CGC - Earnings call transcript Q3 2020 | Canopy Growth Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning. My name is [Dai Hannah] [ph], and I will be your conference operator today. I would like to welcome you to Canopy Growth's Third Quarter Fiscal 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode.

I will now turn the call over to Judy Hong, Vice President, Investor Relations. the begin may you conference call. Judy,

Judy Hong

and you, good morning, everyone. Thank

that We XXXX the call. you time glad financial to conference fiscal taken quarter have are third join results our

and have Klein, we today, call our CFO. the our On CEO; Mike Lee, David

today market quarter Web new third release issued the is Growth's SEDAR. ended XXXX filed and December financial Before has This we for average new Canopy our release results a site, been open is its fiscal announcing XX, XXXX. on on

today's answers or in be may SEDAR. forward-looking are questions detailed Actual to information company's discussed that from differ in given matters Certain factors annual that are made form call statements. available that constitute affect Risk those could results and on anticipated. the filings could other results materially could public

refer press call, cash information morning and issued EBITDA SEDAR. to non-GAAP conference is flow. free specified. filed all document the Canadian unless measures, free as provided Please and discussion otherwise as this this we note on in dollars financial adjusted release cash that defined supplemental period's EBITDA During management's in and Adjusted analysis well in this flow are will

by we a session. will Instructions] and prepared question-and-answer David conduct Following [Operator remarks Mike,

over call David. With now turn that, I'll the David? to

David Klein

morning Thank earnings on this, Growth. excited call, Canopy you, my as Judy, very good am everyone. first and I to be CEO of

perspective a decided To Canopy. offer remarks, on why I begin will I my to join

most of First, business I believe the opportunities exciting of the one is lifetime. market growth our cannabis

creation have seen. market likes we the in never We consumer are of taking of a the regulated new part which

the cannabis I believe and having win to brand’s Constellation since Canopy Second, Growth is been Canopy October advocate well-positioned having board been of early global in an on market. firmly the XXXX, investment in

market in medical We share and abroad. strong market in a the position Canada, market both the and in have recreational Canada in leading a

the create global opportunity believe an position Additionally, cannabis. to has unassailable I Canopy in

the has The and excellent assets of apart from the us Canopy competition. combination intellectual these ability experience, know-how, to property, industry talent. set possesses

our value balance is costly, billion of be of Canopy the cannot understated. asset capital a Another if be In that at increasingly sheet. the cannot of it’s all, available having $X.X sector, strength cash in where overlooked is becoming

to a company ensure that strengths and is profitable, trust. job nurture world-class build consumers with we that Our brands these

Now, on do about many in know in I you'll questions I no what planning have Make mistake. industry. what’s of am going our to light especially

We I call lot during my to earnings of have a quarter I fast-forward work have will once our do. fourth detail completed our assessment.

in already am you actions along However, that taking I team will the management with industry. keep position be assured of can the that cannabis us the leadership

most will consumers. For and key priorities. improving now, by first trusted priority consumers. brands let connection winner that in the highlight are my with most this Growth’s market be My our possess will me Canopy our The loved

leverage our intellectual best We price and that consumer each products will production to point. deliver the property, quality capability insights, consumer-preferred consistently deliver at

My is second to organization. bringing more our and discipline focus priority

has As This win. made legitimate as we won’t about the evolved, direction. The on as deciding specific the playing right and will. product due developed markets means sense this nascent where past where however, years, new now to we have uncertainty focus five board where industry, play across industry we to to industry lines, need we over and the well

cash growth positive it resources and size very investments with align need define exists a is third and priority visible of flow. the to to we This to our means today. path market My profitability rate and as the

we is to days. our to future our the balance steps designed to steps are review over right-size market underway. of our take taking forecast. XX prepared of with our strategic bring begun growth, have next inventory includes a We which business This supply/demand and through footprint, Mindful initial

with all credibility My and final priority is stakeholders. building management’s company the

We by in on delivering commitments will thoughtful this measured and do a our fashion.

highlights. Let briefly some business me cover now

a to data Canadian Nova continues and published First, one the number agencies market, in In share consumer and of and Statcan, number by developed is one leading provincial one strong, Canopy to cannabis Prince Scotia, the number using market. market; in in two for recreational Island, Canopy roughly the remains number Canopy demand overall the XX% in continues the market At and Edward across hold creational most country. country’s hold retail, accounting Ontario. Alberta, spot markets

Sales premium XX% strong as dried ranges. increased price remained basis. strain Notably, flower as price Our across a TWD on same-store our continued our strains. strong value of retail sales well demand quarter-over-quarter for

seeing and Moving sales European U.S. in and December cannabis Canopy beginning in investment. oil in online markets soft excited that part customer about over strong the in for an the recent thanks XXXX. base. to U.S. of a account a with growing with opportunity Germany. to we're increase CBD In making our market market Canadian medical hemp-derived notable We're in at we sales of gels sales first sales we’re XX% key markets, free driver with providing branded the resources to Canadian sales. most the U.S. enter Constellation’s the our the by progress encouraged medical medical market, key market, important achieved products with I'm milestone of It's

make products need we on our them. bolder consumers our with We're brands to where that consumers recognize move of making and can get in creating faster in purchase focused can we moves places resonate that the our distribution U.S. we said, legally and and That to want sure

the in products over to the to been over development, We market. to Canopy quality, I'd Mike, the is bringing product of has X.X best beginning Now, the differentiated this most to the before I believe X.X our to on committed approach Since long-term. provide highest update hand like very launch an Cannabis business call Canada. our win

