CGC - Earnings call transcript Q4 2019 | Canopy Growth Corporation

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Operator

Good morning, and welcome to Canopy Growth Fourth Quarter and Fiscal Year 2019 Financial Results Conference Call. On June 20, 2019, after the close of the financial markets, Canopy Growth issued a news release announcing its financial results for the fourth quarter and fiscal year ended March 31, 2019. This news release is available on Canopy Growth's website and on SEDAR.

On this call this morning, we have Bruce Linton, Canopy Growth's Founder, Chairman and co-Chief Executive Officer; and Mike Lee, Canopy Growth's Executive Vice President and Chief Financial Officer. [Operator Instructions]. today's questions or could in be that discussed to given constitute matters conference answers call may Certain forward-looking statements. differ could results materially anticipated. those Actual from Risk made available the SEDAR. detailed and factors results on public annual other are information form that in that filings affect could company's are

management's adjusted standardized defined conference this meeting IFRS. as discussion Please EBITDA unless is analysis that provided well measure, prescribed will as the Growth measure filed press yesterday does to supplemental all is will by During period's These be this refer issued that and not in information in otherwise specified. dollars release Canopy document non-GAAP call, EBITDA. on have note any in Adjusted SEDAR. Canadian financial

Lee, session, analysts. a the company remarks prepared Following will during taken from questions Mr. question-and-answer will [Operator be Instructions]. by Mr. and which conduct Linton

turn to now meeting would Linton. I ahead. our to go Linton, Mr. like please over Bruce

Bruce Linton

and to you, your Thank Mike, call. first welcome, Great.

the delivering were saw was platform lot And the So is We investing the $XXX million. million, quite XX-month fiscal were year a net growth. fiscal to revenues compared of $XXX globally, busy platforms revenue year-over-year in XXX% with a of year. million capital. in the basis XX,XXX effect year. We and from X rec a medical, on prior units in the rec gross compared expanding we kilograms to in multiple last year, Canada X market the to fiscal About market year prior kilograms X,XXX shipped million over about

based what intellectual containment Well, it's future science or we is heavily to were was and the very our XX either and brands we're active business acquired on going about? creating of sit So view patents that today, of invested. on but a that unique outcomes, the we really that level, be novel property, have with issued IP it

ongoing are XX marijuana or to get weeks shift from growing going of there going. We So globally near two you're that a And to is announced ready day-on-day. trials discussion is approximately what either a ago, a portfolio therapies. see term cannabinoid to medical

of Our of a acquisition is CX major about expands It's theme. our positioning that. Spectrum that,

And we patients, it's the number look a expect medical medical. known part ramp a we but we portfolio, step bit in had be total medical patients not to of we if migrate year-on-year, DNA the prepared our as Snoop, at while as you in from the and LBS, that's just expect the up. it readjusted to taken also and products to could anticipated. we Leafs and growth expect platform gone was such products back, something see so XX,XXX are book that sales, to when year-on-year well platform. We've you of didn't By that in We've is recreational which This

products testing U.S. to set. they pattern follow for in-channel state, announced and hemp, RFPs absolute that there full no so and developing QX states works production well a announced buildings, that sites, have are New to certainly is very multiple our begin we we're working farmers, out plan, in ramp-up that on refitting take mode. construction could we a Contracts for product and We creating getting and process York similar aiming that's into a brands, ramp certainty.

activity recreational be ways, DOJ with whether decision -- what decisions to support. in shareholder should and the host medical. had pursue looks it to notion going Yesterday making to you that using permissible, not the where certain act representative on the supports or U.S. like states with that a cross-party we have it's Yesterday, Acreage. funds before go basis made great in of day certainly votes mutual is system our yesterday, be the some saw

to XX our states. And license states we into those be scale. benefit so to brands in our on we've continue them dominant the to and should we soon and the and that now from we'll is to what their ability that continue our very accelerate Acreage IP, ability and/or believe believe And alignment excellent that Acreage products Canopy learned has between

So But build scale? licensed what partner there look which we little best scale And there, thought would we fiscal been and do use square that is a our XXX,XXX a bigger and and gross opportunity, what had did. understood on margin company, to was acquire nice tidy and stayed greater need supporting margin, probably we If we we a Canopy we you feet have capital the important And learn XX%. at a what QX about of 'XX, global facility. could have are, is in for, delivered when to you we do a CAD they profitable. billion opinion, quite and X you bring position is than

exit I as end you seen, like think, not and quarter. where in we license But the with about square a you or feet in margin lot we by of from you've on bottom are about that trough, or do stream day up it's to period, stream quarter million moving show this a the And carry because back they benefit. up exercise well it's but X.X burden so year, that to up in doesn't that we'd out or the build a not point if that assets on does square And a is margin benefit over coming we're time XX% a this were and model Canada the the in which five of feet XXX,XXX better. our is week, quarter are to

and is chocolates move regulate on because which a platform year happen you in vapes. is this will events there chain, the that good how into that value carry things higher-margin of of finished will future, up like products the or December the get sale And they

produce platform medical marijuana as chocolates and for where or yet actual far producing can't vapes we has vapes, are licensed approved areas. been could those right recreational but schemes products. Our and in producing cannabis marijuana the producing the in platform licensing We Canada facilities be chocolates now as

that permissible to for we're produce. So approvals. to not regulations we're chasing We're say waiting

of We've talk about had lot beverages. a

Our And milligrams beverage to submit a unique, submitted about late that in where to September, to will line highly or scheduled Canada qualification consumables we start XX. measured tanks things products the and I be to a of early will be July; July; would to August a bit finish finish detail so are we prepared give differentiable, go, more June equipment that the will that arriving on necessary will skids mid-September follow there but like be and see construction. in platform, to and to be That beverage at equipment early that August; photos you could spend piping mid the looking processing we're XX believe, in X is brandable. Health

us yield are investor We products the the rewarded to. put as and do to we our will on we think because we're in and margins create to leading that been company that this differentiated of we are focus the scale. sort where get that as do be how going the these position of to to them off globally get an got And you has line to really we've a to front, how

is but product expect we year, focus can breakout in on and R&D you going the set, be just you get Canada, a the margin set, end which core we country and time we of spend. by to to show Finally, don't we this a to a want a of

channel. manufacturer, We our a So, very spend. approved you X business $XX-plus global. It's in skincare significant to will going million in go Europe's Works enter understand to of of and sleep solutions. pharmaceutical and a a XX-plus CBD-based that is well-established to be that is piece. is a This therapies align part Europe, sales could strengthen is in they our Global Acquired global XXXX, acquired this that which now markets and cannabinoid-based bring cannabinoid a leader starting with offerings largest natural had key ability CX country

the So we've taken. are these actions of sorts that

hand the is to take time like to this questions. can Mike framework to him and walk we move it would I in. over a Mike? going operating through But model, because to we're the to I'm

