Canopy Growth Corporation

Good morning. My name is Grant. I will be the conference operator today. I would like to welcome you to the Canopy Growth First Quarter Fiscal 2023 Financial Results Conference Call. At this time, all participants are in listen-only mode. I would like to turn the call over to Tyler Burns, Director of Investor Relations. Tyler, you may begin the conference call.

Good morning. Thank you all for joining us. On our call today, we have Canopy's Chief Executive Officer, David Klein. and Chief Financial Officer Judy Hong. Before financial markets opened today, Canopy issued a news release announcing our financial results for our first quarter ended June 30th, 2022. 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 our discussion during this call will include forward-looking statements that are based on management's current view 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's reports filed with the SEC and 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 where we will first address questions uploaded by verified shareholders using the SAI Technologies platform. Following that, we will take questions from analysts. To ensure that we get to as many questions as possible, we ask analysts to limit themselves to one question. With that, I will turn the call over to David. David, please go ahead.

Thank you, Tyler. Good morning, everyone, and thank you for joining our call. Today, I'll provide an update on our progress in Q1 against the strategic priorities that we've outlined for canopy. Judy will then discuss our Q1 results, including an update on our path to profitability and provide additional comments on our short-term outlook. During our last conference call, I highlighted three clear strategic initiatives for Canopy. And in Q1, we made strides against all three priorities. One, in Canada, we stabilized our revenue and market share performance, improved cash margins, and we're on track to achieve profitability in Canada as soon as possible. Two, as part of our CPG portfolio, BioSteel had record quarterly revenue and stores in Bickel, despite a temporary headwind, is still on track for growth this year. And three, we've continued to strengthen our USTHC ecosystem to ensure Canopy is positioned to lead in the largest cannabis market in the world. Starting with our Canadian cannabis business, We saw stabilization of Canopy's share of our core segments through Q1 and continue to deliver a positive mixed shift. During the quarter, our premium and mainstream sales accounted for a combined 58% of our Canadian recreational B2B sales, up from 50% last year. Let me provide highlights in our core segments, starting with premium flower and pre-rolls. In the first quarter, we continued to lead with a number one market share. helped by strong consumer response to innovation. This includes launching 11 new premium flower strains and pre-roll offerings in the quarter under our 7 Acres and Doja brands, including the new 7 Acres Jack Hayes bubble hash infused pre-rolls. Consumer response to these new infused pre-rolls, which combine 7 Acres Jack Hayes flower that connoisseurs love with bubble hash from Jack Hayes input, generated robust demand that exceeded our expectations. We're actively working to scale our bubble hash production to increase our supply of infused pre-rolls, including additional SKUs expected to launch later this year. We saw a similar response to new Doja OG Deluxe flour, a 26% THC flour grown in our Smith Falls facility. Our initial four-week supply to the OCS sold out in less than two weeks, and we're actively replenishing supply. This helped power our Doja brand to strong performance in the quarter with its market share in premium flour in pre-rolls, increasing to 2.1%. Next, touching on our core mainstream flour and pre-roll segment. We're pleased with the response to our Tweed rebrand. which has generated strong consumer demand for the brand's recent flour, pre-roll, beverage, and edible innovations. New Tweed-branded Tiger Cake, Wedding Cake, and Kush Mints flour strains launched in Q1 contributed to the brand's positive performance. The resurgence of the Tweed brand has enabled us to maintain our overall share of the mainstream flour and pre-roll joint market. Another key component of our premiumization strategy has been revamping our beverage portfolio, an effort that has seen us bring a range of 5-milligram beverages to market under the Tweed Iced Tea and Tweed Fizz brands, while also expanding our Deep Space 10-milligram beverage lineup. Strong demand for Tweed Iced Tea and Fizz beverages during Q1 helped maintain Tweed's number one rank in the 5-milligram THC and under segment. with Tweed's share of the RTD beverage market increasing to 10.4%. Deep Space also gained share of the RTD beverage market in Q1. We've established a multi-year new product pipeline, which has been critical to securing expanded distribution in key provincial markets. We secured 17 new listings in Alberta, 20 in Ontario, and 23 in Quebec, all of which are now available or will be over the next few months. And we're backing these high-quality products with a strong on-the-ground presence. As I highlighted during our last call, we're continuing to invest in our commercial ground game in Canada, including through Higher Education, our bud tender engagement program. Since launching, this program has facilitated over 6,000 bud tender