Canopy Growth Reports Fourth Quarter and Fiscal Year 2023 Financial Results

Business transformation and cost reduction actions initiated in FY2023 expected to drive overall cost reduction of $240-$310 million by the end of FY2024

Actions to strengthen balance sheet have reduced overall debt position by approximately $500 million from Q2 FY2023 to quarter-to-date in Q1 FY2024 and are anticipated to generate proceeds of up to $150 million from facility divestitures by the end of Q2 FY2024

Revised proxy statement filed with modifications to the structure of Canopy USA in order to maintain compliance with NASDAQ listing requirements while preserving strategic benefits

SMITHS FALLS, ON, June 22, 2023 /PRNewswire/ – Canopy Growth Corporation (“Canopy Growth” or the “Company”) (TSX:WEED) (NASDAQ: CGC) today announced its financial results for the fourth quarter and fiscal year ended March 31, 2023 and the filing of an annual report on Form 10-K, including the audited consolidated financial statements for the fiscal year ended March 31, 2023 and the unqualified report thereon of the Company’s independent registered public accounting firm. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.

Highlights

In FY2023, the Company announced a series of comprehensive steps to align its Canadian cannabis operations and resources including: (i) the divestiture of the Company’s national cannabis retail operations (completed in Q3 FY2023); (ii) ceasing the sourcing of cannabis flower from the Mirabel, Quebec facility (completed in Q4 FY2023); (iii) exiting cannabis flower cultivation in the Smiths Falls, Ontario facility (expected to be completed in Q1 FY2024); (iv) consolidating cultivation at its existing facilities in Kincardine, Ontario and Kelowna, British Columbia; and (v) moving to an adaptive third-party sourcing model for all cannabis beverages, edibles, vapes, and extracts which will enable the Company to select and bring to market exciting and exclusive formats without the required investment in research and development and production footprint.
Restructuring steps undertaken in FY2023 reduced Selling, General & Administrative (“SG&A”) expenses and Cost of Goods Sold (“COGS”) by a combined $125 million through the end of FY2023.
The Company’s FY2023 net revenue decreased 21% year-over year to $403 million. When adjusting for the impact of the divestiture of C³ in Q4 FY2022 and our Canadian retail business in Q3 FY2023, revenues decreased 11% in FY2023 as compared to FY2022.
Canadian medical cannabis revenue in FY2023 increased 6% year-over-year and Q4 FY2023 increased 8% year-over-year in a declining market.
Enhanced flower quality drove resurgence of the Company’s mainstream Tweed brand to #9 spot in the Canadian adult-use market in Q4 FY2023 up from #16 in prior year¹.
Subsequent to quarter-end, the Company entered into an agreement with Indiva Limited that gives Canopy Growth control of all distribution, marketing, and sales of industry leading Wana branded products in Canada. The addition of Wana branded gummies is expected to drive Adjusted EBITDA improvement for the Company’s Canadian cannabis business and advance its path to leadership in the edibles category in Canada.

“Fiscal 2023 was a transformational year for Canopy Growth as we began to implement a comprehensive strategy to accelerate our path to profitability, and position our business to realize the tremendous opportunities ahead. Our actions are already yielding results and we expect to realize significant benefits from our cost reduction program in Fiscal 2024. Paired with continued progress in our Canopy USA strategy which enables a fast start, the Company is well positioned as it strives towards its goal of long-term North American cannabis leadership.’’

David Klein, Chief Executive Officer

“Our actions throughout Fiscal 2023 have streamlined the organization, reduced costs, and eliminated a significant portion of Canopy Growth’s debt. We recognize there is more work to be done, and we have several initiatives already underway to further reduce the operating cash burn in the businesses and improve our balance sheet, including facility divestitures that are anticipated to generate proceeds of up to $150 million in Fiscal 2024.”

Judy Hong, Chief Financial Officer

BioSteel Review and Remedial Actions

In connection with the preparation of our financial statements for our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 (the “Form 10-K”), we identified certain trends in the BioSteel Sports Nutrition Inc. (“BioSteel”) business unit. With the oversight of the Audit Committee, we launched an internal review, together with independent external counsel and forensic accountants.

This review identified material misstatements in certain of our prior financial statements related to certain sales in the BioSteel business unit, particularly with respect to the timing and amount of revenue recognition. The review also identified material weaknesses in the Company’s internal control over financial reporting as of March 31, 2023. Overall, the correction resulted in a decrease of approximately $10 million in net revenue for FY2022, or approximately 2% of total net revenue for the Company. For the nine months ended December 31, 2022, the correction resulted in a decrease of approximately $14 million in net revenue, or approximately 4% of total consolidated revenue for the Company.

