Canopy Growth Corporation

Good morning, my name is Joelle. I will be your conference operator today. I would like to welcome you to Canopy Growth's first quarter fiscal 2025 financial results conference call. Currently, 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.

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 first quarter fiscal year 2025 ended June 30, 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 the 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. David, please begin.

Thanks, Tyler. Good morning, everyone. Thank you for joining us today to discuss Canopy Growth's results for the first quarter of fiscal 25. I'm excited to review the continued progress we've made as an organization, reinforcing our path towards sustained profitability and leadership in the global cannabis market. This quarter demonstrates that our strategic focus is paying off, which is evident in the sustained improvement of our key financial metrics and profitable revenue generation across all of our business units. During our call, I'll cover three topics. First, our drive to profitability through focus on efficiency in our operations, as well as profitable revenue generation over chasing market share at all costs. Second, the well-advanced actions within our commercial businesses that set the stage for growth in the second half of fiscal 25. And third, I'll provide an update on the rapid advancement of Canopy USA. Following my remarks, Judy will review our financial results, including some of the market dynamics we're seeing. and the actions we've taken to further strengthen our financial position. Let's begin with our drive to profitability. In Q1, fiscal 25, Canopy achieved the key profitability milestone. For the first time, thanks to the hard work of all of our teams, all of our business units delivered profitable, quarterly adjusted EBITDA. We achieved this through continued work to enhance operational efficiency paired with strong cost management, and above all, a resolute focus on driving profitable revenue. Against this backdrop, we've generated notable improvements across a range of key financial metrics, including a significant reduction in our overall cost of goods sold, down 31%, as well as a 24% reduction in SG&A expenses. Both of those are year-over-year. On the revenue side, our focus on profitable revenue over market share is driving us to direct certain products into the higher margin channels of Canadian medical and international markets. In part, this contributed to our Canadian medical business delivering its sixth consecutive quarter of growth and record top line, within which is arguably the most attractive cannabis segment in Canada. Additionally, this prioritization paired with supply challenges led to a softer top line for our adult use business for Q1. We've already taken action to address these supply challenges, which we believe lays a strength and foundation for growth over the coming quarters. Looking to gross margin, we're pleased with the quarter, including the material improvement in our Canada cannabis gross margins, which increased year over year to 32%, despite paying close to $9.6 million in excise taxes during the quarter. This improvement drove Canopy's consolidated gross margins up year over year, to 35% in Q1. Having demonstrated that Canopy can deliver consistent, healthy gross margins across all our businesses, our sites are firmly set on driving top-line growth. In Canada, we've made prudent investments to increase both our internal flour and pre-rolled joint production capacity. We've also secured additional partnerships across a range of segments to fortify our supply chains. Overall, we expect the higher flower yields from upgrades at our Kincardine facility, our investment in pre-rolled joint production capacity, additional supply agreements, and price actions already implemented to help drive stronger top line performance in the coming quarters. Our team is also encouraged by the performance of the broad range of new products that we've delivered to the Canadian adult use market in the latter half of the first quarter. This includes 17 new and exciting SKUs. To highlight a few, we've launched two Quebec-exclusive flower strains from Tweed and Maytree, infused pre-rolls from Tweed and 7 Acres, beverages including a Tweed sugar-free cola and 7 Acres cafe vanilla, and unique all-in-one vapes from Tweed and 7 Acres with outstanding flavor profiles. We believe the innovation we're bringing to market in addition to the pipeline of NPD landing later this year, will contribute to growth in our Canadian adult use top line over the coming quarters. Moving to distribution, our Canadian cannabis business implemented a new hybrid sales model during the first quarter with a mission to enhance distribution for key brands within our portfolio. This complements our in-house sales capabilities in a cost-efficient manner and has already delivered positive results with distribution increasing 7% sequentially to 61,000 points nationally. We expect these new points of distribution to support stronger brand and top-line performance in the second half of fiscal 25. In our international markets, as well as Storz and Bickel, we continue to feel Canopy is well-placed for leadership and growth. Backed by surging demand post-legalization, Storz and Bickel posted revenue growth of over 100% in Germany within the quarter, offset a decline in Australia due to the implementation of a regulatory change. Paired with expanding U.S. distribution, we forecast sustained growth for stores in Bickel in the coming quarters. For international markets, in addition to an especially strong quarter in the Polish market, we are highly focused on seizing the opportunity for rapid growth in Germany. In line with our asset-light strategy and to meet the increasing demand for medical cannabis across Europe, actions are underway to augment our Canadian-grown flour with EU-based supply. This preserves Canopy's flexibility, limits the upfront investments required to serve these growing markets, and will enable our international markets business to continue delivering robust gross margins. This work is already well advanced, and we've signed multiple agreements with EU-based flour suppliers to deliver new and exclusive high-TH strains to the market. As EU source flour comes into our supply chain, we expect strengthened performance in our German medical cannabis business in the latter half of fiscal 25. We also envision that over time, our use of EU-based third-party supply will free up more of our Canadian-based supply for use domestically to the benefit of our Canadian business. Next, I'd like to speak about the rapid advancements that Canopy USA is making and the resulting growth opportunities. Since our last discussion in May, Canopy USA has closed the acquisitions of Jetty and two of three Juana entities, with the full acquisition of Juana expected by the end of summer. In fact, Jetty and Juana are already leveraging a joint sales force to engage retail in New York as the brands of Canopy USA begin to realize opportunities and synergies together. Focusing further on the performance of each of the Canopy USA entities, Juana has entered Connecticut and New York State while also launching three new hemp-derived edibles, which opens up a new national customer base. Shifting to the West Coast, Jetty has expanded its solventless vape product offering in California with the launch of a new all-in-one and hybrid vape. And as an indication of the strength of this brand, Jetty continues to occupy the number one position in solventless vapes nationally. Additionally, following its credit challenges, Acreage is focused on execution across the highest potential states in the U.S., including in the Northeast and Midwest, where they hold an incumbent position. As I mentioned on the last call, Acreage's operations are well positioned in Ohio, likely the most exciting U.S. state right now for adult use cannabis. The botanist dispensary is located in the largest population centers in the state, and a Tier 1 cultivation and processing facility with significant expansion potential. This is critical, as despite a slow start to this year due in large part to their credit challenges, we feel that Acreage is capable of returning to their previous run rate, which saw them generate significant adjusted EBITDA. I'd like to quickly congratulate the Acreage team on their preparation for the launch of non-medical sales in Ohio, which commenced on Tuesday of this week. and we look forward to seeing their growth in the state. We remain upbeat about Canopy USA and look forward to sharing future updates on this platform as we provide Canopy shareholders with this unique exposure to the U.S. cannabis market. As we close the quarter, Canopy stands on a firm foundation, and we're showing progress in every corner of our operations. We have robust core businesses, significantly strengthened financials, and a unique strategy for seizing the opportunity of growth in the U.S. via Canopy USA. Our focus remains on leveraging this foundation to achieve multi-market cannabis leadership, and we are more prepared than ever to navigate the complexities of the global cannabis market while delivering substantial value to our shareholders and customers. I'll now turn the call over to Judy who will discuss our financials in greater detail.