumer
$- $11.0 (100 %)
$23.4 $32.5 (28 %)
Canadian medical cannabis8 $15.6 $14.1 11 %
$39.0 $46.6 (16 %)
Rest-of-world cannabis9 $10.5 $5.8 81 %
Storz & Bickel $18.5 $20.2 (8 %)
This Works $8.2 $8.3 (1 %)
Other $2.3 $3.9 (41 %)
Net revenue $78.5 $84.8 (7 %)
The Q3 FY2024 and Q3 FY2023 financial results presented in this press release have been prepared in accordance with U.S. GAAP.
____________________
(1) Adjusted gross margin is a non-GAAP measure, and for Q3 FY2024 excludes $nil of restructuring cost recorded in cost of goods sold (Q3 FY2023 - excludes $2.0 MM of restructuring costs recorded in cost of goods sold). See "Non-GAAP Measures" and Schedule 4 for a reconciliation of net revenue to adjusted gross margin.
(2) Adjusted EBITDA is a non-GAAP measure. See "Non-GAAP Measures" and Schedule 5 for a reconciliation of net loss to Adjusted EBITDA.
(3) Free cash flow is a non-GAAP measure. See "Non-GAAP Measures" and Schedule 6 for a reconciliation of net cash used in operating activities to free cash flow.
4 Unless otherwise indicated, market share data disclosed in this press release is calculated using the Company's internal proprietary market share tool that utilizes point of sales data supplied by third-party data providers and government agencies
5 i) https://vapeguy.com/reviews/venty-review/; ii) https://www.gearpatrol.com/home/a45999382/storz-and-bickel-venty-review/; iii) https://www.vaporizerwizard.com/reviews/vaporizers/portable/venty/; iv) https://www.planetofthevapes.com/blogs/blog/venty-vaporizer-review
6 In Q3 FY2024, we are reporting our financial results for the following four reportable segments: (i) Canada cannabis; (ii) rest-of-world cannabis; (iii) Storz & Bickel; and (iv)
This Works. On December 18, 2023, the Company completed the sale of This Works and as of such date, the results of This Works are no longer included in the Company's financial results. Information regarding segment net revenue and segment gross margin for the comparative periods has been restated to reflect the aforementioned change in reportable segments.
7 For Q3 FY2024, amount is net of excise taxes of $9.7 MM and other revenue adjustments of $1.1 MM (Q3 FY2023 - $10.8 MM and $2.0 MM, respectively).
8 For Q3 FY2024, amount is net of excise taxes of $1.8 MM (Q3 FY2023 - $1.3 MM).
9 For Q3 FY2024, amount reflects other revenue adjustments of $0.3 MM (Q3 FY2023 - $3.7 MM).
The Company also announced that Robert L. Hanson has resigned from Canopy Growth's Board of Directors (the "Board"), effective as of February 6, 2024. As part of the advancement of Canopy USA, and the expected departure of CBI (as defined below) appointed Board members following the creation of the Exchangeable Shares, Canopy Growth is pleased to announce the appointment of two new Board members, Willy Kruh and Luc Mongeau, to the Company's Board, effective as of February 7, 2024.
Willy Kruh - Director, Member of the Audit Committee
Willy J. Kruh CPA, CA, MBA, is a retired Partner and Global (and Canadian) Chairman of Consumer and Retail at KPMG LLP, with over 35 years of experience. As a recognized and trusted, advisor, consultant, and auditor, Willy has been instrumental in shaping the financial landscape of leading consumer packaged goods ("CPG"), retail, food, and beverage, multinational corporations, offering strategic guidance and invaluable insights to industry leaders in North America and globally. Willy brings wide ranging financial as well as consumer and retail industry experience to the Board.
Luc Mongeau - Director, Member of the Corporate Governance, Compensation & Nominating Committee
Luc Mongeau is a seasoned executive with over 25 years of experience spearheading multi-billion-dollar CPG companies throughout North America, including Weston Foods, Mars and Mars Petcare. An established leader with a demonstrated track record of marketing and sales agility, Luc has consistently delivered transformative growth and operational excellence in brand led businesses. Luc brings his extensive experience in business transformation and strategic leadership to the Board.
