Good afternoon, ladies and gentlemen. My name is Michelle and I will be your conference operator today. I would like to welcome everyone to Canopy Growth’s Fourth Quarter and Fiscal Year 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. I would now like to turn the call over to Tyler Burns, Director, Investor Relations. Tyler, you may begin the conference.

Thank you, Michelle. Good morning and thank all of you for joining us today. On our call, we have Canopy Growth’s Chief Executive Officer, David Klein; and Chief Financial Officer, Judy Hong. After financial market’s close today, Canopy Growth issued a news release announcing the financial results for our fourth quarter and fiscal year ended March 31, 2023. In addition, we filed our comprehensive annual report on Form 10-K for the fiscal years ended March 31, 2023 and 2022, which contains our audited financial statements for the fiscal year ended March 31, 2023 as well as restatements of the following previously filed periods. Audited consolidated financial statements for the fiscal year ended March 31, 2022 originally included our annual report on Form 10-K for the fiscal year ended March 31, 2022 and audited consolidated financial -- unaudited consolidated financial statements for the quarterly periods ended June 30, 2022, September 30, 2022, and December 31, 2022, originally included on our quarterly reports on Form 10-Q for such quarterly periods. The news release and financial statements are available on our website and under the investor tabs and have been filed on EDGAR and SEDAR. Before we begin, I would like to remind you that our discussions during the 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 the news release issued today. 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 stated. Following prepared remarks by David and Judy, we will conduct a question-and-answer session where we will take questions from analysts. To ensure that we get to as many questions as possible, we ask analysts to limit themselves to one question. With that, I will turn the call over to David.

Thanks Tyler. Good afternoon, and thank you for joining us. I’d like to acknowledge that today’s call is taking place later than originally planned. And I’m appreciative of the collective patience and flexibility of all the attendees on this call this afternoon. During the call today, I’ll cover four key topics: First, the progress of our transformation plan and the performance of our Canadian cannabis business in fiscal ‘23; second, addressing the BioSteel Review and our strategy to accelerate the BioSteel business; third, an update on Canopy USA and the progress on entering the U.S. cannabis market; and finally, the path forward for fiscal ‘24. Following my remarks, Judy will provide a brief review of our fourth quarter and fiscal ‘23 results and share an update on our path to profitability. She’ll also discuss our balance sheet and the actions we are taking to strengthen our financial position and improve liquidity. Fiscal ‘23 was a challenging yet transformative year marked by substantive change. The Canadian cannabis industry continued to be challenged by systemic regulatory issues, a continued battle with the illicit market and delays in government action on both sides of the border. And internally at Canopy, we faced executional challenges as we transitioned our genetic strategy and cultivation practices, which led to delays in achieving commercial scale. I’m proud to say that we’re now delivering consistent quality as evidenced by consumer demand for the iconic Tweed brand. And we’ve taken the necessary actions to simplify our business by undertaking a complete transformation through the following initiatives: The full divestiture of our national retail operations; exiting cultivation in Mirabel and Smiths Falls; moving post-harvest manufacturing to our former beverage building in Smiths Falls; adopting a flexible third-party sourcing model for cannabis beverages, edibles, base and extracts; and reducing headcount across…

Thank you very much, David, and good evening, everyone. I’ll start by discussing our balance sheet. I’ll then briefly recap our fourth quarter and full year 2023 results, including additional details around restatements related to BioSteel. I’ll then review our fiscal 2024 priorities and outlook. Let’s start with the balance sheet. As of March 31, 2023, we had $783 million in cash and short-term investments, and total debt of $1.3 billion, of which $557 million was classified as current portion of the long-term debt. Subsequent to March 31, 2023, we’ve taken a number of additional actions to strengthen our balance sheet. In April 2023, we paid down USD 93.75 million of our term loan at a 7% discount as part of the second paydown related to the October 2022 agreement. Also in April, we refinanced $100 million of the 4.25% unsecured July 2023 notes held by a subsidiary of Constellation, which we intend to negotiate converting into shares. In addition, the USD 100 million related to the February 2023 convertible debentures has now mostly been settled through equity. Adjusting for the payments made in April, the Constellation notes and the February 2023 convertible debentures, our cash and short-term investments would be $666 million and current portion of the long-term debt would be $237 million, due in July ‘23 plus accrued interest. With that in mind, I’d like to address the growing concern disclosure in our 10-K. We ended fiscal ‘23 with $783 million in cash and short-term investments, and we believe that we have a number of options that are executable over the next several months that will ensure we have sufficient capital to fund our ongoing operations and meet our financial covenants. For one, we’ve already taken meaningful actions to reduce the operating cash burn in the businesses. These…

Thank you. [Operator Instructions] Your first question will come from Tamy Chen at BMO Capital Markets. Please go ahead.

