Q4 2023 Canopy Growth Corporation Earnings Call
Speaker 1: update on Canopy USA and the progress on entering the US cannabis market.
Speaker 1: And finally, the path forward for Fiscal 24.
Speaker 1: Following my remarks, Judy will provide a brief review of our fourth quarter in fiscal 23 results and share an update on our path to profitability.
Speaker 1: She'll also discuss our balance sheet and the actions we are taking to strengthen our financial position and improve liquidity.
Speaker 1: Fiscal 23 was a challenging yet transformative year marked by substantive change.
Speaker 1: The Canadian cannabis industry continues to be challenged by systemic regulatory issues, a continued battle with the illicit market, and delays in government action on both sides of the border.
Speaker 1: And internally at Canopy, we face executional challenges as we transition our genetic strategy and cultivation practices.
Speaker 1: which led to delays in achieving commercial scale. I'm proud to say that we're now delivering consistent quality as evidenced by consumer demand for the iconic sweet brand.
Speaker 1: And we've taken the necessary actions to simplify our business by undertaking a complete transformation through the following initiatives.
Speaker 1: The full divestiture of our national retail operations.
Speaker 1: Exiting cultivation in Mirabel and Smith Falls.
Speaker 1: Moving post-harvest manufacturing to our former beverage building in Smith Falls.
Speaker 1: adopting a flexible third-party sourcing model for cannabis beverages, edibles, vapes, and extracts.
Speaker 1: and reducing headcount across the business with approximately 1,200 positions eliminated.
Speaker 1: Our team has worked diligently over the past fiscal year to complete the majority of these initiatives on or ahead of schedule.
Speaker 1: A transformation of this magnitude takes time to demonstrate its full results.
Speaker 1: But we're already seeing the effects of our actions with SG&A expenses in COGS already delivering a combined $125 million through the end of fiscal 23.
Speaker 1: We expect to reduce overall costs by $240 to $310 million in total by the end of fiscal 24.
Speaker 1: through continued discipline and stable commercial performance in Canada, along with further simplification of our business.
Speaker 1: We're on a path to realizing profitability.
Speaker 1: I'll now address the biosteal review.
Speaker 1: As we disclosed earlier this spring during the preparation of our financial statements for our 2023 Form 10-K , we identified certain trends in the booking of our sales for our Biosteel business unit.
Speaker 1: With the oversight from the Audit Committee, we launched an internal review together with independent external counsel and forensic accountants.
Speaker 1: Based on the results of the review, we'll be implementing several remedial actions to strengthen our controls for the bio-steel business which are outlined in the 10k.
Speaker 1: We felt it was important to act swiftly to provide stability to the business at this pivotal time.
Speaker 1: To this effect, we have exited several members of the BioSeal leadership team and are considering all legal remedies available to us, including litigation, to recover damages and costs associated with and resulting from the findings of the BioSeal review.
Speaker 1: Despite this, we have great confidence in the Biosteel brand, which saw a 101% revenue increase in fiscal 23.
Speaker 1: According to Nielsen, Biosteel's share of isotonic beverage sales in the Canadian National Convenience and Gas Channel reached 11% in the fourth quarter of Fiscal 23, up from 3% in the year prior.
Speaker 1: We're continuing to drive momentum in the Canadian market by doubling down on the food drug and mass market channels, as well as club accounts with prominent biofuel displays at Costco this summer.
Speaker 1: In the U.S., IRI data shows BioShield ACV at 38% in the fourth quarter of fiscal 23, up from 19% in the prior year.
Speaker 1: Growth drivers include the BioSteel NHL partnership, which delivered incredible visibility for the brand during the Stanley Cup playoffs.
Speaker 1: As we look ahead to the strategy to sustain brand growth, we'll be tightening the geographical focus in the U.S. to prioritize key regional markets and place a sharper emphasis on the specialty retail channel, such as Jim's, to build loyalty with athletically inspired consumers.
Speaker 1: At the same time, we also must address Biot-Steel's drag on our profitability, which Judy will speak to further in her remarks.
Speaker 1: As we focus on our core cannabis business, we'll continue to evaluate all options for biosteal.
Speaker 1: With a groundswell of momentum behind the brand in North America, we anticipate strong top-line growth, leading to profitability in the years ahead.
Speaker 1: Next, I'd like to spend a few minutes discussing the performance of our Canadian cannabis business in fiscal 23. Overall, our adult use cannabis B2B revenue in the fourth quarter of fiscal 23 ended slightly higher sequentially compared to the third quarter of fiscal 23.
