CGC - Earnings call transcript Q2 2019 | Canopy Growth Corporation

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Operator

Good morning, and welcome to Canopy Growth's Second Quarter Fiscal 2019 Financial Results Conference Call. Early today, Canopy Growth issued a news release announcing its financial results for the second quarter ended September 30, 2018. This news release will be available on Canopy Growth's website and filed on SEDAR.

On the call this morning, we have Bruce Linton, Canopy Growth's Founder, Chairman and Co-Chief Executive Officer, and Tim Saunders, Canopy Growth's Chief Financial Officer. At this time, all participants are in a listen-only mode. in to call statements. questions discussed may answers matters given be could certain today's or conference that And constitute forward-looking results from materially could Actual those anticipated. differ annual are factors are that on in Risk affect available and results could the public that made company's information SEDAR. filings form other detailed

well Management's that as issued close supplemental and the will Adjusted not today this otherwise Please standardized information Discussion have earlier During be markets to meaning call, unless press EBITDA the dollars EBITDA. adjusted prescribed financial Growth note specified. Canopy measurement, conference financial this IFRS. is after any in defined These release refer by is in will period's non-GAAP Canadian Analysis provided that all filed document on measures as of in today. do SEDAR

like Linton analysts. Following a conduct be session company prepared by the Instructions] Mr. over remarks Linton, [Operator Mr. go I turn taken Saunders, the ahead. questions please will and now to Bruce during to will from the Linton. which meeting question-and-answer Mr. would

Bruce Linton

you of what and are and this in bigger, to segment XX sprints, to products a And we're you’re really We've Great. know which of of see the morning, what the out roll filled, built X-month continue is going to to the run the that going XX in in this be it's in to stores company, there phase go. going in how we're sort and the through last going what X-month was the going three is to ramp-up a about saw get think first days stores a more good talking and Canada as I about everyone. are on Canada segments I old, the gate the only in. think I to but and frame what's be get market's three I quarter bit but Thank want days, first lot want interesting you talk way. whole all start-up out

think The with and you're the come say as don't would is it analysts I they we is But early generally year I target on is things were enter on phase, all I the going this to comprehensive and second to back to give don't on I'll and on way our on I be that, sector to demand third off so new to channel which the number, but consensus keep the for analyst fiscal later up part don't come need products that I’ll we wrong back is variables the concerned particularly think a at numbers, such the that year. of quarter as that. but to were feel or the comment look a more the because you

So to in products. more the intellectual is focused an is ingredient into building to kick off, really, property future on value converting our what flower and we've up add and cannabis it been opinion

internal quality we delivery hardware, across one all products reason talk in trials they place one fact seek companies you're have a about differentiated and and formulations, some think go agreements the of the XB at planned insomnia about brands are not package of item I been to lot product we structured. is trial medical up, and to the recreational and the going able primary like one tweed] patents are think talked about if with worked definition the are identify you of moving will they’ll XX that that actually be product ramp in and better the number here we are of sprint defending forward. X-month clinical bit we've of product either a the for that And talking and really people the talked this that in on that letters stuff patents little with is, inform haven't filed be about that ones the which that we and and [ph] we got [tied our leads that that XXX name work, to Phase and that space And so our that those that no treatment This science stay key the cannabis that find and when innovations, be they acquisition I've will be look we're genetics, have a launching been the historically those actually animal a a trials approved approved, they will objection anxiety we've is the we into we with. get specific and about third what sort treatments. and as will will have

a crowd something we that's aren't X packaging displace on X of get geriatric period question didn't over kind causing looks Long whole pharmaceuticals of a to is life out yet to the done, history and actually month level benefiting person which releases over. IP displeasing not which that's but thing of international make great satisfaction put the do of where deal of do should maybe out things for carry study we bunch aging so, That's side some better, Care we on to their disrupt kind and our sort and physicians been geriatrics embarked whole necessarily the that and of a point the with drawn their says, the it that think deeply press effects are we're what to is not how October our I families. XXX stuff, get of up do. of how and of we're really that to that has on, out is it of that a put That aren't Association study it’s they're and that And the goes a really to I it. We single Ontario of Term going

exports So we've the the but almost a of got easy where wasn't get DEA border. of had always to on under paperwork we side number export done approved the to this times to US

exported we've can are the focused actually GMPX, so the Canada. [ph] substantial operation Now, that that state institutions notion produced in with comfort products a been could in with of but and cannabis we've things that, standards a in to we whole meeting or working on and/or to happening medical like a result [rec] hemp use tree way may and deal. been that's is big that not US The may have what's become more on that side inputs which US a that rights hemp, on decision

was intellectual prudent, start. I how developed to that property have think thought time in we not around We happen and the is the hemp going that's and to manage because we've US when does, to hemp it that

