Q3 2022 Canopy Growth Corp Earnings Call

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Speaker 1: And.

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Good morning, My name is Kelsey and I will be your conference operator today.

I would like to welcome you to canopy Growth's third quarter fiscal year 2022 financial results Conference call.

At this time, all participants are in listen only mode.

And I will now turn the call over to Mr. Tyler Burns director of Investor Relations. Mr. Burns you May begin your conference call.

Speaker 2: Good morning and thank you, operator. Thank you for joining us today.

Good morning, and thank you operator, thank you for joining us today.

Speaker 2: On our call today, we have Canopy Growth CEO David Hoehn and Interim CEO Judy Hong.

Our call today, we have canopy growth's, CEO , David Klein and interim CEO Judy Hong.

Speaker 2: Before financial markets open today, Canopy issued a news release announcing our financial results for our third quarter fiscal year ended December 31st, 2021. This news release is available on our website under the investors tab and will be filed on EDGAR and CDAR.

Before financial markets opened today.

<unk> issued a news release announcing our financial results for our third quarter fiscal year ended December 31 2021.

News release is available on our website under the investors tab and will be filed on Edgar and SEDAR.

Speaker 2: We have also posted a supplemental earnings presentation on our website.

We have also posted a supplemental earnings presentation on our website.

Speaker 2: Before we begin, I would like to remind you that all discussion during this call will include forward-looking statements that are based on management's current views and assumptions.

Before we begin I would like to remind you that all discussion. During this call will include forward looking statements that are based on management's current views and assumptions and this discussion is qualified in its entirety by the cautionary note regarding forward looking statements included at the end of this mornings news release please.

Speaker 2: 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.

Speaker 2: Please review today's earnings release and Canopy Gross reports that are filed with the SEC and on CDAR for various factors that could cause actual results to differ materially from projections.

Today's earnings release and canopy Growth's reports that are filed.

<unk> filed with the SEC and on SEDAR for various factors that could cause actual results to differ material materially from our projections.

Speaker 2: In addition, reconciliation between any non-GAAP measure

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.

Speaker 2: their closest reported GAAP measures are included in our earnings...

Speaker 2: Please note that all financial information is provided in Canadian dollars unless otherwise noted.

Speaker 2: Following prepared remarks by David and Judy, we will conduct a question and answer session during which questions will be taken from analysts. To ensure that we get to questions from as many analysts as possible, we have to limit the...

Following prepared remarks by Dave and Judy we will conduct a question and answer session during which analysts will be take questions will be taken from analysts to ensure that we get to questions from as many analysts as possible.

We ask that analysts limit themselves to one question.

Speaker 2: With that, I will turn the call over to David. David, please go ahead. Thank you.

With that I will turn the call over to David David. Please go ahead.

Thank you Tyler and good morning, everyone.

Speaker 2: I'll begin today's call by offering perspectives on our business in the third quarter, including key achievements along with short and long term priorities.

I'll begin today's call by offering perspectives on our business in the third quarter, including key achievements, along with short and long term priorities.

Speaker 3: Judy will discuss our quarterly performance in more detail, the actions we have underway to accelerate our path to profitability and our near-term outlook.

Judy will discuss our quarterly performance in more detail the actions, we have underway to accelerate our path to profitability and our near term outlook.

Speaker 3: The third quarter was one of action for the Canopy Growth Team with our efforts based on four key areas.

The third quarter was one of action for the canopy growth's team with our efforts based on four key areas.

Speaker 3: One, driving our Canadian business to profitability. Two, strengthening our premium brand portfolio and product offering in Canada. Three, increasing our CPG distribution in the US.

One driving our Canadian business to profitability.

Strengthening our premium brand portfolio and product offering in Canada.

Three increase.

Increasing our CPG distribution in the U S.

Speaker 3: And four, making significant strides in furthering our USTHC strategy.

For making significant strides in furthering our U S THC strategy.

Speaker 3: These actions tie back to our strategic priorities and have generated highly encouraging wins in the quarter, resulting in net revenue in Q3 growing 7% sequentially led by strong growth from both Biospiel and Storz and Bickel.

These actions tie back to our strategic priorities and have generated highly encouraging wins in the quarter, resulting in net revenue.

In Q3 growing 7% sequentially led by strong growth from both bio steel and Storz <unk> bickel.

Speaker 3: Now I'd like to provide an overview of the actions that we've taken to improve our performance, which will enable Canopy to achieve profitability in the Canadian recreational market.

Now I'd like to provide an overview of the actions that we've taken to improve our performance, which will enable canopy to achieve profitability in the Canadian recreational market.

Speaker 3: To start, we're continuing to premiumize our flower portfolio through enhanced cultivation tactics and a new genetic strategy.

To start we're continuing to premium is our flower portfolio through enhanced cultivation tactics and a new genetic strategy.

Speaker 3: We're on track to in-source 100% of our premium in mainstream flower supply by the beginning of Q1, fiscal 23.

We're on track to in source, 100% of our premium and mainstream flower supply by the beginning of Q1 fiscal 'twenty three.

Speaker 3: I'm pleased to share that Supreme's industry leading cultivation and post-harvest operations have been implemented throughout our existing canopy operation.

I am pleased to share that Supremes industry, leading cultivation and post harvest operations have been implemented throughout our existing canopy operations.

Speaker 3: And as a result, the strains we're harvesting in our Smith Falls and Mirabelle facilities are seeing higher THC levels, enhanced aroma, and improved terpene profile.

And as a result, the strengths we're harvesting in our Smiths falls and Mirabel facilities are seeing higher THC levels enhanced our Roma and improved <unk> profiles.

Speaker 3: In addition to the focus on improving our flower quality, we're taking steps to better adapt to the fast evolving preferences of Canadian consumers, including developing a robust genetic pipeline.

In addition to the focus on improving our flower quality, we're taking steps to better adapt to the fast evolving preferences of Canadian consumers.

Including developing a robust generic pipeline.

Speaker 3: This will ensure we can deliver a consistent supply of new genetics at commercial scale to support more frequent rotation of new and unique flower strength.

This will ensure we can deliver a consistent supply of new genetics at commercial scale to support more frequent rotation of new and unique flower strains.

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Speaker 3: Notably, we're accelerating new product launches by implementing a smaller, cross-functional team to improve the efficiency of new product development, which is leading to faster product delivery to the market.

Notably we are accelerating new product launches by implementing a smaller cross functional teams to improve the efficiency of new product development, which is leading to faster product delivery to the market.

Speaker 3: And in order to drive improved performance in market, our Canadian sales team has been executing focused drives to increase distribution and velocity.

And in order to drive improved performance and market. Our Canadian sales team has been executing focus drives to increased distribution and velocity.

Speaker 3: Early results are showing increased distribution in Alberta, Ontario, and Quebec through the end of January . For doja flour and deep space beverages and gummies.

Early results are showing increased distribution in Alberta, Ontario, and Quebec through the end of January four dojo flower and deep space beverages and gummies.

Speaker 3: The team has also revamped the retailer engagement program, hosting several education sessions with store managers and budtenders to showcase the enhancements in our product quality.

The team is also revamped their the retailer engagement program hosting several education sessions with store managers and Bud tenders to showcase the enhancements in our product quality.

Speaker 3: In Canada, we've maintained number one market share in premium flower with the launch of 10 new strains including Doja 91K, Doja 90K, Doja 90K, Doja 90K, Doja 90K, Doja 90K, Doja

In Canada, we've maintained a number one market share in premium flower with the launch of 10, new strains, including Doujin 91, K seven acres Whopper 49.

Speaker 3: 7acres WAPA 49, and 7acres Craft Collective Jet Fuel Cookie.

Seven acres craft collective jet fuel cookies.

Speaker 3: We expanded our premium product offerings across the Deep Space brand with the introduction of Deep Space Express gummies. Our first gummy with the maximum allowable 10 milligrams THC and a line extension in beverages with the launch of Deep Space Lyman Splashdown.

We expanded our premium product offerings across the deep space brand with the introduction of deep space Deep space Express Gummies are first gummy with the maximum allowable 10 milligrams THC and a line extension in beverages with the launch of deep space Lyman Splashdown.

Speaker 3: We also began shipping Deep Space Orange Orbit flavor this past month and anticipate bringing three new nostalgia-inspired flavors to market over the coming months.

We also began shipping deep space Orange orbit flavor. This past month, and anticipate bringing three new nostalgia inspired flavors to market over the coming months.

Speaker 3: In Q3, we rebranded Tweed and launched powdered donuts and chem dog flour under the redesigned brand banner.

In Q3, we rebranded Tweed and launched powdered Donuts and Kim Doug flower under the redesigned brand banner.

Speaker 3: These new higher THC strains have drawn very positive consumer feedback noting high moisture content, aroma, and bag appeal, which is due to the improved grow techniques, including hang drying all flower, to produce higher quality bud with increased moisture.

These new higher THC strains have drawn very positive consumer feedback, noting high moisture content aroma and bag appeal, which is due to the improved grow techniques, including hang drawing all flower to produce higher quality, but with increased moisture.

Tweet flowers now packaged in a heat seal back to preserve freshness with 90% less material by weight than the original 10 packaging and new color profiles by stream type that make it easier for consumers to find what they're looking for.

Speaker 3: Tweak flour is now packaged in a heat sealed bag to preserve freshness with 90% less material by weight than the original tin packaging and new color profiles by strain type that make it easier for consumers to find what they're looking for.

Speaker 3: Strong consumer demands for these new strains has helped improve our share of the mainstream flower market over the past few months.

Strong consumer demand for these new strains has helped improve our share of the mainstream flower market over the past few months.

And our edibles extract business, we launched our new TWD Max THC indicate oral spray.

Speaker 3: In our edibles extract business, we launched our new TWD Max THC Indica Oral Spray, a product that delivers the maximum THC potency allowed by regulations in a value priced format.

The product that delivers the maximum THC potency allowed by regulations in a value priced format.

Speaker 3: This was followed by the launch of TWD Max THC Sativa and TWD Max CBD Oral Sprays in January .

This was followed by the launch of TWD, Max THC Sativa, and TWD Max CBD oral sprays in January .

Speaker 3: These innovations have kicked off the rollout of a revamped edibles extracts portfolio that we believe will offer greater value to consumers and significantly strengthen our competitive positioning in the category.

