Canopy Growth Corporation Reports First Quarter Fiscal Year 2023 Financial Results
Published: August 8, 2022
Canopy Growth Corporation Reports First Quarter Fiscal Year 2023 Financial Results
Canopy Growth Corporation announces its financial results for the first quarter ended June 30, 2022. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.
Highlights
Q1 FY2023 net revenue was flat compared to Q4 FY20221.
Company maintained #1 share of combined premium flower and pre-rolled joint (“PRJ”) segment in Q1 FY20232.
Increased share of the combined mainstream flower and PRJ segment by 35 bps to 4.0% in Q1 FY2023.
International medical cannabis net revenue approximately doubled versus Q1 FY2022 driven primarily by strong sales in Israel and Australia.
Record BioSteel revenues in Q1 FY2023 increased 169% versus Q1 FY2022. Secured retail agreement with Walmart Stores covering 2,200 stores in 39 states. Entered partnership to become the Official Hydration Partner of the NHL and NHLPA.
Cost reduction program on track with operating expenses3 in Q1 FY2023 decreasing by 13% versus Q1 FY2022.
First Quarter Fiscal 2023 Financial Summary
(in millions of Canadian
dollars, unaudited)
Net Revenue
Gross margin
percentage
Adjusted
gross margin
percentage4
Net loss5
Adjusted
EBITDA6
Free cash
flow7
Reported
$110.1
(1 %)
2 %
$(2,087.6)
$(74.8)
$(142.8)
vs. Q1 FY2022
(19 %)
(2,100) bps
(1,900) bps
(635 %)
(18 %)
23 %
1
On an organic basis, excluding C3.
2
Unless otherwise indicated, market share data disclosed in this press release is calculated using the Company’s internal proprietary market share tool that utilizes point of sales data supplied by third-party data providers, government agencies and our own retail store operations across the country.
3
Non-GAAP measure. Excludes Asset Impairment and Restructuring costs, and Acquisition-Related costs.
4
Adjusted gross margin is a non-GAAP measure, and for Q1 FY2023 excludes $4.0 million of restructuring costs recorded in cost of goods sold (Q1 FY2022 – excludes $1.4 million related to the flow-through of inventory step-up associated with the acquisition of Supreme Cannabis and $nil of restructuring costs recorded in cost of goods sold). See “Non-GAAP Measures”.
5
Net loss includes a non-cash goodwill impairment of $1,725 million related to our cannabis operations reporting unit. This impairment represents the full goodwill balance associated with the cannabis operations reporting unit and was triggered as a result of the decrease in the Company’s market capitalization in Q1 FY2023.
6
Adjusted EBITDA is a non-GAAP measure. See “Non-GAAP Measures”.
7
Free cash flow is a non-GAAP measure. See “Non-GAAP Measures”.
Revenues
Net revenue of $110 million in Q1 FY2023 declined 19% versus Q1 FY2022. Total global cannabis net revenue of $66 million in Q1 FY2023 represented a decline of 29% over Q1 FY2022 driven in part by a decline in value flower sales in the Canadian recreational cannabis market due to a deliberate business transition to focus on higher margin, premium and mainstream products. Other consumer products revenue of $44 million in Q1 FY2023, represented an increase of 1% over Q1 FY2022. Excluding the impact from acquired businesses and divestiture of C3, net revenue declined 17% and global cannabis net revenue declined 28% versus Q1 FY2022.
Gross margin
Reported gross margin in Q1 FY2023 was (1%) as compared to 20% in Q1 FY2022. Excluding non-cash restructuring costs recorded in COGS of $4 million, adjusted gross margin was 2%. Gross margin in Q1 FY2023 was further impacted by lower production output and price compression in the Canadian recreational business, a shift in business mix, and a decrease in the amount of payroll subsidies received from the Canadian government pursuant to a COVID-19 relief program.
Operating expenses
Total SG&A (“SG&A”) expenses in Q1 FY2023 declined by 8% versus Q1 FY2022, driven by year-over-year reductions in General & Administrative and Research and Development expenses, offset by increases in Sales and Marketing.
Goodwill impairment
The Company recognized a non-cash goodwill impairment of $1,725 million related to our cannabis operations reporting unit which is included in our quarterly net loss. This impairment represents the full goodwill balance associated with the cannabis operations reporting unit and was triggered as a result of the decrease in the Company’s market capitalization in Q1 FY2023.
Net Loss
Net Loss in Q1 FY2023 was $2,088 million, which is a $2,478 million increase in the net loss versus Q1 FY2022, driven primarily by the non-cash $1,725 million impairment in goodwill, and non-cash fair value changes.
Adjusted EBITDA
Adjusted EBITDA loss in Q1 FY2023 was $75 million, an $11 million increase in Adjusted EBITDA loss versus Q1 FY2022 primarily driven by the decline in gross margin, partially offset by the reduction in our total SG&A expenses.