Speaker 1: We view this as a positive given the challenging dynamics.
Speaker 1: in the Canadian market in the scale of internal change that our team managed during the quarter.
Speaker 1: One of the most important achievements driving this performance was the strong resurgence of the iconic tweed brand in the flower and pre-roll categories, which continue to dominate the Canadian adult use market.
Speaker 1: The primary driver of this comeback has been a marked improvement in flower quality.
Speaker 1: fueling strong consumer demand, propelling Tweed's rise to the number 9 brand spot in the Canadian adult use market in the fourth quarter of fiscal 23, up from number 16 in the year prior.
Speaker 1: As we look to the year ahead, we're excited to have taken another significant step forward to unify our North American House of Brands.
Speaker 1: In late May, we announced that Canopy now controls all distribution, marketing, and sales of WANA branded products in Canada.
Speaker 1: Our sales team is eager to represent Wanam, which has held the top spot for edibles in Canada for the past three years.
Speaker 1: We've planned an ambitious brand growth strategy in Canada and are working with the WANNA team to deliver industry leading innovation like the passion fruit pineapple CBG gummies.
Speaker 1: With the addition of Juana, we expect incremental gains to our adjusted EBITDA as we cement Canopy as Canada's leading edibles company.
Speaker 1: Now I'd like to speak briefly to our progress on our entry into the U.S. cannabis market through CanopyUSA, which I firmly believe is the best approach to gain exposure to the rapidly growing U.S. market.
Speaker 1: To advance this strategy, we filed a revised proxy statement with the FCC in the current quarter which outlines revisions to the structure of our interest in CanopyUSA in order to ensure continued compliance with NASDAQ's listing rules.
Speaker 1: Following regulatory review, we plan to subsequently file a definitive proxy statement that will pave the way for a special meeting during which shareholders will be asked to approve the creation of a new class of non-voting exchangeable shares.
Speaker 1: Upon receiving the required shareholder approval and the conversion of constellation shares from common to exchangeable, Canopy USA is expected to exercise its rights to acquire April , Juana and Jetty.
Speaker 1: Our primary objective for CanopyUSA is to optimize the value of our entire US ecosystem by leveraging their brand portfolios, routes to market, and operations.
Speaker 1: Overall, we continue to believe the Canopy USA platform positions us favorably for the continued evolution of the US market. Finally, I'd like to outline our business priorities for Fiscal 24. Our priorities are designed to deliver sustained revenue and adjusted EBITDA growth for all key business units. For our Canadian Cannabis business…
Speaker 1: That means prudently managing expenses to deliver a stable to growing top line.
Speaker 1: We see this being driven by continued gains across the tweet brand, including flower in pre-roll joints.
Speaker 1: We'll apply the same enhanced cultivation processes that have improved our flower quality across the tweed brand to strengthen the competitive positioning of doja in 7acres.
Speaker 1: On the medical side of our Canadian cannabis business, we expect the canopy will continue our momentum by focusing on driving insured patient registrations.
Speaker 1: For our international medical cannabis business, we're focused on the continued growth of our Australian and European sales by improving the consistency of supply of high THC flower strains and the sales of new products.
Speaker 1: including the increased distribution of our medically certified stores and vehicle vaporizers.
Speaker 1: And speaking of stores and Bickel, we anticipate growth in the North American market with dedicated sales resources in place in the US along with new product innovation coming to market in fiscal 24.
Speaker 1: And for Biosteel, FY24 is expected to mark a year of growth as the brand focuses on expanding its North American market position.
Speaker 1: These priorities, in addition to monitoring continued value creation through CanopyUSA, will lay the foundation necessary for Canopy to achieve positive adjusted EBITDA and position us for long-term North American brand-driven leadership. That is our primary objective.
Speaker 1: With that, I'll now turn it over to Judy. Thank you very much, David, and good evening, everyone.
Speaker 2: I'll start by discussing our balance sheet, then briefly recap our fourth quarter and full year 2023 results, including additional details around weed statements related to biofuels. We'll see you at your obliques later.
Speaker 2: I'll then review our fiscal 2024 priorities and outlook.
Speaker 2: review our fiscal 2024 priorities and outlook. Let's start with the balance sheet.
Speaker 2: As of March 31, 2023, we had $783 million in cash and short-term investments and total debt of $1.3 billion, of which $557 million was classified as current portion of the long-term debt.