These innovations have kicked off the rollout of our revamped edibles extracts portfolio that we believe will offer greater value to consumers and significantly strengthen our competitive positioning in the category.

Speaker 3: On the back of our new product introductions and continued focus on premium and high THC, we see signs of stabilization and are starting to turn tide in our Canadian market position.

On the back of our new product introductions and continued focus on premium and high THC, we see signs of stabilization and are starting to turn tied in our Canadian market position.

Speaker 3: Looking to the US in the areas of greatest opportunity for long-term growth, I'd like to now highlight the momentum of our CBD business, as well as review the advancement of our THC eco-s

Looking to the U S. In the areas of greatest opportunity for long term growth I'd like to now highlight the momentum of our CBD business as well as review the advancement of our THC ecosystem.

Speaker 3: The U.S. is our area of greatest potential, and we've been highly encouraged by both stores in Bickel and BioSteel performance.

The U S is our area of greatest potential and we've been highly encouraged by both storz <unk> Bickel and Bayou steel performance.

Speaker 3: Stores in Bickle posted record quarterly revenue of $25 million in Q3, driven by strong demand for the Volcano Onyx in Mighty Plus vaporized.

Stores in vehicle posted record quarterly revenue of $25 million in Q3, driven by strong demand for the volcano Onyx and Mighty plus vaporizer.

Speaker 3: Stores and Bickel is clearly already on an annualized 100, is an annualized 100 million dollar revenue business.

Storz <unk> Bickel is clearly already on an annualized 100 is an annualized 100 million dollar revenue business.

The stores in vehicle brand continues to be the gold standard for cannabis vaporizers with the volcano hybrid included in a list of the best we'd accessories in Esquire magazine and the Mighty plus included in the Forbes Holiday Gift Guide, we expect continued growth from this marquee brand.

Speaker 3: The Storz and Bickel brand continues to be the gold standard for cannabis vaporizers with the Volcano hybrid included in a list of the best weed accessories in Esquire magazine and the Mighty Plus included in the Forbes Holiday Gift Guide. We expect continued growth from this marquee brand.

Speaker 3: Canopy's hydration beverage brand Biosteel also delivered a record revenue quarter driven by gains in distribution of Biosteel ready to drink.

Canopy is hydration beverage brand Bayou steel also delivered a record revenue quarter driven by gains in distribution of Bios deal ready to drink.

Speaker 3: We're seeing continued momentum with the recent signing of retail authorizations by Albertsons, Rite Aid, Food Lion, Stop and Shop, and Sheetz, and over 20 additional authorizations across grocery, convenience, and drug chain.

We're seeing continued momentum with the recent signing of retail authorizations by Albertsons Rite aid food Lion stop and shop and sheets and over 20, additional authorizations across grocery convenience and drug chains.

Speaker 3: Combined, these authorizations add nearly 15,000 stores across the U.S.

Combined these authorizations add nearly 15000 stores across the U S.

Speaker 3: Working closely with Constellation Brands, we've initiated a program to onboard new distributors to help drive the distribution of our CBD brand portfolio into additional U.S. states.

Working closely with constellation brands, we've initiated a program to onboard new distributors to help drive the distribution of our CBD brand portfolio into additional U S States.

Speaker 3: As a result, Canopy's CBD business has grown 250% year to date, with our product portfolio now available in brick and mortar and e-commerce sites covering a combined 33 states in the US, including Martha Stewart CBD, which is the fastest growing CBD gummy brand in the US.

As a result canopy CBD business has grown 250% year to date with our product portfolio now available in brick and mortar and E. Commerce sites covering a combined 33 states in the U S, including Martha Stewart, CBD, which is the fastest growing CBD gummy brand in the U S.

Whistle.

Speaker 3: Our CBD vape that we launched in October with retail partner Circle K is already the number one CBD only vape brand in IRI measure channel.

Our CBD vape that we launched in October with retail partners Circle K is already the number one CBD only vape brand in IRI measured channels.

Speaker 3: We're in active discussions with a number of additional convenience store chains and expect additional Whistle retail partners to be on board in early fiscal 23.

We're in active discussions with a number of additional convenience store chains and expect additional whistle retail partners to be onboard in early fiscal 'twenty three.

Speaker 3: The footprint for our Quattro beverage increased within brick and mortar stores, with the door count increasing sequentially 225%.

The footprint for our cuatro beverage increased within brick and mortar stores with the door count increasing sequentially 225%.

Speaker 3: Now I'm excited to speak on how we're executing our THC strategy in the US.

Now I'm excited to speak on how we're executing our <unk> strategy in the U S.

Speaker 3: In Q3, we established a cross-functional team of senior leaders across Canopy and Constellation brands to oversee the advancement of our USTHC portfolio. This team developed a robust strategy to achieve our future ambitions in the USTHC market.

In Q3, we established a cross functional team of senior leaders across canopy and constellation brands to oversee the advancement of our U S THC portfolio.

This team developed a robust strategy to achieve our future ambitions in the U S THC market.

Speaker 3: And Canada and Canopy's agreement to acquire acreage and Juana, along with our investment in Terrasind, upon the permissibility of THC in the US, are at the foundation of this plan.

And Canada, and canopies agreement to acquire acreage and Wanna, along with our investment in <unk> upon for Permissibility of THC in the U S are at the foundation of this plan.

Speaker 3: We continue to be impressed by Juana's performance on both sides of the border and see this as an example of how Canopy might further leverage brands and products from our US ecosystem into the Canadian market.

We continue to be impressed by <unk> performance on both sides of the border and see this as an example of how canopy, Mike further leverage brands and products from our U S ecosystem into the Canadian market.

Speaker 3: With an exciting product pipeline, Juana has strengthened its US footprint in Q3 with the signing of a license agreement in Nevada, which brings their total number of states to 13.

With an exciting product pipeline <unk> has strengthened its U S footprint in Q3 with the signing of a license agreement in Nevada, which brings the total number of states to 13.

Speaker 3: In Canada, Juana remains the number one edibles brand with 38% share of gummies in tract channels.

In Canada <unk> remains the number one edibles brand with 38% share of gummies in tracked channels.

Speaker 3: Similarly, Acreage continues to execute on their strategic plan, resulting in a third consecutive quarter of positive adjusted EBITDA.

Similarly acreage continues to execute on their strategic plan, resulting in a third consecutive quarter of positive adjusted EBITDA.

Speaker 3: In fact, analyst estimates point to calendar year 2022 adjusted EBITDA of $65 million.

In fact analysts estimates point to calendar year 2022, adjusted EBITDA of $65 million.

Speaker 3: Acreage also strengthened its balance sheet with the recent signing of a $150 million credit facility, which will help build depth and core market.

Acreage also strengthened its balance sheet with the recent signing of a $150 million credit facility, which will help build depth in core markets in.

Speaker 3: In addition, acreage closed in acquisition in Ohio, establishing a market leadership position in the state.

In addition, acreage closed an acquisition in Ohio, establishing a market leadership position in the state.

Speaker 3: Canopy has clearly established paths into the USTHC market with the acquisitions of acreage and WANNA, as well as our conditional ownership stake in Tarison, all upon federal permissibility of USTHC.

Canopy has clearly established path into the U S. T C market with the acquisitions of acreage and want to as well as our conditional ownership stake in <unk> all upon federal Permissibility of USDA.

I want to be clear.

Speaker 3: There is strategic intent behind the US ecosystem that we're creating. We're not just a Canadian LP. We're not building an MSO. And we aren't building an alcohol company. We're developing a robust USTHC ecosystem that's focused on acquiring beloved premium brands, like Stores and Bickel and Juana, and backing them with unmatched innovation and operational capabilities while leveraging unparalleled distribution to rapidly scale across North America.

There is strategic intent behind the U S ecosystem that we're creating.

Not just our Canadian LP, we're not building NSO and we arent building an alcohol company, we're developing a robust U S. THC ecosystem, that's focused on acquiring beloved premium brands like storz, <unk>, bickel, and Juana and backing them with unmatched innovation and operational capabilities.

While leveraging unparallel distribution to rapidly scale across North America.

Speaker 3: We'll have more to say about the strategy over time as appropriate, but I believe there's never been a better time to invest in Canopy, and that no one is better positioned than Canopy to be the long-term leader in North American cannabis. With that, I'll turn it over to Judy.

We'll have more to say about this strategy over time as appropriate, but I believe there has never been a better time to invest in canopy and that no. One is better positioned than canopy to be the long term leader in North American cannabis.

With that I'll turn it over to Judy.

Thank you very much David and good morning, everyone.

Speaker 4: So I plan to focus my comments on a review of our third quarter results, actions we're taking to achieve profitability, and perspectives on the near-term outlook. So let's start with a review of our...

We plan to focus my comments on a review of our third quarter results.

Since we are taking to achieve profitability.

Prospective on the near term outlook.

Let's start with a review of our third quarter results.

Speaker 4: Our Q3 results point to a start of revenue stabilization with 7% sequential revenue growth led by strong growth of our U.S. businesses, which is offset by softness in our Canadian Recreation contingencies.

Our Q3 results point to start a revenue stabilization with 7% sequential revenue growth led by strong growth of our U S businesses, which is offset by softness in our Canadian recreational business.

During Q3, we generated net revenue of 141 million, representing an 8% decline over the prior year.

Speaker 4: During Q3, we generated net revenue of $141 million, representing an 8% decline over the prior year.

Speaker 4: Excluding acquisitions, our net revenue declined 17% versus the prior year.

Excluding acquisition, our net revenue declined 17% versus the prior year.

Speaker 4: Our reported growth margin in Q3 was 7% and our adjusted growth margin was 13%.

Our reported gross margin in Q3 was 7% and adjusted gross margin was 13%.

Speaker 4: Adjusted EBITDA Rang 2-3 amounted to a loss of $67 million, which improved by 1% versus last year.

Adjusted EBITDA in Q3 amounted to a loss of $67 million, which improved by 1% versus last year.

Speaker 4: And free cash flowing 2-3 was an outflow of 168 million, representing a 24% greater outflow versus the prior year, partly due to the timing of working capital.

And free cash flow in Q3, with an outflow of $168 million, representing a 24% greater outflow versus the prior year, partly due to the timing of working capital.

Speaker 4: Now let's dive deeper into revenue performance in the third quarter, starting with the global cannabis market.

Now, let's dive deeper into our revenue performance in the third quarter, starting with the global Canada segment.

