SMITHS FALLS, ON – Canopy Growth Corporation released its financial results for the first quarter ended June 30, 2024 (“Q1 FY2025”). All financial information is reported in Canadian dollars unless otherwise indicated.
Highlights
- Achieved Gross profit of $23MM in Q1 FY2025 representing a 67% increase over the first quarter ended June 30, 2023 (“Q1 FY2024”), despite a decline in consolidated net revenue.
- Delivered consolidated gross margin of 35%, and Canada cannabis segment gross margin of 32% during Q1 FY2025.
- Operating loss from continuing operations was $29MM in Q1 FY2025, a 47% improvement over Q1 FY2024.
- Consolidated Adjusted EBITDA loss narrowed to $5MM in Q1 FY2025, a 77% improvement over Q1 FY2024 driven primarily by cost reduction actions already implemented.
- Storz & Bickel net revenue increased 2% in Q1 FY2025 over Q1 FY2024, led by over 100% growth in Storz & Bickel sales in Germany, which offset a sales decline in the non-medical vaporizer channel in Australia following a regulatory change.
- Demonstrated broad-based improvement across key financial metrics in Q1 FY2025 including a 31% reduction in Cost-of-Goods Sold (“COGS”) and a 24% reduction in Selling General & Administrative (“SG&A”) expenses, in each case, over Q1 FY2024.
- Cash and short-term investments balance of $195MM at June 30, 2024 as compared to $203MM at March 31, 2024.
“The fundamentals of our business continue to strengthen, and our focus on profitable revenue generation is yielding clear results as we set the stage for growth in the second half of fiscal 2025. With our core businesses delivering adjusted EBITDA profitability and primed for growth, paired with Canopy USA’s positioning to benefit from near-term market opportunities in the U.S., Canopy Growth is advancing rapidly and is well established for multi-market cannabis leadership.” –David Klein, Chief Executive Officer
“Our strategic initiatives have led to notable improvements in Gross Margins and Adjusted EBITDA as well as reduction in SG&A expenses. We are pleased that all of our business units delivered positive Adjusted EBITDA during Q1 Fiscal 2025 and expect to achieve positive Adjusted EBITDA on a consolidated basis in the second half of the fiscal year. We’ve continued to enhance our financial flexibility through additional actions, including the extension of our term loan, which will enable us to fund strategic growth initiatives.” –Judy Hong, Chief Financial Officer
Net revenue declined by 13% to $66MM in Q1 FY2025 driven mostly by the impact of divested businesses.
Gross margin increased by 1,700 basis points (“bps”) to 35% in Q1 FY2025 driven by improvement in our Canada cannabis segment, which was primarily due to the realized benefit of our cost savings program, a shift in channel mix to higher margin medical sales and a decline in write-down of excess inventory.
SG&A expenses were $48MM in Q1 FY2025, representing a decrease of 24% over Q1 FY2024 in part due to continued spending discipline across the organization.
Operating loss from continuing operations was $29MM in Q1 FY2025, representing an improvement of 47% compared to Q1 FY2024. Adjusted EBITDA loss was $5MM, representing a 77% improvement year-over-year, driven by higher gross profit and lower SG&A expenses.
Free Cash Flow was an outflow of $56MM in Q1 FY2025, an improvement of 49% compared to Q1 FY2024 driven by business transformation activities executed throughout FY2024 as well as a reduction in interest costs, partially offset by increased capital expenditure. Relative to the fourth quarter ended March 31, 2024, higher cash outflow from operations is primarily due to the timing of working capital and certain payments.
The Company continues to proactively improve and strengthen its balance sheet and announced today that it has entered into an amendment to its credit agreement with all of the lenders to its senior secured term loan (the “Term Loan”). This transaction accomplishes:
Significant deleveraging of up to US$200MM: Principal repayment of US$100MM with an option to pay down an additional US$100MM;
Repayment of US$97.5MM in order to reduce the principal amount outstanding on the Term Loan by US$100MM
Option to pay an additional US$97.5MM in order to reduce an additional US$100MM of the principal amount of the Term Loan;
Interest expense savings through a reduction in annual interest of US$14MM for each $100MM principal reduction and total potential interest savings of US$28MM; and
Maturity date extension of 9-months to December 18, 2026 with an option to further extend the maturity date to September 18, 2027, upon completion of the voluntary prepayment above.
Business Highlights
Canada cannabis
Canada cannabis net revenue was $38MM in Q1 FY2025, a decrease of 6% year-over-year, with record Canada medical cannabis net revenue offset by lower adult-use cannabis net revenues. Canada medical cannabis net revenue increased 20% year-over-year, driven in part by strong demand for high-margin Spectrum Therapeutics products and the broader assortment of products available through the online platform.
In the latter half of Q1 FY2025, our Canadian adult-use cannabis business launched a range of new products into the market across priority categories including 7ACRES Ultra Jack flower, Maitri Strawberry Frappe flower (Quebec exclusive), Tweed Sugar Free Cola beverage, and the 7ACRES Café Vanilla Delight All-In-One vape.
Higher flower yields resulting from upgrades underway at our Kincardine facility, increased pre-rolled production capacity, additional third-party suppliers, targeted wholesale pricing actions, and increased distribution secured in Q1 FY2025, are expected to increase Canada adult-use top line in the coming quarters.
International markets cannabis
International markets cannabis net revenue in Q1 FY2025 declined 1% as compared to Q1 FY2024, with growth in high-margin Poland offset by a decline in Australia. International markets cannabis gross margin was 36% in Q1 FY2025, up 200 bps as compared to Q1 FY2024.