December the Falls Premium shipped and have Smoke Street very Smiths Multiple in December products in out Pause, first Chocolate edible market Tokyo of and out products, XXXX. Baker selling Tokyo products, been Our our Smoke Go, quickly. Tweed facility entered

market on in SKUs in be is additional XXXX. first following Being Our late-February, to of track the quarter in fiscal with next offering Bud

safety, and functionality design. differentiated our on focused For products of offering, vape product delivering we levels with

meet Underwriter of Laboratories standards. our products All UL XXXX safety or will

Our JUJU UL December for XXXX. the rechargeable entered market in and early cartridges battery Power, the certified only January XXXX shipping began in sector's XXX

these strong We're for seeing devices. demand

pod cartridges next based Smoke XXX in and expect our the For we months. LUMA, proprietary few over Tokyo to be market

safest our our end-market is we communicated, even delays quality this later Now possible, dates. the to it means ensure than products highest consumers to we but felt we that previously priority our highest and if provide is with

delivered, that new consumer expand our you ago, social beverages high of intellectual range Lastly, Canopy a cannabis property, the ballgame, versions add the myself Canopy delight know has category. chance segment create say cannabis long that let products, tasted consumers. Leveraging this; will to me board alcohol had the but a our members color has experience beverages to are would quality our whole I few live overall believe of a and versions they of non-active of taste active and in some low I calorie, the in other the rival some a beverages version taste new weeks cannabis a here believed beverages. considerable formulated and

that text, find the anywhere. the fellow we you have view, sent me our on unique share can't competitive truly opinion. and which differentiated based read tasting, text In Changer," a I tasting, a After member our a beverage “Game simply board

We disruptive to the new attract vehicle also the cannabis market. as and truly cannabis beverage best see to our consumers

whole new words, industry. occasions creating will consumption more other any format recruit new do in new it In industry, other a and believe we to consumers product than our

about think serves Just the how in hard years. became big U.S. three self in just

few the we and changer. get right today a take can our So ensure and next true we’re of it months consumers to going to to future introduce up game the that

The convenience the take with applaud providing required business would on the to Lastly venues. major to Government's like first a I move providing Ontario initiation and choice on moment support cannabis, private of cannabis convenient is for more and business more while and consumption safe, consumers with including public brief relatedly, recent opportunities to consultation providing acknowledge and milestone forward consultation opportunities. with regulated Ontarians access sector that's to

fiscal concludes my I'll detail. the Mike greater and our remarks in review This over XXXX results third pass year call to quarter now to financial

Mike Lee

David. Thanks, morning, everyone. Great. Good

my Net the progress quarter XX%, restructuring review that last charges of begin grew Total of of me we our quarter. during Revenue third fiscal brief 'XX. Let made with a portfolio excluding remarks the impact

million gross business came before EBITA Our margins generated fair Total at in €XX €XXX quarter. SG&A million, of value of last and quarter-over-quarter a impacts. of XX% decreased loss loss adjusted compared to a XX%

on will items. to more a select of move now review detailed I

broad our growth performance of as business, acquisition. top cannabis base from strategic Our as line core benefited well a our in

are a highlights. Here few

of sales the BXB of joints. flower which and strains greater Canada from higher premium balanced part and recreational are we growth revenue XX% And growth sales benefiting XX% pleased driven channels. by were with in increase BXC than across the our increased sales, a pre-rolled of in

Our to BXC medical in over XX,XXX. part in X% an increase by revenue to sales. the increased XX% prior quarter, the driven over Canadian in of increased XX% sales quarter-over-quarter part in store same increase by number due customers

International sales another regulatory created products to by fill gaps Germany hold our medical from a on supply increased in vendor. X% of quarter-over-quarter as benefited sales opportunistic

performing of Revenue that the a generated has for CX demand driven as continued past cannabinoid-based over increased canopy by over by year, therapies, number quarter by the and prior and expected. acquisitions X% the growth are made strategic

acquisition other season, growth revenue revenue XX% our of around contributed million solid the increased quarter these seasonal organic holiday incremental the of section and Christmas Works of over are as of solid XX% saw vaporizers on increased against due Deco latest Sales and and over our the quarter. P&L, we full growth, also estimate stores added of prior revenue growth quarter our seasonal timing organic the over captured at they the the sales revenue. a quarter. last during Sales well businesses benefit $X to BioSteel as This and XX%

in our and that pleased and Works XX% strategic are of out point accounted with This quarter. stores nearly revenue of Deco. BioSteel for the acquisitions our and We the performance

anticipate quarter, we to third consideration modestly versus quarter, be some timing forward the to during up the overall Looking taking revenue into saw third quarter. the benefits fourth we our