interactions focused primarily on education and product knowledge to drive bud tender recommendations. Our investment in innovation distribution, and bud tender engagement are expected to help drive revenue growth in the Canadian rec market. Let's turn to our progress against driving the growth of our high-potential CPG brands. Q1 was a record quarter for BioSteel with revenue of $18 million, and we feel this brand truly has the potential to transform the sports hydration market. A notable highlight in Q1 was welcoming Walmart as a BioSteel RTD retailer in the U.S. This initial agreement will bring BioSteel RTD beverages to 2,200 Walmart stores across 39 states. Initial shipments began in June, and we expect additional shipments to these stores over the coming months. We're also pleased to welcome Bruce Jacobson to the BioSteel team in the new role of president. Bruce, together with co-founders John Salenza and Mike Camilleri, will be responsible for accelerating the growth of BioSteel. Bruce joins BioSteel with a wealth of experience from the beverage industry, including as an experienced brand builder and business strategist who has led organizations to best-in-class growth. Another important growth driver for BioSteel is the multi-year partnership naming BioSteel as the official hydration partner of the NHL and the NHL Players Association. This agreement provides BioSteel with league-wide ringside marketing and product supply rights, retail activation rights, and a community engagement platform. Beginning in the 22-23 NHL season, fans will see NHL players hydrating with BioSteel during 1,400 games each season. We're off to a fast start with this partnership, having signed distribution agreements with several new retail chains in priority NHL markets, representing over 1,100 doors, and are in positive discussions with additional retailers. We see the investment in this partnership as a key element of increasing BioSteel brand awareness, distribution, and trial, which is critical to growing BioSteel to be a top five sports hydration beverage over time. With the ongoing load-in into additional retailers, as well as increases in sales velocity driven by our brand activations, we're expecting to see a significant jump in BioSteel sales over coming quarters. Now speaking to Storz & Bickel. With innovation coming to market in the coming months, designed to excite the brand's loyal consumer following, we believe Storz & Bickel is set up for growth over the remainder of the year. The continued effort of our team to work around third-party challenges will allow Storz & Bickel to defend its position as the global leading premium vaporizer brand. Looking to the U.S. and our THC ecosystem, we hold an option to acquire Acreage Holdings, we hold a sizable stake in Terrasyn, and we've paid for majority ownership of Juana Brands and Jetty Extracts. These agreements provide us with a strong foundation to enable rapid entry into the USTHC market as soon as we can and is a unique platform to realize our ambition of becoming the leading brand-driven cannabis company in North America. Our business, when consolidated with Acreage, Juana, and Jetty, generates over $1 billion in revenue with strong gross margins. Further, our USTHC ecosystem has significant room to grow within large addressable markets, including high growth states in the Northeast, such as New Jersey and New York. And in the case of Jetty, the opportunity to expand beyond California as the brand is scaled nationally. Looking to acreage, their team made solid progress in the quarter ended March 31, 22, with revenue increasing 40% year over year. while they delivered their fifth consecutive quarter of positive adjusted EBITDA. In April 2022, Acreage commenced recreational cannabis operations in New Jersey with their flagship brand, The Botanist, now available for consumers in multiple dispensaries across the state. We also continue to monitor developments leading to the opening of the rec market in New York, which we also see Acreage Well positioned to succeed in. Juana saw significant growth from April to June, both in footprint and innovation. Juana entered new markets, including Puerto Rico and Arkansas, and began onboarding three additional states. Juana is delivering exciting NPD with the launch of Spectrum Live Rosin Gummies. These gummies have resonated with consumers, quickly ranking highly in the competitive Colorado edible market. Juana is advancing well with a robust pipeline of new consumer-focused products while entering new markets to capture consumers looking for high-quality products that deliver against desired need states. Finally, to illustrate our vision as a North American brand-driven cannabis company, we're excited to be actively working on bringing the Jetty brand and its innovative products to the Canadian market as soon as possible. We look forward to delighting consumers north of the border with Jetty's unique vape technology. We expect to have more to say about this effort over the coming months. The footprint and capabilities of our USTHC ecosystem continue to grow. We're strengthening our competitive positioning and emphasizing fast growth categories backed by a balanced operational footprint that is primed for rapid growth. In summary, We've built and continue to strengthen the industry's strongest North American premium branded cannabis company. With that, I'll turn it over to Judy.