Speaker 4: Global cannabis sales decreased 20% year-over-year and excluding the impact of acquisition with down 34%

Global cannabis sales decreased 20% year over year, and excluding the impact of acquisition was down 34%.

Our total Canadian recreation of business declined 25% year over year driven by the following.

Speaker 4: Our total Canadian recreational business declines 25% year-over-year, driven by the following.

Speaker 4: B2B revenue declined 23% due mainly to declines in our flower sale.

<unk> revenue declined 23% due mainly to declines in our flower sales are.

Speaker 4: Our flower sales continue to be impacted by ongoing price compression in the value priced flower category as well as a limited supply of single strain high potency flower products.

<unk> sales continued to be impacted by ongoing price compression in the value pipe solid category as well as the limited supply of single strain high potency flower product.

Speaker 4: Now the good news is we're starting to see new single-stream flower products hitting the market with strong reception and we expect additional supplies to come into market in the coming months.

Now the good news is we're starting to see new single stream flower products hitting the market with strong reception and.

And we expect additional supply to come into market in the coming months.

Speaker 4: Our recreational B2C cannabis sales in Q3 decreased 28% versus the prior year, which was largely driven by increased competition.

Our recreation of BDC cannabis sales in Q3 decreased 28% versus the prior year, which was largely driven by increased competition.

Speaker 4: Our Canadian medical cannabis sales were down 7% as higher average order size was offset by a lower number of orders.

Our Canadian medical cannabis sales were down 7% as higher average order size was offset by a lower number of orders.

Speaker 4: Our international and other cannabis business had a few puts and takes during the quarter.

Our international and other candidates business had a few puts and takes during the quarter.

Speaker 4: We grew our US CBD business by 25% versus the prior year. We also benefited from a bulk sale of flower into Israel medical market that generated approximately $4 million in revenue.

We grew our U S CBD business by 25% versus the prior year.

We also benefited from a bulk sale of flower into Israel medical market that generated approximately $4 million in revenue.

Speaker 4: This was more than offset by declines in our C3 and German flour business resulting from increased competition.

This is more than offset by declines in our C suite and Jordan flower business, resulting from increased competition.

Speaker 4: Turning to other consumer products, Q3 net revenue increased 19% versus the prior year.

Turning to other consumer product Q3, net revenue increased 19% versus the prior year.

Speaker 4: Biosceal had its record quarterly revenue, increasing 130% year-over-year due to strong distribution gains of ready-to-drink beverages in the U.S., as well as higher international sales of its ready-to-drink and powder beverages.

<unk> had its record quarterly revenue, increasing 130% year over year due to strong distribution gains of ready to drink beverages in the U S as well as higher international sales of its ready to drink and powdered beverage mixes.

Speaker 4: Stores and Bickel also posted a record quarterly revenue increasing 5% year over year, which was driven by strong consumer demand for the new limited edition on a volcano as well as the mighty Pl nominee.

<unk> also posted a record quarterly revenue, increasing 5% year over year, which was driven by strong consumer demand for the new limited edition Onyx volcano as well as the Mighty plus tape risers and.

Speaker 4: And this work declines 2% year-over-year due to lapping of strong prior year sales. Now let's now move to growth margins.

And this worth declined 2% year over year due to lapping a strong prior year sales.

Now, let's now move to gross margin.

Reported gross margin in Q3 was 7%.

Speaker 4: Our adjusted gross margin was 13%, which excludes the impact of $3 million of inventory step-up charge from the Supreme Acquisition, as well as the $5 million charge related to inventory write-downs resulting from strategic changes to our business.

Our adjusted gross margin was 13%, which excludes the impact of $3 million of inventory step up charge from the Supreme acquisition as well as the 5 million charge related to inventory write downs, resulting from strategic changes to our business.

Gross margin in Q3 was further impacted by the following.

Speaker 4: Gross margin in Q3 was further impacted by the following. First, we continue to see pressure on gross margins from lower production output and price compression in the Canadian rec business, notably in the value priced flower category.

First we continue to see pressure on gross margin from lower production output and price compression in the Canadian Rec business, notably in the value of kite pharma category.

Second as we scale up our U S businesses, including our CBD products as well as higher steel we are still experiencing under absorption of fixed cost.

Speaker 4: Second, as we scale up our US businesses, including our CBD products, as well as biofuels, we are still experiencing under absorption of fixed costs.

Speaker 4: We're also facing higher supply chain costs such as freight that many in the industry are currently facing.

We're also facing higher supply chain costs, such as freight that many in the industry are currently facing.

Speaker 4: And third, decreased contribution of higher margin C3 revenue also negatively impacted our overall gross margin.

And third decreased contribution of higher margin <unk> three revenue also negatively impacted our overall gross margin.

Speaker 4: These factors were partially offset by payroll subsidies in the amount of 7 million that was received from the Canadian government pursuant to COVID-19 relief programs.

These factors were partially offset by payroll subsidies in the amount of $7 million that was received from the Canadian government pursuant to COVID-19 relief program.

Speaker 4: Attorneys to operating expenses demonstrating continued discipline, our overall SG&A expenses in Q3 decreased 19% versus the prior year.

Turning to operating expenses, demonstrating continued discipline, our overall SG&A expenses in Q3 decreased 19% versus the prior year.

Speaker 4: GNA expenses declined 47%, primarily due to reductions in staffing and professional fees, as well as the benefit of payroll subsidies.

G&A expenses declined 47%, primarily due to reductions in staffing and professional fees as well as the benefit of payroll subsidies.

Speaker 4: Excluding the payroll subsidy benefit, GNA expenses declined 27% versus last year.

Excluding the payroll subsidy benefit G&A expenses declined 27% versus last year.

Speaker 4: R&D expenses in Q3 declined to 53% versus the prior year, principally due to a more focused and disciplined approach to R&D investments.

R&D expenses in Q3 declined to 53% versus the prior year, principally due to a more focused and disciplined approach to R&D investments.

Speaker 4: Sales and marketing expenses increased 20% year over year, primarily due to higher marketing investments behind Biosteel and our US CBD brands.

Sales and marketing expenses increased 20% year over year, primarily due to higher marketing investments behind <unk> steel and our U S CBD brand.

Speaker 4: The Supreme Acquisition also increased our sales and marketing expenses when compared to the prior year.

The Supreme acquisition also increased our sales and marketing expenses when compared to the prior year.

Now turning to free cash flow, our free cash flow in Q3, with an outflow of $168 million, which represents a 24% increase over the prior year.

Speaker 4: Turning to free cash flow, our free cash flow in Q3 was an outflow of 168 million, which represents a 24% increase over the prior year.

Speaker 4: CapEx declined to just one million, which was down 98% from the prior year.

Capex declined to just $1 million, which was down 98% from the prior year.

Speaker 4: The increase in cash used in operation during Q3 compared to a year ago reflects increased interest paid as well as the timing of working capital.

The increase in cash used the operate Houston operation during Q3 compared to a year ago reflect increased interest paid as well as the timing of working capital.

Speaker 4: I'd like to now take this opportunity to speak to the efforts underway to improve our profitability.

I'd like to now take this opportunity to speak to the efforts underway to improve our profitability.

Speaker 4: Taking a step back, as an organization, we built the structure and operation that can support a significantly higher revenue base than we're currently generating.

Taking a step back as an organization, we built the structure and operation that can support a significantly higher revenue base than we're currently generating.

Speaker 4: And while we remain optimistic about the long-term prospects of this industry, as well as Canopy's position to succeed, we recognize that we need to adapt to the realities of our business today.

And while we remain optimistic about the long term prospects of this industry as well as canopy is positioned to succeed we recognize that we need to adapt to the reality of our business today.

Speaker 4: We've already made significant progress right-sizing our footprints and realizing cost savings from our previously announced cost savings program.

We've already made significant progress right sizing, our footprint and realizing cost savings from our previously announced cost savings program.

Speaker 4: Through the end of third quarter of fiscal 22, we've generated approximately 85 millions of cost savings across both COGS and SG&A.

Through the end of third quarter of fiscal 2002, we have generated approximately $85 million of cost savings across both Cogs and SG&A.

Speaker 4: Our combined sales and marketing, GNA, and R&D expenses are down 17% or $63 million lower year to date in fiscal 2022 when compared to a year ago.

Our combined sales and marketing G&A and R&D expenses are down, 17% or 63 million lower year to date in fiscal 'twenty, two when compared to a year ago.

Speaker 4: And even excluding the payroll subsidy benefits, our SG&A expenses have decreased by 8% year to date. This is inclusive of additional expenses that came with the supreme acquisition.

And even excluding the payroll subsidy benefit our SG&A expenses have decreased by 8% year to date and this is inclusive of additional expenses that came with the Supreme acquisition.

Speaker 4: Now that being said, as consumer preferences continue to shift and the Canadian market structure remains challenged by low barriers to entry and owner's regulations, these cost savings are not enough for us to achieve profitability in Canada.

Now that being said as consumer preferences continue to shift and the Canadian market structure remains challenged by low barriers to entry and onerous regulation. These cost savings are not enough for us to achieve profitability in Canada.

Speaker 4: So a key component of our path to profitability is further simplifying our businesses and optimizing our expenses. And work is well underway to finalize our near-term revenue, operational, and expense plans necessary to achieve profitability in Canada as soon as possible.

So a key component of our path to profitability is further simplifying our businesses and optimizing our expenses and work is well underway to finalize our near term revenue operational and expense plans necessary to achieve profitability in Canada as soon as possible.

Speaker 4: Let me offer a bit more details on our SG&A expense structure.

Let me offer a bit more details on our SG&A expense structure.

Speaker 4: Our sales and marketing expenses comprise of around 40% in advertising and promotional spending and 60% in sales and marketing overhead.

Our sales and marketing expenses comprised of around 40% in advertising and promotional spending and 60% in sales and marketing overhead.

Speaker 4: We've made deliberate decisions to continue making strategic investments in these areas in our core markets. With a sizable portion of these investments currently being spent against emerging growth brands in the U.S., including Biosteel, Martha Stewart CBD, Quattro, and Whistled.

We've made deliberate decisions to continue making strategic investments in these areas in our core market.

With a sizable portion of these investments currently being spent against emerging growth brands in the U S, including bias deal Martha Stewart, CVD Cuatro and whistle.

Speaker 4: These strategic investments account for approximately a third of our total selling and marketing expense.

These strategic investments account for approximately a third of our total selling and marketing expenses.