I wanted to go to your target for EBITDA by the end of fiscal ‘24. You don’t break out the EBITDA by segment. So, it’s a bit hard to assess your path to achieve the targets you’ve set out here today. So, I’m just wondering, is there anything more you can share with us about how the cannabis segment, at least maybe the Canadian business P&L starts to look, now that you complete your asset-light transition? For example, like I’m not sure what the margin can look like, now that you’ve outsourced a lot of your manufacturing -- extract products and closing the challenging growth facilities you have as well, it’s hard to kind of assess what your SG&A is -- how much of that is the Canadian business and all the asset-heavy infrastructure that was there before. So, anything additional you can share about how the P&L of that business starts to look going forward would be helpful. Thank you.

Sure. Thanks, Tamy. I’ll start with just a comment that I agree, just when you look at our P&L, it’s very difficult to clearly understand what’s happening with all the moving parts and us not being able to really provide clear details around the segment profitability. We are working at ways to address that going forward and we’ll hopefully be able to give you more clarity on that on a go-forward basis at some point in the future. But to come back to your question about Canada, I think -- I would say a few things. Number one, what we have done from a business change standpoint is really rightsize all of our operations and SG&A cost structure to be able to be profitable at $35 million to $40 million per quarter revenue run rate. I think you’ve seen us now do that for a couple of quarters. And we think with the revenue of that level, we are now rightsized to really deliver the adjusted EBITDA that would be breakeven to positive on that basis. And I think there are really a few elements to that. Number one, obviously, we have taken significant cost out of our cost of goods sold. We had headcount reductions that we have implemented already. We’ve closed the facilities, both -- in a number of locations that save us not just the costs like insurance and taxes and just the non-people costs that really are costly when you have significant footprint just from an operational standpoint. So a number of those closures that we’ve already made are going to start to flow through, through our P&L. We are, I think, tracking actually a little bit earlier than expected in terms of exiting cultivation in Smiths Falls. So once that happens, by the end of this quarter, we should also see additional cost savings flow through from a cannabis standpoint. So, I think that’s going to drive really a cash gross margin in our view, closer to that high-30% that we’ve always talked about in the past. And then, from an SG&A standpoint, we’ve made a number of changes on the sales and marketing side, and working -- and even on the G&A side to ensure that we are, again, profitable with the revenue at $35 million to $40 million on a quarterly basis.

Your next question comes from Vivien Azer at TD Cowen. Please go ahead.

I wanted to follow up on that question a little bit, but with a focus on BioSteel. Recognizing that there’s appetite to absorb continued losses in FY24 as you continue to grow the top line, certainly, it sounds like with some of the marketing realignment, the nonproductive sampling, revisiting some of the sponsorship agreements that certainly, you’re at least looking to narrow the magnitude of those losses. So, Judy, I was wondering, one, if you could kind of dimensionalize that path to profitability in BioSteel. And then, two, as a follow-up, David, maybe you could just comment on the realignment in terms of the priority retail channels in the U.S. because it seems like the reorientation of the brand kind of moves away from the channels with which you’re most familiar and have the deepest relationships. So just wondering whether that can create some dislocation in the top line might impede some of the profit improvements that you guys have planned for FY24 on BioSteel.

So I’ll start, Vivien, thanks for the question. So, to be clear, we are not accepting the level of operating losses that we are seeing at BioSteel today. We understand that BioSteel currently is a sizable drag to our overall profitability. And we are very focused on significantly reducing our cash burn in that business as well as exploring other options to minimize cash burn that is impacting the overall cash at the Canopy level. In terms of, I think, the year-over-year change as it relates to BioSteel profitability, there have been a few discrete items in fiscal ‘23 that did drag the profitability more than, I think, in normal years. We did have sizable inventory write-downs in FY23 as well as certain contract manufacturing costs that are not expected to occur in FY24, just given that we now own our manufacturing facility in Verona. And we think the rightsizing of the inventory and reducing the current inventory levels will also allow us not to see the level of inventory write-downs that we saw in FY23. In addition, there’s -- as I said earlier, we have a number of initiatives to really rightsize our marketing spend and make sure that we can generate a path to being a profitable business for this company because I think the brand is doing really well. It’s just really making sure that we’ve got the right cost structure to support the brand in a way that is more focused and disciplined. And I think that that will also go a long way from our overall profitability standpoint and getting to a significant reduction in our overall cash burn and adjusted EBITDA improvement in addition to the business transformation that we have announced as it relates to Canada and the rest of the businesses.

