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8-K

Canopy Growth Corp (CGC)

8-K 2020-07-10 For: 2020-07-10
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Added on April 11, 2026

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENTREPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): July 10, 2020

Canopy Growth Corporation

(Exact name of registrant as specified in its charter)

Canada 001-38496 N/A
(State or other jurisdiction<br><br><br>of incorporation) (Commission<br><br><br>File Number) (IRS Employer<br><br><br>Identification No.)
1 Hershey DriveSmiths Falls, Ontario K7A 0A8
(Address of principal executive officers) (Zip Code)

(855) 558-9333

(Registrant’s telephone number, including area code)

Not Applicable

(Formername or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17<br>CFR 240.14a-12)
--- ---
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading<br><br><br>Symbol(s) Name of each exchange<br><br><br>on which registered
Common Shares, no par value CGC New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Item 2.02 Results of Operations and Financial Condition.

The information in Item 7.01 below is incorporated herein by reference.

The information in this Item 2.02 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such a filing or document.

Item 7.01 Regulation FD Disclosure.

As of September 30, 2019, Canopy Growth Corporation (the “Company”) determined that it no longer qualified as a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act. This means that, as of April 1, 2020, the Company has been required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act as a domestic registrant rather than the forms the Company has filed with the Securities and Exchange Commission (“SEC”) in the past as a foreign private issuer.

Accordingly, the Company is now required to prepare its financial statements filed with the SEC in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). As required pursuant to section 4.3(4) of National Instrument 51-102 – Continuous Disclosure Obligations, the Company must restate its interim financial reports for the fiscal year ended March 31, 2020 in accordance with U.S. GAAP, such interim financial reports having previously been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.

The restated unaudited consolidated interim financial statements and the related management’s discussion and analysis of financial condition and results of operations for (i) the three months ended June 30, 2019 and 2018; (ii) the three and six months ended September 30, 2019 and 2018; and (iii) the three and nine months ended December 31, 2019 and 2018 (collectively, the “Restated Interim Financial Statements and MD&As”) have been prepared in accordance with U.S. GAAP.

Other than as expressly set forth above, the Restated Interim Financial Statements and MD&As do not, and do not purport to, update or restate the information in the original unaudited consolidated interim financial statements and the related management’s discussion and analysis of financial condition and results of operations for (i) the three months ended June 30, 2019 and 2018; (ii) the three and six months ended September 30, 2019 and 2018; and (iii) the three and nine months ended December 31, 2019 and 2018 (collectively, the “Original Interim Financial Statements and MD&As”) or reflect any events that occurred after the date of the filing of the Original Interim Financial Statements and MD&As.

The Original Interim Financial Statements and MD&As, which were prepared in accordance with IFRS, were filed with the SEC on Forms 6-K on August 14, 2019, November 14, 2019 and February 14, 2020, respectively. Copies of the Restated Interim Financial Statements and MD&As are attached as Exhibit 99.1, Exhibit 99.2, Exhibit 99.5, Exhibit 99.6, Exhibit 99.9 and Exhibit 99.10, respectively, to and are incorporated by reference in this Current Report on Form 8-K.

The information in this Item 7.01, including the exhibits attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference into any filing or other document pursuant to the Securities Act or the Exchange Act, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such a filing or document.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit No. Description
99.1 Restated Consolidated Interim Financial Statements for the three months ended June 30, 2019 and June 30, 2018 dated July 10, 2020
99.2 Restated Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three months ended June 30, 2019 and June 30, 2018 dated July 10, 2020
99.3 Form 52-109F2R Certification Of Refiled Interim Filings Full Certificate–Chief Executive Officer dated July <br>10, 2020, for the interim period ended June 30, 2019
99.4 Form 52-109F2R Certification Of Refiled Interim Filings Full Certificate–Chief Financial Officer dated July <br>10, 2020, for the interim period ended June 30, 2019
99.5 Restated Consolidated Interim Financial Statements for the three and six months ended September 30, 2019 and September 30, 2018 dated July 10, 2020
99.6 Restated Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and six months ended September 30, 2019 and September 30, 2018 dated July <br>10, 2020
99.7 Form 52-109F2R Certification Of Refiled Interim Filings Full Certificate–Chief Executive Officer dated July <br>10, 2020, for the interim period ended September 30, 2019
99.8 Form 52-109F2R Certification Of Refiled Interim Filings Full Certificate–Chief Financial Officer dated July <br>10, 2020, for the interim period ended September 30, 2019
99.9 Restated Consolidated Interim Financial Statements for the three and nine months ended December 31, 2019 and December 31, 2018 dated July 10, 2020
99.10 Restated Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and nine months ended December 31, 2019 and December 31, 2018 dated July <br>10, 2020
99.11 Form 52-109F2R Certification Of Refiled Interim Filings Full Certificate–Chief Executive Officer dated July <br>10, 2020, for the interim period ended December 31, 2019
99.12 Form 52-109F2R Certification Of Refiled Interim Filings Full Certificate–Chief Financial Officer dated July <br>10, 2020, for the interim period ended December 31, 2019

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

CANOPY GROWTH CORPORATION
By: /s/ Phil Shaer
Phil Shaer<br> <br>Chief Legal Officer

Date: July 10, 2020

EX-99.1

Exhibit 99.1

NOTICE TO READER

As of September 30, 2019, Canopy Growth Corporation (the “Company”) determined that it no longer qualified as a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act of 1933. This means that as of April 1, 2020, the Company has been required to comply with all of the periodic disclosure requirements of the Securities Exchange Act of 1934 applicable to U.S. domestic issues, such as Forms 10-K, 10-Q and 8-K, rather than the forms the Company has filed with the Securities and Exchange Commission (“SEC”) in the past as a foreign private issuer, such as Forms 40-F and 6-K.

Accordingly, the Company is now required to prepare its financial statements filed with the SEC in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). As required pursuant to section 4.3(4) of National Instrument 51-102 – Continuous Disclosure Obligations, the Company must restate its interim financial reports for the fiscal year ended March 31, 2020 in accordance with U.S. GAAP, such interim financial reports having previously been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The attached amended and restated condensed interim consolidated financial statements (the “Financial Statements”) for **** the three months ended June 30, 2019 and 2018 have been prepared in accordance with U.S. GAAP, are current as of August 14, 2019 and provide financial information for the three months ended June 30, 2019, as amended and restated on July 10, 2020. Other than as expressly set forth above, the revised Financial Statements do not, and do not purport to, update or restate the information in the original condensed interim consolidated financial statements or reflect any events that occurred after the date of the filing of the original condensed interim consolidated financial statements.

The Company’s Annual Report on Form 10-K (the “Annual Report”) dated June 1, 2020 is available under the Company’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Readers are cautioned that these Financial Statements should be read in conjunction with the Annual Report, including the consolidated financial statements and the related notes thereto included in Item 8 thereof.

