Mr. David Klein reports

CANOPY GROWTH REPORTS THIRD QUARTER FISCAL YEAR 2023 FINANCIAL RESULTS AND ANNOUNCES CANADIAN BUSINESS TRANSFORMATION PLAN

Canopy Growth Corp. has released its financial results for the third quarter ended Dec. 31, 2022. Canopy Growth is also making significant changes to the company's Canadian cannabis business.

Highlights:

• Canopy Growth is transitioning to an asset-light model in Canada by exiting cannabis flower cultivation in the company's Smiths Falls, Ont., facility, ceasing the sourcing of cannabis flower from the Mirabel, Que., facility, and moving to third party sourcing model for cannabis beverages, edibles, vapes and extracts.
• Today's changes come in addition to multiple cost reduction activities within fiscal 2023, including the divestiture of Canopy Growth's Canadian retail operations, the organizational restructuring of certain corporate functions and the closure of the Scarborough, Ont., research facility.
• As a result of the cost reduction initiatives undertaken in fiscal 2023, the company intends to close its 1 Hershey Dr. facility in Smiths Falls, Ont., in addition to reducing head count across the business by approximately 60 per cent, including 800 positions impacted by the changes announced today, of which 40 per cent are impacted immediately.
• Management expects these cost reduction initiatives will reduce annual cost of goods sold (COGS) and selling, general and administrative (SG&A) expenses by a combined $140-million to $160-million over the next 12 months, bringing the total cost reduction target to $240-million to $310-million, inclusive of the reductions announced in April, 2022.
• Canopy Growth continues to progress its U.S. strategy through Canopy USA LLC (CUSA) and is committed to remaining dual listed on the Toronto Stock Exchange and Nasdaq Stock Market.
• Based on the company's current revenue run rate and these cost reduction initiatives, management reaffirms its expectation to achieve positive adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in fiscal 2024, with the exception of investment in BioSteel.

"Canopy must reach profitability to achieve our ambition of long-term North American cannabis market leadership. We are transforming our Canadian business to an asset-light model and significantly reducing the overall size of our organization. These changes are difficult but necessary to drive our business to profitability and growth," stated David Klein, chief executive officer.

"The rightsizing of our Canadian business is expected to significantly reduce our cash costs. Canopy is firmly on the path to deliver at least quarterly break-even adjusted EBITDA in our Canadian cannabis business in fiscal 2024, even at current revenue run rate," stated Judy Hong, chief financial officer.

Revenues

Net revenue of $101-million in Q3 fiscal 2023 declined 28 per cent versus Q3 fiscal 2022. The decrease is primarily attributable to increased competition in the Canadian adult-use cannabis market, the divestiture of C3 Cannabinoid Compound Company GmbH, a decline in the company's U.S. CBD (cannabidiol) business, and softer performance from Storz & Bickel and This Works. When adjusting for both the impact of the divestiture of C3 and the company's Canadian retail business, revenues for the period decreased 23 per cent in Q3 fiscal 2023 versus Q3 fiscal 2022.

Gross margin

Reported gross margin in Q3 fiscal 2023 was negative 2 per cent, as compared with 7 per cent in Q3 fiscal 2022. Excluding non-cash restructuring costs recorded in COGS of $4-million, adjusted gross margin was 1 per cent. Gross margin in Q3 fiscal 2023 was impacted primarily by a decrease in the amount of payroll subsidies received from the Canadian government pursuant to a COVID-19 relief program, the divestiture of C3, and lower gross margins in the BioSteel business segment primarily attributable to the writedown of aged inventory and higher distribution and warehousing costs. While lower production output and price compression in the Canadian adult-use cannabis business continued to pressure gross margins, the Canadian cannabis segment saw an improvement in gross margins in Q3 fiscal 2023 compared with Q3 fiscal 2022 and compared with Q2 fiscal 2023.

Operating expenses

Total SG&A expenses in Q3 fiscal 2023 increased by 5 per cent versus Q3 fiscal 2022, driven by year-over-year increases in acquisition-related expenses primarily relating to the company's previously announced transaction with respect to the formation of CUSA and higher general and administrative (G&A) expenses. The increase in G&A expenses was primarily due to a decrease in the amount of payroll subsidies received from the Canadian government pursuant to a COVID-19 relief program. The decrease in sales and marketing expenses is net of the impact of incremental investments in BioSteel, relating to the activation of the National Hockey League (NHL) partnership announced in July, 2022. Excluding acquisition-related expenses, the impact of the disposition of C3 and the COVID-19 relief program, total SG&A expenses decreased 10 per cent in Q3 fiscal 2023 compared with the prior-year period.

Net loss

Net loss in Q3 fiscal 2023 was $267-million, which is a $151-million increase in the net loss versus Q3 fiscal 2022, driven primarily by non-cash fair-value changes and an increase in asset impairment and restructuring costs.

Adjusted EBITDA

Adjusted EBITDA loss in Q3 fiscal 2023 was $88-million, a $21-million increase in adjusted EBITDA loss versus Q3 fiscal 2022, primarily driven by a decrease in the amount of payroll subsidies received from the Canadian government pursuant to a COVID-19 relief program.

