CGC - Earnings call transcript Q1 2021 | Canopy Growth Corporation

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Operator

Good morning. My name is Carol, and I will be your conference operator today. I would like to welcome you to Canopy Growth’s First Quarter Fiscal 2021 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. your begin may you conference call. Judy,

Judy Hong

our you, all for Thank we Canopy Klein; Carol, our and you Thank have and David CEO, everyone. morning, Growth’s Mike joining today, Lee. good call Great. CFO, us On today.

Canopy markets EDGAR ended Investors release quarter announcing a financial SEDAR Canopy the our XXXX. XX, filed and This results Before will is issued our Growth’s available under financial on for news profiles. tab be today, opened and first June our news release on website

the review of Before we release. results like entirety cause Growth’s end news views its to discussion would on that I SEDAR SEC Canopy our and this discussion to could in current materially that at begin, are today’s by remind projections. the release filed will various and from morning’s management’s statements Please with reports that the actual qualified differ you for assumptions, cautionary and and include this that’s note statements that forward-looking earnings is factors forward-looking included based the regarding

measures financial reconciliations in dollars to their Canadian addition, unless regulators. and noted. the non-GAAP that release are to our provided any between measures SEC closest reported furnished note Please securities information included in is In all GAAP earnings otherwise Canadian

go as turn Mike, please David. to many With that, Following To as question. ensure analysts. from over will the ahead. limit prepared get during conduct questions themselves by call to will David from be taken we ask which one that remarks we and a questions I’ll the David, to Q&A session, to possible, we analysts

David Eric Klein

and I are everyone. your families well. safe you, Thank keeping and Judy, morning hope and that good you

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we effective knowledge in bodies safe our in with standards presence As we’ll our are ensure partnership appropriate continue contribute implemented. expand to and regulatory the to US, order in the

in Canopy cannabis-focused morning. key Now, let’s four CPG discuss focus leading a There on like that making progress to create themes we’re Mike are the company. our I to would this at quest and

and execution completed improving quickly We’ve strategy. customer is our improved of Canopy our Canada. in rates. rollout order a We’ve nimbleness First, significantly value flower fill

X.X adapting in we’re Cannabis gain changes and portfolio to the momentum. competitive And quickly dynamics. the continues Our marketplace to

Second, further our a we’re We’ve our the enhanced moisture our of launched initiatives products, to improve content flower quality. we’ve research quality. improving of number and flower

to drive consumer increased And of initiatives. Our with to the our at of staff very commercial to and team beverages feedback continues awareness stores positive. bud engage quality our retail cannabis quality continues tenders on be

happening shopcanopy.com a US launched the exciting our market. in We in Third, new US. developments got of we’ve number the ecommerce site

few. Free expanded into to focus topicals discipline are And financial finally, while for future brand has and Tetrapaks in & investing creams. available, to now opportunities. ready-to-drink just beverages First on we growth name And Our BioSteel also a continue

to themes out during We reinforced and Meeting. we’re progress innovation-driven building key virtual our these company. QX consumer-centric and the a call provide I our details during Let making and we’re said on Investor priorities the strategic investor world-class tie laid me

higher a changes of making price here. consistent let So, completed pack flower, to architecture few ranges. THC examples and a give me including progress with more you repositioning our Twd. the of nationwide we’re We’ve

compression and increasing are four price further the value of the share potential the XX. velocity in nearly I with dollar weeks know X flower in latest performance July in industry. sales about share some improved points value and seeing ended Ontario market our growth We’re the concerned Province during segment for the of

perspective on share let So, me my this.

sales important illicit which be converting segment First, for sales, should the role into broader in plays positive the legal category. an I think value

our intend our can And we also in compete we to differentiated our to trade segments consumer so to third, insights ability products. margins. products, all scale, that to build mainstream will which flower will up value enhance premium Second, our price use consumers and our help create quality

consumer addition of critical and a to design-to-value foundation drive bud initiatives. perceptions. elements actively value bring in and our with flower, better serve ranges of In those brands including consumer, while the premium we’re process consistent select mainstream product seeing how quality. overall will and higher initiative also the THC to for define engaging market, as tenders We’ve initiated a awareness our flower implementing repositioning satisfaction the the that understand research to product flower they This more

our be we’ll more We’re implementing select on with focused adjustments a line-up offerings, cartridges XXX vape of pricing approach. and refining

one beverages unleashing have have number We’re innovation our beverages with beverages, market XX% achieved year-to-date share we in as cannabis accounting pipeline a Canada. four sold in differentiated ready-to-drink of for now and in our product dollar portfolio all

shipped US over units to X.X end million since X.X entire fact, all of of sold throughout all the beverages our million the XXXX. of brands across in In we’ve units March compared

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in US, markets of focus area is and win focused Canada, to strategic second Germany. The our our of