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THETHREE MONTHS ENDED JUNE 30, 2019 AND 2018

(IN CANADIAN DOLLARS)

CANOPY GROWTH CORPORATION

TABLE OF CONTENTS

Condensed interim consolidated balance sheets 1
Condensed interim consolidated statements of operations and comprehensive loss 2
Condensed interim consolidated statements of changes in shareholders’ equity 3
Condensed interim consolidated statements of cash flows 4
Notes to the condensed interim consolidated financial statements 5-29

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS

UNAUDITED

June 30, March 31,
(Expressed in CDN 000’s) 2019 2019
Assets
Current assets
Cash and cash equivalents 3 $ 1,816,632 **** $ 2,480,830
Short-term investments 4 **** 1,324,255 **** 2,034,133
Restricted short-term investments **** 19,533 **** 21,432
Amounts receivable, net 5 **** 102,766 **** 106,974
Inventory 6 **** 254,151 **** 190,072
Prepaid expenses and other assets 7 **** 105,029 **** 85,691
**** 3,622,366 **** **** 4,919,132 ****
Equity method investments 8 **** 113,321 **** 112,385
Other financial assets 9 **** 746,691 **** 363,427
Property, plant and equipment 10 **** 1,433,188 **** 1,096,340
Intangible assets 11 **** 569,029 **** 558,070
Goodwill 12 **** 1,877,719 **** 1,489,859
Other assets **** 31,391 **** 25,902
$ 8,393,705 **** $ 8,565,115
Liabilities and Shareholders’ equity
Current liabilities
Accounts payable $ 205,033 **** $ 188,920
Other accrued expenses and liabilities 13 **** 51,786 **** 37,613
Current portion of long-term debt 14 **** 18,288 **** 103,716
Other liabilities 15 **** 97,647 **** 81,414
372,754 411,663
Long-term debt 14 **** 787,508 **** 842,259
Deferred income tax liabilities 24 **** 115,077 **** 105,081
Warrant derivative liability 26 **** 1,092,748 **** —
Other liabilities 15 **** 207,455 **** 134,004
2,575,542 1,493,007
Redeemable noncontrolling interest 16 **** 8,500 **** 6,400
Canopy Growth Corporation shareholders’ equity:
Common shares—nil par value; Authorized - unlimited number of shares; Issued -<br>339,718,381 shares and 337,510,408 shares, respectively 17 **** 6,077,390 **** 6,029,222
Additional paid-in capital **** 2,694,673 **** 1,592,024
Accumulated other comprehensive (loss) income 19 **** (52,039 ) (5,905 )
Deficit **** (3,187,779 ) (835,118 )
Total Canopy Growth Corporation shareholder’s equity **** 5,532,245 **** 6,780,223
Noncontrolling interests 20 **** 277,418 **** 285,485
Total shareholders’ equity **** 5,809,663 **** 7,065,708
Total liabilities and shareholders’ equity $ 8,393,705 **** $ 8,565,115

All values are in US Dollars.

The accompanying notes are an integral part of these condensed interim consolidated financialstatements.

Page 1

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

UNAUDITED

June 30, June 30,
(Expressed in CDN $000’s except share<br>amounts) Notes 2019 2018
Revenue 22 $ 103,391 **** $ 25,916
Excise taxes 22 **** 12,909 **** —
Net revenue 22 **** 90,482 **** 25,916
Cost of goods sold **** 72,192 **** 18,452
Gross margin **** 18,290 **** 7,464
Selling, general and administrative expenses **** 145,647 **** 43,951
Share-based compensation **** 87,362 **** 25,567
Total operating expenses **** 233,009 **** 69,518
Operating loss **** (214,719 ) (62,054 )
Loss from equity method investments 8 **** (1,833 ) (2,569 )
Other income (expense), net 23 **** 32,768 **** (31,169 )
Loss before income taxes **** (183,784 ) (95,792 )
Income tax (expense) recovery 24 **** (10,267 ) 2,493
Net loss $ (194,051 ) $ (93,299 )
Net loss attributable to noncontrolling interests and redeemable noncontrolling<br>interest **** (8,182 ) (3,628 )
Net loss attributable to Canopy Growth Corporation $ (185,869 ) $ (89,671 )
Basic and diluted loss per share $ (0.54 ) $ (0.45 )
Basic and diluted weighted average common shares outstanding **** 346,779,156 **** 200,160,740
Comprehensive loss:
Net loss $ (194,051 ) $ (93,299 )
Fair value changes of own credit risk of financial liabilities **** 14,610 **** (9,420 )
Foreign currency translation **** (60,744 ) (1,320 )
Total other comprehensive (loss), net of income tax effect **** (46,134 ) (10,740 )
Comprehensive loss **** (240,185 ) (104,039 )
Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling<br>interest **** (8,182 ) (3,628 )
Comprehensive loss attributable to Canopy Growth Corporation **** (232,003 ) (100,411 )

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

Page 2

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

UNAUDITED

Additional paid-in capital
(Expressed in CDN $000’s<br>except share amounts) Note Common<br>shares Share-based<br>reserve Warrants Ownership<br>changes Redeemable<br>noncontrollinginterest Accumulatedothercomprehensiveincome (loss) Deficit Noncontrolling<br>interests Total
Balance at March 31, 2018 $ 1,079,442 $ 57,982 **** $ 70,455 **** $ (1,019 ) $ (64,745 ) $ 35,408 **** $ (132,904 ) $ 85,732 **** $ 1,130,351 ****
Cumulative effect from adoption of ASU 2016-1 — — — — — (34,800 ) 34,800 — —
Other issuances of common shares and warrants 37,911 (2,616 ) — — — — — — 35,295
Exercise of warrants 322 — (189 ) — — — — — 133
Exercise of Omnibus Plan stock options 9,414 (4,318 ) — — — — — — 5,096
Share-based compensation — 18,921 — — — — — — 18,921
Issuance and vesting of restricted share units — 2,247 — — — — — — 2,247
Changes in redeemable noncontrolling interest — — — — (18,826 ) — — 726 (18,100 )
Ownership changes relating to noncontrolling interest — — — (499 ) — — — 6,223 5,724
Comprehensive loss — — — — — (10,740 ) (89,671 ) (3,628 ) (104,039 )
Balance at June 30, 2018 $ 1,127,089 $ 72,216 **** $ 70,266 **** $ (1,518 ) $ (83,571 ) $ (10,132 ) $ (187,775 ) $ 89,053 **** $ 1,075,628 ****
Balance at March 31, 2019 $ 6,029,222 $ 505,172 **** $ 1,589,925 **** $ (500,963 ) $ (2,110 ) $ (5,905 ) $ (835,118 ) $ 285,485 **** $ 7,065,708 ****
Other issuances of common shares and warrants 17 18,600 (18,674 ) — — — — — — (74 )
Exercise of warrants 17 897 — (470 ) — — — — — 427
Exercise of Omnibus Plan stock options 18 28,671 (12,594 ) — — — — — — 16,077
Share-based compensation 18 — 84,769 — — — — — — 84,769
Acreage warrant modification 26 — — 1,049,153 — — — (2,166,792 ) — (1,117,639 )
Changes in redeemable noncontrolling interest 16 — — — — 615 — — (2,715 ) (2,100 )
Ownership changes relating to noncontrolling interest 20 — — — (150 ) — — — 2,830 2,680
Comprehensive loss — — — — — (46,134 ) (185,869 ) (8,182 ) (240,185 )
Balance at June 30, 2019 $ 6,077,390 $ 558,673 **** $ 2,638,608 **** $ (501,113 ) $ (1,495 ) $ (52,039 ) $ (3,187,779 ) $ 277,418 **** $ 5,809,663 ****

The accompanying notes are an integral part of these condensed interim consolidated financialstatements.