The Company will host a conference call and audio webcast with David Klein, CEO and Judy Hong, CFO at 10:00 AM Eastern Time on February 9, 2024.
Webcast Information
A live audio webcast will be available at https://app.webinar.net/GZqr9ALP1XV
Replay Information
A replay will be accessible by webcast until 11:59 PM Eastern Time on May 9, 2024 at https://app.webinar.net/GZqr9ALP1XV
Adjusted EBITDA is a non-GAAP measure used by management that is not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. Adjusted EBITDA is calculated as the reported net income (loss), adjusted to exclude income tax recovery (expense); other income (expense), net; loss on equity method investments; share-based compensation expense; depreciation and amortization expense; asset impairment and restructuring costs; restructuring costs recorded in cost of goods sold; and charges related to the flow-through of inventory step-up on business combinations, and further adjusted to remove acquisition, divestiture, and other costs. Asset impairments related to periodic changes to the Company's supply chain processes are not excluded from Adjusted EBITDA given their occurrence through the normal course of core operational activities. The Adjusted EBITDA reconciliation is presented within this news release and explained in the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2023 (the "Form 10-Q") to be filed with the SEC.
Free cash flow is a non-GAAP measure used by management that is not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. This measure is calculated as net cash provided by (used in) operating activities less purchases of and deposits on property, plant and equipment. The free cash flow reconciliation is presented within this news release and explained in the Form 10-Q to be filed with the SEC.
Adjusted gross margin and adjusted gross margin percentage are non-GAAP measures used by management that are not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. Adjusted gross margin is calculated as gross margin excluding restructuring and other charges recorded in cost of goods sold, and charges related to the flow-through of inventory step-up on business combinations. Adjusted gross margin percentage is calculated as adjusted gross margin divided by net revenue. The adjusted gross margin and adjusted gross margin percentage reconciliation is presented within this news release and explained in the Form 10-Q to be filed with the SEC.
Canopy Growth is a leading North American cannabis and CPG company dedicated to unleashing the power of cannabis to improve lives.
Through an unwavering commitment to our consumers, Canopy Growth delivers innovative products with a focus on premium and mainstream cannabis brands including Doja, 7ACRES, Tweed, and Deep Space. Canopy Growth's CPG portfolio features gourmet wellness products by Martha Stewart CBD, and category defining vaporizer technology made in Germany by Storz & Bickel.
Canopy Growth has also established a comprehensive ecosystem to realize the opportunities presented by the U.S. THC market through its rights to Acreage, a vertically integrated multi-state cannabis operator with principal operations in densely populated states across the Northeast, as well as Wana Brands, a leading cannabis edible brand in North America, and Jetty Extracts, a California-based producer of high?quality cannabis extracts and pioneer of clean vape technology.
Beyond its world-class products, Canopy Growth is leading the industry forward through a commitment to social equity, responsible use, and community reinvestment--pioneering a future where cannabis is understood and welcomed for its potential to help achieve greater well-being and life enhancement.
For more information visit www.canopygrowth.com.
References to information included on, or accessible through, websites do not constitute incorporation by reference of the information contained at or available through such websites, and you should not consider such information to be part of this press release.
This press release contains "forward-looking statements" within the meaning of applicable securities laws, which involve certain known and unknown risks and uncertainties. To the extent any forward-looking statements in this news release constitutes "financial outlooks" within the meaning of applicable Canadian securities laws, the reader is cautioned that this information may not be appropriate for any other purpose and the reader should not place undue reliance on such financial outlooks. Forward-looking statements predict or describe our future operations, business plans, business and investment strategies and the performance of our investments. These forward-looking statements are generally identified by their use of such terms and phrases as "intend," "goal," "strategy," "estimate," "expect," "project," "projections," "forecasts," "plans," "seeks," "anticipates," "potential," "proposed," "will," "should," "could," "would," "may," "likely," "designed to," "foreseeable future," "believe," "scheduled" and other similar expressions. Our actual results or outcomes may differ materially from those anticipated. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.