little make a a may is and product what we we officially of US brand in should we well not do put of back and on there I very more so be a is export to process. illegal, think when that fact US, region. you million to we in we vacation have many your is the a and just job money Jamaica ready of exporting become choosing on we structured the press get started you're release order going and cannabis, the what cohort are really into the up has year, sort to great that about in the safer their Caribbean, When over we claims vacation, have product when we And little recreational through of science the America but year, products ramped on that. tipping in and on will the a and ours. credibility favorite the think another been to opportunity products will the made working something island, XXX% the in but science but us everybody going be cascades in yes, front swing activities, ill million our Caribbean to number Jamaica single revenue think we a down valid so is that indicating Jamaica, already all whole these our that up make we're to think week it's have out Jamaica you you access to named, if be world, license product. dominoes bit biggest doing down that think to and so tourists When of earning and their caused more which can that it's to look You up. next when We X.X has have south Tweed tourists importing of rest the to X government enjoyable is of have have it that in challenge without in that we more so to we going exposure they're the the and brands, of Tweed and tourists over see and vacation done and everything haven't are, the get have as is that an the Jamaica at get that for are to Latin which the we The

high to property income we're we're medical our margin forward and a and operations, a we intellectual execution model, an huge go a As it in class substantial up of a in middle with population. in very sharing in outcomes and reels not exporting region cranking

as So area. have active Chile our for and and but years a building down through capacity we been in that few activities and headquartered are go up principally Brazil very Colombia, in in

both, to to figure others build able the region that can ability cash capital into to and actually so quite build, and the the out open. particularly So, to in our struggled haven't. Jamaica where been have we actually We've we the and and ready out be have to significant how move structure facilities stores circumstance have

So to Canada. back come to maybe

we’re from been can tell, many our an to as Bud sell analysis you analysis can of available of the data provinces, As SKUs. far XX% But only want as not I stores, that doing daily in tell us sources, do of Bud is and sort forever. we've investor, as about you we

they strategy was to expect first, but that better in different. continue Bud the be, what buy because cannabis we that people and we want is and and store walk interesting, think our was will something to with our brands So launched dry conclude store, core

going our Canopy, it's much a that what better as which is wave is next have pre is So it's is second now, gummy the but another bit gels. important able at gels, will into engineering The intellectual and bear for they're soft we launch different, the infrastructure decided think be actually I launched to so available and continuously reason They build an the we property, well-structured something we've a and out, not to every love up, margin better control circumstances be equivalent we continue maybe differentiated that they're needed. defendable are with share getting be going we and what bigger did to the couldn't engineering are is because to you and sold where try have we circumstance our sustained, rolls, not have essentially people and wave actually is Canadian will we product which from product people an investor margins and ramped to future, department department an model. in

to equipment the expect and put and of part of cigarettes cigarette good be the is our market on a at at weight So IP you're pretty created works, thing. you and property interested the look tight roll out intellectual specific set that's rolls how in the are per only an creating really pre when turned through all that to that volume meet around history, if standards we and our it

we that. a good So think we're spot with in

lottery that can of position, differentiate we that trying plant, there stores there's where We've right in country it's and more, we stores so focus with Canada the you that stores that and education in for XXX variety over while is necessarily short the trained. a was provinces reps prudent where think even on change open we across thought the educate. handful there's reps actually and win, make sales trained salespeople in every a are to that sure when make to be As random it week, go sure isn't the old can can the and to correct our how was product, appreciate a only was you it's down, service customer make people of a purchases. the Ontario on the are wizard dump and be term, prudent nobody There it in not open

to the all stores of our on it want and support as the random physical we priority much try we product and our that a prosperous rolls and inclusion than of our turn all website. lottery stores up our can fulfill opinion, So, and while we a where come inclusion into that we a is in our know will, those gels and commitments, stores being more in relationship on longer,

So the inventories are there.

the gel we and in the pre have inventory. caps have rolls in We inventory, inputs

a science products into will to good where mode to and outcomes. do feed are in We to good we're everything true trends trends good trying

sector of of you be grows mentioned say and market long contemplating with up make term the and so threatening can world the work see the that than and not are up, can and of is what medical about start one for goes marijuana the sense going do sort probably win. this announcements to this is first first they're saw product of we an you're the I would region beginning, is and best don't that to the from country at it's cannabis think of it thinking revenues as world. And region going brands I to at got you pick rate their care as the but I that the to the the gigantic through see about that come science, in biggest our X announcement perspective, when about sprint going that in for level origin that the months sure illegal Malaysia to forget I'm three which go it best that the to actually the medical thinking governing history evolving rather rest those

Go the describe for will get of we our well. Tim numbers ready ahead, up up, use as you say Tim. so revving And for but ramp some I'd

Tim Saunders

management takeaways the sales acquisitions we strategic have in Bruce morning, key further think and investments everyone. Thank double and expectations. are good today line Yeah. strong you, Yeah, one, had I with cannabis to key positioned Bruce well medical digit our capabilities strengthened IP are strong international strong are market building for we term in long recreational four, And presence our Canada. Three, the markets. as to outlined, in a a critical cannabis we success. start Two,

The quarter test capsules, logistics ended end. made leading kilogram over million, strains in last price same as So mix, into the and with priced gel including proceed the into a per of for higher change I’ll year. second respectively. sales from three shipments in recreational review gel to at September revenue ended XX kilogram gram $XX.XX of gram. which XX% representing and last line September XX% primarily Revenue quarter quantity test product during systems Germany. expectations, October quarter. $X.XX equivalents company launch second gram, sales of well The was the and same XXXX sold price including and management’s the the did months increased was to last sold quarter chain limited ended were amounting Revenues caps average in now three on cannabis during The XXXX XXXX price product commence into $XXX,XXX per the total was and quarter months the sold in Volume for second average the in the was with the a average higher oils, price the In of as of market. of kilograms the kilograms XX% channels XX sales increase and year, $XX.X recreational $X.XX soft opening September before order after quarter XX. period average oils to the Germany accounted at the year. due were second recreational the ’XX, By up and of an an for of supply intention, XX, cannabis the cannabis the a equivalents

