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 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, 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, Judy Hong. Before financial markets opened today, Canopy Growth issued a news release announcing the financial results for our third quarter fiscal year 2025 ended December 31, 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 this 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 on 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 from Luc 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 Luc.

Thank you, Tyler. Good morning, everyone. And thank you for joining our third quarter fiscal year 2025 earnings conference call. My name is Luc Mongeau, and I'm proud to join you for my first earnings call as CEO of Canopy Growth. I'm truly excited to lead the company forward as we start a new year and embark on a fresh chapter for Canopy. I would like to start by expressing my gratitude for the support that the Canopy Board of Directors and our entire team have given me as I begin in this new role. I will also like to thank David Klein for his leadership and support through the transition. For me, joining Canopy and stepping into the role of CEO to lead this Canadian and global organization is an honor and a privilege. And before we get into the results from Q3, which Judy will cover in greater depth, I'd like to share some details about my prior experience and why I've joined as CEO and speak at a high level about my view on the company, the sector, and our path ahead. Over the last 25 years, I've had the privilege of leading and working within organizations across the consumer packaged goods industry. Companies like Weston Foods, Mars Petcare, and Procter & Gamble. In all my roles, I've dedicated myself to identifying the most promising value creation opportunities, working to understand the needs and wants of consumers and customers while building a greater organization that meets and exceeds demand with high-quality innovative products. I have led product innovation in R&D, revamped complex supply chains, executed global marketing campaigns, and developed fresh takes on commercial strategies on how to power growth and profitability. This brings me to Canopy. When I first got involved with Canopy two years ago through my engagement with the Board, I saw something unique. Cannabis, in my view, represents one of the most exciting consumer trends today. The sector is evolving rapidly, and we're still at the beginning of transforming how people view and experience cannabis products. Whether it's delivering new experiences or redefining approaches to wellness, cannabis has the capacity to shape and influence the future of the consumer goods sector while broadening cultural and lifestyle trends around the world. However, my optimism is balanced with our reality to date. As we all know, the cannabis sector has faced real challenges. Regulations have not evolved as fast as expected. Some consumer trends like beverages have taken longer to develop. The illicit market still endures. And finally, the path to full legalization in the US remains uncertain. But for me, this is the exciting part. The opportunities ahead are just beginning to unfold. We continue to see more people move away from alcohol and instead choose cannabis to enhance their social lives and support their wellness. The shift in behaviors is not just a passing trend. It's a sign of deep lasting change that will only continue to grow. As I move forward, my focus is clear, to drive Canopy rapidly towards sustained profitability and positive cash generation. Right now, I'm working with the team to identify key areas of improvement to enhance Canopy in every way possible for the benefit of our consumers, our people, our business partners, and our shareholders. I'll have much more to say on this when we're together for Canopy's Q4 conference call in May. For now, I would like to highlight some of the areas of our business that are showing promise and strong performance. First, our medical cannabis business. Whether in Canada or across our international markets, Canopy is a recognized leader in medical cannabis. In Canada, our Spectrum Therapeutics team has built a powerful reputation for outstanding service and for meeting the diverse needs of medical cannabis patients through an ever-expanding product portfolio. Internationally, we have established a solid position across the markets with the highest potential: Germany, Poland, and Australia. Across Europe, regulatory changes are helping power existing momentum. In Germany, we're bringing new high THC strains to market from our Canadian platform. In addition, collaboration with Europe-based flower suppliers is helping us deliver the variety of products that patients are seeking. Overall, I believe we can really build upon Canopy's medical cannabis business and continue to drive growth in the quarters and years ahead. Next, in our adult-use business, I'd like to highlight the recent launch of the award-winning Claybourne brand in Canada. In less than six weeks, Claybourne has risen to become the number three infused pre-roll in British Columbia and Ontario. This showcases our ability to successfully introduce innovative products that resonate with consumers and can quickly make an impact in the market. Overall, I believe our Canadian adult-use business has the key ingredients necessary to grow our share of the market. Another example of Canopy's strength is our Storz & Bickel brand with its offering of premium vaporizers, including the iconic Volcano and the new high-performance Venty. Storz & Bickel is an unparalleled leader in the premium vaporizer space. We are working to drive new innovation for Storz & Bickel and keep up the momentum for what is already a leading portfolio. I'm really excited about where this brand is today as well as where it's going. Next, I would like to speak about Canopy USA. Canopy USA is an exciting differentiated platform that we feel is well positioned to capitalize on its ecosystem of brands and operations. With the acquisitions of Wana, Jetty, and Acreage finalized, Canopy USA is already well advanced on the process of integration. It is also now realizing cost synergies as well as marketing and joint sales advantages across key markets and categories. As a final element of bringing Canopy USA to life as a single cohesive organization, Brooks Jorgensen was appointed as the organization's first President in early January. Brooks brings a wealth of experience and a robust track record in building cannabis businesses, having recently led Kiva, the largest cannabis distributor in the US. Together with the broader CUSA team, Brooks is focused on driving strategic execution and growth of the Canopy USA platform. We see real potential in Canopy USA and expect to see even more growth as they continue to build and refine their presence. As I wrap up today, I want to reiterate that I believe we have the right ingredients for success and are focused on positioning Canopy to grow profitably and sustainably. I look forward to sharing more detail about the company's planned and updated strategy in great detail when we release our full-year financials at the end of May this year. Thank you. Judy will now speak to the results from the quarter.