Speaker 2: Subsequent to March 31, 2023, we've taken a number of additional actions to strengthen our balance sheet.
Speaker 2: In April 2023, we paid down USD 93.75 million of our term loan at a 7% discount as part of the second pay down related to the October 2022 agreement.
Speaker 2: Also in April , we refinanced $100 million of the 4.25% unsecured July 2023 notes held by a subsidiary of Constellation, which we intend to negotiate converting into shares.
Speaker 2: In addition, the USD 100 million related to the February 2023 convertible debentures has now mostly been settled through equity.
Speaker 2: Adjusting for the payments made in April , the Constellation Notes, and the February 2023 convertible debentures, our cash and short-term investments would be $666 million and current portion of the long-term debt would be $237 million due in July 23, plus accrued interest. With that in mind, I'd like to address the going concern that...
Speaker 2: For one, we've already taken meaningful action to reduce the operating cash burn in the businesses.
Speaker 2: These include the Business Transformation Program announced during F by 23, which is expected to reduce total operating expenses by 240 to 310 million by the end of fiscal 2024, inclusive of the 125 million realized during fiscal 2023.edar County Serve
Speaker 2: Contrary reduction initiatives underway at BioField that are expected to further reduce our overall cash firm.
Speaker 2: Additionally, we're also working on other options to improve our liquidity.
Speaker 2: These include facility disposition, several of which have already closed and additional agreements have been signed that are expected to generate up to $150 million in proceeds by the end of September 2023.
Speaker 2: So far during Q1 of fiscal 24, we received proceeds of $56 million.
Speaker 2: We're also exploring additional options to monetize our non-core assets and businesses. And we're also in discussions with our lenders on various options to reduce their debt in an accretive manner. I'll now review our fourth quarter and full year fiscal 23 financial results.
Speaker 2: In Q4, we generate a consolidated net revenue of 87.5 million and four year fiscal 2023 revenue of 403 million. Intols ??? photo date 93 reported on the
Speaker 2: Full-year revenues declined 21% over the restated prior to your period.
Speaker 2: When adjusting for the impact of the vestitures of C3 and the Canadian retail business, revenues declined 11% and the declines moderated in the second half of the year.
Speaker 2: Report at growth margins, R&Q4, were negatively impacted by restructuring charges and sizable inventory write-off, most of which relate to our strategic shifts in Canada and via the field.
Speaker 2: Adjust the gross margins of negative 18% or impacted by additional inventory write-offs if I have failed.
Speaker 2: Adjust the growth margins excluding Bioesteal was 11% in Q4. Adjust the reduced cost of 96 million during Q4 FY 2023, included approximately 12 million of inventory write-offs at Bioesteal and 1.5 million of fat debt expense in rest of the world cannabis.
Speaker 2: Excluding increased investments at BioField, AdjustityBus does improve relative to Q3S by 23, demonstrating progress against our business transformation plan.
Speaker 2: On a four-year basis, or adjusted EVSETA loss with 350 million, driven by negative growth margins in Canada and Bio Steel, as well as significant investments that Bio Steel.
Speaker 2: Included in the full year adjusted EBT losses are approximately 50 million of costs that are one time in nature or not expected to recur given the significant changes that we have made to our businesses in fiscal 2023.
Speaker 2: SG&A expenses, excluding acquisition costs and depreciation and amortization expenses, saw a decline of 3% on a four-year basis, inclusive of the significant increase in this year's marketing investments at BioSteel.
Speaker 2: Excluding bio-steel and adjusting for the Canadian wage program benefit received last year, as well as the impact of this position, SGNA expenses would have declined by 21% or approximately 94 million year-to-year.
Speaker 2: The free cash flow of the negative 143 million was a 13% increase in outflow compared to Q4 of fiscal 2022 driven by increased investments at BioSteel and costs related to the formation of CanopyUSA. Now let's take a look at the results from each area of our business for Q4. Where theu Canada Cannabis revenues declined 8%, excluding retail prices were shorter than their previous variables. While the retail revenue was very fat, the market pregnancy is down. For theturned up the retail ramp by 80%.
Speaker 2: but adjusted cash-growth margins improved to 33% when normalizing for the impact of depreciation and inventory write-down.
Speaker 2: Canada cannabis growth margins have now improved for four consecutive quarters and we expect additional improvements in fiscal 24 as we execute on our cost reduction program. Rest of the world cannabis segments excluding C3 divestiture was down 19% year-over-year.
