Good morning. My name is Alan, and I will be your conference operator today. I would like to welcome you to Canopy Growth’s Fourth Quarter and Fiscal Year 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. I will now turn the call over to Tyler Burns, Director of Investor Relations. Tyler, you may begin the conference call.

Thank you, operator. Good morning. Thank you all for joining us today. On our call, we have Canopy Growth’s Chief Executive Officer, David Klein; and Chief Financial Officer, Judy Hong. Before financial markets opened today, Canopy issued a news release announcing our fiscal results for the fourth quarter and full fiscal year ended March 31, 2022. This news release is available on our website under the Investors tab and will be filed on EDGAR and SEDAR. We have also posted a supplemental earnings presentation on our website. Before we begin, I would like to remind you that our discussion during this call will include forward-looking statements that are based on management’s current views and assumptions and that this discussion is qualified in its entirety by the cautionary note regarding forward-looking statements included at the end of this morning’s news release. Please review today’s earnings release and Canopy’s reports filed with the SEC and on SEDAR for various factors that could cause actual results to differ materially from projections. In addition, reconciliations between any non-GAAP measures to their closest reported GAAP measures are included in our earnings release. Please note that all financial information is provided in Canadian dollars unless otherwise noted. Following prepared remarks by David and Judy, we will conduct a question-and-answer session, where we will first address questions uploaded by verified shareholders using the Safe Technology’s platform, following that, we will take questions from analysts. To ensure that we get to as many analyst questions as possible, we ask that they limit themselves to one question. With that, I will turn the call over to David. David, please go ahead.

Thank you, Tyler, and good morning, everyone, and thanks for joining our call. Today, I’ll outline Canopy’s strategy and the foundation we’ve built over the past fiscal year along with the key accomplishments in fiscal ‘22, which support our fiscal ‘23 priorities. Judy will then discuss Canopy’s Q4 and fiscal ‘22 results and provide greater detail on our ongoing work to accelerate our path to profitability. In fiscal ‘22, we built a solid foundation for growth and clearly defined how Canopy will realize the massive opportunity ahead of us, not only as a company, but as part of a developing industry. Canopy’s growth is a premium -- Canopy Growth is a premium branded North American cannabis company with a fairly simple strategy. We’re focused on building beloved brands in markets and categories that will drive growth for the industry with strong routes to market that meet our consumers where they prefer to purchase, underpinned with operational excellence. In fiscal ‘22, three distinct work streams were completed to build this foundation. First, we premiumized our cannabis-branded portfolio in Canada. Second, we strengthened distribution of our high-performing CPG brands in the U.S. And third, we took concrete actions to build a competitive U.S. THC ecosystem. As it relates to premiumizing our Canadian cannabis brand portfolio, we maintained the number one market leadership position in premium flower in Canada, and through upgrades to our cultivation processes and facilities, we’re consistently producing premium and mainstream flower with attributes that consumers demand. Our share of mainstream flower nearly doubled, a direct reflection of our focus on premium cultivation trickling down to our mainstream offerings. We bolstered our premium cannabis portfolio by expanding DOJA, the best of the West Coast, into a truly national brand by bringing new flower, pre-rolled joint, and live resin-based products to…

Great. Thank you very much, David, and good morning, everyone. I plan to focus my comments on a quick review of our fourth quarter and fiscal year 2022 results, discuss in detail the actions that we’re taking to advance our cost of profitability, and provide some perspectives on our fiscal ‘23 outlook. Let’s start with a review of our fourth quarter and our fiscal ‘22 financial results. In Q4, healthy performance in our CPG business was offset by softness in our Canadian recreational business and adjusted EBITDA was further impacted by continued gross margin challenges, despite a strong operating expense discipline. In Q4, we generated net revenue of $112 million, representing a 25% decline over the prior year. Excluding the impact from acquired businesses and divestiture of C3, net revenue in Q4 declined to 26%. Details and drivers of net revenue in Q4 and fiscal 2022 are provided in the press release that we issued earlier today. Let me briefly touch on our Canadian recreational B2B revenue performance. In fiscal ‘22, we made deliberate decision to transition our Canadian business to focus on higher margin mainstream and premium products. We deliberately chose to not chase low-margin value flower sales. And for cannabis company transitioning your product mix can be challenging. As we continue to focus resources on actively pursuing low-margin value flower sales, our Canadian recreational cannabis business would have delivered significantly stronger revenue in fiscal ‘22, but at the expense of doing what was right, which was putting our Canadian cannabis business on a path to sustainable growth and profitability. I’m pleased that efforts to premiumize our business in Canada drove over 25% revenue growth in our premium brand with strong growth from DOJA and Deep Space brands during Q4. We also delivered a positive mix shift with premium…

How do you plan to incentivize shareholders as well as bring in new investors in this volatile market?

