Canopy Growth Corporation

Good morning. My name is Dai Hana, and I will be your conference operator today. I would like to welcome you to Canopy Growth's third quarter fiscal 2020 financial results conference call. At this time, all participants are in a listen-only mode. I will now turn the call over to Judy Hong, Vice President, Investor Relations. Judy, you may begin the conference call.

Thank you, and good morning, everyone. We're glad that you have taken the time to join our third quarter fiscal 2020 financial results conference call. On our call today, we have David Klein, our CEO, and Mike Lee, our CFO. Before the markets opened today, we issued a news release announcing our financial results for a third quarter fiscal 2020 ended December 31st, 2019. This news release is available on Canopy Growth's website and has been filed on CDAR. Certain matters discussed in today's call or answers that may be given to questions could constitute forward-looking statements. Actual results could differ materially from those anticipated. Risk factors that could affect results are detailed in the company's annual information forms and other public filings that are available on CDAR. During the call, we will refer to supplemental non-GAAP measures, adjusted EBITDA, and free cash flow. Adjusted EBITDA and free cash flow are defined in the press release issued this morning, as well as the period's management discussions and analysis documents filed on CDAR. Please note that all financial information is provided in Canadian dollars unless otherwise noted. Following prepared comments by David and Mike, we will conduct a Q&A session. To ensure that we get to as many questions as possible, we ask the analysts to limit themselves to one question. With that, I'll now turn the call over to David. David?