Yes. And Vivien, in terms of channel strategy, I think when you look at BioSteel, first of all, the issues that we outlined related to the brand are really unfortunate because it’s overshadowing the fact that the brand continues to be accepted by consumers and taken off the shelf as evidenced by being up 101% year-over-year. We think, though, that the playbook in Canada is the right playbook to use ultimately in the U.S. And so in Canada, it was a brand that started out in the -- on the soccer fields and hockey rinks and in the gyms, kind of building that kind of authentic affinity with its consumer base. And now, you can see BioSteel on the shelf with all of the major retailers in prominent positions and with more and more consumer takeaway. In the U.S., we think we need to deploy the same strategy, if you will, by starting to build the base of the brand maybe a little more slowly than we would have liked, allowing consumers to really connect with it because it’s an authentic hydration product. And then, ultimately, we end up in those big retailers, where we’re already positioned today using the distribution channels that we’re all familiar with. But I think going direct into those retailers without working on building up the base and trying to do it maybe across the entirety of the U.S. was a bit of an overreach for a company our size and so, where we just decided to retrench the business a little bit in the U.S.

Your next question comes from Aaron Grey at Alliance Global Partners. Please go ahead.

So, for me, I just want to touch on, Canopy USA has disclosed the updated structure of it. So, really just want to talk about the ability to finance the U.S. operations, once this closes. Obviously, won’t be consolidating, so you can comply with NASDAQ. But just future funding the ability to do that, will you be able to have any benefit from publicly listing on NASDAQ, would you have to go through some other venture with just Canopy USA? Just any help in that. And then just also, I guess, plans overall in terms -- for funding that Canopy USA business once this is closed. Thanks.

Yes. So, a couple of things. The first is that I just want to reiterate that the businesses are already trying to do things together to elevate their individual brands, individual operations and routes to market, right? So, a lot of that work is taking place, even while we wait approval to file our definitive proxy. In terms of funding, on the day that the business closes, the business will have more than sufficient cash on hand to fund its growth aspirations for the foreseeable future. And then, really, the question then is if there is other like inorganic initiatives that we want to take on with the Canopy USA structure, we do have ways to fund that using the already developed Canopy USA structure. So, again, that’s not what I would -- where I would expect we go right out of the gate, but we have the ability to do that under the structure as it exists and the business will be well-funded on day one.

And I would just add on, just the benefit of having a brand-led asset-light model in the U.S. really does -- minimize the capital requirements to really build out the business and scale. So we’re obviously deploying similar strategy in Canada, and I think it’s important for people to understand sort of the reasons why we took this strategy in Canada as well, it’s really about ensuring that there is minimal capital requirements to build out a strong presence at scale.

And we’ve seen it work at Wana where they’ve always been asset-light and continue to grow their brand and have a very attractive P&L as a result of that. We’re seeing that same sort of mindset at Jetty and then Acreage ends up being a little more capital intensive. But again, I think over time, we would look to be as asset light as possible in the U.S. just as we are in Canada to call that.

Your next question comes from John Zamparo at CIBC Capital Markets. Please go ahead.

I wanted to touch on the going concern language and just solvency generally. And given the state of the balance sheet and the magnitude of the gap to get to positive EBITDA. I wonder if you’re considering selling any of the business units outright. And then secondly, assuming you get the outcome you want on Canopy USA and you’re then able to issue more equity, I wonder how you’d go about that, what’s your willingness to do it? And just given the state of the Canada space, generally, what would be your plans on issuing more equity in the future? Thank you.

Yes, John. Thanks for the question. So on the -- on our balance sheet, I think the starting point is that we do still have a strong cash position. We ended the quarter -- the year with $783 million. As I said earlier, all of the facility, the dispositions that we have either closed or currently working on will bring in additional up to $150 million in proceeds by September of 2023. And we expect a significant reduction in operating expenses in fiscal ‘24 as we execute on our cost savings program. So we think those actions are actually sufficient to allow us to have a flexibility in our balance sheet and continue to maintain the funding requirements for all of the businesses. But we think that there are additional options that are available to us, including looking at all of our noncore assets and businesses. I think we’re really trying to position ourselves as a cannabis focused company. And I think historically, we’ve had a number of businesses that were not core that we’ve divested and we’re continuing to explore options to simplify our businesses and generate some cash as we look for opportunities to divest some of these noncore assets and businesses. I also recognize -- we also recognize that we want to make sure that we reduce our debt over time in an accretive manner. We think that that will also help our cash flow, just given the interest cost reduction that would be expected. And to be clear, some of the proceeds from the facility divestitures won’t go towards paying off our term loan. So, that would also help us with lower -- reducing our debt and also reducing our interest expenses over time.