I canopies we the take channel. like rec on a would perspective now provide moments few that to to Canadian seeing are a in dynamic

quarter. we've are of we pricing of their these on aggressive cash the long by of third focused number And actions our market earnest back inventory expect seen competitors in isolated the suggests and began as half that intelligence to the competitors, up examples freeing positions. Over which past these pricing from weeks, continue, some

premium time, same quarter. growth our we evidenced LPs we pre-roll in demand premium, the well the the saw and At see as sunset, high products, by for THC joints strain consumer flower, over strong XX% during

price valued brand fighter continue points. And as range is of and brand on serve is working adjust consumers but across continue needed and value offering mainstream, focus We segment. we a TWD architecture market will believe our the price building as the and our will products monitor we to competitive, equity to to premium, while remain

Now, in quarters. revenue. Gross from before briefly quarter which cover quarter was margin. margin let IFRS higher we've of $XX trend me XX% million, net capacity is in 'XX seen Gross or impacts fair value fiscal gross over that utilization, the of few third benefited a margin the past

margin to fiscal higher [S&B] decrease impact has quarter of and ‘XX. underutilized the had related approximately under such our businesses $X of gross fiscal from ’XX, of costs positive This quarter [ph] million Works Operating the quarter. a consumer $XX growth million to the also to as in continued in products to The during fourth margin facilities third

to short-term short-term margins there highlighting reductions while serve our costs, in in and will it's beverage a remain on any we and also term, - various delivering supply headwinds we ongoing gross products delays modest but as rightsizing that worth as introduce as expect period that committed short some our well. are vape headwind a could the in in recognize the We XX%

in third were last Speaking operating and repeated versus of the declined expenses, the the well area. total prior as this discrete briefly over XX% G&A $XX focus as quarter on in controls OpEx not million cost declined expenses by quarter, continued as quarter about versus couple a

expenses as compensation from $XX.X about quarter And in that as resulted to decreased well Share in the based due decline in the certain spoke million I second restructuring compensation to was our quarter. based from onetime share the stock-based $XX.X that programs last quarter. reductions compensation the of million third benefits,

XX% expect at with the we fiscal we based ‘XX. $XXX we and XX% Looking share forward compensation made, overtime and to to million ’XX, restructuring in headcount. share based to fiscal between expect year, compensation on than $XXX that per to be lower depending normalize Further,

MD&A. full expenses a in our provide we our discussion that highlight operating I of

interest from the you brevity, our be the conference we call, expenses discussion to in from expect practice can standard are in of press this comprehensive and of So this and operating our eliminating release, future. a

And flow, an Moving cash his third quarter fiscal a which ‘XX. on dollars, cash to outflow the organization XX% as that opportunities of January operating a to will is to and fiscal the is work burn. efforts identify we free And in the $XXX am free focus priority over of and flow improvement of in seek our earlier, will reduce million second key confident remarks XX cash key priorities. to as we was expenditures our David highlighted to quarter our align started capital in expenses our moderate that I reduce our

balance managing as and area as is towards better and focus supply possible. a to work Another quickly demand having key supply

market the million hemp contributed our $XX before quarter. around resins, and but increase, increased such this semi-finished and of isolate. Acquisitions value driven goods the and fair adjustments by an was last our quarter, During U.S. our versus as the balance $XX third increase million inventory harvest distillate

As have the act to plan current initiated our can quickly thorough market size to David in margin and supply of our we align remarks, our ensuring footprint, indicated demand, to production review we while we on with deliver a that prepared right commitments. his

to provide our like U.S. I to transition would a on update brief Next, GAAP.

now. Our view of of I of accounting change principles changes operations highlight statement will the to consolidated and of identified a preliminary number a them and few the has

products agricultural for cost. accounted at accounting. First, have biological change EBITDA under no adjusted asset GAAP our is no U.S. on And impact this metric. are U.S. will Under GAAP, there

estimated and as forward will EBITDA right of impact such expense adjusted on an considered Second, from going amortization of the this not basis. depreciation by under amortization an adjusted no as and U.S. is is assets million GAAP, are of $XX use EBITDA an component reducing and excluded longer annualized a have of

assets The our which the liabilities, excluded And will and for in income. be against And this are will There reporting adjustments lieu the accounting or in of and result third be financial other comprehensive EBITDA, other a currently from these item liabilities. financial other value impact adjustments of no net of OCI is changes and as fair is in certain of to be will aware adjusted U.S. the income. change impacting as there GAAP. result financial classification value fair assets

a covered some during I Finally, would of the call. last brief on like I just to update our priorities provide

at are to tremendous reporting We progress close in financial accelerated making reengineering and timelines the achieve our processes, fiscal year-end. and required expect close our we

beginning United are the out in the in design solution, SAP on in we make by began entire the ERP We've progress on our user eventually across will the to in track of solid currently environment, the to of continue controls fiscal States solution We computing roll material of enterprise. our cash the we ‘XX. weakness progress flow year. And end the remediate improving track also quarter out are the testing effectiveness made of fiscal SAP and roll which and end to the we reported first

Canopy’s This December third XXXX, the now concludes we gross my review financials analysts ended questions XX, quarter happy at this are from and of fiscal time. take to for ‘XX

Operator

[Operator first of Instructions] of of Chris comes Your the question from Bank America. line Carey

Chris Carey

Hi, good morning.