Page 3

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

UNAUDITED

June 30, June 30,
(Expressed in CDN $000’s) Notes 2019 2018
Cash flows from operating activities
Net loss $ (194,051 ) $ (93,299 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant and equipment **** 13,587 **** 3,661
Amortization of intangible assets **** 7,165 **** 2,632
Share of loss on equity investments 8 **** 1,833 **** 2,569
Share-based compensation 18 **** 87,362 **** 26,351
Income tax expense (recovery) 24 **** 10,267 **** (2,721 )
Non-cash foreign currency **** 2,834 **** 834
Change in operating assets and liabilities, net of effects from purchases of businesses:
Amounts receivable **** 13,506 **** (6,321 )
Prepaid expenses and other assets **** (24,009 ) (11,667 )
Inventory **** (50,716 ) (17,113 )
Accounts payable and accrued liabilities **** (12,582 ) 1,791
Other, including non-cash fair value adjustments **** (13,486 ) 25,642
Net cash used in operating activities **** (158,290 ) (67,641 )
Cash flows from investing activities
Purchases of and deposits on property, plant and equipment **** (211,824 ) (153,654 )
Purchases of intangible assets **** (7,692 ) (2,819 )
Redemption (purchase) of short-term investments **** 687,818 **** (1,212 )
Investments in equity method investees 8 **** (2,824 ) (3,500 )
Investments in other financial assets **** (29,414 ) (21,759 )
Investment in Acreage Arrangement 9,26 **** (395,190 ) —
Change in acquisition related liabilities **** (21,447 ) —
Net cash outflow on acquisition of subsidiaries 25 **** (425,024 ) (37 )
Net cash used in investing activities **** (405,597 ) (182,981 )
Cash Flows from financing activities:
Payment of share issue costs **** (74 ) (301 )
Proceeds from issuance of shares by Canopy Rivers **** 86 **** 787
Proceeds from exercise of stock options 18 **** 16,077 **** 1,758
Proceeds from exercise of warrants 17 **** 427 **** 133
Issuance of long-term debt 14 (i) **** — **** 600,000
Payment of debt issue costs 14 (i) **** — **** (16,045 )
Repayment of long-term debt **** (98,207 ) (374 )
Net cash (used) provided by financing activities **** (81,691 ) 585,958
Effect of exchange rate changes on cash and cash equivalents **** (18,620 ) —
Net (decrease) increase in cash and cash equivalents **** (664,198 ) 335,336
Cash and cash equivalents, beginning of period **** 2,480,830 **** 322,560
Cash and cash equivalents, end of period $ 1,816,632 **** $ 657,896
Supplemental disclosure of cash flow information
Cash paid during the year:
Income taxes **** — **** —
Noncash investing and financing activities
Additions to property, plant and equipment **** 124,427 **** 84,460

The accompanying notes are an integral part of these condensed interim consolidated financialstatements.

Page 4

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

1. DESCRIPTION OF BUSINESS

Canopy Growth Corporation is a publicly traded corporation, incorporated in Canada, with its head office located at 1 Hershey Drive, Smiths Falls, Ontario with its common shares listed on the TSX, under the trading symbol “WEED” and as of May 24, 2018 on the NYSE, under the trading symbol “CGC”. References in these condensed interim consolidated financial statements to “Canopy Growth” or “the Company” refer to Canopy Growth Corporation and its subsidiaries.

The principal activities of the Company are the production, distribution and sale of cannabis as regulated by the Access to Cannabis for Medical Purposes Regulations (“ACMPR”) in Canada, up to and including October 16, 2018. On October 17, 2018, the ACMPR was superseded by The Cannabis Act which regulates the production, distribution, and possession of cannabis for both medical and adult recreational access in Canada. The Company is also expanding to jurisdictions outside of Canada where federally lawful and regulated for cannabis and/or hemp including subsidiaries which operate in the United States, Europe, Latin America and the Caribbean, Asia / Pacific, and Africa. Through its partially owned subsidiary Canopy Rivers Inc. (“Canopy Rivers”), the Company also provides growth capital and a strategic support platform that pursues investment opportunities in the global cannabis sector, where federally lawful.

2. BASIS OF PRESENTATION

These condensed interim consolidated financial statements have been presented in Canadian dollars and are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Canopy Growth has determined that the Canadian dollar is the most relevant and appropriate reporting currency as, despite continuing shifts in the relative size of our operations across multiple geographies, the majority of our operations are conducted in Canadian dollars and our financial results are prepared and reviewed internally by management in Canadian dollars. Our condensed interim consolidated financial statements, and the financial information contained herein, are reported in thousands of Canadian dollars, except share and per share amounts or as otherwise stated.

Certain information and footnote disclosures normally included in the audited annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted or condensed. These condensed interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended March 31, 2020 (the “Annual Consolidated Financial Statements”), and have been prepared on a basis consistent with the accounting policies as described in the Annual Consolidated Financial Statements.

These condensed interim consolidated financial statements are unaudited and reflect adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods in accordance with U.S. GAAP.

The results reported in these condensed interim consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for an entire fiscal year. The policies set out below are consistently applied to all periods presented, unless otherwise noted.

(i) Principles of consolidation

The accompanying condensed interim consolidated financial statements include the accounts of the Company and all entities in which the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. All intercompany accounts and transactions have been eliminated on consolidation. Information on the Company’s subsidiaries with noncontrolling interests is included in Note 20.

(ii) Variable interest entities

A variable interest entity (“VIE”) is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to control the entity’s activities or do not substantially participate in the gains and losses of the entity. Upon inception of a contractual agreement, and thereafter, if a reconsideration event occurs, the Company performs an assessment to determine whether the arrangement contains a variable interest in an entity and whether that entity is a VIE. The primary beneficiary of a VIE is the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Under Accounting Standards Codification (“ASC”) 810 – Consolidations, where the Company concludes that it is the primary beneficiary of a VIE, the Company consolidates the accounts of that VIE.

Page 5

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

(iii) Equity method investments

Investments accounted for using the equity method include those investments where the Company (i) can exercise significant influence over the other entity and (ii) holds common stock and/or in-substance common stock of the other entity. Under the equity method, investments are carried at cost, and subsequently adjusted for the Company’s share of net income (loss), comprehensive income (loss) and distributions received from the investee. If the current fair value of an investment falls below its carrying amount, this may indicate that an impairment loss should be recorded. Any impairment losses recognized are not reversed in subsequent periods. Refer to Note 8 for additional information on the Company’s investments accounted for using the equity method.

(iv) Use of estimates

The preparation of these condensed interim consolidated financial statements and accompanying notes in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates.

(v) New accounting policies

(a) Recently adopted accounting pronouncements

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on the recognition and measurement of leases, ASC 842—Leases. Under this guidance, a lessee recognizes assets and liabilities on its balance sheet for most leases. Lease expense continues to be consistent with previous guidance. Additionally, this guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leasing arrangements.

The Company adopted the guidance on April 1, 2019, using the modified retrospective approach and, accordingly, prior period balances and disclosures have not been restated. The Company elected the package of transition practical expedients for expired or existing contracts, which retains prior conclusions reached on lease identification, classification, and initial direct costs incurred.

The adoption of this guidance resulted in the recognition of operating lease right-of-use assets of $99,880, net of lease provisions of $10,703 and $110,583 of lease liabilities, with a $nil impact on deficit. The transition to ASC 842 did not have a material impact on the Company’s results of operations or liquidity. When measuring lease liabilities, the Company used its incremental borrowing rate of April 1, 2019 of 4.5%. Further information is disclosed in Note 27.

Revenues

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which provides a single comprehensive model for accounting for revenue from contracts with customers and supersedes nearly all previously existing revenue recognition guidance. The core principle of ASU 2014-09 is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Canopy Growth adopted the new standard as of April 1, 2018. There was no impact of adopting ASU 2014-09 on the condensed interim consolidated financial statements.