Forward-looking statements include, but are not limited to, statements with respect to:
-- expectations regarding the Canopy USA THC platform, the anticipated
timing of filing the Company's definitive proxy statement and the
anticipated timing, occurrence and outcome of the Company's shareholder
meeting to pass a special resolution authorizing, among other things,
the creation of the Exchangeable Shares;
-- the Company's ability to achieve positive Adjusted EBITDA across its
business units exiting FY2024;
-- an investor's ability to participate in the U.S. cannabis market through
Canopy Growth's unconsolidated investment in Canopy USA;
-- laws and regulations and any amendments thereto applicable to our
business and the impact thereof, including uncertainty regarding the
application of U.S. state and federal law to U.S. hemp (including
cannabidiol ("CBD")) products and the scope of any regulations by the
U.S. Food and Drug Administration, the U.S. Drug Enforcement
Administration, the U.S. Federal Trade Commission, the U.S. Patent and
Trademark Office, the U.S. Department of Agriculture (the "USDA") and
any state equivalent regulatory agencies over U.S. hemp (including CBD)
products;
-- expectations regarding the amount or frequency of impairment losses,
including as a result of the write-down of intangible assets, including
goodwill;
-- our ability to refinance debt as and when required on terms favorable to
us and comply with covenants contained in our debt facilities and debt
instruments;
-- the Company's ability to execute on its strategy to accelerate the
Company's entry into the U.S. cannabis market through the creation of
Canopy USA;
-- expectations regarding the Company's ability to deconsolidate the
financial results of Canopy USA from the financial results of Canopy
Growth upon Canopy USA's acquisition of Mountain High Products, LLC,
Wana Wellness, LLC and The Cima Group, LLC, , Lemurian, Inc., or the
Fixed Shares (as defined below) of Acreage;
-- expectations regarding the potential success of, and the costs and
benefits associated with certain changes to the initial structure of the
Company's interest in Canopy USA that were intended to facilitate the
deconsolidation of the financial results of Canopy USA within Canopy
Growth's financial statements;
-- expectations related to the Company's announcement of certain
restructuring actions and the potential success of, and the costs and
benefits associated with the comprehensive steps and actions being
undertaken by the Company with respect to its Canadian operations (the
"Canadian Transformative Plan") including any progress, challenges and
effects related thereto as well as changes in strategy, metrics,
investments, operating expenses, employee turnover and other changes
with respect thereto;
-- expectations to capitalize on the opportunity for growth in the United
States cannabis sector and the anticipated benefits of such strategy;
-- the timing and outcome of the arrangement agreement we entered into with
Acreage and Canopy USA on October 24, 2022, as amended (the "Floating
Share Arrangement Agreement)", the anticipated benefits of such
arrangement (the "Floating Share Arrangement"), the anticipated timing
of the acquisition of Acreage's Class E subordinate voting shares (the
"Fixed Shares") and Class D subordinated voting shares by Canopy USA,
the satisfaction or waiver of the closing conditions set out in the
Floating Share Arrangement Agreement and the arrangement agreement we
previously entered into with Acreage on April 18, 2019, as amended (the
"Acreage Amended Agreement"), including receipt of all regulatory
approvals, and the anticipated timing and occurrence of the Company's
exercise of the option to acquire the Fixed Shares and closing of such
transaction;
-- the amended and restated plan of arrangement (the "Acreage Amended
Arrangement") dated September 23, 2020 with respect to the acquisition
of the Fixed Shares and the Floating Share Arrangement, including the
occurrence or waiver (at our discretion) of changes in U.S. federal law
to permit the general cultivation, distribution, and possession of
marijuana or to remove the regulation of such activities from the
federal laws of the United States, the anticipated timing and occurrence
of the Company's exercise of the option to acquire Fixed Shares and the
satisfaction or waiver of the conditions to closing the acquisition of
Acreage;
-- expectations regarding the option premium payment made by the Company in
the amount of US$28.5 MM (the "Option Premium") in connection with the
Company's acquisition of an option to acquire the outstanding principal,
including all accrued and unpaid interest thereon, of Acreage's debt
from Acreage's existing lenders, including the ability to, and timing
of, the exercise of such option;
-- the potential conversion of common shares of the Company held by the CBI
Group (as defined below) to Exchangeable Shares, including the
termination of the Second Amended and Restated Investor Rights Agreement