Mike Lee

Bruce. you, morning, Thank Good everybody.

joined cut Finance, J. Winery, Executive in time my year partnering the is of allow I in is spent Canopy alcohol E. Saunders. a Gallo That XX years background capacity My of to a my having teams Growth working where XX & this largely business. was myself. most spending beverage really with Corporation President Tim notably as commercial leader. industry, as introduce teeth First with over finance I of in me across commercial the space, for with Vice working that my in February tenure, this finance various

time CFO was on management, to After work again Gallo, operations for later, throughout. where business, beverage business CFO the joined Wine and Division quickly I their Constellation to my of years on I spending with architecture in Brands closely finance, Division pricing most I most & was where I of of went spent PepsiCo, my revenue time. and partnering Spirits few A promoted

XXXX made for to from in opportunity future. we and first acting to I became investment I'm CFO, receive very offered Health in larger made a enamored Canopy, months I investment my in would the which security was working few Canada, Flash near with I leading now clearance say, join back team. Canopy the awaiting XXXX, as Constellation the company when As pathway second expect when forward my to the Canopy. this was in their And

everything will transition. is I'm to thank to my to I appreciate class Saunders I done I he Tim Tim for my really day move his Canopy to committed serve continue several capacity. has that review a a thrilled the he in of months. has support smooth been act, new 'XX ensure results, from Growth would the and met, we and to a formally Before success Tim last that fiscal like during

revenue the year position channel to fiscal the has for years We Growth. on for preparing sold over an million, This Now in increase fiscal results. fiscal working. over Canada and historic is We since equivalents evidence our 'XX. representing XX,XXX leadership in last launch of We this kilograms our strategy Canopy fiscal a our in October up recreational of been XXX% day spent that kilogram historic of $XXX.X generated 'XX XXX% 'XX, net is 'XX.

million territories. totaled the versus $XXX.X in up $XX.X million including Canadian rec fiscal million to last medical product $XXX.X sales fiscal wholesale X% in revenue the channel year. and 'XX, 'XX, in in generated the provinces Gross Gross

medical Further a up sales grew decrease modest experienced expanding on medical, year. in to fiscal the during X% year ago. a international of XXX% Medical million, $XX business Canada our versus

in decline to medical Our along in in with since fiscal partners online period medical largely channel. to supply and specific CraftGrow brands, store have the saw a certain transition, of rec challenges Genetics, year transitioning been LBS with the established second which half Tweed, led 'XX. product major This a transformation remedied, during of the the channel in Canada DNA product categories,

We our other also $XX Bickel. device of company, from had medical clinics, revenue merchandise & our which revenue includes million, Storz and

the more beyond amount off. license year. has cultivation 'XX, is kilograms harvested post-harvest our double more nearly of what processing which and We're across harvest expecting harvested in a is capacity of from QX been quarter, on In of QX quadrupled But and in as we further facilities. harvested line, the we than build top track double more top paying our see importantly, investment we operate fiscal we to optimize to to referring cannabis, 'XX, capacity are and what harvested our each increases priority fiscal and investments XX,XXX achieve QX. Moving kilograms, last XX,XXX and we to shift than current

to fiscal $XXX flows our processes Canada, in are In our capacity that initial cash 'XX, 'XX, speak during Number And our further three next extraction are Canada and wave there we're to although invested for themes million product and completion, invest of one, nearing moment infrastructure in and is fiscal this a beyond. year. advanced the priorities. the in investments prepare assets. calendar continuing to wave manufacturing of for in capabilities fixed U.S. we various we building later platforms Turning automate to

our year as continue North and accelerate to fiscal our build to out the invest CBD and investment is U.S. we increase internationally, platform into in the expected We this America. upcoming beyond

Number two, organizational we're building scale.

build-out finance, to We organizational investments in engineering of team, scalable the complete our expand will corporate technology. in global capabilities, foreseeable the see and organization our including our invest for future operations, and footprint Canadian continue information as we

Spectrum of to invest safety activities will cannabis science of development undertaken including new products, medical we by clinical continue addition, prove new cannabis-based in the research In to the therapies. being Therapeutics and

which in As operating stock-based we employees a expenses $XXX investing organizational result milestones. year, million and million and related of of ahead development in for expenses acquisition building future the scale is the of to $XXX during of incurred products compensation both revenue, noncash

in we will $X in continues Canopy Constellation well will in Colombian and years million The M&A to and fuel could future. billion and exit make Health plans Bickel that be including brands Storz additional the investment to in Growth acquisitions priority. fiscal a BC that outstanding Tweed, $XXX as coming to We has in serve ebbu, expected balance Brands invested fiscal with year the Canopy continues chest & of critical Number strongest expansion enabled war as shares AgriNextUSA, acquisitions it 'XX, our the sheet be HIKU the a Cannabis, industry. of acquisitions the three, as the from Innovations and

adjusted as as from costs. non-GAAP other for report help believing assess our compensation fair will performance and inventory a and assets We depreciation income before taxes measurements. before investments, our EBITDA, Let's Adjusted value briefly adjusted items, financial EBITDA accounting useful business stock-based tax, noncash impact metric acquisition noncash review well for and as of acquisitions, such the operations measure as earnings of that operating investors is it's 'XX. fiscal for interest, supplemental EBITDA as defined reported biological adjusted the

amounted to to increased The in earlier to fiscal to million of loss 'XX. are tied in my a loss about build revenue directly $XX compared EBITDA of as $XXX million investing Adjusted 'XX commentary of scale. ahead fiscal losses a

