Canopy Growth Corporation

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

Good morning and thank you for joining us. On our call today, we have Canopy Growth's Chief Executive Officer, David Klein. and Chief Financial Officer Judy Hong. Before financial markets opened today, Canopy Growth issued a news release announcing the financial results for our fourth quarter and fiscal year ended March 31, 2024. The news release and financial statements have been filed on 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 remarks by David and Judy, we will conduct a question and answer session where we will take questions from analysts. With that, I will turn the call over to David.

Good morning, everyone, and thank you for joining us today to review Canopy During the call, I'll share key highlights and achievements from the past fiscal year, demonstrating how Canopy is a stronger, fully cannabis-focused business that is poised for profitable growth in the year ahead across all of the most exciting global cannabis markets. First, let's touch on the transformative year that fiscal 24 was for Canopy. During the year, we took decisive actions to streamline our business by implementing an asset-light model. This has enabled us to focus on our core strengths while leveraging third parties to add scale and capacity when and where we need it without the requirement to maintain extensive infrastructure or invest ahead of growth. This has improved our margins and accelerated our time to market as we focus on growth across all of our priority categories. In parallel, we took bold action to drive greater focus and reduce our cash burn, by divesting Canopy's non-cannabis businesses as we go all in on what we believe is one of the most exciting consumer trends of our lifetime. These changes weren't easy, and I'm very proud of the work that the entire Canopy team undertook to execute this strategic evolution and to ensure its success, all while enhancing our commercial execution, strengthening our financial position, and establishing a platform for Canopy's future growth. As a result, Canopy is entering fiscal 25 with a strong foundation. We have a focused business. We're well positioned in the geographies and categories of greatest potential, and we've built a business that can deliver profitable growth. Looking to our performance in fiscal 24, I'm pleased to report that our results in the year already demonstrate the positive impact of the changes we've implemented. Canopy now has an attractive gross margin profile across all of our businesses, a lean and agile organization that can support growth without a step change in costs, a strengthened balance sheet that has ample runway to support our business while investing for growth, and financial performance that is nearing consolidated, adjusted EBITDA profitability. Focusing on flour is the central pillar of our business. The consistent production of high-quality flour from our Kincardine and Doja sites has strengthened our competitive positioning in the Canadian adult-use market, highlighted by the national resurgence of Tweed. Additionally, we added over 2,300 points of distribution across Canada during the fourth quarter, including over 900 points for Tweed flour and 650 points for our deep-space beverages, ensuring increased access to consumers as we enter the important summer selling season. In our Canadian medical business, an expanded product assortment in the Spectrum Therapeutics online store, as well as industry-leading care for our insured patients, has delivered a 16% increase in revenue year over year, marking the fifth consecutive quarter of revenue growth. Our international markets cannabis business also continues to benefit from increased demand for our high-quality Canadian cannabis, including in Australia, which delivered record revenue in fiscal 24. In addition, an expanded product assortment and improved commercial execution in Poland, the Czech Republic, and Germany also contributed to growth in our international markets cannabis business in fiscal 24. Moving on to our Storz & Bickel vaporizer business, exceptional demand for the brand's new Venti portable vaporizer, which was launched early in the third quarter of fiscal 24, required us to double production to meet higher than expected initial demand. When paired with continued demand for other Storz and Bickel devices, including the legendary Volcano, this contributed to Storz and Bickel delivering its best fourth quarter ever, with net revenue increasing 43% year over year. In addition to these advancements, In our commercial businesses, we also executed a number of actions to strengthen Canopy's balance sheet in fiscal 24. Collectively, these actions reduced Canopy's debt by over $700 million in fiscal 24, which brings our total debt reduction to over $1.1 billion since the beginning of fiscal 23. Further, subsequent to the end of fiscal 24, we have also estimated or eliminated a $100 million short-term debt obligation and extended the maturity of a convertible note by five years. As a result, Canopy has no material debt due until March 2026 and has a healthy cash balance of over $200 million. Our strengthened balance sheet provides us with the certainty and flexibility required to power future growth, and we believe positions Canopy ahead of our industry peers. Our commercial businesses are showing momentum as we exited fiscal 24 And our plan set the stage for a fiscal 25 that we believe will be a banner year for Canopy. Our Canadian production platform continues to deliver high-quality flour that is winning and retaining customers both domestically and internationally. Upgrades are also already underway at our