dated April 18, 2019 between certain wholly owned subsidiaries of
Constellation Brands, Inc. ("CBI") and Canopy Growth;
-- expectations regarding the laws and regulations and any amendments
thereto relating to the U.S. hemp industry in the U.S., including the
promulgation of regulations for the U.S. hemp industry by the USDA and
relevant state regulatory authorities;
-- expectations regarding the potential success of, and the costs and
benefits associated with, our acquisitions, joint ventures, strategic
alliances, equity investments and dispositions;
-- the grant, renewal and impact of any license or supplemental license to
conduct activities with cannabis or any amendments thereof;
-- our international activities and joint venture interests, including
required regulatory approvals and licensing, anticipated costs and
timing, and expected impact;
-- our ability to successfully create and launch brands and further create,
launch and scale cannabis-based products and U.S. hemp-derived consumer
products in jurisdictions where such products are legal and that we
currently operate in;
-- the benefits, viability, safety, efficacy, dosing and social acceptance
of cannabis, including CBD and other cannabinoids;
-- our remediation plan and our ability to remediate the material
weaknesses in our internal control over financial reporting;
-- our ability to continue as a going concern;
-- the anticipated benefits and impact of the investments in Canopy Growth
by CBI and its affiliates (collectively, the "CBI Group");
-- the pre-emptive rights and/or top-up rights held by the CBI Group;
-- expectations regarding the use of proceeds of equity financings;
-- the legalization of the use of cannabis for medical or adult-use in
jurisdictions outside of Canada, the related timing and impact thereof
and our intentions to participate in such markets, if and when such use
is legalized;
-- our ability to execute on our strategy and the anticipated benefits of
such strategy;
-- the ongoing impact of the legalization of additional cannabis product
types and forms for adult-use in Canada, including federal, provincial,
territorial and municipal regulations pertaining thereto, the related
timing and impact thereof and our intentions to participate in such
markets;
-- the ongoing impact of developing provincial, territorial and municipal
regulations pertaining to the sale and distribution of cannabis, the
related timing and impact thereof, as well as the restrictions on
federally regulated cannabis producers participating in certain retail
markets and our intentions to participate in such markets to the extent
permissible;
-- the timing and nature of legislative changes in the U.S. regarding the
regulation of cannabis including THC;
-- the future performance of our business and operations;
-- our competitive advantages and business strategies;
-- the competitive conditions of the industry;
-- the expected growth in the number of customers using our products;
-- our ability or plans to identify, develop, commercialize or expand our
technology and research and development initiatives in cannabinoids, or
the success thereof;
-- expectations regarding revenues, expenses and anticipated cash needs;
-- expectations regarding cash flow, liquidity and sources of funding;
-- expectations regarding capital expenditures;
-- the expansion of our production and manufacturing, the costs and timing
associated therewith and the receipt of applicable production and sale
licenses;
-- expectations with respect to our growing, production and supply chain
capacities;
-- expectations regarding the resolution of litigation and other legal and
regulatory proceedings, reviews and investigations;
-- expectations with respect to future production costs;
-- expectations with respect to future sales and distribution channels and
networks;
-- the expected methods to be used to distribute and sell our products;
-- our future product offerings;
-- the anticipated future gross margins of our operations;
-- accounting standards and estimates;
-- expectations regarding our distribution network;
-- expectations regarding the costs and benefits associated with our
contracts and agreements with third parties, including under our
third-party supply and manufacturing agreements;
-- our ability to comply with the listing requirements of the Nasdaq Stock
Market LLC and the Toronto Stock Exchange; and
-- expectations on price changes in cannabis markets.
Certain of the forward-looking statements contained herein concerning the industries in which we conduct our business are based on estimates prepared by us using data from publicly available governmental sources, market research, industry analysis and on assumptions based on data and knowledge of these industries, which we believe to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. The industries in which we conduct our business involve risks and uncertainties that are subject to change based on various factors, which are described further below.