Speaker 4: We also have our corporate-owned retail stores that carry a significant portion of our selling and marketing expense.

We also have our corporate owned retail stores that carry a significant portion of our selling and marketing expenses.

Speaker 4: These expenses account for nearly 40% of our total selling and marketing overhead spending in Canada.

These expenses account for nearly 40% of our total selling and marketing overhead spending in Canada.

Speaker 4: Now we plan to continue to make strategic investments where we see high potential for payoff but in a more targeted way. And in a market like Canada where advertising is severely restricted, we're focusing more on the ground game to win with retailers.

And we plan to continue to make strategic investments, where we see high potential for payoff, but in a more targeted way and in a market like Canada, where advertising is severely restricted we're focusing more on the ground game to win with retailers.

Speaker 4: Now when you turn to R&D, we've already shifted our R&D focus away from long-term clinical trials to areas where we see near-term commercial benefit.

And when you try to R&D, we've already shifted our R&D focus away from long term clinical trial to areas, where we see near term commercial benefit.

Speaker 4: And we plan to further tighten our focus and invest in R&D that is core to our strategy and has a tangible payoff in the near term.

And we plan to further tightened our focus and invest in R&D that is core to our strategy and has a tangible pay off in the near term.

Speaker 4: Digging into our G&A expenses, the biggest areas of spending are public company costs, finance, IT, legal, and regulation.

Digging into our G&A expenses, the biggest areas of spending are public company cost finance.

Legal and regulation.

Speaker 4: We've built some of these functions with an expectation that our revenues would scale quickly and require a sophisticated level of support.

We've built some of these functions with an expectation that our revenues with scale quickly and require sophisticated level of support however.

Speaker 4: However, until our growth catches up with our aspirations, we need to reclaim a more entrepreneurial mindset, which means being more nimble and scrappier with our resources, while also identifying opportunities to further simplify our processes or structure to generate additional GNA savings.

However, until our growth catches up with our aspirations, we need to reclaim a more entrepreneur mindset, which means being more nimble and scrap year with our resources, while also identifying opportunities to further simplify our processes our structure to generate additional G&A savings.

Speaker 4: So as you can see, recognizing that our overall expense structure is built for a larger revenue base than our near-term projections, we are taking measurable steps to ensure that we can be profitable in Canada while investing for growth in key strategic areas such as our USTHC strategy.

So as you can see recognizing there our overall expense structure is built for a larger revenue base and our near term projections. We are taking measurable steps to ensure that we can be profitable in Canada, while investing for growth in key strategic areas, such as our U S THC strategy.

Pete.

So now I would like to provide some perspective on our near term outlook.

Speaker 4: So now I would like to provide some perspectives on our near-term outlook.

Speaker 4: From a top-line perspective, in Canada, we note that retail store closures caused by elevated COVID-related staff absences has likely had a modesty negative impact on retail sell-through as well as inventory replenishment orders.

From a topline perspective in Canada, we note that retail store closures caused by elevated Colgate related staff absences as likely had a modestly negative impact on retail sell through as well as inventory replenishment orders.

Speaker 4: This could potentially present a headwind to our Canadian recreational B2B and B2C business in the current quarter.

Potentially present.

Headwind towards Canadian recreational BBB and PVC business in the current quarter.

Speaker 4: We do expect sales declines to begin to moderate in Canada as we focus on stabilizing and growing our share of premium and mainstream segments of the Canadian recreational market.

We do expect sales declines to begin to moderate in Canada, as we focus on stabilizing and growing our share of premium and mainstream segments of the Canadian recreational market.

In Europe , we expect our medical sales to be down on a year over year basis due to increased competition in our German flower business as well as divestiture of the C. Three business, which closed on January 31.

Speaker 4: In Europe , we expect our medical sales to be down on a year-over-year basis due to increased competition in our German flower business as well as the vestiture of the C3 business which closed on January 31st.

Speaker 4: As a reminder, C3 generated net revenue of nearly $16 million in Q4 of last year.

As a reminder, <unk> generated net revenue of nearly $16 million in Q4 of last year.

Our U S CPG business in the current quarter is expected to be up modestly year over year as we lap last year's sales that were boosted by the sell in of Quadro beverages.

Speaker 4: Our UFDBT business in the current quarter is expected to be up modestly year over year as we lap last year's sales that were boosted by the sell-in of Quattro beverages.

Speaker 4: We expect biosteal revenue to continue to benefit from additional retail authorizations and resulting product load-ins.

We expect <unk> revenue to continue to benefit from additional retail authorizations, and resulting product loaded.

Speaker 4: For Storz and Bickel, we expect sales growth on a year-for-year basis as the brand continues to benefit from strong consumer demand for recent innovations, while we're closely monitoring our global supply chain.

For Storz <unk> Bickel, we expect sales growth on a year over year basis as the Brian continues to benefit from strong consumer demand for recent innovation, while we're closely monitoring our global supply chain.

Speaker 4: From a margin standpoint, the divestiture of high margin C3 business during the current quarter can be expected to present a modest gross margin headwind.

From a margin standpoint, the divestiture of high margin <unk> business. During the current quarter can be expected to present, a modest gross margin headwind.

Yeah.

Speaker 4: We expect increased volume throughput and positive mix shift in Canada to contribute to gradual growth margin improvement, though price compression remains a key watch out.

We expect increased volume throughput and positive mix shift in Canada to contribute to a gradual growth margin improvement.

Price compression remains a key watch out.

Speaker 4: And headwinds from startup costs in the US should begin to abate as we scale up our CPD and CPG businesses.

And headwinds from startup costs in the U S should begin to abate as we scale up our CBD and CPG businesses.

Speaker 4: So that this could be offset by continuous increase in supply chain related costs in the near term that we're closely watching.

So that this could be offset by continued increase in supply chain related costs in the near term that we're closely watching.

Speaker 4: And finally, we now expect our full year fiscal 22 CapEx to be in the range of 45 million to 60 million, which is down from the prior range of 100 to 150 million.

And finally, we now expect our full year fiscal 'twenty two capex to be in the range of 45 million to $60 million, which is down from the prior range of $100 million to $150 million.

Speaker 4: The decline in CAPEX is primarily due to the deferral of certain projects and the elimination of CAPEX related to the planning and construction of a new facility for C3.

The decline in Capex is primarily due to the deferral of certain projects and the elimination of Capex related to the planning and construction of a new facility foresees III.

Speaker 4: With the sale of C3 now complete, it's been removed from our budget.

With the sale of <unk> now complete it's been removed from our budget.

Speaker 4: So in conclusion, we expect actions we're taking will drive improved execution, accelerate top-line growth, and allow Canopy to achieve profitability in Canada while also continuing to make strategic investments in key growth areas.

So in conclusion, we expect actions, we're taking will drive improved execution accelerated topline growth and allow canopy to achieve achieved profitability in Canada, while also continuing to make strategic investments in key growth areas.

Speaker 4: We plan to share additional details around our path to profitability once we complete our annual planning that we have underway.

We plan to share additional details around our path to profitability. Once we complete our annual planning that we have underway.

Speaker 4: This concludes my prepared comments. Kelsey, David, and I would be happy to take questions from analysts.

This concludes my prepare comments telsey.

Kelsey, David and I will be happy to take questions from analysts.

Thank you ladies and gentlemen, we will now begin the question answer session should you have a question. Please press the star followed by the one on your Touchtone phone.

Speaker 5: Ladies and gentlemen, we will now begin the question and answer session.

Speaker 5: Should you have a question, please press the star followed by the one on your touch screen.

Speaker 5: You will then hear three tone prompt acknowledging your request and your questions will be pulled in the order that the are...

You would think your three pronged acknowledging your request and your question will be pulled in the order that they are received.

Speaker 5: If you wish to decline from the polling process, please press the star followed by the...

TD wish to decline from the polling process. Please press the star followed by the Q.

Speaker 5: And if you are using a speakerphone, please lift the handset before pressing...

If you are using a speaker phone please lift the handset before pressing any keith.

Speaker 5: To ensure an efficient call that gets to the questions of as many analysts as possible, analysts are requested to limit themselves to one question.

To ensure an efficient call that gets to the questions of how many analysts as possible.

Are requested to limit themselves to one question.

And one moment. Please for your first question.

Speaker 5: Your first question does come from Vivian Eiser from Cowen. Please go ahead.

Your first question does come from Vivien <unk> from Cowen. Please go ahead.

Hi, good morning.

Good morning, Anthony.

Speaker 6: So very encouraging to hear about the distribution gains in the US. I think we've all been waiting for that and nice to see that come through. David, I don't know if it's premature, but can you comment at all on the velocity that you're seeing? I know there's a number of new product offerings that hit the market, so anyone you would want to comment on that gained distribution would be helpful. Thanks.

So very encouraging to hear about the distribution gains in the U S. I think we've all been waiting for that and nice to see that come through with you, but I don't know if its pretty mature, but can you comment at all on the velocity that youre seeing theres, a number of new product offerings that could hit the market. So anyone you would want to comment on that gain distributions would be helpful. Thanks.

Speaker 3: Yeah Vivian, so a lot of the distribution is fairly new distribution, right? So it is a bit early and what we see is

Yes, Vivien so so so a lot of the distribution is fairly new distribution rates. So it is a bit early and what we see is.

Speaker 3: velocity levels that are kind of consistent with our planning algorithm, but there's a lot of variability. In some areas we see...

Velocity levels that are kind of consistent with our planning algorithm, but theres a lot of variability in some areas. We see really really strong velocities that would be consistent with any competitive products on the shelf and in other areas. We see that the velocity is not so strong so so working with.

Speaker 3: really, really strong velocities that would be consistent with any competitive products on the shelf. And in other areas, we see that the velocity is not so strong. So working with our distribution team supported by our friends at Constellation, we're working our way through the

Our distribution team supported by.

Our friends at constellation, we're we're working our way through that.

Speaker 3: to try to understand lessons learned in terms of where velocity is exactly where we need it to be and where maybe it isn't. So that means maybe we need to do some more in-store activation or we need to do some more work with brand development in a given region or in a given format.

To try to understand lessons learned in terms of where velocity is exactly where we needed to be and where maybe it isn't so that means maybe we need to do some more in store activation or we need to do some more work with brand development.

Given region or in a given format, but I would say, where we would want to be or where we would expect to be at this point, but I think theres a theres a lot of work to do that should flow through our results overtime.