XX teams and retail To stores the million analyze brand first further our Canada, hiring tasking the million in business investments for marketing to and $XX we're increased marketing systems sales to country, time in company-owned across and study investing across $XXX sales illustrate, consumers. building and building as the from processes and

and investments million $XX $XXX back our increased built resources from to our office legal. technology, we've human finance, In our as including million functions, global out G&A, team,

operations. recorded fiscal fair of Moving are Canopy June March due XXXX these notes, issuance has from fair value XX expenses, 'XX in related which million other in of statement in through in Growth the expenses $XXX expense notes included XXXX. of beyond consolidated And changes noncash the of been of operating changes convertible a senior the value the to senior increase price to stock our through convertible

such $XXX million loss net on a to for which stock-based as well loss as 'XX. noncash compensation, basis, includes compared adjustments net fair fiscal Our reported as as asset all was biological accounting value many million other $XX in a items, of

gross generated year. of moment time, to review kilograms, I average financial 'XX at fourth the channel select accounted in of quarter revenue per would of of fourth revenue from fiscal of $X.XX 'XX, a gram $X.XX per up gram in with wholesale million. decreased in 'XX. fiscal of last up opened of level. metrics same fiscal like from gram toward more quarter sold for the the XX% from was to At quarter as quarter fourth XX% recreational fiscal tier operational the softgel take Total and a the price fourth per net 'XX. model business quarter fourth shifted capsules $XX cannabis and quantity Canopy the up for XXX% the to Oil business-to-business X,XXX provincial Growth during the the

in million, and the recreational revenue the inventory million. included in quarter finished fourth fiscal fourth inventories million. QX down in expect to current have the up We fiscal for accounted totaled quarter harvest levels, constraints result by a of in of fourth the $X.X in prior $XX supply fourth is period, sales believe was Medical quarter. 'XX QX international revenues large and finished we of the constraints. the to was the further year. this primarily fiscal quarter million million, Gross medical the $XX and resolved been limited in and medical increase decrease generated supply as revenue in $X.X product $XX due million sales Other product sales medical sales of from $XX higher in prior Canadian 'XX in 'XX Gross year the quarter $X.X million from

Turning my margin. attention gross to

fully cultivation and the houses subsidiaries later with of of costs associated including of As developing Mirabel as of the Aldergrove and available costs specific as testing operating will be markets beverage for products, not impact cost a cannabis calendar laboratory well edible utilized, which reminder, in green XXXX. includes sales and zones

of percentage the was or Gross $X.X margin revenue. before in fourth IFRS was margin the or 'XX fourth 'XX fair million $XX net fiscal of fiscal of quarter quarter margin lower value for impacts of the that the capacity. facilities revenue. underutilized Comparatively, gross million XX% in facilities or net The 'XX million not primarily fourth $XX of quarter XX% expenses had to was yet of attributed operating gross in cultivating fiscal

the costs B.C. weather event we incurred in related quarter, in to including addition, fourth costs, some In nonrecurring unusual

costs was increasing gross assets Excluding and fair other next XX% the associated sale. cost expenses, cost impacts $XX facilities, of operating several to these seed before utilization of value or margin in normalize the sales work months to the we nonrecurring these with and underutilized expect With sales. and our we in charges as inventory million through

However, capabilities. and we We but in of value-added bottling of to serve related our to our the above as revenue by XX% reported gross will year headwind, be we end with the will and new advanced increased continue efficiencies will less future products and production the costs the as believe for are reminder, as manufacturing of start-up increase a full utilization margins fiscal material path slight higher approach further as a on sales new a increases. become plant to

fiscal made and areas 'XX. through administration well loss reflective a largely research QX sales as fourth of and the expenses amounted million a The in in 'XX $XX development. to as investments the of general and of increase compared marketing fiscal to of of recap, EBITDA loss to and is the $XX adjusted in as Finally, quarter loss the million

statement quarter the The Total fair year our a our $XX stock March increase expense Canopy XXXX which convertible in in increased quarter. on million the the noncash been $XXX through compared 'XX senior other expense through fair changes million consolidated of December was notes, XXXX. XX, prior to due fiscal from partially value related in $XXX to changes recorded of Growth to fourth million to value expense due These XX, as of have are is operations.

of well loss 'XX net $XX a net as biological Our impacts in accounting $XXX other fiscal fiscal QX value of compared fair million was noncash inclusive to as 'XX asset loss in of million items QX. as

year subject The Acreage quarter into investor first has wanted to exercise as shareholder Moving a beyond Number items. investor to two which both new warrants, fiscal one, the circular addressed related recorded are in the which the 'XX rights deal, Constellation we fair agreed and of to the price their warrants highlight in I QX. agreement well value to of to with fiscal Brands. modification as date related of to rights modifications our 'XX, of as be two previously will adjustments, expiration their agreement the

expect which related adjustments, QX As a contribute will to in charge loss the these we noncash material a in period. record result, to material to net a

will in the and QX testing associated processing, the harvest and which will quarter-on-quarter, increase of post-harvest sold laboratory process. two, in continues quality due QX But assurance quarters. substantial, of be largely our release value-add timing manufacturing view growth our on timing Number harvest, revenue product coming the QX to to and although our support

to would extension a today, moment I speak about take by Canopy. I like myself, to remarks For for have and established the team my priorities my remaining

our ourselves we excellence. our been, mission growth to to course and and success about out to successful our performance operational passionate we a a as we've as global to on as statement continue executing company challenge that need fuel are next to the We commitment And over build improvement enable will a platform truly years. with driving as several chart

have to last fall, strategy. we support just take a share believe so our we're unusual rolled discussing tomorrow today on just for back me Having ensure important our world-class business to we my new So a global ERP this to be to it's review priorities capabilities. one, but Number not system solution but for seem out let ERP building that end-to-end step it that these and scalable, our going early, Top may X for beyond. we

financial two, that We our world and we're fully of to implement seamlessly. reporting To all will to and plan compliance a global set improved must leader, provide our strengthen Number capabilities obligations. while a to manage integrated design controls. to operate meeting the be risk, we stock's allow going us business, controls around

financial business As so our our evolves, will reporting. too

are already reporting financial processes. our reengineering We

planning U.S. future. foreign to to stages We what longer for we reporting our in qualify lead an investors. no to reporting are we in communicate which early could eventual also changes GAAP a issuer evaluating the is as the anticipating of private that in conversion how will performance a methodology We're

