SMITHS FALLS, ON, Feb. 9,
2022
/CNW/ - Canopy Growth Corporation ("Canopy Growth" or the
"Company") (TSX: WEED) (NASDAQ: CGC) today announces
its financial results for the third quarter fiscal 2022 ended
December 31, 2021. All financial
information in this press release is reported in Canadian dollars,
unless otherwise indicated.
Encouraging Q3 FY2022 performance drove sequential revenue
growth and record quarterly revenue for BioSteel and Storz &
Bickel businesses
"In the third quarter we actioned to win where it matters -
driving record performance in our CPG business from both BioSteel
and Storz & Bickel, while beginning to stabilize our Canadian
business including maintaining the #1 position in premium flower.
Our continued discipline and focus are expected to fortify Canopy's
competitive positioning in Canada
as we ambitiously build our U.S. CPG, CBD, and THC
strategies."
David Klein, Chief Executive
Officer
"Throughout fiscal 2022, we continued to reduce our operating
expenses and capital investments. With a renewed sense of urgency,
we are focused on achieving profitability in Canada by taking additional steps to simplify
our business and optimize our expenses, while making strategic
investments in key growth areas."
Judy Hong, Interim Chief
Financial Officer
Highlights
- Net revenue increased 7% versus Q2 FY2022. Net revenue
decreased by 8% during Q3 FY2022 versus Q3 FY2021, as strong growth
in consumer products revenue was offset by the decline in Canadian
cannabis sales.
- BioSteel and Storz & Bickel ("S&B") achieved record
quarterly revenue during Q3 FY2022 driven by expanded distribution
of BioSteel and new products launches for S&B.
- U.S. CBD distribution drive increased Martha Stewart CBD and
Quatreau door count in Q3 FY2022 by 21% and 225%, respectively from
Q2 FY2022.
- Actions well underway to drive improved execution in the
Canadian cannabis market, with DOJA, 7Acres and Tweed innovation
supporting flower strategy and hero brand, Deep Space, line
extension.
- U.S. MSO ecosystem strengthens with acquisition of an option to
purchase Wana Brands upon federal
permissibility of THC in the U.S., along with continued growth of
Acreage's footprint with its recent acquisition of operations in
Ohio, establishing a
market-leadership position in the state.
- Established cross-functional team to execute North America THC
strategy, leveraging early advantages of strong balance sheet,
scalable THC brands, established national distribution channels and
MSO relationships to expedite entry into the U.S. upon federal
permissibility of THC.
- Released inaugural Environmental, Social and Governance report,
demonstrating the Company's commitment towards responsible and
sustainable growth.
Third
Quarter Fiscal 2022 Financial Summary
(in millions of Canadian dollars,
unaudited)
|
Net Revenue
|
Gross margin percentage
|
Adjusted gross margin percentage1
|
Net loss
|
Adjusted EBITDA2
|
Free cash flow3
|
Reported
|
$141.0
|
7%
|
13%
|
$(115.5)
|
$(67.4)
|
$(168.3)
|
vs. Q3
FY2021
|
(8%)
|
(900) bps
|
(1,300)
bps
|
86%
|
1%
|
(24%)
|
____________________
|
1 Adjusted
gross margin is a non-GAAP measure, and for Q3 FY2022 excludes $3.1
million related to the flow-through of inventory step-up associated
with the acquisition of Supreme Cannabis and $4.6 million
restructuring costs recorded in cost of goods sold (Q3 FY2021 -
excludes $nil related to the flow-through of inventory step-up and
$15.6 million restructuring costs recorded in cost of goods sold).
See "Non-GAAP Measures".
|
2 Adjusted
EBITDA is a non-GAAP measure. See "Non-GAAP Measures".
|
3 Free
cash flow is a non-GAAP measure. See "Non-GAAP
Measures".
|
Third
Quarter Fiscal 2022 Financial Summary
Revenues:
Net revenue of $141 million in Q3 FY2022 was
a decline of 8% versus Q3 FY2021. Total global
cannabis net revenue of $83 million in Q3
FY2022, represented a decline of 20% over Q3 FY2021.
Other consumer products revenue of $58
million in Q3 FY2022, represented an increase of 19% over Q3
FY2021.
Excluding the impact from acquired businesses, net
revenue declined 17% and global cannabis net revenue declined 34%
versus Q3 FY2021.
Gross margin:
Reported gross margin in Q3 FY2022 was 7% as compared to 16% in
Q3 FY2021. Excluding non-cash restructuring costs recorded in cost
of goods sold and inventory step-up charges from acquisitions,
adjusted gross margin was approximately 13%. Gross margin in Q3
FY2022 was further impacted by lower production output and price
compression in the Canadian recreational business as well as higher
third-party shipping, distribution and warehousing costs across
North America. Gross margin in Q3
FY2022 benefited from payroll subsidies in the amount of
$7 million received from the Canadian
government, pursuant to a COVID-19 relief program.
Operating expenses:
Total SG&A ("SG&A") expenses in Q3 FY2022 declined by
19% versus Q3 FY2021, driven by year-over-year reductions in
General & Administrative ("G&A") and Research and
Development ("R&D") expenses partially offset by an increase in
Sales & Marketing ("S&M") expenses. G&A expenses
declined 47% year-over-year primarily due to reductions in staffing
and professional fees and benefited from payroll subsidies received
from the Canadian government in Q3 FY2022, pursuant to a COVID-19
relief program. R&D expenses declined 53% year-over-year
principally due to a more disciplined approach to R&D
investments. S&M expenses increased 20% year-over-year
primarily due a return to more normal advertising and promotions
spending in Q3 FY2022, compared to the prior year period, higher
sponsorship fees associated with BioSteel's partnership deals and
increased advertising expenses associated with new product
launches.
Net Earnings:
Net Earnings in Q3 FY2022 amounted to a loss of $115 million, which is a $714 million improvement versus Q3 FY2021, driven
primarily by lapping material non-cash asset impairment and
restructuring charges in Q3 FY2021 and Other Income totaling
$34 million during Q3 FY2022 mostly
attributable to non-cash fair value changes of $59 million.