Financial Instruments

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, which provides new guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. Canopy Growth adopted the standard on April 1, 2018. Under the new standard, changes in the fair value of equity investments with readily determinable fair values are recorded in other (income) expense, net within the condensed interim consolidated statement of operations. Previously, such fair value changes were recorded in other comprehensive income (loss). The impact of this transition is a cumulative-effect adjustment to deficit of $34,800.

Canopy Growth has elected to continue to measure its equity investments without readily determinable fair values at fair value. Changes in the measurement of these investments will continue to be recorded in other (income) expense, net within the condensed interim consolidated statement of operations.

Page 6

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

Income taxes

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which requires the recognition of the income tax effects of intercompany sales and transfers of assets, other than inventory, in the period in which the transfer occurs. Canopy Growth adopted the standard on April 1, 2018, using a modified retrospective approach. There was minimal impact of adopting ASU 2016-16 on the condensed interim consolidated financial statements.

(b) Accounting guidance not yet adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Adoption of ASU 2016-13 will require financial institutions and other organizations to use forward-looking information to better formulate their credit loss estimates. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is evaluating the impact on the consolidated financial statements and expects to implement the provisions of ASU 2016-13 effective April 1, 2020.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820) (“ASU 2018-13”). ASU 2018-13 adds, modifies, and removes certain fair value measurement disclosure requirements. ASU 2018-13 is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact on the consolidated financial statements and expects to implement the provisions of ASU 2018-13 effective April 1, 2020.

3. CASH AND CASH EQUIVALENTS

Cash and cash equivalents are disaggregated as follows:

June 30, March 31,
2019 2019
Cash $ 1,069,395 $ 1,703,550
Cash equivalents **** 747,237 777,280
Total cash and cash equivalents $ 1,816,632 $ 2,480,830
4. SHORT-TERM INVESTMENTS
--- ---

The components of short-term investments are as follows:

June 30,<br>2019 March 31,<br>2019
U.S. government securities $ 1,173,441 $ 1,663,245
Canadian government securities **** 149,379 369,288
Term deposits **** 1,435 1,600
Total short-term investments $ 1,324,255 $ 2,034,133

The amortized cost of short-term investments at June 30, 2019 is $1,322,586 (March 31, 2019 - $2,032,770).

Page 7

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

5. AMOUNTS RECEIVABLE, NET

Amounts receivable, net is comprised of:

June 30, March 31,
2019 2019
Accounts receivable, net $ 56,960 $ 61,830
Indirect taxes receivable **** 29,443 27,805
Interest receivable **** 7,178 7,193
Other receivables **** 9,185 10,146
Total amounts receivable $ 102,766 $ 106,974

Included in the amounts receivable, net balance at June 30, 2019 is an allowance for doubtful accounts of $403 (March 31, 2019—$635).

6. INVENTORY

Inventory is comprised of the following items:

June 30, March 31,
2019 2019
Raw materials $ 28,572 $ 845
Work-in-process **** 150,389 109,672
Finished goods **** 44,835 30,054
Supplies and consumables **** 30,355 49,501
Total inventory $ 254,151 $ 190,072

During the three months ended June 30, 2019, inventory write-downs of $4,789 were included in cost of goods sold.

7. PREPAID EXPENSES AND OTHER ASSETS

The Company’s prepaid expenses and other assets consists of the following:

June 30, March 31,
2019 2019
Prepaid expenses $ 32,178 $ 26,339
Deposits **** 35,850 29,138
Prepaid inventory **** 27,244 21,267
Other assets **** 9,757 8,947
Total prepaid expenses and other assets $ 105,029 $ 85,691

Page 8

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

8. EQUITY METHOD INVESTMENTS

The following table outlines changes in the investments in associates that are accounted for using the equity method. Where the Company does not have the same reporting date as its investees, the Company will account for its investment one quarter in arrears. Accordingly, certain of the figures in the following table, including the Company’s share of the investee’s net income (loss), are based on the investees’ results for the period ended March 31, 2019, with adjustments for any significant transactions.

Balance at Share of Balance at
Participating March 31, net June 30,
Entity Instrument share 2019 Additions loss 2019
PharmHouse Shares 49.0 % $ 39,278 $ — $ (242 ) $ 39,036
Agripharm Shares 40.0 % 36,127 — (1,151 ) **** 34,976
Beckley Canopy Therapeutics Shares 42.2 % 11,653 — — **** 11,653
CanapaR Shares 46.8 % 18,062 — (177 ) **** 17,885
Other Shares 18.2% to 26.8 % 7,265 2,769 (263 ) **** 9,771
$ 112,385 $ 2,769 $ (1,833 ) $ 113,321

Page 9

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

9. OTHER FINANCIAL ASSETS

The following tables outlines changes in Other financial assets. Additional details on how the fair value of significant investments is calculated are included in Note 21.

Exercise of
Balance at options / Balance at
March 31, Interest disposal June 30,
Entity Instrument Note 2019 Additions FVTPL income of shares 2019
Acreage Option 26 $ — $ 395,190 $ — $ — $ — $ 395,190
TerrAscend Exchangeable shares 160,000 — (20,000 ) — — 140,000
PharmHouse Loan receivable 40,000 — — — — 40,000
SLANG Warrants 44,000 — (8,000 ) — — 36,000
Agripharm Royalty interest 10,254 3,000 1,406 — — 14,660
ZeaKal Shares 9 (i) — 13,487 (400 ) — — 13,087
Greenhouse Convertible debenture 5,944 3,000 2,023 — — 10,967
Other - classified as fair value through net income (loss) Various 91,816 2,852 (15,181 ) — (2,639 ) 76,848
Other - elected as fair value through net income (loss) Various 9,564 2,166 (935 ) — — 10,795
Other - classified as held for investment Loan receivable 1,849 7,250 — 45 — 9,144
$ 363,427 $ 426,945 $ (41,087 ) $ 45 $ (2,639 ) $ 746,691
(i) On June 14, 2019, Canopy Rivers acquired 248,473 preferred shares of ZeaKal, Inc. (“ZeaKal”),<br>a California-based plant science company, for $13,487 which represents a 9% equity interest on a fully diluted basis.
--- ---

Page 10

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

10. PROPERTY, PLANT AND EQUIPMENT

The components of property, plant and equipment are as follows:

June 30, March 31,
2019 2019
Buildings and greenhouses $ 411,027 $ 361,958
Production and warehouse equipment 191,654 175,325
Leasehold improvements 47,070 32,264
Land 37,120 37,681
Office and lab equipment 26,052 23,495
Computer equipment 22,506 19,228
Right-of-use<br>assets
Buildings and greenhouses 109,271 —
Production and warehouse equipment 927 —
Assets in process 647,855 491,722
1,493,482 1,141,673
Less: Accumulated depreciation (60,294 ) (45,333 )
Total $ 1,433,188 $ 1,096,340

Depreciation expense included in cost of goods sold for the three months ended June 30, 2019 is $9,316 (three months ended June 30, 2018 – $3,252). Depreciation expense included in selling, general and administrative expenses for the three months ended June 30, 2019 is $4,271 (three months ended June 30, 2018 – $409).

