Canopy Growth Corp DEFA14A, filed Feb 9, 2024

Canopy Growth Corp (CGC)

DEFA14A 2024-02-09

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(in millions of Canadian dollars, unaudited)	Net Revenue	Gross margin percentage	Adjusted gross margin percentage1	Net loss from continuing operations	Adjusted EBITDA2	Free cash flow3


Reported	$78.5	36%	36%	$(230.3)	$(9.0)	$(33.9)
vs. Q3 FY2023	(7%)	3,000 bps	2,700 bps	(2%)	82%	57%


(in millions of Canadian dollars, unaudited)	Q3 FY2024	Q3 FY2023	Vs. Q3 FY2023
Canada cannabis
Canadian adult-use cannabis
Business-to-business7	$23.4	$21.5	9%
Business-to-consumer	$-	$11.0	(100%)
	$23.4	$32.5	(28%)
Canadian medical cannabis8	$15.6	$14.1	11%
	$39.0	$46.6	(16%)

Rest-of-world cannabis9	$10.5	$5.8	81%
Storz & Bickel	$18.5	$20.2	(8%)
This Works	$8.2	$8.3	(1%)
Other	$2.3	$3.9	(41%)

Net revenue	$78.5	$84.8	(7%)


	December 31, 2023			March 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	142,745		$	667,693
Short-term investments		43,436			105,526
Restricted short-term investments		7,275			11,765
Amounts receivable, net		63,924			68,459
Inventory		86,917			83,230
Assets of discontinued operations		29,401			116,291
Prepaid expenses and other assets		23,582			24,290
Total current assets		397,280			1,077,254
Other financial assets		392,324			568,292
Property, plant and equipment		340,479			471,271
Intangible assets		119,072			160,750
Goodwill		85,237			85,563
Noncurrent assets of discontinued operations		-			56,569
Other assets		25,359			19,996
Total assets	$	1,359,751		$	2,439,695

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	25,837		$	31,835
Other accrued expenses and liabilities		49,775			53,743
Current portion of long-term debt and convertible debentures		91,336			556,890
Liabilities of discontinued operations		-			67,624
Other liabilities		54,397			93,750
Total current liabilities		221,345			803,842
Long-term debt		520,738			749,991
Noncurrent liabilities of discontinued operations		-			3,417
Other liabilities		73,005			122,423
Total liabilities		815,088			1,679,673
Commitments and contingencies
Canopy Growth Corporation shareholders' equity:
Common shares - $nil par value; Authorized - unlimited number of shares; Issued and outstanding - 82,931,963 shares and 51,730,555 shares, respectively1		8,219,747			7,938,571
Additional paid-in capital		2,578,519			2,506,485
Accumulated other comprehensive loss		(16,049	)		(13,860	)
Deficit		(10,237,693	)		(9,672,761	)
Total Canopy Growth Corporation shareholders' equity		544,524			758,435
Noncontrolling interests		139			1,587
Total shareholders' equity		544,663			760,022
Total liabilities and shareholders' equity	$	1,359,751		$	2,439,695


CANOPY GROWTH CORPORATION CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands of Canadian dollars, except number of shares and per share data, unaudited)

	Three months ended December 31,
	2023			2022
				(As Restated)
Revenue	$	90,061		$	96,986
Excise taxes		11,556			12,136
Net revenue		78,505			84,850
Cost of goods sold		50,279			79,622
Gross margin		28,226			5,228
Operating expenses
Selling, general and administrative expenses		54,436			89,604
Share-based compensation		3,693			6,055
Loss on asset impairment and restructuring		30,413			22,259
Total operating expenses		88,542			117,918
Operating loss from continuing operations		(60,316	)		(112,690	)
Other income (expense), net		(171,037	)		(115,490	)
Loss from continuing operations before income taxes		(231,353	)		(228,180	)
Income tax recovery (expense)		1,077			1,336
Net loss from continuing operations		(230,276	)		(226,844	)
Discontinued operations, net of income tax		13,479			(37,532	)
Net loss		(216,797	)		(264,376	)
Net loss from continuing operations attributable to noncontrolling interests and redeemable noncontrolling interest		-			(542	)
Discontinued operations attributable to noncontrolling interests and redeemable noncontrolling interest		-			(4,369	)
Net loss attributable to Canopy Growth Corporation	$	(216,797	)	$	(259,465	)

Basic and diluted loss per share1
Continuing operations	$	(2.78	)	$	(4.66	)
Discontinued operations		0.16			(0.68	)
Basic and diluted loss per share	$	(2.62	)	$	(5.34	)
Basic and diluted weighted average common shares outstanding1		82,919,190			48,611,260