Thank you for the question. So, I think the share price declines is really not unique to Canopy. When you look at the share price performance of the U.S. and Canadian LPs, many of those names are down pretty substantially from a share price standpoint. Now, from Canopy’s standpoint, we are focused on really controlling what we can control, which is really laying the foundation for long-term sustainable growth and really building a premium branded cannabis company as the market goes through these types of cycles. For investors with long-term focus, we believe that Canopy really represents a compelling value as we do have a unique and compelling strategy to win in the North American cannabis market, and we’re really excited to engage and educate many of the current shareholders and as well as new investors going forward.

Okay. Thank you, Judy. The second question. How is Canopy planning to make a name for itself in the U.S. market?

Yes. So, as I called out in my script, we’re not waiting, because we’re already doing this with brands like Wana edibles, with Jetty Extracts, and along with our MSO partners in Acreage and TerrAscend. We already have a sizable and profitable and growing U.S. presence, which [Technical Difficulty] across North American cannabis with that focus on brands as well as premium positioning. So, we think that surely, like everyone else, we would benefit from the opening of the U.S. market from a federal permissibility standpoint, but we don’t have to wait for that in order to have our businesses work together to create value in that marketplace. As Judy pointed out, the difficult component of this strategy is communicating it, because we don’t consolidate their results into our results. But for many of these assets, we’ve paid for them. And so while the cash has left our balance sheet, you’re not seeing the P&L and cash flows from those businesses accrue to us, but rest assured that they’re continuing to grow while the market grows in the U.S. And the other thing I just want to point out there as well is that, we as well as people in the industry and experts around the industry, continue to believe that the North American cannabis market is in that $60 billion to $80 billion range at revenue. And that’s not the hope that you sometimes see in a nascent industry that consumers are going to adapt the products that you offer in that industry. This is an industry that we’re -- what we’re looking at is how to shift consumers from the illicit market to the legal market. So, I think the size of the prize in the industry and in the U.S. in particular remains dramatic, and we think we’re well positioned to perform there. Operator, Judy and I are now happy to take questions from the analysts.

[Operator Instructions] Your first question comes from Vivien Azer with Cowen.

So, Judy, I just wanted to follow up on your commentary around the outlook for ‘23. I appreciate that clearly, it will be back half weighted given the accelerating year-over-year declines that you guys are seeing for the total enterprise, in particular, for B2B. But, as I look at the B2B segment specifically, it sounds like you guys are making some very specific, painful, but strategic decisions in terms of portfolio mix. But, is it reasonable to think that that segment can grow next year on a full year basis?

Yes. So, Vivien, I’ll make a couple of comments, and David, you can also chime in as needed. So, first, I think, you have to think about the shift that we’ve made throughout fiscal ‘22 from a premiumization strategy, where when you look at the first half of the last fiscal year, we still have sizable value flower sales that were flowing through our revenue base. So, on a year-over-year basis, I would expect that that impact would continue to show up on a year-over-year basis with the value flower sales really being deemphasized within our portfolio. I think the good news is, on a sequential basis, we’re starting to see stabilization even in our overall sales. And I think the other good news is when you look at the market share performance of our premium brands and markets, we really do think the evidence are that those brands are starting to gain traction in the marketplace and showing good momentum with the consumers. When you look at all of the premium segments, including flower, pre-rolled joints and other categories, we are number one in all of the premium segments collectively. So, I think we’ve made really good stride. The premium segment itself is also growing on a year-over-year basis. So, we feel pretty confident that as we execute on our premiumization strategy that the growth of the category as well as our market share momentum will mean in the back half that we’ll see much improved performance from a Canada led B2B perspective.

