Canopy Growth Corporation

Good afternoon. My name is Michelle, and I will be your conference operator today. I would like to welcome you to Canopy Growth's first quarter fiscal year 2024 financial results conference call. At this time, all participants are in a listen-only mode. I would now like to turn the call over to Tyler Burns, Director of Investor Relations. Tyler, you may begin.

Good afternoon, and thank you all for joining us today. On our call today, we have Canopy Growth's Chief Executive Officer, David Klein, and Chief Financial Officer, Judy Hong. After financial markets closed today, Canopy Growth issued a news release announcing the financial results for our first quarter ending June 30, 2023. News release and financial statements have been filed on EDAR, EDGAR, and CDAR, and will be available on our website under the Investors tab. 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 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 the news release issued today. 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 stated. Following prepared remarks by David and Judy, we will conduct a question and answer session. 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.

Thanks, Tyler. Good afternoon, and thank you for joining us today to discuss Canopy Growth's first quarter results for fiscal 24. During the call today, I'll cover four key topics. First, the progress of our transformation to a simplified asset-like business. Second, the improved performance of our Canadian cannabis business. Third, the strong top-line performance for BioSteel and stores in Bickle. And finally, a brief update on Canopy USA and the encouraging developments with our U.S. cannabis brands. Following my remarks, Judy will provide a brief review of our first quarter fiscal 24 results and review the actions we've taken recently to strengthen our financial position and improve liquidity. Over the past year, we've made significant and sweeping changes to our business. Our strategy is anchored in our commitment to building beloved consumer brands within an asset-light operating model. We fundamentally believe this model will enable us to compete more effectively. We've streamlined and simplified the business in the following ways. We divested our national retail operations to reduce complexity and eliminate channel conflict. We closed many facilities to focus cultivation, into two purpose-built sites. We've outsourced production of edibles, vapes, and beverages to contract manufacturers, which is accelerating speed to market while reducing the overhead and risks involved in developing new products. Collectively, these actions resulted in a roughly 60% reduction in both our cultivation footprint and total headcount. This transformation to a simplified asset-like model is working. as evidenced by our increased ability to execute and deliver measurable results. Today, our remaining cultivation facilities in Kincardine, Ontario, in Kelowna, British Columbia, are producing the high-quality flower that consumers desire. Our cultivation infrastructure has been greatly simplified, and our supply is more effectively matched to demand. Our transformation has delivered significant cost savings with SG&A expenses and cost of goods sold reduced by a combined $172 million to date, including $47 million in the first quarter of fiscal 24. We continue to expect this transformation to yield $240 to $310 million in cost savings by the end of fiscal 24. While we're pleased with the significant progress already made, our work to complete the transformation of canopy growth is not yet done. Over the next weeks and throughout the remainder of the year, we'll continue to execute on opportunities to drive efficiencies and reduce expenses as we drive our business to adjusted EBITDA positive, exiting fiscal 24, excluding investments in BioScale. Next, I'd like to spend a few minutes discussing the performance of our Canadian cannabis business in the first quarter of fiscal 24. Our adult-use cannabis business delivered the third straight quarter of stable-to-growing revenues, increasing 12 percent sequentially to 24 million dollars this improved performance is being led by the resurgence of our tweet brand in fact in the first quarter tweet push means 28 gram was one of the top five performing flower skis in canada the demand for tweet is strong across the country including in the larger markets of british columbia alberta and ontario as more consumers experience these high quality strains the demand has elevated the Tweed brand to the number eight rank within the total flower segment of the Canadian adult use cannabis market, moving up 19 places year over year. As we look to the year ahead for our Canadian cannabis business, we'll continue Tweed's momentum and apply the same winning approach to our Doja and Seven Acres brands. Another exciting development for our Canadian portfolio is the addition of Juana Edibles. In late May, we announced that Canopy will now distribute Juana in Canada, unifying our North American house of brands, which is part of our long-term strategy. This is a significant step toward becoming the leader