Canopy Growth Corporation

Good morning. My name is Kelsey, and I will be your conference operator today. I would like to welcome you to the Canopy Gross Third Quarter Fiscal Year 2022 Financial Results Conference Call. At this time, all participants are in listen-only mode, and I will now turn the call over to Mr. Tyler Burns, Director, Investor Relations. Mr. Burns, you may begin your conference call.

Good morning, and thank you, operator. Thank you for joining us today. On our call today, we have Canopy Growth CEO, David Klein, and interim CEO, Judy Hong. Before financial markets opened today, Canopy issued a news release announcing our financial results for our third quarter fiscal year ended December 31st, 2021. This news release is available on our website under the Investors tab and will be filed on EDGAR and CDAR. We have also posted a supplemental earnings presentation on our website. Before we begin, I would like to remind you that all discussion during this call will include forward-looking statements that are based on management's current views and assumptions and that this discussion is qualified in its entirety by the cautionary note regarding forward-looking statements included at the end of this morning's news release. Please review today's earnings release and canopy gross reports that are filed with the SEC and on CDAR for various factors that could cause actual results to differ materially from projections. In addition, reconciliations between any non-GAAP measures to their closest reported GAAP measures are included in our earnings release. Please note that all financial information is provided in Canadian dollars unless otherwise noted. Following prepared remarks by David and Judy, we will conduct a question and answer session during which analysts will be taking questions will be taken from analysts. To ensure that we get to questions from as many analysts as possible, we ask that analysts limit themselves to one question. With that, I will turn the call over to David. David, please go ahead.