The forward-looking statements contained herein are based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including, without limitation: (i) management's perceptions of historical trends, current conditions and expected future developments; (ii) our ability to generate cash flow from operations; (iii) general economic, financial market, regulatory and political conditions in which we operate; (iv) the production and manufacturing capabilities and output from our facilities and our joint ventures, strategic alliances and equity investments; (v) consumer interest in our products; (vi) competition; (vii) anticipated and unanticipated costs; (viii) government regulation of our activities and products including but not limited to the areas of taxation and environmental protection; (ix) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses; (x) our ability to obtain qualified staff, equipment and services in a timely and cost-efficient manner; (xi) our ability to conduct operations in a safe, efficient and effective manner; (xii) our ability to realize anticipated benefits, synergies or generate revenue, profits or value from our recent acquisitions into our existing operations; and (xiii) other considerations that management believes to be appropriate in the circumstances. While our management considers these assumptions to be reasonable based on information currently available to management, there is no assurance that such expectations will prove to be correct. Financial outlooks, as with forward-looking statements generally, are, without limitation, based on the assumptions and subject to various risks as set out herein. Our actual financial position and results of operations may differ materially from management's current expectations and, as a result, our Adjusted EBITDA and selling, general and administrative ("SG&A") cost savings may differ materially from the values provided in this news release.
By their nature, forward-looking statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of factors, including known and unknown risks, many of which are beyond our control, could cause actual results to differ materially from the forward-looking statements in this press release and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf. Such factors include, without limitation, risks related to our ability to remediate the material weaknesses in our internal control over financial reporting, or inability to otherwise maintain an effective system of internal control; the risk that our recent restatement could negatively affect investor confidence and raise reputation risks; our ability to continue as a going concern; our limited operating history; risks that we may be required to further write down intangible assets, including goodwill, due to impairment; the diversion of management time on issues related to Canopy USA; the ability of parties to certain transactions to receive, in a timely manner and on satisfactory terms, the necessary regulatory, court and shareholder approvals; the risks the risks relating to the conditions in the Floating Share Arrangement and the Acreage Amended Agreement not being satisfied or waived; the risks related to Acreage's financial statements expressing doubt about its ability to continue as a going concern; the risks related to the Company losing the Option Premium in the event that Acreage cannot satisfy its debt obligations as they become due; the adequacy of our capital resources and liquidity, including but not limited to, availability of sufficient cash flow to execute our business plan (either within the expected timeframe or at all); volatility in and/or degradation of general economic, market, industry or business conditions; risks relating to our current and future operations in emerging markets; compliance with applicable environmental, economic, health and safety, energy and other policies and regulations and in particular health concerns with respect to vaping and the use of cannabis and U.S. hemp products in vaping devices; risks and uncertainty regarding future product development; changes in regulatory requirements in relation to our business and products; our reliance on licenses issued by and contractual arrangements with various federal, state and provincial governmental authorities; inherent uncertainty associated with projections; future levels of revenues and the impact of increasing levels of competition; third-party manufacturing risks; third-party transportation risks; inflation risks; our exposure to risks related to an agricultural business, including wholesale price volatility and variable product quality; changes in laws, regulations and guidelines and our compliance with such laws, regulations and guidelines; risks relating to inventory write downs; risks relating to our ability to refinance debt as and when required on terms favorable to us and to comply with covenants contained in our debt facilities and debt instruments; risks associated with jointly owned investments; our ability to manage disruptions in credit markets or changes to our credit ratings; the success or timing of completion of ongoing or anticipated capital or maintenance projects; risks related to the integration of acquired businesses; the timing and manner of the legalization of cannabis in the United States; business strategies, growth opportunities and expected investment; counterparty risks and liquidity risks that may impact our ability to obtain loans and other credit facilities on favorable terms; the potential effects of judicial, regulatory or other proceedings, litigation or threatened litigation or proceedings, or reviews or investigations, on our business, financial condition, results of operations and cash flows; risks associated with divestment and restructuring; the anticipated effects of actions of third parties such as competitors, activist investors or federal, state, provincial, territorial or local regulatory authorities, self-regulatory organizations, plaintiffs in litigation or persons threatening litigation; consumer demand for cannabis and U.S. hemp products; the risks that the Canadian Transformative Plan will not result in the expected cost-savings, efficiencies and other benefits or will result in greater than anticipated turnover in personnel; the implementation and effectiveness of key personnel changes; risks related to stock exchange restrictions; risks related to the protection and enforcement of our intellectual property rights; the risks related to the Exchangeable Shares having different rights from our common shares and there may never be a trading market for the Exchangeable Shares; future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses; risks relating to the long term macroeconomic effects of the COVID-19 pandemic and any future pandemic or epidemic; and the factors discussed under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended March 31, 2023 and in Item 1A of Part II of the Form 10-Q for the fiscal quarter ended December 31, 2023 to be filed with the SEC. Readers are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements.
