Good morning. My name is Joanna, and I will be your conference operator today. I would like to welcome you to Canopy Growth's Third Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] I will now turn the call over to Tyler Burns, Director, Investor Relations. Tyler, you may begin the conference call.

Good morning, and thank you for joining us. On our call today, we have Canopy Growth's Chief Executive Officer, Luc Mongeau; and Chief Financial Officer, Tom Stewart. Before financial markets open today, Canopy Growth issued a news release announcing the financial results for our third quarter fiscal 2026 ended December 31, 2025. The news release and financial statements have been filed on EDGAR and SEDAR and will be available on the 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 Luc and Tom, we will conduct a question-and-answer session where we will take questions from analysts. With that, I will turn the call over to Luc.

Thank you, Tyler. Good morning, everyone, and thank you for joining us today. Q3 was a quarter where Canopy Growth delivered significant progress on multiple levels, and it reinforced my confidence that we're building stronger business. For me, the fundamentals of the business are both about how the business is performing and our financial strength, which allows us to execute with discipline. Across the organization, our teams are focused on the right things, and that focus is starting to pay dividends. We're building a company that can consistently deliver superior experiences for consumers and patients, grow and manufacture high-quality products and create consistent value over time. On the balance sheet, we ended the quarter with $371 million in cash and cash equivalents and a net cash position of $146 million, putting us on solid footing as we move into the next phase of execution. Post quarter end, we completed a USD 150 million recapitalization that improved our liquidity and extended all debt maturities to 2031. This gives us more flexibility around near-term financing, including how and when we use tools like the ATM and more room to make the right long-term decisions. This financial strength matters because it allows us to act intentionally. A good example is the proposed acquisition of MTL Cannabis, which we announced during Q3. MTL brings an accretive profile, a strong entrepreneurial leadership team and high-quality cultivation capabilities to our platform. They've built a profitable, cash-generating business that we expect to be accretive to the combined organization. High-quality flower, cost efficiency and operational discipline are the foundation of any scale cannabis company, and MTL strengthen our ability to achieve all three. Following closing, MTL will strengthen our leadership position in Canadian medical cannabis, enhance our presence in Quebec adult use, and importantly, provide high-quality flower supply…

Thanks, Luc. I echo your sentiments and remain confident in the direction our business is heading. The third quarter reflects our continued focus on disciplined execution across the business, while sustaining cost savings and significantly improving our balance sheet. With our aggressive cost-saving actions taken to date, we have been able to identify and capture $29 million of annualized savings, far exceeding our initial expectations. This, coupled with the growth we are witnessing in the Canadian business, gives us the confidence that we can achieve our goal of positive adjusted EBITDA during fiscal 2027. Turning quickly to the balance sheet. We ended the quarter with our strongest net cash position since fiscal 2022 with $371 million of cash and short-term investments and a net cash position of $146 million. We further strengthened our balance sheet subsequent to quarter end with the previously announced recapitalization, which enhanced our near-term available cash while extending our debt maturities to 2031. These actions reinforce our financial foundation as we continue to execute against our operating and strategic priorities while expanding our near-term financing flexibility, including greater discretion over the timing and use of our remaining ATM capacity. With this level of balance sheet strength and expected sustained improvements to our operations, I'm extremely encouraged as we close out the fiscal year. I will now review our detailed segment results, starting with global cannabis. Q3 cannabis net revenue was $52 million, up 4% compared to a year ago. This growth was led by Canada medical cannabis with revenue increasing 15% year-over-year to $23 million, marking another record quarter. This growth was driven by continued expansion in insured patient registrations and larger order sizes. Our medical teams' focus on improving service levels, including faster fulfillment and reduced shipping times, continues to generate positive results. Canada adult-use…

Thank you, Tom. For me, the takeaway from this quarter is clear. The focus we've placed on fundamentals is working, and it's strengthening the foundation of our business. We have made real progress on the balance sheet, build momentum across our Canadian cannabis businesses, and took an important step forward with the proposed acquisition of MTL Cannabis. With that foundation in place, our focus now shifts to accelerate in Europe, expanding the reach of Storz & Bickel and elevating cultivation, quality and efficiency at scale across our platform. From my very first day, I believe that Canopy Growth has the potential to transform, refine its focus, improve its structure and deliver on its promise of a sustainable and profitable cannabis company. With each quarter, we're demonstrating sustainable improvement, and I'm confident we're positioned to gain further momentum as we move into fiscal 2027. Thank you. Operator, we'll now take questions.