Your next question comes from Michael Lavery at Piper Sandler. Please go ahead.

I just was wondering if you could elaborate a little bit on, if you hit your plan as you have it now with EBITDA positive or breakeven by the end of the year, what does that look like on a cash flow basis? And what are some of your assumptions? You mentioned the divestitures that you’re trying to make or the facility sales. Some of that’s in hand, but can you give us a sense of how you’re valuing those and what the certainty is of that coming through? And how important is it in terms of just your liquidity management and just paint a little bit of a picture for how you’re thinking about how the year unfolds that way.

Sure. I’ll take that question. So, obviously, the -- to your point, achieving our plan and reducing our cost to improve our adjusted EBITDA is kind of the starting point. In addition, we are obviously working to reduce our debt and save on interest expenses and even some of the actions that we’ve outlined already and have implemented already. In reducing our costs, we should see on a year-over-year basis, $20-plus million of lower interest expenses, even taking into consideration the rising rate environment that we’re seeing across the board. We also expect to see working capital improvement in a significant manner, just given how we’re managing our inventory and the reduced footprint, frankly, that we have across Canada and obviously, BioSteel working on an initiative to make sure that they’re rightsized from an inventory standpoint there as well. So, we think all those initiatives should allow us to get to significantly reducing our operating cash outflow. I would expect to see close to a 50% reduction in our operating cash flow on a year-over-year basis. Our CapEx requirement is really just about executing on our cost savings. So, we think in FY 2024, CapEx should be somewhere in the $10 million to $15 million in terms of the cost that’s inclusive of the cash cost to really execute on our cost savings program. And then, as I said, we’ve got $150 million of the proceeds that we’ve already closed and are expected to close in the coming months that will bring in additional cash. And then I think the other options on the table that we’ve outlined are these additional proceeds potentially. We are exploring various options. So, we’ll provide more details as we have more color, but those are all, I think, available to us as really liquidity options that we will consider.

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

I just wanted to go back to BioSteel. And just given a lot of the commentary that’s been given with some of the positive trends with respect to the uptake of the products, whether it’s in the convenience stores, gas stations, where kind of your market share is. Just that’s sort of paired against the overall magnitude of some of the financial statement restatements. It looks like on a gross basis before restatement about 20% of the revenues were reduced. So, I would imagine there’s some big ticket items in there potentially. So, I’m just wondering if you could give a little more granularity on the nature of what the issues were with those restatements and if it has anything to do with products in the channel that ultimately couldn’t sell or shelf life or anything like that. It’s just something that I get a lot of questions on, given the magnitude of what was reported today.

Sure. I’ll start and David can add more color. But -- so what I said in the -- in my prepared comments was that the majority of the restatements really came from international sales. So, when you look at all of the market share information in Canada, the U.S., that we speak about, those are real, right? I mean, those are consumer takeaway numbers. They’re all really sales that are -- have gone through distributors and retailers and are being sold to the consumer. So, we do think that that really demonstrates the strength of the brand in North America. When you look at the international sales, frankly, this was more of an opportunistic, I would say, outlet where BioSteel management team had decided to expand distribution in certain markets, with some of the products that they had in inventory. And I think -- when you think about the practices or the sales recognition issues that we have seen, that’s where really the misstatements or the financial misstatements came through. So, I do think that that is very distinct from what we’re seeing in the marketplace, to your point about all the market share improvement that we’re seeing in that part of the business. We think it’s just unfortunate that the sort of that positive momentum, it has been a bit masked by some of these unfortunate events that have occurred, but we still believe that’s really a metric that people should be looking at in gauging the health of the brand. We continue to be confident about the trajectory of that business.

Yes. I think that captures it, Judy. What I would say is the restatements for the most part had nothing to do with product that was returned because it was bad or anything like that. It had everything to do with sales practices within the BioSteel team, which as we called out in our remarks, have been rectified.

Your next question comes from Pablo Zuanic at Zuanic & Associates. Please go ahead.