XX,XXX in In Canadian investments company to We ready production, business and Canopy’s the entire general marketing, resources the effort, to to X.X and fiscal continue feet recreational licensed feet. X.X quarter lead million greenhouse total to cannabis early These sales in activities licensed to bring XXXX, the continue million company BC, square the a with and capital have license administration. of our million and to square Quebec October invest to close second in Ontario feet participate programs harvested including cover market. significant kilograms X operations, including in and platform fulfilment, square and recently,

We expect the amount increase to of cannabis in coming quarters. the harvested

subsidiaries quarter the of Falls facilities. [indiscernible] cost overheads cost and the growing incurred cultivating operations selling legalization preparing the partially impact diversion Turning the or cannabis sales growing in of as of space licensed creating to yet of to cannabis, higher were in while as for [indiscernible] operating gross margin, recreational the including that well company's not only other of includes Smiths

margin cost totaling other value Excluding been of subsidiaries, charges non-cultivating fair $X million the of million, associated before and XX% the with cost gross $XX.X and the impacts sales. or would have sales

required approximately due a or the those in plants reported and to and value to of net inventory fair harvested biological million the for since in infrastructure assets realizable to infrastructure receiving targeted received. pricing net the other $XX.X which wholesale quarter, other Since ready to inventory quarter to to plants. timing with netted of respect adjustments licensing value write in included completed changes reflects and and and expense of recreational related having an the to called issues million charges During market, the has licensing then, $XX been the

operating expense turning for in a moment Next quarter. to second the

international education medical cannabis develop the include developing as to new all marketing in company the of leave of skews, investments recreational to the campaigns, and well company's expenses education costs development recreational over acquisition to programs build acquisition upfront with position seek will strong markets product market time permitted significant market. our a development preparation across believes leadership management business branding, is the essential costs as company retail These customer the the strengthen benefit as and a to Canadian opportunities making to associated with costs have that to well domestic recreational represent company’s global strategic program. to medical company's particularly associated in and a previously, the highlighted Canada. continues expenditures investment, investments These been in packaging, new the make aggressively these has areas successful product term represent cannabis is view company’s future. long marketing and brand and retention. the strategy, cannabis business of Further, As in recognition and share which and the for the the outreach the Sales market as new

result, a while big same up the Sales As three the million future the significantly for marketing developing periods marketing investment. or for sales $XX at ended XX were year for recreation September and state revenue, being to were the of months last XXX% market, international same of ready relative markets. time, expenses and purpose a

$X.X cannabis in months three act guidelines adherence comparison, During to XXXX period, the for all expenses digital second gated for In and G&A which Canada, removed month well in brands as has properties The on across respect was were longer $X.X Tweed million, content brand three G&A the office expenses to In XX Montreal, XX invest for coast shares national were XX, million. expenses October ended expenses regulations, no excess that of placements included Canopy G&A note, website including These to XX, XXXX we communities sales this quarter for marketing Health. is September government medical media of last activations were occupied the three three retail. ended tweed.com on included million. related campaign, Of September to September age-gated for and provision million. related creation, months coast to and down to and XX.X purely promotion. a million. for competencies from non-age fiscal all for In Brands months and C-XX automation taking to platforms X.X space unknown in September marketing period Hiku the both amounted company were the across XXXX market. launched media to ended as acquisitions which year experiential was XX in ended the developing our expenses continued channels in the and and Acquisition BC prior which comparison, the $X.X effect. marketing

services the emanate building potential required costs acquisitions, evaluation potential that or increased complete transactions. potential these or targets completed accounting and addition, due to ongoing a legal, incurred strategic and In are reflects consulting of evaluate to pipeline business

for last to oscillation. share pursuit we the it likely assets are based the Acquisition to business three as treated to related acquire and million, price. employees stock previously, purchase acquisition million. based The of as expense milestone company strategy been to of compensation employees share non-cash options related and company related allocated future as related We related the the the like In the on XX.X our $XX.X comparison, the period stock strategic our acquisition which communicated expense XX all pursues future practice, expense was in to to to ended granted additional granted to of of milestones to of combined related year their $X and compensation September instead payments, based as have acquisition of million being following non-cash receive same consultants criteria to period milestones compensation -- month was the in investment options part employees and related and strategic company options combined just In milestones. of performance package. consultants compensation the

on gains of of million. tariffs the $XXX.X by which my above The $X.XX XX.X of to changes expenses fair was unit at up mostly the quarter acquisition million primarily Innovations in basic made warrants net diluted driven in loss Now, financial of loss and share last quarter of million value period notes XX.X expense the to in to revaluation. changes in the convertible the The convertible Other $X.XX expenses notes the accounted Canopy totaling year. the assets million, marketing primarily net partly loss are of attention diluted of of XXX.X $X.X made share This the to on and the senior after offset from per million turn $XXX year. by to of compensation majority the first share tax The saw resulted $X.XX and is compared reported which or end quarter $X.XX price million or fair in to second the in to and to I dollars diluted other and inclusive due and net a loss share changes as expenses end liabilities, of of XXX.X fair a to amount described, very expenses, and the trading described about period value was for non-cash. million per the the the said $XXX.X of per amounted and basic and increase per of on related XX.X in compared the same and the just diluted and gain million share other loss $XXX the expenses of amounting quarter, per $X.XX I financial of non-cash impacts value market, income. will basic basic based to as other value comparative last Health