Free cash flow

Free cash flow in Q3 fiscal 2023 was an outflow of $146-million, a 13-per-cent decrease in outflow versus Q3 fiscal 2022. Relative to Q3 fiscal 2022, the decrease in outflow is due to the timing of certain payments in each period. Year-to-date free cash flow in fiscal 2023 is a 7-per-cent decrease in outflow versus the comparable period in fiscal 2022, representing the impact of reduced capital expenditures and impacts of cost reduction actions, partially offset by investments in growth initiatives at BioSteel and costs related to the formation of CUSA.

Cash position

Cash and short-term investments amounted to $789-million at Dec. 31, 2022, representing a decrease of $583-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, Va., manufacturing facility for BioSteel and a premium payment made to obtain an option to acquire Acreage Holdings Inc. outstanding debt as part of the October, 2022, CUSA announcement. Gross debt amounted to $1,206-million at Dec. 31, 2022, representing a decline of $295-million from $1,501-million at March 31, 2022.

Canopy USA strategy is expected to fast-track entry into the U.S. cannabis market

Canopy Growth continues to progress its U.S. strategy through CUSA and is committed to remaining dual listed on the TSX and Nasdaq through continued engagement with Nasdaq on a path forward that is focused on delivering on the benefits of this transformational strategy. As a result of the formation of CUSA and a related transaction with, CUSA, the company expects to reduce its annual operating expenditures through a more streamlined and singular approach to its U.S. strategy. In the near term, CUSA is expected to generate revenue and cost synergies by leveraging its brand portfolio, routes to market and operations of the full U.S. cannabis ecosystem while eliminating redundancies and the public company reporting costs of Acreage, all of which are expected to be realized while cannabis remains federally illegal in the United States.

In light of Nasdaq's objections to the consolidation of CUSA into the financials of Canopy Growth, the company is prepared to make changes to the structure of its interest in CUSA such that Canopy Growth would not be required to consolidate the financial results of CUSA into Canopy Growth's financial statements, which may include: (1) reducing Canopy Growth's economic interest in CUSA on an as-converted basis to no greater than 90 per cent; (2) reducing the number of managers on CUSA's board of managers from four to three, including, reducing Canopy Growth's nomination right to a single manager; (3) modifying the terms of the protection agreement entered into with CUSA and CUSA's limited liability company agreement in order to eliminate certain negative covenants; and (4) modifying the terms of the agreements with third party investors in CUSA to, among other things, remove their right to guaranteed returns.

Business highlights

Aligning Canadian cannabis operations to challenged market realities:

• On April 26, 2022, the company announced a series of initiatives to reduce costs and drive efficiency, which were expected to generate savings of $100-million to $150-million within 12 to 18 months of the announcement. To date, these initiatives have generated approximately $80-million in savings.
• Today, Canopy Growth announced the next series of comprehensive steps to align its Canadian cannabis operations and resources in response to unfavourable market realities, which include:
  • Transitioning to an asset-light model by exiting cannabis flower cultivation in the company's Smiths Falls, Ont., facility, ceasing the sourcing of cannabis flower from the Mirabel, Que., facility, and consolidating cultivation at existing facilities in Kincardine, Ont., and Kelowna, B.C.;
  • 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 R&D (research and development) and production footprint;
  • As a result of these changes, the company intends to consolidate flower, prerolled joint, soft gel and oil manufacturing in Canopy Growth's current beverage production facility in Smiths Falls, Ont.; the company will transition to a flexible sourcing strategy and migrate the existing genetics program to Quebec-based Exka;
  • In addition to the closure of the Scarborough, Ont., facility in January, 2023, the company intends to close the 1 Hershey Dr. facility in Smiths Falls, Ont., and is in active discussions with respect to restructuring the joint venture entity that holds cultivation facility in Mirabel, Que.
• Reflecting today's announcement and based on information currently available to management, the company expects to record estimated pretax charges of approximately $425-million to $525-million, of which $25-million to $40-million is expected to be cash charges. These pretax charges are expected to be substantially recorded in the current quarter and the first half of fiscal 2024. The charges the company expects to incur in connection with these actions are preliminary estimates and are subject to a number of assumptions and risks, and actual results may differ materially. The company may also incur other material charges not currently contemplated due to events that may occur as a result of, or in connection with, these actions.

New stand-alone Canadian cannabis business unit expected to increase agility and accountability, benefit from brand and SKU (stock-keeping unit) optimization:

• The Canadian cannabis business has been reorganized as a stand-alone business unit, which will have single point of accountability for commercial operations, allowing for agility and accountability. Early progress to date in Q3 fiscal 2023 shows that customer order fill rates have increased by over 20 per cent to above 90 per cent in the current quarter.
• The company's Canadian cannabis business unit is completing a brand and SKU optimization, which is expected to reduce in-market brand and SKU count by approximately 25 per cent and 50 per cent, respectively, as the company further focuses on the highest-performing and more profitable segments within the Canadian adult-use cannabis market.