David Klein

Good morning.

Chris Carey

going the more profit, Canopy’s where quite and in area now, I and a debate prepared expectations like to David, clearly remarks, it but we're as new details fiscal is you underwhelm of story a around sounds free right, revenue around flow, get in really number of role, which cash QX. line on were one think on still was is the congratulations all, First the which I of think focused ahead items implied guess, like your I bit the and

question So, perhaps little I'll approach this differently.

kind over to footprint. You for QX, gross the to to what thanks for is that from was shutting and the so essentially, kind of near-term a even imply positive that focus, mixed you that mentioned mean that the Anyway, that and difficult guess, long-term, your just mentioned Clearly demand down fiscal managing and key imply those. production margins how ‘XX some reality? comment that inventory practical endeavor, a a relative capacity, on if standpoint you're you're could more could that's of reviewing but that I XX% margin and I that XX% connected does all had time expecting fiscal Mike, is is, a wonder

David Klein

Yes, sure.

a and pull the of So, that managing capital. working that lot we'll yes, talk we Chris, levers all, about we first not and overall of have so have inventory on out of and to cash, to next do more to I as run are in better regard, call. a we Clearly, going job indicated,

have spend. to slow We our CapEx

back and our better P&L. will has M&A the on we job doing, the need We business pull a been activity do with to that

we through and to the I've line say month role process. item. the going and literally, So actually, every work team need will leadership across We're the very today, at review to is it's about my I I that objectives -- been strong one in that in about priorities the is team my team talked very the fairly at the I Canopy, talked script. a level committed that

soon achievement, the the employees, let of on and we when our will do, our will be as account. our there So, communicate shareholders, will do right be we'll into to I'll flow-through obvious our thing stakeholders, consumers, Mike and and margin then comment means taken which timing for that we we an have that but can, as

Mike Lee

have and guys that, shutting eye what works as to the over just want year, but whatever long-term for that do, hard. about we we and me as an down talk toward add starting with the not heard well, up is what facilities you just last works today, it would really for I And to do

we've of it, our about be taking to realities to sure develops, develops, but footprint three a we're years, of thoughtful we're as and various need about and also we designing chain sight the category consumers quite with the the We're it, of size say, value got the not make want want to in next categories as is line for we sure mindful of happy buying, stay. of performing the just is supply to regardless realities we what that TWD how market, today, that that market and and to we here the but our to deliver make market to that's the the the we range our two very years, the strategic "Look, year, of the underway, the of to engineer that's objectives. know So very work target approach really that chain So, offer our entire achieve supply across products financial allows those consumers." ideal margin that us profile are and to that

potential the of de-leveraging with it I that of the short of some make Yes. fine-tune goal? materially think not XX% we face will. we our going going us adjustments? we headwinds Yes. to move cannabis as in run short one, to in the gross off some face delays? are margin facilities to some some do from Are some headwinds going Is So,

Operator

from comes line the Glenn question of next Your Ladenburg Mattson of Thalmann.

Glenn Mattson

the Hi, that see taking the specifically comments distribution getting getting market U.S. thanks buy you customers move them. you the to U.S. in you said and to David, a need question. believe I made about can very who specific creating and brands, faster for opportunity,

in meant THC flush yourselves is buy and mentioned to see in about Number just do you two, then Thanks. you maybe can further significant to the So are one you little customers bit. the talking that who out what comments products a you a them, having customers and U.S. further? U.S., based investment number by when little I'm curious those make

David Klein

derived possibly really sell the states today. are the no know It's get clearly, states in we there focused we're more really First brands of it in with that point as now on our BioSteel to so on we the comment. we're And & other significant sit shelf across see we getting capital and can the mostly in U.S. some e-commerce about incremental so in U.S. on not, And hemp our It's with launched where with First at was products Yes, other launch, free We the required CBD was that don't investments in as retail & of December, the U.S. products I our shelf to need such where much CBD. where really Free we Free as

of I with really Glenn, standpoint execution, to So the product Canopy about now frankly, that that execute we’ll that's production on I and and begin connect and I next we sales that U.S. the need point really the to the we're of make is be a a it consumer, can evolution about in we think of can positioned well quite and that's that trusted building create more terms and general, capacity, so development think our those stage brand standpoint from brands a in focused that consumer minds in clearly in