Maintained top 4 market share position in the Germany medical cannabis market6. Strong demand signals in German medical cannabis market post legalization with the number of prescriptions and volume of cannabis prescribed increasing by over 20% nationally.
The Company is taking steps to increase supply to the German market by augmenting Canadian sourced flower with EU-based supply with a supply agreement signed during the quarter and additional agreements expected to be completed in FY2025.
Storz & Bickel
Storz & Bickel net revenue in Q1 FY2025 increased 2% as compared to Q1 FY2024 driven by strong growth in Germany, contribution from the Venty portable vaporizer, which was launched in the third quarter of FY2024, and strong sales of the Mighty vaporizer.
Following the regulatory changes in the non-medical channel in Australia, Storz & Bickel vaporizers are the only medically-certified whole flower vaporizers available for sale in Australia which is expected to drive growth opportunities in the Australian medical channel.
Additional market activities, including the launch of an affiliate program with select retailers in key U.S. states, are expected to increase U.S. distribution.
Canopy USA
Canopy USA, LLC closed the acquisitions of approximately 75% of the shares of Lemurian, Inc. (“Jetty”) and two of three Wana entities, being Wana Wellness, LLC and The CIMA Group, LLC, with the full acquisition of Wana expected by end of summer, subject to regulatory approval, once the acquisition of Mountain High Products, LLC is complete.
Wana Brands edibles were launched in Connecticut and New York State in the three-month period ended June 30, 2024. Wana Brands also announced the launch of the first three hemp-derived edibles via its partnership with Happi. Wana’s revenue during the first half of calendar year 2024 was impacted by a challenging market dynamic in Colorado.
Jetty expanded its solventless vape product offering in California with the launch of All-In-One and Hybrid vapes. Jetty also expanded its offering of products in the state of New York with the launch of high-THC infused pre-rolls. Jetty maintained its #1 share of the national solventless vape market.
The option to acquire all of the issued and outstanding Fixed Shares of Acreage Holdings Inc. has been exercised, with Canopy USA expecting to close its acquisition of Acreage in the first half of calendar year 2025, subject to certain closing conditions.
On August 6, 2024, Acreage announced the commencement of non-medical cannabis sales in the state of Ohio at Acreage’s The Botanist dispensary locations in Akron, Canton, Cleveland, Wickliffe, and Columbus.
First Quarter Fiscal 2025 Revenue Review
In Q1 FY2025, we are reporting our financial results for the following four reportable segments: (i) Canada cannabis; (ii) international markets cannabis; (iii) Storz & Bickel; and (iv) This Works. On December 18, 2023, the Company completed the sale of This Works and as of such date, the results of This Works are no longer included in the Company’s financial results. Information regarding segment net revenue and segment gross margin for the comparative periods has been restated to reflect the aforementioned change in reportable segments.
Non-GAAP Measures
Adjusted EBITDA is a non-GAAP measure used by management that is not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. Adjusted EBITDA is calculated as the reported net income (loss), adjusted to exclude income tax recovery (expense); other income (expense), net; loss on equity method investments; share-based compensation expense; depreciation and amortization expense; asset impairment and restructuring costs; restructuring costs recorded in cost of goods sold; and charges related to the flow-through of inventory step-up on business combinations, and further adjusted to remove acquisition, divestiture, and other costs. Asset impairments related to periodic changes to the Company’s supply chain processes are not excluded from Adjusted EBITDA given their occurrence through the normal course of core operational activities. The Adjusted EBITDA reconciliation is presented within this news release and explained in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 (the “Form 10-Q”) filed with the Securities and Exchange Commission (“SEC”).
Free cash flow is a non-GAAP measure used by management that is not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. This measure is calculated as net cash provided by (used in) operating activities less purchases of and deposits on property, plant and equipment. The free cash flow reconciliation is presented within this news release and explained in the Form 10-Q filed with the SEC.
Adjusted gross margin and adjusted gross margin percentage are non-GAAP measures used by management that are not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. Adjusted gross margin is calculated as gross margin excluding restructuring and other charges recorded in cost of goods sold, and charges related to the flow-through of inventory step-up on business combinations. Adjusted gross margin percentage is calculated as adjusted gross margin divided by net revenue. The adjusted gross margin and adjusted gross margin percentage reconciliation is presented within this news release and explained in the Form 10-Q filed with the SEC.
About Canopy Growth
Canopy Growth is a world leading cannabis company dedicated to unleashing the power of cannabis to improve lives.
Through an unwavering commitment to our consumers, Canopy Growth delivers innovative products with a focus on premium and mainstream cannabis brands including Doja, 7ACRES, Tweed, and Deep Space, in addition to category defining vaporizer technology made in Germany by Storz & Bickel.
Canopy Growth has also established a comprehensive ecosystem to realize the opportunities presented by the U.S. THC market through an unconsolidated, non-controlling interest in Canopy USA, which owns and operates Jetty Extracts, a California-based producer of high- quality cannabis extracts and pioneer of clean vape technology, in addition to holding rights for Wana Brands, a leading North American edibles brand, as well as Acreage Holdings, a vertically integrated multi-state cannabis operator with principal operations in densely populated states across the Northeast and Midwest.
Beyond its world-class products, Canopy Growth is leading the industry forward through a commitment to social equity, responsible use, and community reinvestment – pioneering a future where cannabis is understood and welcomed for its potential to help achieve greater well-being and life enhancement.