Speaker 3: I would say we're where we would want to be or where we would expect to be at this point, but I think there's a lot of work to do that should flow through our results over time.

And your next question comes from <unk> Chen from BMO capital markets. Please go ahead.

Speaker 6: Hi, good morning. Thanks for the question. Could you give some more specific examples on the progress you're seeing in your Canadian flower business? So, for example, what level of THC you're seeing terpene content on the new stream, how the consistency is?

Hi, good morning, Thanks for the question.

Could you give some more specific examples on the progress you're seeing in your Canadian business. So for example, what level of THC, we're seeing European contents on demonstrate how the company is.

Speaker 7: And I'm also wondering if I look at the current point of sale data.

And I'm also wondering if I look at the current point of sale data.

Speaker 7: on Doja, for example, it's been gradually increasing the sell-through, you know, month over month, but the absolute dollar amount is still not enough to move the needle. So I'm just curious, what really needs to happen to accelerate that? Is it just you need to get up the learning curve and grow more of it? Or when you talk to provinces, do you find they're saying there's many LPs and they can't make more room to take on additional Doja products? Thanks.

On <unk> for example, it's been gradually increasing the sell through month over month, but the absolute dollar amount is still not enough to move the needle. So I'm just curious what really needs to happen to accelerate that or adjust we need to get up the learning curve and grow more of that or when you talk to provinces will find bersani. There's many.

L P.

They can't make more room to take on additional sales or product. Thanks.

Yes, so first of all on.

Speaker 3: So first of all, on the flower question, yeah, for the premium brands in our portfolio that we're most excited about, I would say that we're seeing consumer demand in the mid-20s THC range. And that's up from where we would have been talking about even six months ago or nine months ago. And so that, I think, highlights the fact that this...

The flower question, yes for the.

Premium brands in our portfolio that we're most excited about.

I'd say that were seeing consumer demand in the mid twenties THC range, so and thats up from where we would've been talking about even six months ago or nine months ago.

So that I think highlights the fact that this.

Speaker 3: that the flower business in Canada is fast moving and we need to stay on top of evolution of strains and so forth. But I think we're seeing that mid-20s.

The flower business in Canada is fast moving and we need to stay on top in top of evolution of of strains and so forth, but I think we're seeing that mid twenties.

Speaker 3: We're starting to do a lot of work around terpene profiling so that we can find a good way to speak to our consumers around terpene profiles related to some of our specific strains.

We're starting to do a lot of work around turpin profiling so that.

We can find a good way to speak to our consumers around terpene profiles related to some of our specific strengths.

Speaker 3: And look, to get to the question around once you start to produce that kind of flower, which we now are, you need to be able to then produce it consistently at scale. And as we said in our prepared remarks, we feel pretty comfortable that we're going to be in that position by the beginning of our Q1 for fiscal 23.

And and look to get to the question around once you start to produce that kind of flower, which we now are you need to be able to then produce at consistently at scale and as we said in our prepared remarks, we feel pretty comfortable that we're going to be in that position by the beginning of our next our Q1 for fiscal 'twenty.

Three.

Speaker 3: And you know, you're right to call out DOJA. DOJA in particular, the 91K strain has done really well for us. I would say the...

Danielle.

Youre right to call out Dodger Doj in particular, the 91 K strain has done really well for us.

I would say.

Speaker 3: The, the, the, anything that what's held back Doja, if anything, has been our ability to keep, to keep 91K, the 91K strain supplied with the, you know, at the right level of THC. So, I think it's less about provincial boards and more about you have to offer the right products. And then as Judy called out in her script, Tammy,

The anything that what's held back Dow Jay if anything has been our ability to.

To keep to keep 91 K the 91 K strain supplied with the at the right level of THC. So I think it's less about <unk>.

Provincial boards and more about you have to offer the right products and then as Judy called out in her script Tammy.

Speaker 3: We're upping our ground game a little bit. We're spending more time with bud tenders. We're spending more time at retail because I think that's how we can make sure that our value proposition is consistently put in front of those consumers. Really excited by the way about the growth of Doja and where it can go.

We're upping our ground game, a little bit we're spending more time with Bud tenders, we're spending more time at retail because I think thats how we.

We can we can make sure that our value proposition is consistently put in front of those consumers. So we're really excited by the way about about the growth of <unk> and where it can go and tell me I would just add a couple of things to Davids response, one is when you look at our premium brand portfolio and the broader portfolio strategy is.

Speaker 4: And Tammy, I would just add a couple of things to David's response. One is, when you look at our premium brand portfolio, and the broader portfolio strategy is continuing to really focus and tighten our portfolio even more. So there are a couple of premium brands in our portfolio, frankly, like Houseplant, that we're not necessarily focused on. So I think that is going to show up from the market data standpoint, some of that sheer dynamics that you're seeing.

Viewing to really focus on tightening our portfolio even more so.

Couple of premium brands in our portfolio frankly like house plant.

Not necessarily focused on so I think that is going to show up from the market data standpoint, some of that share dynamics that youre seeing.

Speaker 4: The other thing is just the timing of when those products actually get onto the shelves too, right? We talked about the distribution drive that we're seeing and Doja Flower making traction in some of the provinces and I think you will continue to see that flow through. If you just look at our sales in 2.3, our premium and mainstream mix.

The other thing is just the timing of when those products actually get onto the shelves too right. When we talked about the distribution drive that were seeing and <unk> fall, we're making traction in some of the provinces and I think youll continue to see that flow through if you just look at our sales in Q3, our premium and <unk>.

Mainstream mix is now 50%.

Speaker 4: is now 50%. This was 30% plus a year ago, so we're really making good strides in terms of improving NICS, how quickly that really flows to retail, and how quickly that shows up in the retail data. So I think that's going to take a little bit of time.

This was 30% plus a year ago. So we're really making good strides in terms of improving mix how quickly that really flows to retail and how quickly that shows up in the retail data I think that that's going to take a little bit of time.

Your next question comes from.

From Barclays. Please go ahead.

Speaker 8: Hi, good morning. Thank you for taking my question. So I have a question on gross margin for the quarter. So if you know you you disclose that you have a 14% ingested gross margin and a 7 million payroll subsidy from the government.

Hi, Good morning. Thank you for taking my question. So a question on gross margin for the quarter.

You disclosed that you have a 14% adjusted gross margin number 7 million payable subsidy from the government.

Speaker 8: If I assume that your consumer products revenue is coming at say a 30% gross margin, that puts figures at your global cannabis revenue as a negative gross margin.

If I assume that your consumer products revenue is coming that said put people. Some gross margin that would fit that sort of global cannabis revenue has a negative gross margin.

Speaker 8: can you just help us understand why that is the case and what will it take for that to become a 20% gross margin kind of...

Can you just help us understand why that those assays.

What will it take for that to become Glenn.

Glenn 2% gross margin.

Speaker 4: Yeah, I'll take that question, Gaurav. You know what, for us...

Yeah, I'll take that question Gaurav.

For us.

Speaker 4: clearly growth margin and improving growth margin remains a very key focus area for Canopy.

<unk> gross margin and improving gross margin remains a very <unk>.

Focus key focus area for canopy.

Speaker 4: As I said in the prepared comments, when you look at our gross margin, we are continued to be challenged by lower production output as well as some of the price compression that we're seeing in the marketplace. When you look at our Canadian operations and...

And as I said in the prepared comments when you look at our gross margin.

We are continued to be challenged by lower production output as well as some of the price compression that we're seeing in the marketplace and when you look at our Canadian operations.

Speaker 4: driven by the lower production output, we have the under absorption of fixed and indirect costs that are flowing through our gross margin performance. We've also talked about some of the higher supply chain costs that we're incurring that many of the companies are facing in the industry as well.

Driven by the lower production output, we have the under absorption of fixed and indirect costs that are flowing through our gross margin performance. We've also talked about some of the higher supply chain costs that were incurring that many of the companies are facing in the industry as well.

Speaker 4: And then I would say in addition, we do have a sizable non-cash expenses in our cost of goods sold in Canada that flows through. The numbers in Canada alone, we've got around $36 million of DNA expenses that are part of cost of goods sold. So certainly that impacts our gross margin. And I'm not exome for that.

And then I would say in addition, we do have a sizable noncash expenses and our cost of goods sold in Canada that flows through.

The numbers in Canada alone, we've got around $36 million of DNA expenses that are part of cost of goods sold so certainly that impact our gross margin and then we also have some accounting driven amortization of our standard cost revaluation there were still.

Speaker 4: We also have some accounting driven amortization of our standard cost revaluation that we're still flowing through as part of our flower strategy that we've been implemented. So a lot of noise in the growth margins, but I think our focus is really looking to improve our growth margins and looking for a few areas. I think what we were wanting, as we got bigger and bigger and more dense are like new appleikkies, hopeful, Branchless andorative Ag etcsam, can get into the conversation, and I think that's the overall impact of growth. We've got some ten reformingBDZs as well as some cherry spark, and a common option is probably to get some

Flowing through as part of our Ah Flowers' strategy that we've been implemented so a lot of noise in the gross margins, but I think our focus is really looking to improve our gross margins and looking for a few areas number one is.

We really look at our premium mix, so really focusing on premium rising our portfolio. We do think that focused premium product portfolio will drive improvement in our mix and drive gross margin.

Speaker 4: really look at our premium mix, so really focusing on premiumizing our portfolio, we do think that focus...

Speaker 4: premium product portfolio will drive improvement in our mix and drive gross margin expansion.

Gross margin expansion. The other thing is we've identified additional opportunities frankly to really increase our cultivation productivity streamline processes as well as additional productivity initiatives, which would be looking at distribution indirect and variable spend bucket. So a lot of work is underway.

Speaker 4: The other thing is we've identified additional opportunities, frankly, to really increase our cultivation productivity, streamline processes, as well as additional productivity initiatives, which would be looking at distribution, indirect and variable spend buckets. So a lot of work is underway to make sure that we're tackling all of the areas of opportunities, and we do expect over time, we'll see gross margin expansion in the Canadian market.

To make sure that that we're tackling all of the areas of opportunities and we do expect over time, we'll see gross margin expansion in the Canadian market.

Your next question comes from Chris Carey from Wells Fargo. Please go ahead.

Hi, good morning.

Speaker 9: Hi, good morning. Welcome back.

Good morning, Chris Welcome back.