11. INTANGIBLE ASSETS

The components of intangible assets are as follows:

June 30, 2019 March 31, 2019
Gross Net Gross Net
Carrying Carrying Carrying Carrying
Amount Amount Amount Amount
Finite lived intangible assets
Licensed brands $ 68,018 $ 66,953 $ 57,802 $ 57,678
Distribution channel 42,457 23,312 42,400 25,297
Health Canada and operating licenses 110,455 104,907 104,608 99,587
Intellectual property 152,482 144,956 153,797 149,360
Software and domain names 10,253 6,839 9,701 6,819
Amortizable intangibles in process 6,344 6,268 4,122 4,046
Total 390,009 353,235 372,430 342,787
Indefinite lived intangible assets
Operating licenses 151,509 151,509
Acquired brands 64,285 63,774
Total intangible assets $ 569,029 $ 558,070

Amortization expense included in cost of goods sold for the three months ended June 30, 2019 is $12 (three months ended June 30, 2018 – $10). Amortization expense included in selling, general and administrative expenses for the three months ended June 30, 2019 is $7,153 (three months ended June 30, 2018 – $2,622).

Page 11

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

12. GOODWILL

The net change in goodwill is as follows:

As at March 31, 2018 $ 277,445
Purchase accounting allocations 1,215,750
Foreign currency translation adjustments (3,336 )
As at March 31, 2019 $ 1,489,859
Purchase accounting allocations 400,807
Foreign currency translation adjustments (12,947 )
As at June 30, 2019 $ 1,877,719 ****
13. OTHER ACCRUED EXPENSES AND LIABILITIES
--- ---

The components of other accrued expenses and liabilities are as follows:

June 30, March 31,
2019 2019
Property, plant and equipment $ 9,508 $ 8,013
Professional fees **** 1,491 2,059
Employee compensation **** 34,821 20,577
Other **** 5,966 6,964
$ 51,786 $ 37,613
14. DEBT
--- ---

The components of debt are as follows:

June 30, March 31,
2019 2019
Convertible senior notes at 4.25% interest with semi-annual interest payments July 15, 2023
Principal amount $ 600,000 **** $ 600,000
Accrued interest **** 11,898 **** 5,454
Non-credit risk fair value adjustment (FVTPL) **** 145,230 **** 183,120
Credit risk fair value adjustment (FVOCI) **** 32,520 **** 47,130
**** 789,648 **** 835,704
Term loan facility advanced in the form of prime rate operating loan $ — **** $ 95,000
Transferred receivables, bearing interest rate of IBOR plus 0.850% **** 4,234 **** —
Other loans, mortgages, and financings **** 11,914 **** 15,271
**** 805,796 **** 945,975
Less: current portion **** (18,288 ) (103,716 )
Long-term portion $ 787,508 **** $ 842,259

All values are in Euros.

(i) Convertible senior notes

On June 20, 2018, the Company issued convertible senior notes (“the notes”) with an aggregate principal amount of $600,000. The notes are subordinated in right of payment to any existing and future senior indebtedness, including indebtedness under the revolving credit facility. The notes will rank senior in right of payment to any future subordinated borrowings.

Page 12

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

Holders of the notes have the right to exercise the conversion option at a rate of 20.7577 common shares for every $1 of principal amount of notes from September 30, 2018 to January 15, 2023, if (i) the market price of the Company common shares for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day, (ii) during the 5 business day period after any consecutive 5 trading day period (the “measurement period”) in which the trading price per $1 principal amount of the notes for each trading day in the measurement period was less than 98% of the product of the last reported sales price of the Company’s common shares and the conversion rate on each such trading day, (iii) the notes are called for redemption or (iv) upon occurrence of certain corporate events (“Fundamental Change”).

The Company may also redeem the notes if certain tax laws related to Canadian withholding tax change subject to certain further conditions. The redemption of the notes shall be at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest.

The overall change in fair value of the notes during the three months ended June 30, 2019 was a decrease of $46,056, which included accrued contractual interest of $6,444. Refer to Note 21 for additional details on how the fair value of the notes is calculated.

(ii) Alberta Treasury Board (“ATB”) financing

On June 14, 2019, the Company repaid its ATB term loan facility. A payment of $95,180 was made to settle the loan balance which included interest of $180.

(iii) Transferred receivables

The carrying amounts of the transferred receivables include receivables which are subject to a factoring arrangement. Under this arrangement, C^3^ has transferred the relevant receivables to PB Factoring GmbH in exchange for cash. The transferred receivables to PB Factoring GmbH is $4,704 and the associated secured borrowing is $4,234.

(iv) Other mortgages, loans, and financings

The mortgages are secured by a first charge on the properties in Niagara-on-the-Lake and Bowmanville, Ontario, corporate guarantee from the Company, or a general corporate security agreement.

15. OTHER LIABILITIES

The components of other liabilities are as follows:

June 30, 2019 March 31, 2019
Notes Current Long-term Total Current Long-term Total
Acquisition consideration related liabilities $ 28,742 $ 80,780 $ 109,522 $ 22,176 $ 87,747 $ 109,923
Lease liabilities 27 36,026 82,619 **** 118,645 — — —
Minimum royalty obligations 3,445 24,392 **** 27,837 3,445 24,392 27,837
Due to former shareholders of Storz & Bickel — — **** — 21,447 — 21,447
Refund liability 8,000 — **** 8,000 — — —
Settlement liability (a ) 5,444 14,822 **** 20,266 11,980 16,631 28,611
Other 15,990 4,842 **** 20,832 22,366 5,234 27,600
Total $ 97,647 $ 207,455 $ 305,102 $ 81,414 $ 134,004 $ 215,418

(a) Settlement liability

During the year ended March 31, 2019, the Company reached a settlement with certain co-investors in Bedrocan Brasil S.A. and Entourage Phytolab S.A. to facilitate organizational changes to support the Company’s growth in Latin America. Under the terms of the agreement the Company agreed to make cash payments totaling $25,185 and a final payment equal to 1.2% of the fair value of the Company’s Latin American business as of

Page 13

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

June 30, 2023. The fair value of the settlement was estimated to be $28,611 and was recorded as an expense. The final payment represents a derivative liability that was initially measured at fair value with subsequent period end remeasurements of fair value recorded through net income (loss).

During the three months ended June 30, 2019, payments totalling $8,308 were made, with the remaining change in liability relating to accretion expense and fair value changes.

16. REDEEMABLE NONCONTROLLING INTEREST

The net changes in the redeemable noncontrolling interests are as follows:

Vert<br>Mirabel
As at March 31, 2019 $ 6,400
Income attributable to noncontrolling interest 2,715
Adjustments to redemption amount (615 )
As at June 30, 2019 $ 8,500 ****
Vert<br>Mirabel BC Tweed Total
--- --- --- --- --- --- --- --- ---
As at March 31, 2018 $ 4,850 $ 56,300 $ 61,150
Loss attributable to noncontrolling interest (726 ) — (726 )
Adjustments to redemption amounts 2,526 16,300 18,826
As at June 30, 2018 $ 6,650 **** $ 72,600 $ 79,250 ****
17. SHARE CAPITAL
--- ---

CANOPY GROWTH

Authorized

An unlimited number of common shares.

(i) Equity financings

There were no equity financings during the three months ended June 30, 2019.

(ii) Other issuances of common shares

During the three months ended June 30, 2019, the Company issued 482,321 (three months ended June 30, 2018 – 1,326,838) shares with an increase of $18,674 (three months ended June 30, 2018 – $38,193) in share capital.

