Q3 2024 Canopy Growth Corp Earnings Call

Operator: Today we have Canopy Growth's Chief Executive Officer, David Klein, and Chief Financial Officer, Judy Hong. Before the financial markets opened today, Canopy Growth issued a news release announcing the financial results for our third quarter and did on December 31st, 2023. The news release and financial statements have been filed on EDGAR and CEDAR and will be available on our website under the Investors section. Before we begin, I would like to remind you that our discussion during this call will include forward-looking statements that are based on management's current views and assumptions, and that this discussion is qualified in its entirety by the cautionary note regarding forward-looking statements included at the end of the news release issued today. Please review today's earnings release and Canopy's reports filed with the SEC and the Canadian securities regulators for various factors that could cause actual results to differ materially from projections.

Chief Executive Officer, David Klein, and Chief Financial Officer, Judy Hong.

Before financial markets opened today canopy growth issued a news release announcing the financial results for our third quarter ended December 31st 2023.

The news release and financial statements have been filed on Edgar and SEDAR and will be available on our website under the investor.

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

Today.

Please review today's earnings release, and canopies reports filed with the SEC and the Canadian Securities regulators.

Factors that could cause actual results to differ materially from projections.

Operator: In addition, reconciliations between any non-GAAP measures to their closest reported GAAP measures are included in our earnings release. Please note that all financial information is provided in Canadian dollars unless otherwise stated. Following remarks by David and Judy, we will conduct a question and answer session where we will take questions from analysts. And with that, I will turn the call over to David.

In addition, reconciliations between any non-GAAP measures to their closest reported GAAP measures are included in our earnings release.

Please note that all financial information is provided in Canadian dollars unless otherwise stated.

Following remarks by David and Judy We will conduct a question and answer session, where we will take questions from analysts.

And with that I will turn the call over to David.

David: Good morning, everyone and thank you for joining us to review canopy Growth's third quarter fiscal 2000 and for results.

David Eric Klein: Good morning, everyone, and thank you for joining us to review Canopy Growth's third quarter fiscal 24. The completion of our Q3 marks the dawn of a new era for Canopy. We're immensely proud of where we are today and feel strongly that Canopy is positioned for lasting leadership. We're 100% cannabis focused, we're demonstrating consistent growth across each of our business units, and we have a definitive meeting date scheduled for our shareholders to consider an amendment to our articles to create a new class of non-voting, non-participating, exchangeable shares, which we expect to advance the CanopyUSA structure Let's now review our right-sized, cannabis-focused business, with the divestiture of this business in December 2023, our last non-aligned enterprise.

David: The completion of our Q3 marks the dawn of a new era for China.

David: Women's we proud of where we are today and feel strongly that canopy is positioned for lasting leadership.

David: We're 100% cannabis focused for demonstrating consistent growth across each of our business units and we have a definitive meeting dates scheduled for our shareholders to consider an amendment to our articles.

David: Create a new class of nonvoting non participating exchangeable shares.

David: We expect to advance the canopy USA structure.

David: Let's now review, our right sized cannabis focus business.

David: With the divestiture of this works in December 2023.

David: Our last non aligned enterprise.

David Eric Klein: Canopy is now 100% cannabis focused and purpose built for the markets of greatest opportunity. By focusing exclusively on cannabis and right-sizing our footprint, we've strengthened our path to delivering sustainable operating profit and ensured we are well-positioned to capitalize on what we feel is the greatest consumer trend of our lifetime. And while we're looking to the future with optimism, let's first review the dramatic and measurable improvements in the performance of our business that these actions have produced. To summarize, we've cut Canopy to size and are now delivering on improved gross margins, enhanced commercial execution, and are focused on demonstrating growth across all of our businesses. This has enabled us to significantly improve our overall gross margins, with Q3 marking the second consecutive quarter of margins in the mid-30s at the total company level.

David: Canopy canopy is now 100% cannabis focus and purpose built for the markets of greatest opportunity.

David: By focusing exclusively on candidates and right sizing our footprint, we've strengthen our path to delivering sustainable operating profit and ensure we are well positioned to capitalize on what we feel is the greatest consumer trend of our lifestyle.

David: And while we're looking to the future with optimism, let's first review the dramatic and measurable improvements in the performance of our business that these actions have produced.

David: To summarize we've cut to canopy to size and are now delivering an improved gross margins enhanced commercial execution and are focused on demonstrating growth across all of our business units.

David: This has enabled us to significantly improve our overall gross margins with Q3, marking the second quarter in a row of margins in the mid <unk> at the total company level.

David: From this strength in base, we're generating growth backed by enhanced execution and consistent high quality products.

David Eric Klein: From this strength and base, we're generating growth backed by enhanced execution and consistent high-quality products. In Q3, our Canadian cannabis business delivered its fourth straight quarter of revenue growth and is up 10% year-over-year when excluding the divestiture of our retail business. There are several contributors to this growth, but at the core, we're continuing to deliver great flower that is being very well received by provincial cannabis boards, retailers, and most importantly, consumers, not to mention our staff. This is further validated by growth in our distribution, with an incremental 900 points added nationally during the third quarter, thanks to the quality of our flower offerings. I really can't overstate how proud we are of our flour and how demand for our high-quality strains, such as tweeds, cushmints, and tiger cake, remains at an all-time high and has us selling every gram we can produce.

David: In Q3, our Canadian cannabis business delivered its fourth straight quarter of revenue growth and is up 10% year over year, when excluding the divestiture of our retail business.

David: There are several contributors to this growth, but at the core we are continuing to deliver great flower that it's being very well received by provincial cannabis sports.

David: Retailers and most importantly consumers not to mention our staff.

David: This is further validated by growth in our distribution with an incremental 900 points added nationally during the third quarter. Thanks to the quality of our flower offerings.

David: I really can't overstate overstate, how proud we are of our flower in demand for our high quality strange screens, such as Tweeds Cushman and Tiger cake remained at an all time high and has a selling every gram we can produce.

David: When it comes to flower, we feel that our platform is now dialed in and then we've got a pipeline of high quality cultivars in market and soon to come from both tweet and seven acres.

David Eric Klein: When it comes to flower, we feel that our platform is now dialed in and that we've got a pipeline of high-quality cultivars in the market and soon to come from both tweed and seven acres. And to meet the ongoing high demand for our flour, we're also working on ways to further increase yield from our production platform. We've also developed a robust new product introduction cycle to win market share across priority categories, including pre-rolls, vapes, and soft gels. For pre-rolls, we're going to continue our record of success by launching new large packs, infused pre-rolls, and burners over the coming month. In addition, we have an exciting lineup of Tweed and 7 Acres vape products coming to market with differentiated flavor profiles, and we expect to truly delight consumers as we step firmly back into the vape category. Shifting to soft gels, an area of historic expertise at Canopy, we see significant potential to win share through recently launched and soon-to-be-launched soft gel products featuring larger pack sizes and unique cannabinoid In addition to being a high-margin category, soft gels provide consumers with a discreet, convenient, and affordable method of precisely dosed cannabis consumption.

David: And to meet the ongoing high demand for our flower. We're also working on ways to further increase yield from our production platform.

David: We've also developed a robust new product introduction cycle to win market share across priority categories, including three rules.

David: And soft gels.

David: And pre rolls, we're going to continue our record of success by launching new large packs.

David: <unk> pre rolls and burners over the coming months.

David: In addition, we have an exciting lineup of tween in seven acres vape products coming to market with differentiated flavor profiles, and we expect to truly delight consumers as we step firmly back into the vape category.

David: Shifting the soft gels and area of historic expertise at canopy, we see significant potential to win share through recently launched and soon to come Softgel products, featuring larger pack sizes and unique cannabinoid ratios.

David: In addition to being a high margin category soft gels provide consumers a discrete convenience.

David: Convenient and affordable method of precisely dose cannabis consumption and we feel canopy is well positioned to achieve category leadership.

David Eric Klein: And we feel Canopy is well positioned to achieve category leadership. Finally, as the foundation of our edibles portfolio, we relaunched Juana in the third quarter across Canada with very active retailer engagement. We also expect to drive additional growth through the introduction of new WANA products that address specific gaps in the current Canadian edibles market, as well as to shift to our Canadian medical business and as an important margin-enhancing pillar of our Canadian strategy. We're especially proud of our medical team, as they continue to drive ongoing assortment expansion in the Spectrum store, including a wide range of exclusive products all backed by exceptional patient service.

