SMITHS FALLS, ON – Canopy Growth Corporation reported its financial results for the second quarter ended September 30, 2024 (“Q2 FY2025”). All financial information is reported in Canadian dollars, unless otherwise indicated.
“We delivered a solid second quarter led by strong growth across our Storz & Bickel, Canadian medical, and European cannabis businesses and we are well positioned to accelerate momentum in the second half of our fiscal year. In addition, we remain highly optimistic about the momentum building within Canopy USA as this strategy was uniquely designed to succeed independent of the need for federal legalization,” said David Klein, Chief Executive Officer.
“We’ve demonstrated another quarter of progress towards profitability driven by improvement in gross margins as well as a reduction in SG&A expenses. With expected improvement in top-line growth in the second half of the fiscal year and continued cost discipline, we believe we remain on a path to achieve positive Adjusted EBITDA at the consolidated level in the coming quarters,” said Judy Hong, Chief Financial Officer.
Second Quarter Fiscal Year 2025 Financial Summary
- Net revenue in Q2 FY2025 decreased 9% compared to the second quarter ended September 30, 2023 (“Q2 FY2024”). Excluding net revenue from businesses divested during the prior fiscal year, net revenue increased 3%.
- Consolidated gross margin increased by 100 basis points (“bps”) to 35% in Q2 FY2025 compared to Q2 FY2024 primarily due to the realized benefit of the Company’s cost savings program as well as a shift to higher-margin medical cannabis sales.
- Operating loss from continuing operations was $46MM in Q2 FY2025, compared to a loss of $7MM in Q2 FY2024, with last year’s results benefitting from the sale of a facility in Smiths Falls, Ontario.
- Adjusted EBITDA loss was $6MM in Q2 FY2025, representing a 54% improvement year-over-year, driven primarily by the realized benefit of the Company’s cost savings program.
- Free Cash Flow was an outflow of $56MM in Q2 FY2025, representing a 16% improvement compared to Q2 FY2024, primarily driven by a reduction in cash interest expenses.
- Cash and short-term investments balance increased to $231MM at September 30, 2024, from $195MM at June 30, 2024.
Canada Cannabis Highlights
Canada cannabis net revenue was $37MM in Q2 FY2025, representing a decrease of 8% compared to Q2 FY2024. While Canada medical cannabis net revenue increased 16% over Q2 FY2024, Canada adult-use cannabis declined 24% in part due to an interruption in the supply of Wana edibles.
Several initiatives are expected to strengthen the Company’s Canada adult-use cannabis business in the second half of fiscal year 2025 (“2H FY2025”). These initiatives include:
The re-introduction of Wana edibles which is expected to drive growth in the edibles category, supported by investments in in-market activations.
Continued efforts to elevate the quality and variety of our Tweed and 7ACRES flower and pre-roll joint product offerings, as well as increased commercial investments to expand distribution and improve velocity of our core brands. The Company is seeing this investment pay off with reinvigorated performance of Tweed Kush Mintz as well as promising in-market performance of new strains Tweed Cherry Acai Mints, which is now carried in all markets nationally, and 7ACRES Ultra Jack.
A robust new product pipeline with a particular focus on the growth categories of Vape, Pre-Roll Joints and Concentrates. Over the coming weeks, the Company expects to launch an innovative infused pre-roll joint product in both adult-use and medical channels.
International Markets Highlights
International markets net revenue was $10MM in Q2 FY2025, representing an increase of 12% over Q2 FY2024, with strong growth in Poland and Germany partially offset by a decline in Australia.
International markets cannabis gross margins increased 1,700 bps to 47% during Q2 FY2025 compared to Q2 FY2024 primarily due to a shift in sales mix to higher-margin Poland as well as a lower overall cost structure.
Agreements that the Company has signed with multiple EU-based cultivators are expected to increase the supply of cannabis flower to fuel growth in EU medical cannabis markets over the coming quarters.
Storz & Bickel Highlights
Storz & Bickel delivered net revenue in Q2 FY2025 of $16MM, representing a 32% increase over Q2 FY2024 driven primarily by strong growth in Germany following regulatory reform, significant improvement in U.S. sales and the sell through of the remaining inventory of the Mighty device that is being phased out.
Ongoing demand in Germany driven by active marketing campaigns are expected to drive continued growth in the German and the broader European market.
Additional distribution gains in the U.S., driven by new affiliate programs as well as traditional holiday season marketing and sales initiatives are expected to benefit Storz & Bickel sales in 2H FY2025.
Canopy USA Highlights
Canopy USA, LLC (“Canopy USA”) has completed the acquisition of Wana Brands (“Wana”) with the closing of Mountain High Products, LLC subsequent to the end of Q2 FY2025, paving the way for brand integration and growth.
Wana launched the ShopWanderous.com online marketplace for hemp-derived THC and CBD products, expanding their product offering to a new national consumer base.
Lemurian, Inc. (“Jetty”) is expected to launch new solventless All-In-One vapes in California and Colorado over the coming weeks, and New York early in calendar year 2025.
The acquisition of Acreage Holdings, Inc. (“Acreage”) by Canopy USA remains on track to close no later than the first half of calendar year 2025.
Second Quarter Fiscal 2025 Revenue Review
The Q2 FY2025 and Q2 FY2024 financial results presented in this press release have been prepared in accordance with U.S. GAAP.
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. Management believes Adjusted EBITDA is a useful measure for investors because it provides meaningful and useful financial information, as this measure demonstrates the operating performance of businesses. 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 September 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. Management believes that Free Cash Flow presents meaningful information regarding the amount of cash flow required to maintain and organically expand our business, and that the Free Cash Flow measure provides meaningful information regarding the Company’s liquidity requirements. 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. Management believes that Adjusted Gross Margin presents meaningful and useful financial information as this measure provides insights into the gross margin performance of the business. 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 leading cannabis company dedicated to unleashing the power of cannabis to improve lives. 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. Canopy USA has closed the acquisitions of approximately 77% of the shares of Jetty and 100% of Wana. Jetty owns and operates Jetty Extracts, a California-based producer of high-quality cannabis extracts and pioneer of clean vape technology, and Wana is a leading North American edibles brand. The option to acquire Acreage, a vertically integrated multi-state cannabis operator with principal operations in densely populated states across the Northeast and Midwest, has also been exercised.
