Good afternoon. My name is Michelle and I will be your conference operator today. I would like to welcome everyone to Canopy Growth’s First Quarter Fiscal Year 2024 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.

Good afternoon and 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. After financial market’s close today, Canopy Growth issued a news release announcing the financial results for our first quarter ending June 30, 2023. News release and financial statements have been filed on EDGAR and SEDAR, and will be available on our website under the Investors tab. 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 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 today to discuss Canopy Growth’s first quarter results for fiscal ‘24. During the call today, I’ll cover four key topics: First, the progress of our transformation to a simplified asset-light business; Second, the improved performance of our Canadian cannabis business; Third, the strong top line performance for BioSteel and Storz & Bickel; and Finally, a brief update on Canopy USA and the encouraging developments with our U.S. cannabis brands. Following my remarks, Judy will provide a brief review of our first quarter fiscal ‘24 results, and review the actions we’ve taken recently to strengthen our financial position and improve liquidity. Over the past year, we made significant and sweeping changes to our business. Our strategy is anchored in our commitment to building beloved consumer brands within an asset-light operating model. We fundamentally believe this model will enable us to compete more effectively. We’ve streamlined and simplified the business in the following ways. We’ve divested our national retail operations to reduce complexity and eliminate channel conflict. We closed many facilities to focus cultivation into two purpose-built sites. We’ve outsourced production of edibles, vapes, and beverages to contract manufacturers, which is accelerating speed to market, while reducing the overhead and risks involved in developing new products. Collectively, these actions resulted in a roughly 60% reduction in both, our cultivation footprint and total headcount. This transformation to a simplified asset-light model is working, as evidenced by our increased ability to execute and deliver measurable results. Today, our remaining cultivation facilities in concurrent, in Kincardine, Ontario and Kelowna, British Columbia, are producing the high-quality flower that consumers desire. Our cultivation infrastructure has been greatly simplified and our supply is more effectively matched to demand. Our transformation has delivered significant cost savings with SG&A expenses…

Thank you very much, David, and good afternoon, everyone. I’ll start by recapping our first quarter fiscal 2024 results, including the progress we’re making to achieve profitability. I’ll then discuss our balance sheet and the additional actions we’ve taken to delever the balance sheet and improve liquidity. I’ll then review our priorities and outlook for the balance of fiscal 2024. Let’s begin with our first quarter fiscal ‘24 results. Overall, we view Q1 as a key inflection point as significant business transformation we’ve undertaken over the past year reflected in results across our P&L. We delivered revenue growth and profitability improvement across virtually all of our businesses, generate additional cost savings and remain firmly on track to achieve $240 million to $310 million of cost reductions by the end of current fiscal year. Looking at our consolidated financial results, we delivered net revenue of $109 million in Q1, which is up 3% compared to Q1 of last year. Excluding the impact of retail divestiture, net revenue increased 16%. Drivers of revenue growth were BioSteel, which was up 137% and Storz & Bickel up 16% year-over-year. Q1 gross margin was 5% with all businesses, except for BioSteel showing improvement on a year-over-year basis. Excluding BioSteel, Q1 gross margin was 18%, and adding back non-cash depreciation and E&O expenses, we estimate cash, gross margin was approximately 35%, excluding BioSteel. Q1 adjusted EBITDA loss was $58 million, an improvement of over $20 million relative to Q1 of fiscal ‘23. We estimate over 60% of adjusted EBITDA loss in was attributable to BioSteel. Free cash flow was an outflow of $151 million, which included a few non-recurring items, which I’ll speak to in more detail later on. I’d like to now review the results of our key businesses in more detail. Starting with Canada,…

[Operator Instructions] Your first question will come from Vivien Azer at TD Cowen. Please go ahead.

So, Judy, you mentioned at the end of your prepared remarks that Wana could present upside to the targets that you’re reaffirming today. And David, in your prepared remarks earlier you noted that the Wana distribution agreement would be accretive to both revenues and profitability. So, I just want to dig into that a little bit more and better understand how, number one, the economics work on distribution. Because really, like for a business at scale, which maybe that’s just not the case here, CPG margins are generally higher than distribution margins. So, I just want to understand that a little bit. And then more importantly, I think from a strategic standpoint, like how are you thinking about prioritizing Wana your total portfolio? Because it seems to me that you guys are having a fair amount of success in revitalizing your master brand in flower, but the master brand approach that you guys asserted seems to have brought a lot of risk to the portfolio, right? And so, if you’re picking different brands across different categories, maybe you’re de-risking the portfolio a little bit. So, I’d love to get your perspective on that. Thank you so much.