Operator

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

Vivien Azer

market I'm think profit reinforcing of of your aspirations understand, your but comfortable just you trying be would leadership, market a right committed point are kind growth profitability. share not a that Hi, was market focus clearly good the background, you seems between how to gains, the given you you top you from morning, that balance make you've I from sizing achieved get to I from framework. I of and certainly and the but to once there's strategically, think and from right being your laser position which the sacrifice did is market are of business Mike, willing and remarks. the on leader, Thank you new commentary congrats so attain profitability you share encouraging, prepared a perspective share a line It on David for much the very some hoping priorities role. leadership because category operating David of your on in to to

would on commentary that any be Thanks. helpful? So

David Klein

Yes.

business. win it's we you're important understand continue where can we the we out profitably the in category. numbers pullback for staff then, and why spend to to seeing where put areas, that haven't that raised we'll from what across areas we need invest because the that's play those and to win fit in we'll to I that look, where don't and And So think into cut industry, to want

think see know be of in that across to growth ways still now our in end we business industry bit to we there's over ability the at but a are keep for as new need at focused the the just spectrum profitable and this to profitable as preference, in be do our areas. the We're in to and talked a the that Mike late, profitable as in in consumer I mind is growth consumers the us of is as industry those about, executing our attracting on well pall have to industry. get keep thing we ability and mind we I premium that need be a to value space, those to a we

there the consumer time is drive the profitability improve though, to a think industry I a creating on at simply leadership tighter school that same share thought proposition. by can of and continue focus we

Operator

next Your line the from comes question Scotiabank. Buckham of of Adam

Adam Buckham

morning. good my taking Thanks question. Hey, for

So I the more a BXB we get on little segment. just was color could hoping

to magnitude of want bulk those was in versus the there there what just and So, whether previous an get any is quarters? Thanks. if quarter were sales the idea

David Klein

Adam. thanks, prior bulk a We quarter. Yes, some did in have sales

to but this necessarily market that at on an be knowledge not our inventories we're sizing my to segments focused to point, to value area as our pursuant tier and about think wholesale, consideration exist. but nonexistent to of continues of we product was quarter continues cross the that's option an right getting This certain

Adam Buckham

Thanks. Okay, great.

Operator

question Your next from comes with Stifel. Carter Andrew

Andrew Carter

that for modest help called and understand match obviously of what is line I just aligned market. business factoring want with compression? wave you're about kind Hi, seasonality, will of of kind the now out thinking rec we of return have quarter-over-quarter the Canadian XXX the thinking how growth You around Should understand recreational be you kind will price a just lot should suggesting business business? of in where Good to assume about second kind of but morning. us revenue would I the to better shipments, the be means just that that consumption million the we help us base some how comment growth item? $X the shipments

David Klein

Andrew. Sure,

are We compression anything point. price at modeling in not this for

My continues also are that We the the performing the the mix in as quite quite establishes well. performing the quarter are mentioned from S&P of I well. seasonality the a are is even you by benefits retail the around brand well, growth but in very benefited driven comments in modeling performing to pre-rolls modest from really as marketplace and category in quite some December. our strong just Canada itself stores evolve The in know, is high-end that TWD and

to grow the the environment store and biggest in better honestly, there's And there's and get right that, the rates provinces, starting to get quite And static of of seeing at we're store getting industry, product near-term. establish better bit purchase as increase our correct, as continues the time relatively into site from minus a next to stability. the sort provinces in order. continuing cadence the come a their count into you're of of mature inventories the So quarter is right now mature headwind opportunity the we of forecasting quite All to a to driving in going and a a account are a industry result and are our today fulfillment. fill tremendous what's not but up benefits supply orders by chain

to will continue And as the the our to in deliver continued is increase that's to stores from near-term. come So growth going where then,

Operator

question CIBC. of next line of from John Your comes the Zamparo

John Zamparo

terms quarter license subsequent announce at in Thanks. Good to total footprint morning, the the of I winners. increase function wanted you lottery the canopy to ask the in be about meaningfully the Ontario retail

fair that to involved. you say I it's made about to it's you get So something retail more think want assume

of ability economics might attractive capital it to I'm the next maybe much over more how really is just and you view But So allocate you to Thanks. couple would to wondering or I your sell years? as a that brands? of own is unit level how simple it sense retail like a get the

David Klein

great. Yes,

So yes, to store continues increase. count

the as but starting we XX% added with stores attractive which that from consumers. quarter be happy stores like across become and that. it's to quarter, the plus incredibly well. stores, reached the an we're allows the help things as economics store going in when XX. do popup at for on network, to valuable our new own partner cannabis, in opportunity to us then, store to different introducing see brands think, best very stores educate formats products share in our of range, educate to very XX to new build XX activities gives out, I to Between to were us And performance consumers and but X.X XX It our stores sales canopy we consumers these format and rolls

we saw. and stores expect very front our about continue add opportunity weeks of ago Ontario's in sure to us a that way. release biggest few in a we a So strategic to you that I'm had press

continues So to be a us. it priority for

Operator

Your line question next Lavery comes of from Piper Sandler. of Michael the

Michael Lavery

morning. Good you. Thank

us kind speed? still do peak working and the quarter go inventory is here down, couple Can into how How a then the see You do see likely what sense X.X this to the or build, from as any a that is actually launch inventory just you part building it of evolve of touched and give I'll drivers that might and of how on a there reason was it it's some well. levels, of the of higher? and of we, last you