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the The this anticipated convenient month. explore including new portfolio including product hemp-derived First, to brands consumers one-stop dedicated growing purchase of a offers We our products, a within website, new to Works product launched Stewart branded shopcanopy.com, place and CBD SKUs site & continue This XX feature from highly Martha we take and brands, website the destination believe next BioSteel. US of ecommerce over CBD lines. Canopy’s will will First launch the which Free, to recently

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Bioscience addition provides and retail hemp-derived in products, market upon in nationwide. In distribution with also federal in the of production additional XX,XXX to THC TerrAscend TerrAscend permissibility. Arise access optionality US, US the and us leader owns health a to wellness locations with the Acreage, over

also of of is working looking skincare a quality name curing with and to priority with our structure consumer of processes edibles by processes is with The programs our making execution preferences. as ensure To quality organizational us optimizing of pipeline team and global all products. our vapes, amazing at products the And raise innovation and throughout our throughout product insights got execution. our complete, maximizing And number a and terpene now by flower flower new to just lines here we’re upon product and based channels. new largely insights. product The agility improvement moisture with we’re drying underway teams increase for organization. organized we’re distribution teams closely our the and aroma we third improve keep The that and and teams. content the and our consumer profiles progress and our strategic topicals, supported drying flower, sensory panels We’ve sales commercial our through align products beverages insight our flowing will of to couple, work

decision-making organization. the right right products already agility our is fulfill our model supply ensuring customer better strides can operating made as new at driving we the Our in We’ve quicker and that with time. an increased chain, orders

we’ve Just double cost and production Spectrum product we examples, Canadian patients reduce is for Yellow retail. than level July beverage for our our XX% at by the confidence where at fully medical of in this to has more August of again Oil couple significantly, in decided a increased to nearly highlight is in ensure business, beverages keep to of stocked need. from medical doubling expected to And our June a supply to

will down area, this our provide of Finally, the more structure few highlight details to our more we’re discipline. than since a but in the improving count year. is examples, XX% Mike and cost head just beginning financial

compared total And by Our to cash XX% from burn reduced than we’ve declined period. year our ago. XX% by OpEx more the prior-year a

I’m on During to now provided how those in Investor doing gauge our key update you with we metrics. we’re Day our you going virtual and against June, progress metrics to

brand not Tweed, markets flower QX, portfolio, provinces, market number by German share In with names. improved Canada improvement and our we’ve winning and year-over-year. and First, To our offerings our continued at which we number we’re market consumer operational one in Houseplant continued performance, Canada growth medical remain and maintained we’re execution core optimization continuously will in the three see end, activity, market you SKU with builds however, on are retail, flower our recreational, most product and Smoke current shelf and in in ensure share the that measured the net In of market. we two positioning. of Tokyo consumer top quality satisfied on and promotional share strength sales that sales is to in

strong in our fill operating made key supply improving FY for to remarks. averaging internal are work more our QX We new But at his gain by world-class confident line power attainment financial in results. and focus our in out-of-stocks retail. QX increases along balance in outlined. deliver a for our continue Second, rates strong metrics out-of-stock we’re profitability. improving XX% and year and while I growth rates us. measured will We and attainment order In ahead our we checks have to us organization will customer our address share, on financial with recent transition reducing execution rates weeks, expect review Mike QX. our our supply versus sheet above into XX% a there’s a consumer-centric during the suggest as further issues we at transformation in and improvement model, is to help us, with progress just reduced for team And now area know looking I’m And we’ve top renewed of risen a QX XX%. Mike our that XXXX will commitment retail, be this in talented

Mike Lee

total both backdrop revenue prior in David, cost our Canopy over continued and QX, volatile financial declined basis and stronger And sources versus everyone. and a year. In macro revenue and by and performance good diversified continued market, basis. XX% moderate on CapEx discipline. OpEx you, XX% dynamic Thank driven delivered net to year-on-year, Against QX, increased morning, a year-on-year a resilient quarter-on-quarter

of CAD investments in XX% an short-term year. and also And free cash prior year-end. is billion Our million, versus with improvement X we over sheet, flow was outflow a CAD strong XXX maintained which at cash balance

with versus prior XXX performance net review generated year. me We revenue more let revenue. QX starting in of Now, detail, million CAD XX% growth or

growth XX% of in last grew QX over period, and global versus Adjusting year continuing versus flower timing organic to due we’re this of the ago. year-on-year our revenue Our XXX%, CX a year partial quarter timing. recognition year our basis due both to and growth of growth XX%, part international medical a full XX% sales for quarter of of increased medical revenue an strong see international acquisition acquisition, the to the on year-on-year of with prior-year in with in business,

expanded this as Our loading we Canadian past veteran pantry ability And pleased and to the & lapped businesses in restricted This number that our Works we in distribution enjoyed to year-over-year generated BioSteel in have year-over-year, medical grew increase with the driven basket registered challenges, environment. and as part strong has sizes with year’s result business but consumer XX% Revenues driven last continuing with by of line in and over as average Spectrum patients. US. well pull COVID-XX strategic supply expectations XX%, XX% attract XX%. our by But of was higher year, by increased the the primarily Storz in retain increased QX a COVID-XX. performed as veterans which by by grew year, Bickel, due of are the