Forward-looking statements are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash flows as of and for periods ended on certain dates and to present information about management's current expectations and plans relating to the future, and the reader is cautioned that the forward-looking statements may not be appropriate for any other purpose. While we believe that the assumptions and expectations reflected in the forward-looking statements are reasonable based on information currently available to management, there is no assurance that such assumptions and expectations will prove to have been correct. Forward-looking statements are made as of the date they are made and are based on the beliefs, estimates, expectations and opinions of management on that date. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such forward-looking statements, except as required by law. The forward-looking statements contained in this press release and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf are expressly qualified in their entirety by these cautionary statements.
Participants in the Solicitation
Canopy Growth and its directors and executive officers may be deemed participants in the solicitation of proxies from Shareholders with respect to the solicitation of votes to consider a special resolution authorizing an amendment to its articles of incorporation to, among other things, create the Exchangeable Shares. A description of the interests of our directors and executive officers in the Amendment Proposal is contained in Canopy Growth's revised preliminary proxy statement filed with SEC on February 5, 2024 (the "Preliminary Proxy Statement") and is available free of charge at the SEC's website at www.sec.gov, or by directing a request to Canopy Growth Corporation, 1 Hershey Drive, Smiths Falls, Ontario, K7A 0A8 or by email to invest@canopygrowth.com.Investors should read the Preliminary Proxy Statement and the Company's definitive proxy statement when it becomes available because the Preliminary Proxy Statement contains (and the definitive proxy statement will contain) important information.
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(in thousands of Canadian dollars, except number of shares and per share data, unaudited)
December 31, March 31,
2023 2023
ASSETS
Current assets:
Cash and cash equivalents $
142,745 $
667,693
Short-term investments 43,436 105,526
Restricted short-term investments 7,275 11,765
Amounts receivable, net 63,924 68,459
Inventory 86,917 83,230
Assets of discontinued operations 29,401 116,291
Prepaid expenses and other assets 23,582 24,290
Total current assets 397,280 1,077,254
Other financial assets 392,324 568,292
Property, plant and equipment 340,479 471,271
Intangible assets 119,072 160,750
Goodwill 85,237 85,563
Noncurrent assets of discontinued operations 56,569
Other assets 25,359 19,996
Total assets $
1,359,751 $
2,439,695
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $
25,837 $
31,835
Other accrued expenses and liabilities 49,775 53,743
Current portion of long-term debt and convertible debentures 91,336 556,890
Liabilities of discontinued operations 67,624
Other liabilities 54,397 93,750
Total current liabilities 221,345 803,842
Long-term debt 520,738 749,991
Noncurrent liabilities of discontinued operations 3,417
Other liabilities 73,005 122,423
Total liabilities 815,088 1,679,673
Commitments and contingencies
Canopy Growth Corporation shareholders' equity:
Common shares - $nil par value; Authorized - unlimited number of shares; 8,219,747 7,938,571
Issued and outstanding - 82,931,963 shares and 51,730,555 shares, respectively(1)
Additional paid-in capital 2,578,519 2,506,485
Accumulated other comprehensive loss (16,049) (13,860)
Deficit (10,237,693) (9,672,761)
Total Canopy Growth Corporation shareholders' equity 544,524 758,435
Noncontrolling interests 139 1,587
Total shareholders' equity 544,663 760,022
Total liabilities and shareholders' equity $
1,359,751 $
2,439,695
(1) Prior year share amounts have been retrospectively adjusted to reflect the Share Consolidation (as defined in the Q3 FY2024 Form 10-Q), which became effective on December 15, 2023.