And the only thing I would add to that, Judy, is I think the key component of being able to win in mainstream and premium is the ability to consistently grow high THC, good terpene profile flower, and we made some decisions during the course of the year to change the way we grow our plants in terms of feeding schedules and irrigation and lighting. We’ve made adaptations around our post-harvest process, in particular, in areas like hang dry. We’ve started to add to our final packaging, packets that allow us to retain moisture levels in our finished goods when they’re going out to consumers. So, we’ve done all these things so that we can continue to consistently deliver flower in particular, for the premium and mainstream segments. And to me, that’s been the biggest issue, not just for us, but for many of the LPs over the last couple of years is the ability to consistently remain on the shelf with the right value proposition. And we think given all the changes we’ve made, we’re there. With the caveat, as Judy called out that, because it’s an ag business, it takes a while for us to be fully producing at the attribute level that we want to be producing at, but we’re getting really close.

Your next question comes from Tamy Chen with BMO Capital Markets.

I wanted to go back to the adjusted gross margin for the cannabis segment. I guess, firstly, just a quick two part of the question here is, Judy, sorry, you threw out a bunch of numbers like 18% gross margin, excluding, I think, there was COVID subsidies or write-downs or something, if you could just clarify that? And then, there was a 7% gross margin that you also threw out. So that’s sort of the first little housekeeping item. And then just my second main question is, I just want to go back to why the cannabis segment gross margin was so low this quarter. Like, was it just that, because of all the difficult changes you’ve had to make, it was really sort of a onetime moment of lower production that really couldn’t offset the fixed costs? Or were there something -- was there something else there that just really caused the margin to capitulate there? And how do we think about that going forward the next couple of quarters here?

Sure, Tamy. So, on your first question about sort of reconciling the adjusted gross margin percentages. So the adjusted gross margin of negative 18%. When you look at what we reported on an adjusted gross margin basis the negative 32%, that basically still includes the noncash inventory write-downs that are not related to any of the strategic decisions that we made in Q4. So, there’s a big chunk of that that’s dragging down our adjusted gross margin. We did have a modest benefit in terms of our -- the payroll subsidy payment. So, when you account for those factors, we estimate that we would have been at around negative 18% in our global cannabis business from a gross margin standpoint. Now, the 7% gross margin comment really related to the full year number, and that is really when you -- and as I said earlier, excluding some of the noncash costs, because we also incurred some of that inventory write-downs earlier in the year. So on a full year basis, if we excluded noncash inventory write-downs, which are still part of the adjusted gross margin and adjusted EBITDA in our P&L, we excluded depreciation costs, the noncash depreciation cost, and then we also comped out the [SUS] (ph) payment -- sorry, the payroll subsidy that we do not expect to continue in FY23, we would have been at around 7% from a cash gross margin basis for the cannabis business. I hope that addresses your question on those numbers. Now, from a cannabis gross margin performance in Q4, I’d say, the inventory write-downs, there’s been, frankly, a volatility in that number throughout the year. And I think that is partially a function of continued shifting consumer preferences and our pivot in our strategy to really move away from value flower. So as that has happened, we’ve decided to take some of that inventory write-downs as a result. And then I think the other factor is some of the price compression and the margin compression that we have seen in the cannabis market broadly. And I think as we come out of this premiumization shift, we expect our gross margins to benefit on a go-forward basis as we benefit from the mix improvement. And then, as I said earlier, if we can really improve our demand forecasting process, which we really have spent a lot of time on, and reduce some of that inventory write-downs and then achieve the cost savings that we’ve outlined, we do expect sizable improvement in our cash gross margin performance in our Canadian operations.

Your next question comes from Chris Carey with Wells Fargo Securities.

I just wanted to follow up on the question around gross margins. I think you mentioned the -- you kind of see a 7% gross margin underlying rate. Obviously, that’s much better than the adjusted number in the quarter, but probably not satisfying to you over time in order to run a profitable business, and perhaps that becomes a bit of a challenge even with the SG&A reductions, which you’ve announced. So, when we get through all of the mix, evolution and the rightsizing of the products that you want for the market, where do you see the gross margin for this business trending over a very long-term horizon? Do you have some sort of idea of where that is? And secondly, on the non-cannabis gross margins. I wonder if you can just expand a bit on some of the factors that drove the sequential decline. Clearly, we’re seeing inflation impacting a number of non-cannabis categories. And so, can you maybe expand on those and what you’re doing to try and alleviate some of that pressure as we get into fiscal ‘23.