COVID-XX. by closure But BioSteel, an caused by improved the we Canada the months. in from BioSteel, sales in of sales in traditional in by distribution as decline retailers due performance coming US was as the ecommerce COVID-XX For well retail significant expanded brick-and-mortar increase in in from many to our offset of channel a Canada restrictions expect driven retail easing

response the decreased environment Canadian as retail to XX% cannabis in as due restricted COVID-XX competition. well in the to Our increased pandemic operating revenue year-on-year, net rec part

market over of driven with the decreased XX% flower declines sales increased revenue new than offset year, being X.X net period pre-rolls, Rec last comparison decreased products BXB competition by by more Our in and share. and

However, sequential saw the four our business factors. improvement driven rec by BXB quarter, through

POs, to with recent our to from our exceeded has First, And adjustments fulfill XX% weeks, QX ability increasing to in in customer supply QX. in improvements short-term and XX%. chain attainment supply cultivation our performance planning supply XX% in attainment drove

XX% product QX. our drove X.X rollout BXB up X% revenue of net in continued portfolio QX, in the of from Second, our

Third, and licensing in drove believe QX, the improvement stores improved with our grew by Ontario, lastly, to quarter. store current openings June quarter. operating. sell-in contributed to active count seeing XX store David versus growing the And nimbleness QX starting during further XXX Ontario with in provincial now for react especially the markets, highlighted continued earlier, in segment total we nationwide to and key over stores stores performance our value brand, increased as quickly to XXX And additional throughout Twd., the pace retail of value

we the commitment stores into to months to province of of an store that pace next XX ahead, sector And the is per XXX province. stores to on sell-in a continue number meaning have delivering positive be by calendar over end the expect to licensed on expect we Ontario can openings year. Looking the this additional in the its impact license month, of

we longer Moving business and as are a diversified no more on, average our to our flower. selling kilogram providing prices product line shifts sold from

So, on QX. impacts offer price some and let you me mix color during

price prices flower In to in XX% ASP of is expect decline our product offerings. sales current are And of process and were in Twd. BXB quarter the QX, average for now driven price accounted XX% in volume completed architecture QX, decline as from certain higher, as and in package selling and mainly of up in QX. by pack we’ve an saw resetting QX flower we in XX% XX%. well mainstream were flower of product value driven decline lower decline higher-sized the Our sales the geographic in declines The sales, ASP in toward as X% by Alberta products. sales continued a migration a mix, Ontario business compared in as our flower

over stores quarters, that on the financial to with downward we beginning pressure further put reflected in provide addition, price/mix format QX a opening Ontario with of will number coming plan would expectation results. of the geographic We expect key shift in In be our mix changes to ASPs. Ontario toward large this volume by

quarter, this, over let’s fixed stores of Gross a XX move margins pandemic the With for to since It lower margin production sales corporate decreased The in was of reduced levels. target. biggest result that in an X% of closures on to sales analysis BXC response COVID-XX half the to now impact noting a store XX% primarily through of QX, driver mid-May. returned worth demand prior costs from BXC resulting below have pre-COVID the continuation SKU stemming of is the and reopened by Our activities. our as related full under-absorption our to quarter. output, was gross XX estimated million CAD rationalization at latter from

example, based to as XX%-plus June, much the July and infrastructure. we throughput on across a deliver our a on beverage the Canada as strong up again plan context, billion we could already billion production heavily utilization expected. margins us seeing we’re gross sooner from relies capital to And are for August. in reach continuing Taking capacity we to X to we can for can CAD higher current in much built our robust beverage consumer proven that than that growth demand have and an confident throughput seeing, has doubled beverages, without our believe facility pull of become as CAD And facility structure support in we level capacity toward are with We’ve additional X.X double work ramping we will to the that this cost Canadian our we the put beverages facilities. we spending. business Our in and large-scale are return infrastructure

to the industry sales more share cannabis And improvement we believe value have In a of further are through time. term believe our process, medium ways overall In to are fair lead continuing people new open call. helping our focused and both production short expect variable on that technology And bolster full we that addition, term, margins optimizing convert meantime, we this estimated and we’re our forecasts inventory at X of the provision further ranges. the In the in In not to are over in to retail a medium that share at meet as our short to underway, by earnings CAD grow out-of-spec growth, we holding strategy variances, margin also on included our we infrastructure at will capture margins looking and best-in-class the did we we recognized impacted end-to-end related that also negatively to stores number details will legal of XX reduce and market. new CAD performance. term, we QX facilities. to up utilization costs, plan of project which were based next looks further our revised illicit charge an In manufacturing production initiatives the this targeted offerings of million an million as labor. THC including quarter, inventory term policies. the relative

let by couple expenses. Now, comparison over by SG&A Sales marketing XX% XX% cover of year. our driven briefly period quarter-on-quarter, and decreased Overall, decreased factors. and the a expenses me year-on-year last X% operating