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of Canadian dollars, except number of shares and per share data, unaudited)
Three months ended December
31,
2023 2022
(As Restated)
Revenue $
90,061 $
96,986
Excise taxes 11,556 12,136
Net revenue 78,505 84,850
Cost of goods sold 50,279 79,622
Gross margin 28,226 5,228
Operating expenses
Selling, general and administrative expenses 54,436 89,604
Share-based compensation 3,693 6,055
Loss on asset impairment and restructuring 30,413 22,259
Total operating expenses 88,542 117,918
Operating loss from continuing operations (60,316) (112,690)
Other income (expense), net (171,037) (115,490)
Loss from continuing operations before income taxes (231,353) (228,180)
Income tax recovery (expense) 1,077 1,336
Net loss from continuing operations (230,276) (226,844)
Discontinued operations, net of income tax 13,479 (37,532)
Net loss (216,797) (264,376)
Net loss from continuing operations attributable to (542)
noncontrolling interests and redeemable noncontrolling
interest
Discontinued operations attributable to noncontrolling (4,369)
interests and redeemable noncontrolling interest
Net loss attributable to Canopy Growth Corporation $
(216,797) $
(259,465)
Basic and diluted loss per share(1)
Continuing operations $
(2.78) $
(4.66)
Discontinued operations 0.16 (0.68)
Basic and diluted loss per share $
(2.62) $
(5.34)
Basic and diluted weighted average common shares 82,919,190 48,611,260
outstanding(1)
(1) Prior year share and per share amounts have been retrospectively adjusted to reflect the Share Consolidation, which became effective on December 15, 2023.
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars, unaudited)
Nine months ended December
31,
2023 2022
(As Restated)
Cash flows from operating activities:
Net loss $
(583,458) $
(2,661,937)
Loss from discontinued operations, net of income tax (194,451) (169,492)
Net loss from continuing operations (389,007) (2,492,445)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant and equipment 22,485 42,674
Amortization of intangible assets 19,396 18,058
Share-based compensation 10,127 20,893
(Gain) loss on asset impairment and restructuring (816) 1,797,854
Income tax expense 13,762 10,633
Non-cash fair value adjustments and charges related to 188,452 325,742
settlement of unsecured senior notes
Change in operating assets and liabilities, net of effects from
purchases of businesses:
Amounts receivable (14,460) 13,143
Inventory (8,047) (92)
Prepaid expenses and other assets (843) (2,665)
Accounts payable and accrued liabilities 891 (19,084)
Other, including non-cash foreign currency (47,901) (13,501)
Net cash used in operating activities - continuing operations (205,961) (298,790)
Net cash used in operating activities - discontinued operations (53,930) (119,019)
Net cash used in operating activities (259,891) (417,809)
Cash flows from investing activities:
Purchases of and deposits on property, plant and equipment (3,200) (6,176)
Purchases of intangible assets (716) (1,265)
Proceeds on sale of property, plant and equipment 153,753 10,894
Redemption of short-term investments 68,294 415,322
Net cash (outflow) proceeds on sale of subsidiaries (3,719) 12,432
Investment in other financial assets (472) (67,186)
Other investing activities (9,234) 2,051
Net cash provided by investing activities - operating activities 204,706 366,072
Net cash used in investing activities - discontinued operations (2,600) (23,947)
Net cash provided by investing activities 202,106 342,125
Cash flows from financing activities:
Proceeds from issuance of common shares and warrants 33,795 856
Proceeds from exercise of stock options 270
Repayment of long-term debt (480,080) (117,951)
Other financing activities (27,239) (29,096)
Net cash used in financing activities (473,524) (145,921)
Effect of exchange rate changes on cash and cash equivalents (2,953) 43,731
Net decrease in cash and cash equivalents (534,262) (177,874)
Cash and cash equivalents, beginning of period(1) 677,007 776,005
Cash and cash equivalents, end of period(2) $
142,745 $
598,131
(1) Includes cash of our discontinued operations of $9,314 and $13,610 for March 31, 2023 and 2022, respectively.