David, I want to talk about Canopy USA. And here, maybe the simple question as would be remind us of the benefits of Canopy USA for the company. And the reason I ask that if I wanted to play devil’s advocate, right, I could say you were supposed to -- some of the benefits in terms of alignment between Jetty, Wana and Acreage, in my opinion, that could have been done without this transaction, right? The benefits from investors giving you credit for these U.S. assets are lost now because you cannot consolidate them, right? We don’t know how you’re going to disclose them in the future. On the other hand, this has been somewhat of a distraction, I could make the argument, right, your main competitor in Canada to control of Redecan, right? Maybe you’ve dropped the ball in Europe, I mean correct me if I’m wrong. And it’s been disruptive, right? In the case Acreage, the CEO and the CFO are gone. So, I’m just trying to -- I’m struggling to really get the benefits of Canopy USA after all is said and done. Thanks.

Yes. Thanks, Pablo. So, a couple of points that I would make. We believe that the U.S. market is a market that we want to win in, which is why we’ve rightsized Canada, so that we have a business where we can be profitable kind of at its current run rate. We do believe that the profit pool in the U.S. is the one that we want to attack, and we actually think that our brand-led approach is a strong approach in that market. Jetty, Wana and Acreage are already beginning to work together, as you call out. So they didn’t necessarily need the structure to do that. But it certainly makes it easier when that business is put together all by itself. So, those businesses are merged together. There are significant synergies to be extracted from an operating standpoint, from a public company standpoint that we think are important. Now, we will be able to disclose what that business looks like. We won’t be consolidating it through our results, but we will be in a position to talk about what our consolidated -- what our Canopy USA as its own consolidated entity will look like, post the transaction, once those businesses have been merged. And then, Pablo, again, it’s like -- the good thing about strategy is a good strategy usually is one that you could do the opposite of it and still find it a fair strategy, right? So, we believe that focus on the U.S. is better than trying to expand into other markets or into other categories. Judy mentioned how we want to simplify our business to be a very cannabis-focused business and very focused on North America. We think that’s a good -- that provides a great path for us to create a lot of value in the medium term. And so, that’s the -- I guess, that’s the position that we’ve taken. And we think we still believe that it’s the right approach for us.

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

My question really has to do with the checks and balances that the Company might have in place as it relates to oversight functions given the material changes that we’re seeing right now. And really in place to ensure that you don’t have any unforeseen potholes or bumping into sharp objects. David, maybe you could talk about what you’re doing to implement those types of checks and balances to ensure that we don’t run into other issues?

Yes. That’s a really good question, Doug. And what I would say is that we’re -- so we have a complete remediation plan, which is called out in the K, for the issues we experienced with BioSteel. We did do additional testing around the rest of our business to make sure that the BioSteel issues weren’t being replicated elsewhere, and that testing proved that it wasn’t happening elsewhere. Again, it was -- this was a very involved process that included forensic accountants, outside legal experts, our own finance team, the dedication of our Audit Committee, which includes two former public company CFOs. So, we did a ton of work to make sure that we got completely to the bottom of the issues that required the restatement. And as I said in the K, we call out our remediation plans and our Audit Committee has asked for check-ins on a biweekly basis with our progress toward those remediation plans, which we will, in fact, do. And I would say that then beyond that, several years ago, I think that the Canopy finance function was maybe in a difficult spot to take on the complexity of the business that we have. I would say that over the last few years, we’ve built what is generally a strong talented team that’s clearly committed to ensuring that we have a robust control environment. As a former public company CFO, I’m embarrassed that we had a -- that we had to do a restatement. And we -- as I said, we’ve taken the actions to remediate that, the items that caused that restatement. And I do not expect us to have that kind of issue in any area of our control environment going forward.

There are no further questions at this time. So I will turn the conference back to Mr. Klein for any final remarks.

Yes. Thank you, and thanks all for joining us today. So, to highlight the key takeaways from today’s call. We’ve made substantial progress in transforming our Canadian cannabis business during fiscal ‘23. And we’ve entered fiscal ‘24 focused on strengthening the business moving forward. We’ve completed the BioSteel Review and expect the fiscal ‘24 strategy to drive growth of the brand in North America while reducing our cash burn. And in fiscal ‘23, we introduced our Canopy USA strategy to optimize the value of our entire U.S. ecosystem. And we look forward to successfully concluding the regulatory review and progressing to a shareholder vote in the coming months. And finally, we continue to believe Canopy has significant opportunity ahead, both in Canada and the United States. Investor Relations will be available to answer additional questions. Have a good evening.

Ladies and gentlemen, this concludes Canopy Growth’s fourth quarter and fiscal 2023 financial results conference call. A replay of this conference call will be available until September 20, 2023, 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. You may now disconnect your lines.