year as activities capture as from versus First, to CAD of COVID-XX canceled million year expense result delayed space. due by last marketing and well or over a declined retail elevated the spending promo XX prior to as

commercial facility lower of X% by year-over-year that until due begin following increased X year-over-year, of stores. did XX% costs. expenses declined expenses part and but corporate to increased temporary staff closure to to corporate count restructuring research QX, last in head compensation million, increased but relative professional due R&D year-over-year quarter-over-quarter, by decreased of due expenses decreased a mainly driven by Stock-based QX are XX.X on XX% to we support expense potential, efforts to on expenses XX% reallocating R&D with year return emphasis our clinical X.X now have that decreased quarter-on-quarter product compensation pharmaceutical-driven development. less CAD projects G&A costs Cannabis and decreased travel higher high trials. focus Canada as in our R&D increased and CAD compensation compensation XX% expenses QX quarter. activities lower occur in due expected that US by the to expected to expenses to Stock-based corporate forfeitures resulting staff as not retail from QX during to part at to the Second, decline not approximately CAD in forfeiture fees, increase million, of occurred in actions to And same year prior the due investment, XX compensation are our the options is reductions. furlough studies versus reductions million level. the to

Next, I like free discuss would to flow. cash

Our in XX% of fiscal first over XXXX quarter free XXX CAD to million, was is year. the of compared an cash the flow which outflow prior improvement

quarter Our to year-on-year basis. lower working our do, And inventory levels. down with basis have believe due slightly inventory we to a more on and XX better and down the to while a this effort million, from And work few both CAD quarter-on-quarter XXX declined we demand. the importantly, million, quarter. capital declined of demonstrates prior ended the to CAD quarters align over past we supply CapEx our year-over-year

see you both metrics we a our we we XX% sales, As capital on a presented back in profitability, load results, at while margin we Investor delivered a achieved our Meeting. are progress flow, SG&A expenditures. our capital are against as quarterly reduction in decline gross working to percentage and target. get to of And our financial working cash in that key we making can On June

would a QX. factors on offer to few to consider I I close, key Before like

Ontario our rec net gradual we business in expect store standpoint, improvement openings provide a continued Canadian should from revenue as tailwind. in First,

product second & to Our see expanded more continue strategic launch while businesses solid should growth in Bickel quarter. to from normalized and expect growth a distribution, see Storz the new we

continue under to margins by fixed of in Secondly, to we term XX%. below the margins absorption pressured in QX believe likely and expect near costs our to gross be are come

Third, pick-up as coming head in review trade as additional see organizational benefit expect COVID-related in are we our lifted, from months. reduced we a and promotion expenditures marketing count restrictions expect to while complete sequential we activities

concludes remain be of of priorities, to first against on would the I analysts. commercial Operator, progressing This execution, fiscal are Growth’s happy XXXX. our and our financials we focused Canopy we summarize, from to operational strengthening review financial our quarter for now while strategic discipline. and maintaining questions take David So, my

Operator

[Operator ahead. question Vivien you. Thank Please Azer from Cowen. comes from Your Instructions] first go

Viv Azer

Good morning. pricing. to of I realignments Hi. for and value on Thank launch. some obviously, you. wanted top on you the David, on that, vapes then outlook focus noted price your layered

we a of we’ve couple think negative of mix got kind as about drivers. the So, evolution pricing, of

Just top trying Thanks. to price see think on think going you’re discussed? to (XX:XX:XX) the the about where the of kind [ph] pressure you that from of magnitude, deflation line you order most

David Klein

I the that a top see grow. good From Yeah. that And think we’ll again, that from the Viv, line away is to share we’re standpoint, value think illicit continue the market. flower to I category taking news extent

relates well. along margins comment the above want to value, you at to. objective So, we footprint, the of value wants talked share means Like And within to the our have that that’s products market, our I think what sit to value deliver differentiating right? strategic a growing what time, above we market. also from to production we trying I we gross I some of I so that think we so it - continue to believe will have XX% illicit grow. that to get while do about at were to deliver that Canopy that we - can spend. again, top that’s just really - production is better deliver that mix our evolution doing the work growth to see can job with see evolve production articulating at the of we’re challenges profitably by we as footprint which right But continue to adjusted that’s is where taking even Mike a margin healthy the our where we line we on as get just is review same segment, set the margins, assets as in that through the gross the can would just a deliver consumer characteristics

Viv Azer

on comment just you mentioned? the if price you vape And could adjustments that Thanks.

