Good morning. My name is Joelle [ph]. I will be your conference operator today. I would like to welcome you to Canopy Growth's First Quarter Fiscal 2025 Financial Results Conference Call. Currently 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.

Good morning, and thank you for joining us. On our call today, we have Canopy Growth's Chief Executive Officer, David Klein and Chief Financial Officer, Judy Hong. Before financial markets opened today, Canopy Growth issued a news release announcing the financial results for our first quarter fiscal year 2025 ended June 30, 2024. The 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 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 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 remarks by David and Judy, we will conduct a question-and-answer session where we will take questions from analysts. With that, I will turn the call over to David. David, please begin.

Thanks, Tyler, and good morning, everyone. Thank you for joining us today to discuss Canopy Growth's results for the first quarter of fiscal 2025. I'm excited to review the continued progress we've made as an organization, reinforcing our path towards sustained profitability and leadership in the global cannabis market. This quarter demonstrates that our strategic focus is paying off, which is evident in the sustained improvement of our key financial metrics and profitable revenue generation across all of our business units. During our call, I'll cover three topics. First, our drive to profitability through focus on efficiency in our operations as well as profitable revenue generation over chasing market share at all costs. Second, the well advanced actions within our commercial businesses that set the stage for growth in the second half of fiscal 2025. And third, I'll provide an update on the rapid advancement of Canopy USA. Following my remarks, Judy will review our financial results, including some of the market dynamics we're seeing and the actions we've taken to further strengthen our financial position. Let's begin with our drive to profitability. In Q1 fiscal 2025, Canopy achieved a key profitability milestone. For the first time, thanks to the hard work of all of our teams, all of our business units delivered profitable quarterly adjusted EBITDA. We achieved this through continued work to enhance operational efficiency paired with strong cost management and above all, a resolute focus on driving profitable revenue. Against this backdrop, we've generated notable improvements across a range of key financial metrics, including a significant reduction in our overall cost of goods sold down 31% as well as a 24% reduction in SG&A expenses, [indiscernible] are year-over-year. On the revenue side, our focus on profitable revenue over market share is driving us to direct certain products…

Thank you very much, David, and good morning, everyone. I'll start by reviewing our first quarter fiscal 2025 results. I'll then discuss continued progress we've made on our balance sheet and cash flow, followed by a discussion on our priorities and outlook for the balance of fiscal 2025. Let's begin with our first quarter results. Q1 FY 2025 demonstrated continued progress in our financial performance as evidenced by significant year-over-year improvements in gross profit dollars, adjusted EBITDA, and free cash flow. Canopy delivers consolidated net revenue of $66 million in Q1, a decrease of 13% or down 3%, excluding the impact of divested businesses compared to Q1 of last year. The consolidated gross profit dollars grew 67% year-over-year. Consolidated gross margin in Q1 was 35%, again a significant improvement, compared to 18% last year. Following a dip in gross margin in Q4. I'm pleased to report a return to solid gross margin performance in Q1, which I'll provided additional details later on the call. Q1 adjusted EBITDA was a loss of $5 million, an improvement of 77% versus last year. Free cash flow was an outflow of $56 million, an improvement of $52 million compared to Q1 of last year. Note that we typically incurred negative working capital in the first half of the fiscal year with improvement in the back half due to the timing of certain payments. I'd like to now review the results of our key businesses in more detail, including progress against their path to profitability. Starting with Canada. Q1 net revenue was $38 million, a decline of 6% compared to a year ago. Canada medical had another record revenue quarter, increasing 20% compared to last year, continuing to benefit from customer mix toward a greater number of insured patients and larger product assortment in the…

Thank you. [Operator instructions] Your first question comes from Aaron Grey with Alliance Global Partners. Your line is now open.

Hi, good morning and thank you very much for the questions.

Hi, Aaron.

So first one for me. Good morning. You guys have done a lot in terms of cleaning up and simplifying the story in terms of divestitures and with Canopy USA. So as we look forward, Canopy USA, you're waiting for some, I think, audits to be finished where you can consolidate and also for Acreage to close. So just if you can give us some more in terms of the timing, Acreage. I think you said first half of calendar 2025. So just more color in terms of what you're waiting on for that to build to close in terms of -- I think it might be some state approvals or otherwise. And then how we should think about everything built to come in terms of additional disclosure in terms of the financial performance there and when you'll be able to disclose that fully? Thank you.

Okay. I'll start, Aaron. So from a timing standpoint, as David mentioned, during Q1, Jetty is fully closed. So Canopy USA owns approximately 75% of Jetty at this point. Two of the three entities under Wana have already been closed, and we expect to complete Wana acquisition or Canopy USA expects to complete the Wana acquisition by end of this summer. And then Canopy USA is in the process of acquiring Acreage. So that is really a regulatory process. It's a state-by-state regulatory approval. Our expectation is sometime in the spring of next calendar year, we'll get all of the state approvals required for Canopy USA to complete its acquisition. In terms of financial disclosure, as we sit here today, Canopy USA obviously has not fully closed all of its entities under Canopy USA. So once we do have Canopy USA fully closing on Wana and Acreage, we would intend to share audited financials and also provide some supplemental financial metrics of Canopy USA that will likely to be sometime after the Acreage acquisition closes.

Yes. And Aaron, just to add to that. So all of the -- so the gating item really on closing the final component of Wana as well as Acreage is, in fact, the regulatory approvals at the state level, all of which have been applied for. So now we're just working our way through each state's process, and we'll close as soon as we get all of those approvals in place. In terms of financial disclosure, Judy outlined in our script just a rough view of what CUSA believes they'll be able to achieve from a top line standpoint. And we believe that you can look at other MSOs to understand EBITDA margins, also keeping in mind that as we're -- as Acreage is operating as a standalone public company. Today, we'll be able to realize a fair amount of public company synergies when that business becomes part of the CUSA platform. So yes, we'll provide detailed financial statements through CUSA as soon as soon as we can, but I think that just provides a good kind of outline as to where that business is today.