Okay. Thanks.

You very much good to be back.

I just wanted to follow up on that line of questioning around profitability in Canada and it sounds like there's some good initiatives around.

Speaker 2: I just wanted to follow up on that line of questioning around profitability in Canada. And it sounds like there's some good initiatives around expanded distribution, more focus at retail, speaking with bud tenders, really trying to understand the consumer and that all makes sense.

Expanded distribution.

More focus.

Retail.

Speaking with Bud tenders really trying to understand the consumer and that all makes sense.

Speaker 2: And I suppose there's a concept here where our sales leverage. With some of these initiatives over the next 3 to 6 months is expected to help.

And I suppose there is a concept here, where our sales leverage with some of these initiatives over the next three to six months is.

As expected to help quite a bit.

Speaker 2: But I guess, you know, the other side of that is what, what if, you know, some of these initiatives take a little bit longer? Obviously this is a very challenging and competitive market. And David, I'm curious your thoughts here as well in the context of.

But I guess.

The other side of that is what if some of these initiatives take a little bit longer. Obviously this is a very challenging and competitive market.

David I'm curious your thoughts here as well in the context, though.

Speaker 2: you know, some pretty significant capacity reductions that you made as you came into the organization, specifically on the West Coast.

So pretty significant.

<unk> reductions that you made as you came into the organization, specifically on the West coast and and I Wonder your.

Speaker 2: And I wonder your appetite for maybe making a...

Appetite for maybe making.

Speaker 2: more significant changes to the asset base here in the context of what looks like a pretty successful non-cannabis portfolio and a lot of the things that you're doing in the U.S. as well. So, appreciate any perspective there.

More significant changes to the asset base here in the context of what looks like a pretty successful non cannabis portfolio and a lot of the things that you're that you're doing in the U S. As well so appreciate any perspective there.

Speaker 4: Yeah, I would say Chris, you know, I think I, as I said in my prepared comments, we recognize that our revenue base is lower than, you know, I think what we projected to be to really support the expense structure that we currently have. So

Yes, I would say Chris.

I think as I said in my prepared comments, we recognize that our revenue base is lower than.

<unk>.

As projected to be to really support the expense structure that we currently have so.

Speaker 4: really looking at tackling across various buckets.

Really looking at tackling across various buckets, where we can streamline the processes as well as additional G&A savings in SG&A savings that will allow us to be profitable in Canada, recognizing that the realities of where we are today is <unk>.

Speaker 4: streamline the processes as well as additional GNA savings and SGNA savings.

Speaker 4: that will allow us to be profitable in Canada, recognizing that the realities of where we are today is different than what we had anticipated. So I think what you will hear more from us in the next call is just a lot of those initiatives in place to make sure that we're streamlining processes, we're looking to optimize expenses to get us to that profitability as quickly as possible.

Then what we had anticipated so I think what you will hear more from US in the next call is just a lot of those initiatives in place to make sure that we're streamlining processes, we're looking to optimize expenses to get us to that profitability as quickly as possible.

Speaker 3: And Chris, what I would add to that is kind of like set the tone, which is we're only growing for premium flower in our facilities, right? So we're creating focus there. We're streamlining our portfolio of brands.

Yeah, and Chris what I would what I would add to that is kind of set the tone, which is we're only growing for premium flower in our facilities right, So where we're creating focus there.

We're streamlining our portfolio of brands.

Speaker 3: so that we're really focused on dojis, seven acres, DNA, tweed on the flower side to create more of a simplified operating environment. And then when you get through all that, you get to, we have three facilities, Kincardine, Smith Falls, and...

So that we're really focused on <unk> seven acres DNA Tweed.

On the flower side to create more of a simplified operating environment and then when you get through all that you get to we have three facilities Kincardine.

Smiths falls and Mirabel, and we think that each of those facilities.

Speaker 3: And we think that each of those facilities with this strategy can improve on the performance from a cost perspective that they've delivered on in the past. And I might throw out one caveat, and this would apply to some of our advanced manufacturing activities in Smith Falls, and that is the facilities are built out.

With this strategy.

Approve on the performance from a cost perspective that they've delivered on in the past and I might throw out one one caveat.

And this would apply to some of our advanced manufacturing activities in Smiths falls and that is the facilities are built out.

Speaker 3: And so they're admittedly overbuilt. And so they create that depreciation and amortization drag that Judy talked about in her last comment.

And so they are admittedly overbuilt.

So they create that depreciation and amortization drag that Judy talked about in our last comment.

Speaker 3: And so we've really been focused on as much as possible getting the right throughput, the right brand set, the right SKU set so that we can actually optimize our margin.

And so we've really been focused on is.

As much as possible getting the right throughput the right brands at the right.

The right SKU set so that we can actually optimize our margins.

Speaker 3: with a lot of attention on cash margins or EBITDOT kind of margins so that we're really, there are some things that we can't easily change, like again, the size and scale and scope of our drinks facility. So we're operating it as efficiently as we can, knowing that it's a long term drag on our margins. Thank you.

With a lot of attention on.

On kind of.

Sure.

Cash margins or EBITDA margins. So that we're really there are some things that we that we can easily change again.

Again, the size and scale and scope of our drinks facility and so we're operating it as efficiently as we can knowing that it's a long term drag on our.

On our margins.

Your next question comes from Pablo <unk> from Cantor Fitzgerald. Please go ahead.

Speaker 10: Good morning, thank you. David, just talking about the export markets, right? I know that we talk about Canada and a lot of focus on the US, Germany could legalize. Just talk about how prepared are you there? Does the CLC-3 hurt you in any way there? We see numbers that you are over until rate with more market share. Just remind us of your strengths and how ready would you be if markets start to liberalize?

Good morning. Thank you David just just taking all of the export markets right I know that with a little Canada and a lot of focus on the U S.

Germany would legalize.

Just talk about how prepared are you there does the sale of C. III hurt you in any way there we see the numbers that Joe Road until Ray with more market share just remind us of your strengths and how really would you be beef market started to liberalize there in Europe .

Speaker 3: Yeah, so thanks for the question, Pablo. So, you know, we have a robust organization in Germany that, you know, I, we continue to perform well in that market. But you know, our, as I called in our comments are...

Yes. So thanks for the question Pablo So we have a robust organization in Germany.

That.

We continue to perform well in that market.

But.

<unk> called out in our comments our sales in that market were down in the quarter. A C. Three doesn't really affected in fact, I think see three Pablo it's a bit of a simplification strategy for us because.

It allows us to focus in particular on flower in Germany, which which we think ultimately is beneficial for us and in terms of.

Speaker 3: when Germany gets to permissibility, our ability to

When Germany gets too permissibility our ability to.

Speaker 3: address the market, supply product into the market is super strong. So we think we're reasonably well positioned. With that said...

Address the market supply product into the market is super strong. So we think we think we're reasonably well positioned but that said most of our activity most of our attention most of our mind share is against getting our Canadian business premium and mainstream profitable focused on premium and mainstream.

Speaker 3: Most of our activity, most of our attention, most of our mind share is against getting our Canadian business premium and mainstream profitable, focused on premium and mainstream and profitable and building out that USTHC ecosystem. And we're going to continue to focus in those two areas while we wait and see what happens elsewhere in the world.

Profitability and building out that U S THC ecosystem, and we're going to continue to focus in those two areas.

While we while we wait and see what happens elsewhere in the world.

Your next question comes from Owen Bennett from Jefferies. Please go ahead.

Speaker 11: Morning guys hope all well and I just wanted to come back on the Canadian market share so lots of focus on flower trends.

Good morning, guys hope, all well and I just wanted to come back on the Canadian market share so lots of focus on flower trends.

Speaker 11: what's gone wrong there and how you're addressing with premium but if we go back to an investor meeting you guys had with us back in June 2020 and you called out 2.0 product there's a big area of focus where you wanted to be the leader and win.

It's gone wrong, there and how you're addressing with premium, but if we go back to an investor meeting you guys had weibo's back in June 2020, and you called out 2.0 products as it began focus where you wanted to be the leader in and win.

Speaker 11: delivery obviously not being great, gross sales down 40% in 2.0 versus a year ago.

Obviously, not being great gross sales down 40% aimed to point versus a year ago I'm just wanted to get your thoughts on what you think has gone wrong in two point in Taiwan, and why should we believe the <unk>.

Speaker 11: I just want to get your thoughts on what you think has gone wrong in 2.0 and why should we believe that trends there can also improve like you're hoping to see flower trends improve.

And that can also improve like you are hoping to see flower trends improve thank you.

Speaker 3: Yes, so if I split out 2.0 products, I'll chop it into three areas. So I'll start with drinks.

Yes, so if I split out if I split out to point out products.

Profit in the three areas right. So I'll start with drinks and I think look the thing with drinks and even as I talked about scaling our drinks facility. The key unlock is if we get movement on equivalency in Canada, because we just can't sell the volumes across the market.

Speaker 3: And I think, look, the thing with drinks, and even as I talked about scaling our drinks facility, the key unlock is if we get movement on equivalency in Canada, because we just can't sell the volumes across the market that would be necessary to get the kind of returns that we want. And we're hopeful that that comes in the not too distant future. I think that would be good for the industry in general, and certainly would be really good for Canopy. I have a question on this.

Would be necessary to get the kind of returns that we want and we're hopeful that that comes in the not too distant future I think that would be good for the industry in general.

And certainly we'd be really good for canopy.

Switching to <unk>.

<unk>.

Speaker 3: Our edibles portfolio has performed reasonably well with the introduction of tweed and TWD gummies into the market this year. But on top of that, I think when we talk about the

Our edibles portfolio has performed reasonably well with the introduction of Tweed and TWD gummies into the market this year, but on top of that.

I think when we talk about our U S THC ecosystem, our acquisition of Wanna.

Speaker 3: You know, our acquisition of WANNA makes us ultimately the brand owner of WANNA in the Canadian market, which has a 38 share of the gummy trade in Canada. And so we believe that WANNA plus Tweed plus TWD plus our deep space line of gummies in the market will allow us to be really competitive. And you know, we...

It makes us ultimately the brand owner of <unk> in the Canadian market, which has a 38 share of the gummy of the gummy trade in in Canada, and so we believe that.

At 100, plus tweet plus TWD, plus our deepest baseline of gummies and the market will allow us to be really competitive and we.