As a result of the review, we are continuing to implement several remedial actions, including management changes and appropriate personnel actions. The Company is also considering all legal options that may be available in connection with the associated overpayment made in FY2023 to the minority shareholders of BioSteel as a result of the overstatement of revenues.

Additionally, Canopy Growth has taken decisive actions to sustain growth and improve profitability of BioSteel including: (i) exiting all BioSteel international business; (ii) prioritizing resources towards the growing Canadian market; (iii) refining our market strategy in the U.S.; (iv) changes to the BioSteel business including cost reductions in warehousing, production, product sampling and overall staffing reductions; and (v) exploring additional options to further minimize operating cash burn.

Balance Sheet and Liquidity

The Company ended FY2023 with cash, cash equivalents and short-term investments of $783 million. Targeted actions that have been completed or are currently underway to further strengthen our balance sheet include:

Reduction of approximately $500 million in debt from Q2 FY2023 to quarter-to-date in Q1 FY2024, including the equitization of $267 million of the 4.25% unsecured notes due in July 2023 (the “2023 Notes”) and a paydown of USD$188 million of the senior secured term loan at $0.93 per dollar of debt, which has reduced annual interest payments by approximately $45 million;
Refinancing $100 million of the 2023 Notes held by Greenstar Canada Investment Limited Partnership, a wholly-owned subsidiary of Constellation Brands, Inc. (“CBI”) in order to extend the maturity date to December 31, 2024. The Company maintains its intention to negotiate an exchange to purchase the 2023 Notes held by CBI in exchange for shares prior to its maturity; and
Facility divestitures which are expected to generate proceeds of up to $150 million by the end of September 2023. In the first quarter, the Company has already received proceeds of approximately $56 million in transactions that closed subsequent to March 31, 2023. Under provisions of the senior secured term loan agreement, 50% of proceeds will be used to paydown outstanding amounts of the senior secured term loan.

FY2024 Outlook and Priorities

To advance our goal of becoming a leading premium cannabis branded company in North America, Canopy Growth will focus on the following in FY2024:

Achieving breakeven to positive adjusted EBITDA in all of our businesses, with the exception of BioSteel, by end of FY2024;
Strengthening our balance sheet and improving liquidity; and
Monitoring and supporting the creation of value in Canopy USA, LLC (“CUSA”).

Fourth Quarter FY2023 Financial Summary

(in millions of Canadian dollars, unaudited)	Net Revenue	Gross margin percentage	Adjusted gross margin percentage³	Net loss	Adjusted EBITDA⁴	Free cash flow⁵


Reported	$87.5	(103%)	(18%)	$(647.6)	$(95.6)	$(142.8)
vs. Q4 FY2022²	(14%)	6,300 bps	2,700 bps	(10%)	27%	(13%)

FY2023 Financial Summary

(in millions of Canadian dollars, unaudited)	Net Revenue	Gross margin percentage	Adjusted gross margin percentage⁶	Net loss	Adjusted EBITDA	Free cash flow


Reported	$402.9	(26%)	(3%)	$(3,309.5)	$(349.7)	$(566.8)
vs. FY2022²	(21%)	1,400 bps	1,000 bps	901%	18%	3%

Business Highlights

Transformation of Canadian cannabis operations to asset-light model and expected cost reductions are on track

Since FY2020, the Company has closed 10 production sites in Canada and is on track to end production at its 1 Hershey Drive, Smiths Falls, Ontario facility by the end of Q1 FY2024.
Cost reduction initiatives undertaken in FY2023 are on track to reduce the Company’s headcount by over 1200 positions.

During a year of significant business change and continued market fragmentation, Canopy Growth’s Canadian cannabis business stabilized exiting FY2023

The Company’s Canadian medical cannabis revenue in Q4 FY2023 increased 8% year-over-year in a declining market and Canadian adult-use cannabis Business-to-business revenue in Q4 FY2023 increased slightly over Q3 FY2023.
Canadian adult-use cannabis performance was aided by the resurgence of the Company’s mainstream Tweed brand. The resurgence was driven by strong consumer demand for new, high-quality Tweed Kush Mints and Tweed Tiger Cake flower and PRJ product offerings.