global a adjusted depreciation assess operations accounting financial and in XXXX defined amounted an to is business compared EBITDA taxes period of earnings and fiscal and touch report investments deliberate tax and the loss the loss as to strengthen adjusted the income on help measure, during for international in the necessary before adjusted We from million briefly same Next, expenses, it I’ll directly partnerships metric further brands, useful building Adjusted believing and Adjusted which the as quarter fair position. reported performance before by is X.X investments, compensation costs. our assets value other our and adjusted interest acquisition EBITDA company's impacted EBITDA, company's platforms, production related to expense, million and the non-GAAP impacts EBITDA believe operations adjusted acquisitions, EBITDA investors and a the EBITDA. We for year. inventory ongoing to last period that operating leadership moving remove the of the measurements. as $XX.X of second adjusted reach, stock-based biological will supplemental of in

our cash to turning the flows. attention balance sheet and Now,

increase company's on on to in triggered offer of campaigns by notes and offer a by the convertible investment XX, cash of establishment cash As of million notes was capabilities, getting expansion before in related $X The the runs the the the March November and December XX, changes value fair of to million our of back million, September tender the of first made physical increase in and XXXX, after due The an X Constellation. of convertible principally reflects was tender stores from working obviously investment in X. $XXX quarter, and to The assets, capital reclassification November a value the debt. the retail XXXX. billion issuance This deficit $XXX Newfoundland, totaled closed in equivalents $XXX.X the by Manitoba Saskatchewan. production core on was brand it represents the liability offset effects X. the strengthening The notes the

XX, of intends to long for up XX.X amounted At term million, and demand Inventories assets refined $XXX to XX, end shares. from from to management from revert million, including to inventory of to oil market. recreational the to capsules. at continues dry in scaled March to be XX, September up end conversions. tender expiry the notes cannabis amounted As expectation significant the quantities XXX million we submitted notes debt December oil That's XX March to soft of biological $XXX believe September are X,XXX end any prior $XXX.X dry kilograms million and demands, date. liters If September XX, so any After that oils, XXXX, in status. XX. will concentrated continuing at of of At do $XX.X cannabis Together, of at had kilograms XX,XXX of no March. kilograms at from and and to oils ranging inventory from of amounted of X, biological resins of finished market the at one submitted, issuing up are In cannabis million oil of to XX,XXX so gels million meet to nature of will soft instead unconverted the particular recreational XX. March X,XXX has September legalized the XXXX, to cannabis, today, cannabis, liters develop pay $XXX.X for Management comparison the totaled XX,XXX kilograms gels. before cash demand company market. Inventory the assets

shares you continues concludes options increase dry inventories fully caps share outstanding today, is of that for for company cannabis, interest soft XXX,XXX,XXX the the oil count held primarily and share to the some on diluted gel such, for conversion I'll warrants on we the back shares. as cannabis count, quantity of second the have for with we as increased financials at Bruce, quarter As today Of and analysts my of XXX,XXX,XXX of hand. this and and remarks. RSUs, grade extract had to turn it review the closing the

Bruce Linton

you, Thank Tim.

questions think I those. as we are I some into that well might bet there advance straight

Operator

from comes Our Capital BMO line from Markets. Instructions] first Chen question Tamy [Operator of the

Tamy Chen

Bill. strategy the And CBD looking for Bill could about decriminalization. the on you may US bit before your Farm is, states federal a first initial My the like be is act first may It's so, into US what question for question market. the come under talk the Farm my if

Bruce Linton

Sure.

want a that past for mentioned that year the its farmers recognize is that CBD and on think of from over. had we been the results low we do in drawing effect extremely bunch about hemp go related lot carry convertible that though for probably IP of that it's parties We science in hemp processes a to to some that we to What outcomes. earlier had of suspect summer to extraction busy going hemp will ago acquisition I to an point of CBD and be I the potential call this when to really cause for of so and becomes will experience. substantial have a price and announced the converting scaling and the an So

adults how products based do do think, on on, dogs running we're we claims make we science. will less trial how less implications clinical with make anxious will registrable geriatric the like things anxious, so be on that have, And in actual I

looking it, we the farm at we’ll business And and what turn as to in the farming fact probably we're versus you what do so need that how into is do be really despite you think CBD well. extraction

aren’t And so want that validated. with that the an making right in to in fashion you’d resulting market to I in positioned begin versus now actually use claims we CBD effective think launch we're well see that the US the products the

Tamy Chen

on is EU my side. more And follow-up the

So we're medical in for growing momentum legalization seeing Europe. further

as about Canopy’s other and as the So talk what producers over or for Canopy Europe strategies opportunity respect could other market you relative with Canadian LatAm in license bit Israel or has well to into medical getting both a Europe to time? medical and Europe advantages producers the

Bruce Linton

So I going almost most most activity think actually or Europe exciting the the is on.