Thank you very much, Luc. And good morning, everyone. I'll start by walking through our Q3 fiscal 2025 results, including performance by key business units. I'll then discuss progress on our balance sheet and cash flow, followed by a discussion on our priorities and outlook for the balance of fiscal 2025 and into fiscal 2026. Let's begin with our third quarter results. Q3 was a solid quarter marked by continued momentum in medical cannabis and Storz & Bickel as well as improvement in our adult-use business in Canada. And combined with cost efficiencies, we significantly narrowed our adjusted EBITDA loss in the quarter. Canopy delivered consolidated net revenue of CAD75 million in Q3, a decrease of 5% or up 8% excluding the impact of divested businesses compared to Q3 of last year. Consolidated gross margin in Q3 was 32%, down compared to 36% a year ago but broadly in line with our target range. Q3 adjusted EBITDA was a loss of CAD3 million, an improvement of 61% versus last year. And free cash flow was an outflow of CAD28 million, an improvement of 17% compared to Q3 of fiscal '24 and a significant improvement relative to the first half run rate of the current fiscal year. I'd like to now review the results of our key businesses in more detail, starting with Canada. Q3 net revenue was CAD41 million, an increase of 1% compared to a year ago. Canada medical continued its momentum, marking another record revenue quarter and posting year-over-year revenue growth of 16%. We're gaining market share with a growing number of insured patients, and we've expanded our product assortment to meet the needs of our medical consumers. The growth relative to Q2 was also driven by a return of Wana Gummies as well as contributions from our newly launched Claybourne infused pre-rolls. Our adult-use business was down 10% year-over-year but increased 15% quarter-over-quarter. The improvement was driven by: one, Claybourne infused pre-rolls launched in mid-November are off to a strong start; two, Wana Gummies returning to shelves after Q2 supply disruptions; and three, increased bulk flower sales as we capture opportunities to sell to other producers. And while some of our core brands are still facing competitive pressure in the marketplace, we've deployed targeted investments, which are beginning to gain traction. And we're focused on accelerating growth in the adult-use market with the continued Claybourne rollout, a strong pipeline of new products, and an enhanced field sales strategy to further grow doors and points of distribution. Canada gross margin in Q3 was 25%, and cash gross margin adding back non-cash depreciation cost was 35%. The growth in Canada medical continues to be a positive contributor to overall Canada gross margin, with the decline in gross margin in the quarter primarily attributable to higher initial costs to produce Claybourne. We're focused on improving the cost structure of Claybourne and expect cash gross margins to return to at least mid to high 30% targeted range based on the historical channel mix. International markets cannabis net revenue of CAD12 million in Q3 FY 2025 was up 14% compared to Q3 of last year. Within international, we again generated outsized growth in Poland. Germany also saw strong growth from additional product registrations that we've secured in prior quarters. We launched Tweed branded flower products in Germany during Q3 and have secured additional EU-based supply for the upcoming release of additional Tweed flower products. The growth in Europe was partially offset by the decline in sales in our Australia medical cannabis business as well as US CBD sales, which are no longer part of Canopy's business. In Australia, the medical cannabis market is expanding steadily, but there has been increased competition. We are sharpening our focus in Australia, transitioning the S&B business in Australia to S&B Germany to ensure dedicated support for our medical cannabis business in Australia. International markets' cannabis gross margin was 41% in Q3 of FY25, up 100 basis points from Q3 FY 2024 driven by increased sales in Poland, which carry higher gross margins. Storz & Bickel had another strong quarter with revenue of CAD22 million in Q3, up 19% compared to last year. Q3 is traditionally a strong quarter for S&B given the holiday selling season. The growth was also led by robust direct-to-consumer online sales, continued strong contributions from Venty, which was launched during Q3 of last year as well as growth in Germany. Storz & Bickel gross margin was 41% compared to 51% last year due to higher indirect costs, including