Yes. So, I’ll start. So, Wana in Canada, right now is roughly a 13 share of the edibles market. And we think that with our teams driving distribution in Canada, we can grow that share a reasonable amount. We -- as a result of our ownership of Wana through the option structure, we actually will get all of the brand owner economics for Wana in Canada. So it’s not just distribution margin, it’s the entire margin related to brand ownership as well as distribution. Of course, we have to pay cost to manufacture to our CMO partner. So, that’s why we think it’s generally accretive, from a growth standpoint it’ll be accretive, from an EBITDA standpoint and a margin standpoint. And we also think it will -- it’s just a nice ad from a dollar standpoint to our portfolio. I’ll address the master brand approach, because I think if you look at the brands we have in Canada, the flower brands in Canada, we focused on revitalizing Tweed first because Tweed is actually according to surveys the best known cannabis brand in Canada. However, we had some work to do from a quality standpoint. And I think we’ve now delivered that quality into the market and we saw a lot of growth behind a couple of really strong strains in Tweed. And we’ll apply that to Doja brand and 7ACRES brands in the flower space. Talked about Wana in the edible space in Canada. And then from a beverages perspective, we continue to drive Tweed as a beverage brand as well as Deep Space as a beverage brand in this market. So, we like that. And then Vivien, the other thing that we like is having Wana in markets like Toronto and Montreal and Vancouver, as well as having it in markets like the Surterra markets in Florida and their overall positioning in Colorado. So, it starts to get exposure and feel like a real North American brand. And we’ve said this before and I know we don’t disclose financials as it relates to Wana, but it’s a profitable business that’s positioned really well in some really key markets across the U.S. and yes, we just want to revitalize that in Canada.

And then Vivien, I think just in terms of -- from a financial standpoint, if we take a step back, what we said about Canada was that all the actions that we’ve taken was really to position Canada to achieve profitability at the current run rate of revenue. And I think I’ve said in the past that if we achieve $35 million to $40 million of revenue in Canada, then we believe that we have the cost structure to achieve our profitability. And this is now the three quarters in a row where we’ve been in that range of revenue. So, to the extent that Wana provides upside to that range of revenue, we think that there is potentially an upside to improving our profitability in the Canadian business. We’ll provide more details as we get more color just in terms of the revenue and the profit potential of the brand, once it’s fully in the Canopy system in Canada.

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

I want to shift a little bit to international. So I know, more recently you’ve been bringing up Australia and Poland, but want to talk a bit about Germany. You mentioned a little bit about getting the high THC flower in the supply. Some of your peers in that country have been talking about potential big uptick in inpatient growth given it’s going to be removed from the narcotics. So what is your take on Germany, given that what’s been one of your key markets that you’re going to look towards? So do you think there’s a lot of opportunity there for reinvigorated patient growth going forward that you might be able to take advantage of and how you think about that market? Thanks.

Yes. So, Aaron, we’ve done a lot of work to get regulatory clearance for our strain offerings in Germany and to ensure that we had the GMP production capacity in Canada. And we feel good about our ability to produce the right strains for that market. And at the beginning of July, we actually added to -- significantly actually to our sales team in Germany, so that we can address that market really well. So, we feel bullish on it. Again, I think we’re seeing a lot of growth out of Australia. We’re seeing really good growth in the market in Poland. And we believe that we can get some good growth out of the German market as well. And as Judy called out in her comments, we feel good about the performance of that international business. It’s a little bit muted on a year-over-year basis because of the one-off sale into Israel this quarter last year. But, we feel pretty bullish on the international markets.

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

Just wanted to drill into to BioSteel a little bit. It drove the beat against our estimates and has some nice momentum, but, obviously you’ve been clear that it’s got a investment level that’s not appropriate for where you are and that it -- you’re looking for a better home for it. But I guess a couple things related to that. If the economics are a little tricky given kind of the ramp-up stage it’s in, is -- have you found a lot of demand for that? Is there somebody with more appetite to -- and ability to make that investment upfront? And I guess, timing wise, can you give a sense, if that does go through when we might expect that to happen? Is this something that is in the works or I know there’s not much detail in these things that you’re normally able to give, but just some sense of how to think about what the trajectory looks like and where that fits in kind of the rest of the year or into 2025?