David Klein

Yeah, we’re more it just have And and me bit - a a be feels you price-per-consumer and we on need I don’t have still to a to not aggressive, I pressure margins established different trend believe in to large our see to vape people so we on that is little because all we that more have experience, standpoint. follow. be then we’re we think, XXXs. young, be market markets to we’re begin than probably puts we where think not going where top the the at looking bit more Viv, of start vape, we a that to think lot a why from line which aggressive just when is

Viv Azer

Thank helpful. you. That’s

Operator

comes Your next ahead. Capital from Markets. go question BMO Please from Tamy Chen

Tamy Chen

for for morning. Good high I Thanks. hurdles you on new THC the question. to your the that product set on flowers. quality wanted Yeah. touch Thanks

So, quite the when ingredient previously I many assets X.X. (XX:XX:XX) are for think think about for the an and are focus large as your cannabis current And I some quite grow labor-intensive. [ph] been using company had

I you’re it intensify? you’ve how I high new if continues better So margins and flower THC for set now, pricing consistently pressure at than question scale that doing can these is, guess, the meet mean do facilities, particularly my hurdles at to

David Klein

Tamy. Yes,

of - think high-THC XX% correct flower. So, but in was the like our wrong if Mike, I here, think I’m output me I quarter

So, the level. that at producing capable facilities are of clearly

a We’ll to as bit products for optimizing We’re forward. on outdoor that a some maybe footprint. for we [ph] rely look of (XX:XX:XX) lot go grow also work doing - around

it’s the capable think producing margins about in less as mentioned throughput. even maybe his about of and we’re in it’s what but, Mike each facility, I So, comments, less

them produce high-THC I that I warrants flower, when in about little a We Canopy bit team quality bit it’s a that out and/or to to the forward. in, that to But SKUs not And to strategic job well. so, responded And includes and was being the sure many production a to so we so set growing make retail. throughput while going that or pull-through top has get COGS. board of is a a And dialing in function assets able Canada. of multi-year facilities it can the completing facilities consumer at that asked discussion out appropriate that with So, asked for so it our of not line I have has review well I a and one story component, that the empty now, have really the I’ll in time think output But in improve growth had the right at pull ensure to QX. Mike. assets up team our with was we was our for the team through the we profitability, to we right? of over tag that - increase really stocking us, for path me, a COGS shelves by takes of probably responded and that it’s have brought retail coming THC

is best-in-class earnings still So, I on results not margins. That that give Mike necessarily mentioned, hope of you’re And a to work And to some to then them call. to shelf get next the even seeing our on the yet. underway. things we we’ve to have at talk asked us about done work as retail strategy us

throughput asked and our put have gross building also And we to I if then so attractive not lastly, could plants, would so through but inventory. we just them margins build we that more be - inventory more

So, executed near-term I think the the we’ve of that components on plan.

- to margin up standpoint where in I’d GP in Mike, And we the work from target. have walk a maybe you is to where here do. like your mind I ended to quarter build our some a from we through think from

Mike Lee

Yeah.

I I quarter. is easy originally we of that so. on of a impacts lower quarter planned and XX for you X% in it’s production the adjust to around back really X% or the think margin the execution. between that’s think out have lower quarter XX% think the volume the quarter, just based And of extraordinary us impacts, CAD the look tied or come happened for at And should fixed really for what to reflection versus volume when what for And on brought reported a absorption year. next million activities gross purely expect over proxy that than around to XX% that to looking good at margin those bifurcate volume that to cost

demonstrated clear to we see back volume path XXs for to to we that As up, back the ramp high in back starts getting a Canada QX.

The really other executional our down just thing is that items. margin dragged

adequate shelf some the us that a product were dates allowed right, that so challenges to such can in of enough before in for ship we pack our production goes getting life. phasing the There it So, life shelf with to getting way province. terms lined of provide production up

times, of and the countless quality have but David’s it’s quality right to where much where about back is the is what THC have also gets the to about is rationalization got it chain life us is and remaining. talked really simpler not into to just terpenes, to with our the which SKU comes run the we’ve going off function of. So, a And right of framework supply play, shelf our and operation this that’s level providing complexity

you large leverage the at look and XX%, as us view industry provides just Falls, we time. over facility my to supply that So, scale north when matures, but we matures, we’re cost in Smiths as fixed see here, a not that chain the clearly the business see of runway expected is going have to this

Tamy Chen

helpful. you. Thank Very

Operator

next Your Andrew from from ahead. Stifel. Carter question Please go comes

Andrew Carter

kind having Acreage, below just of ask in market of I the to of and incremental your potentially the X% XX%. of for pursuing with Thanks. options run of from not at versus the kind appreciate the by I the by work kind guess done much million to Acreage, full you given just pursuing dilution help commitment its understand here along letting us Canopy wanted US least I here. morning. Acreage to CAD suggests flexibility protection the XX.X options? reduction other and in Good pursue interest plan business downside potential course could this XX% But the disclosed agreement and other Canopy amendment to-date

David Klein

They about good Acreage, own plan. the those that I’d admission, of pretty little they transaction we we have in feel to that correct room want that wiggle really where to outs. left and Look, very by isn’t shortcomings, a their strong plan original terms be. think Andrew, also say,

and where really give recraft the and deal of so, would palatable or challenge as to probability us the along because other a was shareholders play the it them really Acreage their simple letting as for scenario they team And - Canopy kind maximum walking to and highest that It the it was wasn’t for wasn’t of away. Acreage and success, limped the our out shareholders.