shipping costs. Looking at our SG&A expenses for Q3 of fiscal 2025. Sales and marketing and G&A expenses declined 24% year-over-year, primarily due to the cost reduction program undertaken during fiscal 2024. Year-to-date, our G&A costs, excluding the impact of divestitures, have also declined by approximately CAD10 million versus the prior year, and we're well on our way to achieving CAD10 million to CAD15 million in G&A cost savings by the end of this fiscal year. Q3 fiscal 2025 adjusted EBITDA was a loss of CAD3 million compared to a loss of CAD9 million a year ago. This was led by positive EBITDA contributions from all three business units offset by unallocated corporate overhead costs, including public company costs. I'd like to now review our cash flow and balance sheet. Free cash flow was an outflow of CAD28 million in Q3, an improvement of 17% compared to the prior year. Cash used from continuing operations was CAD27 million. This included cash interest payments in the quarter of CAD17 million, which was down from CAD21 million in Q3 of last year. As I indicated during the previous call, working capital improved significantly compared to the first half run rate, driven by the timing of certain payments and tight working capital management. Turning to the balance sheet. As of December 31, 2024, we had CAD178 million in cash and short-term investments and total principal debt balance of CAD460 million. In October, we further reduced our term loan balance by $100 million by making an early prepayment in the amount of $97.5 million, bringing term loan principal balance to approximately $250 million. We have an option to further extend the maturity of the term loan to September 2027 from December 2026 by making an additional $100 million payment at 97.5% to par before the end of March of this year. Under the current ATM program that was launched in June, we've generated total gross proceeds of $228 million, including an additional $41 million that was completed post the end of Q3. We believe we have ample cash on our balance sheet to meet our near-term obligations, and the remaining ATM program should also provide us with the flexibility to invest in growth initiatives. I'd like to now briefly discuss Canopy USA. Following the completion of the Acreage acquisition in December of 2024, Canopy USA has now moved forward with the full integration of the three businesses to capture revenue and cost synergies as quickly as possible. Given that it's only a little over a month since the Acreage acquisition has closed and less than a month since the new President has been in place, we plan to provide more details around the business performance and financials of Canopy USA when we report our year-end earnings in late May. I'd like to now provide our key priorities and outlook for the balance of fiscal '25 and into fiscal '26. In Canada cannabis, we expect continued strength in our medical business and improved performance in our adult use business as we focus on building on the initial success of the Claybourne launch, new product introductions, and continued efforts to drive expanded distribution and improve velocity of our products. In international market cannabis, we expect continued momentum in our European business as we focus on ensuring consistent product availability, expanding points of distribution, and launching new products. In Australia, we are in the process of transitioning Storz & Bickel sales to Storz & Bickel Germany to ensure increased focus on the medical cannabis business in that market. For Q4, we note that international markets cannabis sales in Q4 of last year included over CAD1.7 million of sales in US CBD, which is no longer part of our business. For Storz & Bickel, we expect another solid quarter in Q4 but year-over-year growth is likely to be challenged, given the tough year-ago comparison. Note that Q4 FY24 benefited from outsized growth from Venty as production caught up with sales following supply constraints in Q3 of last year. And finally, the impact from divested businesses plus the US CBD sales will be approximately CAD2.1 million in Q4. Based on our expectation of continued momentum across our medical businesses, improvement in Canada adult use and continued cost discipline, we believe achieving positive adjusted EBITDA at the consolidated level is firmly in sight in the coming quarters. And as we look forward to FY26, we're focused on driving long-term sustainable growth in our businesses while further improving our profitability and cash flow. This concludes my prepared comments. We will now take questions.