integration. our three, and many reach to technology capabilities playbook going industry, M&A is integrate, markets. fuel Number improve we're to will more acquisition to have our turnkey improve ability reduce acquire or business vertical acquire and our companies Essential to and will a which our In our costs nascent growth our effectively. our of accelerate synergies, into deal our these from growth perspective. Having ability immature relatively companies and global target plan that enhance a

reporting our with allows plan we us business the U.S. continue to this advanced toward this for shareholders I the future that our a to into progress updates the insights and a will repeatable on growth, and allow beyond, that create it scalable and expansion develop supports seize to basis platform and capabilities community. market empowers to summary, In provide as opportunities financial us tools our provides fuels agenda. and calls employees

year and quarter our fiscal XXXX. ended XX, This for concludes the the of March review fourth financials

now back remarks. call closing for the turn to to I some Bruce would like

Bruce Linton

Mike. Thank you, Excellent summary.

company them. and end indications world QX, we midway are So look the optimistically. near at best feel to we where we're to the We're seeing the continue through of pursue now many change so countries, positioned quite of we in

look have queue we them to responding. questions, in, you if and forward please, So

Operator

Instructions]. [Operator

Carey question first of comes with Chris from America. Bank Your

Christopher Carey

picture I near-term question, with bigger to a I a start just have then So, follow-up dynamics. wanted on

anywhere I guess, big back you step of lot given quarter, sheet, picture, clearly continues right? on especially think competitive establish I invest balance that near to and continue as you taking Canopy results a But globally to to enter So advantages, a this these the I same course, the long-term makes your guess don't just, on keep to new capability peers sense, and really given have will, of need investing. scale markets, the

think helpful the in tension maybe context, financial So how do get the that model And think to it would into I natural your discipline? years? need to be to of investing next your have perspective term X the on long over that versus impacts between near-term this you the X strategy some

Bruce Linton

Yes.

So good question. it's a

that use the business, in up to part parties' reporting of is a put as see is -- is federal does it is into a that. final really other be advanced one show signal because really on will because who invested in geographies, to of we that some but capabilities give what we'd like with some more medical models take Mike we've out be call we something we and actually become to form looks interest a permission few as interested there the have into in the medical, of think, manufacturing lot back plus that and we to value go of us instrument, another where segmented prior how partner be it costs, we billion able release to reporting chain, his exhibit be on, we on it be can a as get a allow I So the nature. the a capital rec, IP, of out How our for instrument, gel you'll do an to it's outcomes which need get versus we And under total we on on years caps which reason doing should is A, it foreign scenario, scheduled up some running of it type $X could move rotate to cash Colombia quite asset, producing put of of Canada. able that research. the Maybe earlier how if geography turn so which, approaching back you in right And mentioned, on the cannabis got aren't going programs, directly related the to a about into week press this our other then income, that quite instrument Canada, expenses in. turned some also form differentiated instantly, market that take our will license together put in have the that part I to which and capital stranded. rotate is think back in quite rotation actually don't able we're the

Christopher Carey

Okay. And then just on the follow-up.

QX of Canada is new XXXX. $X the revenues get of billion revenue rate fiscal that of from much dependent How launch by forms to in you need Canada? So your And hit outside product number? much annualized ability you to how will your this run of that help to kind maybe on

Bruce Linton

Yes.

the the date, market, that approvals then and have our one, growth we the launch the number certainly So is opportunity. out over haven't built uncertainty a feel three at America. We're of, see by we It's principally was, top now our domestic-driven by ongoing and risk biggest plans, which we quarters. risk was know products drives we -- achievable. is principally figure that is Canada a a put material growth biggest so doesn't say, It assessment revenue market Constellation, a looking out we And the is sum as continuous that hemp-derived coming in in in line next regulator. that what the

as the with Canada is products, there long technology a so in we we those the support the from have created. little So, and Health substantial together, a produce things business approve with think platform other necessary continues think platform Canada bit we to But geographies. the to

Operator

Next comes question from Vivien with Cowen. Azer

Vivien Azer

Mike, question margin. the detail you, gross first really please. appreciate the my I So, to on

cultivated on lower you revenue shift me in improvement. of the should and around course kind sounds It you XQ XQ reset what Can over any be the XX%. out for commentary year? of the the on margin to color cadence north materially incremental gross push target in offer first that to of Given that our that get kind we XQ into of of the as kind and expectation the the of quarter based

on comment that be that, you would great. If

Mike Lee

question, the Yes. Thanks for Vivien. Yes.

So, tail And we takes retrofitting and BC back. those our Tweed activity way of the kind Mirabel the time it claw big been are end grow has at time, your given of facilities. anchor well going a on there renovation, lot as to of on facilities, of as the

as So bottling going will much are equal, production, we some up, the that now. the grow to a all talking than we to think modest quarters headwind margins revenue, we bit There would than smaller in hit a will I the being as a into we've QX that start on ahead ahead be get impact stood with time it's things experienced capabilities that been some two houses, but be albeit see grow but of houses. for fixed that headwind, about more costs to there those what will you of of be relatively last normalized we've we've QX, the the expect seen

get we'll XXs that view, that where to start we So the get we time. benefits new platforms, for some by we as see XX% the QX. to talked of that we've that's very in high about optimistic my remain the runway quite the And to

Vivien Azer

view internationally. follow-up scale of in really and Bruce you to increase then that domestically those anything you and that. EBITDA priorities getting I've peers And gotten once on years positive that EBITDA the that of loss on this the hitting X.X Mike, you've influences a made trying you, about one the magnitude and revenues both some the a capital adult-use only were there like helpful. for really P&L, comment incremental the how impacting seeing investment Can now that you that, appreciate was are dwarfed That's your to Perfect. your with Bruce, your the had story your are guys to from you pretty time we're getting but not covering to to I when materially and EBITDA? Brands, guys been stock. talking the the But up from positive in has changed adjustments Obviously, EBITDA, has the Constellation fully EBITDA is you've

would the to kind So be EBITDA glide of any profitability path help great? on

Bruce Linton

to you're as Canada. to dwarf chest into does peers it scale. But comes turn this all over to is we time I'll And right, think our it global back competitive we're advantage going building bring that Yes. back and it talk about we the which a war

believe out stand-alone coming to Our we performance production a the can model that take 'XX, to to focus in 'XX, confident new the get as a from the performance. start Canada and business. show you'll And we're with on platforms perspective, positive with that as EBITDA we up regulations capabilities for see stood term FY that world. we with performs fiscal demonstrate in announcements, a stand-alone that the positive we're the And as near the around Canada we is EBITDA path a into