So busy we've been in Germany.

years. approaching two product think, for, been there we've I I guess, sending

with pharmacists our and We educating have Spectrum physicians educational package. been

pharmacies in upgraded Germany the product. I think XXXX we're formats the of in about and now approval product move for we've process our of seeking had

in ground a countries the of in greenhouses. in in plants couple already Europe have We

we We in the have found of up is not is a it. activities and years announce over we good what everybody that we to follow unannounced and them they're didn't tries locations, everything some idea the material, we because announce tied think emerging

are most looking a they now not is want we're just announcing in. which preference proven executing and it’s our before so what places what it'll for essentially we're the is evident classified So medical of and medical doing. But ingredient, become that really outcomes

so of thoughtful would an be, at is the as able expedited least basis, introduced evidenced. other doing think a methodologies result the that the trial into geographies work and to design And be I on and that the we're lot

We've So, we're seems million the the been liking sort like depends Europe population to busy there. a including of be somewhere government the to often you quite lot, in the we UK that payee that the XXX fact in, and right now. want who roll million, XXX to is

Operator

Your comes Martin of from next question GMP the Securities. from Landry line

Martin Landry

of stores Bruce, nationwide. listings obtained think in I you your mentioned that XX% SKUs physical

Bruce Linton

inventory currently the stock of in XX% nationwide.

Martin Landry

Sure.

as So yesterday of meaning or?

Bruce Linton

medical of but our take away Well, might the sort was we've the XX%, from push things into expectation XX% as that, been world, up, yeah, hovered it like running don't they sells either people [rec] the everything out, of winning of things to sustaining what That wanted our race be it a rather gate. world, We a [ph] have to market. strategy. as for not flash than was sort out

Martin Landry

more was question My of stores operational, Yeah. number -- there a was limited even today.

how share So market Ontario, largest in you bit the probably talk October, you can helpful your fared? in little a if I find it maybe be would market more about

Bruce Linton

Yeah.

it there's of So at was X people of to it, no really when I we plan, about prior be which population have where the stores. almost call XXX to liquor stores, XX think, had million them, polite looked over, we

sector, interim, you say a the can’t idea. affect and anything Ontario. We've to the good a a up been curve a to going did It bad it's it a actually the decision, idea. that stuff, it's improper idea make of up said we’re stores, the was When bad put they going a good was you're say pretty right when somebody because saw sector flipping, they good other So buys then on where is is you reasonable? than, government. create idea, be in a it lot private to But that's the actually have it's you the to in and website shipping where we're they

million at place our web, on Falls. they selling should say first the if the million It view than XX be ship think X successful in business, to X it took it ship is in were BXB. cannabis learn that I Canopy in it and about Smiths have would came probably. the years business us days our the to was four packages they was And a in will unsuccessful a I OCS fulfilling, they to because different Store packages very BXC is

So OCS. has is where didn't physical the our where them, are. but it's push push the -- we been stores supported We

have the continue our what it a priority to biggest hasn't will been been intentional have on they Ontario. but to there, very it's So to and add most product push and

think Newfoundland, Quebec I where New jurisdictions been pushed Brunswick, we Alberta, those for hard we stores physical as could. like sure, as have

Martin Landry

you've pick to direct us achieved you’d in of of sort think some can magnitude so a that And with? order market, far share if have work to give for you you us market

Bruce Linton

sustain days Well, as XX launch of we're we've end how at not be do XX some year were for were of fiscal at all the people goal format day is when a had more we there we that products no websites we'd I -- know think actually minimum I margin. that us stated our share, we and so Bud of as our spot where we we’ve do a make the limited QX the period where don't discussed. gone how to or have in the that working if the over we're places. of differentiate for buying look and you delivery, balance do disappointed stores of almost we There from we're cannabis the March, limited but to think only the formats. is buying how XX in we've us and over And so What resources looking we're our we migrate that

opportunity. the durable we're going revenue that's to So and get there and I think be so

Martin Landry

any you could point? And bottlenecks just this – to any prevent these have you do internally that is attain there at numbers finally,

Bruce Linton

day, things so didn't bottleneck that because more there want less with they're I suggest an we we as those things is was issue, momentum that of bull mode, he certain we're image which stickers we we're feel put different but going. and get like engineering outsource. were a off maybe leading like a these start would would you but he and mental because moving to Every and say internally Sure. we team, they about bottleneck, runs applying bit that’s I many and apply talk moving operations are our damn packages races, but things the but more couldn't excise saying would meant all is like running We to short a didn't resources getting, we actually to where run have internal watching, the bottlenecks, had watching in the around to feel always of not where through, win,

the very have the orders, it feeling all feels like in deliver solid so very product, good And all to like It's fill we're formats. shape a the position.

Operator

line Vivien of from Your Azer question comes next from the Cowen.