Thank you, Judy, and good morning, everyone. I'm very excited to be on this, my first earnings call as CEO of Canopy Growth. To begin my remarks, I'll offer a perspective on why I decided to join Canopy. First, I believe the cannabis market is one of the most exciting business growth opportunities of our lifetime. We are taking part in the creation of a new regulated consumer market, the likes of which we have never seen. Second, having been an early advocate of Constellation Brands' investment in Canopy growth, and having been on the board since October 2018, I firmly believe Canopy is well positioned to win in the global cannabis market. We have a leading market share in the recreational market in Canada and a strong position in the medical market in both Canada and abroad. Additionally, I believe Canopy has the opportunity to create an unassailable global position in cannabis. Canopy possesses excellent know-how, industry experience, intellectual property, and talent. The combination of these assets has the ability to set us apart from the competition. Another asset of Canopy's that cannot be overlooked is the strength of our balance sheet. In a sector where capital is becoming increasingly costly, if it's available at all, the value of having $2.3 billion in cash cannot be understated. Our job is to nurture these strengths and ensure that we build a profitable, World Class Company with brands that consumers trust. Now I know you'll have many questions about what I'm planning to do, especially in light of what's going on in our industry. Make no mistake, we have a lot of work to do. I'll detail our path forward during our fourth quarter earnings call once I've completed my assessment. However, you can be assured that I am, along with the management team, already taking actions that will keep us in the leadership position of the cannabis industry. For now, let me highlight my key priorities. My first priority will be improving Canopy Growth's connection with our consumers. The winner in this market will possess the brands that are most trusted and most loved by our consumers. We will leverage our consumer insights, intellectual property, and production capability to consistently deliver consumer preferred products that deliver the best quality at each price point. My second priority is bringing more focus and discipline to our organization. As this new nascent industry developed over the past five years, playing across the board made sense due to uncertainty about industry direction. The industry, however, has evolved and we now need to focus on specific markets and product lines Thank you. My third priority is to define a very visible path to profitability and positive cash flow. This means we need to align our resources and investments with the size and growth rate of the market as it exists today. We've begun taking steps designed to bring our inventory in balance with our supply-demand forecasts. This includes a thorough strategic review of our footprint which is underway. Mindful of future market growth, we're prepared to take initial steps to right-size our business over the next 90 days. My final priority is building the company and management's credibility with all stakeholders. We will do this by delivering on our commitments in a thoughtful and measured fashion. Let me now briefly cover some business highlights. First, the Canadian recreational market. Overall consumer demand remains strong and Canopy continues to hold a leading market share in recreational cannabis markets across the country. At retail and using data published by provincial agencies and StatScan, Canopy is number one in Nova Scotia, number one in Prince Edward Island, and number two in Ontario. In Alberta, the country's most developed market, Canopy continues to hold the number one spot, accounting for roughly 30% of the market. Our same store retail sales increased 11% on a quarter over quarter basis. Sales of dried flower remain strong across all price ranges. Notably, strong demand continued for our value price TWD strain, as well as for premium strains. Moving to medical cannabis markets. We are seeing our sales increase in the Canadian medical market thanks in part to a growing customer base. It's notable that sales of oil and soft gels account for over 60% of our Canadian medical sales. We're encouraged by the progress we're making in key European markets with strong sales in Germany. In the US market, we achieved an important milestone with online sales of first and free branded hemp-derived CBD products beginning in December 2019. I'm excited about the U.S. market opportunity. Providing Canopy with the resources to enter the U.S. market was a key driver of Constellation's most recent investment. That said, we recognize that we want to and need to move faster and make bolder moves in the U.S. We're focused on creating brands that resonate with our consumers and making sure we can get distribution of our products in places where our consumers can legally purchase them. Now before I hand the call over to Mike, I'd like to provide an update on our Cannabis 2.0 launch in Canada. Since the very beginning of our 2.0 product development, Canopy has been committed to bringing the highest quality, most differentiated products to market. We believe this is the best business approach to win over the long term. Our first edible products, premium chocolate products, shipped out of our Smith Falls facility in December 2019. Multiple products, Tokyo Smoke Go, Tokyo Smoke Paws, and Tweed Baker Street entered the market in December and have been selling out very quickly. Our next offering, Bean and Bud, is on track to be in market late February with additional SKUs following in the first quarter of fiscal 2021. For our vape product offering, we focused on delivering products with differentiated levels of safety, functionality, and design. All of our products will meet Underwriter Laboratories or UL 8139 safety standards. Our Juju Power, The sector's only UL8139 certified rechargeable battery for 510 cartridges began shipping in December and entered the market in early January 2020. We're seeing strong demand for these devices. For our 510 cartridges and proprietary pod-based Tokyo Smoke Luma, we expect to be in market over the next few months. Now, this is later than we previously communicated, but we felt our highest priority is to ensure that we provide our consumers with the highest quality and safest products possible, even if it means delays to our in-market dates. Lastly, Canopy has long believed in the low calorie, high quality cannabis beverages that rival alcohol beverages in the taste and social experience they deliver, would create a new consumer segment and expand the overall cannabis category. Leveraging considerable intellectual property, Canopy has formulated a range of beverages that I believe will delight our consumers. I know some of you had a chance to taste the non-active version of our products, but let me say this, the active versions are a whole new ballgame. To add some color here, a few weeks ago, myself and other board members tasted live versions of our cannabis beverages. After the tasting, a fellow board member sent me a text The text read simply, game changer. I share that opinion. In our view, we truly have a unique and differentiated beverage which, based on our competitive tasting, you can't find anywhere. We also see our cannabis beverage as truly disruptive and the best vehicle to attract new consumers to the cannabis market. In other words, we believe it will do more to recruit new consumers than any other product format in our industry creating new consumption occasions and a whole new industry. Just think about how big hard seltzers in the US became in just three years. So we are going to take the next few months to get it right and ensure that we can introduce our consumers of today and of the future to a true game changer. Lastly, and relatedly, I would like to take a brief moment to acknowledge and applaud The Ontario government's recent initiation of public consultation on providing consumers with more choice and convenience on cannabis and business opportunities, including consumption venues. The consultation is the first major milestone that's required to move forward with providing Ontarians with safe, convenient access to regulated cannabis while providing more support for private sector business opportunities. This concludes my remarks, and I'll now pass the call over to Mike to review our third quarter fiscal year 2020 financial results in greater detail.