David Klein

demand a I'll connecting early of details, we but the are that we let company, get on know, the need Michael, built experience observations, you at early expected consumer comment to better that of, some but building brand I my inventory, maybe we're, as the consumer signal that is a space in to in that in that so building can innings deliver inventory high-end cannabis. the of and think we're we're Mike leaders we

And need price that so, on the consumer the the high the we shelf at THC be to points. with is demanding right bud

and to going we continue for our bring At retail, not make for stocking balance, partners. for And to footprint our good sure at so experience which it's is is retail as that to good we're our out to be to our the brand shelf that, the for at same our decrease the feel and stay we down both on look not that's that we the going to us. make need retail able should building; It's work that's brands. quality on because as able good we're time, inventory said, expected total we at sure of not we be us, inventory, be deliver not need I

Mike Lee

I that that's would just not I would would that is I I our comprehensive. add, model quarter. -- peak very just this Michael think

we finish better point but at story the peak the until to anticipated that everyone review job we directionally, market decisions any a is sales. there's material this our footprint, managing know knows as I growth of where can we do we strategic make. we it to do call that That say we time to can the being strategic I think increase not in just that lead inventory And we are. think relative the said, going I a review, don't would a QX. be of of and overall

working we're we speak. that So through as

Michael Lavery

you. Thank helpful. That's Okay.

Mike Lee

You're welcome.

Operator

Your line comes Alliance Aaron of from Partners. next question Grey the Global of

Aaron Grey

back little just to Hi, dive share thanks market question. the into the bit trend. a for want I

So in I the XX% wreck for market believe quarter. you said the

I was just quarter of think north XX. last

market share see shakeout, you near-term as it gains, of super bit to from to to comp going low as categories, plan -- more the quarter Thank price And pricing the trends what think lost shares see least and aggressive about fall you premium not long-term that the the be talk Would saw a could fair on, of then, saw how fair clear they competitors? you it it you. TWD, you've about as saw at near-term kind little pricing is and to continue that that share quarter? think market of aim some come So just having kind so those as aggressive you product a made and you're competitors and this during will being out we aspirations? share of that long-term share that, potential we think shares you went with

David Klein

one. take I'll this

referenced, So in shared What has but some some chase price actions, industry made has I points share isolated to been also there we've impact not earlier around that decision pricing as a some has a those instances, the out declines result yes, commented been we did on some so I see developed. as in point would that. of as of some you that modest there the variability

positioned However, between XX% our our going is a the next to is over yes, in to some be between we some the see that, the think away and little XX% of now we're the to but it goal numbers there continues achieve XX% go you noise well will really with that XX% actions call be achieving And share, market of longer-term. goal. but noise and several might bit isolated these think we pricing months, to

Mike Lee

the back saying for chase the And the to almost we can with what of share market more best and say, products Aaron, to we make we any to do XX% Vivien's premium market that to thing won't but am for the continue that value, consistently cost, total on come in XX% like is question our we market and are is shelf us do, maybe is split at to think market of share premium I at drive that retail. sure I

think I near-term. can growing share in needle or of the move terms the us more holding else than share for anything in that

Operator

of next from Your Oppenheimer. line comes question Rupesh Parikh the of

Rupesh Parikh

my questions. Good morning. Thanks for taking

So and to you businesses back other go there. saw I your acceleration wanted the that to

about seasonal you outside of a Bickel that terms forward going So outside get stores strength business just how to you them vaporizer look what's want both in seasonal at saw, the to of This driving but think benefit there benefit. a of and sense just the of I businesses that Works, and know if in was of

Mike Lee

of a a things, we've Yes, a it's released. we number have -- previously has new there press that items been few

driving portion So innovation is the good of a growth.

distribution I I and new aware, brand, a built as so business could about S&B know, U.S., much are opinion well. today. of an think consumer David as we are with team guys good being building you for is in a amazing brand that and good we and than the the is is the we've have agreement so there a brand, more as more what this many management leverage talk of as our Greenlane growth fantastic We we we're some And seeing

as future a well. of working innovation on plans further lot year to exploit that So brand we're coming but globally, next

said, So we still seasonal as over we see two. have growth being but that did the business some a that benefits, next or year

Rupesh Parikh

Anything…

Operator

Next Kreindler Capital. question comes Eight of Graeme from

Graeme Kreindler

Yes. question. you Hi Thank taking Michael, good I wanted to follow remarks. morning. prepared up the my in for

If are I the at utilization around it it XX,XXX harvested that When numbers kilograms. the correct, capacity the higher quarter, in was look was kilograms figure. there You XX,XXX this mentioned in was quarter my and quarter. kilograms previous

the and So away already with you. that capacity some right number sizing the where of back also about quarter-over-quarter. the we're talking whether to going higher coming square utilization, tying Thank seeing down, just harvested evidence that given footprint to that that number want is