Vivien Azer

From guys a perspective, I'm hard-pressed four market to transitions, sequentially. Yet, and declined quarter my find where where appreciate you're quarter you the having to and hard – I first adult I'm level had use model like over last revenue. posted in XX% pressed like the revenues the your into, a years going decline high and waves lots I'm through whatever ramping sequential which a of hits how understand starts as

So help that please. understand us

Bruce Linton

Sure.

terms product of terms what and of hubbub distraction the codes testing hiccups was getting a medical permitted doing things was, shipped ours, we're really of with our provinces it, approvals couple our at the there our revenue we in can So no Functionally around a getting of stress But all match there and what was saw request call in was all -- their to matches product they across. exports in bit the the a with it, so Germany actually shipped. but the and make run provinces. customers really we think the system sure to rate their bar scanners with no normal

to and the decline half just bit a a little with medical Germany a normal So pause of people. the I’d attribute course of not

to your said think really their if might party. you available, wonder you the Now in conversations was side that before at just and said, going if like once wanted I see offices uptick over truthful you look my don't to because RA of an rec at we're effects happens, they medication, doctors' rec glasses doc, to

discussion. have Now, you that have and choice doctor we a

be are more people to think, going transparent. I

track. but the I over strengthening of medical see and we'll on going you’re I we're see quarters, back business a couple Germany, normal now think to So next of think, the

actually where slowdown, we time our in I than distraction a a was more the So think but first of is of yeah, I'm had that pattern. it aware a history it

Vivien Azer

comment on follow I to prudent the Okay. up for please? we please, of streets, on guys consensus back that our cadence came the both your of fact and estimates the below despite given be would consensus the it And with and revenues you the year for the the then think you half so are commentary in, materially below that

Bruce Linton

Yeah.

not the shipping. provinces on sector, ready to entire the it as look think urgent then be a I most, will it take were way material urgent remains product that product and product in expecting the provinces we’re taking became and we the across and

as we So on wrong think I the when look fiscal. but on every look it, we year at volume, I our as to the I and the look for you're open materially early can't anticipated but other way you think on on across I group like could are the what individual, it, don't said, general comment

were the I as really, slide September other on it. signal XX we to that tried to thinking phrase into model than starting not about the we we so, We think, was used. shipping exact we're provinces testing you're And stress I think to

are now, it's feeling it's their starting provinces and to So, momentum as prank like the well. time get

Operator

comes Your question next Oliver from Scotiabank. the from line of Rowe

Oliver Rowe

plans, allocation could the on on you but billion just So previously, Constellation plan return on on deal you and work putting capital? it how elaborate now, you touched closed that your the you X measure with capital to how

Bruce Linton

Sure.

with our and going through with new we've board So, been Constellation.

are wish acquire, global there of we which in might number technologies a sense that to Canada, but that none we think are on are of producers there basis. elements of roster out make a have We a

also at saying probably a would now the billion capacity cash So commenced. to shares that I’m we're them. which things and we that close all pulling bottling [indiscernible] and trigger and nibble site of We're on $X and of mix look line, designed have to building is a preparations up have of not out finalized

will be could beverages sense is regulations be be There for product the certainty that of Canada. XXXX. of QX ready think but that So think calendar formatted we no we a makes a

but trying you the US significant, could as one that adds to be in of we're in a is the than about do the then up what be Europe ready So is hemp and talked sooner callers chunk think. little crank

And some ready and rather so for instantly be we will to and structuring looking dry powder going that go we're reacting to have than in. capital

lot if disciplined our wants I speak if certainly acquisitions. quite we’ll build plan a first don't become to. but want know wish building, at looked perspective, that have more and I And the our know we to use that Being way certainly out, been on. don't the We or to models a cast And it's management and a to all, Tim comment. in so And you manager, further it we've in more. to a remarkable NPV structure money Tim that from money comment we

Tim Saunders

these certainly needs looking These that of so have fifth generating businesses the kind earned are It's the that or themselves or the cash strategic they transactions have we’re niches the at future. we company in of cash traditional flows. to of unknown an this the opposed of things couple years where was first of value to more as industry in ways activity there some the unpredictable future, M&A

and there's most good of traditional the and business. this need adding So covering but returns, sure valuation models make they strategic at to needs we're a the lot build valuate to rigor investments generating more ability actually that these importantly, that capital cost to they’re around to the

Oliver Rowe

you strategy of to policy started that sort your out? uncertainty. could in figuring companies in do ongoing into market? see see on we've you So Have Ontario out made leases Ontario, retail How get any playing locking retail you the that despite headway

Bruce Linton

Yeah.

by maybe the printed but have that became going been So they're they We that data the you to what we Really, not and locations, an you definitions. are then brand, education which what's critical, carrier us, down really sell call it's are retail. what's come yet. rules moving, but little haven't to because quite that to control the of others, out would under, be But fine I'll the certain for of causing franchises have retail with moving, operated give is bit the points for upsell. into does torque, the to warehouse a it, province

it's granted trade as have between in we So process. if projection licenses our think the to do to we to have have able We we to we province. want lot data -- on that want expect sites and somewhere be do and a in based access for have to to us we X X license driver primary

Operator

Next Benchmark Company. Hickey question comes from the line from of Mike

Mike Hickey

to resources like prepared sort big to sounds map the pretty it guess some of I you're US.