Operator

Peter from Markets. Next BMO Sklar question Capital comes with

Peter Sklar

was sell-through? catch of your the what little when will commentary. you a kilograms. in a quiet that there talk bit -- a XX,XXX threw you and Mike, that pace Can that you about harvest out represents I number there didn't just number

Mike Lee

In Sure. around kilograms out the of is back kilograms. all QX, Recall, driven and QX, our houses. QX XX,XXX QX, go for if of at harvested you I forecast think, by S,o kilograms. our the XX,XXX grow had and harvest, couple in harvest, X,XXX this about we current really quarters of kilograms. look we fit last is XX,XXX of

sense those retrofitting. that facilities You putting through sort of as the depth the were we get incurred of a

even a you to costs gross as in capacity. I that establishing relatively you fixed runway bottom are optimize kilograms optimize going higher these harvest XX,XXX the our facilities going that say, further, beginning on questions to running increases, optimization. to be to lever everything some We've further of with got and And really operations new from us my in driving of that's would remarks and would for getting guys costs also throughput of marginal throughput getting our going have are focusing up normal is, labor. of critical margin And and teams value these fixed, that earlier committed hourly might But what facilities and back be back EBITDA, say I transitioning consider the lot some front progressing So, line. I on fixed facilities additional nature. that the of as facilities. question, Because would highly to number cost these around your and is a Vivien's to know, to are

is the going really of So power come leverage to that that's through. where

Bruce Linton

come the of of serving the like the look is And, at the Peter, way typically sales prior the in the quarter next in from modeling harvest X/X I quarter. it,

can harvest next into So see this product big mix the opening number, work you number got up, you that right quarter that factor key and quarter. -- stores the from the a when is to start if we are for it

Peter Sklar

Okay.

harvest, QX, So you this achieved QX really the is in level about that's -- are now that altogether just this putting it's it higher why margin and optimistic correct? you've of improvement that

Bruce Linton

of utilization It's platform. the Yes.

once-in-a-lifetime of the platform chocolates. ever great are the anybody creation And So it is, And time. fills, When for This is yield become off as our window. in to on years sell create these we've sell measure as ingredients to with in to less. you to you last the That going into factors turns lot combined with is product building the a what five to everything get a form think it outcome. value adjacent that life calls we and like building. mix, phone sophisticated, less more you more utilization in get cannabis you the don't the put like see of your into milligrams, a beverages I why the vapes more opportunity observed we formats

that it in and Canada. so it this with And model we're tunning developed globally how deploying we've

I think, we we properly we advantage have us are are. of very which spend we well multiple years have allow the positioned and now if capitalization to

driving. of we're kind And so a that's path

Peter Sklar

I flow QX but declined revenues, rather in just been Ontario kilograms, their QX Okay. is have in look haven't kilograms the sales, like building -- just not production Alberta and recreational the the didn't there out you isn't demand And base? like that store if because my retail question you your believe, other that is, or just because versus QX. is And retail

Bruce Linton

that talking that is -- That's product but -- it's questions down, to whole had one we supplying quarters through this about it's half been those -- had or so quarters the why of percent the static. we of the quarter mix bit product of question product their first really a that QX and that second the a pause couple opinion about Ontario that additional and and get seeing both prior for But quite is available opening of kind we're we three Because had. keep about launch quarter, Alberta ready lot or discussion is when sooner. Alberta. rumor obviously licensing What for of April, obviously going is Ontario do in will bit a got platform some to matters made in matters. and QX in There stores up needed the stores we're more of more a two

get interesting we going that, growing, channel and pretty to is QX, and QX. it's a upbeat to have is to big So are time products that we channel the more by channel more the going and

blend. a little a bit So of

Operator

Capital. Next question with Oliver Rowe comes from Scotia

Oliver Rowe

know cannabis growth is nature. and relaxing it So that regulatory inflection yet. resort But these for only pretty as your to serious that, hit quarter a sales see were point the Many and bit seems we markets countries very International bit that by low, in change. haven't business I prescribe indications and apparent lumpy last this a a for

seat, your see sort of quickly we from the what your how in see just that I'm segment? and you next of couple wondering change to in years could expect So happening international

Bruce Linton

Yes.

are So young that access is and very at that it's for U.K. typically then making patients ill children it a is extremely gain still costly. the challenging bit to textured they and extremely stage where

And for so effectively in work won't media are up. so they fighting sick to starts with the it's what time, that children and long obviously is doing open a

will export, across was of reviewing, has which you you registered the frankly most to say we're We and in we not opportunity, If now we actually this be to think that the that move to needs Germany to the get product, a just because I'm the And you function that fined have where to demand should because it as do the grow there. Germany. is been going product a the position send didn't having period It available. and we're and in can't sufficient.

from will say, We Czech which Republic. production be the or Denmark Denmark also have facility export like potential a places online, coming means the into, Germany

expect caps really or of yet, Canadian been transiting we're be the keep quarter to markets oils approved exportable up right really so. aggressive It as mix an product that to have the cannabis a next ability and like further done has with growing. get working bit now has things will our there. over our products. gel more to to been but and textured, I not it and Not project so become see to But And just seem the

product. think, the might improve I So available the mix not just you products of see

Oliver Rowe

just get than availability have market. I Xx are better to for you that have the about the just I certain markets sense. export know make there follow-up. That products a I export. you know you price mentioned offering recreational

to products those you focusing why just So channel realize that on not are through getting prices?