Adjusted EBITDA:
Adjusted EBITDA loss in Q3 FY2022 was
$67 million, a $1 million improvement versus Q3
FY2021 primarily driven by the reduction in our total SG&A
expenses, mostly offset by lower sales and a decline in gross
margins.
Free Cash Flow:
Free Cash Flow in Q3
FY2022 was an outflow of $168 million, a
24% increase in outflow versus Q3
FY2021. Relative to Q3 FY2021, the
Free Cash Flow outflow increase reflects higher interest
paid and the timing of working capital.
Cash Position:
Cash and Short-term investments amounted to $1.4 billion at December
31, 2021, representing a decrease of $0.9 billion from $2.3
billion at March 31, 2021
reflecting EBITDA losses, capital investments and the upfront
payment made as consideration for the option to acquire
Wana Brands upon federal
permissibility of THC in the U.S.
Third Quarter
Fiscal 2022 Business Highlights
Quarter of action to drive improved performance beginning to
show traction
Canada
- Maintained #1 market share in total Canada premium flower category with 10%
share4.
-
- New high potency strains arriving in market with a launch of 10
new premium flower strains under DOJA, 7ACRES and 7ACRES Craft
Collective brands in Q3 FY2022 including DOJA 91K, 7ACRES Wappa 49 and 7ACRES Craft Collective
Jet Fuel Cookies.
- Strong consumer demand for new strains helped stabilize the
Company's share of the mainstream flower market in Q3 FY2022.
-
- New Tweed Powdered Donuts and Tweed Chemdawg flower launched in
Q3 FY2022, drawing positive consumer feedback on improved flower
quality including moisture content and aroma, as well as improved
bag appeal.
- New strains launched Tweed's brand evolution featuring many
brand improvements including new flower packaging, made from 90
percent less material by weight than Tweed's original tin
packaging, with a refreshed look and feel and new colour profiles
by strain type.
- Tweed brand extension into beverages with strong consumer
demand for Tweed Fizz Seltzer 5mg THC beverages, including new
Tweed Fizz Cherry launched in Q3 FY2022.
- Expanded the popular Deep Space brand in Q3 FY2022 across
beverage and edible formats.
-
- Launch of new Deep Space XPRESS gummies and new Deep Space
Limon Splashdown flavour 10mg THC beverage.
- New Deep Space Orange Orbit beverage flavour began shipping in
the past month with three additional Deep Space beverage flavours
expected to ship over the coming months.
- Canopy Growth is taking action to drive further performance
improvements in the Canadian adult-use cannabis market.
-
- Premiumization strategy for flower products progressing with
cultivation & new genetics strategy developed and being
executed to address shifting consumer preferences for single
strain, high THC products.
- Streamlined new product development process to improve
efficiency, effectiveness and timeliness of new product development
and time to market.
- Focused distribution drives and revamped retailer engagement
program being executed to increase distribution and velocity for
focus SKUs.
___________________
|
4 Unless
otherwise indicated, market share data disclosed in this press
release is calculated using the Company's internal proprietary
market share tool that utilizes point of sales data supplied by a
third-party data provider, government agencies and our own retail
store operations across the country. The tool captures point of
sale data from an average of 30% of stores in Alberta, British
Columbia, Saskatchewan, Manitoba and Newfoundland & Labrador,
point of sale data from 100% of stores in New Brunswick, Nova
Scotia, Prince Edward Island and Quebec, as well as depletions and
e-commerce sales data from the OCS.
|
United States
- Successful launch of whisl CBD vape with Circle-K has made
whisl the #1 CBD-only Vape5 in Food, Drug, Mass +
Convenience channels according to IRI Data for the 13 weeks ended
December 26, 2021.
- Significant gains in BioSteel distribution drove record
quarterly revenue in Q3 FY2022.
-
- Recently announced the signing of BioSteel retail
authorizations with Albertsons Company, Rite Aid, Food Lion, Stop
& Shop and Sheetz as well as over 20 additional national,
regional and local grocery, convenience and drug chains. Additional
authorizations are expected to be signed over the coming
months.
- Multiple sponsorship, #TeamBioSteel athlete ambassador, trade
marketing, social media, and sampling program activations underway
to drive brand awareness, product trial and purchase.
- Strong consumer demand for new S&B vaporizers, including
the limited-edition VOLCANO ONYX and MIGHTY+ vaporizers, helped
drive record quarterly revenue in Q3 FY2022.
- Further action to drive U.S. CBD distribution by onboarding new
distributors to expand CBD brand portfolio into additional U.S.
states, including into California,
and into Food, Drug, Mass + Convenience channels.
-
- Martha Stewart CBD and Quatreau door count in Q3 FY2022
increased sequentially from Q2 FY2022 by 21% and 225%,
respectively.
- Martha Stewart CBD continues to drive demand with innovative
line extensions including Holiday-themed CBD Peppermint Ribbons and
Snowflake CBD Gummy Sampler.
North America THC ecosystem
- Canopy Growth aspires to build the leading cannabis business in
the US and gained momentum with plan to acquire Wana Brands ("Wana"), a leading cannabis edibles
brand in North America, upon U.S.
federal permissibility of THC.
- Wana strengthened its U.S. footprint in Q3 FY2022 signing a
license agreement covering the state of Nevada, and in Q3 FY2022 saw the continued
growth in popularity of Wana Quick "Fast Acting" gummies and the
Optimal Fast Asleep and Fit offerings.
- U.S. MSO Acreage Holdings ("Acreage") strengthened its balance
sheet with the recent signing of a USD$150
million credit facility to support its refocused strategy
and build depth in core markets. Acreage closed the acquisition of
operations in Ohio, establishing a
market leadership position in the state.
- Canopy Growth has established dedicated internal organization
to drive synergy across THC strategy, M&A, and Consumer
Insight's capabilities to execute the Company's North America THC
strategy to establish a scalable footprint, best-in-class products
and national distribution networks required to unlock the U.S
market.
