Mr. David Klein reports

CANOPY GROWTH REPORTS SECOND QUARTER FISCAL YEAR 2024 FINANCIAL RESULTS

Canopy Growth Corp. today released its financial results for the second quarter ended Sept. 30, 2023. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.

Highlights

• Canadian cannabis business delivered its third consecutive quarter of organic revenue growth while significantly reducing costs.
• Achieved fiscal Q2 2024 net revenue of $70-million. Consolidated gross margin was 34 per cent in fiscal Q2 2024, compared with (1 per cent) in fiscal Q2 2023, primarily driven by the business transformation initiatives executed since the beginning of fiscal 2023.
• Delivered additional cost reduction of $54-million in fiscal Q2 2024, bringing the total cost reduction to $226-million since the beginning of fiscal 2023. Management is tightening its previously announced cost reduction target to $270-million to $300-million by the end of fiscal 2024.
• With the completed sale of the company's Hershey Drive facility, generated aggregate gross proceeds of approximately $155-million from facilities sales since April 1, 2023.
• Reduced overall debt by $364-million to $681-million in fiscal Q2 2024; total debt reduction of approximately $1-billion delivered since the beginning of fiscal 2023.

"Canopy Growth has successfully transformed into an asset-light, cannabis-focused company with a stronger balance sheet. These actions have resulted in a company that looks and operates fundamentally different than before, a Canopy Growth that is purpose-built for the markets and geographies of greatest opportunity."

-- David Klein, chief executive officer

"Our financial results demonstrated marked improvement this quarter, including significant gross margin gains and reduced cash burn. This enhanced performance, together with a series of completed balance sheet strengthening actions, has solidified our foundation and set the stage for profitable growth ahead."

-- Judy Hong, chief financial officer

Financial highlights

Canadian cannabis business delivered net revenue of $39-million in fiscal Q2 2024. Canadian medical cannabis net revenue increased by 6 per cent compared with the prior-year period against the backdrop of a declining medical cannabis market.

• Canadian cannabis gross margins improved to 36 per cent in fiscal Q2 2024. Adjusted gross margin, excluding reversal of the prior restructuring charge, was 34 per cent in fiscal Q2 2024, up 4,900 basis points from fiscal Q2 2023. The year-over-year improvement is primarily driven by reduction in operational costs from the business transformation initiatives as well as opportunistic use of lower cost inputs. Since the beginning of fiscal 2023, the Canadian business generated approximately $80-million savings in cost of goods sold (COGS).
• Sales and marketing, general and administrative, and research and development expenses totalled $40-million in fiscal Q2 2024, down approximately $32-million from fiscal Q2 2023.
• Operating loss from continuing operations narrowed to $7-million in fiscal Q2 2024. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss was $12-million in fiscal Q2 2024, compared with a loss of $56-million in fiscal Q2 2023, driven by the business transformation and cost reduction actions taken to date.
• Free cash flow from continuing operations of $(67)-million comprising cash from operations, which included $28-million of cash interest payment, and capital expenditure of $1-million in fiscal Q2 2024.
• Net debt balance was $411-million at Sept. 30, 2023, compared with $474-million at June 30, 2023.

Business highlights

Improved product portfolio driving profitable growth of Canadian cannabis business

• Continued enhancements to the company's cannabis flower quality, leveraging new genetics, cultivation procedures and postharvest processes, have enabled the company to consistently produce new high-quality cannabis flower products. Flower innovations have performed well in market.
• Distribution of high-quality cannabis flower was instrumental in the company becoming a top-three supplier of cannabis flower to British Columbia cannabis stores during fiscal Q2 2024, up from 11th in fiscal Q2 2023.
• Illustrating quality and consumer appeal of flower being produced by the company, Tweed Kush Mints was nominated for a 2023 Karma Cup award in the Hybrid Flower category.
• Canadian medical business delivered fourth consecutive quarter of revenue growth. Wana gummies are available to the company's registered medical cannabis patients in Canada through the Spectrum website.
• The company is executing a plan to reintroduce the Wana brand in the Canadian adult-use cannabis market including planned new product introductions and active outreach to key retailers in the fiscal second half of 2024.

Strong demand is expected to accelerate growth in international medical cannabis markets

• Responding to market opportunities, the company started shipping five new SKUs (stock-keeping units) to international medical markets in Q3 fiscal 2024. Additional product SKUs are expected to be launched over the coming months.
• Company is increasing focus on the growing Australian medical cannabis market; Canopy Growth's Australian medical cannabis business has generated 10 straight quarters of revenue growth.
• Successful attainment of EU-GMP (European Union good manufacturing practice) certification of the Kincardine, Ont., cultivation facility bolsters the company's ability to supply international medical cannabis markets.

Expanded Storz and Bickel product portfolio with introduction of new Venty portable vaporizer

• Venty vaporizer features adjustable airflow up to an industry leading 20 litres per minute maximum, short 20-second heat-up time, precise single degree temperature control from 40 degrees to 210 degrees and fast USB-C charging.

U.S. THC platform demonstrates asset-light growth capabilities

• In August, 2023, Wana launched 11 new product SKUs in four existing markets. During the quarter, Wana executed two agreements for new state launches expected in Q1 calendar year 2024.
• In July, 2023, Jetty introduced its award-winning vape products in Colorado and achieved No. 3 market share in the solventless vape cartridge category in that state just three months after launch. In August, 2023, Jetty expanded its product offering in California with the launch of a family of OCal Certified (California cannabis comparable-to-organic certification) solventless vapes.
• On Nov. 1, 2023, Acreage debuted its Superflux craft cannabis brand in New Jersey. The initial launch will introduce four limited-edition, small-batch flower strains crafted with bespoke genetics, including Red Carpet Runtz and Silly Rabbit.

On Nov. 3, 2023, the company received a letter from the staff of the SEC (the staff) (Securities and Exchange Commission) in which the staff indicated that, despite the reorganization amendments, it would object to the deconsolidation of Canopy USA once Canopy USA acquires Wana, Jetty or the fixed shares of Acreage. The company is currently assessing additional structural amendments to Canopy USA that would facilitate the deconsolidation of Canopy USA from the financial results of Canopy Growth, and intend to maintain active discussions with the Staff on such changes.

Second quarter fiscal 2024 revenue review

The fiscal Q2 2024 and fiscal Q2 2023 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 5:30 p.m. Eastern Time on Nov. 9, 2023.

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. Eastern Time on Feb. 7, 2024.

About Canopy Growth Corp.

Canopy Growth is a leading North American cannabis and consumer packaged goods (CPG) company dedicated to unleashing the power of cannabis to improve lives. Through an unwavering commitment to its consumers, Canopy Growth delivers innovative products with a focus on premium and mainstream cannabis brands, including Doja, 7Acres, Tweed and Deep Space. Canopy Growth's CPG portfolio features targeted 24-hour skin care 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 Growth has also established a comprehensive ecosystem to realize the opportunities presented by the United States tetrahydrocannabinol market through its rights to Acreage Holdings Inc., a vertically integrated multistate cannabis operator with principal operations in densely populated states across the northeast, as well as Wana Brands, a leading cannabis edibles brand in North America, and Jetty Extracts, a California-based producer of high-quality cannabis extracts and a pioneer of clean vape technology.

Beyond its world-class products, Canopy Growth 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.