in cannabis edibles in Canada. We've developed an ambitious brand growth strategy for Juana early in the current quarter, starting with the availability of Juana gummies for registered medical cannabis patients through Spectrum Therapeutics. we're already seeing strong demand reaffirming the brand's potential within the Canadian market. And we're also working with the Juana team to deliver more industry-leading innovation to drive the brand's leadership in the Canadian cannabis market. We expect the addition of Juana to be accretive to revenue and adjusted EBITDA as we cement Canopy as Canada's leading cannabis edibles company. I'll now speak to the performance of our consumer products business in the first quarter, starting with BioSteel. The BioSteel brand delivered its fourth consecutive quarter of record revenues, increasing 68% sequentially, more than double the prior year. This strong performance by BioSteel in the first quarter was due in part to our continued drive into the food, drug, and mass market channel in Canada, ahead of the key summer selling season. For those of you that live in Canada, I'm sure you've seen that the BioSteel brand has become ubiquitous. and is prominently featured in gas stations, grocery stores, and Costco nationwide. In the U.S., we're tightening BioSteel's geographical focus to prioritize key markets, including the central, northeast, and southeast regions. While the brand continues to deliver record top-line growth, the investments required to sustain this business are significant. As I outlined on our last call, together with our board, Management is actively engaged in a strategic review of the business, including exploring a sale. And we expect to have a decision in short order to reduce the drag on our profitability as we remain focused on our core cannabis businesses. Turning briefly to our world-leading vaporizer brand, Storz & Bickel. Distribution gains in the United States helped grow revenues 16% year-over-year to $18 million in the first quarter. Historically, Storz & Bickel has experienced significant growth following the launch of new products, and I'm excited to share that we're in final preparations to launch a new line of innovative Storz & Bickel vaporizers this fall, setting the performance standard for cannabis vaporizers. I fully expect this will drive the next era of growth for the Storz & Bickel brand. Finally, I'd like to briefly speak about our U.S. cannabis businesses, which continue to drive brand growth, primarily leveraging an asset life expansion strategy. Beginning with Jetty, this past July, the brand brought California's number one solventless vape to the state of Colorado, its third U.S. market after launching in New York State this past March. Building on their decade of leadership in the California market, Jetty expanded its product offerings in the state with the launch of the market's first OCAL-certified solventless vapes in a variety of sativa and indica strains. OCAL is comparable to organic certification for the cannabis industry. Moving on to Juana, in collaboration with Certerra Wellness in Florida, Juana products from the brand's premium and innovative cannabis-infused gummies lineup are now available to patients in 45 medical cannabis treatment centers across the state of Florida. marking the 15th active U.S. state or territory in which Juana cannabis edibles are sold. It's worthwhile highlighting that in addition to these individual growth strategies, the Canobie USA ecosystem companies continue to develop collaborative opportunities and synergies, including Terrasyn becoming the sole manufacturer, supplier, and commercialization partner of Juana brands in the fast-growing New Jersey market. as well as being Juana's new partner in Maryland, which is now adult use legal. Speaking of Terrasen, I'd like to congratulate them on their transformative TSX listing, which marks the first multi-state operator to successfully trade on a major exchange. We look forward to continuing to support their success in working together to capitalize on the large market opportunity in the U.S. In summary, Canopy's Q1 earnings demonstrate that our transformation to a simplified, asset like model is already yielding results. Our core cannabis, our core business is stabilizing and growing. Our commercial execution has strengthened and we have delivered significant cost savings that put us on a path to achieve positive adjusted EBITDA in our cannabis businesses exiting fiscal 24. And while BioSteel continues to demonstrate record top line growth, our focus remains North American cannabis leadership and as such, We're advancing with strategic options to reduce the cash burn associated with BioSteel, as well as exploring additional measures to monetize other non-core assets. Ultimately, we remain convinced by the potential of the $50 to $70 billion North American cannabis market, and to meet this opportunity, we've transformed Canopy into an asset life and more focused organization. We'll have more to share about our additional actions to further cement this transformation over the coming months. With that, I'll turn it over to Judy.