David: Finally, as the foundation of our Edibles portfolio, we relaunched want to in the third quarter across Canada with very active retailer engagement.

David: We also expect to drive additional growth through the introduction of new water products that address specific gaps in the current Canadian edibles market.

David: Shifting to our Canadian medical business.

Yes.

An important margin enhancing pillar of our Canadian strategy.

David: We're especially proud of our medical team as they continue to drive ongoing assortment expansion and the spectrum store, including a wide range of exclusive products all backed by exceptional patient service.

David Eric Klein: This strategy has led to record revenues on a daily, weekly, monthly, and quarterly basis, including in the third quarter, and importantly, these record revenues were achieved while improving margins. Sticking with medical marijuana but shifting to our rest-of-world cannabis business, we reported another strong quarter with revenues doubling year over year. Our Australian team delivered its 12th consecutive quarter of record revenues.

David: This strategy has led to record revenues on a daily weekly monthly and quarterly basis, including in the third quarter and importantly, these record revenues were achieved while improving margins.

David: Sticking with medical but shifting to our rest of world cannabis business, we reported another strong quarter with revenues doubling year over year.

David: Our Australia team delivered its 12th consecutive quarter of record revenue.

David Eric Klein: Additionally, shipments of proven Canadian strains, including Cushman's Tiger Cake in OG Deluxe, as well as increased educational training with medical practitioners, contributed to growth in our Australian, Polish, and Czech medical cannabis sales in Q3. Finally, we think there's a ton of growth possible across international markets where we're already active and expect consistency of our flower supply and the onboarding of new distribution partners will continue paying dividends across our international medical cannabis business. I'm pleased to report that Storz & Bickel also delivered a strong third quarter, driven by demand for the new Benti portable vaporizer, as well as the most successful Black Friday in the company's 20-year history, generating sales across its entire portfolio. In fact, the promotional week showcased a remarkable 55% increase in the number of devices sold versus the previous year, including driving strong Venti sales despite the device not being discounted.

David: Additionally, shipments of proven Canadian strains, including Cushman Tiger cake, and Oji deluxe as well as increased educational training with medical practitioners contributed to growth in our Australian Polish and Czech medical cannabis sales in Q3.

David: Finally, we think there's a ton of growth possible across international markets, where we're already active and expect consistency of our flower supply and the Onboarding of new distribution partners will continue paying dividends across our international medical cannabis business.

Speaker Change: I am pleased to report.

Speaker Change: Report that Storz <unk> Bickel also delivered a strong third quarter driven by demand for the new <unk> portable vaporizer as well as the most successful black Friday in the Companys 20 year history generating sales across stores and vehicles entire portfolio.

Speaker Change: In fact, the promotional we've showcased a remarkable 55% increase in the number of devices sold versus last year, including driving strong <unk> sales, despite the device not being discounted.

David Eric Klein: Speaking of the Venti, I really can't say enough about this device. It's the best portable vaporizer experience available. I continue to be amazed by how quickly it heats up. But even more, the vapor throughput, which at 20 liters a minute, is the closest thing you're going to get to the legendary volcano experience in a portable option. Don't just take it from me.

Speaker Change: Speaking of <unk>, I really can't say enough about this device. It's the best affordable Vaporizer experience available I continue to be amazed by how quickly it heats up but even more the vapor throughput, which at 20 liters. A minute is the closest thing youre going to get to the legendary volcano experience and affordable option.

Speaker Change: But don't just take it from me the reviews and consumer demand for this device has exceeded all our expectations and the <unk> is rapidly, claiming its hero status within the portfolio.

David Eric Klein: The reviews and consumer demand for this device have exceeded all our expectations, and the Venti is rapidly claiming its hero status within the portfolio. In fact, after our initial production run, we've had to add a second shift to further increase capacity and ensure availability matches consumer demand, which shows no sign of slowing. Much like the iconic volcano, we expect the Venti to be a central pillar of the Storrs & Bickle portfolio in the long term.

Speaker Change: In fact after our initial production run we've had to add a second shift to further increase capacity and ensure availability matches, the consumer demand, which shows no sign of slowing.

Speaker Change: Much like the iconic volcano, we expect the <unk> will be a central pillar of the stores in vehicle portfolio in the long term.

David Eric Klein: As with the rest of the S&B product lineup, it's important to reinforce that these products are truly premium and command a price point reflecting their quality. In sum, our commercial businesses are demonstrating momentum and delivering impressive results. So let's talk about Canopy USA. Simply put, we're moving forward. We're pleased to report that we will be filing our definitive proxy statement on or around February 13th, setting up a special shareholder vote for April 12th. Following a successful shareholder vote, Canopy USA will be able to proceed with its anticipated acquisition of Jetty, Juana, and Acreage, finding synergies to accelerate growth through a unified, multi-state operating business. Looking further to the U.S. and the potential impact of regulatory reform on our strategy, as many of you know, in August, the Department of Health and Human Services communicated its recommendation that cannabis be rescheduled to Schedule 3.

Speaker Change: As with the rest of the SMB product lineup, it's important to reinforce that these products are truly premium and command a price point, reflecting their quality.

Speaker Change: In sum, our commercial businesses are demonstrating momentum and delivering impressive results.

Speaker Change: So let's talk about cannot be USA.

Speaker Change: Simply put we're moving forward. We're pleased to report that we will be filing our definitive proxy statement on or around February 13th setting up a special shareholder vote for April 12.

Speaker Change: Following a successful shareholder vote cannot be USA will be able to proceed with its anticipated acquisition of jetty quanta and acreage finding synergies to accelerate growth through a unified multi state operating business.

Speaker Change: Looking further to the U S and the potential impact of regulatory reform on our strategy as many of you know in August the department of health and human services communicated its recommendation to candidates be rescheduled to schedule III.

Speaker Change: This was a welcome development and we are cautiously optimistic that the DEA will in the near term provide its recommendation and initiate this process.

David Eric Klein: This was a welcome development, and we are cautiously optimistic that the DEA will, in the near term, provide its recommendation and initiate this process. Moving cannabis to Schedule 3 would be a significant boost for the U.S. assets held by Canopy USA and for Canopy Growth. Through the removal of Section 280E, we expect value appreciation across our US assets, which would see a significant financial boost through reduced corporate income taxes, improved cash flows, and strengthened balance sheets. We also believe cannabis being moved to Schedule 3 would build momentum behind other efforts to reform cannabis regulations in the U.S. And while we continue to advocate for these high potential catalysts, we remain focused on operating our business and demonstrating growth today. We are a company with a Canopy USA is moving forward, and we look forward to a successful shareholder vote on April 12th.

Speaker Change: Moving cannabis the schedule III would be a significant boost for the U S assets held by cannot be USA and for canopy growth.

Speaker Change: Through the removal of section 200, <unk>, we expect value appreciation across our U S assets, which would see a significant financial boost through reduced corporate income taxes improved cash flows and strengthened balance sheet.

Speaker Change: We also believe candidates being moved to schedule III with build momentum behind other efforts to reform cannabis regulations in the U S.

Speaker Change: And while we continue to advocate for these high potential catalysts, we remain focused on operating our business and demonstrating growth today.

Speaker Change: We are a company with a resolute focus on cannabis attractive gross margins lower operating expenses are growing top line and a significantly stronger balance sheet.

Speaker Change: <unk> USA is moving forward and we look forward to a successful shareholder vote on April 12.

Speaker Change: Summary, we believe canopy offers shareholders a unique opportunity to gain exposure to arguably the most exciting consumer product trend of our time into the fastest growing cannabis markets in the world.

Judy Hong: In summary, we believe Canopy offers shareholders a unique opportunity to gain exposure to arguably the most exciting consumer product trend of our time and to the fastest growing cannabis markets in the world. With that, Judy will speak to further details of our financial results. Thank you very much, David, and good morning, everyone.

Speaker Change: With that Judy will speak to further details of our financial results.

Judy: Thank you very much David and good morning, everyone.

Judy Hong: I will start by reviewing our third quarter fiscal 24 results, including the significant year-over-year progress we've continued to make across our P&L this year. I'll then discuss additional actions we've taken to improve our balance sheet and cash flow, followed by our priorities and outlook for the balance of fiscal 24. Let's begin with our third quarter results. Q3, like Q2 before it, demonstrated the substantial improvement in profitability and cash burn reduction that our right-sized cannabis-focused business can deliver. Canopy delivered consolidated net revenue of $79 million in Q3, which is up 6% compared to Q3 of last year when excluding the Canada retail divestiture.