Bruce Linton

It over vault act. we're that were that window been a juggling bit improved would was and On probably pretty target of we items of thing amount. would It the put way was a supportive Germany, of and bit and It to there Yes. you have recently eight it's ability right optimize we more much constrained interesting an little what we everything we that described. in has before the think XX-ton like small can the a platforms we because say would there. has don't where I that regulators some to a we receiving approving sort balls, extent now. receive I a didn't sell-through cash, juggling and more our we're for utilize capacity grow side I probably get of Canada a where things but to say from can to have

We have a limited capacity vault.

or product more the think available choke be than be So choke point, but mix product. that it would I point we're always will the adjusting

Operator

Next Eight question Graeme from with comes Capital. Kreindler

Graeme Kreindler

to to to XX% the fourth wanted margin the you target that. back optimistic reaching quickly expecting just go are I by quarter gross

flower You more that some The significant side downward of calls. especially expectation pricing be producers. online, with the on competitors capacity on could recent market pressure mentioned some smaller had from the there coming

into target on wondering considering near just term? probably remain there or was flower the if I So to any medium the takes of market consideration, side significant part that headwinds a

Bruce Linton

Yes. It does.

comes we've factory an say quickly producing Our getting rely kind it our different might difference actually expectation between form by would bug growing there experience. plant and that also how area onstream, a how I technologies is vape level be the big of or a versus and that I some bottling quality much or very chocolate that's factor informed think, things a created into API on of extract licensed. --

the measuring is there So margin for described be in it's I product measuring milligram on maybe I things don't grams, a opportunity if start think you've some very you're increase. to think grams. and when things milligrams, you going solid are on medical pressure direct I time formatted have in going think, the to period But actually

Graeme Kreindler

to of pretty from questions and last set The process on release lengthy a press approval. up the of follow around higher-margin a to follow-up mentioned get the subject And export export. the Okay. products

Or to help they So from processes? are those I producers faster? a or wondering was in the streamline started order just you taking other that go if to of regulator bit has any input

Bruce Linton

Canada make have the the export. receiving product full necessary. where an to objective Canada sure in what's every is to regulator's And and country have provinces that think then issues to patient exports I go has and requests access the

have which put through. or can we you I same. But see kilograms, rates THC, the the think doing it the CBD. several maybe ingredient production, does We'll become overhead years the both but doesn't you're to think matter going becoming process. where as something our kilograms are don't Really next I scale where we XX quantities, the including never It it's it's with isn't do automatic. if window, in -- XXX a smoother, complicated what now you get short-term essentially be it's start we can it if

put ways to approval. finding And think through we're just I each a so little bigger volume

Operator

Miehm next question with RBC comes from Capital Markets. Doug Your

Douglas Miehm

Couple of questions.

you year. in relative that set to the last in regard? How Just products terms of that what we rollout with are this the the capabilities would value-add respect the later provinces saw year to and see up

Bruce Linton

And much trying in this word talk year still start time, better, last Like about right. a to were question. Good the date. what's at we

fridge Now plug. their to we're talking about have whether or wired buildings not they

So private to go that quite New look have for sector they've in capital more When example, quickly. those across provinces you ones I think Brunswick, ability to put so react the storage you contemplated when fridges. actually the the stores and the are They capacity. chilled have they

but say will others it's if up making products had could and fact I think we'll be based of which the is products on the that that they I their be the even, range they a wouldn't full on half So the probably in. would buildings provinces catching be a to more all there quite lot rate-of-return which in with able launch quickly

are And And talking uniform to a I where better so that but the be way think not were. are store. products critical we about than they in

if have on was in beverage Nova there But floor say, many store at high. you sales, If Scotia times e-commerce a which it's a we rate for not and the down liquor sort last it look super I of months. the liquor, mentioned I few

back and where sell store cannabis. of then store walk door the the sort a in the liquor You semi-separate front in the areas essentially of at of they the

pay a pick wine back, bottle through for spot. cannabis you can and to cash If same at both and the the of at up walk pick the you

And of in going going substitution be some show that be half or able more I are those But quite to to think, accelerated overall, effect are we're quick platforms to quite to optimistic launch. so sales.

Douglas Miehm

before? that for what in the are just saw products different your testing you implications different And we then you is what it had question to any the last And do other as we've to the believe Okay. versus briefly year? mind cetera seen relates the I there value-add I with edibles Are respect hurdles mentioned. think, et and which, process, process versus

Bruce Linton

Yes.

to but testing -- And see narrowing that's are the So I when we in what of waiting going of XX% be tested I a what in. what it's of still great frankly CBD this, process will be, they're XX% we respect. them to at think criteria were were part you products range that where in about than U.S., think, and it's in observed looking final we've more -- the

can platform. whether both are stretch deliver, carefully actually dosage going product very, a as doesn't down be you're confirm the with yet that step. food-type nail think to very It to a final doesn't I to the feel and product it's it's looking the like regulators but quality food-testing mixing the that certainly So going it or of be cannabis you

Operator

Next comes Piper Lavery question Jaffray. from Michael with

Michael Lavery

of your I the some coming just timing newer and wanted a platforms understand there. in couple to touch on of

light. the getting quarter there all date of regulatory calendar of First How just wave sort of should door? mid-December the around U.S. you we second hemp fill of be how that about products why products the coming for is And how fourth [indiscernible] the sooner? should timing. terms in even the not green something for think that there by a it's in in second give some and initiatives end sense of the CBD pipeline is 'XX. may Can you issues the product looks if much us then Canada. fiscal of we how out builds on there expect really But and in Obviously

Bruce Linton

Yes.

keep we're York doing. a in of is So in little advantage the close going going to bit We're for there property a is I'm the go But we've in. what think a to that that competitive take the we and stuff Kirkwood, example, there and certain vest amount New to assembled facility.

the We RFPs. have issued

We to can we implement are how and implement. that focusing trades already on and actually platform the local we that engineers so contractors know

to variety have out. want so don't as site We've wellness form think we our our We've defined and states for a together in for of are become across found that finding principally. U.S. want then CBD. processing have will run manufacturers a brand several we in launch contract all who the skis health we So factors the us contracted production. to of lines, hemp where launch putting And

to want anybody and don't We fear have a controlled. in of what's the have want that we it's product certainty

the the with that to when become field When USDA, a it's product did in spray? negatively doesn't do downstream state. test sure harvested we the even How that what's from the they it? So are things contain make going meetings permissible viewed

platform doing what C-store a but not with leave we're operators scale an any to so is that embarrassment, is And reliable big sellable box ongoing rather or going assembling an SKU.