FY2024 focus on continued stabilization of Canadian adult-use cannabis business expected to be driven by new, high-quality flower and pre-rolled joints as well as a stronger edibles portfolio

Leveraging our experience with the resurgence of the Tweed brand in FY2023, the Company’s focus on enhancing flower quality is expected to improve the competitive positioning of our premium Doja and 7ACRES branded product offerings.
Focused on reestablishing the growth of the Wana brand in the Canadian market and bringing Wana’s innovation across the United States into the Canadian market, including, for instance, Wana’s new passionfruit pineapple 1:1:1 (CBG/CBD/THC) gummy, a low dose product perfect for relaxing, which will soon be available in Ontario, BC, and Alberta.

Focusing BioSteel in North America, advancing innovation at Storz & Bickel to drive growth

BioSteel is continuing to gain market share in Canada, including through its high visibility NHL partnerships and has reached an 11.2% share of convenience and gas channel in Canada⁷in Q4 FY2023, up from 3.4% in the prior year. In FY2024, the BioSteel business is focused on expanding distribution in the food, drug, and mass channels and club accounts across Canada.
BioSteel All-Commodity Volume in the U.S. of 37.7% in Q4 FY2023⁸, up from 18.9% in the prior year. The Company is refining BioSteel’s U.S. market strategy with a tighter geographical focus as well as sharper emphasis on the specialty retail channel.
Storz & Bickel has enhanced its U.S commercial strategy and is focused on driving improved growth with a planned launch of new Storz & Bickel vaporizers in FY2024.

CUSA strategy advancing and expected to accelerate entry into the U.S. cannabis market

Subsequent to quarter end, the Company filed a revised proxy statement related to the Company’s strategy to accelerate entry into the U.S. cannabis market through its interest in CUSA and realize the opportunity of the world’s largest cannabis market.
In order to ensure continued compliance with NASDAQ’s listing rules, Canopy Growth has modified the structure of the Company’s interest in CUSA such that it is not expected to be required to consolidate the financial results of CUSA with the Company’s financial statements in accordance with generally accepted accounting principles in the United States.
The Company is focused on concluding the regulatory review and filing a definitive proxy statement related to CUSA in order to finalize the date for the special meeting of shareholders to authorize the creation of a new class of non-voting exchangeable shares in the capital of the Company (the “Exchangeable Shares”).

U.S. THC companies continue to strengthen and expand their businesses

Acreage⁹ reported Q1 FY2023 revenue of USD $56 million. In Q1 FY2023, Acreage began adult-use retail operations in Connecticut and secured approval to locate an adult-use dispensary in Pennsauken, New Jersey. Acreage anticipates commencing adult-use sales at the new Pennsauken location before the end of 2023.
In the three months ended March 31, 2023, Wana Brands¹⁰ launched 19 SKUs in 8 markets including the launch in Colorado of Wana Optimals Quick Calm, a groundbreaking product offering a calming, typically non-intoxicating cannabinoid-terpene blend for fast-acting relief from anxious feelings.
In the three months ended March 31, 2023, Jetty¹¹ expanded to the state of New York with products offered at two New York City dispensaries, Housing Works Cannabis Company and Union Square Travel Agency. Jetty also maintained its position as the #1 Solventless vape in California¹²in addition to fully staffing its California sales team to provide coverage of over 500 retail accounts.

Fourth Quarter and FY2023 Financial Summary

Revenues:

Net revenue of $88 million in Q4 FY2023 declined 14% as compared to Q4 FY2022 with the decrease primarily attributable to the divestitures of C³ Cannabinoid Compound Company GmbH (“C³”) in the fourth quarter of FY2022 and the Canadian business-to-consumer cannabis business in the third quarter of FY2023, as well the impacts of increased competition in the Canadian adult use cannabis market and softer performance from Storz & Bickel and This Works. When adjusting for the impact of the divestiture of our Canadian retail business, Canadian cannabis revenues for the period decreased 8% in Q4 FY2023 as compared to Q4 FY2022, and were stable compared to Q3 FY2023.

Net revenue of $403 million in FY2023 declined 21% as compared to FY2022. The decrease is primarily attributable to increased competition in the Canadian adult-use cannabis market, the divestitures of C³ and the Canadian business-to-consumer cannabis business, and softer performance from Storz & Bickel and This Works. These decreases were partially offset by growth of our BioSteel business in the Canadian market.