Judy: I will start by reviewing our third quarter fiscal 'twenty four results, including the significant year over year progress we've continued to make across our P&L. This year.

Judy: I will then discuss additional actions we've taken to improve our balance sheet and cash flow followed by our priorities and outlook for the balance of fiscal 2004.

Judy: Let's begin with our third quarter results.

Judy: Q3 by Q2 before demonstrated the substantial improvement in profitability and cash burn reduction that our REIT site candidates focused business can deliver.

Judy: Cannot be delivered consolidated net revenue of $79 million in Q3, which is up 6% compared to Q3 of last year, when excluding Canada retail divestiture.

Judy Hong: The main drivers of revenue, excluding retail divestitures, were Canadian cannabis revenue increased 10% compared to a year ago and was up sequentially from Q2. The rest of the world's cannabis sales grew by 81% year for year in Q3, and Storz and Bickel grew its revenue by over 50% compared to the last quarter driven by the launch of Venti. Consolidated growth margins in Q3 were 36%, a significant improvement compared to 6% last year. The biggest driver of improvement was the business transformation initiatives executed in Canada, which have meaningfully reduced Canada operational costs. Q3 adjusted EBITDA was a loss of $9 million, an improvement of 82% versus last year, and a 25% improvement over the $12 million adjusted EBITDA loss in Q2 of fiscal 24, and Free Cash Flow with an outflow of $34 million, an improvement of $44 million compared to Q3 of last year, and nearly a 50% improvement versus the last quarter. I'd like to now review the results by our key businesses in more First, Canada.

Judy: Main drivers of revenue, excluding retail divestitures for the.

Judy: Canadian cannabis revenue increased 10% compared to a year ago and were up sequentially from Q2.

Judy: First the World, Canada sales grew by 81% year over year in Q3.

Judy: And Storz <unk> Bickel grew its revenue by over 50% compared to the last quarter driven by the launch of empty.

Judy: Consolidated gross margins in Q3 was 36% a significant improvement compared to 6% last year.

Judy: The biggest driver of improvement with the business transformation initiatives executed in Canada, which has meaningfully reduced Canada operational costs.

Judy: Q3, adjusted EBITDA was a loss of $9 million, an improvement of 82% versus last year, and a 25% improvement over the $12 million adjusted EBITDA loss in Q2 of fiscal 'twenty four.

Judy: And free cash flow was an outflow of $34 million in it.

Judy: Improvement of 44 million compared to Q3 of last year.

Judy: A 50% improvement versus the last quarter.

Judy: I'd like to now review the results by our key businesses in more detail, including progress against our path to profitability.

Judy: First Canada.

Judy Hong: Q3 net revenue was $40 million, the third quarter in a row of sequential quarterly revenue growth. Canadian medical sales continue to grow strongly, increasing 11% compared to last year, driven by an increased assortment of high-quality products, including the introduction of the Juana brands that began in August. Our adult-use B2B business was up 9% compared to last year, with revenue growth during the quarter driven mostly by the growth of large-packed flower offerings from Tweed, as well as the addition of Juana Edible. Canada's gross margin in Q3 was 28%, and cash gross margin, adding back non-cash depreciation costs and costs, was 40%.

Judy: Q3, net revenue was $40 million the third quarter in a row of sequential quarterly revenue growth.

Judy: Canadian medical sales continued to grow strongly increase them, 11% compared to last year, driven by increased assortment of high quality product, including the introduction of one brand that began in August.

Our adult use <unk> business was up 9% compared to last year with the revenue growth during the quarter driven mostly by the growth of large pack flower offerings from tweet as well as addition of Wanna Edibles.

Canada gross margin in Q3 was 28% and cash gross margin, adding back noncash depreciation cost and cause was 40%.

Judy Hong: Similar to the last quarter, the biggest driver of year-over-year improvement was the cost reduction from the Canadian Business Transformation Initiative. Our effort drove a reduction in flour costs, direct manufacturing costs, and overhead expenses, and we continue to see a material reduction in excess and obsolete inventory expenses as we have aggressively bright-sized our inventory. We're also pleased to see our Canadian business on track to achieve mid 30% cash gross margin performance in fiscal 2024. Best of the World Cannabis Sales increased 81% year-over-year. Australia had its 12th consecutive record revenue quarter, growing over 32% year-over-year.

Judy: Similar to the last quarter the biggest driver of year over year improvement is the cost reduction from the Canadian business transformation initiatives.

Judy: Our efforts drove reduction and flour costs direct manufacturing costs and overhead expenses and we continue to see material reduction in excess and obsolete inventory expenses as we have aggressively right size our inventory.

Judy: We're also pleased to see our Canadian business on track to achieve mid 30% cash gross margin performance in fiscal 2024.

Judy: But that the world, Canada sales increased 81% year over year.

Judy: Australia had its 12th consecutive record revenue quarter growing over 32% year over year.

Judy Hong: Poland grew revenue by over 60%, and Germany also returned to double-digit growth year-over-year, aided in part by improved flower shipments. The rest of the world's gross margin was 40%, driven by a year-over-year improvement in margin performance in our Australian business due to product mix, as well as lapping negative impacts in non-core markets during the prior year period. Thurston Bickel revenue of $18 million in Q3 was up 54% sequentially, but down 9% year over year. Sales during the quarter benefited sequentially from strong consumer demand for the new Venti portable vaporizer that was launched in Q3. Initial demand for Venti exceeded production, so those sales were constrained early in the quarter, and we added a second production shift to better align production with demand. Black Friday period sales for his stores and Bickel brand were very strong, resulting in the brand's most successful Black Friday sales campaign ever in its history.

Judy: Poland grew revenue by over 60% and Germany also returned to double digit growth year over year aided in part by improved <unk> shipments.

Judy: That's the world gross margin was 40% driven by year over year improvement in margin performance in our Australian business due to product mix as well as lapping negative impact and non core markets during the prior year period.

Judy: Sure the vehicle revenue of $18 million in Q3 was up 54% sequentially, but down 9% year over year.

Judy: Sales during the quarter benefited sequentially from strong consumer demand for new Vantiv portable vaporizer that was launched in Q3.

Judy: Initial demand for <unk> exceeded production, thus sales were constrained early in the quarter and we added a second production shift to better align production with demand.

Judy: Black Friday period sales through stores, the Mick O'brien were very strong, resulting in the brand's most successful black Friday sales campaign ever in its history.

Judy: Sales on a year over year basis were impacted by reduced shipments to the U S. Due to continued financial challenges faced by distributors.

Judy Hong: Sales on a year-for-year basis were impacted by reduced shipments to the U.S. due to continued financial challenges faced by distributors. Thurston-Bickel's growth margin was 51% compared to 45% last year, in part due to lower input costs and a positive mix shift, with Venti carrying higher growth margins than the rest of the portfolio. With the divestiture of this work from December 18, 2023, we included revenue for this work from sales between October 1, 2023 and December 17, 2023. As a result, we reported this first revenue of $8 million in Q3, essentially flat compared to the prior year, which included the full quarter of revenue. Q3 fiscal 24's adjusted EBITDA loss was a negative $9 million, an improvement of $42 million compared to a loss of $50 million a year ago.

Judy: North America gross margin was 51% compared to 45% last year in part due to lower input costs and a positive mix shift with vinci carrying higher gross margin than the rest of the portfolio.

Judy: With the divestiture of this works in December 18th 'twenty. Three we included revenue for this work sales between October one 2023 and December 17th 2023.

Judy: As a result, we reported <unk> revenue of $8 million in Q3, essentially flat compared to the prior year, which included a full quarter of revenue.

Judy: Q3 fiscal 'twenty four adjusted EBITDA loss was a negative $9 million, an improvement of $42 million compared to a loss of $50 million a year ago.

Judy: I would note that this is our best adjusted EBITDA quarter since fiscal 2017.

Judy Hong: I would note that this is our best adjusted EBITDA quarter since fiscal 2017. The improvement is driven primarily by additional cost reduction of $36 million realized during Q3, as well as focused execution driving profitable growth across our business. Now looking at our SG&A expenses more closely, selling and marketing, G&A, and R&D expenses declined by a combined $26 million, or 38%, compared to a year ago as a result of our cost reduction program.