(iii) Warrants
Note Number of<br>whole<br>warrants Average<br>exercise<br>price Warrant<br>value
--- --- --- --- --- --- --- --- --- --- ---
Balance outstanding at March 31, 2019 107,848,322 $ 43.80 $ 1,589,925
Tranche A warrant modification 26 — — 1,049,153
Issuance of Tranche B warrants 26 38,454,444 76.68 —
Exercise of warrants (12,060 ) 35.36 (470 )
Balance outstanding at June 30,2019^1^ **** 146,290,706 **** $ 52.44 $ 2,638,608 ****
^1^ This balance excludes the Tranche C Warrants, which represent a derivative liability and have nominal value,<br>see note 26.
--- ---

Page 14

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

CANOPY RIVERS

(a) Authorized

Canopy Rivers Corporation (“Canopy Rivers”) is authorized to issue an unlimited number of common shares. There are two classes of common shares: Multiple Voting Shares and Subordinated Voting Shares. Each Multiple Voting Share is entitled to receive 20 votes, while each Subordinated Voting Share is entitled to receive one vote at all meetings of the shareholders. There is no priority or distinction between the two classes of shares in respect of their entitlement to the payment of dividends or participation on liquidation, dissolution or winding-up of the Company.

(b) Issued and outstanding

As at June 30, 2019, Canopy Rivers had 36,468,318 Multiple Voting Shares (March 31, 2019 – 36,468,318) and 151,081,576 Subordinated Voting Shares (March 31, 2019 – 150,592,136) issued and outstanding. As at June 30, 2019, the Company held 36,468,318 Multiple Voting Shares (March 31, 2019 – 36,468,318) and 15,223,938 Subordinated Voting shares (March 31, 2019 – 15,223,938) which represented a 27.6% ownership interest in Canopy Rivers and 84.6% of the voting rights (March 31, 2019 – 27.6% and 84.6% respectively). The voting rights allow the Company to direct the relevant activities of Canopy Rivers such that the Company has control over Canopy Rivers and Canopy Rivers is consolidated in these financial statements.

(c) Financings

There were no financings during the three months ended June 30, 2019.

(d) Initial financing and seed capital options

The 10,066,668 Subordinated Voting Shares acquired by way of share purchase loans, whereby funds were advanced to Canopy Rivers by the Company on behalf of certain employees of the Company and another individual, were initially accounted for as seed capital options and are not considered issued for accounting purposes until the loans are repaid on an individual employee/consultant basis. During the three months ended June 30, 2019, share purchase loans in the amount of $19 (three months ended June 30, 2018 – $288) relating to Canopy Rivers shares held in trust by the Company on behalf of certain Canopy Growth employees were repaid, resulting in the release from escrow of 377,775 Subordinated Voting Shares (three months ended June 30, 2018 – 5,750,000). As at June 30, 2019, there were 3,461,117 seed capital options outstanding (March 31, 2019 – 3,838,892). Please refer to Note 18 for additional details on the seed capital options.

18. SHARE-BASED COMPENSATION

CANOPY GROWTH CORPORATION SHARE-BASED COMPENSATION PLAN

Canopy Growth’s eligible employees participate in a share-based compensation plan as noted below.

On September 15, 2017, shareholders approved an Omnibus Incentive Plan (as amended and restated, the “Omnibus Plan”) pursuant to which the Company can issue share-based long-term incentives. All directors, officers, employees and independent contractors of the Company are eligible to receive awards of common share purchase options (“Options”), restricted share units **** (“RSUs”), deferred share units, stock appreciation rights (“Stock Appreciation Rights”), performance awards (“Performance Awards”) or other stock based awards (collectively, the “Awards”) under the Omnibus Plan. In addition, shareholders also approved the 2017 Employee Stock Purchase Plan of the Company (the “Purchase Plan”). Under the Purchase Plan, the aggregate number of common shares that may be issued is 400,000, and the maximum number of common shares which may be issued in any one fiscal year shall not exceed 200,000. ****

Under the Omnibus Plan, the maximum number of shares issuable from treasury pursuant to Awards shall not exceed 15% of the total outstanding shares from time to time less the number of shares issuable pursuant to all other security-based compensation arrangements of the Company. The maximum number of common shares reserved for Awards is 50,957,757 at June 30, 2019. As of June 30, 2019, the only Awards issued have been options and RSUs under the Omnibus Plan.

The Omnibus Plan is administered by the Board of Directors of the Company who establishes exercise prices, at not less than the market price at the date of grant, and expiry dates. Options under the Omnibus Plan generally remain exercisable in increments with 1/3 being exercisable on each of the first, second and third anniversaries from the date of grant, with expiry dates set at six years from issuance. The Board of Directors has the discretion to amend general vesting provisions and the term of any award, subject to limits contained in the Omnibus Plan.

Page 15

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

The following is a summary of the changes in the Company’s Omnibus Plan employee options during the three months ended June 30, 2019:

Options<br>issued Weighted<br>average<br>exercise price
Balance outstanding at March 31, 2019 32,831,895 $ 34.10
Options granted 270,000 52.45
Options exercised (1,713,592 ) 9.38
Options forfeited/cancelled (690,067 ) 50.88
Balance outstanding at June 30, 2019 **** 30,698,236 **** $ 35.26

The following is a summary of the outstanding stock options as at June 30, 2019:

Options Exercisable
Range of Exercise Prices Weighted Average<br>Remaining<br>Contractual Life<br>(years) Exercisable at<br>June 30, 2019 Weighted<br>Average<br>Remaining<br>Contractual Life<br>(years)
1.32 - 11.76 6,169,606 3.59 2,963,765 3.36
11.77 - 35.00 4,323,849 4.58 915,918 4.59
35.01 - 38.42 7,470,073 5.49 — —
38.43 - 43.12 6,635,491 5.14 1,013,890 4.86
43.13 - 67.64 6,099,217 5.46 2,261 3.65
30,698,236 4.90 4,895,834 3.90

All values are in US Dollars.

At June 30, 2019, the weighted average exercise price of options outstanding and options exercisable was $35.26 and $17.70, respectively (March 31, 2019—$34.10 and $13.99, respectively).

The Company recorded $70,816 in share-based compensation expense related to options issued to employees for the three months ended June 30, 2019 (for the three months ended June 30, 2018—$13,546) and $2,277 in share-based compensation expense related to options issued to contractors (for the three months ended June 30, 2018—$597). The compensation expense for the three months ended June 30, 2019 includes an amount related to 595,000 options being provided in exchange for services which are subject to performance conditions (for the three months ended June 30, 2018—420,000).

In determining the amount of share-based compensation related to options issued during the year, the Company used the Black-Scholes option pricing model to establish the fair value of options granted during the three months ended June 30, 2019 and 2018 on their measurement date by applying the following assumptions:

June 30, 2019 June 30, 2018
Risk-free interest rate 1.41% 2.01%
Expected life of options (years) 3 - 5 3 - 5
Expected annualized volatility 73% 70%
Expected forfeiture rate 11% 12%
Expected dividend yield nil nil
Black-Scholes value of each option $28.58 $21.55

Volatility was estimated by using the historical volatility of the Company. The expected life in years represents the period of time that options granted are expected to be outstanding. The risk-free rate was based on the zero coupon Canada government bonds with a remaining term equal to the expected life of the options.

Page 16

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

During the three months ended June 30, 2019, 1,713,592 Omnibus Plan options were exercised ranging in price from $0.22 to $40.68 for gross proceeds of $16,077 (for the three months ended June 30, 2018 – 637,187 Omnibus Plan options were exercised ranging in price from $1.72 to $11.80 for gross proceeds of $5,096).

During the three months ended June 30, 2019, the Company issued nil RSUs. As at June 30, 2019, the Company had 148,950 RSUs issued and outstanding, of which 17,300 were exercisable. For the three months ended June 30, 2019, the Company recorded $1,394 in share-based compensation expense related to these RSUs (for the three months ended June 30, 2018 – $2,247).