Gross Margin:

Reported gross margin in Q4 FY2023 was (103%) as compared to (166%) in Q4 FY2022. Excluding non-cash restructuring costs and inventory write-downs associated with the Company’s strategic changes recorded in COGS for a total of $75 million, adjusted gross margin was (18%). Adjusted gross margin during Q4 FY2023 was negatively impacted by higher inventory write-downs and charges relating to costs associated with certain contract manufacturing agreements that are not expected to recur past FY2023 in the BioSteel business unit.

Reported gross margin in FY2023 was (26%) as compared to (40%) in FY2022. Excluding non-cash restructuring costs recorded in COGS of $90 million, adjusted gross margin was (3%) in FY2023. Adjusted gross margin during FY2023 was negatively impacted by higher inventory write-downs and charges relating to costs associated with certain contract manufacturing agreements that are not expected to recur past FY2023 in the BioSteel business unit.

Operating Expenses:

Total SG&A expenses in Q4 FY2023 declined by 11% as compared to Q4 FY2022, driven by year-over-year decreases in general and administrative (“G&A”), research and development (“R&D”) as well as depreciation and amortization expenses. These decreases were primarily due to the restructuring actions announced in April 2022 and February 2023. Partially offsetting these decreases were an increase in BioSteel sales and marketing expenses, relating to the activation of the National Hockey League (“NHL”) partnership announced in July 2022 and other BioSteel sales and marketing activities, as well as acquisition-related costs. Excluding acquisition‑related expenses, the impact of the disposition of C³ in the fourth quarter of FY2022 and the disposition of the Canadian retail business in the Q3 FY2023, as well as the COVID-19 relief program, total SG&A expenses decreased 13% in Q4 FY2023 compared to the prior year period.

Total SG&A expenses in FY2023 declined by 3% as compared to FY2022, driven by year-over-year decreases in G&A, R&D as well as depreciation and amortization expenses. These decreases were primarily due to the restructuring actions announced in April 2022 and February 2023. Partially offsetting these decreases were an increase in BioSteel sales and marketing expenses, relating to the activation of the NHL partnership announced in July 2022 and other BioSteel sales and marketing activities, as well as acquisition-related costs. Excluding acquisition‑related expenses, the impact of the disposition of C³in the fourth quarter of FY2022 and the disposition of the Canadian retail business in the third quarter of FY2023, as well as the COVID-19 relief program, total SG&A expenses decreased 8% in FY2023 compared to the prior year.

Net Loss:

Net Loss in Q4 FY2023 was $648 million, which is a $59 million increase as compared to Q4 FY2022, driven primarily by an increase in asset impairment and restructuring costs of $164 million partially offset by improved gross margins.

Net Loss in FY2023 was $3,310 million, which is a $2,979 million increase as compared to FY2022, driven primarily by a $1,887 million increase in asset impairment and restructuring costs primarily related to goodwill impairment losses associated with the Company’s cannabis operations reporting unit, as well as a $1,219 million primarily related to the impact of non-cash fair value changes partially offset by improved gross margins.

Adjusted EBITDA:

Adjusted EBITDA loss in Q4 FY2023 was $96 million, a $36 million improvement in Adjusted EBITDA loss as compared to Q4 FY2022 primarily driven by the year-over-year improvement in gross margin and reduced operating expenses.

Adjusted EBITDA loss in FY2023 was $350 million, a $76 million improvement in Adjusted EBITDA loss as compared to FY2022 primarily driven by the year-over-year improvement in gross margin and reduced operating expenses inclusive of the impact of a $64 million reduction in COVID-19 relief payments in FY2023 as compared to FY2022.

Free Cash Flow:

Free Cash Flow in Q4 FY2023 was an outflow of $143 million, a 13% increase in outflow as compared to Q4 FY2022. Relative to Q4 FY2022, the increase in outflow is due to the timing of certain payments in each period and investments in growth initiatives at BioSteel and costs related to the formation of CUSA, partially offset by reduced capital expenditures and impacts of cost reduction actions.

Free Cash Flow in FY2023 was an outflow of $567 million, a 3% decrease in outflow as compared to FY2022. Relative to FY2022, the decrease in outflow is due to the timing of certain payments in each period, reduced capital expenditures and impacts of cost reduction actions, partially offset investments in growth initiatives at BioSteel and costs related to the formation of CUSA.