David Klein

our all standard Sure, into on two our things the that and I point certainly the yields timeframe, costing. one, in in would based of year Number greenhouse throughout out. footprint, account model given which December lower November, yields October, and we vary take season large are and the

quarter, believe there as the Delta, tune are at is improve remaining and at and we During delta costs a into we first steps with balance. well. also British supply impacts around December, but that some of our one to efforts to facility $XXX,XXX we in the our benefits bring take to and yields help capacity fixed demand down de-leveraging of our get concentrating actually that Columbia of helping There did some facility

utilization the So largely square broad we with fact our and despite our retrofit completed. facilities the with operating in the in our that yields more ebb number very actual network, about the are think overall but flow year, when network being goal feet balanced the of their throughout across line approach, activity

Operator

the of of comes Bennett Owen Your next from Jefferies. question line

Owen Bennett

and and because you year kind see of how give what and modeling to medical that? more kind morning, gross overall businesses of you even was insight wondering, quite the me, in international and revenue that a supposedly and have just and into continue. obviously of from Thank margins progressing you expect to strongly And which line question of guys, any revenue gross sort Good a potentially we the I you. throughout and could margin help business? with accelerating be

David Klein

that business. talk cases, details, we is you So, CX & is to my the have Free that First all going recommendation XX% that versus pharma CX a plus some been Owen, at into above materially about S&B businesses performing cannabinoid-based but margin lot and would our of be grade that offline in

been First and that from short-term. in range, think is we of to Free the perspective, those & that XX% XX% estimate, and in a the and a has to range XX% expect over guidance modeling CX good on S&B In terms I modeling hold

Operator

the comes line Your question Bottomley from Canaccord. of next Matt of

Matt Bottomley

Yes, thanks.

like color launched be to in to inventory $X on particular quarter balance, Cannabis proportion in the dry of any of assumptions pipeline wondering price sales provision in could how your me could there at or Just or you that and skews if X.X? think relates going on about into, period provide there's just if the things this sneak the assumptions, Thanks. color excuse much I was to if allowance end, a bud I any then also, other for million versus related provision, product any

David Klein

Sure.

as more we I customer a forward, your which at revenue than it's I'd customer approach ever as and going agreements. an more, liberal say, worked very to booked are what is in always meaning million we the of we $X yes, every of slightly a cautious And revenue function it's revenue doing a the booking take seen about a think in I've in provision, agreements about So our I've And anything time, customer ongoing And point In cost this can what Canada are any industry, elsewhere. at provisions. business. return favorable approach provision, really just has had hence, a CPG they provision. quarter think in company

provisions call that's also to we downs actually level, for would four X% revenue going markdowns back. meant of walls. not modeling for risk amount the very but quarter, given every that and that I look going is the province the kind normal we just the to be think we their at province forward, within any them any forward, a of cover profile, level, the inventory to range X% just returns, what's potential expect or about number, buy And up it the inventory at see it's come of at As I but true reasonable we

This provision provision exists just at level. retail, to meant it's not wholesale what is for meant exists be in the for be a to a what

inventories down there's as million come $X wholesale much there. risk $X a So to not out range, just million to that

of potential our certain it's so normal in certain not certain it in a the across for was a on is terms immaterial, So I for that, impacts for chain, long unpacking and balance that's the the but national where we and that up on pricing allowance, was of our it's random things markets to are think that $X of skews And pricing provinces very just provision it's things, on we're million, potential skews, where course supply million you, quite million provide just scheme $X.X grand on products aligned that $X to of going wanted could lined get forward. properly, revenue. be architecture to the we going X% returns

So I build in. that would

Matt Bottomley

Thank you.

David Klein

going shelf is isolates so of yes, and and anticipation our think of so isolate a very are on the isolate question Number showing well-positioned inventory, I and inventory and be, whichever out on two how fuel and is of Jury's but inventory of distillate the to our that to on lot high. the inventory X.X inventory few the is skews terms big these the there on think are we categories in we're Cannabis take-off of each still we really our I X.X on apologize about buckets. was the really inventory life Owen, Cannabis a category much but distillates part how whatnot. one inventory, your And In of is of

We're that and that balanced very we're very good we around than that the inventory that's today. piece to concerns life. call any we're have the really the on shelf feel don't feel what we Mainstream continuing the we is quality high inventory to CBD like a THC, little we'd we're what of of a balanced our through. which it. be inventory balance on is high bud bud, bud, we longer low that relative good work bud, And to So, balanced THC The is

Operator

comes question of from of Zandberg next line PI Jason Your Financial. the

Jason Zandberg

for taking thanks my question. Hi,

there of to is sort future reduction in think operating line. I all one I sort modeling that purposes. this R&D for is is positive especially first increasing that wanted G&A, line-item the just to applaud of the expenses that And into wanted Just of quarter, the dig

with You described CBD mid-teens revenue. the Talk about increase were trials kind as of a in of the some based X.X. for of percentage some terms product Cannabis clinical in well studies testing as

a in? revenue? sort Not of or of item line this of is bulge quarters one of percentage sort in a what's this time, couple of bulge of one-time we R&D So, sort over should expect your goal increase to next long-term as