Sure, Chris. So, yes, I mean, look, we are focused and committed to gross margin improvement across all areas of our business, including cannabis and the CPG businesses. Now if I just go through each of our businesses, note that we are already profitable and carry a healthy gross margin in Storz & Bickel, This Works, and international medical business. With the Canadian business and then I talked to about this in our prior question, but it’s really some of the price compression and the noncash costs that we’ve been incurring, that’s been really pressuring the gross margin. So, as we execute our premiumization strategy and see the benefit of that mix improvement, as we achieve our cost savings that we’ve outlined, we do believe that we can achieve 35% to 40% cash gross margin in our Canadian business over time. And I think that that is a margin structure that we think is reasonably attractive. For BioSteel, our gross margin in the near term and frankly, in Q4, was hampered by higher co-packing costs as well as increased distribution and warehousing costs, and this is in part, a function of us scaling up in terms of the revenue as well as just the higher supply chain costs that everyone in the industry is incurring, including fuel cost. We do have a number of initiatives in sight to reduce our co-packing cost, distribution and warehousing expenses, and we do expect improvement in the gross margins in the BioSteel business in fiscal ‘23 and beyond. Globally, as you mentioned, we are dealing with some of the current inflationary pressure, wage inflation, the supply chain costs that are going up, but we do believe that our cost savings program should drive overall improvement in gross margins in fiscal ‘23 as well as on a go-forward basis. So again, if we can think about our cash gross margin in the Canadian business in that 35% to 40% range, and then the rest of the other businesses actually carrying a higher gross margin, we do think that over time, we can be in that 40% plus gross margin as a total company.

Your next question comes from John Zamparo with CIBC.

I wanted to ask about the EBITDA guide maybe from the revenue side and the cost cuts you announced get you to around one-third of the delta on current run rate EBITDA versus your target. So presumably, you’re planning for some significant sales growth. But the changes that you’re referencing, especially in the Canadian market are also on competitors are undergoing. And this is a market that’s now growing 20% to 30% a year. So, to get to your EBITDA, you need to grow significantly above that rate. So, I’m wondering what gives you the confidence that you’d be able to get there given the pace of the market growth and given the level of competition you’re seeing and presumably no end of price compression in sight.

Yes. So, I think that we’re going to continue to see strong competition in the Canadian market. I believe that we have some brands that are beginning to resonate with consumers, although it’s -- Canada still isn’t a full-up brand story yet. I think our ability to execute at retail is exceptionally strong, and I talked about our work with budtenders and our work with in general, in our ground game to get out at retail. And look, we’re in a challenged retail environment at the moment with a lot of retailers having difficulty in the market right now, and we’re able to work hand-in-hand with them to help them perform. And so, we think that those items, coupled with our ability to grow premium quality flower consistently at large scale in Canada, ends up being a differentiator. And I will point out that we’ve retained the number one position in premium again this quarter, and we doubled our share in particular, on the back of our Tweed brand in the mainstream segment. So, the areas we’re focusing on are showing green shoots. It’s just the broader mix shift that Judy outlined that puts a significant drag on our revenue line.

And John, the only comment I would add it, though, is that we do believe that making strategic investments in growth areas of the business, like BioSteel and our U.S. THC strategy is still a critical part of our strategy. So, I think from our perspective that we can be more profitable as we choose not invest in those areas with that in mind, but we really do -- are bullish on the prospects of BioSteel being the challenger brand in the fast-growing premium hydration segment in the U.S. market. And as I said, we do have a compelling U.S. THC strategy that we are willing to invest against then. So, it’s really the investments in those areas, but ensuring that we can be profitable in all the other areas of our business.

Your next question comes from Andrew Carter with Stifel.

My first question -- it’s actually all kind of related to the ecosystem in general. First one is, you’ve now done Jetty and Wana. Correct me if I’m wrong on the agreement with Acreage. They have a first right of refusal ability to look at that. So I assume that they’re going to be launching those brands soon in New Jersey and New York. And I believe there’s also an MSA fee, which I think would help them, and therefore, help you. Second part of my question is with kind of what you’ve kind of committed to today on the cost structure side and pushing breakeven EBITDA out to 2024, how does this not put Constellation in the position to where they can either realize the success if you’re successful or be in that position of last resort to extract value or just simply walk away?