On December 15, 2021, the Company
entered into an agreement to divest all of its interest in
C3 Cannabinoid Compound Company GmbH ("C3")
to a European pharmaceutical company headquartered in Germany. C3 develops and
manufactures cannabinoid-based pharmaceutical products for
distribution in Germany and
certain other European countries. The divestiture was completed on
January 31, 2022, pursuant to which
the Company received a cash payment of $128
million (€89 million), inclusive of cash, working capital
and debt adjustments. The Company will also be entitled to an
earnout payment of up to €43 million subject to the achievement of
certain milestones by C3.
________________
|
5
Excluding Delta-8 THC vapes.
|
Driving brand awareness through omni channel
activations
Third Quarter Fiscal 2022 Revenue Review
Revenue by Channel
|
(in millions of
Canadian dollars, unaudited)
|
|
Q3
FY2022
|
Q3
FY2021
|
Vs. Q3
FY2021
|
|
Canadian
recreational cannabis
|
|
|
|
|
|
Business to
business6
|
|
$33.3
|
$43.2
|
(23%)
|
|
Business to
consumer
|
|
$14.5
|
$20.2
|
(28%)
|
|
|
|
$47.8
|
$63.4
|
(25%)
|
|
Canadian medical
cannabis7
|
|
$12.9
|
$13.9
|
(7%)
|
|
|
|
$60.7
|
$77.3
|
(21%)
|
|
International and
other
|
|
|
|
|
|
C3
|
|
$9.7
|
$17.6
|
(45%)
|
|
Other
|
|
$12.6
|
$8.9
|
42%
|
|
|
|
$22.3
|
$26.5
|
(16%)
|
|
Global cannabis net
revenue
|
|
$83.0
|
$103.8
|
(20%)
|
|
Other consumer
products
|
|
|
|
|
|
Storz &
Bickel
|
|
$25.2
|
$24.1
|
5%
|
|
This Works
|
|
$10.7
|
$10.9
|
(2%)
|
|
BioSteel
|
|
$17.0
|
$7.4
|
130%
|
|
Other
|
|
$5.1
|
$6.3
|
(19%)
|
|
Other consumer
products revenue
|
|
$58.0
|
$48.7
|
19%
|
|
Net
revenue
|
|
$141.0
|
$152.5
|
(8%)
|
|
This table has been
recast to align with our new segment reporting. International and
other revenue includes revenue from our international medical
business and hemp-derived CBD business. Other consumer products
includes revenue from Storz & Bickel, This Works, BioSteel,
clinics, accessories and other ancillary businesses.
|
________________________________
|
6 Reflects
excise taxes of $12.8 million and other revenue adjustments of $1.0
million for Q3 FY2022 (Q3 FY2021 – $16.0 million and $3.8 million,
respectively).
|
7 Reflects
excise taxes of $1.3 million for Q3 FY2022 (Q3 FY2021 - $1.4
million).
|
Revenue by Form
|
(in millions of
Canadian dollars, unaudited)
|
|
Q3
FY2022
|
Q3
FY2021
|
Vs. Q3
FY2021
|
|
Canadian
recreational cannabis
|
|
|
|
|
|
Dry
bud8
|
|
$47.0
|
$66.2
|
(29%)
|
|
Oils and
softgels8
|
|
$8.8
|
$7.3
|
21%
|
|
Beverages, edibles,
topicals and vapes8
|
|
$5.8
|
$9.6
|
(40%)
|
|
Other revenue
adjustments9
|
|
$(1.0)
|
$(3.7)
|
73%
|
|
Excise
taxes
|
|
$(12.8)
|
$(16.0)
|
20%
|
|
|
|
$47.8
|
$63.4
|
(25%)
|
|
Medical cannabis
and other
|
|
|
|
|
|
Dry bud
|
|
$13.0
|
$10.1
|
29%
|
|
Oils and soft
gels
|
|
$18.3
|
$27.7
|
(34%)
|
|
Beverages, edibles,
topicals and vapes
|
|
$5.2
|
$4.0
|
30%
|
|
Excise
taxes
|
|
$(1.3)
|
$(1.4)
|
7%
|
|
|
|
$35.2
|
$40.4
|
(13%)
|
|
Global cannabis net
revenue
|
|
$83.0
|
$103.8
|
(20%)
|
|
Other consumer
products
|
|
|
|
|
|
Storz &
Bickel
|
|
$25.2
|
$24.1
|
5%
|
|
This Works
|
|
$10.7
|
$10.9
|
(2%)
|
|
BioSteel
|
|
$17.0
|
$7.4
|
130%
|
|
Other
|
|
$5.1
|
$6.3
|
(19%)
|
|
Other consumer
products revenue
|
|
$58.0
|
$48.7
|
19%
|
|
|
|
|
|
|
|
Net
revenue
|
|
$141.0
|
$152.5
|
(8%)
|
|
This table has been
recast to align with our new segment reporting.
|
Canadian Cannabis
- Recreational B2B net sales in Q3 FY2022 decreased 23% over the
prior year period primarily due to the continued insufficient
supply of flower products with in-demand attributes and continued
price compression, particularly in the value-priced dried flower
category. These factors were partially offset by contribution from
the acquisitions of Ace Valley and Supreme Cannabis.
- Recreational B2C net sales in Q3 FY2022 decreased 28% versus Q3
FY2021 largely driven by increased competition from the rapid
increase in third party retail locations across provinces.
- Medical net revenue in Q3 FY2022 decreased 7% from Q3 FY2021
driven primarily by higher average order sizes offset by a fewer
number of orders.
International Cannabis
- C3 revenue in Q3 FY2022 decreased 45% year-over-year
as a result of increased competition and price compression.
- Other revenue in Q3 FY2022 increased 42% over the prior year
period primarily due to growth in U.S. CBD sales and bulk cannabis
sales by Supreme Cannabis into the Israel medical cannabis market.