Free Cash Flow
Free Cash Flow in Q1 FY2023 was an outflow of $143 million, a 23% decrease in outflow versus Q1 FY2022. Relative to Q1 FY2022, the Free Cash Flow outflow decrease reflects a decrease in the cash used for operating activities and optimizing our capital expenditures as part of the previously-noted restructuring actions.
Cash Position
Cash and short-term investments amounted to $1.2 billion at June 30, 2022, representing a decrease of $0.2 billion from $1.4 billion at March 31, 2022 reflecting primarily EBITDA losses, and the upfront payment made as consideration for the options to acquire Jetty Extracts upon federal permissibility of THC in the U.S.
Business Highlights
Strong brand performance and innovation are helping stabilize market share in core segments of the Canadian recreational cannabis market
Maintained Canopy Growth’s #1 share in combined premium flower and PRJ segment in Q1 FY2023. With a continued focus on premium NPD, Canopy launched 11 new premium flower and PRJ products in Q1 FY2023 which resulted in brand share of Doja in the premium flower and PRJ segment increasing 13 bps to 2.1%.
Maintained share in the combined mainstream flower and PRJ segment with the introduction of 6 new mainstream flower and PRJ offerings in Q1 FY2023. Strong consumer demand for new flower strains increased the Tweed brand’s share of the combined mainstream flower and PRJ segment by 35 bps to 4.0% in Q1 FY2023.
Consumer demand for new Ready-to-Drink (“RTD”) beverage flavour extensions under the Deep Space and Tweed brand banners helped increase the Company’s share of RTD beverage category by 33 bps to 23%. The Deep Space brand maintained its #2 rank in the over 5 mg THC beverage category. Strong consumer demand for the Tweed portfolio of Iced Tea and Fizz beverages increased the Tweed brand’s share of the RTD beverage market by 136 bps to 10.4% and maintained the brand’s #1 market share rank in the under 5 mg THC beverage category.
Robust NPD pipeline including a combined 26 premium and mainstream flower and PRJ offerings expected in Q2 FY2023 secured 60 new listings across Alberta, Ontario and Quebec.
Medical cannabis revenues increasing, with multiple potential growth drivers
International medical cannabis net revenue doubled versus Q1 FY2022 driven primarily by strong sales in Israel and Australia. Sales force in Germany focused on expanding pharmacy network.
Critical focus of Canadian medical cannabis business on increasing veteran registrations through the Spectrum Veteran Care program.
Gains in distribution and sales velocity of BioSteel RTD drove record revenue in Q1 FY2023
BioSteel revenue in Q1 FY2023 increased 169% versus Q1 FY2022 with BioSteel RTDs achieving 21% ACV8, up from 3% in Q1 FY2022. Agreement secured with Walmart for product to blanket 2,200 stores across 39 states.
BioSteel entered partnership to become the Official Hydration Partner of the NHL and NHLPA. Sponsorship will provide the BioSteel brand with league-wide rink side marketing and product supply rights, retail activation rights, community engagement platforms, player marketing and activation rights.
U.S. THC Ecosystem continues to strengthen
Wana9 continued their North American expansion by entering Puerto Rico and Arkansas in addition to opening three additional states. Building on the success of its Optimals line, including Wana Optimals Fast Asleep, which ranks as the No. 1 Quick onset sleep gummie in North America, Wana has added a variety of new SKUs to a range of markets.
Acreage Holdings10 made strong progress in the first quarter of calendar 2022 with revenue increasing 48% year over year and delivered their 5th consecutive quarter of positive Adjusted EBITDA. In April 2022, Acreage commenced adult-use operations in New Jersey with their flagship brand, The Botanist, now available for adult-use consumers in multiple dispensaries in the state.
8
IRI data for the 4 weeks ended June 12, 2022.
9
Until such time as the Company elects to exercise its rights to acquire Wana Brands, the Company will have no direct or indirect economic or voting interests in Wana Brands, the Company will not directly or indirectly control Wana Brands, and the Company, on the one hand, and Wana Brands, on the other hand, will continue to operate independently of one another.
10
Until such time as the Company elects to exercise its rights to acquire Acreage Holdings, the Company will have no direct or indirect economic or voting interests in Acreage Holdings, the Company will not directly or indirectly control Acreage Holdings, and the Company, on the one hand, and Acreage Holdings, on the other hand, will continue to operate independently of one another.