I it ability in US in permissibility, clearly, year people we’re brands than start So, already thought the the good get upon the way, is maybe a fast and approach to of really would US seeing benefit by it a a Canopy which, our think, products X.X can’t in ago. keep faster with the the the wait to I market, I to And market. our think was get actually coming having

the the create So, to with I think had to it that Acreage. of - way out make a real was original arrangement victory we

Andrew Carter

I’ll on. Thanks. it pass

Operator

next question Spillane ahead. go Bank of Your from from comes Please Bryan America.

Bryan Spillane

Hey, good morning, everyone.

David Klein

Hey, Bryan.

Bryan Spillane

will about just offset gaining that illicit of product it was the follow-up to down the just a into trade-off the potentially market. of your about of what market, cannibalizing was share in from market earlier thinking business? about trying And share get pricing. from share, So, much to then think might I’m value on lift that value how be right? existing do the wanted much So, value-added I into trade about just I how think just be taking And value that I how you we getting might between and segment? more just the offering also question what from guess but understanding an Vivien’s

David Klein

Yeah.

about is to quality illicit parts we the ability most about definitely but strange have the say, products playing and in different industry, about the we’re of that at say, our products almost value, to we consumers points, it that I differences a does also as market markets on share at majority the space effect, differentiate doesn’t would here. an of if with value is is already there’s trading look infancy - really taking up we’re the and a that it’s market, them business? and end car in like, just So, when this consumers terms buying price-sensitive Well, create include share, that you experiences and commodity it I you the Bryan, happens of a think talk right? it then think - discussion are been about being saying, I So, those We’ve lot market in kind of doing we’re there in side-by-side, is is isn’t that got illicit a market we up not the and to on already industry think the in what we’re an that of This isn’t and experience. talking price - marketplace. and bodies that cannabis their quality think have to we’re ingesting into exists. demonstrating

think legal XX%. of so, yeah, see share that, going I market And the value approach the we’re to

look think because the I can you than an might a illicit is, don’t into and the - think category, we as grow way that big about then here to a CPG little again, have categories as is up, endgame most different pie we bit big real legal However, to space. leakage trade which this market those the normal consumers CPG

transition the we be we thing believe to to - most that by the have, because products value not game, bit there’s illicit most pie, would we question, be that create throughput the we’ve said, on going margin premium. we’re a as and opportunity of overnight and then transition we grow saying that industry, And an the it’s it’s transition a however, argue that’s share look, we helped why through a we space. a Canopy, For for believe deliver important offer facilities we that for differentiation recruit from expectations? the the it’s the tremendous our argue, me, I design-to-value for to we through - the mainstream year. is in but initiatives, year would I which optimize year is can can that continue and we’ll important that’s while And segment,

Bryan Spillane

it All right. Thanks, pass on. David. I’ll

Operator

ahead. from from Pablo Your Fitzgerald. go comes Please next question Cantor Zuanic

Pablo Zuanic

and morning. good Thank you,

frame to potential it’s just profitability? on you US terms little the industry can try of Obviously, barriers to in strategy, it with on impact very CBD the Just entry. an

of out so known. brands besides other these develop - are brands Stewart, to not the have You Martha well

plans get impacts your positive profitability? how a So, be into how in concern much should to terms that of a that

David Klein

Yeah, there right? the in of there. US, Pablo, of So, good out a question are lot something X,XXX products are because CBD brands there like

we will the that the there’s have ability don’t will an gummies gain It’s as to that by next Martha you front think Free, effect barriers I to you difference. of a and a many US products Martha visible in Martha the in about you’re that it in by you we And like & you notice experience have that we First consume brands. the over think that lot and sure market that in products right, make space. a the as even - low traction - but like when begins what feel I This I or entry, brands think also months, is brands to And gains get Works the the like Stewart BioSteel of consumer when talk Stewart, traction ability our as consumers using using there believe use it there. bad out to be Stewart try they products the the the couple to of product do of we

ourselves a point So, point on the works believe that just This the kind add space, space. to to of X,XXX the Stewart, is against Constellation have and that because with to retailers, you them consumer the at we from mindshare are its Martha its this bring a leaders like brands and leg process be way wall, in a that retailers through throwing the as engage in brand to getting name names that get the door And with is and name, to differentiation we products up against bit FDA brand that kind the as consciousness the other that of around for into build we’re high-quality the that our major we digital way brands lot moat able Stewart is I And Martha to we the the the in there’s who the the penetrate X,XXX that create there’s and would think space have of a look an and of Works the we’ll if Canopy opportunity like with ability opens Brands. believe competition of so will. those we connection things come then major a

Pablo Zuanic

ask end growth I delivered, just minus in quick of Maybe I Mike? of the given in for XX% on trends, May. a X% follow-up you. you Thank guidance of sales think, sequentially Can the above terms very impressive through compared rec you’ve BXB to

were to just XX% to So, right? portfolio, quickly, adjust what mean, are to you value of very that understand it drove that flower, able I flower seems lagging. You got still things improvement, but your other

you customers. and an August, factors that fact play, other much So, understanding competition your July, of for stores how to the sequentially [indiscernible] retail distribution, get improved just BXB, at (XX:XX:XX) has own trying were

it to trying able were fix need need very because to Thank understand that quickly, - other Just but you seems parts addressing. still value that you.