[Operator Instructions] First question comes from Aaron Grey from Alliance Global Partners.

First for me, I just wanted to dig a bit more in terms of the international business and what to expect maybe for the next 12 to 18 months for growth opportunities. MTL had a small international business today, but it does seem their production capabilities could help you improve your international supply chain. So maybe any color in terms of how to think about the timing of that flowing through? And is there any additional capacity needs to ensure MTL's legacy domestic business continues to be serviced? And then additionally, in terms of the EU GMP at Smith Falls, how should we think about potential timing of that and that improving your international supply chain capabilities?

I hope you're well. Thank you for the question. Okay, there's a lot to unpack here. Let's start with flower. So we've demonstrated in the past, when we have flower in Europe, our capabilities out there, whether it's sales, distribution, I mean, deliver results. And so the focus is really in ensuring that we have the right supply of flower going to Europe. So we've been -- the team have been doing quite a bit of work in recent weeks and months to ensure that our demand signals that we're seeing in Europe are well integrated with our growth capabilities in North America. And this has been pretty much fully resolved. So we're in a good place where we can really meet the demand better than we did in the past. Let me give you a bit of a -- maybe a bit of a data point. So during Q3, our sales team in Europe had about two strains -- for a long period of time, two strains to sell. We forecast that in early fiscal '27, they'll have over a dozen different strains up to sell. So we're confident that we're unlocking supply of flower there. This will build on the unique capabilities that Canopy has established over the years. So Smith Falls is already EU GMP qualified. We're going for a, let's call it, a second level of certification. All the docs are in a road to get this approved. So we feel confident there. As well, we have the facility in Europe, and we have a facility in Germany in SLR that can receive, clear and distribute flower in Europe. And we're continually doing operational improvements there. So we feel really good there. As for MTL expanding capacity, we've met with the extremely qualified team there. They have amazing growers. Plans are in place to ensure capacity improves. As well, we're working on our facilities at Canopy to improve yield out of our facilities and the work streams are there. We're seeing great progress. So our level of confidence to build step change performance in Europe next year is building every week.

Appreciate the color and data points there. That was really helpful and thorough. Second question for me is maybe just touching on the expectations for the gross margin, both on the legacy business, on how you expect those to trend, particularly for cannabis, which has been volatile over the past few quarters, both on the up and downside? And then how best to think about layering on MTL, which has had a higher legacy gross margin profile?

Yes. Thanks, Aaron. I'll take that one. So as Luc said, we're excited about the acquisition of MTL and believe it really complements and enhances the existing business in Canada as well as abroad. With MTL's historical margin performance, which you're right, does exceed ours, we're targeting in the near term here, we blended gross margin of, say, mid- to high 30s. But I think there's still a lot of runway after that as we see the European business stabilizing and grow just given the high price points in the European market. So definitely, we expect the MTL transaction to be accretive to gross margin and as well as to our adjusted EBITDA.

The next question comes from Bill Kirk from ROTH Capital Partners.

Tom, when you said a positive adjusted EBITDA during 2027, does that mean for the full year? Or does that mean one of the quarters in the fiscal '27 will be positive? And do you expect positive numbers if you were to exclude the contribution from MTL?

Yes. So a couple of parts there. So as I said on the call, Bill, I am encouraged by the progress we continue to make to grow the business and course correct our cost structure. We continue to work towards achieving adjusted EBITDA positivity as soon as possible. We will benefit -- or we will see headwinds with the veteran changes, and that's a lot of the reason why you're seeing us take more aggressive cost-saving actions now. So I'll say we're trying to get there as quickly as we can, Bill, and we would expect to be there at some point during fiscal 2027.

Okay. And then for my second question, the indebtedness maturities are out to 2031. You're sitting on net cash. So would you expect the period, the last 5 quarters or so, that period of large equity issuance and dilution, would you expect that to be over?

Yes. So yes, we're pleased with the current balance sheet position we're in after completing the January recap with a lot of the cash we have on hand now, I would fully expect that does reduce our utilization at the ATM in the coming quarters, but we will preserve capacity for future strategic opportunities as and if they arise.

[Operator Instructions] The next question comes from Pablo Zuanic at Zuanic & Associates.

Luc, can you comment in terms of the domestic medical business, there's this proposal in the budget to reduce the cap for veterans from $8 per gram to $6 per gram that could become effective by April 1? Where are we that? Is there room do you think that, that will be delayed or scratched?