Kincardine facility to increase our flour capacity in addition to securing flour through strategic procurement from third-party producers. As the Canadian cannabis market continues to mature and consolidate, we expect excess capacity within the industry to present canopy with tangible opportunities to accelerate speed to market, avoid capital investments until critical sales volumes are achieved, and to provide us with surge capacity during peak periods. We believe our plans, which reflect our focus on profitable growth versus chasing market share at all costs, will deliver healthy annual growth in Canada in fiscal 25, with stronger growth in the back half of the year. This growth will be driven by expanded flower capacity, increased distribution, a strengthened sales force, and share gains across the pre-roll, vape, and soft gel categories through the introduction of new products which are arriving in the market as we speak. We also believe our plans for Canopy's international business will deliver healthy annual growth in fiscal 25. In addition to continued gains across our international markets, we anticipate Germany's legalization of cannabis will drive a significant increase in the size of the country's medical market as more doctors become comfortable prescribing cannabis and more patients explore its medical benefits. As a long-term leader in Germany, we believe Canopy is well-positioned to capitalize on this growth. and we're actively working to expand our supply to Germany and to add additional third-party European-based suppliers to our offering. Looking to our premium Storzenbickel vaporizer business, we plan to keep building on the brand's momentum and expect continued demand for the Venti, as well as expanded distribution in the U.S. to drive significant growth for Storzenbickel in fiscal 25. We also feel that this homegrown German brand will benefit from greater cannabis adoption among German consumers. Further illustrating the strength of Storzenbickel's connection and importance in the German cannabis industry, I'm pleased to highlight that Jürgen Bickel, Canopy's Managing Director of Storzenbickel and the brand's co-founder, was recently elected as a board member of the German Cannabis Business Association. We're pleased that Canopy and Storzenbickel have strong representation within the association, the largest of its kind, as it continues to play a critical role in shaping the advancement of the medical and recreational cannabis markets in Germany. Tipping focus to the US, Canopy USA is moving forward rapidly, and I would like to take the opportunity to reiterate our thanks to Canopy shareholders for their overwhelming support for the resolution required to advance the strategy. Overall, we remain highly optimistic about the potential of Canopy USA which continues to lay the groundwork for accelerated growth across a number of key state-level cannabis markets. In the quarter ended March 2024, Juana finalized plans for expansion into three new states, New York, Connecticut, and Vermont, while also launching new gummy skews in Colorado to continue expanding the brand's product assortment. In addition, Jetty's award-winning products launched in the state of New Jersey as the Jetty team takes the best of the West Coast to the Northeast. It's also important to note that Jetty's solventless vapes rank as the number one live rosin vape nationally in the US, which is really quite impressive when you consider that Jetty vape products are currently available in only four states, California, Colorado, New York, and more recently, New Jersey. Shifting to acreage, I'd like to take the opportunity to acknowledge that the company has recently been operating as a distressed asset. However, we believe that acreage continues to have tremendous upside. Recently, acreage entered the New York market and continues to hone its presence in other key states, including Ohio, the seventh largest state in the U.S., which is turning adult use in the month of June, and where its operations are well positioned with botanist dispensaries in Cleveland, Canton, Akron, Columbus, and Wycliffe. Notably, in addition to locations in the largest population centers in the state, Acreage's retail operations have received multiple Best Dispensary awards over the last four years. Acreage also has a Tier 1 cultivation and processing facility in the state with significant expansion potential. We believe that with this setup and its entry into the Canopy USA ecosystem, Acreage is well-positioned to realize significant and profitable growth ahead. The timing for the advancement of our U.S. strategy is also aligning nicely with major strides on the regulatory front, including rescheduling. We've been unequivocal in our support for rescheduling and believe that this change represents a leap forward for the industry. And from a financial perspective, I'd like to emphasize that rescheduling is especially significant as it will provide an immediate and meaningful improvement to the cash flow of all state legal cannabis businesses, including those within Canopy USA. In closing, fiscal 24 was a year of significant progress for Canopy growth, where we demonstrated our capabilities and our enduring belief in the opportunity that is global cannabis. Looking to the year ahead, we're optimistic about our future. We have great exposure to the most attractive markets. We've got great brands, and we have a strong and experienced team. We continue to believe the opportunities ahead are significant, and with the plans we have in place, we think fiscal 25 is poised to be Canopy's best year yet. With that, I'll pass the call to Judy to review our financials in greater detail.