David Klein

Yeah.

X.X at consumers retail. look QX. what at our encouraged stock-up due in as are are up, when transaction of stores. Dollars trips back going they’re up actually consumers corporate we Cannabis retail. is coming The we’re are trying We’re products, own but to more The by seeing continued activity, number per the partially spending to

corporate across extending strengthening trends are of we So, a market. are lot broader think our broadly, the lot And fundamentals a the then to more stores. those of all of

and we our comes performance, to of a back lot it more rates Just spend at we to fill consumers own look earlier. about that transaction. talked are our When more trips continuing per

faster and us for operationally that react that spoke allow We much rate, to approaching we was purchase testament that in call. lost build fill time. at XX% us through to our come done work just that they to orders And this our as tissue on is are about muscle to opportunity a the a a really cycle last we’ve to

we be rates be mature think good getting lots really start. still lot added to in this a off terms rates in-stock QX there’s to up, need a So, but look, market, is up, fill our getting done of to to more stores

Operator

from comes from ahead. Canaccord question next Bottomley go Your Matt Please Genuity.

Matt Bottomley

for the questions. taking Good Thanks morning.

Just where could a on you THC-infused. the the comment curious for see going, if little market you market more Canadian particularly in beverage

very there. we’ve product these market US, type Given the what but the small not it’s percentage seen products, of X.X of formulated a share it’s sort for in really down

overall where pretty of it’s So, that you with relative good started to the do the given to if rollout? have is a range a US, what still seeing? the respect retail two that And I of dollars One, we’re but just that right on you’ve where the percentage imagine, foot in the I beverages market pretty now see guess, curious year-on-year you parts nascent, percentage question. going are.

David Klein

it market I of as fill the maybe Yeah, recovering that where love and miss so, Matt, trends because drinks part can in beer guy, Mike I’ll a in I Canada. the we’re seeing take in

sourcing a still lot into dispensary and decision a which We’re majority it of you from a make a of go sense, buy existing have to our the take Because users, consumers home. cannabis right? product to makes and

platforms the in starting the typically a delivery cannabis And evidence hasn’t of mother-in-law, that user, anecdotal it right? feel web mother-in-law and XX they’re of but kinds like makes being so, decides finding the all ever to some they from up them like is an order have sleeping and trying of been that maybe getting ends they’re product it great years, than that the home people the We’re bringing OCS. last better

kinds like we that. X.X considering up it’s stories that then on maybe the that hearing a percentage We’re like because of have data say in of current lot a ends like little And only is the I’d market drinks bit a - the of user. all so the product cannabis skewed

look billion off remember, Canada, that’s our bit that’s million market And little okay, be we’re about a more about and units. XXX you - talking and sold, we talk numbers, of beer these as that expand than cases. say, cases about in to not like with So, I’ll when there X we drinks,

about units. talking We’re

had by from share sourcing units million lot the units. as awful so, And X.X an market, small beer of be said an we a example. to we’ve There’s shipped

see different looks right? going was they later, sooner cannabis slow drinks you’re tremendous to can that Because I in than going the those think space build, delivery frankly, I are again, when a might the to be have part just Because when big a It’ll like upside. percentage it’s users we’ll Constellation, user percentage a how into but for I the that we’ll estimates non-current though, be of think users lower people methods, drinks that growing I larger So, expected Canopy. at cannabis that want look investment bring - current opportunity. but opportunity made to experienced - the cannabis in we the that and use just cannabis Quite of than the be. tremendous

than think we I the bigger thought. again, So, is opportunity

Mike Lee

out-of-stocks to just with it, industry today, David, today. And on around It’s X% And four we’re around market. of an X% to in having XX% share build we’re SKUs the share.

know What we we’re is do yet. is potential up the what production know scaling quickly. that really don’t we So really

For million that cans to of Day a December, of came capacity think of of cases folks off off single we quoted XX.X I Analyst or - capacity shift. last

without triple So, double, that we jeopardizing can maybe that based know quality. on we demand

out as much can. So, game. distribution got it now and a price it’s we pushing we’re as just market. attractive the points We’ve very fulfillment in And

David Klein

drinks so more continue ahead? what next is version, the And our we drinks the not by and team clock innovation working what of like to that next around right? So, the the we is our coming market, to have iteration understand way, is product we’re done, to stay

Matt Bottomley

Thank helpful. has really the that can’t you. with that government beverages? all [indiscernible] things that [indiscernible] come you guess would in very amended? That’s gets at are all start And until Because I selling these back

David Klein

that when support there regulatory the with the it, going anything, it’s dealing going some to some to take the think is - especially product. it’s sell environment, time. Look, of in Yeah. just I provincial organizations think I like you’re

Mike Lee

We’re working Yeah. it. on

Matt Bottomley

Thanks.