The first question comes from Aaron Grey at Alliance Global Partners.

Luc and Judy, just wanted to dig a bit deeper in terms of plans for international to capitalize on some of the growth there. I know you mentioned some additional supply agreements that were signed. But I'm curious if you believe the asset-light model will enable you to capture and maintain a healthy share of the growing international pie? And then would that preclude you from generating more robust margins compared to being vertical internationally? So any color in terms of the outlook that you have for international given the growth we're seeing from some of the competitors out there?

I'll begin, and Luc may have his input as well. First, I want to highlight that we experienced very strong international performance, particularly in European markets. Our overall revenue from international segments reached CAD12 million, but it's important to distinguish between the performance in Europe and Australia. Specifically, the European business, which includes significant markets like Poland and Germany, makes up around 60% of our international segment. We have a solid presence in Poland and are witnessing substantial growth there. Additionally, as mentioned earlier, we've experienced strong growth in Germany due to the extra supply we've secured. Overall, our European business saw an increase of over 70% in Q3. In contrast, our Australian business declined year over year. Last quarter, we noted increased competition, especially in the medical cannabis sector in Australia, which includes our S&B sales there. We're working on transitioning that business to Germany so the Australian team can concentrate on enhancing medical cannabis sales in their market. Looking ahead, the market is expanding, supported by favorable regulatory changes in Germany, which we believe will benefit us as the market grows. Furthermore, we are partnering with additional supply partners, allowing us to supply the market efficiently without heavy capital investment. We also have our GMP-certified Kincardine facility in Canada, which we are utilizing to serve the international market effectively. With our Canadian supply combined with our third-party partners in Europe, we believe we are well-positioned to capitalize on the growth opportunities in that market.

Building a bit on that, I'm five weeks in right now. The medical market, both in Canada and internationally, has very strong fundamentals. We've got some solid elements in place. As I dig deep in the business and look at the strategy, the approach, the resource allocation, this is all things that I'm considering and I'll have more to share at the next call, but it is an extremely attractive category.

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

Luc, I wanted to keep going there on that kind of management and strategy philosophy conversation. Like it's been, I think, five weeks. But in what ways do you view the company and opportunities differently than your predecessor? And in what ways so far that you've seen, do you agree with the path and strategy that was in place?

It's a bit too early for me to tell. What I can tell you in the five weeks that I have been in the business is that I am impressed with the quality of the talent overall, the quality of the processes, the quality of the supply chain. And for me, I'm working very closely with the team right now, doing the analysis, doing the validation, or proving wrong some of the hypotheses and the approaches that are there right now, and I'm extremely encouraged with what I see. More to come at the next call.

The next question comes from Matt Bottomley at Canaccord Genuity.