(2) Includes cash of our discontinued operations of $nil and $13,261 for December 31, 2023 and 2022, respectively.
Adjusted Gross Margin(1) Reconciliation (Non-GAAP Measure)
Three months ended December 31,
(in thousands of Canadian dollars except where indicated; unaudited) 2023 2022
Net revenue $
78,505 $
84,850
Gross margin, as reported 28,226 5,228
Adjustments to gross margin:
Restructuring costs recorded in cost of goods sold 2,007
Adjusted gross margin(1) $
28,226 $
7,235
Adjusted gross margin percentage(1) 36 9
% %
(1) Adjusted gross margin and adjusted gross margin percentage are non-GAAP measures. See "Non-GAAP Measures".
Adjusted EBITDA
(1) Reconciliation (Non-GAAP Measure)
Three months ended December
31,
(in thousands of Canadian dollars, unaudited) 2023 2022
Net loss from continuing operations $
(230,276) $
(226,844)
Income tax recovery (1,077) (1,336)
Other (income) expense, net 171,037 115,490
Share-based compensation 3,693 6,055
Acquisition, divestiture, and other costs 4,981 13,347
Depreciation and amortization(2) 12,240 19,308
Loss on asset impairment and restructuring 30,413 22,259
Restructuring costs recorded in cost of goods sold 2,007
Adjusted EBITDA(1) $
(8,989) $
(49,714)
(1)Adjusted EBITDA is a non-GAAP measure. See "Non-GAAP Measures".
2 From Consolidated Statements of Cash Flows.
Free Cash Flow(1) Reconciliation (Non-GAAP Measure)
Three months December
31,
(in thousands of Canadian dollars, unaudited) 2023 2022
Net cash used in operating activities - continuing $
(33,348) $
(77,055)
operations
Purchases of and deposits on property, (564) (1,868)
plant and equipment - continuing operations
Free cash flow(1) - continuing operations $
(33,912) $
(78,923)
(1)Free cash flow is a non-GAAP measure. See "Non-GAAP Measures".
Segmented Gross Margin and Segmented Adjusted Gross Margin(1) Reconciliation (Non-GAAP Measure)
Three months ended December 31,
(in thousands of Canadian dollars except where indicated; unaudited) 2023 2022
Canada cannabis segment
Net revenue $
39,028 $
46,617
Gross margin, as reported 11,113 (5,281)
Gross margin percentage, as reported 28 (11)
% %
Adjustments to gross margin:
Restructuring costs recorded in cost of goods sold 1,689
Adjusted gross margin(1) $
11,113 $
(3,592)
Adjusted gross margin percentage(1) 28 (8)
% %
Rest-of-world cannabis segment
Revenue $
10,527 $
5,846
Gross margin, as reported 4,192 (2,184)
Gross margin percentage, as reported 40 (37)
% %
Adjustments to gross margin:
Restructuring costs recorded in cost of goods sold 256
Adjusted gross margin(1) $
4,192 $
(1,928)
Adjusted gross margin percentage(1) 40 (33)
% %
Storz & Bickel segment
Revenue $
18,453 $
20,214
Gross margin, as reported 9,449 9,186
Gross margin percentage, as reported 51 45
% %
Adjusted gross margin(1) $
9,449 $
9,186
Adjusted gross margin percentage(1) 51 45
% %
This Works segment
Revenue $
8,165 $
8,289
Gross margin, as reported 4,253 4,032
Gross margin percentage, as reported 52 49
% %
Adjustments to gross margin:
Restructuring costs recorded in cost of goods sold 62
Adjusted gross margin(1) $
4,253 $
4,094
Adjusted gross margin percentage(1) 52 49
% %
Other
Revenue $
2,332 $
3,884
Gross margin, as reported (781) (525)
Gross margin percentage, as reported (33) (14)
% %
Adjusted gross margin(1) $
(781) $
(525)
Adjusted gross margin percentage(1) (33) (14)
% %
(1) Adjusted gross margin and adjusted gross margin percentage are non-GAAP measures. See "Non-GAAP Measures".
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