Speaker 2: We saw another record quarter of revenue in Australia, which was offset by the impact of shipments to Israel in Q4 FY 2022, and a decline in our US EBD business on a year-by-year basis.
Speaker 2: Within our consumer product businesses, tourism vehicles revenues declined by 28% in Q4, fiscal 23 versus Q4, fiscal 22. With last year's Q4 benefiting from sales of new products.
Speaker 2: We did see sales improved during the second half of the fiscal 2023 versus the first half, and four-year-growth margins of the business remained resilient at 40%.
Speaker 2: This works revenue decreased 10% in the current period compared to the prior year due to continued challenging UK retail dynamics.
Speaker 2: We are seeing signs of stabilization in this business and adjusted growth margins improved to 44% from 40% in the prior year period. I'd like to now spend a few minutes discussing BioSeal's performance.
Speaker 2: After a thorough review that David alluded to, we have restated the historical financials with the overall correction of the revenue statement resulting in a decrease of approximately 10 million in net revenue for fiscal year ended March 2022 or 2% of consolidated net revenue and 14 million in net revenue for nine months ended December 2022.
Speaker 2: The ReSBA data financial for fiscal 22, as well as quarterly financial for Q1, Q2, Q3, a fiscal 23 are included in our 10K.
Speaker 2: During Q4 of fiscal 2023, Biofuel generated net revenue of $19.3 million and full-year fiscal 2023 revenue of $69.6 million.
Speaker 2: Two forward growth margins were significantly impacted by lower than forecasted sales during fiscal 23 as well as our decision to exit international businesses and refine our U.S. commercial strategy. For more information, visit www.fema.gov
Speaker 2: We also face increases in sales and marketing costs related to endorsements, sampling, and trade marketing programs. With Biofield being a significant drag to our overall profitability, addressing its cost structure is an important part of Canopy's overall profitability plan.
Speaker 2: We've already undertaken additional cost reduction initiatives at Biofield that is incremental to our company-wide restructuring actions initiated in fiscal 2023.
Speaker 2: First, we have a number of gross margin improvement initiatives that are well underway, including exiting unprofitable customer programs and reducing the depth and frequency of certain promotions. We have a number of gross margin improvements that are well underway, including exiting
Speaker 2: Transitioning to a new warehouse model that will eliminate significant fixed cost obligations and reduce shipping costs.
Speaker 2: Reduction in inventory to lower our storage costs. A new contract with more favorable product costs across our powder and ready to drink products.
Speaker 2: These initiatives are expected to generate significant year-over-year improvement in gross margins in fiscal 2024 and put the business on a firm path to achieve gross margins comparable to other premium beverage businesses over time.
Speaker 2: Second, following stepped up investments in sales and marketing during fiscal 2023, work is well underway to significantly right size our marketing spend. We have already exited or have not renewed a number of third party marketing contracts. We're reviewing our endorsements to ensure we have a focused approach.
Speaker 2: and we're reducing costly sampling programs that don't generate returns. And we're exploring additional options available to us to ensure that we can further minimize cash for our FIOs deal.
Speaker 2: I'd like to now discuss our fiscal 2024 priorities and outlook and our actions to achieve profitability across our businesses.
Speaker 2: In Canada cannabis, we believe we have right sides or operations to achieve positive adjusted at current run rate revenue of 35 to 40 million per quarter.
Speaker 2: Our cost reduction program is well underway with majority of the savings expected to be driven by reduced headcount, which we've already implemented, and eliminations of facility costs that we've closed.
Speaker 2: In rest of the world cannabis, we expect continued growth in Australia and Poland, as well as improved performance in Germany driven by new supply of high-key sea flowers.
Speaker 2: We also expect improvement in profitability as we further streamline the business by shifting to a distributor model in the UK and we do not anticipate bad debt expense of over $3 million to recur during fiscal 2024.
Speaker 2: Soars and Bickle is focused on returning to growth in fiscal 2024, driven by new product launch later this year, and renewed focus in the U.S. with additional resources expected to drive an enhanced presence in that important market.
Speaker 2: We expect SORC and BICL to maintain healthy margins in fiscal 2024.
Speaker 2: For Biofuel, the focus in Fiscal 24 is further building on its strong momentum in Canada, refining its U.S. strategy, and improving growth margins while right-sizing its marketing c?p.
Speaker 2: This works as expected to stabilize top line while improving profitability in fiscal 24.
Speaker 2: So taken together, we expect to approach positive adjusted EBCA across all of our businesses except for BioSteel as we exit fiscal 2024.