Yes. So, what I’ll say, Andrew is that Constellation remains committed to our business. Judy talked about some of the supply chain issues, for example, around distribution for BioSteel. Well, we actually have a Constellation person fully dedicated to helping us unlock value from an operation standpoint. We also have people working in field and trade marketing, as well as in distribution and sales. So, we’re working very well together. I think for Constellation, they remain committed. They still have a controlling stake in the business. They intend to retain that controlling stake in the business. And there were -- everything we do, in particular, as it relates to the U.S., is done jointly with them. And so, I believe it continues to be a very productive relationship between our companies. And yes, their expectation is that the combination of getting profitable with our premium Canadian strategy and being able to deliver on our already profitable and fast growth U.S. THC ecosystem and bring it all together, they believe, along with us that, that creates a really big value unlock at the right point in the future.

Your next question comes from Michael Lavery with Piper Sandler.

I just want to come back to the EBITDA guidance and just sort of unpack it a little bit and try to understand the magnitude of the profitability headwinds that you anticipate from BioSteel and U.S. THC even by fiscal ‘24. And I guess, partly, I would love to understand if the M&A activity you’re doing in the U.S., is -- doesn’t flow through the P&L and those deals obviously are conditional on U.S. federal laws changing. What operating costs do come through that are related to U.S. THC and how significant are those? And on the BioSteel side, it was growing quickly, but obviously, just a little under 10% of revenues last year. What does it take for that to be profitable? And is it so unprofitable that it overshadows obviously, the entire rest of the business? I just would love to put all that together.

Yes. I’ll start, and David, you can also add any additional color. So, Michael, as I said earlier, we do view those BioSteel and U.S. THC strategy as a critical strategic investments that we’re making. I’m not going to give you exact dollar amounts in terms of the investments, but we do have sponsorships that we’ve signed on with sporting teams and the athletes. We also are really excited about the distribution that we’ve gained over the last several months. We’ve got 53,000 doors that are committed -- that we’ve got commitments then for FY23. So, we really view FY23 as an important year for BioSteel to unleash all of that distribution points that we’ve gotten to drive sales velocity in those stores and that investments in field marketing, brand activation and all other areas, where we can really leverage the sponsorships and the asset partnerships and to really unleash that brand in the marketplace. So, we are excited about the brand, but it is a sizable investment that we are planning to make in FY23. As it relates to U.S. THC strategy-related expenses, I think as you’ve seen, we’ve done acquisitions, so expenses that are related to our M&A team, we really have worked on creating a compelling strategy for development of all of that the U.S. THC strategy and others are really kind of built in that U.S. THC investments. Now, if we -- I think there’s the point of that is that those are the investments that we’re making today, but the profit that we are actually generating through those U.S. investments just don’t show up in our P&L, right? So, it makes our P&L just look worse versus if we can really consolidate the revenue and the profits of the investments that we have. So, it’s the -- it’s just that the expense shows up, but not of the benefits associated with it.

And the only thing I would add, Judy, is when you look at BioSteel distribution, so we know the brand with its kind of clean, healthy hydration differentiator, does well when it gets in the hands of consumers. Last year, we put all of the effort into building out those points of distribution that Judy called out. So going from about 1,500 points of distribution last year to -- by the time we get them all up and running this year, will be over $50,000. And so, the spend in BioSteel is to make sure that now that we have points of distribution, and we know we have a product that consumers love, we want to make sure that the consumer is aware of the product and pulls it off the shelf for that initial trial, because we know when we get consumer trial that we build a fan. So, that’s the investment that we’re talking about there that we think will pay really big dividends in the near term.

Your next question comes from Adam Buckham with Scotiabank. Please go ahead.

On the U.S. THC investments that Canopy has made, I’m just curious to what stipulations are in the deal, in the event clarity on legalization doesn’t come from a federal level anytime soon. I guess, what I’m asking is, how do you realize the financial upside of these assets in the event cannabis only ever becomes a regulated at state level?