Cash Position:

Cash and short-term investments were $783 million at March 31, 2023, representing a decrease of $589 million from $1,372 million at March 31, 2022 reflecting the impact of cash used in operating activities, the first tranche of the term loan credit agreement repayment of $118 million, as well as cash used for acquisitions and investments, including the acquisition of the Verona, Virginia manufacturing facility for the BioSteel business and a premium payment made to obtain an option to acquire Acreage Holdings, Inc. (“Acreage”) outstanding debt in connection with the formation of CUSA in October 2022. Partially offsetting these net outflows were net proceeds of $135 million from the issuance of USD$100 million in convertible debentures in February 2023. Debt amounted to $1,307 million at March 31, 2023, representing a decline of $194 million from $1,501 million at March 31, 2022. Subsequent to March 31, 2023, $127 million of debt owing under the credit facility was repaid at $0.93 cents on the dollar for $117 million, and $100 million of the 2023 Notes were settled through the issuance of a promissory note due at the end of the third quarter of FY2025.

Fourth Quarter FY2023 Revenue Review¹³

Revenue by Channel

(in millions of Canadian dollars, unaudited)	Q4 FY2023	Q4 FY2022	Vs. Q4 FY2022	FY2023	FY2022	Vs. FY2022
		(As Restated)			(As Restated)
Canada cannabis
Canadian adult-use cannabis
Business-to-business¹⁴	$21.6	$25.8	(16%)	$95.0	$143.7	(34%)
Business-to-consumer	$-	$13.1	(100%)	$36.3	$61.6	(41%)
	$21.6	$38.9	(44%)	$131.3	$205.3	(36%)
Canadian medical cannabis¹⁵	$14.1	$13.1	8%	$55.8	$52.6	6%
	$35.7	$52.0	(31%)	$187.1	$257.9	(27%)
Rest-of-world cannabis
C³	$-	$3.1	(100%)	$-	$36.1	(100%)
Other rest-of-world cannabis¹⁶	$8.8	$10.8	(19%)	$39.0	$43.2	(10%)
	$8.8	$13.9	(37%)	$39.0	$79.3	(51%)

Storz & Bickel	$15.5	$21.6	(28%)	$64.8	$85.4	(24%)
BioSteel¹⁷	$19.3	$3.5	NM	$69.6	$34.6	101%
This Works	$5.4	$6.0	(10%)	$26.0	$32.3	(20%)
Other	$2.8	$4.8	(42%)	$16.4	$20.8	(21%)

Net revenue	$87.5	$101.8	(14%)	$402.9	$510.3	(21%)

Canada Cannabis

Adult-use business-to-business net revenue in Q4 FY2023 decreased 16% as compared to Q4 FY2022 driven primarily by lower sales volumes, particularly in value-priced dried flower, resulting from both the strategic shift in our product portfolio and increased competition. These factors were partially offset by a more favorable product mix.
Adult-use business-to-consumer net revenue in Q4 FY2023 decreased 100% as compared to Q4 FY2022 due to the disposition of all retail locations during Q3 FY2023.
Medical net revenue in Q4 FY2023 increased 8% as compared to Q4 FY2022 driven by growth in insured patient registrations and continued expansion of product offerings.

Rest-of-world Cannabis

Rest-of-world cannabis revenue in Q4 FY2023 decreased 37% over Q4 FY2022 due primarily to the divestiture of C³, the impact of shipments to Israel in Q4 FY2022, and a decline in our U.S. CBD business, partially offset by growth in the Australian market.
Excluding the impact of the divestiture of C³, rest-of-world cannabis net revenue decreased 19% as compared to Q4 FY2022.

Storz & Bickel

Storz & Bickel vaporizer revenue in Q4 FY2023 decreased 28% over Q4 FY2022 due primarily to the continued trend of reductions in consumer spending as seen in the prior quarters of FY2023 and again in Q4 FY2023.

This Works

This Works sales in Q4 FY2023 decreased 10% over Q4 FY2022 due in part to softer performance of certain product lines and the impact of foreign exchange rates.

The Q4 FY2023, Q4 FY2022, FY2023 and FY2022 financial results presented in this press release have been prepared in accordance with U.S. GAAP.

Webcast and Conference Call Information

The Company will host a conference call and audio webcast with David Klein, CEO and Judy Hong, CFO at 5:30 PM Eastern Time on June 22, 2023.

Webcast Information

A live audio webcast will be available at https://app.webinar.net/0aNQ3wXleEd.

Replay Information

A replay will be accessible by webcast until 11:59 PM Eastern Time on September 20, 2023 at https://app.webinar.net/0aNQ3wXleEd.

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