Other Consumer Products
- BioSteel sales in Q3 FY2022 increased 130% over Q3 FY2021
driven by the launch of ready-to-drink "RTD" beverages and expanded
distribution in the U.S. market.
- S&B vaporizer revenue in Q3 FY2022 increased 5% over Q3
FY2021 due primarily to sales of new VOLCANO ONYX and MIGHTY+
vaporizers launched late in the second quarter of fiscal 2022.
- This Works sales in Q3 FY2022 decreased 2% over Q3 FY2021 due
in part to lapping strong sales in the prior year.
The third quarter fiscal 2022 and third quarter fiscal 2021
financial results presented in this press release have been
prepared in accordance with U.S. GAAP.
_________________________
|
8 Excludes
the impact of other revenue adjustments.
|
9 Other
revenue adjustments represent the Company's determination of
returns and pricing adjustments, and relate to the Canadian
recreational business–to–business channel.
|
Webcast and Conference Call Information
The Company will host a conference call and audio webcast with
David Klein, CEO and Judy Hong, Interim CFO at 10:00 AM Eastern Time on February 9, 2022.
Webcast Information
A live audio webcast will be available at:
https://produceredition.webcasts.com/starthere.jsp?ei=1522299&tp_key=2532dadd5d
Replay Information
A replay will be accessible by webcast until 11:59 PM ET on May 10,
2022 at:
https://produceredition.webcasts.com/starthere.jsp?ei=1522299&tp_key=2532dadd5d
Non-GAAP Measures
Adjusted EBITDA is a non-GAAP measure used by management that is
not defined by U.S. GAAP and may not be comparable to similar
measures presented by other companies. Adjusted EBITDA is
calculated as the reported net income (loss), adjusted to exclude
income tax recovery (expense); other income (expense), net; loss on
equity method investments; share-based compensation expense;
depreciation and amortization expense; asset impairment and
restructuring costs; restructuring costs recorded in cost of goods
sold; and charges related to the flow-through of inventory step-up
on business combinations, and further adjusted to remove
acquisition-related costs. Asset impairments related to periodic
changes to the Company's supply chain processes are not excluded
from Adjusted EBITDA given their occurrence through the normal
course of core operational activities. The Adjusted EBITDA
reconciliation is presented within this news release and explained
in the Company's Quarterly Report on Form 10-Q to be filed with the
Securities and Exchange Commission ("SEC").
Free Cash Flow is a non- GAAP measure used by management that is
not defined by U.S. GAAP and may not be comparable to similar
measures presented by other companies. This measure is calculated
as net cash provided by (used in) operating activities less
purchases of and deposits on property, plant and equipment. The
Free Cash Flow reconciliation is presented within this news release
and explained in the Company's Quarterly Report on Form 10-Q to be
filed with the SEC.
Adjusted Gross Margin and Adjusted Gross Margin Percentage are
non-GAAP measures used by management that are not defined by U.S.
GAAP and may not be comparable to similar measures presented by
other companies. Adjusted Gross Margin is calculated as gross
margin excluding restructuring and other charges recorded in cost
of goods sold, and charges related to the flow-through of inventory
step-up on business combinations. Adjusted Gross Margin Percentage
is calculated as Adjusted Gross Margin divided by net revenue. The
Adjusted Gross Margin and Adjusted Gross Margin Percentage
reconciliation is presented within this news release.
About Canopy Growth Corporation
Canopy Growth (TSX:WEED,NASDAQ:CGC ) is a world-leading
diversified cannabis and cannabinoid-based consumer product
company, driven by a passion to improve lives, end prohibition, and
strengthen communities by unleashing the full potential of
cannabis. Leveraging consumer insights and innovation, we offer
product varieties in high quality dried flower, oil, softgel
capsule, infused beverage, edible, and topical formats, as well as
vaporizer devices by Canopy Growth and industry-leader Storz &
Bickel. Our global medical brand, Spectrum Therapeutics, sells a
range of full-spectrum products using its colour-coded
classification system and is a market leader in both Canada and Germany. Through our award-winning Tweed and
Tokyo Smoke banners, we reach our adult-use consumers and have
built a loyal following by focusing on top quality products and
meaningful customer relationships. Canopy Growth has entered into
the health and wellness consumer space in key markets including
Canada, the United States, and Europe through BioSteel sports nutrition, and
This Works skin and sleep solutions; and has introduced additional
federally-permissible CBD products to the
United States through our First & Free and Martha
Stewart CBD brands. Canopy Growth has an established partnership
with Fortune 500 alcohol leader Constellation Brands. For more
information visit www.canopygrowth.com.
Notice Regarding Forward Looking Statements
This press release contains "forward-looking statements" within
the meaning of applicable securities laws, which involve certain
known and unknown risks and uncertainties. Forward-looking
statements predict or describe our future operations, business
plans, business and investment strategies and the performance of
our investments. These forward-looking statements are generally
identified by their use of such terms and phrases as "intend,"
"goal," "strategy," "estimate," "expect," "project," "projections,"
"forecasts," "plans," "seeks," "anticipates," "potential,"
"proposed," "will," "should," "could," "would," "may," "likely,"
"designed to," "foreseeable future," "believe," "scheduled" and
other similar expressions. Our actual results or outcomes may
differ materially from those anticipated. You are cautioned not to
place undue reliance on these forward-looking statements, which
speak only as of the date the statement was made.