Yes. So there’s a fair amount of flexibility, because each of our agreements states that we can exercise our rights to full control. And when we say we don’t consolidate it, it’s because we don’t technically control the businesses, even though we own them. So -- but our ability to take full control is upon federal permissibility or at Canopy’s discretion. And we would want to get comfortable from a legal standpoint and a Controlled Substances Act standpoint, but it leaves us some ability to take control of these businesses, short of full up federal permissibility, but it would depend on the incremental legislation that we get passed. And what we’re all thinking right now, and I’m sure you guys are as well is that federal permissibility feels like maybe it’s not entirely in the near term, but incremental change does look to be on the horizon as we talk about more and more things like SAFE Banking and initiatives of that sort.

Your next question comes from Pablo Zuanic with Cantor.

So actually, it’s precisely related to your last comment on SAFE. So, it’s a two-part question, right? When I think of the Wana and Jetty, does that mean that you think the triggering event may be sooner than expected, right? I mean one from outside within that you wouldn’t be making these investments if you think that that’s being delayed and now it’s much further out. The second question in terms of defining the triggering event, is SAFE enough for you as a triggering event or would SAFE need to have -- need to be followed by uplisting in U.S. exchanges for plant-touching assets for you to define the triggering event? If you can expand on that, please? Thank you.

Yes, sure. So, good question. As it relates to the triggering events definition, I think that it has a lot to do with what gets included in any of the incremental legislation and what sort of safe harbors get created and how agencies, such as exchanges and banks and so forth, react to that. And so, I think it’s hard to say, Pablo, whether SAFE Banking is enough, but there could be some scenarios where SAFE Banking is at least very helpful. In terms of timing, when we think about a brand like Wana, Wana is doing quite well in Canada. It’s the number one edibles brand in Canada. I’ll also point out that Wana Canada is not in our financial statements. But Wana is the numberone edibles brand in Canada. And so, for us, we do have the ability to do some different things with the U.S. brands when they’re operating in our home market in Canada, and we’ll look on that. We’ll continue to work on that. And then, just as importantly, our ability to bring a brand like Jetty, which doesn’t exist in Canada, but has really strong IP, really good brand credibility and heritage in maybe the most difficult cannabis market in the world in California. To be able to bring that to Canada is pretty exciting for us. So we do have ways to unlock some value prior to permissibility, and we’re going to keep looking for ways to unlock value and ultimately, cash flows as soon as we possibly can.

Your next question comes from Matt Bottomley with Canaccord Genuity.

I just wanted to go back on the strategy of the new goal of inflection for adjusted EBITDA. And maybe just if you could speak a little bit more on the potential disposition side. I know you chatted a lot on the BioSteel and Storz & Bickel prospects. But what are the prospects for Canopy’s longer term views and participation in things like Canadian retail, international infrastructure and cultivation outside of Canada? Things like that, I’m just wondering, is there an expectation that maybe that will start coming off the books through disposition within this upcoming fiscal year?

Thanks, Matt. So, I’ll start. So first of all, I’d say, we’ve already made significant strides in simplifying our businesses and exiting several noncore categories and businesses that we just didn’t feel like it fit our strategy, and you know that we divested C3 in last year. So, I’d say, we’ve made significant progress. Now, I think for us, really, we continue to look for ways of sharpening our focus. And I think there are areas where we will continue to really invest in, because we believe in the prospects and the growth aspirations of those businesses. And then, I think there are other areas where there the market dynamics are shifting or we need to further simplify our businesses, we will consistently and constantly review those businesses. Some of the proceeds that I mentioned that we expect to come in FY23 are already the businesses that we either closed down or have made decisions to walk away from. So it doesn’t include additional activities that we could potentially would look into, but I think we do have a pretty compelling strategy, and we’ll continue to look for opportunities to simplify and sharpen our focus.

Your next question comes from Ty Collin with Eight Capital.

I just wanted to follow up on the cost reduction announcement that you made last month. Could you provide some more color on the plans to leverage third-party manufacturing? What’s the rationale behind that particular action and which product formats would that relate to?