Judy: The improvement is driven primarily by additional cost reduction of 36 million realized during Q3 as well as focused execution driving profitable growth across our businesses.

Judy: Now looking at our SG&A expenses more closely selling and marketing G&A and R&D expenses declined by a combined $26 million or 38% compared to a year ago. As a result of our cost reduction program.

Judy: Through the strategic transformation initiatives announced in April 22 in February 2023 canopy has now realized $262 million of cumulative cost reductions well on our way to achieve our targeted cost savings of $270 million to $300 million.

Judy Hong: Through the Strategic Transformation Initiative announced on April 22 and February 2023, Canopy has now realized $262 million of cumulative cost reductions, well on its way to achieving our targeted cost savings of $270 to $300 million. Our cost discipline, along with the expectations for continued growth in our businesses, gives us confidence in our target of achieving positive adjusted EBITDA in all of our business units exiting fiscal 24. I'd like to now review our cash flow and balance sheet. Free cash flow with an outflow of $34 million in Q3, which includes $21 million in cash interest payments and $1 million in CapEx. During Q3, we further de-levered the balance sheet, reducing an aggregate principal amount by $65 million for a cash payment of $63 million with the proceeds from the asset sale, including the proceeds from the BioSteel assets completed during Q3. In January, we also completed a USD 35 million private placement, the majority of which we expect to use towards additional debt reduction. Turning to the balance sheet, as of December 31, 2023, we had $186 million in cash and short-term investments and a total debt of $612 million, resulting in a net debt balance of $426 million.

Judy: Our cost discipline, along with the expectation for continued growth in our businesses give us confidence in our target of achieving positive adjusted EBITDA in all of our business units exiting fiscal 'twenty four.

Judy: I'd like to now review, our cash flow and balance sheet.

Judy: Free cash flow was an outflow of $34 million in Q3, which includes $21 million in cash interest payment and $1 million in capex.

Judy: During Q3, we furthered we further delever the balance sheet, we do think in aggregate principal amount by $65 million for a cash payment of $63 million with the proceeds from the asset sale, including the proceeds from the biofuel assets completed during Q3.

Judy: In January we also completed a USD $35 million private placement majority of which we expect to use towards additional debt reduction.

Turning to the balance sheet as of December 31, 2023, we had $186 million in cash and short term investments and total debt of $612 million, resulting in net debt balance of $426 million.

Judy Hong: Following the series of balance sheet actions we've completed over the past year, we have significantly strengthened our financial position. First, while the short term, This mostly relates to the Promissory Note with Constellation Brands. We expect this note to be settled in equity, though it's preserving cash on our balance sheet. Within our long-term debt balance, our senior secured term loan now stands at USD 383 million and is due in March of 2026. This is a reduction of USD 367 million from the original loan amount. We have been focused on executing additional activities to further deliver on our commitment to improve our financial position over the coming months. And reflecting these factors, we expect our total debt to be around $520 million at the end of fiscal 24, with minimal short-term obligations.

Judy: Following a series of balance sheet actions, we've completed over the past year, we have significantly strengthened our financial position.

Judy: First while the short term.

Judy: This mostly relates to the promissory note with constellation brands.

Judy: We expect this note to be settled in equity, thus preserving cash on our balance sheet.

Judy: Within our long term debt balance our senior secured term loan now stands at USD $383 million and is due in March of 2026. This is a reduction of USD $367 million from the original loan about.

Judy: The main focus on executing additional activities to further de lever further deliver on our commitment to improve our financial position over the coming months.

Judy: Reflecting these factors, we expect our total debt to be around $520 million at the end of fiscal 'twenty four with minimal short term obligation.

Judy: I'd like to now provide our key priorities and outlook for the balance of fiscal 'twenty four and into fiscal 'twenty five.

Judy Hong: I'd like to now provide our key priorities and outlook for the balance of Fiscal 24 and into Fiscal 25. In Canada Cannabis, we remain firmly on a path to achieving profitability and are focused on accelerating top line growth on the back of strength in our product portfolio as we close out fiscal 24 and enter fiscal 25. In the rest of the world, we expect to see growth in our key priority markets of Australia, Germany, Poland, and the Czech Republic and remain focused on ensuring a consistent supply of high quality products, as well as launching new products into these markets in the near term.

And Canada candidates, we remained firmly on a path to achieving profitability and are focused on accelerating top line growth on the back of strengthening product portfolio as we close out fiscal 'twenty four and entered fiscal 'twenty five.

Judy: And rest of World candidates, we expect to see growth in our key priority markets of Australia, Germany, Poland, and Czech Republic, and we remain focused and ensuring consistent supply of high quality product as well as launching new products into these markets and the near term.

Judy: For Storz, <unk> bickel with production of the new vent the portable vaporizer, having ramped up during Q3, we expect to see strong <unk> demand to offset the seasonally softer sales that we typically experienced in the fourth quarter.

Judy Hong: With production of the new Venti portable vaporizer having ramped up during Q3, we expect to see strong Venti demand to offset the feasibly softer sales that we typically experience in the fourth quarter. SMB Australia sales could also see some impact from the upcoming regulatory changes on Bates. From a cash flow standpoint, we expect our cash flow operations to continue to show year-over-year improvement, driven by further reductions in adjusted EBITDA losses and lower interest expenses. In closing, we believe our Q3 results reinforce our confidence, but we now have a solid foundation in place to achieve profitability and drive profitable growth and enhance shareholder value over time. This concludes my prepared comments. We will now take questions from the panel. Ladies and gentlemen, we will now...

Judy: SMB, Australia sales, but also see some impact from the upcoming regulation changes on baked.

Judy: From a cash flow standpoint, we expect our cash from operations to continue to show year over year improvement driven by further reduction in adjusted EBITDA loss and lower interest expenses.

Judy: So in closing we believe our Q3 results reinforce our confidence, but we now have a solid foundation in place to achieve profitability and drive profitable growth and enhance shareholder value overtime.

Speaker Change: This concludes my prepared comments, we will now take questions.

Speaker Change: Thank you.

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

Speaker Change: Or do you have a question. Please press the star followed by the one on your Touchtone phone you will hear us Tom prompt acknowledging your request.

Speaker Change: We are using a speaker phone please lift the handset before pressing any case.

Speaker Change: First question comes from Michael Lavery from Piper Sandler. Please go ahead.

Speaker Change: Yeah.

David Eric Klein: Thank you. Good morning, and congratulations on a lot of the progress you just laid out. I would love to just get a little bit of better market color on the pricing environment in Canada and just some of the ways you're managing that and how that looks. Yeah, so I think, I think, Michael, there's still price compression in some of the categories. And the way we're really managing it, I think, is making sure that we're thinking about pricing almost from a tiered standpoint. So there are some areas where we need to be price competitive because the market's taking us there. And then there are some areas where, you know, we can't produce enough products to meet consumer demand.

Michael S. Lavery: Thank you good morning.

Michael S. Lavery: That's on all the progress you just laid out.

Michael S. Lavery: Good morning, Michael.

Michael S. Lavery: Would love to just get a little bit of better market color on the pricing environment in Canada, and just some of the ways, you're managing that and how that outlook looks.

Michael S. Lavery: Yes, so I think.

Michael S. Lavery: I think Michael there is.

Michael S. Lavery: There is still price compression in some of the categories.

Michael S. Lavery: And.

Michael S. Lavery: The way, we're really managing it I think is making sure that we're thinking about pricing almost from a tiered standpoint. So there are some areas, where we need to be price competitive.

Michael S. Lavery: Because the market is taking us there and then there are some areas, where we can produce enough product to meet consumer demand and so.

David Eric Klein: And so we've actually had some instances where we take prices, make, you know, price increases. So it really is kind of managing the mix across the portfolio. But, but yeah, there's, it's, it's still, you know, there's, there's still some pressure in the marketplace.

Michael S. Lavery: We've actually had some instances where we take price.

Michael S. Lavery: Price increases so it really is kind of managing the mix across the portfolio.

Michael S. Lavery: But but yes, there's it's still there is still some pressure in the marketplace.

Judy Hong: I'd also say, despite price compression, and obviously, we are also seeing that in our P&L to some extent, but we're definitely seeing gross margin improvement, in part because we're shifting our mix. So product categories where it's more profitable, we're really leaning in there with better margins. And also, we're looking at ways of continuing to save and find savings on our costs.