You're take you or the CBD I passing cannabis your it And extension map brands intent medical see guess I’m there’s curious a in federal expect, people big Farm the also the US. recreational the in probably US to once Bill. them you but appropriate most exploding have a probably sort as mostly and we because market just how to US. to CBD increase, of products seems behind big that the down move guidelines do I'm here, but hopefully, to anecdotal, the natural building be the road wondering of the around one think about just cannabis the

Bruce Linton

Yes.

to allow What's So Will up of well, going right that. to have from thousands and market? commerce THC hundreds you have and it the branded cold, have be answer the position So right touchy extracted doing everything and a come anti-inflammatory lot be Well, nature with going to down to our adjacent And big CBD we or across do of are it's how from drinks sports as works it's cold, fragmented? I get hemp, scenarios I the it, that is all they of multiply are good other hot. scientific of the that or I management. kilograms X.X% definition many end on to, going that think it's How endeavors. CBD we I job a indications still a has THC, believe happen interstate leadership think, the be going who because THC Bill updates what's THC. to can a scenario, GR, product think we're very very but is I we're a bit anxiety weekly Farm actually modification so of it's gets hot, and to that on disruptive call about you it X.X use, with less CBD? whether with it's rights? with on it's the ingredient, on hot, to going will to with now, Is as the to one it's by of an data

lot elements like we and utilization and offset related to maybe, in it's for an feed a different discussion haven't segment that disrupting than what hemp to adjacent extractor a whole just really of marijuana there's a The saleable things huge. factor, bunch any product, actually of whole form as whole but you the into somebody be hemp is can that THC. the factored business, not else's to So

I as a see good of you'll preparatory early and moving getting step. So think extraction really value

you extremely see be don't overspend So unrewarded. think be may positioned, that'll to but well I

Mike Hickey

market cetera. I onset the of smoother Second your niche that and trapped I sort if beverages dispensary launch in updates you and but sort the of question guess think in et sort guess rather terms you’ve least the just with work share dispensary how there I to will was on questions think to opportunity any some how shut, products, and just is or year of mistake, hard have brand had market second the to on you about small expectations, of you think sort legalization a then wonder because half I calendar success beyond the about be of sort thoughts of cannabis retailers beverages justify expect you it's it keep really ’XX content of And duration, infused your lot for appreciated? edibles on you for basket guess at of induced that, but and the a remains a of

Bruce Linton

hold remain don't the half government be [indiscernible] which XXXX. think second returns good. because the matter diminishing objective very about just it's to what power, back it's be about on injectables, to the going returns two program, in believe consistent their edibles parts going think I I in not are this will to because criminal and be which is they're So, going to were no is I

confident efficacy, on of reasonably sure questions course as launch for to it they be do safety, I'm evidence So cetera. will have stay will that et due and then what you

nothing Our principally province or their I if very else, is Canada, to stable the going high. sell form you'll with so that authorities think every be beverages find are factor governors are they shelf comfort state and in to which you that and liquor come

have branding, Constellation to on focused mostly the a for and of or second worked coloration who is, scheduled of analytics that actual lot will on of have of researchers takes structural that. the too and beverage in and yes, with the let as where when, The masking on in what flavor site we any bioavailability because sort far preparing sometime have will a part facility onset, what's in need be where too which on stay job And agents. a has the working as the much isn't Monday, it what at which well left work think they and and and we spent bottom though US and most beverages division a we were complete wrong the flavorings on on products lot the hope clearing with good I have line been see has building. wants there's Constellation our construction fact I that appealing been Green of because markets we is surprises I duration May to Star, done our me was exist, share terms long to look of I was generally hit. it in we when a a And think money particularly

anyone So is in the we're same we production. up could Stuff lining model, governance the product process position I the I thought but are. don't all space, and else go think at wrong, or the think as

Operator

Your Capital. Graeme Eight Instructions] line the from next comes of Kreindler from [Operator question

Graeme Kreindler

three how markets characterize was those. I you how of recreational market, demand ahead stay of medical curve up on domestically in meeting wondering, can elaborate as all looks of it and company growing you strategy keeping in to internationally on and top in just of the with please the the sprint terms the on

Bruce Linton

extract the XXX,XXX almost, we're we X.X think So feet have or X.X feet nature. if about XXX,XXX approved that of still some for include of that of and say XXX,XXX, we're Tim, generally which or assets, capacity million me what million-ish are be correct do of another Brunswick production things and stage, are square and that. I running, at wrong, feet approved the And should ready talking think I'm square that we're Newfoundland New is buildings portions we about small square to at

was the was announced, so X, patient you're curve, to And in always our July when a we’ll our we on medical have, for commitment ops it that you. patients if have product

and GAP some they the you So shifting up which out harvested of could Spain, product they see production we begin supplementing Canada focusing increasingly how in medical, markets point been price we're as that what like actually we market the for to products meet for map that gels practices can production medical down is factor look or in our and does our do in then in for Denmark form the on what is what's Europe. have so GMP our in domestic

combination get we so like that looks through sort works of And revenues the quite it well target that to have.

to and Canada. X, we've X operator and So lot Denmark Spain the we the a places it does put new all what that like in as us quite greenhouses over in running need to learned work, practices first bore in from but it's years not

work, So it oil like to down going to steady. the it's quite factor, but form be seems it's feels shift to to going come

Operator

line Azer from next the Your Vivien of question from Cowen. comes

Vivien Azer

supply I reconciling appreciate your like commentary province I'm their continued Quebec that with doors e-commerce, week. closing first, when and that versus on So focusing build tight but X a on time strategy on is a days so a brick stores mortar hard the having they're inventory

square So help that. me

Bruce Linton

and So Quebec showing the who's you our we're and I position what fulfilling. product, increasing with up if think look at we're

increasingly So of I not. product absence and wouldn't to attribute us necessarily their