Forward-looking statements include, but are not limited to,
statements with respect to:
- the uncertainties associated with the COVID-19 pandemic,
including our ability, and the ability of our suppliers and
distributors, to effectively manage the restrictions, limitations
and health issues presented by the COVID-19 pandemic, the ability
to continue our production, distribution and sale of our products
and the demand for and use of our products by consumers,
disruptions to the global and local economies due to related
stay-at-home orders, quarantine policies and restrictions on
travel, trade and business operations and a reduction in
discretionary consumer spending;
- laws and regulations and any amendments thereto applicable to
our business and the impact thereof, including uncertainty
regarding the application of U.S. state and federal law to U.S.
hemp (including CBD) products and the scope of any regulations by
the U.S. Food and Drug Administration (the "FDA"), the U.S. Drug
Enforcement Administration (the "DEA"), the U.S. Federal Trade
Commission (the "FTC"), the U.S. Patent and Trademark Office (the
"USPTO"), the U.S. Department of Agriculture (the "USDA") and any
state equivalent regulatory agencies over U.S. hemp (including CBD)
products;
- expectations regarding the laws and regulations and any
amendments thereto relating to the U.S. hemp industry in the U.S.,
including the promulgation of regulations for the U.S. hemp
industry by the USDA and relevant state regulatory
authorities;
- expectations regarding the potential success of, and the costs
and benefits associated with, our acquisitions, joint ventures,
strategic alliances, equity investments and dispositions;
- the amended plan of arrangement with Acreage Holdings, Inc.,
including the consummation of such acquisition;
- the definitive agreements with Mountain High Products, LLC,
Wana Wellness, LLC and The Cima Group, LLC (each, a "Wana Entity"),
including the consummation of the acquisition of each Wana
Entity;
- the grant, renewal and impact of any license or supplemental
license to conduct activities with cannabis or any amendments
thereof;
- our international activities and joint venture interests,
including required regulatory approvals and licensing, anticipated
costs and timing, and expected impact;
- our ability to successfully create and launch brands and
further create, launch and scale cannabis-based products and U.S.
hemp-derived consumer products in jurisdictions where such products
are legal and that we currently operate in;
- the benefits, viability, safety, efficacy, dosing and social
acceptance of cannabis, including CBD and other cannabinoids;
- the anticipated benefits and impact of the investments in us
(the "CBI Group Investments") from Constellation Brands, Inc.
("CBI") and its affiliates (together, the "CBI Group");
- the potential exercise of the warrants held by the CBI Group,
pre-emptive rights and/or top-up rights held by the CBI Group,
including proceeds to us that may result therefrom or the potential
conversion of the convertible senior notes (the "Notes") issued by
Canopy Growth and held by the CBI Group;
- expectations regarding the use of proceeds of equity
financings, including the proceeds from CBI;
- the legalization of the use of cannabis for medical or
recreational in jurisdictions outside of Canada, the related timing and impact thereof
and our intentions to participate in such markets, if and when such
use is legalized;
- our ability to execute on our strategy and the anticipated
benefits of such strategy;
- the ongoing impact of the legalization of additional cannabis
product types and forms for recreational use in Canada, including federal, provincial,
territorial and municipal regulations pertaining thereto, the
related timing and impact thereof and our intentions to participate
in such markets;
- expectations of the amount or frequency of impairment losses,
including as a result of the write-down of intangible assets,
including goodwill;
- the ongoing impact of developing provincial, territorial and
municipal regulations pertaining to the sale and distribution of
cannabis, the related timing and impact thereof, as well as the
restrictions on federally regulated cannabis producers
participating in certain retail markets and our intentions to
participate in such markets to the extent permissible;
- the timing and nature of legislative changes in the U.S.
regarding the regulation of cannabis including tetrahydrocannabinol
("THC");
- the future performance of our business and operations;
- our competitive advantages and business strategies;
- the competitive conditions of the industry;
- the expected growth in the number of customers using our
products;
- our ability or plans to identify, develop, commercialize or
expand our technology and research and development initiatives in
cannabinoids, or the success thereof;
- expectations regarding revenues, expenses and anticipated cash
needs;
- expectations regarding cash flow, liquidity and sources of
funding;
- expectations regarding capital expenditures;
- our ability to refinance debt as and when required on terms
favorable to us and comply with covenants contained in our debt
facilities and debt instruments;
- the expansion of our production and manufacturing, the costs
and timing associated therewith and the receipt of applicable
production and sale licenses;
- the expected growth in our growing, production and supply chain
capacities;
- expectations regarding the resolution of litigation and other
legal and regulatory proceedings, reviews and investigations;
- expectations with respect to future production costs;
- expectations with respect to future sales and distribution
channels and networks;
- the expected methods to be used to distribute and sell our
products;
- our future product offerings;
- the anticipated future gross margins of our operations;
- accounting standards and estimates;
- expectations regarding our distribution network;
- expectations regarding the costs and benefits associated with
our contracts and agreements with third parties, including under
our third-party supply and manufacturing agreements; and
- expectations on price changes in cannabis markets.
Certain of the forward-looking statements contained herein
concerning the industries in which we conduct our business are
based on estimates prepared by us using data from publicly
available governmental sources, market research, industry analysis
and on assumptions based on data and knowledge of these industries,
which we believe to be reasonable. However, although generally
indicative of relative market positions, market shares and
performance characteristics, such data is inherently imprecise. The
industries in which we conduct our business involve risks and
uncertainties that are subject to change based on various factors,
which are described further below.
The forward-looking statements contained herein are based upon
certain material assumptions that were applied in drawing a
conclusion or making a forecast or projection, including: (i)
management's perceptions of historical trends, current conditions
and expected future developments; (ii) our ability to generate cash
flow from operations; (iii) general economic, financial market,
regulatory and political conditions in which we operate; (iv) the
production and manufacturing capabilities and output from our
facilities and our joint ventures, strategic alliances and equity
investments; (v) consumer interest in our products; (vi)
competition; (vii) anticipated and unanticipated costs; (viii)
government regulation of our activities and products including but
not limited to the areas of taxation and environmental protection;
(ix) the timely receipt of any required regulatory authorizations,
approvals, consents, permits and/or licenses; * our ability to
obtain qualified staff, equipment and services in a timely and
cost-efficient manner; (xi) our ability to conduct operations in a
safe, efficient and effective manner; (xii) our ability to realize
anticipated benefits, synergies or generate revenue, profits or
value from our recent acquisitions into our existing operations;
(xiii) our ability to continue to operate in light of the COVID-19
pandemic and the impact of the pandemic on demand for, and sales
of, our products and our distribution channels; and (xiv) other
considerations that management believes to be appropriate in the
circumstances. While our management considers these assumptions to
be reasonable based on information currently available to
management, there is no assurance that such expectations will prove
to be correct.