Michael S. Lavery: I'd also say despite the price compression and obviously, we are also seeing that in our P&L to some extent, but we're definitely seeing gross margin improvement in part because we're.

Michael S. Lavery: Shifting our mix so product categories, where it's more profitable we're really leaning in there.

Michael S. Lavery: With with better margins.

Michael S. Lavery: And also we're looking at ways of continuing to say find savings from our cost. So our cultivation costs are down year over year, but we're looking to even improve our costs more so as we're seeing some of that price compression, we can more than offset that and see the variable margins improvements across our portfolio.

David Eric Klein: So our cultivation costs are down year over year, but we're looking to even improve our costs even more. So as we're seeing some of that price compression, we can more than offset that and see the variable margin improvement across our portfolio. And then, I think, lastly, our medical business, as you know, is a very high-margin business to begin with. And we're also actually seeing margin improvement in that part of the business with some of the product mix improvements that we're seeing in that platform as well. Oh, that's helpful. And where you've been able to take the price, can you give a sense of the magnitude? I'd imagine it's relatively modest, but maybe I'm wrong. Yeah, it's really just a look.

Michael S. Lavery: And then I think lastly, our medical business. Since you know is a very high margin business to begin with and we're also actually seeing margin improvement in that part of the business with some of the product mix improvements.

Michael S. Lavery: Improvements that we're seeing in that platform as well.

Speaker Change: That's helpful.

Speaker Change: Where you've been able to take price can you give us sense of the magnitude the management.

Speaker Change: Relatively modest, but maybe I'm wrong there.

Speaker Change: It's really just it's really just Michael it's aligning kind of kind of the with the competitive set and with.

David Eric Klein: Yeah, it's really just, Michael, it's aligning kind of with the competitive set and with kind of consumer expectations. And so, you know, there I guess I. It's so hard to come up with a specific example.

Speaker Change: With kind of consumer expectations and so.

Speaker Change: Sure.

Speaker Change: I guess.

Speaker Change: So hard to come up with a specific example, but if you look at.

David Eric Klein: But if you look at, say, our WANA offerings, we're going to be very competitive with our classics from a pricing standpoint. But as we bring innovation to market, like our quick formulation, we make sure that we're pricing that at a premium. So really, it's almost on a skew-by-skew basis.

Speaker Change: They are one our offerings, we're going to be very competitive with our our classics from a pricing standpoint, but as we bring innovation to market like our quick formulation, we make sure that we're pricing at a premium. So it really is it's almost on a SKU by SKU basis.

Speaker Change: Okay, great. Thanks, I'll pass it on.

David Eric Klein: Okay, great. Thanks. I'll pass it on.

Speaker Change: Thank you. The next question comes from Jimmy Chen of BMO Capital markets. Please go ahead.

Operator: Thank you, Tammy. Thank you. Timmy, are you on mute?

Tamy Chen: Hi, Jimmy Yummy.

Tamy Chen: Jamie are you on mute.

Tamy Chen: Sorry about that hi, good morning. This is Emily.

Operator: I'm sorry about that. Hi, good morning. This is Emily. Yes, good morning. I've hit the wrong button.

Good morning, Yes, good morning.

Speaker Change: I hit the wrong button.

Judy Hong: So, thanks for taking my questions. As we know, yesterday one of your competitors acquired their Australian medical business, and you pointed out in your prepared remarks that the rest of the world's gross margin was really primarily driven by the Australian gross margin there. And we noted that in Q3 this quarter, the margin really jumped versus, you know, the previous two quarters; it was 30, 30-ish percent, and now this quarter it is 40%. So, we really want to dig into maybe the puts and takes in that gross margin number. And also, what are your plans that you want to share with us about Australia that could talk about the attractiveness of that market for you? Thank you. Sure, I'll start, Tamy.

Speaker Change: Thanks for taking my question.

Speaker Change: So as.

Speaker Change: As we know yesterday one of your competitors.

Speaker Change: <unk>, there, Australia medical business and you've pointed out in your prepared remarks that the rest of the world gross margin was really primarily driven by <unk>.

Speaker Change: Yes, Julien gross margin there.

Speaker Change: And we noted that.

Speaker Change: In Q3 this quarter the margin really jumped versus the previous two quarters. So that's what that was 30% 30 ish percent allowed this quarter was 40%. So we really wanted to dig into maybe the puts and takes in that gross margin number and also what are your plans.

Speaker Change: You want to share with us about Australia that cannot talk about the attractiveness of that market for you. Thank you.

Speaker Change: Sure I'll start Tony So if you looked at our rest of the World business I would point out a few things. One historically you are right that there was a lot of lumpiness in the gross margin performance in there.

Judy Hong: So if you looked at our rest of the world business, I would point out a few things. One, historically, you're right that there was a lot of lumpiness in the gross margin performance there, mostly driven by non-core markets. Frankly, I think, you know, we include our US CPP business in that line item, and we've really tightened our focus and gone through some strategic changes in our US CPP business. And the changes there have impacted gross margins, as well as revenue in some quarters. We also have historically had bulk shipments to some markets outside North America.

Mostly driven by noncore markets frankly, I think you know we include our U S CPG business in that line item in.

Speaker Change: Really tightened our focus on Wednesday on some strategic changes in our USC USB PD business and the changes there have impacted the gross margins as well as the revenue and some of the quarters.

Speaker Change: We also have historically had.

Speaker Change: Bulk shipments to some of the markets outside North America and that also created volatility in the gross margin performance as well. So I think when you look at Q3 performance I would say, it's relatively a clean quarter and engaging our gross margin performance we are.

Judy Hong: And that also created volatility in gross margin performance as well. So I think when you look at Q3 performance, I'd say it was relatively a clean quarter in terms of engaging our gross margin performance. We are looking at Australia on a year over year basis for improved margin performance as their product mix is improving. But even in Europe, we are also seeing margin improvement there as well. The one thing to call out from an Australian business standpoint, in our Australian business, we also have stores and bickle sales that go through, just from a reported segment standpoint, to the Australian sales as part of the rest of the world sales, and that and the stores and bickle business, frankly, has really grown strongly in Australia. So I think the combination of really strong votes in the flower business in Australia, as well as growing business and stores and bickle, but now the Great, thanks so much.

Speaker Change: Looking at Australia on a year over year basis being improved margin performance as their product mix is improving but even in Europe. We are also seeing the margin improvement there as well the one thing to call out for them in Australia business standpoint.

Speaker Change: We are in.

Speaker Change: Our Australian business. We also have stores in vehicle sales that go through just from a reported segment standpoint.

Speaker Change: Two the Australia.

Speaker Change: Sales as part of our rest of the world sales of that in the stores are bigger business frankly has really grown strongly in Australia. So I think the combination of really.

Speaker Change: Strong growth in the pharma business in Australia, as long as growing business and so as the vehicle, but now the improvement we're seeing in markets like Germany give us confidence that.

Speaker Change: The margins that we're seeing today should be sustainable going forward.

Speaker Change: Okay.

Speaker Change: Great. Thanks, so much.

Speaker Change: Thank you. The next question comes from Aaron Grey at Alliance Global Partners. Please go ahead.

David Eric Klein: Hi. Thank you very much for the questions. First question from me: I certainly appreciate the ongoing situation back and forth between the SEC and the exchanges regarding Canopy USA. So just wanted to clarify, just in terms of some of the disclosures in the MD&A, you know, it seems like some of your combinations with the OCA from the SEC that you expect with the new agreement that they'll then agree to the deconsolidation of Canopy USA. So first, can you just clarify that you believe with the filing in February, you'll be able to get more clarity on that before the vote in April? And then second, could you provide any additional color in terms of the level of potential supplemental information you might be able to provide in terms of how the company would look with Canopy USA on a pro forma basis, even if it's not going to be consolidated? Thank you.

Aaron Grey: Hi, Thank you very much for the questions.

First question for me can certainly appreciate the ongoing situation and back and forth between the FCC and the exchanges regarding Ken for USA. So just wanted to clarify just in terms of the disclosure in the MD&A.

Aaron Grey: It seems like from your combos with the OCI from the SEC that you expect with the new agreement that Bill didn't agree with the deconsolidation of camp USA. So first can you just clarify that you believe or with a filing in February you'll be able to get more clarity on that before the vote in April and then second could you provide any additional.

Aaron Grey: Colin in terms of the level of potential supplemental information you might be able to provide in terms of how the company would look wolfcamp USA on a pro forma basis, even if it's not going to be consolidated thank you.