deliver Typically takes it so push than bit our little a at and And promise time earlier of fail. schedule than things do to a rather we and to that try little scale.

think, that in I operating So, mode now. right we're

Michael Lavery

And later on this coming the products in year? Canadian

Bruce Linton

those, years. landing finally it we about want to X like X Like beverages talking we're we've for been on So where right. feels or be,

you in a if it had the I think look tweed clear and a long bottle a on we've a cap using, tonic time. been we back decks and with for

factory to a a that chocolate used be what factory, in operating it factory now. marijuana both became chocolate a have We has

We done lot on have form a brands, and launch. factors of work

on going think margin to that have how through we model for our form from every through other thought factor. vape what So and I how you're like work been has everything products

typically be license ahead the you space, a for is that's challenge be agreement All time Christmas so late which XQ terms well in the going the depending are, mid-December I be XX in on The event that launch We think, we to December of are. need facility, the of cannabis and exit, or from their principal also days who mid-December. has present. final Hanukkah to can we can the is

a going into be can that's is limited shipping there much so and get And stores. window how to

will versus are we crank QX. that inventory have warehouses may is logistics stores to So already ship up can But our of and here the that for contemplate then those it can we're only queue out and June. mapping how take things direct that calendar the us it be sort in

Operator

Hundley Next Global. Seaport Brett with question from comes

Brett Hundley

quick I questions just two package together. If could

farms? spending bill the a would then The if a really wet how or yields of spring. kind this the forward U.S. Acreage event passage is, your the are us for of York to during New is plant And separately, State for has company or your you guess, the triggering regards with share plantings? sense health late deal? Do been can that partner for Senate consider lawyers with year, have the first And follows situation CBD you I what hemp impacted

Bruce Linton

I To vote, the recent to figure it where we're the with right. Like DOJ to exactly -- regard you're the one questions, yesterday's came, so news, one, that still actually would referencing say was I trying is out budgets? think

Brett Hundley

correct. exactly That's

Bruce Linton

reading that, that and night's because permissible. it by calls last was night don't supported that discussion at around and know does but X:XX it I be need the federally So to makes Senate,

I think what is unenforceable. it federally makes

progression we us. on ZIP the And of be. and this we are right that so the we be can but will living see extremely codes will wish I it's we get, all monitoring But things we towards where what so to in is just have they one for people that closely a that think

throw in York, contracts it that the is New this have Yes, to have flags still step, processing York. one, in we prior acquired that to getting the do the second occur. wants York in we product and ridiculously coast do we're from York We in any light yet into far say, at But have to other will CBD east don't time. processed and New branded green that we years geographies. see As New produced certainly rainy. has hemp as Obviously, harvest been New

Operator

comes from with GMP Ryan Next question Securities. Macdonell

Ryan Macdonell

Mike, the welcome call. conference to

So you, Mike. for my first maybe one is

much large the how You of with outside and to order starting attributed a what share XX%? the to in really Was global portion on us be was as SG&A your Canadian you of is talked ex-Canada XX% quarter approximately as it operations? Could proportion about of spend.

Bruce Linton

to I'll exports. how think And he things you I on I'll covered question let an don't around off. it and a it can see mentioned But earlier textured. break. we I get haven't if link like specific Mike dig gets back

is quarter Germany the what accelerating? relies is, in export asking, proportion Denmark is Germany but our on a the from was two, export Canada for Someone authority. be to it or process It process some in may

framework, do resources it, we fully move on we handle that transaction competent it Europe we rely grow of legal the so paperwork function have it, in certify where where doesn't head at And a we office. it and kind execute unnecessarily to

you know don't I Mike, any breakdown. have if So, more

Mike Lee

going in build-out quarters, the of The finance, an for but of thing support is that I'd we U.S., more global we shared investment Yes. you see legal, into as the difficult business into adding But investment. into XX% build of America, area XX% and at think cetera. Europe say, things those the I out range, Latin to when are like SG&A, our you coming our the infrastructure about put months a in functions. outside clearly infrastructure unpacking et in to Canada, services, going going will Canada

Ryan Macdonell

any the Thank you very much rollout that thing U.S. that, there. to of you talked for And around sort ingestible south comments about us interesting? border? following of share color kind Excellent. of And the with products on you the are maybe find what also up in international, regards can of Maybe have categories there. you you in products with CBD CBD the

Bruce Linton

a our for wait to to turn we what so don't to in step FDA bit govern sideways, in dosage. states little really we like So have the

You'll won't let's they CBD and see hemp many say details. full say, milligrams products don't there out spectrum that the and, into where are they XX get

make have we level, certainly before regulate ingestibles the if think is so beverage moving York become skincare long regulate in and a we don't claims. of expect products everything along health So that as appear and New right we from fact we're state, they like we potential state because going could the to they to what in FDA them at to

to companies to allow well And like so the ingestible, drinkable Process states for Canopy as and well dosage are on be them. X find will put topical that I that X up or to govern think going infrastructure. finish very can to you're going goods have

offset we And do with not so and the with long compliance the as license we state that, in FDA. be will

swim think category. think we're lane the stuck So we only, good we in don't it's topical but

Operator

from Jeffries. Bennett comes Owen with question Next

Owen Bennett

just to hemp the wanted to come back U.S. CBD. I question, First

$X about spoke at sales run you driven. the being the billion of So year largely rate end the Canadian

online hemp CBD it U.S. So upside to that XQ. obviously should offers come in possible

its we full a very of a year much how contribution of terms in curious can scenario? U.S. in expect just make So conservative to in hemp CBD even first

Bruce Linton

part of on So into the I also see become U.S. $XXX a you in company. that category We're that they'll that for question, activity. we are to processing revenue permissible first be are leaning investing that in million cannabis for your order hemp. few correct and scalable are not or think actually should a functional But from sales great high-growth assets

everything on letter doesn't resolve So say and CBD look, the forward that the the as perspective you good. far As that's is CBD everything just planet, that

have is that. substantial So we're a trust. top what number big not embarrass is you're into chain, the corner doing product I really I But that with chain, think lean number, buy a of analyst if to that is, we to And don't share. want running supplier, a but and do healthcare we're with who and scale a you. leading set, don't And market building another you box reports should to this whatever going for seen we we end up want

Owen Bennett

just a the margins through you are need as quarter? we weather be some please could one-time repeated year details how to then obviously And over these on one-time event the in usual and follow to on the give you confident trying And get more the activities activities that up, won't impact move XX%?