I and It's a put they We it's if perfect job our more they to that's time they think but going there well. doing caps more products shift, they'll have we're Quebec. do A the put more it not there, It's products sort first a we and to first. they actually why that and and think jobs represent province which and balanced of we start is Quebec our where the the our great Exhibit window, open So X of not scarcely chose was everything's have keep opening us word, in their quite month a doors happening yet. in that

Vivien Azer

Ontario, model got X you've Okay. as to an then And for reasonable. X pivoting only up, follow or That like months. e-commerce just a seems the next

doesn't So me given in why help how deserve strategy? large province particular, a that it think through is different

Bruce Linton

right. more. think others objective support of there's as will them more we Well, you have less but to there, as is -- more I more of more and product lot more you that because I going get XX find don't less to stores see we're going I that a think to and Alberta’s more, and and get our stores you're think further and open, the out, you that of

for was it's or small there to XX act. The subsequent bottleneck X initial arrive, store a was that truck a large were bottlenecks Ontario in be our balancing can constantly X and but order order or So get up quite to quite the days. doesn't for and going them from it maybe

worked are So being things all through. those

them. X to us more growth there there, view ever of talking ourselves months days. no sustain we X the is that about going gate. days actually going line see XX there out XX others be that we're to will opportunity will the then our what's we no reward our – there, It's will top over people limit out want first of the but product the is And first from buy be to will sell months, most with inform not and the and You

I bet site, So fix stuff, probably we on just keep search an fix if things been to shop is that have there we bet that to as you'd on XXX but it on and is you've much eye as like it like they more. them as that are I hard website website, as

Operator

Martin from Your next GMP of question comes from Landry the line Securities.

Martin Landry

for ups Two follow me.

I we when wondering improve the XX% margin, we gross what to Your things than it was on for. can lower think, came around much expect cost production were looking and side. was in I

gross greenhouse growing You're the you do it which point? what where some XX% percent at does your margin costs, at up some point XX%, getting bigger was you're be scale, should move lower at point, towards --

Tim Saunders

seeing to you're the of million there license lot quarter, a time, under-utilized went million X.X feet still during a I was we think during space that square capacity. that X.X what of from and

we feet we’re X.X guess license most in to once square So -- October. million recent after upgrade now up the

So greenhouse square utilization feet see producing, of those million see more that space space got are going higher at to production. of We’ve you’re to going Once you’re fully between utilization. and cost X.X [indiscernible]. approximately

getting now seeing those we're through so us. of these facilities will the in to is are behind those but transition, what So and a P&L, period produce be pushing right costs ready

Martin Landry

the you granted, can’t meant though had of and turned into was it think that factory. is good to when exciting much news. additional I And about licenses remember, all be a clone it What

Now the the primary back into everywhere, the also those facility, Smiths but are at one. we out clones get and you locations yield they’re propagating the purpose for Falls convert of the other

on. this going saw so quarter, that And you a in of quite past lot

Bruce Linton

on well, you your So -- hear should if see nice improvement we I should gross QX a margin line.

Tim Saunders

start provinces you XX I become for starting craziness how you'll to you you a are think starts now get them and and days go you that. how of sometimes that of of put really having end really might model finding sort but the improving run as on the quarter don't we we product, optimize and get prohibition Canada, find at down that necessarily initial products a the we look or We walking first you're the on even. actually the at that It satisfy can more reasonable business overtime of through sure predictable, to we’re is start we versus make try screaming, sometimes me racking a you running and -- cost, Yeah. then lot to plane, point have which means

Martin Landry

a understand And high getting. my is brand logo, traction brand or last question your in help do you little any wondering, is, us you with bit you point campaign, of that share would terms could data a had your a clicks have awareness much campaign marketing how national

Bruce Linton

had we meaning, Tweed not Yeah. I properly. down of my And right effective that community, a billboards take did about it House actually don't we compliance systems because in things of ran and until further. engagement them to that say have mind put we but down fingertips, because talking to pop-ups, up XX, major in really we then and that markets, candidates from the receive we're the night at front were letter and not we took around them

are if and to staying my back of in click where over, for compliance it's you'll the you make where which social and perhaps quite see those it's I'll I sure data. event I stage but a in bar steel up, posters engagement, the Now see will where Tweed good we're so and a bathroom is people actually media go frames don't do. particularly in little you social and a posting exact XX on have next we're seeing call traffic through and

Operator

turn And Bruce that the Mr. Q&A like to Linton concludes call remarks. back portion call. closing of the to I’d for today's over some

Bruce Linton

think CNBC in off and and CNN to I get it on York. locations New other covered and explaining I now everything to we've will

for time So thank your you everybody.

Operator

concludes conference call. provided today. for today's following conference This XXXX Growth and release Goodbye. in the issued the can the day. quarter A company's XXXX XX, Canopy February call instructions first earlier be rest will press call attending accessed financial be your of Thank and available enjoy you fiscal of results replay until this

Canopy Growth (CGC) 14 Nov 182019 Q2 Earnings call transcript