First Quarter Fiscal 2023 Revenue Review
Revenue by Channel
(in millions of Canadian dollars, unaudited)
Q1 FY2023
Q1 FY2022
Vs. Q1 FY2022
Canadian recreational cannabis
Business to business11
$26.6
$42.7
(38 %)
Business to consumer
$12.4
$17.3
(28 %)
$39.0
$60.0
(35 %)
Canadian medical cannabis12
$13.4
$13.5
(1 %)
$52.4
$73.5
(29 %)
International and other
C3
$-
$11.4
(100 %)
Other13
$13.8
$8.0
73 %
$13.8
$19.4
(29 %)
Global cannabis net revenue
$66.2
$92.9
(29 %)
Other consumer products
Storz & Bickel
$15.6
$24.1
(35 %)
This Works
$5.5
$6.5
(15 %)
BioSteel14
$17.9
$6.7
169 %
Other
$4.9
$6.0
(18 %)
Other consumer products revenue
$43.9
$43.3
1 %
Net revenue
$110.1
$136.2
(19 %)
11
For Q1 FY2023, amount is net of excise taxes of $11.6 million and other revenue adjustments of $0.6 million (Q1 FY2022 – $17.8 million and $3.0 million, respectively).
12
For Q1 FY2023, amount is net of excise taxes of $1.2 million (Q1 FY2022 – $1.4 million).
13
For Q1 FY2023, amount reflects other revenue adjustments of $0.6 million (Q1 FY2022 – $0.4 million).
14
For Q1 FY2023, amount reflects other revenue adjustments of $1.7 million (Q1 FY2022 – $1.9 million).
Revenue by Form
(in millions of Canadian dollars, unaudited)
Q1 FY2023
Q1 FY2022
Vs. Q1 FY2022
Canadian recreational cannabis
Dry bud15,16
$38.6
$66.0
(42 %)
Oils and softgels15,16
$5.2
$5.7
(9 %)
Beverages, edibles, topicals and vapes15,16
$7.4
$9.1
(19 %)
Other revenue adjustments16
$(0.6)
$(3.0)
80 %
Excise taxes
$(11.6)
$(17.8)
35 %
$39.0
$60.0
(35 %)
Medical cannabis and other17
Dry bud
$14.2
$9.6
48 %
Oils and soft gels
$9.2
$20.5
(55 %)
Beverages, edibles, topicals and vapes
$5.0
$4.2
19 %
Excise taxes
$(1.2)
$(1.4)
14 %
$27.2
$32.9
(17 %)
Global cannabis net revenue
$66.2
$92.9
(29 %)
Other consumer products
Storz & Bickel
$15.6
$24.1
(35 %)
This Works
$5.5
$6.5
(15 %)
BioSteel17
$17.9
$6.7
169 %
Other
$4.9
$6.0
(18 %)
Other consumer products revenue
$43.9
$43.3
1 %
Net revenue
$110.1
$136.2
(19 %)
Canadian Cannabis
Recreational B2B net sales in Q1 FY2023 decreased 38% over the prior year period primarily due to the continuing impacts of price compression resulting from increased competition and lower sales in the value-priced dried flower category. These factors were partially offset by a more favourable product mix due primarily to a decrease in the volume of value-priced dried product sold compared to the prior year and a full quarter of net revenue contribution from Supreme Cannabis.
Recreational B2C net sales in Q1 FY2023 decreased 28% versus Q1 FY2022 largely driven by increased competition from the rapid increase in third party retail locations across provinces.
Medical net revenue in Q1 FY2023 decreased 1% from Q1 FY2022 driven primarily by higher average order sizes offset by a fewer number of orders.
International Cannabis
C3 revenue in Q1 FY2023 decreased 100% year-over-year as a result of the divestiture that was completed on January 31, 2022.
Other revenue in Q1 FY2023 increased 73% over the prior year period primarily due to bulk cannabis sales by Supreme Cannabis into the Israel medical cannabis market and increasing global medical sales including to Australia.
Other Consumer Products
BioSteel sales in Q1 FY2023 increased 169% over Q1 FY2022 in part due to continued growth in our distribution channels and sales velocities across North America and higher international sales.
Storz & Bickel vaporizer revenue in Q1 FY2023 decreased 35% over Q1 FY2022 due primarily to temporary disruptions with certain distributors and slowdown in consumer spending in North America and Europe.
This Works sales in Q1 FY2023 decreased 15% over Q1 FY2022 due in part to softer performance of certain product lines, which benefited during the period of COVID-19 restrictions in Q1 FY2022 and the phasing of orders for certain products in Europe to Q2 FY2023.
The Q1 FY2023 and Q1 FY2022 financial results presented in this press release have been prepared in accordance with U.S. GAAP.
15
Excludes the impact of other revenue adjustments.
16
Other revenue adjustments represent the Company’s determination of returns and pricing adjustments and relate to the Canadian recreational business-to-business channel.
17
Includes the impact of other revenue adjustments, which represent the Company’s determination of returns and other pricing adjustments.
