10:22:07 EDT Fri 29 Mar 2024
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or Name
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Canopy Growth Corp
Symbol WEED
Shares Issued 494,022,023
Close 2022-08-05 C$ 3.50
Market Cap C$ 1,729,077,081
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Canopy Growth loses $2.08-billion in fiscal Q1

2022-08-05 09:22 ET - News Release

Mr. David Klein reports

CANOPY GROWTH CORPORATION REPORTS FIRST QUARTER FISCAL YEAR 2023 FINANCIAL RESULTS

Canopy Growth Corp. has released its financial results for the first quarter ended June 30, 2022.

Highlights:

  • Q1 fiscal 2023 net revenue was flat compared with Q4 fiscal 2022;
  • Company maintained No. 1 share of combined premium flower and prerolled joint (PRJ) segment in Q1 fiscal 2023;
  • Increased share of the combined mainstream flower and PRJ segment by 35 basis points to 4.0 per cent in Q1 fiscal 2023;
  • International medical cannabis net revenue approximately doubled versus Q1 fiscal 2022, driven primarily by strong sales in Israel and Australia;
  • Record BioSteel revenues in Q1 fiscal 2023 increased 169 per cent versus Q1 fiscal 2022;
  • Secured retail agreement with Walmart stores covering 2,200 stores in 39 states;
  • Entered partnership to become the official hydration partner of the NHL (National Hockey League) and NHLPA (National Hockey League Players' Association);
  • Cost reduction program on track with operating expenses in Q1 fiscal 2023 decreasing by 13 per cent versus Q1 fiscal 2022.

"Through advancements in our North American brand-led strategy, we delivered a record quarter from BioSteel and maintained No. 1 share in the premium flower and prerolled joint segment while driving growth of our premium Doja and mainstream Tweed brands. As our U.S. THC [tetrahydrocannabinol] ecosystem continues to strengthen with Acreage operating in the recreational cannabis market in New Jersey, along with the expansion of Wana across North America, we remain focused on delivering a robust pipeline of innovation aligned to what consumers are looking for -- premium, infused and ready to enjoy," stated David Klein, chief executive officer.

"The cost-saving program announced earlier in the quarter, combined with sound expense discipline, contributed to a meaningful decline in operating expenses during the quarter. We expect cost savings to ramp in the second half of the year, enabling us to execute on our path to profitability even as we continue to invest in strategic growth initiatives, including in BioSteel and our U.S. THC ecosystem," stated Judy Hong, chief financial officer.

Revenues

Net revenue of $110-million in Q1 fiscal 2023 declined 19 per cent versus Q1 fiscal 2022. Total global cannabis net revenue of $66-million in Q1 fiscal 2023 represented a decline of 29 per cent over Q1 fiscal 2022, driven in part by a decline in value flower sales in the Canadian recreational cannabis market due to a deliberate business transition to focus on higher-margin, premium and mainstream products. Other consumer products revenue of $44-million in Q1 fiscal 2023 represented an increase of 1 per cent over Q1 fiscal 2022. Excluding the impact from acquired businesses and divestiture of C3, net revenue declined 17 per cent and global cannabis net revenue declined 28 per cent versus Q1 fiscal 2022.

Gross margin

Reported gross margin in Q1 fiscal 2023 was negative 1 per cent, as compared with 20 per cent in Q1 fiscal 2022. Excluding non-cash restructuring costs recorded in COGS (cost of goods sold) of $4-million, adjusted gross margin was 2 per cent. Gross margin in Q1 fiscal 2023 was further impacted by lower production output and price compression in the Canadian recreational business, a shift in business mix, and a decrease in the amount of payroll subsidies received from the Canadian government pursuant to a COVID-19 relief program.

Operating expenses

Total SG&A (selling, general and administrative) expenses in Q1 fiscal 2023 declined by 8 per cent versus Q1 fiscal 2022, driven by year-over-year reductions in general and administrative and research and development expenses, offset by increases in sales and marketing.

Goodwill impairment

The company recognized a non-cash goodwill impairment of $1,725-million related to its cannabis operations reporting unit, which is included in the company's quarterly net loss. This impairment represents the full goodwill balance associated with the cannabis operations reporting unit and was triggered as a result of the decrease in the company's market capitalization in Q1 fiscal 2023.

Net loss

Net loss in Q1 fiscal 2023 was $2,088-million, which is a $2,478-million increase in the net loss versus Q1 fiscal 2022, driven primarily by the non-cash $1,725-million impairment in goodwill and non-cash fair-value changes.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization)

Adjusted EBITDA loss in Q1 fiscal 2023 was $75-million, an $11-million increase in adjusted EBITDA loss versus Q1 fiscal 2022, primarily driven by the decline in gross margin, partially offset by the reduction in the company's total SG&A expenses.

Free cash flow

Free cash flow in Q1 fiscal 2023 was an outflow of $143-million, a 23-per-cent decrease in outflow versus Q1 fiscal 2022. Relative to Q1 fiscal 2022, the free cash flow outflow decrease reflects a decrease in the cash used for operating activities and optimizing the company's capital expenditures as part of the previously noted restructuring actions.

Cash position

Cash and short-term investments amounted to $1.2-billion at June 30, 2022, representing a decrease of $200-million from $1.4-billion at March 31, 2022, reflecting primarily EBITDA losses and the upfront payment made as consideration for the options to acquire Jetty Extracts upon federal permissibility of THC in the United States.