Aaron Grey: Yeah. So so.

David Eric Klein: Yes, so we, as we indicated in our remarks, we'll be filing our definitive proxy this week, and all of the information that you could want to know will be available in that. And we will be filing financial statements once we close on Canopy USA, even though, as you said, it won't be consolidated into our financial results. So our investors will see the entire picture in those financial statements. I also want to make sure that whenever we talk about Canopy USA, we're talking about the benefit of Canopy USA.

Aaron Grey: We as we indicated.

Aaron Grey: In our remarks, we will be filing our definitive proxy this week and all of the information that you could want to know who will be available in that.

Aaron Grey: And we will be filing financial statements once we close four.

<unk>.

Aaron Grey: Canopy USA, even though as you said it won't be consolidated into our financial results. So our investors will see the entire picture.

Aaron Grey: And those financial statements.

Aaron Grey: I also want to make sure that whenever we talk about cannot be USA that we're talking about.

Aaron Grey: The benefit of canopy USA. So I know there is just a lot of interest in terms of how we will structure of that business, but for me. The benefit is really having some really strong brands.

Judy Hong: So I know there's just a lot of interest in terms of how we will structure that business, but for me, the benefit is really having some really strong brands combined with capabilities in some really big markets to create a really focused brand-led sort of business in the U.S., which is an extremely attractive and profitable cannabis market. The only thing I would also just add is even though Canopy Growth will not be consolidating its interest in Canopy USA, I think you know that Canopy Growth will own a significant financial interest in Canopy USA, so really, the benefits of Canopy USA creating value by owning an operating platform once they're able to exercise the options and trigger on owning one at Jetty and Anchorage, the value creation at Thanks for that color!

Aaron Grey: Combined with capabilities and some really big markets.

Aaron Grey: To create a real focused.

Aaron Grey: Brand led.

Aaron Grey: Sort of business in the U S, which is which is an extremely attractive and profitable cannabis market.

Aaron Grey: The only thing I would also just that is even though canopy moves out we will not be consolidating the interest and Kenneth USA. I think you know that canopy growth will own a significant financial interest in canopy USA, so really the benefits of Kenneth USA, creating value.

Aaron Grey: By owning and operating platform once they are able to exercise the options and trigger.

Aaron Grey: <unk> J D at acreage the value accretion add Kenneth USA, we think is really a an attractive proposition for canopy growth shareholders as well.

Judy Hong: I appreciate that and definitely look forward to talking more about the performance of the business versus the optics of how it's disclosed in the financials. Quick second one for me, if I could, just in terms of the guidance to, you know, reach EBITDA profitability as you exit the fiscal year. Just if you could help us maybe triangulate some of the drivers to reaching EBITDA profitability as you exit the year. You know, you divested the This Works business that had healthy gross margins, but I'm not sure if it was a drag at the EBITDA level. And there are other notable drivers.

Speaker Change: Thanks for that color I appreciate that and definitely look forward to talking more about the performance of the business versus the optics of how it's disclosed on the financials.

Speaker Change: Second one for me if I could just in terms of the guidance to reach EBITDA profitability as you exit the fiscal year, just if you could help us maybe triangulate some of the drivers to reach an EBITDA profitability as you exit the year.

Speaker Change: You divested that this works business that had growth help the gross margins, but not sure. If it was a drag at the EBITDA level and there is other node or notable drivers you talked about the cost savings you've now had 262 million cumulative versus I believe 227 last quarter. So just if you could help us how youre, reaching that in terms of potential gross margin or SG&A savings and I'll.

Judy Hong: You talked about the cost savings. You've now had $262 million cumulative versus, I believe, $227 million last quarter. So just if you could help us put, you know, how you're reaching that in terms of potential gross margin or SG&A savings that will start to actually flow through the P&L and help us reach that. I think that'd be very helpful there. Sure, sure, Aaron.

Speaker Change: Starts actually flow through the P&L and help us reset I think that'd be very helpful. There. Thank you.

Speaker Change: Sure sure. So I'd say there are few levers one is I think we do have some remaining cost savings that are left in the program, where you remain confident that we'll fully executed and generate those savings in the coming months.

Judy Hong: So I'd say there are a few levers. One is, you know, I think we do have some remaining cost savings that are left in the program. We remain confident that we'll fully execute and generate those savings in the coming months. The second driver is, look, I think our businesses are now really delivering profitable growth. So as the top line grows and gross margin improves, even with our base businesses, even without some of the cost reduction that we've announced previously, we now have a right-sized cost structure that those top line revenues should really drive stronger EBITDA growth going forward. So I say that's the second driver is really the strong base business growth that we continue to expect to be sustained on a go-forward basis.

Speaker Change: The second driver is look I think our businesses are now really delivering profitable growth so as topline growth and gross margin improved even with our base businesses, even without some of the cost reductions that we've announced previously.

Speaker Change: Now have a right sized cost structure that those topline revenue should really drive a stronger EBITDA growth going forward.

Speaker Change: That's the second driver is really the strong base business growth that we continue to.

Speaker Change: I expect to be sustained on a go forward basis, and then lastly, we are looking at continued efficiencies across star Austin, particularly looking at some of the G&A of the corporate cost side. So we do think that there is opportunities to continue to streamline.

Judy Hong: And then lastly, we are looking at continued efficiencies across our costs and particularly looking at some of the G&A on the corporate cost side. So we do think that there are opportunities to continue to streamline our corporate costs to make sure that we are looking at really a positive adjusted EBITDA on a go-forward basis for all of our business units. We're still finalizing our fiscal 25 plan, so we'll provide more details on the profitability outlook for fiscal 25 as we report our Q4 results in May. Okay, great, thanks for the detail; that's really helpful. I'll go ahead and jump back into the queue. Thank you. Good morning.

Speaker Change: Our corporate cost to make sure that we are.

Speaker Change: Looking at really a positive adjusted EBITDA on a go forward basis for all of our business units, we're still finalizing our fiscal 'twenty five plants. So we'll provide more details.

Speaker Change: On the profitability outlook for fiscal 'twenty five as we report our Q4 results in May.

Speaker Change: Okay, great. Thanks for the detail that's really helpful. I'll go and jump back into the queue.

Speaker Change: Okay.

Speaker Change: Thank you. The next question comes from Johnson <unk> from CIBC. Please go ahead.

David Eric Klein: I wanted to ask about stores and Bickel. And I appreciate the sequential improvements. It sounds like you're very excited about this business and the new products that are coming out. But the revenue was down 8% year over year, presumably that's with some pricing embedded into it. And that included a product launch. So I'm just wondering if you could add some color to that business and provide some framework on what you expect from it in calendar 24. Yeah, so John... Like to just kind of set the stage, I just want to point out that Storz and Bickel has doubled in the past four years, doubled at the top line level.

Johnson: Hey, good morning, I wanted to ask what storz, <unk> Bickel and I appreciate the sequential improvement it.

Johnson: It sounds like you're very excited about this business and new products that are coming out, but the revenue was down 8% year over year, presumably that's with some pricing embedded into it and that included a product launch. So I'm. Just wondering if you could add some color on that business and provide some framework on what you expect from it into calendar 'twenty four.

Yeah, So John.

Johnson:

John: I'd like to just kind of set the stage. So just want to point out that storz <unk> Bickel has doubled in the past four years doubled at the top line level. So we're seeing.

David Eric Klein: So, you know, we're seeing reasonably consistent growth across the business. However, I would say that our results in Q3 were held back a little bit by the late launch of Venti, which happened late in the quarter. And so there was a fair amount of production activity and programming activity around the Venti launch. And, you know, we exited the quarter with a substantial backlog of units, which we're working our way through right now. Right?

Speaker Change: Reasonably consistent growth across the business I would I would say that our results in Q3 were.

Speaker Change: Were held back a little bit by the late launch of Vinci, which happened late in the quarter.

Speaker Change: And so there was a fair amount of production activity in programming activity around da.

Speaker Change: Da Vinci launch and we exited we exited.

Speaker Change: The quarter with a substantial backlog of units, which we're working our way through right now right. So so.

David Eric Klein: So, over its history, we see growth coming from Storz and Bickel as a result of new product launches like the Venti launch. And we've also seen growth from Storz and Bickel as a result of distribution growth. And as you know, the U.S. distribution tier has been under duress for the last couple of years, meaning the tier that takes products into vape shops across the United States. And that's caused us some pain over time.