By their nature, forward-looking statements are subject to
inherent risks and uncertainties that may be general or specific
and which give rise to the possibility that expectations,
forecasts, predictions, projections or conclusions will not prove
to be accurate, that assumptions may not be correct and that
objectives, strategic goals and priorities will not be achieved. A
variety of factors, including known and unknown risks, many of
which are beyond our control, could cause actual results to differ
materially from the forward-looking statements in this press
release and other reports we file with, or furnish to, the
Securities and Exchange Commission (the "SEC") and other regulatory
agencies and made by our directors, officers, other employees and
other persons authorized to speak on our behalf. Such factors
include, without limitation, changes in laws, regulations and
guidelines and our compliance with such laws, regulations and
guidelines; the risk that the COVID-19 pandemic may disrupt our
operations and those of our suppliers and distribution channels and
negatively impact the demand for and use of our products; consumer
demand for cannabis and U.S. hemp products; our limited operating
history; the risks and uncertainty regarding future product
development; our reliance on licenses issued by and contractual
arrangements with various federal, state and provincial
governmental authorities; the risk that cost savings and any other
synergies from the CBI Group Investments may not be fully realized
or may take longer to realize than expected; risks associated with
jointly owned investments; risks relating to our current and future
operations in emerging markets; future levels of revenues and the
impact of increasing levels of competition; risks related to the
protection and enforcement of our intellectual property rights; our
ability to manage disruptions in credit markets or changes to our
credit ratings; future levels of capital, environmental or
maintenance expenditures, general and administrative and other
expenses; the success or timing of completion of ongoing or
anticipated capital or maintenance projects; risks related to the
integration of acquired businesses; the timing and manner of the
legalization of cannabis in the United
States; business strategies, growth opportunities and
expected investment; the adequacy of our capital resources and
liquidity, including but not limited to, availability of sufficient
cash flow to execute our business plan (either within the expected
timeframe or at all); counterparty risks and liquidity risks that
may impact our ability to obtain loans and other credit facilities
on favorable terms; the potential effects of judicial, regulatory
or other proceedings, or threatened litigation or proceedings, on
our business, financial condition, results of operations and cash
flows; risks related to stock exchange restrictions; risks
associated with divestment and restructuring; volatility in and/or
degradation of general economic, market, industry or business
conditions; our exposure to risks related to an agricultural
business, including wholesale price volatility and variable product
quality; third-party transportation risks; compliance with
applicable environmental, economic, health and safety, energy and
other policies and regulations and in particular health concerns
with respect to vaping and the use of cannabis and U.S. hemp
products in vaping devices; the anticipated effects of actions of
third parties such as competitors, activist investors or federal,
state, provincial, territorial or local regulatory authorities,
self-regulatory organizations, plaintiffs in litigation or persons
threatening litigation; changes in regulatory requirements in
relation to our business and products; and the factors discussed
under the heading "Risk Factors" in the Company's Annual Report on
Form 10-K for the year ended March 31,
2021. Readers are cautioned to consider these and other
factors, uncertainties and potential events carefully and not to
put undue reliance on forward-looking statements.
Forward-looking statements are provided for the purposes of
assisting the reader in understanding our financial performance,
financial position and cash flows as of and for periods ended on
certain dates and to present information about management's current
expectations and plans relating to the future, and the reader is
cautioned that the forward-looking statements may not be
appropriate for any other purpose. While we believe that the
assumptions and expectations reflected in the forward-looking
statements are reasonable based on information currently available
to management, there is no assurance that such assumptions and
expectations will prove to have been correct. Forward-looking
statements are made as of the date they are made and are based on
the beliefs, estimates, expectations and opinions of management on
that date. We undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information,
estimates or opinions, future events or results or otherwise or to
explain any material difference between subsequent actual events
and such forward-looking statements, except as required by law. The
forward-looking statements contained in this press release and
other reports we file with, or furnish to, the SEC and other
regulatory agencies and made by our directors, officers, other
employees and other persons authorized to speak on our behalf are
expressly qualified in their entirety by these cautionary
statements.
Schedule 1
CANOPY GROWTH
CORPORATION CONDENSED
INTERIM CONSOLIDATED BALANCE SHEETS (in thousands of Canadian dollars, except number of
shares and per share data, unaudited)
|
|
December
31, 2021
|
|
March 31, 2021
|
ASSETS
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$615,146
|
|
$1,154,653
|
Short-term
investments
|
807,884
|
|
1,144,563
|
Restricted short-term
investments
|
12,208
|
|
11,332
|
Amounts receivable,
net
|
100,901
|
|
92,435
|
Inventory
|
365,750
|
|
367,979
|
Prepaid expenses and
other assets
|
86,267
|
|
67,232
|
Total current
assets
|
1,988,156
|
|
2,838,194
|
Other financial
assets
|
898,497
|
|
708,167
|
Property, plant and
equipment
|
1,080,179
|
|
1,074,537
|
Intangible
assets
|
338,753
|
|
308,167
|
Goodwill
|
1,988,250
|
|
1,889,354
|
Other
assets
|
15,195
|
|
5,061
|
Total
assets
|
$6,309,030
|
|
$6,823,480
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$67,837