Speaker 2: We also expect Bioskill to show meaningful reduction in its adjusted EBTEL losses in fiscal 2024 as we execute on our growth plan and cost reduction initiatives. Liquidity preservation and strengthening our financial position is also a key priority in fiscal 24. To this end, we're focused on executing against announced cost savings program.
Speaker 2: mitigating operating cash burn at BioSeal, maximizing proceeds from assets divestitures, and reducing our debt and interest expenses in an accretive manner.
Speaker 2: We believe the combination of these actions, along with our existing cash balance and expected proceeds from facilities divestitures, should provide us with flexibility to drive our businesses forward while meeting all of our debt obligations.
Speaker 2: In conclusion, with significant transformation underway, we believe we now have elements in place to achieve profitability in Canada and significantly reduce our cash burn for the total company while we work towards strengthening our balance sheet and driving continuous focus on our core Canada business.
Speaker 2: This concludes my prepared comments. We will now take questions. Operators, David and I are now happy to take questions from the analysts. Thank you.
Speaker 3: Ladies and gentlemen, we will now begin the question and answer session for analysts.
Speaker 3: If you would like to ask a question, please press star followed by the number 1 on your telephone keypad.
Speaker 3: If you would like to withdraw from the queue, please press star then the number 2.
Speaker 3: 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. One moment, please, for your first question..
Speaker 3: Your first question will come from Tammy Chen at BMO Capital Markets. Please go ahead.
Speaker 4: Hi, thanks for the question. I wanted to go to your target for EBITDA by the end of fiscal 24. You don't break out the EBITDA by segment, so it's a bit hard to assess your path to achieve the targets you've set out here today.
Speaker 4: So I'm just wondering, is there anything more you can share with us about how the cannabis segment, at least maybe the Canadian business P&L starts to look?
Speaker 4: Now that you're complete your asset light transition, for example, like I'm not sure what the margin can look like now that you've outsourced a lot of your manufacturing for extra extract products and closing the challenging growth facilities you have as well. It's hard to kind of assess what your SG&A is.
Speaker 4: how much of that is the Canadian business and all the asset heavy infrastructure that was there before. So anything additional you can share about how the P&L of that business starts to look going forward would be helpful. Thank you. Sure, thanks, Penny. I'll start with just a comment that I agree just...
Speaker 2: When you look at our P&L, it's very difficult to clearly understand what's happening with all the moving parts and us not being able to really provide clear details around the segment profitability. We are working at ways to address that going forward and hopefully...
Speaker 2: be able to give you more clarity on that on a go-forward basis at some point in the future. But to come back to your question about Canada, I think I would say a few things. Number one, what we have done from a business change standpoint is really right by all of our operations and SG&A.
Speaker 2: we are now right-sized to really deliver the adjusted EBITDA that would be even for positive on that basis.
Speaker 2: And I think there are really a few elements to that. Number one, obviously we have taken significant costs out of our cost of goods sold. We had headcount reductions that we have implemented already. We closed the facilities both in a number of locations that save us not just $5,000
Speaker 2: the cost like insurance and taxes and just the non-people costs that really are costly when you have significant footprints just from an operational standpoint. So a number of those closures that we've already made are going to start to flow through our P&L.
Speaker 2: We are, I think, tracking actually a little bit earlier than expected in terms of exiting cultivation and Smith Falls. So once that happens, by the end of this quarter, we should also see additional cost savings flow through from a Canada standpoint. So I think that's going to drive really a cash-close margin in our view closer to that.
Speaker 2: with the revenue at $35 to $40 million on a quarterly basis.
Speaker 3: Your next question comes from Vivian Azer at TD Cowan. Please go ahead. moved away from the program.
Speaker 5: Hi, thank you. I wanted to follow up on that question a little bit, but with a focus on BioSteel. Recognizing that there's appetite to absorb continued losses in FY24, can you continue to grow the top line? Certainly –
Speaker 5: it sounds like with some of the marketing realignment, the nonproductive sampling, revisiting some of the sponsorship agreements that certainly you're at least looking to narrow the magnitude of those losses. So Judy, I was wondering, one, if you could kind of dimensionalize that, the path to profitability in Biosteal, and then two, as a follow-up, David, maybe you could just comment on,
Speaker 5: the realignment in terms of the priority retail channels in the US. Because it seems like the reorientation of the brand kind of moves away from the channels with which you're most familiar and have the deepest relationship. So just wondering whether that can create some dislocation in the top line that might impede some of the profit improvements that you guys have planned for your second position for
Speaker 2: direct to our overall profitability. And we are very focused on significantly reducing our cash burn in that business, as well as exploring other options to minimize cash burn that is impacting the overall cash at the canopy level.