Speaker Change: Over its history, we see growth coming from stores and vehicle from.

Speaker Change: New product launches.

Speaker Change: <unk> launch.

Speaker Change: And we've also seen growth from stores and vehicle as a result of distribution growth.

Speaker Change: And as you know the U S.

Speaker Change: The U S.

Speaker Change: China distribution tier and it has been under duress for the last couple of years that meaning the tier that takes products into vape shops across the United States and that's caused us some.

Speaker Change: Some pain over time, but we think that we can get back into distribution growth in the U S. In the near future and then combined with the launch of da Vinci in some potential future innovation. We think the prospects are very bright for that brand, but also point out that when we launch a brand like vintage.

David Eric Klein: But we think that we can get back into distribution growth in the U.S. in the near future. And then, combined with the launch of the Venti and some potential future innovation, you know, we think the prospects are very bright for that brand. I'd also point out that when we launch a brand like Venti, that is margin expanding because we, you know, we set up the new launches so that it improves the overall mix. Yeah.

Speaker Change: That is margin expanding.

Speaker Change: Because we set up the new launches.

Speaker Change: So that it improves the overall mix.

Judy Hong: And to add to David's point just on margins, even though revenue was down year for year, gross profit dollars were actually up year for year. So I think that that continues to show the evidence that we're really leaning in on profitable growth. And I think even Storz and Bickel, you're seeing that profitable growth really come through with gross profit dollars up year for year. All right, that's helpful. Thanks.

Speaker Change: To date David's point, just on margins, even though revenue was down year for Europe year gross profit dollars are actually up year over year, So I think that that.

Speaker Change: Continues to show the evidence that we're really leaning in on profitable growth and I think even.

Speaker Change: So it's basically you're seeing the profitable books really come through with gross profit dollars up on a year over year basis.

Speaker Change: Alright Thats helpful. Thanks, and then I wanted to follow up on Aaron's question about about profitability plans and cost savings.

Judy Hong: And then I wanted to follow up on Aaron's question about profitability plans and cost savings. And I guess the answer, but just to clarify, you, it sounds like you expect both sales growth and additional cost cuts. But do you think you can get to positive EBITDA on a consolidated basis? In the event that you don't achieve the sales growth you want, do you have confidence that you can get to the high end of your cost savings plan? And would that require additional actions if that was the case, or are those actions already taken, and you're just waiting for these additional costs to flow?

Speaker Change: Yes, you answered it but just to clarify it sounds like you expect both sales growth and additional cost cuts, but do you think you can get to positive EBITDA on a consolidated basis.

Speaker Change: In the event you you don't achieve that sales growth you want do you have confidence you can get to the high end of your cost savings plan and would that require additional actions. If that was the case or are those actions already taken and you're just waiting for these additional cost to flow through the P&L.

Speaker Change: Yes look I mean, John I'd say, our businesses have now a strong foundation for profitability I think there is evidence that that from.

Judy Hong: I mean, John, I'd say our businesses now have a strong foundation for profitability. I think there is evidence that, from a gross margin standpoint, you're seeing improvement, not just from a cost reduction perspective, but growth and mixed improvement that's also driving profitability improvement. And that's not just in Canada, but you see that in the rest of the world and in stores and vehicle businesses as well.

Speaker Change: From a gross margin standpoint, youre seeing improvement not just from a cost reduction perspective, but the growth.

Speaker Change: And the mix improvement that's also driving profitability improvements.

And Thats not just in Canada, but you see that the rest of the world and so as the vehicle business as well I'd say one area is we are a public company cost.

Judy Hong: I'd say one area is that we are a public company cost. So there are costs that are just related to being a public company cost, and we're actively, and we've already identified some of the opportunities and areas of cost savings there. And that will continue to be an area we'll focus on as we really drive towards that profitability target. But as we said in our prepared comments, we do believe that we will exit Fiscal 24 with all of our business units being profitable. So, you know, we're really pleased with the performance so far. Okay, understood. Thanks very much. Hey, thanks for the questions. I want to go back to something that you just said, Judy, just for clarification.

Speaker Change: There are costs that are just related to being a public company costs and we're actively and then we've already identified several new opportunities in areas of cost savings there, but that will be continued to be an area.

Speaker Change: Our focus on as we really drive towards that profitability targets, but as we said in our prepared comments. We do believe that we will exit fiscal 'twenty, four but with all of our business units being profitable.

Speaker Change: So.

Speaker Change: Pleased with the performance so far.

Speaker Change: Okay understood. Thanks, very much I'll pass it on.

Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star followed by one.

Speaker Change: Question comes from Bill Quirk from Roth and Kim. Please go ahead.

Bill Papanastasiou: Okay, Hey, thanks for the questions I want to go back to something you just said Judy just for clarification. So all business units adjusted EBITDA profitable.

Judy Hong: So, all business units adjusted EBITDA was profitable. Does that mean consolidated profitable? Or are there unallocated expenses, maybe at the corporate level, that would make a consolidated EBITDA negative, even if all business units were EBITDA positive?

Bill Papanastasiou: Does that mean consolidated profitable or are there unallocated expenses, maybe at the corporate level that would make consolidated EBITDA negative even if all business units were EBITDA positive.

Judy Hong: So, Bill, we don't break out segment information at the adjusted EBITDA level, so all I can say is that obviously, our goal is to be profitable at the consolidated level. As I said, we feel that we are on track to achieve profitability at the business unit level by exiting FY24. Does that mean the full quarter is profitable? Does that mean the consolidated adjusted EBITDA is profitable? There's still some areas that we just need to see how that plays out. I would also point out there's some lumpiness in some of the corporate costs that sometimes take on a quarter over quarter basis. So, those are all the things that they were really focused on mitigating.

Judy: So bill we don't breakout segment information that Steve just the EBITDA level. So all I can say is we.

Judy: Obviously, our goal is to be profitable at the consolidated level.

Judy: As I said.

Judy: We are on track to achieve profitability at the business unit level exiting FY 'twenty four does that mean, the full quarter as profitable does that mean.

Judy: It's a consolidated adjusted EBITDA is profitable there is still some areas that we just need to see how that plays out I would also point out that there is some lumpiness in some of the corporate costs that sometimes sits on a on a quarter over quarter basis. So those are all the things that they were.

Judy: Really focused on mitigating and and I think I would just say.

Judy Hong: And I think I would just say, in my view, the performance of the business is very encouraging in terms of top and bottom line growth, and obviously, we're focused on generating positive adjusted EBITDA across all of our businesses as we exit fiscal 20. And, I mean, to your point, that's the best adjusted gross margin. Canadian Legalization I think. And so I guess what was the big surprise when you guided 3Q, or when you talked a couple of months ago about 3Q, you said you expected gross margins to be, adjusted gross margins to be, in the mid-20s. So what was new from when you had that expectation? I mean, I imagine some of the cost-saving stuff was known a few months ago about 3Q. So what's really new from the mid-20s to the 30s?

Judy: In my view the performance of the business.

Judy: <unk>.

Judy: Encouraging in terms of top and bottom line growth then obviously.

Judy: We're focused on.

Judy: Generating positive adjusted EBITDA across all of our business for us as we exit fiscal 'twenty four.

Judy: And I think to your point, that's the best adjusted gross margin since Canadian legalization I think.

Judy: So I guess what was what was the big surprise when you guided <unk> or when you talked a couple of months ago about <unk>. You said you expected gross margins to be adjusted gross margins to be in the mid Twenty's. So what was new from when you. When you. When you have that expectation I mean, I imagine some of the cost savings stuff was knowable a few months ago.

Judy: Without <unk>, so what's really new from mid <unk> to 36.

Judy: Sorry, So Q2, I think our gross margin in Canadian business within the mid thirties this quarter reported.

Judy Hong: Sorry, so Q2, I think our gross margin in the Canadian business was in the mid-30s. This quarter, we reported a gross margin of 28%. Sorry, when you, when you, at 2Q, you guided 3Q gross margins to the mid-20s, if I remember. Right, so when you were last reported, you said... Yeah, so the Canadian gross margin was 28%. The consolidated gross margin was in the mid-30%.

Judy: Eight.

Judy: Sorry, when you and when you add <unk>.

Judy: <unk> you guided <unk> gross margins to the mid Twenty's, if I remember correctly right. So when you lap it you said.