Thank you, Tyler, and good morning, everyone. I'll begin today's call by offering perspectives on our business in the third quarter, including key achievements along with short and long-term priorities. Judy will discuss our quarterly performance in more detail, the actions we have underway to accelerate our path to profitability, and our near-term outlook. The third quarter was one of action for the Canopy growth team with our efforts based on four key areas. One, driving our Canadian business to profitability. Two, strengthening our premium brand portfolio and product offering in Canada. Three, increasing our CPG distribution in the U.S., and four, making significant strides in furthering our U.S. THC strategy. These actions tie back to our strategic priorities and have generated highly encouraging wins in the quarter, resulting in net revenue in Q3 growing 7% sequentially, led by strong growth from both BioSteel and stores in Bickel. Now, I'd like to provide an overview of the actions that we've taken to improve our performance, which will enable Canopy to achieve profitability in the Canadian recreational market. To start, we're continuing to premiumize our flower portfolio through enhanced cultivation tactics and a new genetic strategy. We're on track to insource 100% of our premium in mainstream flower supply by the beginning of Q1 fiscal 23. I'm pleased to share that Supreme's industry-leading cultivation and post-harvest operations have been implemented throughout our existing canopy operations. And as a result, the strains we're harvesting in our Smith's Falls and Mirabelle facilities are seeing higher THC levels, enhanced aroma, and improved terpene profiles. In addition to the focus on improving our flower quality, we're taking steps to better adapt to the fast-evolving preferences of Canadian consumers, including developing a robust genetic pipeline. This will ensure we can deliver a consistent supply of new genetics at commercial scale to support more frequent rotation of new and unique flower strains. Notably, we're accelerating new product launches by implementing a smaller cross-functional team to improve the efficiency of new product development. which is leading to faster product delivery to the market. And in order to drive improved performance in market, our Canadian sales team has been executing focused drives to increase distribution and velocity. Early results are showing increased distribution in Alberta, Ontario, and Quebec through the end of January for Doja flour and deep space beverages and gummies. The team has also revamped the retailer engagement program, hosting several education sessions with store managers and bud tenders to showcase the enhancements in our product quality. In Canada, we've maintained number one market share in premium flour with the launch of 10 new strains, including Doja 91K, 7 Acres WAPA 49, and 7 Acres Craft Collective Jet Fuel Cookies. We expanded our premium product offerings across the Deep Space brand with the introduction of Deep Space Express gummies, our first gummy with the maximum allowable 10 milligrams THC and a line extension in beverages with a launch of Deep Space Lime and Splashdown. We also began shipping Deep Space Orange Orbit flavor this past month and anticipate bringing three new nostalgia-inspired flavors to market over the coming months. In Q3, we rebranded Tweed and launched powdered donuts and chem dog flour under the redesigned brand banner. These new higher THC strains have drawn very positive consumer feedback, noting high moisture content, aroma, and bag appeal, which is due to the improved grow techniques, including hang drying all flour, to produce higher quality bud with increased moisture. Tweed flour is now packaged in a heat sealed bag to preserve freshness with 90% less material by weight than the original tin packaging and new color profiles by strain type that make it easier for consumers to find what they're looking for. Strong consumer demands for these new strains has helped improve our share of the mainstream flour market over the past few months. In our edibles extract business, we launched our new TWD Max THC Indica oral spray, a product that delivers the maximum THC potency allowed by regulations in a value-priced format. This was followed by the launch of TWD Max THC Sativa and TWD Max CBD oral sprays in January. These innovations have kicked off the rollout of a revamped edibles extracts portfolio that we believe will offer greater value to consumers and significantly strengthen our competitive positioning in the category. On the back of our new product introductions and continued focus on premium and high THC, we see signs of stabilization and are starting to turn the tide in our Canadian market position. Looking to the U.S. in the areas of greatest opportunity for long-term growth, I'd like to now highlight the momentum of our CBD business, as well as review the advancement of our THC ecosystem. The U.S. is our area of greatest potential, and we've been highly encouraged by both Storrs & Bickel and BioSteel performance. Storrs & Bickel posted record quarterly revenue of $25 million in Q3, driven by strong demand for the Volcano Onyx and Mighty Plus vaporizers. Storz & Bickel is clearly already on an annualized $100 million revenue business. The Storz & Bickel brand continues to be the gold standard for cannabis vaporizers, with the Volcano Hybrid included in a list of the best weed accessories in Esquire magazine, and the Mighty Plus included in the Forbes Holiday Gift Guide. We expect continued growth from this marquee brand. Canopy's hydration beverage brand, BioSteel, also delivered a record revenue quarter, driven by gains in distribution of BioSteel Ready to Drink. We're seeing continued momentum with the recent signing of retail authorizations by Albertsons, Rite Aid, Food Lion, Stop and Shop, and Sheetz, and over 20 additional authorizations across grocery, convenience, and drug chains. Combined, these authorizations add nearly 15,000 stores across the U.S. Working closely with Constellation Brands, we've initiated a program to onboard new distributors to help drive the distribution of our CBD brand portfolio into additional U.S. states. As a result, Canopy's CBD business has grown 250% year to date with our product portfolio now available in brick and mortar in e-commerce sites covering a combined 33 states in the U.S., including Martha Stewart CBD, which is the fastest-growing CBD gummy brand in the U.S. Whistle, our CBD vape that we launched in October with retail partner Circle K, is already the number one CBD-only vape brand in IRI-measured channels. We're in active discussions with a number of additional convenience store chains and expect additional Whistle retail partners to be on board in early fiscal 23. The footprint for our Quattro beverage increased within brick and mortar stores, with the door count increasing sequentially 225%. Now I'm excited to speak on how we're executing our THC strategy in the US. In Q3, we established a cross-functional team of senior leaders across Canopy and Constellation brands to oversee the advancement of our U.S. THC portfolio. This team developed a robust strategy to achieve our future ambitions in the U.S. THC market. And Canada and Canopy's agreement to acquire Acreage and Juana, along with our investment in Terrasend, upon permissibility of THC in the U.S., are at the foundation of this plan. We continue to be impressed by Juana's performance on both sides of the border and see this as an example of how Canopy might further leverage brands and products from our US ecosystem into the Canadian market. With an exciting product pipeline, Juana has strengthened its US footprint in Q3 with the signing of a license agreement in Nevada, which brings their total number of states to 13. In Canada, Juana remains the number one edibles brand with 38% share of gummies in tract channels. Similarly, Acreage continues to execute on their strategic plan, resulting in a third consecutive quarter of positive adjusted EBITDA. In fact, analyst estimates point to calendar year 2022 adjusted EBITDA of $65 million. Acreage also strengthened its balance sheet with the recent signing of a $150 million credit facility which will help build depth in core markets. In addition, Acreage closed an acquisition in Ohio, establishing a market leadership position in the state. Canopy has clearly established paths into the USTHC market with the acquisitions of Acreage and Juana, as well as our conditional ownership stake in Terrasen, all upon federal permissibility of USTHC. I want to be clear. There is strategic intent behind the U.S. ecosystem that we're creating. We're not just a Canadian LP. We're not building an MSO, and we aren't building an alcohol company. We're developing a robust U.S. THC ecosystem that's focused on acquiring beloved premium brands like Storz & Bickel and Juana and backing them with unmatched innovation and operational capabilities while leveraging unparalleled distribution to rapidly scale across North America. We'll have more to say about the strategy over time as appropriate, but I believe there's never been a better time to invest in Canopy and that no one is better positioned than Canopy to be the long-term leader in North American cannabis. With that, I'll turn it over to Judy.