Speaker 2: In terms of, you know, I think the year-for-year change as it relates to biosphere profitability, there have been a few discrete items in fiscal 23 that did drag the profitability more than I think in normal years. We did have sizable inventory write-downs in FY23 as well as certain...
Speaker 2: allow us not to see the level of inventory write-downs that we saw in FY23. In addition, as I said earlier, we have a number of initiatives to really right-size our marketing spend and make sure that we can generate all those
Speaker 2: a path to being a profitable business for this company because I think the brand is doing really well. It's just really making sure that we've got the right cost structure to support the brand in a way that is more focused and disciplined. And I think that that will also go a long way from our overall profitability standpoint in getting to...
Speaker 2: a significant reduction in our overall cash burn and adjusted improvement in addition to the business transformation that we have announced as it relates to Canada and the rest of the businesses.
Speaker 1: Yeah, and Vivian, in terms of channel strategy, I think, you know, when you look at BioSteel, first of all, the issues that we outlined related to the brand are really unfortunate because it's overshadowing the fact that the brand continues to be...
Speaker 1: kind of building that kind of authentic affinity with its consumer base. And now you can see BioSteel on the shelf with all of the major retailers in prominent positions and with more and more consumer takeaway. In the U.S.
Speaker 1: We think we need to deploy the same strategy, if you will, by starting to build the base of the brand maybe a little more slowly than we would have liked. Allowing consumers to really connect with it because it's an authentic hydration product. And then ultimately we end up in those big retailers where we're already positioned today.
Speaker 1: retrench the business a little bit.
Speaker 3: in the US. Your next question comes from Aaron Gray at Alliance Global Partners. Please go ahead.
Speaker 6: Hi, good evening and thank you for the question. So for me, I just want to touch on Camp USA, you know, disclose the updated structure of it. Yes, it is commander program for the Clayvern Institute and communication center on the
Speaker 6: Really just want to talk about, you know, the ability to finance the US operations once this closes. Obviously won't be consolidating, so you can comply with NASDAQ, but just future funding, the ability to do that. Will you be able to have any benefit from publishing on NASDAQ? Or do you have to go through some other venture with JustCamp USA?
Speaker 6: Just any help in that and then just also I guess plans overall in terms of for funding that can't be USA business once This is closed. Thanks
Speaker 1: Yeah, so a couple of things. The first is that I just want to reiterate that the businesses are already trying to do things together to elevate their individual brands, individual
Speaker 1: operations and routes to market, right? So a lot of that work is taking place even while we wait approval to file our definitive proxy. In terms of funding on the day that the business closes, the business will have more than sufficient cash on hand to fund its growth aspirations for
Speaker 1: for the foreseeable future. And then really the question then is, if there is other inorganic initiatives that we'd want to take on with the Canopy USA structure, we do have ways to fund that using the already developed Canopy USA structure. So again, that's not where I would expect we go right out of the gate, but we have the ability to do that under the structure as it exists.
Speaker 2: and the business will be well-funded on day one. And I would just add, Aaron, just the benefit of having a brand-led Accent Light model in the U.S. really does minimize the capital requirements, really build out the business in scale. So we're obviously deploying similar strategy in Canada and I think it's important.
Speaker 1: asset light and continue to grow their brand and have a very attractive P&L as a result of that. We're seeing that same sort of mindset at Jetty and then you know acreage ends up being a little more capital intensive but again I think over time we would look to be as asset light as possible.
Speaker 7: I wanted to touch on the going concern language and just solvency generally and given the state of the balance sheet and the magnitude of the gap to get to positive EBITDA, I wonder if you're considering selling any of the business units outright. And then secondly, assuming you get the outcome you want on CanopyUSA and you're then able to issue more equity.
Speaker 7: I wonder how you'd go about that, what's your willingness to do it, and just given the state of the Canada space generally, what would be your plans on issuing more equity in the future? Thank you. Yes, John , thanks for the question. So on our balance sheet, I think the starting point is that we do still have a strong cash position. We ended the quarter.
Speaker 2: of the year with 783 million, as I said earlier. All of the facility, the positions that we have either closed or currently working on will bring in additional up to 150 million in proceeds by September of 2023. And we expect significant reduction in operating expenses.