Speaker Change: Yes, so the Canada gross margin was 28% the consolidated gross margin, which was in the mid 30% I'd space towards that mid cycle margin, probably did come in a bit better than we expected partly driven by obviously the fancy and then some of the benefits from lower material cost as well.

Judy Hong: I'd say the mid-clinical margin probably did come in a bit better than we expected, partly driven by obviously the fancy packaging and then some of the benefits from lower material costs as well. And I'd say even Canadian margins probably came in a bit better than we expected. I think I called out last quarter where we said we had some benefits from the opportunistic use of lower cost inputs. We had some of that lingering benefit in Q3, so that helped Q3 gross margin performance in the Canadian business a little bit better than we anticipated at that point in time as well. I appreciate that. Good morning, everyone.

Speaker Change: I'd say, even Canadian margins, probably came in a bit better than we expected I think I did call out last quarter, where we said we had some benefits from opportunistic use of.

Speaker Change: Cost inputs, we had some of that lingering benefit in Q3, so that helped Q3 gross margin performance in the Canadian business.

Speaker Change: A little bit better than we anticipated at that point in time as well.

Speaker Change: I appreciate that thank you.

Speaker Change: Thank you. The next question comes from Matt Bottomley from Canaccord. Please go ahead.

David Eric Klein: I just wanted to get a little more commentary, if you could provide your overall outlook on sort of your Canadian domestic operations. You know, clearly, we've seen a bit of softness to end the year, at least at the retail sale level in Canada. And the overall medical opportunity seems to be flat to declining. So I know you saw some decent year over year growth this year for the down quarter. But I'm just curious if you can give, you know, a 12 month outlook as to how notable, if at all, the domestic operations will be as a growth driver for the company. I think we believe that with the gross margins we're now delivering, our area of focus now is on how to drive growth.

Matt Bottomley: Hey, good morning, everyone I just wanted to get a little more commentary. If you can provide your overall outlook on sort of the your Canadian domestic operations.

Matt Bottomley: Clearly, we've seen a bit of softness to end the year at least at the retail sell level in Canada, and the overall medical opportunity seems to be flat to declining. So I know you saw some some decent year over year growth.

Matt Bottomley: This year for us during the quarter, but I'm just curious if you can give a 12 month outlook as to how notable if at all the domestic operations will be as a growth driver for the company.

Matt Bottomley: So I think we believe that.

Matt Bottomley: With the gross margins, we're now delivering.

Matt Bottomley: Our area of focus now is.

Matt Bottomley: As on how to how to drive growth right and so for US I think it's just continuing to build on what we've done to date in terms of the streams. We have in the market in terms of some NPD that we have on the verge of bringing into the market.

David Eric Klein: And so for us, I think it's just continuing to build on what we've done to date in terms of the strains we have in the market and in terms of some novel drugs that we are on the verge of bringing into the market. In particular, as I said in my script, building on some of the momentum we've had in pre-rolls, leaning into soft gels a little bit, and then coming back into the vape space more aggressively than we've been in the past.

Speaker Change: Got it.

Speaker Change: In particular as I said in my script building on.

Speaker Change: Some of the momentum we've had in pre rolls.

Speaker Change: Leaning into Softgel, it's a little bit and then and then coming back into the <unk> space more aggressively than we've been in the past. We also think that there's a lot of distribution opportunity for our brands across the marketplace. So I think that it's more it's more around the lines of.

David Eric Klein: We also think that there's a lot of distribution opportunity for our brands across the marketplace. I think that it's more around the lines of having good margin products that are responding with consumers and executing in all aspects of our go-to-market strategy. That's how we see ourselves continuing to grow in Canada, in particular in the adult use sector. And on the medical side, I'd say the market has been declining, but we've been growing and gaining market share in the medical market. So from that respect, we think that there is continued opportunity to grow our medical business. A lot of the growth is actually coming from increased basket sizes.

Speaker Change: Having good margin products that are resonating with consumers and executing.

Speaker Change: Aspects of our of our go to market strategy.

Speaker Change: That's how we see ourselves continuing to grow in Canada in particular addressing <unk> sector.

Speaker Change: The medical side I would say the market has been declining, but we've been growing and gaining market share with the vertical market.

Speaker Change: From that respect we think that there is continued opportunity to grow our medical business a lot of the growth is actually coming from increased basket sizes.

Judy Hong: So we actually are seeing patients order more products on our platform, and I think that's a function of an increased product assortment that we have now in our Spectrum store. And so we would continue to see that driving growth in our medical platform. Got it, thanks.

Speaker Change: So we actually are seeing.

Speaker Change: Patients.

Speaker Change: More products on our platform and I think thats a function of an increase the product assortment that we have now in our <unk>.

Speaker Change: Spectrum store and so we would continue to see that driving new ocean and our medical platform.

Speaker Change: Got it thanks, and then just one more for me if you can just onto the international side of things. So theres been a lot of constructive commentary.

David Eric Klein: And then just one more for me, now switching just to the international side of things. So there's been a lot of constructive commentary with respect to the outlook for certain markets in the EU. I know Australia's been mentioned, and someone referenced the deal that was mentioned yesterday. Even one of the US MSOs has been pretty constructive on the international side of things.

Speaker Change: With respect to the.

Speaker Change: The outlook in certain markets in the EU I know Australia has been mentioned until he referenced the deal that was mentioned yesterday, even one of the U S. Msos has been pretty constructive on the international side of things. So just considering that on a trailing 12 month basis, there's been a lot of focus on sort of the balance sheet and there's been some asset dispositions do you think there is any ability or need to deploy any capital into some of these mom.

David Eric Klein: So, just considering that, you know, on a trailing 12-month basis, there's been a lot of focus on sort of the balance sheet, and there's been some asset dispositions. Do you think there's an ability or need to deploy any capital into some of these markets in advance of regular changes? Or do you think that, you know, the runway is long enough that that might not be a primary focus for Canopy in the near term?

Speaker Change: In advance of regulatory changes or do you think that the.

Speaker Change: The runway is long enough where that might not be a primary focus for canopy in the near term.

Speaker Change: Yes, Matt I would say that.

David Eric Klein: Yeah, man. I would say that, you know, given our experience of kind of being the first ones into markets, I think we'll be very careful with any capital that gets deployed into international markets. What we will, however, do is really lean into the areas where we are operating and operating well, like Australia, like Germany, like Poland, like the Czech Republic, by bringing really strong product offerings to market with a very focused team. But I think we will remain asset light in the international markets and make sure we can grow in Canada and focus on the U.S. Okay, thanks for all that, guys. Thank you. Thank you. I will now turn back the call. Thanks for attending today's conference call. I appreciate the questions.

Speaker Change: Yes.

Matt Bottomley: Given our experience of kind of being the first one into markets I think we.

Matt Bottomley: We will be very careful with any.

Matt Bottomley: Any capital that would get deployed into international markets. What we will however, do as really lean into the.

Matt Bottomley: The areas, where we are operating and operating well like Australia, like Germany like Poland like.

Matt Bottomley: Czech Republic.

Matt Bottomley: By bringing really strong.

Matt Bottomley: Our product offerings to market with a very focused team, but I think we would but will remain asset light most likely in the in the international markets and make sure. We can we can grow in Canada and focus on the U S.

Speaker Change: Okay. Thanks, a lot guys.

Speaker Change: Thank you there are no further questions I will now turn the call back over to David Cohen for closing comments.

David Cohen: Great. Thanks for attending today's conference call appreciate the questions.

Operator: To wrap up, as we started, we're singularly focused on cannabis. Our businesses are growing and demonstrating healthy margins, and Canopy USA is moving forward. We're proud of where we are as well as where we're going. And I feel confident that Canopy USA offers a truly unique option for exposure to the growth of the world's cannabis market. Our investor relations team will be available to answer additional questions.

David Cohen: To wrap up as we started we're singularly focused on cannabis are businesses are growing and demonstrating healthy margins and cannot be USA as moving forward. We're proud of where we are as well as where we're going and I feel confident that canopy offers a real unique option for exposure to the growth of the world's cannabis markets, our investor relations team will be available to.

Speaker Change: Answer additional questions fantastic there.

Speaker Change: This concludes canopy growth's third quarter fiscal 2024 financial results conference call.

Speaker Change: This conference call will be available until May nine 2024, and can be accessed following the instructions provided in the company's press release issued earlier today.

Speaker Change: Thank for attending today's call.