Mr. David Klein reports

CANOPY GROWTH CORPORATION REPORTS FOURTH QUARTER AND FISCAL YEAR 2022 FINANCIAL RESULTS

Canopy Growth Corp. has released its financial results for the fourth quarter and fiscal year ended March 31, 2022.

Highlights:

• The company progressed its leading North American brand-driven strategy with Canopy Growth entering into plans to acquire Wana Brands, the No. 1 cannabis edibles brand in North America, and Jetty Extracts, a top 10 cannabis brand in California, adding to the robust brand portfolio.
• Premium brands gained ground with Canadian consumers with company maintaining No. 1 share of premium flower category throughout fiscal year 2022, led by in demand offerings from Doja, 7Acres and 7Acres Collective brands; and improved market share performance in the mainstream flower category in Q4 fiscal year 2022 with the Tweed rebrand and new Tweed product offerings in flower and beverages.
• Storz & Bickel posted its 22nd year of consecutive revenue growth in fiscal year 2022; strong consumer demand for Storz & Bickel vaporizers, including the new Volcano Onyx and Mighty+ drove 21-per-cent increase in revenue in Q4 fiscal year 2022 versus Q4 fiscal year 2021.
• Increased distribution of BioSteel hydration products drove year-over-year revenue growth in fiscal year 2022 of 56 per cent versus fiscal year 2021. Focusing strategic investments to accelerating brand growth with aspiration to be top 4 player in the North American sports drink market.
• The company generated net revenue of $520-million in fiscal year 2022, representing a decline of 5 per cent versus fiscal year 2021.
• Through restructuring actions that were previously announced on April 26, 2022, management expects to generate COGS (cost of goods sold) savings of $30-million to $50-million and SG&A (selling, general and administrative) expense reductions of $70-million to $100-million, both within 12 to 18 months.

"Canopy Growth is building the industry's leading portfolio of premium brands across North America. We've taken concrete steps to advance this ambition by strengthening our positioning in Canada and further bolstering our U.S. THC [tetrahydrocannabinol] ecosystem through the addition of two high-performance brands in Wana Brands and Jetty Extracts. In the fiscal year ahead, we will remain focused on growing our market share in the key segments that will drive profitable growth and continuing to scale our premium brands across North America," said David Klein, chief executive officer.

"Achieving profitability is critical and we have undertaken additional initiatives to streamline and drive efficiencies for our global cannabis business. In fiscal year 2023, we are focused on executing our path to profitability in Canada, while we continue to invest in high-potential opportunities -- particularly in BioSteel -- and further developing our U.S. THC ecosystem, which we believe remains significantly underappreciated by the market," said Judy Hong, chief financial officer.

Fiscal year 2023 priorities and outlook

With the foundation for long-term sustainable growth in place, Canopy Growth is committed to further advancing the company's aspiration to become the leading premium cannabis branded company in North America.

In fiscal year 2023, Canopy will focus on:

• Strengthening its market position in premium segments in Canada -- driven by its flower cultivation strategy, delivering flower with in-demand attributes under the Doja and 7Acres brands;
• Making strategic investments to increase distribution, brand activation and new product development in high-growth consumer packaged good (CPG) brands -- BioSteel and Storz & Bickel;
• Identifying opportunities to expand brands across the United States and within the Canadian recreational market, to fully realize the North American potential of the Canopy Growth brand portfolio;
• As a result of these actions, the company expects to be adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) positive in fiscal year 2024, excluding investments in BioSteel and U.S. THC.

Fourth quarter and fiscal year 2022 financial summary

Revenues

Net revenue of $112-million in Q4 fiscal year 2022 declined 25 per cent versus Q4 fiscal year 2021. Total global cannabis net revenue of $66-million in Q4 fiscal year 2022 represented a decline of 35 per cent over Q4 fiscal year 2021. Other consumer products revenue of $46-million in Q4 fiscal year 2022 represented a decline of 3 per cent over Q4 fiscal year 2021. Excluding the impact from acquired businesses and divestiture of C3, net revenue declined 26 per cent and global cannabis net revenue declined 38 per cent versus Q4 fiscal year 2021.

Net revenue of $520-million in fiscal year 2022 declined 5 per cent versus fiscal year 2021. Total global cannabis net revenue of $337-million in fiscal year 2022 represented a decline of 11 per cent over fiscal year 2021. Other consumer products revenue of $183-million in fiscal year 2022 represented an increase of 9 per cent over fiscal year 2021. Excluding the impact from acquired businesses and divestiture of C3, net revenue declined 9 per cent and global cannabis net revenue declined 19 per cent versus fiscal year 2021.