Speaker 2: all of the businesses. Plus, we think that there are additional options that are available to us, including looking at all of our non-core assets and businesses. I think we're really trying to position ourselves as a candidate-focused company. And I think historically, we've had a number of businesses that were not core that we digested and we're continuing to...
Speaker 2: We think that that will also help our cash flow just given the interest cost reduction that would be expected. And to be clear, some of the proceeds from the facility divestitures will go towards paying off our term loans, but that would also help us with our cash flow.
Speaker 2: lower, reducing our debt and also reducing our interest expenses over time.
Speaker 3: Your next question comes from Michael Lavery at Piper Sandler. Please go ahead. Thank you. Good evening. Michael, good to meet you.
Speaker 8: I was wondering if you could elaborate a little bit on if you hit your plan as you have it now with EBITDA positive or break even by the end of the year, what does that look like on a cash flow basis and what are some of your assumptions? You mentioned the divestitures.
Speaker 8: that you're trying to make or the facility sales, some of that's in hand, but can you give us a sense of how you're valuing those and what the certainty is of that coming through and how important is it in terms of just your liquidity management and just paint a little bit of a picture for how you're thinking about how the year unfolds that way.
Speaker 2: Sure, I'll take that question. So obviously, to your point, achieving our plan and reducing our costs to improve our adjusted EBITDA is kind of the starting point. In addition, we are obviously working to reduce our debt and save on interest expenses and even some of the actions that we've done to reduce our debt.
Speaker 2: We also expect to see working capital improvement in a significant manner, just given how we're managing our inventory and the reduced footprint frankly, that we have across Canada. And obviously, Biosil working on an initiative to make sure that they're right sized from an inventory standpoint there as well. So... Next up...
Speaker 2: We think all those initiatives should allow us to get to significantly reducing our operating cash flow. I would expect to see close to 50% reduction in our operating cash flow on a year-over-year basis.
Speaker 2: Our CapEx requirement is really just about executing on our cost savings. So we think in FY2024 our CapEx should be somewhere in the $10 to $15 million in terms of the cost that's inclusive of the cash cost to really execute on our cost savings program.
Speaker 2: And then, as I said, we've got 150 million of the proceeds that we've already closed and are expected to close in the coming months that will bring in additional cash. And then I think the other options on the table that we've outlined are these additional proceeds potentially. We are exploring various options.
Speaker 3: Please go ahead.
Speaker 8: Good evening everyone, thanks for taking all the questions. I just wanted to go back to BioSteel and just given a lot of the commentary that's been given with some of the positive trends with respect to the uptake of the products, whether it's in the convenience stores, gas stations, where kind of your market share is. That's sort of paired against the overall magnitude of some of the financial statements.
Speaker 8: or shelf life or anything like that. It's just something that I get a lot of questions on given the magnitude of what was reported today.
Speaker 2: Sure, I'll start and David can add more color. So what I said in my prepared comments was the majority of the restatements really came from international sales. So when you look at all of the market share information in Canada, the US that we speak about
Speaker 2: the strengths of the brands in North America. When you look at the international sales, frankly, this was more of an opportunistic, I would say, outlet where the biofuel management team had decided to expand distribution in certain markets with some of the products that they had in inventory. Thanks so much, Denise. It can reallyrays the type of Stephanie and whatever you want to call it inuc shape. We would not have pyre sicknesses if we didn't hold hands and impact Councilor relations giving approved AndAlternate categories to competitors. And normally that would be why Mizr do that everyone here from North America in South America as a business So it seems like all the starting
Speaker 2: I think when you think about the practices or the sales recognition issues that we have seen, that's where really the misstatements or the financial misstatements came through. So I do think that that is very distinct.
Speaker 2: from what we're seeing in the marketplace to your point about all the market share improvement that we're seeing in that part of the business. We think it's just unfortunate that the sort of that positive momentum it has been a bit masked by some of these unfortunate events that have occurred, but we still believe that's really a metric that people should be looking at engaging the health of the client. We continue to be confident about the trajectory of that business.
Speaker 1: I think that captures it, Judy. You know what I would say is that the restatements for the most part have nothing to do with...
Speaker 1: product that was returned because it was bad or anything like that. It had everything to do with sales practices within the BioSteel team, which as we called out in our remarks have been rectified. Your next question comes from Pablo Zwanek at Zwanek & Associates.