Speaker 3: We think we can have good margins from that segment of business over time. The area that we haven't performed to the level that we would like to has been in the area of vape.

We think we can have good margins from that segment of business overtime the area that.

We haven't performed to the level that we would like to has been in the area of <unk> as the company admittedly, we focus a little bit more on.

Speaker 3: As a company, admittedly, we focus a little bit more on flower vaporizers like Storz and Bickel. And so, that's maybe taken a preponderance of our attention. But distillate based vapes, we've lagged the market and we're continuing to work in that area to see how we can ultimately improve over time.

On flower vaporizer like Storz <unk> bickel.

And so that's maybe taken a preponderance of our attention but.

Distillate base rates, we've lagged the market.

We're continuing to work in that area to see see how we can ultimately improve overtime.

Speaker 4: And Owen, I would just add, again, going back to what we want to really achieve from a product portfolio standpoint, we really want to focus on...

And I would just add just when again going back to kind of what we want to really achieve from a product portfolio standpoint, we really want to focus on growing and profitable categories right. So I think when you kind of identify which categories in the market are profitable and growing.

Speaker 4: growing and profitable categories, right? So I think when you kind of identify which categories in the market are profitable and are growing,

Speaker 4: premium segment of the flower category, pre-roll categories, really seeing good growth and good margins there. In vapes, I think what you're seeing is the growth in some of the premium side of that category too, live resin concentrates where the margins are much better than distillate based categories. So that's going to be the area of focus for us.

Premium segment of the following categories pre roll categories really.

<unk> seen good growth and good margins there.

And David I think what Youre seeing is the growth in some of the premium side of that category to live resin concentrates where the margins are much better than and then distillate based category. So that's going to be the area of focus for US you look at beverages, and edibles I think thats really about category.

Speaker 4: You look at beverages and edibles, I think that's really about category expansion. So, you know, I think it's a combination of getting the regulatory unlocked, but how can we offer products in beverages and edibles that really provide unique attributes and some excitement.

Spansion. So I think it's a combination of getting the regulatory unmask, but how can we offer products in beverages, and edibles that really provide unique attributes and some excitement.

Speaker 4: that can really expand the category. So I think that it's both market share, but certainly focused on category expansion as well.

That can really expand the category. So I think that it's both market share, but certainly focused on category expansion as well.

Your next question comes from Adam Buckman from Scotiabank. Please go ahead.

Speaker 2: Hi, David and Judy, thanks for taking my question. So more of a strategic cue for me, but I want to talk a bit more about the USPHC ecosystem and what the team is trying to do there. Now, obviously, you know, the regulatory backdrop is what it is, and certainly a gray area that becomes hard to comment on, but

Hi, David and Jamie Thanks for taking my question.

So more of a strategic queue for me, but I wanted to talk a bit more about the U S th ecosystem and what the team is trying to do there.

Now obviously the regulatory backdrop is what it is and certainly a gray area that it becomes hard to comment on but.

Speaker 12: You know, in a scenario where it remains unchanged for a longer period of time, you know, how does the team think about creating value for, you know, the investments and carry costs that CanXia has made there?

In a scenario where it remains unchanged for a longer period of time, how does the team think about creating value for the investments and carry cost Mckenzie has made there.

Yes, so great question, because I actually think this is maybe one of the more underappreciated components of our story right. So so we have this USB C ecosystem and Thats really.

Speaker 3: Yes, so great question because I actually think this is maybe one of the more underappreciated components of our story, right? So we have this USPHC ecosystem that's really, right now it's made up of an investment in Terrace and a 70% stake in acreage and ownership of Juana.

Right now it's made up of an investment in tariffs and.

And.

70% stake in acreage and ownership of Juana and.

Speaker 3: And it's actually a bit of an interesting, I guess, financial markets conundrum because, take WANA as an example. We've paid for WANA. So the cash has left our balance sheet. But you don't see the consolidated results coming through our earnings and you won't see them until we have a federal permissibility event.

It's it's.

It's actually a bit of an interesting I guess, I guess financial markets conundrum because.

Take <unk> as an example, we've paid for one so the cash has left our balance sheet, but you don't see the consolidated results coming through our earnings and you won't see them until we have a federal permissibility event.

Speaker 3: And so it's just an interesting scenario where we have, if you combine these businesses as a group, our USTHC ecosystem is good size, it has really strong growth, and it's all profitable tracking for the Order ofel.

So it's just it's an interesting scenario, where we have.

If you combine these businesses as a group our USB C. Ecosystem is good size. It has really strong growth and it's all profitable right. We just don't get to consolidate that into our numbers and so and so it's hard to see what's happening in that market. However.

Speaker 3: We just don't get to consolidate that into our numbers. And so it's hard to see what's happening in that market. However, continuing to use Juana as an example, and I could use acreage and terracend as well, in the quarter Juana opened up the market in Nevada. So they continue to expand their business, continue to grow their business, continue to drive increased profitability, which will consolidate into our P&L upon permissibility. So...

Using continuing to use <unk> as an example, and I could use acreage and tariffs and as well in the quarter Wanna opened up the market in Nevada. So they continue to expand their business continue to grow their business continue to drive increased profitability, which will consolidate into our P&L upon permissibility so and.

Speaker 3: And I can again make the same case for acreage, which has, you know, its third consecutive quarter of profitability. They've opened up Ohio in a big way and they just continue to do all the right things to position their business well. And so they can, each of these businesses continue to drive value creation in their businesses which ultimately accrue to us upon permissibility. And so...

Again make the same case for acreage which has.

Its third consecutive quarter of profitability.

Opened up Ohio in a big way and they just continue to do all the right things to position their business well and so each of these businesses continue to drive value creation in their businesses, which ultimately accrue to us upon permissibility and so.

Speaker 3: Look, who knows when we're going to hit a permissibility event. I think we're seeing a lot of positive momentum and it's certainly in my view a question of when not if.

Look who knows when we're going to hit a permissibility event I think we're seeing a lot of.

Pause continue to see a lot of positive momentum and it's certainly in my view a question of.

A when not if but we're just not waiting with this THC USG, it's the infrastructure that we put in place.

Speaker 3: But we're just not waiting. With this USTHC infrastructure that we put in place, we're continuing to create value. Those companies are continuing to create value that accrue to us when we get to the permissibility event. Your next question comes from...

Sure.

We're continuing to create value of those companies are continuing to create value that accrue to us when we get to the permissibility of that.

Okay.

Your next question comes from Doug.

Man from RBC capital markets. Please go ahead.

Thanks very much.

Speaker 2: I just wanted to follow on some of the conversation as it relates to the premium market in Canada. And maybe what you could delineate for us is, could you talk about the size of that market on a market share basis right now?

Yes, I just wanted to follow on some of the conversation as it relates to the premium market in Canada, and maybe what you could delineate for US is can you talk about the size of that market on a market share basis, right now and where you might think that could go to over the next year or two.

Speaker 2: and where you might think that could go to over the next year or two, you know, taking into account more mature markets in the US. And I'd really like you to spend a little time, if it's possible, just walking through what's going on in the craft side of the market and what's going on in the world.

Taking into account one mature markets in the U S and I really like you to.

And a little time, maybe it's possible.

Just walking through what's going on in the craft side of the market because they are <unk>.

Speaker 2: You know, they originally took 20% of the market, and it appears they've even taken more, when most people believe that.

Originally took.

20% of the market.

We've even taken more when most people believe that.

Speaker 2: they would start to reverse at some point. And that may still occur, but I just want to get your thoughts on, you know, what you see happening in the market over the next year or two. Thank you.

They would start to reverse at some point that may still occur, but I just wanted to get your thoughts on.

What you see happening in the market over the next year or two thank you.

Yes, Hey, Doug Thanks for the question. So I'll provide some color on market share and I'll turn it over to David just to give a bit more color on our strategy, but when you look at the flower category.

Speaker 4: Yes, he does. Thanks for the question. So I'll provide some color and mark a share and I'll turn it over to David.

Speaker 4: to give a bit more color on our strategy. But when you look at the flower category, I think that certainly as we've talked a lot about the value flower segment in the past, premium is a sizable category in the market, right? So when you kind of look at the total flower market.

I think certainly as we talked a lot about the value flower segment in the past premium is a sizeable category in the market right. So when you kind of look at the total flower market.

Speaker 4: The value is still around 50%, but when you look at the premium mainstream, again, it's a 50% of that remaining market. And our expectation is that premium

P value still around 50%, but when you look at the premium mainstream again, it's a 50% of that remaining markets and our expectation is that premium.

Speaker 4: flower segment is going to be the growth driver of the flower category growth going forward. So we're looking at premium really to drive that growth in the segment of the market. And I think that is going to be a function of a lot of these new genetics and new strains coming into market. And

Power segment is going to be the growth driver of the flower category growth going forward. So.

We're looking at premium really to drive that growth in this segment of the market and I think that is going to be a function of a lot of these new genetics and new strains coming into market and frankly that don't drive that excitement from the consumers I think the consumers are still trying to find her.

Speaker 4: And frankly, that does drive that excitement from the consumers. I think the consumers are still trying to find their footing where a lot of that sort of turn is happening in the marketplace. But I think as we focus really on the premium trains and the new genetics that we're bringing to market, that is going to really allow us to win in that part of the market.

Their footing, where a lot of that that sort of churn is happening in the marketplace, but I think as we focus really on the premium strains and the new genetics that we're bringing to market that is going to really allow us to win in that part of the market. Dave do you want to yes, yes, and so just a couple of just.

Speaker 3: Dave, you want to say something? Yeah. And so just a couple of...

Speaker 3: just maybe concepts that we think about a lot. I believe over time, the cannabis market will look a lot like other CPG categories where there's a sizable and growing premium segment and a sizable and potentially shrinking value segment over time once you get to total market build out. And we like what we can do at the premium end of the market.

Maybe concepts that we think about a lot.

Believe overtime.

The cannabis market will look a lot like other CPG categories, where there is a sizable and growing premium segment.

A sizeable and potentially shrinking value segment over time once you get to total market build out and we like what we can do at the premium end of the market.

Speaker 3: We get to be more innovative, we get to create better offerings for our consumers, we get to charge more for them, you know, and so it's just an area that we want to focus instead of chasing things all over the market.

We get to be more innovative we get to.

Create better offerings for our consumers, we get to charge more for them.

And so it's just an area that we want to focus instead of chasing things all over the market.