Share-based compensation expense related to acquisition milestones is comprised of:

Compensation expense
June 30, 2019 June 30, 2018
Colombia $ 2,259 $ —
Canindica **** 4,010 —
Other **** 4,012 7,095
$ 10,281 $ 7,095

During the three months ended June 30, 2019, 482,321 shares (three months ended June 30, 2018 – 271,458) were released on completion of acquisition milestones. At June 30, 2019, there were up to 5,199,283 shares to be issued on the completion of acquisition and asset purchase milestones. In certain cases, the number of shares to be issued is based on the volume weighted average share price at the time the milestones are met. The number of shares has been estimated assuming the milestones were met at June 30, 2019. The number of shares excludes shares to be issued on July 4, 2023 to the previous shareholders of Spectrum Cannabis Colombia S.A.S. (“Spectrum Colombia”) and Canindica Capital Ltd. (“Canindica”) based on the fair market value of the Company’s Latin American business on that date.

During the three months ended June 30, 2019, the Company recorded share-based payments of $nil (three months ended June 30, 2018—$112) related to shares issued for payment of royalties and sales and marketing services.

CANOPY RIVERS SHARE-BASED COMPENSATION PLAN

Seed Capital Options

On May 12, 2017, seed capital options were issued. These seed capital options consist of 10,066,668 Subordinated Voting Shares acquired by way of share purchase loans. Since they were issued through loans, they are not considered issued for accounting purposes until the loans are repaid. The seed capital options were measured at fair value on May 12, 2017, using a Black-Scholes option pricing model and will be expensed over their vesting period. Where there are performance conditions in addition to service requirements Canopy Rivers has estimated the number of shares it expects to vest and is amortizing the expense over the expected vesting period.

Seed capitaloptions issued Seed capitalloan balance
Balance outstanding at March 31, 2019 3,838,892 $ 192
Options exercised (377,775 ) (19 )
Balance outstanding at June 30, 2019 **** 3,461,117 **** $ 173 ****

Canopy Rivers has a stock option plan (the “Plan”) under which non-transferable options to purchase Subordinated Voting Shares of the Company may be granted to directors, officers, employees, or independent contractors of the Company. Pursuant to the Plan, the maximum number of Subordinated Voting Shares issuable from treasury pursuant to outstanding options shall not exceed 10% of the issued and outstanding Subordinated Voting Shares. The Plan is administered by the Board who establishes exercise prices, at not less than the market price at the date of the grant, and expiry dates. Options under the Plan generally remain exercisable in increments, with one-third being exercisable on each of the first, second, and third anniversaries from the date of grant, and have expiry dates five years from the date of grant. The Board has the discretion to

Page 17

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

amend general vesting provisions and the term of any option grant, subject to limits contained in the Plan. The seed capital options are not within the scope of the Plan.

The following is a summary of the changes in Canopy Rivers’ stock options, excluding the seed capital options presented separately, during the three months ended June 30, 2019:

Options<br>issued Weighted<br>average<br>exercise price
Balance outstanding at March 31, 2019 12,522,255 $ 1.98
Options granted 1,578,000 3.87
Options exercised (111,665 ) 0.60
Balance outstanding at June 30, 2019 **** 13,988,590 **** $ 2.20

In determining the amount of share-based compensation related to options issued during the year, Canopy Rivers used the Black-Scholes option pricing model to establish the fair value of options granted during the three months ended June 30, 2019 and 2018 on their measurement date by applying the following assumptions:

June 30, 2019 June 30, 2018
Risk-free interest rate 1.35% 1.34%
Expected life of options (years) 3 -4 1 - 4
Expected annualized volatility 70% 69%
Expected forfeiture rate nil nil
Expected dividend yield nil nil
Black-Scholes value of each option $1.93 $0.55 - 3.45

Volatility was estimated using companies that Canopy Rivers considers comparable that have trading and volatility history prior to Canopy Rivers becoming public. The expected life in years represents the period of time that options granted are expected to be outstanding. The risk-free rate was based on zero coupon Canada government bonds with a remaining term equal to the expected life of the options.

For the three months ended June 30, 2019, the Company recorded $2,594 (three months ended June 30, 2018—$2,082) in share-based compensation expense related to these options and the seed capital options with a corresponding increase to noncontrolling interests.

19. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income includes the following components:

Foreigncurrencytranslationadjustments Changes ofown creditrisk offinancialliabilities Accumulatedothercomprehensiveincome (loss)
Balance at March 31, 2019 $ 41,225 **** $ (47,130 ) $ (5,905 )
Other comprehensive (loss) income (60,744 ) 14,610 (46,134 )
Balance at June 30, 2019 $ (19,519 ) $ (32,520 ) $ (52,039 )

Page 18

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

Foreigncurrencytranslationadjustments Changes ofown creditrisk offinancialliabilities Fair valueof otherfinancialassets Accumulatedothercomprehensiveincome (loss)
Balance at March 31, 2018 $ 608 **** $ — **** $ 34,800 **** $ 35,408 ****
Cumulative effect from adoption of ASU2016-1 — — (34,800 ) (34,800 )
Other comprehensive (loss) income (1,320 ) (9,420 ) — (10,740 )
Balance at June 30, 2018 $ (712 ) $ (9,420 ) $ — **** $ (10,132 )
20. NONCONTROLLING INTERESTS
--- ---

The net change in the noncontrolling interests is as follows:

Canopy<br>Rivers Vert<br>Mirabel Other non-<br>material<br>interests Total
As at March 31, 2019 $ 280,012 $ 2,422 $ 3,051 $ 285,485
Comprehensive (loss) income (12,431 ) 4,249 — (8,182 )
Net loss attributable to redeemable noncontrolling interest — (2,715 ) — (2,715 )
Share-based compensation 2,594 — — 2,594
Ownership changes 236 — — 236
As at June 30, 2019 $ 270,411 **** $ 3,956 **** $ 3,051 $ 277,418 ****
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
--- ---

(a) Fair value of financial instrument assets and liabilities that are measured at fair value on a recurring basis

The following table summarizes the valuation techniques and significant observable inputs in the fair value measurement of significant level 2 financial instruments:

Financial asset / financial liability Valuation techniques Key inputs
AusCann Group Holdings options Black-Scholes option pricing model Quoted prices in active market
Convertible senior note Convertible note pricing model Quoted prices in over-the-counter broker<br>market

The following table summarizes the valuation techniques and significant unobservable inputs in the fair value measurement of significant level 3 financial instruments:

Financial asset /<br><br><br>financial liability Valuation<br><br><br>techniques Significant<br><br><br>unobservable<br><br><br>inputs Relationship of unobservable inputs to fairvalue
Acreage financial instrument Monte Carlo option pricing model Intrinsic value of Acreage Increase or decrease in intrinsic value will result in an increase or decrease in fair value
Probability and timing of US legalization Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
Differential growth rate of Acreage versus Canopy Growth Increase or decrease in differential growth rate will result in an increase or decrease in fair<br>value

Page 19

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

Financial asset /<br><br><br>financial liability Valuation<br><br><br>techniques Significant<br><br><br>unobservable<br><br><br>inputs Relationship of unobservable inputs to fairvalue
TerrAscend exchangeable shares Put option pricing model Probability and timing of US legalization Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
HydRx Farms shares Market approach Share price Increase or decrease in share price will result in an increase or decrease in fair value
ZeaKal shares Market approach Share price Increase or decrease in share price will result in an increase or decrease in fair value
Greenhouse convertible debenture FinCAD model Share price Increase or decrease in share price will result in an increase or decrease in fair value
Good Leaf shares Market approach Share price Increase or decrease in share price will result in an increase or decrease in fair value
Agripharm royalty interest and repayable debenture Discounted cash flow Discount rate Increase or decrease in discount rate will result in a decrease or increase in fair value
Future royalties Increase in future royalties to be paid will result in an increase in fair value
SLANG Worldwide warrant Black-Scholes option pricing model Probability and timing of US legalization Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
Warrant derivative liability Monte Carlo simulation model Volatility of Canopy Growth share price Increase or decrease in volatility will result in an increase or decrease in fair value
Expected life Increase or decrease in expected life will result in an increase or decrease in fair value
Vert Mirabel redeemable noncontrolling interest Discounted cash flow Discount rate Increase or decrease in discount rate will result in a decrease or increase in fair value
Future wholesale price and production levels Increase in future wholesale price and production levels will result in an increase in fair value

During the three months ended June 30, 2019 and June 30, 2018, there were no transfers of amounts between levels.