|
|
$67,262
|
Other accrued expenses
and liabilities
|
76,007
|
|
100,813
|
Current portion of
long-term debt
|
15,702
|
|
9,827
|
Other
liabilities
|
79,700
|
|
106,428
|
Total current
liabilities
|
239,246
|
|
284,330
|
Long-term
debt
|
1,494,665
|
|
1,573,136
|
Deferred income tax
liabilities
|
27,366
|
|
21,379
|
Liability arising
from Acreage Arrangement
|
103,000
|
|
600,000
|
Warrant derivative
liability
|
37,491
|
|
615,575
|
Other
liabilities
|
195,618
|
|
107,240
|
Total
liabilities
|
2,097,386
|
|
3,201,660
|
Commitments and
contingencies
|
|
|
|
Redeemable
noncontrolling interest
|
68,700
|
|
135,300
|
Canopy Growth
Corporation shareholders' equity:
|
|
|
|
Common shares - $nil
par value; Authorized - unlimited number of shares;
|
|
|
|
Issued - 394,157,998
shares and 382,875,179 shares, respectively
|
7,478,834
|
|
7,168,557
|
Additional paid-in
capital
|
2,482,372
|
|
2,415,650
|
Accumulated other
comprehensive loss
|
(26,727)
|
|
(34,240)
|
Deficit
|
(5,795,721)
|
|
(6,068,156)
|
Total Canopy Growth
Corporation shareholders' equity
|
4,138,758
|
|
3,481,811
|
Noncontrolling
interests
|
4,186
|
|
4,709
|
Total shareholders'
equity
|
4,142,944
|
|
3,486,520
|
Total liabilities and
shareholders' equity
|
$6,309,030
|
|
$6,823,480
|
Schedule 2
CANOPY GROWTH
CORPORATION CONDENSED
INTERIM CONSOLIDATED STATEMENTS OF
OPERATIONS (in thousands of
Canadian dollars, except number of shares and per share data,
unaudited)
|
|
|
|
|
|
Three months ended
December 31,
|
|
2021
|
|
2020
|
Revenue
|
$155,024
|
|
$169,907
|
Excise
taxes
|
14,052
|
|
17,379
|
Net revenue
|
140,972
|
|
152,528
|
Cost of goods
sold
|
130,882
|
|
127,943
|
Gross
margin
|
10,090
|
|
24,585
|
Operating
expenses:
|
|
|
|
Selling, general and
administrative expenses
|
116,835
|
|
144,078
|
Share-based
compensation
|
6,777
|
|
19,963
|
Expected credit losses
on financial assets and related charges
|
-
|
|
13,735
|
Asset impairment and
restructuring costs
|
36,439
|
|
400,422
|
Total operating
expenses
|
160,051
|
|
578,198
|
Operating
loss
|
(149,961)
|
|
(553,613)
|
Loss from equity
method investments
|
-
|
|
(671)
|
Other income
(expense), net
|
34,282
|
|
(290,567)
|
Loss before income
taxes
|
(115,679)
|
|
(844,851)
|
Income tax
recovery
|
183
|
|
15,600
|
Net loss
|
(115,496)
|
|
(829,251)
|
Net loss attributable
to noncontrolling interests and redeemable
|
|
|
|
noncontrolling
interest
|
(6,571)
|
|
75,129
|
Net loss attributable
to Canopy Growth Corporation
|
$(108,925)
|
|
$(904,380)
|
|
|
|
|
Basic (loss) earnings
per share
|
$(0.28)
|
|
$(2.43)
|
Basic weighted
average common shares outstanding
|
393,818,282
|
|
372,908,767
|
|
|
|
|
Diluted (loss)
earnings per share
|
$(0.28)
|
|
$(2.43)
|
Diluted weighted
average common shares outstanding
|
393,818,282
|
|
372,908,767
|
Schedule 3
CANOPY GROWTH
CORPORATION
CONDENSED INTERIM
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of
Canadian dollars, unaudited)
|
|
|
|
|
|
Nine months ended
December 31,
|
|
2021
|
|
2020
|
Cash flows from
operating activities:
|
|
|
|
Net income
(loss)
|
$258,128
|
|
$(1,054,125)
|
Adjustments to
reconcile net income (loss) to net cash used in operating
activities:
|
|
|
|
Depreciation of
property, plant and equipment
|
56,467
|
|
54,625
|
Amortization of
intangible assets
|
27,462
|
|
43,565
|
Share of loss on
equity method investments
|
100
|
|
40,851
|
Share-based
compensation
|
35,856
|
|
72,632
|
Asset impairment and
restructuring costs
|
113,250
|
|
422,610
|
Expected credit losses
on financial assets and related charges
|
-
|
|
108,480
|
Income tax
recovery
|
(490)
|
|
(18,086)
|
Non-cash fair value
adjustments
|
(893,024)
|
|
26,060
|
Change in operating
assets and liabilities, net of effects from
|
|
|
|
purchases of
businesses:
|
|
|
|
Amounts
receivable
|
4,083
|
|
(12,507)
|
Prepaid expenses and
other assets
|
6,702
|
|
(4,353)
|
Inventory
|
28,818
|
|
(2,937)
|
Accounts payable and
accrued liabilities
|
(30,764)
|
|
13,094
|
Other, including
non-cash foreign currency
|
(25,713)
|
|
(57,808)
|
Net cash used in
operating activities
|
(419,125)
|
|
(367,899)
|
Cash flows from
investing activities:
|
|
|
|
Purchases of and
deposits on property, plant and equipment
|
(36,620)
|
|
(137,977)
|
Purchases of
intangible assets
|
(4,564)
|
|
(7,238)
|
Proceeds on sale of
property, plant and equipment
|
25,660
|
|
30,921
|
Proceeds on sale of
intangible assets
|
-
|
|
18,337
|
(Purchases) redemption
of short-term investments
|
340,218
|
|
(83,612)
|
Net cash proceeds on
sale of subsidiaries
|
10,324
|
|
-
|
Sale of equity method
investments
|
-
|
|
7,000
|
Investment in other
financial assets
|
(374,414)
|
|
(34,236)
|
Investment in Acreage
Arrangement
|
-
|
|
(49,849)
|
Loan advanced to
Acreage Hempco
|
-
|
|
(66,995)
|
Net cash outflow on
acquisition of subsidiaries
|
(14,947)
|
|
-
|
Other investing
activities
|
(16,759)
|
|
(5,269)
|
Net cash used in
investing activities
|
(71,102)
|
|
(328,918)
|
Cash flows from
financing activities:
|
|
|
|
Proceeds from issuance
of common shares and warrants
|
1,460
|
|
-
|
Proceeds from exercise
of stock options
|
5,455
|
|
37,999
|
Proceeds from exercise
of warrants
|
-
|
|
244,990
|
Repayment of long-term
debt
|
(50,217)
|
|
(13,271)
|
Other financing
activities
|
(3,036)
|
|
(578)
|
Net cash (used in)
provided by financing activities
|
(46,338)
|
|
269,140
|
Effect of exchange
rate changes on cash and cash equivalents
|
(2,942)
|
|
(50,539)
|
Net decrease in cash
and cash equivalents
|
(539,507)
|
|
(478,216)
|
Cash and cash
equivalents, beginning of period
|
1,154,653
|
|
1,303,176
|
Cash and cash
equivalents, end of period
|
$615,146
|
|
$824,960
|
Schedule 4
Adjusted Gross
Margin1 Reconciliation (Non-GAAP Measure)
|
|
Three months ended
December 31,
|
(in thousands of
Canadian dollars except where indicated; unaudited)
|
2021
|
|
2020
|
Net
revenue
|
$140,972
|
|
$152,528
|
|
|
|
|
Gross margin, as
reported
|
10,090
|
|
24,585
|
Adjustments to gross
margin:
|
|
|
|
Restructuring costs
recorded in cost of good sold
|
4,554
|
|
15,637
|
Charges related to the
flow-through of inventory
|
|
|
|
step-up on business
combinations
|
3,147
|
|
-
|
Adjusted gross
margin1
|
$17,791
|
|
$40,222
|
|
|
|
|
Adjusted gross margin
percentage1
|
13%
|
|
26%
|
|
|
|
|
1 Adjusted gross margin and adjusted
gross margin percentage are non-GAAP measures. See "Non-GAAP
Measures".
