Canopy Growth Corp. Q3 FY2024 earnings call

• Business Transformation: Completed divestiture of This Works in December 2023, making Canopy 100% cannabis focused. Right-sizing the business to improve gross margins and execution.
• Canadian Cannabis: Fourth straight quarter of revenue growth, up 10% YOY excluding retail divestiture. Strong flower demand, with strains like Tweeds, Kush Mintz, and Tiger Cake in high demand. New product cycles in pre-rolls, vapes, and soft gels; relaunch of Wana in Canada.
• Canadian Medical: Record revenues with margin improvement, expanding assortment in the spectrum store.
• Rest of World Cannabis: Revenues doubled YOY, with Australia having 12th consecutive record revenue quarter. Growth in Poland, Germany, and Czech Republic.
• STORZ & BICKEL: Strong quarter driven by the VENTY portable vaporizer and successful Black Friday sales.
• Canopy USA: Filing definitive proxy statement on or around February 13, special shareholder vote on April 12 to advance USA structure. Anticipated acquisition of Jetty, Wana, and Acreage.

Canadian Cannabis: Q3 net revenue was $40 million, marking the third consecutive quarter of sequential revenue growth. Canadian cannabis revenue increased 10% year-over-year excluding the Canada retail divestiture. Canada gross margin in Q3 was 28% and cash gross margin (adding back non-cash costs) was 40%. Rest of World Cannabis: Sales grew 81% year-over-year in Q3. Australia had its 12th consecutive quarter of record revenue, growing over 32% year-over-year. Rest of world gross margin was 40%. STORZ & BICKEL: Revenue was $18 million in Q3, up 54% sequentially but down 9% year-over-year. Driven by the launch of the VENTY portable vaporizer. This Works: Revenue was $8 million in Q3, essentially flat year-over-year due to the divestiture in December 2023.

• Target to achieve positive adjusted EBITDA in all business units exiting fiscal '24.
• Expect cash from operations to continue improving due to reduced adjusted EBITDA loss and lower interest expenses.
• Focus on accelerating top-line growth in Canadian cannabis, growth in key rest of world markets (Australia, Germany, Poland, Czech Republic), and strong VENTY demand for STORZ & BICKEL.

• Price compression in Canadian market categories.
• Volatility in rest of world gross margins due to non-core markets and bulk shipments.
• Impact of U.S. CBD business changes on gross margins.
• Seasonal sales impacts on STORZ & BICKEL, particularly in Q4.
• Regulatory uncertainties in U.S. and international markets.

Q: Better market color on pricing environment in Canada?

A: David Klein and Judy Hong discuss price compression in some categories, managing mix by being price competitive in some areas and raising prices in high-demand areas.

Q: Rest of world gross margin jump?

A: Judy Hong explains margin improvement due to product mix in Australia and other markets, and reduced impact from non-core markets.

Q: Canopy USA disclosure and pro forma info?

A: David Klein and Judy Hong talk about the definitive proxy filing and financial statements for Canopy USA, noting Canopy Growth will own a significant financial interest in Canopy USA.

Q: STORZ & BICKEL revenue decline?

A: David Klein discusses VENTY launch timing and distribution challenges in the U.S., Judy Hong notes gross profit dollars were up year-over-year.

Q: Business units EBITDA profitability?

A: Judy Hong explains focus on business unit profitability exiting fiscal '24 and the goal of consolidated profitability, noting ongoing cost management.

Q: Canadian domestic operations outlook?

A: David Klein and Judy Hong discuss growth drivers in Canadian adult-use (pre-rolls, vapes, soft gels) and medical (expanding assortment, increased basket sizes).

Q: International market capital deployment?

A: David Klein talks about an asset light approach in international markets, focusing on existing strong markets like Australia, Germany, Poland, and Czech Republic.