Speaker 9: Please go ahead. Thank you, David. I want to talk about CanopyUSA and here maybe a simple question would be remind us of the benefits of CanopyUSA for the company. And the reason I ask that, if I wanted to play devil's advocate, right, I would say you were supposed to, some of the benefits in terms of alignment between JT, Juana, and acreage, and you said you are bright Destruction inOrg.
Speaker 9: In my opinion, that could have been done without this transaction. The benefits from investors giving you credit for these U.S. assets are lost now because you cannot consolidate them. We don't know how you're going to disclose them in the future. On the other hand, this has been somewhat of a distraction. I could make the argument. You are the main competitor in Canada to control of Redecan, right?
Speaker 9: Maybe you've dropped the ball in Europe . I mean, correct me if I'm wrong. And it's been disruptive, right? In the case of A-Creech, the CEO and the CFO are gone. So I'm just trying to, I'm struggling to really get the benefits of kind of USA after all is said and done. Thanks.
Speaker 1: Yeah, thanks, Pablo. So a couple of points that I would make, you know, we believe that the US market is a market that we want to win in, which is why we right-sized Canada so that we have a business where we can be profitable kind of at its current run rate. We do believe that the profit pool in the US is the one that we want to attack and we actually...
Speaker 1: think that our brand-led approach is a strong approach in that market. Jetty, Juana and Acreage are already beginning to work together as you call out, so they didn't necessarily need the structure to do that, but it certainly makes it easier when that business is put together all by itself. So those businesses are merged together, there are significant synergies to be extracted.
Speaker 1: from an operating standpoint, from a public company standpoint, that we think are important. Now, we will be able to disclose what that business looks like. We won't be consolidating it through our results, but we will be in a position to talk about what our consolidated, well, what our Canopy USA as its own consolidated entity will look like post-
Speaker 1: the transaction once those businesses have been merged. And then, you know, Pablo, again, it's like, you know, the good thing about strategy is a good strategy usually is one that you could do the opposite of and still find it a fair strategy, right? So, we believe that focus on the US is better than trying to expand.
Speaker 1: into other markets or into other categories. Judy mentioned how we want to simplify our business to be a very cannabis focused business and very focused on North America. We think that's a good, that provides a great path for us to create a lot of value in the medium term.
Speaker 7: You know, that's the, I guess that's the position that we've taken and we think, you know, we still believe that it's the right approach for us. Your next question comes from Doug Ng at RBC Capital Markets. Please go ahead.
Speaker 6: Yeah, good evening and thank you. My question really has to do with the checks and balances that the company might have in place as it relates to oversight functions given the material changes that we're seeing right now and really in place to ensure that you don't have any regimes and win Luke Twins.
Speaker 1: And what I would say is that we're, so we have a complete remediation plan, which is called out in the K for the issues we experience with biosteel.
Speaker 1: We did do additional testing around the rest of our business to make sure that the BioSteel issues weren't being replicated elsewhere and that testing proved that it wasn't happening elsewhere. Again, this was a very involved process that included forensic accountants...
Speaker 1: plans and our audit committee has asked for check-ins on a bi-weekly basis with our progress toward those remediation plans which we will in fact do. And I would say that...
Speaker 1: Then beyond that, several years ago, I think that the Canopy Finance Function was –
Speaker 1: was maybe in a difficult spot to take on the complexity of the business that we have. I would say that over the last few years we built what is generally a strong talented team that's clearly committed to ensuring that we have a robust control environment and, you know.
Speaker 1: As a former public company CFO , I'm embarrassed that we had a, you know, that we had to do a restatement and, you know, we, as I said, we've taken the actions to, to remediate that, the items that caused every statement. And I do not expect to have a restatement.
Speaker 7: to have that kind of issue in any area of our control environment going forward. There are no further questions at this time, so I will turn the conference back to Mr. Klein for any final remarks. Yes, thank you. And thanks all for joining us.
Speaker 1: to drive growth of the brand in North America while reducing our cash burn.
Speaker 1: And in fiscal 23, we introduced our Canopy USA strategy to optimize the value of our entire US ecosystem. And we look forward to successfully concluding the regulatory review and progressing to a shareholder vote in the coming months.
Speaker 1: And finally, we continue to believe Canopy has significant opportunity ahead, both in Canada and the United States.
Speaker 3: Investor Relations will be available to answer additional questions. Have a good evening. Ladies and gentlemen, this concludes Canopy Growth's fourth quarter and Fiscal 2023 Financial Results Conference Call. A replay of this conference call will be available until September 20th, 2023 and can be accessed following the instructions provided in the company's press release.