Gross margin

Reported gross margin in Q4 fiscal year 2022 was negative 142 per cent as compared with 7 per cent in Q4 fiscal year 2021. Excluding non-cash restructuring costs recorded in COGS of $119-million and inventory step-up charges from acquisitions of $4-million, adjusted gross margin was negative 32 per cent. Comparatively gross margin in Q4 fiscal year 2021 was impacted by restructuring charges totalling $10-million. Gross margin in Q4 fiscal year 2022 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.

Reported gross margin in fiscal year 2022 was negative 37 per cent as compared with 12 per cent in fiscal year 2021. Excluding non-cash restructuring costs recorded in cost of goods sold of $124-million and inventory step-up charges from acquisitions of $12-million, adjusted gross margin was approximately negative 11 per cent. Gross margin in fiscal year 2022 was impacted by a year-over-year decrease in net revenue and continued price compression in the Canadian recreational business, inventory write-offs driven by lower than expected demand, as well as higher third party shipping, distribution and warehousing costs across North America. Gross margin in fiscal year 2022 benefited from payroll subsidies in the amount of $24-million received from the Canadian government, pursuant to a COVID-19 relief program, compared with $6-million in fiscal year 2021.

Operating expenses

Total SG&A expenses in Q4 fiscal year 2022 declined by 21 per cent versus Q4 fiscal year 2021, driven by year-over-year reductions in general and administrative (G&A) and research and development (R&D) expenses. G&A expenses declined 38 per cent year over year primarily due to reductions in staffing, professional fees, executive compensation and employee bonus, and continued cost reductions, partially offset by lower payroll subsidies received from the Canadian government pursuant to a COVID-19 relief program, relative to the prior year. R&D expenses declined 45 per cent year over year principally due to a more disciplined approach to R&D investments and the closure of certain R&D facilities in the prior year. Sales and marketing (S&M) expenses were flat year over year.

Total SG&A expenses in fiscal year 2022 declined by 18 per cent versus fiscal year 2021, driven by year-over-year reductions in G&A and R&D expenses, partially offset by an increase in S&M expenses. G&A expenses declined 46 per cent year over year primarily due to reductions in staffing, professional fees, executive compensation and employee bonus, and continued cost reductions. R&D expenses declined 44 per cent year over year principally due to a more disciplined approach to R&D investments and the closure of certain R&D facilities in the prior year. S&M expenses increased 23 per cent year over year primarily due to a return to more normal advertising and promotional spending in fiscal 2022. S&M expenses was further driven by higher sponsorship fees associated with BioSteel and increased sales and marketing costs associated with the acquisitions of Supreme Cannabis and Ace Valley.

Net loss

Net loss in Q4 fiscal year 2022 was $579-million, which is a $38-million improvement versus Q4 fiscal year 2021, driven primarily by non-cash fair value changes, partially offset by higher non-cash asset impairment and restructuring charges.

Net loss in fiscal year 2022 was $320-million, which is a $1,350-million improvement versus fiscal year 2021, driven primarily by non-cash fair value changes and lower operating expenses, including lower non-cash asset impairment and restructuring charges, partially offset by lower gross margins.

Adjusted EBITDA

Adjusted EBITDA loss in Q4 fiscal year 2022 was $122-million, a $28-million increase in adjusted EBITDA loss versus Q4 fiscal year 2021, primarily driven by lower sales and a decline in gross margins, partially offset by the reduction in the company's total SG&A expenses.

Adjusted EBITDA loss in fiscal year 2022 was $415-million, a $75-million increase in adjusted EBITDA loss versus fiscal year 2021, driven primarily driven by lower sales and a decline in gross margins, partially offset by the reduction in its total SG&A expenses.

Free cash flow

Free cash flow in Q4 fiscal year 2022 was an outflow of $127-million, a 2-per-cent increase in outflow versus Q4 fiscal year 2021. Relative to Q4 fiscal year 2021, the free cash flow outflow increase reflects higher interest paid partially offset by lower capital expenditures.

Free cash flow in fiscal year 2022 was an outflow of $582-million, an 8-per-cent decrease in outflow versus fiscal year 2021. Relative to fiscal year 2021, the free cash flow outflow decrease is due to lower S&GA expenses and reduction in capital expenditures, partially offset by higher cash interest payments.

Cash position

Cash and short-term investments amounted to $1.4-billion at March 31, 2022, representing a decrease of $900-million 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.

Business highlights

Developing a robust North American brand driven strategy: In the very competitive Canadian adult-use market, the company's Doja, 7Acres, 7Acres Craft Collection, Deep Space, Tweed and Ace Valley branded product offerings:

• Maintained Canopy Growth's No. 1 share of the premium flower market in fiscal year 2022 by leveraging established cannabis brands -- Doja and 7Acres;
• Nearly doubled the company's share of the mainstream flower market in Q4 fiscal year 2022. Performance benefited from strong consumer demand for new Tweed flower strains, Chemdawg and Powdered Donuts, launched in Q3 fiscal year 2022;
• The introduction of new beverage flavour extensions, including Tweed Iced Tea Guava and Deep Space Orange Orbit, have helped drive Tweed to the No. 1 market share rank in the under five-milligram THC beverage category and Deep Space is the fastest-growing brand and No. 2 rank in the over five-milligram THC beverage category;
• Following investments in plans to acquire Wana Brands and Jetty Extracts, exploring avenues through which these brands can expand across the U.S. and within the Canadian recreational market, to fully realize the North American potential.