Yes. So, we want to be able to produce the best quality products I can put on the market. And I guess, when I say best quality, what I really mean is, I want the right attributes that our consumers love and I’m talking specifically about flower. So, when we look outside of our own facilities, we’re really looking to engage with craft growers, both for their ability to grow through our 7Acres Craft Collective offerings as well as connecting with them on some of the strain development and evolution that’s going on in the market. We just think it’s a way to keep our offerings fresh and at that highest level of attributes in the market that the consumers want. When we look outside of flower into our other -- some of our other categories, there are just producers that can take our formulations and produce them in an asset-light way to Canopy, which is just -- creates better returns for us and better margins for us. So we continue to look at how to just put the best product we can in the market. And if that means we produce it, we will. And if it means someone else produces it on our behalf, we’ll do that as well.

And the only thing I would add, first, I think it’s really aligned to us building a premium branded company, right? So, we really do want to lean in, in terms of our brand-led strategy. Number two, it’s really about flexibility. So, as we’ve mentioned, some of the heavy indirect fixed costs that we’ve been incurring in our Canadian operation, if we can look to varialize those -- some components of those costs and reduce our indirect labor costs, we do actually think that that’s a flexible strategy, where we can flex up or down as we -- as needed from a demand perspective.

Your next question comes from Aaron Grey with Alliance Global Partners.

So, I just want to talk about the U.S. acquisition, you obviously had a ship now of Jetty and Wana brands more so than MSOs previously. I just want to kind of get your kind of overarching view. Number one, why you believe now is the appropriate time to really focus more on the brands? Obviously, very early days, many people believe in terms of brand equity within the space. And then number two, because you don’t have ownership, how are you able to leverage core competencies, Jetty, strong presence to California, Wana, limited in California, but Wana, obviously, is stronger in terms of licensing in other markets, and you also have Acreage and TerrAscend as well? And then just last is just overarching brand versus MSOs. How do you look at building the brands, considering TerrAscend and have their own brands and then you’re also bringing on your brands through these purchases of the Jetty and Wana?

Yes. So, I’ll come at this from a couple of different ways and Judy, fill in the holes here. So, again, we start from the point where we believe that sustainable value was created by being that North American brand-driven, premium-focused company. And so, we see brands like Wana and Jetty really almost in their emerging phase, where they have really good credibility with their consumer bases. They’re well regarded in the markets that they exist in today. And quite honestly, Wana has shown that they do really well when they come to new markets as well. We think the same thing is true with Jetty where we look forward to the day where New Yorkers can consume a Jetty vape product relying on that California experience in heritage and recognition from a consumer standpoint. So, we think that the brands are important to build a base for consumers. But the brands have to have a reason for being, and that’s why we like brands like Wana and Jetty, because they already have the providence that you like to get -- that you like to see in a brand over time. In terms of why now, we think that the timing is right to begin to work together or to have the brands work together to find ways to grow. So, for example, you talked about, Wana’s success running their licensing model, Jetty hasn’t really begun to expand outside of California. It will be great for those businesses to work together to take the learnings that Wana has, apply them to Jetty and be able to bring Jetty into the legal markets across the U.S. In terms of control, I guess, is what you’re really talking about around, without us being able to be in there on a day in and day out basis. The way the agreements work is that we have guardrails in place in terms of what the companies can do and cannot do. But most importantly, and maybe almost as important as the brands, we chose to invest in these companies, because they have very strong management teams. And so, we have a lot of confidence in the ability of the individuals running Acreage and TerrAscend and Jetty and Wana, to be able to find the best path forward and create a lot of value before permissibility.

There are no further questions at this time. Mr. Klein, you may proceed.

So, thanks again for joining us today. If you’re in Canada, I really encourage you to try one of our new 7Acres Jack Haze infused pre-roll joint innovations or one of our new great-tasting cannabis beverages such as Tweed Iced Tea Guava. These are superior experiences, and I would really love for you to give them a try. If you’re in the U.S., I encourage you to try a BioSteel ready-to-drink beverage to hydrate over the Memorial Day weekend. Investor Relations will be available to answer additional questions throughout the day. Have a great day, everyone.

This concludes Canopy Growth’s Fourth Quarter and Fiscal Year 2022 Financial Results Conference Call. A replay of this conference call will be available until August 25, 2022, and can be accessed following the instructions provided in the Company’s press release issued earlier today. Thank you for attending today’s call and enjoy the rest of your day. Goodbye.