Speaker 3: And you know, your Kraft comment is fascinating because I probably sit in a seat where I think that Kraft probably ends up being, and you see this in other markets, like say beer, Kraft will end up being a sizable share of the market, 15-20% of the market over time.

Youre craft comment is fascinating because I probably sitting in.

In a seat where I think that.

<unk>, probably ends up being and you'll see this in other markets like say beer craft will end up being a sizable share of the market, 15%, 20% of the market over time, but what I love about what's going on with craft right. Now is some of the genetics activity that's happening in the marketplace and we're looking to partner with craft players through our seven acre.

Speaker 3: But what I love about what's going on with craft right now is some of the genetics activity that's happening in the marketplace. And we're looking to partner with craft players through our Seven Acres Craft Collective and a couple of other initiatives that we have going on. We just think it's...

Craft collective in a couple of other initiatives that we have going on we just think it's.

Speaker 3: I think it's good for the market and I think it's ultimately going to be good for Canopy.

I think it's good for the market and I think its ultimately going to be good for canopy and so.

Speaker 3: Again, it's going to be fascinating to watch this unfold, but I think premiumization is a trend that we clearly want to participate in in a big way.

Okay.

It's going to be fascinating to watch this unfold, but I think premium position.

Is a trend that we clearly want to participate in in a big way.

Your next question comes from Andrew Carter from Stifel. Please go ahead.

Speaker 13: Hey, thanks, good morning. So I was a little confused about the kind of this quarter showing kind of improving revenue growth. You were down 3%. I think you mentioned an acceleration last quarter. You were down 8% this quarter. So kind of confused on that. And then second point, could you give us any guardrails around where the fourth quarter is going to shake out on an absolute basis? I know the C3 headwind, will the decline accelerate before improving? We'll improve. Just anything to help us out. Thanks. Yeah.

Hey, Thanks. Good morning, So I was little confused about the kind of this this quarter showing kind of improving revenue growth you were down 3% I think Hugh you mentioned, an acceleration last quarter you were down 8%. This quarter. So kind of confused on that and then second point could you give us any guardrails around where the fourth quarter is going to shake out on an absolute basis I know the <unk>.

<unk> headwind.

Will they decline accelerate before improving will improve just anything to help us out.

Yes.

I'll start with.

Speaker 4: with my comment, Andrew. So I say the comment around...

With my comment Andrew So I'd say the comment around improvement is obviously when you take a step back and kind of where we've been and our business in a lot of actions that we've taken in Q3 to really drive distribution gains and our U S CBD and CPG businesses.

Speaker 4: improvement is, you know, obviously when you take a step back and kind of where we've been in our business and a lot of actions that we've taken in Q3 to really drive.

Speaker 4: distribution gains in our US CPD and CPG businesses, really premiumizing our portfolio in the flower side in Canada and getting new products to market from a Canadian recreational market standpoint. All of those actions we feel are starting to stabilize our revenue performance for the overall company. Admittedly, I think the Canada market is still trying to find its footing and we do expect...

Really premium rising our portfolio and the flower side in Canada, and getting new products to market.

Canadian recreational market standpoint, all of those actions, we feel are starting to stabilize our revenue performance for.

For the overall company.

Admittedly I think the Canada market is still trying to find its footing and we do expect.

Speaker 4: more improvement as we get more supply into the market, but I think a lot of that action that we were taking certainly showing up in the record quarterly performance for BioSteel, record quarterly performance for SMB, so I do think that the actions we're taking are driving the intended performance on an overall basis.

More improvement as we get more supply into those into the market, but I think a lot of that actions that we're taking certainly showing up in the record quarterly performance for Bayou steel record quarterly performance for SMB. So I do think that the actions. We're taking are driving the intended performance on an overall basis as it relates to.

Speaker 4: As it relates to Q4, I think I gave a lot of the colors in my prepared comments. I think for Canada it's a combination of when can we get all the supply of our premium power in market and as we said earlier that's going to be phased over the next couple of days.

Q4, I think I gave.

A lot of the colors in my prepared comments I think for Canada. It's a combination of when can we get all of the supply of our premium flower in market and as we said earlier, that's going to be phased over the next.

Couple of quarter.

Speaker 4: I think you have to just recognize that some of the headwinds in the marketplace as relates to COVID, right? You've got retail stores, and this is not a restrictions from the government. It's really around staffing shortages because of the Omicron issues and so forth. So you're seeing some of that intermittent closures. You also have some of the restrictions on consumers entering some of the stores in certain provinces. So we just want to make sure that there is a recognition for some of the headwinds.

You have to just recognize that some of the headwinds in the marketplace as it relates to Covid, Mike you've got retail stores and this is not us the restrictions from.

The government, it's really around staffing shortages because of the <unk> issues and so forth. So youre seeing some of that intermittent closures.

You also have some of the restrictions on.

<unk> entering some of the stores and certain provinces. So we just want to make sure that there is a recognition for some of the headwinds for Q3 as I called out earlier, they generated about $16 million in Q4 of last year over the course of this year C. III.

Speaker 4: For C3, as I called out earlier, they generated about 16 million in Q3.

Speaker 4: for of last year. Over the course of this year, PC3 contribution has become less than less as we face some of that competition in the marketplace. But again, we have to lap that sale from that perspective. And then I think for the bright spots in the quarter will continue to be scaling up bio-steel and getting distribution. And then obviously stores in BICO continuing to see good momentum with the new products that they've rolled out.

<unk> has become less and less as we faced some of that competition in the marketplace, but again, we have to lap that.

Sale.

Some from that perspective, and then I think for the bright spots in the quarter were continued to be scaling up higher steel and getting distribution.

And then obviously stores and Becker continuing to see good momentum with the with the new products that they've rolled out.

Speaker 5: Your next question comes from Michael Lavery from Piper Sandholder. Please go ahead.

Your next question comes from Michael Lavery from Piper Sandler. Please go ahead.

Good morning, Thank you.

Speaker 14: Hey, Michael, it sounds like it's the right move to reset some of the thinking around your revenue target.

Hey, Michael.

It sounds like it's the right move to reset some of the thinking around your revenue targets.

Speaker 14: you know, at least walk before you run and adjust the cost accordingly. It sounds like a lot of that planning.

At least walk before you run.

Just the cost accordingly, it sounds like a lot of that planning.

Speaker 14: that reset to have a new plan is still in the works. But can you give us a sense of either when profitability might be in sight? You talk about it for the Canadian business. Would that also translate to the total company or is it really just focused on Canada in isolation? And if you're not ready to give timing for that yet, should we at least expect to hear that like next quarter or maybe timing for the timing?

That reset to have a new plan is still in the works, but can you give us a sense of.

Either when profitability might be on site you talked about it for the Canadian business.

That also translate to the total company or is it really just focused on Canada in isolation.

And if youre not ready to give timing for that yet.

At least we expect to hear that.

Next quarter or maybe timing for the timing.

Speaker 4: Yeah, Michael, as I said earlier, we are currently going through our annual planning cycle, right? So we've got this planning cycle that's underway. As we complete the annual planning cycle, we will share more details, likely in our next quarterly earnings call, around some of the key milestones that we're really focused on in providing some of that detail.

Yes, Michael look as I said earlier, we are currently.

Going through our annual planning cycle right. So we've got this planning cycle that's underway as we complete the annual planning cycle, we will share more details.

Likely in our next quarterly earnings call.

Around some of the key milestones that we are really focused on in.

In providing some of the details.

Speaker 4: you know, if you just take a step back, as we said earlier, we do really focus on Canada becoming profitable.

If you just take a step back as we said earlier we do.

Really focused on Canada, becoming profitable.

Speaker 4: But there are strategic growth areas that we really are excited about and you see that in the performance of biosteel so we do want to continue to invest.

But theyre strategic growth areas that we really are excited about it and you see that in the performance of Bayou steel. So we do want to continue to invest behind <unk> and then obviously U S. PHC strategy, where to David's point, we don't get credit for any revenue or profit contribution, but we think this is really the.

Speaker 4: behind bio-steel. And then obviously, US THC strategy where to David's point, we don't get credit for any revenue or profit contribution, but we think this is really the potentially the great long-term opportunity for canopy shareholders. So investing in that THC strategy right now, we think is the appropriate course of action. So all of those are kind of how we think about some high-level standpoint, but we'll share more details in the next quarterly call.

The great long term opportunity for canopy shareholders. So investing in that PHC strategy right. Now we think is the appropriate course of action. So all of those are kind of how we think about from a high level standpoint, but we will share more details in the next quarterly call.

Speaker 5: There are no further questions at this time. You may please proceed, Mr. Klein, for final...

There are no further questions at this time you May. Please proceed Mr. Klein for final remarks.

Speaker 3: Yeah, so thanks again for joining us today and appreciate the thoughtful questions. So in summary, we've developed a clear strategy that will deliver a path to profitability for Canada by focusing on areas where we have a right to win with premium brands backed by operational excellence and scaled through unparalleled distribution.

Yes, so thanks again for joining us today and appreciate the thoughtful questions.

So in summary, we've developed a clear strategy that will deliver a path to profitability for Canada by focusing on areas, where we have a right to win with premium brands backed by operational excellence and scale through Unparallel distribution, there's never been a better opportunity to invest in canopy, we're building something unique.

Speaker 3: There's never been a better opportunity to invest in Canopy. We're building something unique in the cannabis industry, and our true value has yet to be realized.

In the cannabis industry and our true value is yet to be realized I look forward to updating you at the end of Q4 on our progress against these ambitious plans and our path ahead for FY 'twenty three our Investor relations team will be available to answer any additional questions. Thanks, again and have a great day.

Speaker 3: I look forward to updating you at the end of Q4 on our progress against these ambitious plans and our path ahead for FY23. Our Investor Relations team will be available to answer any additional questions. Thanks again and have a great day.

Okay.

Speaker 5: This concludes Canopy Growth's third quarter fiscal 2022 financial results.

This concludes canopy growth's third quarter fiscal 2022 financial results conference call.

Speaker 5: A replay of this conference call will be available until May 10th, 2020.

This conference call will be available until May 10, 2022.

Speaker 5: and can be accessed following the instructions provided in the company's press release issued earlier today.

And can be accessed.

Following the instructions provided in the company's press release issued earlier today.

Speaker 5: Thank you very much for attending today's call and enjoy the rest of your day.

Thank you very much for attending today's call and enjoy the rest of your day.