Driving growth in its consumer product brands:

• Storz & Bickel: Gains in distribution and strong consumer demand for new Storz & Bickel vaporizers, including the Volcano Onyx and Mighty+, drove 21-per-cent increase in revenue in Q4 fiscal year 2022 versus Q4 fiscal year 2021;
• BioSteel: Gains in distribution and sales velocity of BioSteel ready-to-drink (RTD) products drove a 56-per-cent increase in revenue in fiscal year 2022 versus fiscal year 2021; BioSteel RTDs have achieved 18 per cent ACV7; new grape and cherry lime RTD flavours began shipping in Q4 fiscal 2022;
• Martha Stewart CBD (cannabidiol): Launched new Martha Stewart CBD tropical medley CBD wellness gummies in Q4 fiscal year 2022. Launched Martha Stewart CBD wellness topicals -- super strength CBD, sleep science CBD and daily destress CBD creams.

Strengthening U.S. THC ecosystem, investing in plans to acquire scalable brands in must-win categories:

• Jetty Extracts: Strengthened U.S. THC ecosystem with plan to acquire Jetty, a top 5 cannabis brand, top 10 California vape brand and market leader with greater than 75 per cent of the solventless vape market. Plan establishes the opportunity to scale the Jetty brand to additional U.S. state markets and across the border into Canada leveraging Jetty's industry leading intellectual property;
• Wana Brands: Wana strengthened its management team with the appointment of a new chief financial officer and new chief operating officer. In addition, the company expanded its U.S. footprint in Q4 fiscal year 2022 with the signing of licence agreements covering Puerto Rico, its 14th licence in the U.S. At least three more markets are expected to come on line by the end of current year 2022. In Q4 fiscal year 2022, launched Wana quick spectrum live rosin quick fast-acting gummies in Colorado.

Driving brand awareness through omnichannel activations

Fourth quarter and fiscal year 2022 revenue review

Canadian cannabis

Recreational B2B (business to business) net sales in Q4 fiscal year 2022 decreased 40 per cent 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 (business to consumer) net sales in Q4 fiscal year 2022 decreased 26 per cent versus Q4 fiscal year 2021, largely driven by increased competition from the rapid increase in third party retail locations across provinces.

Medical net revenue in Q4 fiscal year 2022 decreased 4 per cent from Q4 fiscal year 2021, driven primarily by higher average order sizes offset by a fewer number of orders.

International cannabis

C3 revenue in Q4 fiscal year 2022 decreased 80 per cent year over year as a result of the divestiture that was completed on Jan. 31, 2022.

Other revenue in Q4 fiscal year 2022 increased 2 per cent over the prior-year period primarily due to bulk cannabis sales by Supreme Cannabis into the Israel medical cannabis market, offset by lower U.S. CBD sales.

Other consumer products

BioSteel sales in Q4 fiscal year 2022 decreased 1 per cent over Q4 fiscal year 2021 in part due to shipment timing.

Storz & Bickel vaporizer revenue in Q4 fiscal year 2022 increased 21 per cent over Q4 fiscal year 2021 due primarily to sales of new Volcano Onyx and Mighty+ vaporizers launched late in the second quarter of fiscal year 2022.

This Works sales in Q4 fiscal year 2022 decreased 29 per cent over Q4 fiscal year 2021 due in part to lapping strong sales in the prior year.

The Q4 fiscal year 2022, fiscal year 2022, Q4 fiscal year 2021 and fiscal year 2021 financial results presented in this press release have been prepared in accordance with U.S. GAAP (generally accepted accounting principles).

Webcast and conference call information

The company will host a conference call and audio webcast with Mr. Klein, CEO, and Ms. Hong, CFO, at 10 a.m. ET on May 27, 2022.

Webcast information

A live audio webcast will be available on-line.

Replay information

A replay will be accessible by webcast until 11:59 p.m. ET on Aug. 25, 2022, on-line.

About Canopy Growth Corp.

Canopy Growth is a world-leading diversified cannabis-based 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, it offers 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. Its 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 its award-winning Tweed and Tokyo Smoke banners, it reaches its adult-use consumers and has 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 its First & Free and Martha Stewart CBD brands. Canopy Growth has an established partnership with Fortune 500 alcohol leader Constellation Brands.

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