Business highlights

Strong brand performance and innovation are helping stabilize market share in core segments of the Canadian recreational cannabis market:

  • Maintained Canopy Growth's No. 1 share in combined premium flower and PRJ segment in Q1 fiscal 2023; with a continued focus on premium NPD, Canopy launched 11 new premium flower and PRJ products in Q1 fiscal 2023, which resulted in brand share of Doja in the premium flower and PRJ segment increasing 13 basis points to 2.1 per cent;
  • Maintained share in the combined mainstream flower and PRJ segment with the introduction of six new mainstream flower and PRJ offerings in Q1 fiscal 2023; strong consumer demand for new flower strains increased the Tweed brand's share of the combined mainstream flower and PRJ segment by 35 basis points to 4.0 per cent in Q1 fiscal 2023;
  • Consumer demand for new ready-to-drink (RTD) beverage flavour extensions under the Deep Space and Tweed brand banners helped increase the company's share of RTD beverage category by 33 basis points to 23 per cent; the Deep Space brand maintained its No. 2 rank in the over-five-milligram-tetrahydrocannabinol beverage category; strong consumer demand for the Tweed portfolio of Iced Tea and Fizz beverages increased the Tweed brand's share of the RTD beverage market by 136 basis points to 10.4 per cent and maintained the brand's No. 1 market share rank in the under-five-milligram-tetrahydrocannabinol beverage category;
  • Robust NPD pipeline, including a combined 26 premium and mainstream flower and PRJ offerings expected in Q2 fiscal 2023 secured 60 new listings across Alberta, Ontario and Quebec.

Medical cannabis revenues increasing, with multiple potential growth drivers:

  • International medical cannabis net revenue doubled versus Q1 fiscal 2022, driven primarily by strong sales in Israel and Australia; sales force in Germany focused on expanding pharmacy network;
  • Critical focus of Canadian medical cannabis business on increasing veteran registrations through the Spectrum Veteran Care program.

Gains in distribution and sales velocity of BioSteel RTD drove record revenue in Q1 fiscal 2023:

  • BioSteel revenue in Q1 fiscal 2023 increased 169 per cent versus Q1 fiscal 2022 with BioSteel RTDs achieving 21 per cent ACV (all commodity volume), up from 3 per cent in Q1 fiscal 2022; agreement secured with Walmart for product to blanket 2,200 stores across 39 states;
  • BioSteel entered partnership to become the official hydration partner of the NHL and NHLPA; sponsorship will provide the BioSteel brand with leaguewide rink-side marketing and product supply rights, retail activation rights, community engagement platforms, and player marketing and activation rights.

U.S. THC ecosystem continues to strengthen:

  • Wana continued its North American expansion by entering Puerto Rico and Arkansas in addition to opening three additional states. Building on the success of its Optimals line, including Wana Optimals Fast Asleep, which ranks as the No. 1 quick-onset sleep gummy in North America, Wana has added a variety of new SKUs (stock-keeping units) to a range of markets.
  • Acreage Holdings made strong progress in the first quarter of calendar 2022, with revenue increasing 48 per cent year over year and delivered its fifth consecutive quarter of positive adjusted EBITDA. In April, 2022, Acreage commenced adult-use operations in New Jersey with its flagship brand, the Botanist, now available for adult-use consumers in multiple dispensaries in the state.

First quarter fiscal 2023 revenue review

Canadian cannabis:

  • Recreational B2B (business to business) net sales in Q1 fiscal 2023 decreased 38 per cent over the prior-year period primarily due to the continuing impacts of price compression resulting from increased competition and lower sales in the value-priced dried flower category. These factors were partially offset by a more favourable product mix due primarily to a decrease in the volume of value-priced dried product sold compared with the prior year and a full quarter of net revenue contribution from Supreme Cannabis.
  • Recreational B2C net sales in Q1 fiscal 2023 decreased 28 per cent versus Q1 fiscal 2022 largely driven by increased competition from the rapid increase in third party retail locations across provinces.
  • Medical net revenue in Q1 fiscal 2023 decreased 1 per cent from Q1 fiscal 2022 driven primarily by higher average order sizes offset by a fewer number of orders.

International cannabis:

  • C3 revenue in Q1 fiscal 2023 decreased 100 per cent year over year as a result of the divestiture that was completed on Jan. 31, 2022.
  • Other revenue in Q1 fiscal 2023 increased 73 per cent over the prior-year period primarily due to bulk cannabis sales by Supreme Cannabis into the Israel medical cannabis market and increasing global medical sales including to Australia.

Other consumer products:

  • BioSteel sales in Q1 fiscal 2023 increased 169 per cent over Q1 fiscal 2022 in part due to continued growth in the company's distribution channels and sales velocities across North America and higher international sales.
  • Storz & Bickel vaporizer revenue in Q1 fiscal 2023 decreased 35 per cent over Q1 fiscal 2022 due primarily to temporary disruptions with certain distributors and slowdown in consumer spending in North America and Europe.
  • This Works sales in Q1 fiscal 2023 decreased 15 per cent over Q1 fiscal 2022 due in part to softer performance of certain product lines, which benefited during the period of COVID-19 restrictions in Q1 fiscal 2022 and the phasing of orders for certain products in Europe to Q2 fiscal 2023.

The Q1 fiscal 2023 and Q1 fiscal 2022 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 David Klein, chief executive officer, and Judy Hong, chief financial officer, at 10 a.m. Eastern Time on Aug. 5, 2022.

Webcast information

A live audio webcast will be available.

Replay information

A replay will be accessible by webcast until 11:59 p.m. ET on Nov. 5, 2022.

About Canopy Growth Corp.

Canopy Growth 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, the company offers product varieties in high-quality dried flower, oil, soft-gel capsule, infused beverage, edible and topical formats, as well as vaporizer devices by Canopy Growth and industry leader Storz & Bickel. The company's 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, the company 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 it has introduced additional federally permissible CBD (cannabidiol) products to the United States through the company's First & Free and Martha Stewart CBD brands. Canopy Growth has an established partnership with Fortune 500 alcohol leader Constellation Brands.

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