David Klein

focusing R&D I've been by there's we activities. some we're some and at look a I bunch not I've stuff as is where new decide of way, of area spent it’s from we innovation standpoint, since in pure that So, on invest R&D, the an time have business, an line-item. It's engineering R&D role, think that when and to to Jason, the in already going

engineering, right. manufacturing is Some even of it

make lot sure a that of get the address there's focus in we're of, to the of noise will on in fourth I want R&D to call we lot when clarity the line, a and detail. that that there's business, line So the we more specificity on in providing quarter bring we that

Operator

comes question Pablo of Cantor of the Fitzgerald. from Your Zuanic next line

Pablo Zuanic

on just an bit appointment industry question. one congratulations, and Thank the quarter. and of good you question. a Look on your David, It's at

be a points can the line, higher, just, what and Thanks. for portfolio, category industry. if clarify America? nice in being quick I'm XX% you people, of for on other a does the hearing X.X does very the the are percentage XX% in in the close of say flower follow-up, is badly you whole, then market, are if value what other about North I it's seeing price outside consumer it'd if can you And If of that comment bode we something our to cannabis said Canadian much the that U.S. sneak of think given from can that. as I that thrifty that revenue that's that

David Klein

the thing will the interesting Pablo, illicit revenue, XX% largely consumer say so that's other an think happening the that's I today today market. if Mike segment revenue, been the but of the the consumer yes, is, in is handle market, in existing and me Premium is the we from that have pulled to spend

of We bring It's good around build. feel well because differently. a the they're pretty come that in, your at little about think belief of a CPG like want like X.X the that in So they're higher-end I'm because my to We kind likely categories. that we experiences lot of I consumers question as flipping category bit. looks other them they're coming what will that product just I going I to that to though other categories bud, longer want edibles, premium in is believe as in say going caps. see vapes and drinks, a gel Not that’s as probably

but price higher that they consumers I points of in folks at there for will awhile more the need love and over come evolve. don’t market -- we they today consumers, cannabis, lot time. that at and will there keep market in think we about take consumers And learn end the are a that even lot will to are also those of but talking those premium it know category. So I that delight that

Pablo Zuanic

Thanks.

revenue… other The

Operator

of Endri National next Your of from Leno Bank. line the question comes

Endri Leno

questions. morning, good my for taking Hi, and thanks

just on And cause the able and you beverages now wanted like, dried say much you now? on that could X.X $XXX you quickly if you the the the million where and revenue Just first, portfolio, of X.X are of right how towards initial resolving to back caused are go quarter? have that do the vis-à-vis what the more per delay guidance And to then cannabis but clarify Thanks. bud only delay? on how overall see developing you previous your contribute particularly

Mike Lee

and revenue, the total we defined there, Canada make sure if want to revenue with with Pablo’s answer get outside can of up I follow-up. he or today take answered, question your of So will you call beverages. that, you and but questions because will mind, after Judy revenue up turn you but follow Tyler with will that [ph] Judy over up. I international it [REV] Chris, follow XX% don’t David is to as Tyler got off follow to around can you, to

David Klein

whenever launch your so you formulation cannabis a look Yes, it them. want alcoholic drinks beverages, as and you non-alcoholic awhile clearly takes it’s or beverage on get exactly to drinks whether drinks,

We obtaining need make when spectacular their that production having to obtaining licenses that ensure very licenses, are want X.X, are to want those have of scale that that You through them look we ourselves it’s on have but the had we when scale post as some because to tries to very of leading on to Canada shelf, to commercial that stability product and and made we up it’s you products. jump, to that is lab and from a scale at that opportunity had appropriate quality work production, appropriate kind believe do these are window only thing. from had this a have understand sure also we we the issues lab go the short decide involved we putting that we process they Health time consumer this

it we So, want to get right.

more maybe We quality in our are working otherwise taking what precautions way of through terms process. the would than happen

on out innovation make date. the worth products getting just our just I rushing it’s We and working have would some taking we to longer like, there as than outstanding And right we to X.X as launches. scientific said, and opposed but it’s think them talent engineering an end-market

Operator

from comes of Chris the Blake next of question Your Bank. line Laurentian

Chris Blake

very been much. My questions answered. have Thanks

David Klein

Okay.

Operator

the Your final Markets. John from of question Capital comes Desjardins of line Chu

John Chu

we U.S. that potentially marketing you launches, the in sides several launches more Ontario. to coming now. are products Hi, going the see those expansion retail to at Or next few aggressive and trying for least? stores jump and From accordingly? the are the especially with And quarters then sales a you launches you just so should up perspective, position quickly, quite the up be new adding got edible on product a

David Klein

and the next working are next Again, the for of John, kind No. phase actually doing we on still preparing plans. year’s work, even

have up. don’t number you the answer, definitive won’t I a So, jump but see

Operator

at all the are Those questions time. this

This conference. concludes today's

You at may disconnect time. this

Canopy Growth (CGC) 14 Feb 202020 Q3 Earnings call transcript