This question might be more for Judy. Just wondering, understanding some of the success that you guys have had on the cost-cutting initiatives, you've had a number of quarters now where the free cash flow burn has come down. But if you look at that sort of the ATM line there, 250 some-odd million of raises this year for the first nine months, I'm just wondering where you see the cadence of that going just as you continue to progress towards breakeven? And obviously, the question we all get just given the fact that the equity valuations right now continue to be challenged in the sector overall.

So as you said, we certainly did make significant progress on our balance sheet, and our cash flow has improved significantly on a year-over-year basis and over the last few years. We do expect further improvement in FY2026 from a cash flow perspective. Certainly, the expectations for improved operations and improved profitability across our businesses will be a contributor. We're also looking at, on a year-over-year basis, improvement in cash interest expenses following the paydown of our term loan that we made in October. We also have an option to pay down an additional $100 million in the coming months as well. So when you unpack our cash flow for next year, really a significant portion of the outflow is expected to be in the interest expenses line. We expect relatively modest CapEx investments in the year. And there's some additional cash costs related to the legacy facilities that we're still incurring, but we've made significant progress also in reducing some of those cash costs as well. So we think that the combination of the cash balance that we have, continued actions that we're taking to improve our cash flow and reduce our leverage will really provide us ample flexibility to reinvest into the business as well to continue to fuel growth opportunities in our portfolio.

The next question comes from Frederico Gomes at ATB Capital Markets.

Just a question on Poland. I think, Judy, you mentioned that you saw outsized growth in that market. So could you talk a little bit more about that market specifically? What's the size right now, how fast it is growing, how the competitive environment in Poland looks like in terms of market share that you have in that market? Any further color about the Poland market?

Within our European business, Poland has been one of the strongest contributors to growth in the region. The marketplace there is somewhat shielded from competitive pressures because the government issues import permits, which we have successfully secured by consistently providing the supply and quality that patients need. Currently, we are meeting all the import registrations we hold, and demand has been exceeding supply for the last couple of years. While we recognize that market dynamics and regulations may change over time, we are very optimistic about the current market conditions, our leadership position, and our ability to meet all the import permits we have obtained.

The next question comes from Pablo Zuanic at Zuanic & Associates.

Luc, I want to ask about Constellation Brands. Specifically, how involved is Constellation in the Board and direction of Canopy Growth compared to three or four years ago? Can you also utilize Constellation's distribution assets in the US as Wana starts to launch their derivative products? My second question is about the impressive 60% growth in Europe. Judy, could you remind us about the strength of your route-to-market and distribution capabilities in that region? We recognize that exporting from Canada is one aspect, but effectively distributing the product there is another. Were those distribution assets affected by past cost cuts, or are they still strong, or do they need some rebuilding?

So our international infrastructure is primarily we have supply coming in from Canada as well as third-party partners in those markets. And we have distribution partners. So we've worked closely with our partners both in Germany and in some instances, even in the UK to make sure that we have collaboration across those markets to have distribution channels available to us in those markets. I would say, if you take a step back in international markets, the biggest constraint over the last couple of years has really been about supply. I think as you know, we've gone through a big improvement in terms of our flower quality and supply continuity in the Canadian market. And that is also helping our international business with improved flower quality, more consistent supply, and higher THC going into those markets. So I don't think there is expected to be a big step change in terms of really the investments required to change our business in that market. I think it's really leveraging what we have from a product perspective, our partnership with distributors' perspective, and taking advantage of the market growth. From your question on Constellation, I mean I think, as you know, they remain our largest shareholder. They are now more of a passive shareholder given the exchangeable share ownership that they have in Canopy. We still have a relationship with them in the context of just sharing best practices or just changing ideas. But I think from their perspective, it's really about investments as an investor in Canopy, less about operational exchanges in that sense.

This concludes Canopy Growth's third quarter fiscal 2025 financial results conference call. A replay of this conference call will be available until May 8, 2025, 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.