Bruce Linton

Yes.

in because melts the greenhouses but So did. couple you We there you're and of things operating if good box Mike load will full actually a but heat and in a heavy become operating, a design to snow it it up houses secure chime problem, doesn't off, actually their the it snow are done, there. not sudden can had when so and things become cranked pricing some. retrofitting When basis, and topic green that you're get a continuously check

are when have comment. startup to which, when leases ones, know other related the recreational what, would Mike, you fast I as far want options. to As such, of who, and if you're specific and out trying to say, is don't figure and things functions some where, There I

Mike Lee

anything you're don't occur but the of right, Bruce. operate retrofit in That's through systemic, grow just material as just to a at is would time say had the to number challenge during working that concerned think quarter. I to unusual nothing we're retrofitting, activities that so nature, we small I be about. Nothing just same and

Operator

CIBC. John question comes Next with from Zamparo

Krishna Ruthnum

just This the is past. Krishna regards mentioned Ruthnum pet John. that to market, follow actually on in you up for something to wanted I with the CBD

year? you will that Just products an available to whether whether calendar in will update on and this be be have when see

Bruce Linton

sure for we're supported that launch that Martha say, we we couple come in by our So for easily is in products we're very And pays late pet industrial to cautious they on trying We window like large other certainly locations for looking space. what to sure the could QX There of calendar, brands Canada as that fiscal. make launch QX what them. sooner. would maybe criteria again launch owner to at the valuable who the animal launch is in is are food as safe do and for players a make the Stewart for ones the U.S. wish With associated, that want and I

trying brands we Health that it's it's path that both best But see us you with been and way follow like as the would in the the that rules fiscal dealing we wouldn't calendar -- likely and we're and FDA. what do path. have we Canada appears It's the we on. kind who more I interact play So pets. carriers the want those tell colleagues to and we're to QX QX and calendar QX, have down well feels of to We're for that are be a it with pet we're doing and the and could with veterinary how platforms,

Krishna Ruthnum

derivative around up wanted your bit of in little advantage rules feel sort initial LPs just the the And you Canada? thoughts a competitive follow have relative further to I products. on whether you a And just to other on then

Bruce Linton

to going coming sooner consumables. timing of just a like when improvement work. is of they are accustomed glass off or be a see think associated ABV Because rolling going an that they're out, clear you products there is than of with be to strength, rules, room There for to I think, equivalent to better you're so products there. I have going cans on the The unusual when volume those because some bottle aspects products people of something bottle

So come the up. and we've our we our advantage up end using is views. been visibility I think sheet way the that and launch will an balance of with Part of

which why to we example, is going it's the began ready-to-make on drinkable have before our beverages there you're going so And be building launch. for bottling a certainty to was a plant, product, that

we very they good thought already a if making we and on vape category built about Health and they're the cannabis, well shelf for a really the earlier meets are they And it. like Canada for and a food-grade filling exist kind been choco that people licensed mention them call, in controls. And what criteria become have I lifetime are have of have, for first constructive. you we through so If try standard great the did that best. feel zones think This beverages brands. of and available and and with them can

early research that's do. others do, a being and think going having having at to being they'll ready, globally So us what serious shot give relevant I guess, products is and I what

Operator

with Papanastasiou Cannacord. question Next Bill comes from

Bill Papanastasiou

to just were direct-to-consumer was some it the the color question were top I XXXX? look this line, I we slightly share looks QX up. market quarter-over-quarter, in coming of maybe on you core your had the like It cannabis how a Ontario line. wondering can should And down revenues at magnitude online? sales regards however given

Bruce Linton

Yes.

aren't things instant these on/off. think I

as rocketship. are us more proof opportunity expected they top QX more as come for but more as and cannabis it more fiscal We climbing like and and there to more is arrives. in as not And an stores has rocketship go, The a the medical stores for opportunities open, line get the into more start is QX. we and

up business but a So to and it's go building it's margin like business, the -- this to momentum switch bit now both like picking top. they it's on flip, it's up not just feels and

Operator

question with Next Alliance Grey from Global Aaron Partners. comes

Aaron Grey

on medical quick have just one the I one So market.

XX,XXX issues. and the mentioned before some about the you of patient talked that transition about supply in think and XX,XXX I So from also count you down brands, to mentioned chain terms was

about given And kind and back in then also talk of or of of what of patients your seeing the in kind are you're allocation overall and that kind just of with just bouncing medical other you with could kind peers the those kind not the market there? you're [indiscernible] medical serviced product the -- online? of So confidence being seeing yourselves within whether marketing

Bruce Linton

that Snoop medical that rec out store and patients, then push move our brands going actually And growth to your onboarding we've But obviously putting Good data up think large is that clinics. will a question. if that And going as there lot selective XX,XXX-ish is Tweed it on happen clinical spectrum Leafs so we start people background, I it acquisition the quite to if brands, be confident has we're I when it's we're been of that of a is the And high-level. spectrum moving actual had are I feel push you customers. of product. works these that reading medically because our like take I up. branded to trials. a product and the growing store going see that like lot And shows take at in of migrate to through medical. been think we call jump the And a By we just you running would in what

now expectation So established. well fully. brand to is to the like is me It's research, feels tackling, portfolio do and blocking the the do going this our grow

Good.

think thank left. only you once-in-a-lifetime it's and two we any minutes your there that is time. If -- opportunity This quarter, we is another for otherwise year others, time everyone have a another I see.

the the behaviors we're Amazon that. of So and you when on not tracking at investing people the model, transform of value front certainly see their we're but

forward look it, for to next and you thank quarter. So

Operator

XXXX the and press release Canopy be Fourth be conference can rest Fiscal available XXXX company's will following call, Goodbye. accessed This Financial attending call earlier replay enjoy in Year of day. issued and XX, Thank you today. and Growth's concludes your Quarter Results A the Call. September provided today's instructions of Conference the until this for and

Canopy Growth (CGC) 21 Jun 192019 Q4 Earnings call transcript