Demonstrating continued momentum across the company's consumer products businesses; strong sequential revenue growth for Storz & Bickel; meaningful year-over-year gains in BioSteel distribution and sales velocity:

• Despite a decrease in revenues as compared with Q3 fiscal 2022, Storz & Bickel delivered sequential revenue growth of 50 per cent in Q3 fiscal 2023 driven by traditionally strong seasonal sales.
• BioSteel has reached a 10.4-per-cent share of convenience and gas channel in Canada, up 300 basis points sequentially, and 13.8 per cent share in Ontario, representing a sequential quarterly increase of 260 basis points.
• BioSteel all-commodity volume in the United States of 34 per cent in Q3 fiscal 2023 represents an increase of 2,600 basis points, compared with the corresponding period of the prior year.
• BioSteel ready-to-drink (RTD) U.S. scanned sales for the year ended Jan. 1, 2023, increased 157 per cent from prior year.
• Subsequent to the end of Q3 fiscal 2023, BioSteel announced the signing of multiyear partnerships with six NHL teams.

U.S. THC (tetrahydrocannabinol) companies continue to strengthen and expand their businesses:

• In the third quarter of calendar 2022, Acreage reported revenue increasing 28 per cent year over year and delivering its seventh consecutive quarter of positive adjusted EBITDA (as calculated by Acreage and set forth in Acreage's third quarter 2022 financial results press release available under Acreage's profile on SEDAR and through EDGAR). Subsequent to the end of its fourth quarter of calendar 2022, Acreage began adult-use retail operations in the state of Connecticut.
• In January, 2023, Wana and Terrascend Corp. announced an agreement to bring Wana-branded edibles to the new adult-use market in the state of New Jersey and expand availability in the state of Maryland.
• In February, 2023, Jetty announced the coming availability of Jetty products in New York State.

Canada cannabis:

• Adult-use business-to-business net revenue in Q3 fiscal 2023 decreased 35 per cent over the prior year period 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 favourable product mix.
• Adult-use business-to-consumer net revenue in Q3 fiscal 2023 decreased 24 per cent versus Q3 fiscal 2022 largely driven by increased competition from the rapid growth in third party retail locations across provinces.
• Medical net revenue in Q3 fiscal 2023 increased 9 per cent from Q3 fiscal 2022 driven by growth in insured patient registrations and continued expansion of product offerings.

Rest-of-world Cannabis

• Rest-of-world cannabis revenue in Q3 fiscal 2023 decreased 74 per cent over Q3 fiscal 2022 due primarily to the divestiture of C3 and a decline in our U.S. CBD business.
• Excluding the impact of the divestiture of C3, rest-of-world cannabis net revenue decreased 54 per cent as compared with Q3 fiscal 2022, primarily due to declines in sales to Israel and our U.S. CBD business, partially offset by strong growth in Australia.

Storz & Bickel

• Storz & Bickel vaporizer revenue in Q3 fiscal 2023 decreased 20 per cent over Q3 fiscal 2022 due primarily to continued slowdown in consumer spending.

BioSteel

• BioSteel sales in Q3 fiscal 2023 decreased 4 per cent over Q3 fiscal 2022 due to lapping of strong sales in the prior year quarter driven by the timing of distribution load-in in the U.S.

This Works

• This Works sales in Q3 fiscal 2023 decreased 22 per cent over Q3 fiscal 2022 due in part to softer performance of certain product lines and the impact of foreign exchange rates.

The Q3 fiscal 2023 and Q3 fiscal 2022 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 10:00 AM Eastern Time on February 9, 2023.

Webcast Information

A live audio webcast will be available at https://app.webinar.net/DpogWGlRL06.

Replay Information

A replay will be accessible by webcast until 11:59 PM Eastern Time on May 8, 2023 at https://app.webinar.net/DpogWGlRL06.

About Canopy Growth Corporation

Canopy Growth Corporation ("Canopy") is a leading North American cannabis and CPG company dedicated to unleashing the power of cannabis to improve lives.

Through an unwavering commitment to our consumers, Canopy delivers innovative products with a focus on premium and mainstream cannabis brands including Doja, 7ACRES, Tweed, and Deep Space. Our CPG portfolio features sugar-free sports hydration brand BioSteel, targeted 24-hour skincare and wellness solutions from This Works, gourmet wellness products by Martha Stewart CBD, and category defining vaporizer technology made in Germany by Storz & Bickel.

Canopy has also established a comprehensive ecosystem to realize the opportunities presented by the U.S. THC market through its rights to Acreage Holdings, a vertically integrated multi-state cannabis operator with principal operations in densely populated states across the Northeast, as well as Wana Brands, a leading cannabis edible brand in North America, and Jetty Extracts, a California-based producer of high-quality cannabis extracts and pioneer of clean vape technology.

Beyond our world-class products, Canopy is leading the industry forward through a commitment to social equity, responsible use, and community reinvestment-pioneering a future where cannabis is understood and welcomed for its potential to help achieve greater well-being and life enhancement.

We seek Safe Harbor.