Pablo, thank you for the question. This is a very important subject, and we want to make it clear that Canopy is really not in support of this reduction because it can potentially impact the level of care that veterans receive. So as you can imagine, we've channeled a lot of efforts to work with the authorities to see if this could be either delayed or the reduction may be minimized. So far, we have not been successful. So we're taking all the actions to maintain both the integrity of the quality of the care and service the veterans are receiving. And at the same time, we're taking all the actions to maintain the integrity of our margins. So as Tom said, we were -- we took additional actions to be even more stringent on our efficiencies on cost savings. We're able to find more cost savings. So we're doing everything we can to maintain the integrity of our margins. Tom, anything to add?

No, I think it definitely presents a headwind for us, but we're taking the actions now prior to the changes coming to effect to make sure we could preserve adjusted EBITDA performance to the full extent possible.

Right. And before I ask my follow-up, I mean, according to my math, the veteran part of the domestic medical business, it's almost about 2/3 of the market. Or am I wrong in that calculation?

You mean the total cannabis market on the medical side in Canada, Pablo?

Right. Yes. Would the veteran piece be about 2/3 of the total market roughly?

2/3 of the total medical?

Yes, of the market in Canada.

Yes, no, that's -- we can follow up with you. For me, I look at the market in a couple of ways. The adult-use market in Canada is close to $5 billion, growing at 4% to 6% every year. The medical market is about somewhere between $300 million to $400 million. We can get back to you with the exact numbers. The veterans are a good portion of the medical market, but there are other large group of insured and noninsured medical patients in Canada as well. So what's important there, Pablo, is that, look at it, in the last quarter, we grew at 50% in this highly profitable market. MTL is growing at double digits as what was their last reported results. Combined together, we're going to be the #1 player there. We care about the veterans. We care about all cannabis patients in Canada. And we're doing everything, as I mentioned, to maintain the integrity of our service and our care and the integrity of our margin. So as we come together with MTL, we'll look at every single synergies possible there. We'll have the benefit of greater scale to maintain margin integrity and more to follow.

Next question comes from Brenna Cunnington at ATB Capital Markets.

So just looking back to the balance sheet here. So cash balance of roughly $376 million ending the quarter and roughly $425 million following the recapitalization, so quite the war chest that you're building up here. We know that some of the cash will be going towards the consideration for MTL. So kind of a two-pronged question here. So could you shed some light on roughly how much cash you're wanting to keep on hand and the top priorities for the excess cash? And then also, could you remind us of roughly how much spend will be needed right off the bat for MTL integration?

Brenna, so I would say from a cash standpoint, we want to make sure we have sufficient flexibility, and we want to maintain sufficient cash if we -- as and if we find opportunities in the market. So I'm not going to pinpoint that to a number, but I would say this is a healthier position than probably you would expect in terms of cash level. For the MTL acquisition, and again, this is math we could do here. But it will be probably between $40 million and $50 million of costs is what we're expecting the cash outlay to be, Canadian dollars, for the MTL acquisition.

Okay. Perfect. And then just looking at Storz & Bickel, so good to see some of the improvements here. Looking ahead, and apologies if I missed this in the prepared remarks, but given the dynamics at play here, what can be done to help improve sales and make it sort of more stable going forward?

Yes. Thank you for the question. Storz & Bickel, amazing brand, amazing products, amazing company. I strongly suggest to anybody who has never used the device to try it. It's still a brand that has very low brand awareness, very low trial and everything, especially in the U.S. And so it's -- the strategy to drive growth and value creation is two-pronged. Real expansion of market penetration, usage in the U.S. and well acceleration of the innovation, this -- an innovation we see in a couple of ways, price point expansion. As we expand into affordability, we see the brand really exploding. We're seeing it with the VEAZY right now, which is the entry-level device, and it's doing extremely well, and we will continue to expand that way. And right now, we're only offering devices that are suited to flower, and we can expand the brand into devices that use concentrates and distillates, which is a very large segment of the market that we're not playing in. So multiple avenues for growth and value creation expansion for the brand.

Thank you. This concludes Canopy Growth's Third Quarter Fiscal 2026 Financial Results Conference Call. A replay of this conference call will be available until May 7, 2026, and can be accessed following the instructions provided in the company's press release issued earlier today. Canopy Growth's Investor Relations team will be available to answer additional questions. Thank you for attending today's call.