Operator

Markets. go Your Capital next John ahead. comes from Chu Desjardins question Please from

John Chu

Canadian revenue net store just openings. good comment the about to gradually improving up wanted the in I morning. more earlier with market follow rec on made Hi,

XX in and when your reflect August. the that your production now July expected in corporate for stores again is are beverage open fully in upcoming capacity quarter, to doubled So, I do that -

So that be going to seems well.

the You’ve X.X got brand, national and of fulfillment value rollout the in then a better general.

BC you And kind in I’m of curious also, have been more just obviously, stores and in just in So, well. improvement. on as the gradual Ontario

all quarters it gradual. in would the the comment coming place So, how been have couple quarters? see in next more of maybe just bit more kind coming thought you on those you into might just of a accelerated than growth Can factors

Mike Lee

Yeah, John.

surprised we could pleasantly by So, of to that is a during look, calendar is been pandemic. even continuing estimate And year, stores stores end what in of our by open across excess we’ve be latest Canada. X,XXX the

continuing So, ramp up we’re that. to for

execution, know Consumers going in to market. we’ve tailwind As we spending there’s going and continue quality over is the six the the we And to that, fulfillment, it’s a more stores continue vape to months continue believe dial we with build see of as we of and but that capability pricing to questions to of offerings market, meantime, what in that’s that to What potentially that in perform as the been all solutions that into heading our more lot round this real that’s potential more And believe of continue we market. play. more some toward in we six And we the are defensive chain we of nine demonstrate that as don’t improve be. we I outcome open beverages, coming we months. around of but we production of pretty terms value has to and as the still good X.X got nine out terms strong think a lots growing on know the cannabis. market, supply out future and the to up coming, next to continue value the next in going PO and our chocolates, there’s perform the the is pandemic know board, to across Cannabis

are So, to just signs is open. of all good of a for function And to the continuing really year going balance those QX. stores be

Operator

question ahead. Doug Please RBC from comes Markets. from Capital next Miehm go Your

Doug Miehm

value just Thanks points? then from very share and And changed it is question with about market right like do if the good that - market? in is morning. much, has X those is CAD absorption, to your we percentage million? more the now talked My fill What curious terms drinks it and Or related that, XX to I’m what sites to is for of distribution in its about more manufacturing cultivation is, fill site? company that it to important important the what

Mike Lee

Look, take Yeah. I’ll jump a at in. David, and stab you can this,

cited of calculate we Ontario, do for, an Alberta, the BC. uptick actually uptick market is to two timeframe. continue see Quebec, share, that Canada that we last we improvements in we provinces And trough on in I across can share seeing we’re terms generally, look going So, say, Quite confident as are hit things, I at the share. And a trends we question. across the would the on May market at in that share recent for reasons market all April,

four our perhaps we times going point on three of utilization taking sheet, which that’s at their each balance or come some in a terms that in system. and steps which competitors different but it’s And facilities, run, Canada we in interesting impair the lower their high have utilization our supply harvest, of surplus gross know experience such that surpluses. continuing also taken in are LPs levels. performance to all situation getting puts of levels, in operate that might back across chain today of utilization producing as the of some And so quarter balance. sales know to many their terms path, an our We’ve their In because short margin a is at we still

continued balanced facilities know continue to So, and we a perspective, got chain demand we balanced improve feel up supply going. from and a just good supply that and priority of we to economies our to versus we’ve is our to the margins, that opportunity keep we’re right filling scale think maintain now

to over continue six to the the for in are that to of continues be six that we terms And build very take we nine that X.X interest positive next of taking. next that are and we counts. positioned again, to advantage Cannabis in we’re to that’s the this store months path space, to believe industry going this think So, well nine months.

Operator

turn the Mr. I would final call. concludes question-and-answer This the to to Klein back of like for it portion remarks. And now

David Eric Klein

Thank you you some website. further there, From Smoke go the can Yeah. our We the of understand website. you for look sharing meantime, we to visit they of are products In Canopy amazing progress the will just products, our help stores, hope you and hope us. that and again This try months. cannabis. explore our our joining I of will out Tweed and BioSteel forward to Tokyo there, amazing Works in future truly There all shopcanopy.com the and coming future

do to you encourage I So, that.

Investor team any answer be to a day, great additional Relations will Have available everyone. questions. Our

Operator

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

Judy Hong	Vice President of Investor Relations
David Eric Klein	Chief Executive Officer and Board Member
Mike Lee	Chief Financial Officer
Vivien Azer	Cowen and Company
Tamy Chen	BMO Capital Markets
Andrew Carter	Stifel Nicolaus
Bryan Spillane	Bank of America
Pablo Zuanic	Cantor Fitzgerald
Matt Bottomley	Canaccord Genuity
John Chu	Desjardins Capital Markets
Douglas Miehm	RBC Capital Markets

Canopy Growth (CGC) 10 Aug 202021 Q1 Earnings call transcript