Yes. Michael, that’s a fair question. So, we love the BioSteel brand as consumers and consumers love the brand. It’s authentic. It’s healthy. It resonates with consumers, both athletically inspired consumers and others. But as we started on this path to really simplify our business and focus on the cannabis industry that we believe in this $50 billion to $70 billion addressable market that we have in the cannabis business just in North America, it just becomes clear that there -- that we need to make sure that we’re at least not sitting here with a real strong drag coming from a brand like BioSteel that’s not a cannabis focused brand that sits in our portfolio. Right? So, as we said in my comments, and it’s really probably all I can offer at this point is, we’re working with our Board and with the BioSteel team to significantly reduce the drag on EBITDA and cash flow that we’re experiencing from BioSteel and we’re going to move as quickly as we can on that.

[Operator Instructions] Your next question will come from John Zamparo at CIBC. Please go ahead.

My question is on the cost reduction plan, and it’s a fairly wide range that you have remaining when you think about what’s left. And I wonder, what are some of the factors that’ll determine whether you get closer to the $240 million end of the range or the $310 million? And just a clarification on that. Does that range include remediation efforts on the BioSteel brand, or is that to be considered ex-BioSteel?

So I’ll address it, John. So to address the second part of your question, this is really excluding BioSteel. So, the cost reduction plan is really around the Canada transformation plan, as well as just the reductions that we’ve made across our organization, to ensure that we are continuing to streamline our businesses, simplify our operations. And as a result, we’ve been obviously able to generate significant cost savings year-to-date and from fiscal ‘23, and we have remaining cost reduction program to get to that range of $240 million to $310 million target. The reason that we’re leaving the range wider at this point in time is really, I think the second kind of phase of our cost reduction program is just starting before -- has executed in July. And that’s really about exiting a full exit of the One Hershey, the main campus where we’ve fully exited the operations. We have obviously, moved all of the production over to the beverage -- the old beverage facility and saving on all of the manufacturing and indirect costs and direct manufacturing costs. So, we think we’ve done a good enough of a modeling job to understand where the cost reductions are coming from, but we just want to make sure that as we’re executing the plan that that range is appropriate, and we’ll provide more details as we have the full P&L visibility in the coming months.

Your next question will come from Matt Bottomley at Canaccord. Please go ahead.

Hi. This is Yewon Kang [ph] on for Matt Bottomley. Thanks for the question. I guess just wanted to touch on the EBITDA guidance that was reiterated for fiscal 2024, and apologies if I missed this earlier during the prepare remarks. But just trying to understand the different components within the quarterly adjusted EBITDA loss amount for the current quarter. So, given that the current outlook is calling for all segments except BioSteel to continue positively to adjusted EBITDA for the full year, could you maybe help us dimensionalize the contributions from each of the segments for the quarter and how we should think about these segments’ contributions to the total adjusted EBITDA amount for the rest of the year? Thanks.

So, I’ll try to be as helpful as I can. So I think I can do that by just giving a bit of a bridge in Q1. So, our adjusted EBITDA loss in Q1 was roughly $58 million. I commented in my remarks that we estimate about 60% of that loss is attributable to BioSteel. So, if you’re basically removing BioSteel’s loss from that $58 million, you’re going to be somewhere call it around $25 million of adjusted EBITDA loss. I’ve also outlined that basically we have -- range of the cost savings remaining is roughly $100 million or so at the midpoint of the range. So that $25 million loss will get bridged to our expectation of the breakeven to positive adjusted EBITDA, post completion of all the cost savings programs. So, that’s how you would bridge from excluding BioSteel what’s remaining in Q1 as an adjusted EBITDA to adjusted EBITDA positive exiting FY24.

There are no further questions, so I will turn the conference back to Mr. Klein for any final remarks.

Yes. Thanks again for joining us today. I encourage you to try some of our outstanding products from our innovative brands as you enjoy the rest of your summer. Our Investor Relations team will be available to answer additional questions. Have a good evening.

Ladies and gentlemen, this does conclude your conference call for this afternoon. We would like to thank you all for participating and ask you to please disconnect your lines.