Your next question comes from Frederico Gomes with ATB Capital Markets. Your line is now open.

Hi, good morning and thanks for taking my questions. Just on the Canadian Medical Cannabis segment, quite impressive growth there. And sequentially six quarters of sequential growth. So can you give a bit more clarity on what's driving that growth? And how much more upside do you think there is to that segment, just given that I think we've seen that the overall market is sort of flat on the medical side in Canada. So how much more growth do you think can come from that segment? Thanks.

Yes. So we've had several quarters in a row of growth in that market. We expect that to continue. And it's really coming as a result of strong execution by our medical team. We -- it is a marketplace, so it's not just Canopy products. It's a marketplace with products hand-selected by our team. And we give what we believe is best-in-class service to the participants in that channel. And it's just day in and day out execution on the medical side, that's really driven much of our growth.

Yes. And to your point, Frederico, the market is stagnant to declining just because of the shift into the adult-use channel. But we're gaining market share, as you can see in the numbers, and we think we're well positioned to continue to gain market share with continuation of really offering high-quality products to patients, not just our products but even third-party products that really provide patients with a very broad assortment of offerings.

Your next question comes from Michael Lavery with Piper Sandler. Your line is now open.

Thank you, good morning.

Good morning.

I just wanted to understand the supply dynamics a little better. You said you want to source more EU origin products from third parties. I guess can you just maybe help us understand if that -- if Germany or the broader market there if so is growing and so attractive, who has excess product? And I guess really at what cost? And it seems like that's kind of the place where project is a little bit more scarce. Is that maybe a misunderstanding. And then when you talk about freeing up some supply back in Canada, certainly oversupply has long been the problem there, did you overcorrect? Do you need more supply in Canada? How do we just think about both sides of the ocean there?

No. So Michael, so I'll kind of take it in two points, and I'll start with Canada first. I think in Canada, we have some supply constraints during the quarter that were driven by performance with some of our third-party suppliers, right? And so we're making our supply chain more robust in Canada. And you're right, there is product available However, we just remain focused on when we do a product in the market, we're simply putting it into the higher-margin channels. As it relates to Europe, there is product available. That's really not the issue in the European channel. And that's available from Canada, but it's also available from end market producers. And so the point of the comments in the script is that over time as we bring on the European producers, we would then free up product out of our Canadian supply chain which would allow us to optimize margin across our total business. And the thing I think that -- the way we're thinking about this is that every single market that has opened up broadly in every geography we've seen start to have supply constrained, then goes along in supply, then prices compress and then people have assets that they don't know how to deal with. We're actually managing our supply chain in Canada to be an asset-light supply chain. And admittedly, we have some things that we need to do to optimize that asset-light supply chain, but we're all over that. We’re thinking about Europe the same way. And so instead of going in heavily with investments, which will potentially compress our margins going forward, we're deploying our strategy into Europe and based on what we're seeing at the moment, we're quite happy with that approach.

Your next question comes from Bill Kirk with Roth Capital Partners. Your line is now open.

Hey thank you for taking the questions. Mine is related to the last topic, because margins seem to differ a lot by market, very different margins in each market. So how do you determine where your available supply goes? Like how do you balance that maybe immediate margin potential for some of the sales with the longer-term potential that some markets may have that aren't profitable just yet?

Yes. I would say, Bill, that's a good question because we haven't interrupted supply into the European markets from Canada, right? So when we say that we're going to allocate to the highest margin areas, we're not doing anything that's choking off supply into Europe and don't intend to do that in the near term, meaning supply coming from Canada. It's within Canada when we're when we -- if we have any sort of supply constraints, we allocate amongst the provinces effectively or the channels, meaning medical versus rec in Canada, in a way that optimizes for profitability. So -- and I also want to make sure that the comments that we made in our script too around the entity that's coming to market is really -- it's not -- it's really just launches of new strains and a few new offerings that we think will be really attractive that we're already getting listings for that will drive revenue growth in Canada later in the year. So I think it's -- the supply allocation is really mostly related to Canada. And then we -- as I said, we have activities underway to improve the supply chain in Canada and make it more robust. And we also have new products coming down the pipeline.

The only add I would have would be just when you look at the flower supply in Canada, we have a bit of a hybrid model, right? So we've got our internal -- internally sourced Kincardine facility and DOJA and then we are looking at partners. So whether it's strategic sourcing of power or -- at this point, I think we're doing a bit more spot buying, and the market is a little bit [ funny ] to be honest. And I think over time, we do think there will be more of the strategic sourcing opportunities that will come online. And really, we're focused on capturing favorable costs so that we can have good margins even from third-party sourced flower across our Canadian adult-use business.

There are no further questions. I will now turn the call over to Mr. Klein for closing remarks.

Great. Thank you for attending today's conference call. And as you enjoy the rest of the summer, I'd encourage you to try some of our outstanding products from our innovative brands, including beverages like Tweed Sugar Free Cola as well as our new All-In-One vapes from Tweed and 7ACRES. Our Investor Relations team will be available to answer additional questions. Thank you.

This concludes Canopy Growth's First Quarter Fiscal 2025 Financial Results Conference Call. A replay of this conference call will be available until November 7, 2024 and can be accessed following the instructions provided in the company's press release issued earlier today. Thank you for attending today's call.