|
Schedule 5
Adjusted
EBITDA1 Reconciliation (Non-GAAP
Measure)
|
|
Three months ended
December 31,
|
(in thousands of
Canadian dollars, unaudited)
|
2021
|
|
2020
|
Net loss
|
$(115,496)
|
|
$(829,251)
|
Income tax
recovery
|
(183)
|
|
(15,600)
|
Other (income)
expense, net
|
(34,282)
|
|
290,567
|
Loss on equity method
investments
|
-
|
|
671
|
Share-based
compensation2
|
6,777
|
|
19,963
|
Acquisition-related
costs
|
1,617
|
|
3,095
|
Depreciation and
amortization2
|
30,017
|
|
32,385
|
Asset impairment and
restructuring costs
|
36,439
|
|
400,422
|
Expected credit losses
on financial assets
|
|
|
|
and related
charges
|
-
|
|
13,735
|
Restructuring costs
recorded in cost of goods sold
|
4,554
|
|
15,637
|
Charges related to the
flow-through of inventory
|
|
|
|
step-up on business
combinations
|
3,147
|
|
-
|
Adjusted
EBITDA1
|
$(67,410)
|
|
$(68,376)
|
|
|
|
|
1Adjusted
EBITDA is a non-GAAP measure. See "Non-GAAP Measures".
|
2 From
Condensed Interim Consolidated Statements of Cash Flows.
|
Schedule 6
Free Cash Flow
Reconciliation1 (Non-GAAP
Measure)
|
|
Three months ended
December 31,
|
(in thousands of
Canadian dollars, unaudited)
|
2021
|
|
2020
|
Net cash used in
operating activities
|
$(167,380)
|
|
$(87,604)
|
Purchases of and
deposits on property, plant and equipment
|
(962)
|
|
(47,782)
|
Free cash
flow1
|
$(168,342)
|
|
$(135,386)
|
|
|
|
|
1Free cash
flow is a non-GAAP measure. See "Non-GAAP Measures".
|
Schedule 7
Segmented Gross
Margin Reconciliation
|
|
|
|
|
Three months ended
December 31,
|
(in thousands of
Canadian dollars, unaudited)
|
2021
|
|
2020
|
Global cannabis
segment
|
|
|
|
Net
revenue
|
$82,977
|
|
$103,828
|
Cost of goods
sold
|
94,186
|
|
96,434
|
Gross
margin
|
(11,209)
|
|
7,394
|
Gross margin
percentage
|
(14%)
|
|
7%
|
|
|
|
|
Other consumer
products segment
|
|
|
|
Revenue
|
$57,995
|
|
$48,700
|
Cost of goods
sold
|
36,696
|
|
31,509
|
Gross
margin
|
21,299
|
|
17,191
|
Gross margin
percentage
|
37%
|
|
35%
|
Schedule 8
Segmented Adjusted Gross Margin1 Reconciliation
(Non-GAAP Measure)
|
Three months
ended
|
(in thousands of
Canadian dollars except where indicated; unaudited)
|
December 31,
2021
|
|
December 31,
2020
|
Global cannabis
segment
|
|
|
|
Net
revenue
|
$82,977
|
|
$103,828
|
|
|
|
|
Gross margin, as
reported
|
(11,209)
|
|
7,394
|
Adjustments to gross
margin:
|
|
|
|
Restructuring costs
recorded in cost of good sold
|
4,554
|
|
15,637
|
Charges related to the
flow-through of inventory
|
|
|
|
step-up on business
combinations
|
3,147
|
|
-
|
Adjusted gross
margin1
|
$(3,508)
|
|
$23,031
|
|
|
|
|
Adjusted gross margin
percentage1
|
(4%)
|
|
22%
|
|
|
|
|
Other consumer
products segment
|
|
|
|
Revenue
|
$57,995
|
|
$48,700
|
|
|
|
|
Gross margin, as
reported
|
21,299
|
|
17,191
|
|
|
|
|
Adjusted gross
margin1
|
$21,299
|
|
$17,191
|
|
|
|
|
Adjusted gross margin
percentage1
|
37%
|
|
35%
|
|
|
|
|
1 Adjusted gross margin and adjusted
gross margin percentage are non-GAAP measures. See "Non-GAAP
Measures".
|
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SOURCE Canopy Growth Corporation