	Nine months ended December 31,
	2023			2022
				(As Restated)
Cash flows from operating activities:
Net loss	$	(583,458	)	$	(2,661,937	)
Loss from discontinued operations, net of income tax		(194,451	)		(169,492	)
Net loss from continuing operations		(389,007	)		(2,492,445	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant and equipment		22,485			42,674
Amortization of intangible assets		19,396			18,058
Share-based compensation		10,127			20,893
(Gain) loss on asset impairment and restructuring		(816	)		1,797,854
Income tax expense		13,762			10,633
Non-cash fair value adjustments and charges related to settlement of unsecured senior notes		188,452			325,742
Change in operating assets and liabilities, net of effects from purchases of businesses:
Amounts receivable		(14,460	)		13,143
Inventory		(8,047	)		(92	)
Prepaid expenses and other assets		(843	)		(2,665	)
Accounts payable and accrued liabilities		891			(19,084	)
Other, including non-cash foreign currency		(47,901	)		(13,501	)
Net cash used in operating activities - continuing operations		(205,961	)		(298,790	)
Net cash used in operating activities - discontinued operations		(53,930	)		(119,019	)
Net cash used in operating activities		(259,891	)		(417,809	)
Cash flows from investing activities:
Purchases of and deposits on property, plant and equipment		(3,200	)		(6,176	)
Purchases of intangible assets		(716	)		(1,265	)
Proceeds on sale of property, plant and equipment		153,753			10,894
Redemption of short-term investments		68,294			415,322
Net cash (outflow) proceeds on sale of subsidiaries		(3,719	)		12,432
Investment in other financial assets		(472	)		(67,186	)
Other investing activities		(9,234	)		2,051
Net cash provided by investing activities - operating activities		204,706			366,072
Net cash used in investing activities - discontinued operations		(2,600	)		(23,947	)
Net cash provided by investing activities		202,106			342,125
Cash flows from financing activities:
Proceeds from issuance of common shares and warrants		33,795			856
Proceeds from exercise of stock options		-			270
Repayment of long-term debt		(480,080	)		(117,951	)
Other financing activities		(27,239	)		(29,096	)
Net cash used in financing activities		(473,524	)		(145,921	)
Effect of exchange rate changes on cash and cash equivalents		(2,953	)		43,731
Net decrease in cash and cash equivalents		(534,262	)		(177,874	)
Cash and cash equivalents, beginning of period1		677,007			776,005
Cash and cash equivalents, end of period2	$	142,745		$	598,131


Adjusted Gross Margin1 Reconciliation (Non-GAAP Measure)
	Three months ended December 31,
(in thousands of Canadian dollars except where indicated; unaudited)	2023			2022
Net revenue	$	78,505		$	84,850

Gross margin, as reported		28,226			5,228
Adjustments to gross margin:
Restructuring costs recorded in cost of goods sold		-			2,007
Adjusted gross margin1	$	28,226		$	7,235

Adjusted gross margin percentage1		36	%		9	%
1 Adjusted gross margin and adjusted gross margin percentage are non-GAAP measures. See "Non-GAAP Measures".


Adjusted EBITDA1 Reconciliation (Non-GAAP Measure)
	Three months ended December 31,
(in thousands of Canadian dollars, unaudited)	2023			2022
Net loss from continuing operations	$	(230,276	)	$	(226,844	)
Income tax recovery		(1,077	)		(1,336	)
Other (income) expense, net		171,037			115,490
Share-based compensation		3,693			6,055
Acquisition, divestiture, and other costs		4,981			13,347
Depreciation and amortization2		12,240			19,308
Loss on asset impairment and restructuring		30,413			22,259
Restructuring costs recorded in cost of goods sold		-			2,007
Adjusted EBITDA1	$	(8,989	)	$	(49,714	)
1Adjusted EBITDA is a non-GAAP measure. See "Non-GAAP Measures".
2 From Consolidated Statements of Cash Flows.


Free Cash Flow1 Reconciliation (Non-GAAP Measure)
	Three months December 31,
(in thousands of Canadian dollars, unaudited)	2023			2022
Net cash used in operating activities - continuing operations	$	(33,348	)	$	(77,055	)
Purchases of and deposits on property, plant and equipment - continuing operations		(564	)		(1,868	)
Free cash flow1 - continuing operations	$	(33,912	)	$	(78,923	)
1Free cash flow is a non-GAAP measure. See "Non-GAAP Measures".


Segmented Gross Margin and Segmented Adjusted Gross Margin1 Reconciliation (Non-GAAP Measure)
	Three months ended December 31,
(in thousands of Canadian dollars except where indicated; unaudited)	2023			2022
Canada cannabis segment
Net revenue	$	39,028		$	46,617
Gross margin, as reported		11,113			(5,281	)
Gross margin percentage, as reported		28	%		(11	%)
Adjustments to gross margin:
Restructuring costs recorded in cost of goods sold		-			1,689
Adjusted gross margin1	$	11,113		$	(3,592	)
Adjusted gross margin percentage1		28	%		(8	%)

Rest-of-world cannabis segment
Revenue	$	10,527		$	5,846
Gross margin, as reported		4,192			(2,184	)
Gross margin percentage, as reported		40	%		(37	%)
Adjustments to gross margin:
Restructuring costs recorded in cost of goods sold		-			256
Adjusted gross margin1	$	4,192		$	(1,928	)
Adjusted gross margin percentage1		40	%		(33	%)

Storz & Bickel segment
Revenue	$	18,453		$	20,214
Gross margin, as reported		9,449			9,186
Gross margin percentage, as reported		51	%		45	%

Adjusted gross margin1	$	9,449		$	9,186
Adjusted gross margin percentage1		51	%		45	%

This Works segment
Revenue	$	8,165		$	8,289
Gross margin, as reported		4,253			4,032
Gross margin percentage, as reported		52	%		49	%
Adjustments to gross margin:
Restructuring costs recorded in cost of goods sold		-			62
Adjusted gross margin1	$	4,253		$	4,094
Adjusted gross margin percentage1		52	%		49	%

Other
Revenue	$	2,332		$	3,884
Gross margin, as reported		(781	)		(525	)
Gross margin percentage, as reported		(33	%)		(14	%)

Adjusted gross margin1	$	(781	)	$	(525	)
Adjusted gross margin percentage1		(33	%)		(14	%)

1 Adjusted gross margin and adjusted gross margin percentage are non-GAAP measures. See "Non-GAAP Measures".