Page 20

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

22. REVENUE

Revenues are disaggregated as follows:

Three months ended
June 30, June 30,
2019 2018
Recreational revenue
Business to business $ 50,425 $ —
Business to consumer **** 10,638 —
Medical revenue
Canadian **** 13,051 21,364
International **** 10,496 3,370
Other revenue **** 18,781 1,182
Gross revenue **** 103,391 25,916
Excise taxes **** 12,909 —
Net revenue $ 90,482 $ 25,916

Included in business to business recreational revenue for the three months ended June 30, 2019 are other revenue adjustments of $8,000 (three months ended June 30, 2018—$nil), which represent the Company’s estimate of variable consideration that may result from rights of return. Excise taxes are presented net of the impact from the other revenue adjustments.

23. OTHER INCOME (EXPENSE), NET

Other income (expense), net is disaggregated as follows:

Three months ended
June 30, June 30,
Notes 2019 2018
Fair value changes on other financial assets 9 $ (41,087 ) $ (8,190 )
Fair value changes on convertible senior notes 14 **** 31,446 **** (2,820 )
Fair value change related to warrant derivative liability 26 **** 24,892 ****
Fair value changes on acquisition related contingent consideration **** (1,570 ) —
Interest income **** 22,718 **** 1,006
Interest expense **** (1,206 ) (156 )
Foreign currency loss **** (2,856 ) (2,253 )
Debt issuance costs **** — **** (16,045 )
Other income (expense), net **** 431 **** (2,711 )
Total other income (expense), net $ 32,768 **** $ (31,169 )
24. INCOME TAXES
--- ---

There have been no material changes to income tax matters in connection with normal course operations during the three months ended June 30, 2019.

The Company is subject to income tax in numerous jurisdictions with varying income tax rates. During the most recent period ended and the fiscal year to date, there were no material changes to the statutory income tax rates in the taxing jurisdictions where the majority of the Company’s income for tax purposes was earned, or where its temporary differences or losses are expected to be realized or settled. Although statutory income tax rates remain stable, the Company’s effective income tax rate may fluctuate, arising as a result of the Company’s

Page 21

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

evolving footprint, discrete transactions and other factors that, to the extent material, are disclosed in these financial statements.

The Company continues to believe the amount of unrealized tax benefits appropriately reflects the uncertainty of items that are or may in the future be under discussion, audit, dispute or appeal with a tax authority or which otherwise result in uncertainty in the determination of income for tax purposes. If appropriate, an unrealized tax benefit will be realized in the reporting period in which the Company determines that realization is not in doubt. Where the final determined outcome is different from the Company’s estimate, such difference will impact the Company’s income taxes in the reporting period during which such determination is made.

Page 22

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

25. ACQUISITIONS

Acquisitions completed in the three months ended June 30, 2019

The following table summarizes the consolidated statements of financial position impact on the acquisition date of the Company’s business combinations that occurred in the three months ended June 30, 2019:

C^3^ This Works
(i) (ii) Total
Cash and cash equivalents $ 2,818 $ 1,588 $ 4,406 ****
Other current assets 13,328 6,271 **** 19,599 ****
Property, plant and equipment 8,344 486 **** 8,830 ****
Intangible assets
Brands 10,229 219 **** 10,448 ****
Software and domain names 8 — **** 8 ****
Goodwill 330,130 70,677 **** 400,807 ****
Accounts payable and other accrued expenses and liabilities (4,414 ) (7,440 ) **** (11,854 )
Debt and other liabilities (2,814 ) — **** (2,814 )
Net assets acquired $ 357,629 $ 71,801 $ 429,430 ****
Consideration paid in cash $ 357,629 $ 71,801 $ 429,430 ****
Other consideration — — **** — ****
Total consideration $ 357,629 $ 71,801 $ 429,430 ****
Consideration paid in cash $ 357,629 $ 71,801 $ 429,430 ****
Less: Cash and cash equivalents acquired (2,818 ) (1,588 ) **** (4,406 )
Net cash outflow $ 354,811 $ 70,213 $ 425,024 ****

Page 23

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

The table above summarizes the fair value of the consideration given and the fair values assigned to the assets acquired and liabilities assumed for each acquisition. Goodwill arose in these acquisitions because the cost of acquisition included a control premium. In addition, the consideration paid for the combination reflected the benefit of expected revenue growth and future market development. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill arising on these acquisitions is expected to be deductible for tax purposes.

(i) C^3^

On April 30, 2019, the Company acquired 100% of the shares of C^3^ Cannabinoid Compound Company (“C^3^”) for total cash consideration of $357,629. C^3^ is a European based biopharmaceutical company that develops, manufactures and commercializes natural and synthetic cannabinoid based active ingredients.

Due to the timing of this acquisition, the purchase price allocation for the C^3^ acquisition is provisional. The fair value assigned to the consideration paid, intangible assets and net assets acquired is based on management’s best estimate using the information currently available and may be revised by the Company as additional information is received.

(ii) This Works

On May 21, 2019, the Company acquired 100% of the shares of TWP UK Holdings Limited (“This Works”) and its subsidiary companies, This Works Products Limited, TWP USA Inc. and TWP IP Limited for total cash consideration of $71,801 (GBP 42,144). Based in London, United Kingdom, This Works is a natural skincare and sleep solutions company.

Due to the timing of this acquisition, the purchase price allocation for the This Works acquisition is provisional. The fair value assigned to the consideration paid, intangible assets and net assets acquired is based on management’s best estimate using the information currently available and may be revised by the Company as additional information is received.

26. ACREAGE TRANSACTIONS

(a) Acreage Arrangement

On June 27, 2019 (the “Effective date”) Canopy Growth and Acreage Holdings, Inc. (“Acreage”) completed a Plan of Arrangement (the “Arrangement”). Pursuant to the terms of the Arrangement, Acreage shareholders and holders of certain securities convertible into Acreage shares as of June 26, 2019, received an immediate aggregate total payment of US$300 million ($395,190) in exchange for granting Canopy Growth both the right and the obligation (the “Acreage financial instrument”) to acquire 100% of the shares of Acreage, at such time as the occurrence or waiver of changes in U.S. federal law to permit the general cultivation, distribution, and possession of marijuana or to remove the regulation of such activities from the federal laws of the United States (the “Acreage Triggering Event”). If the Acreage Triggering Event is not satisfied or waived by December 27, 2026, the Arrangement will terminate.

Following the occurrence, or waiver by Canopy Growth, of the Acreage Triggering Event and the satisfaction or waiver of certain customary closing conditions to the completion of the acquisition, Canopy Growth will issue to the shareholders of Acreage 0.5818 of a common share of Canopy Growth (the “Acreage exchange ratio”) for each issued and outstanding subordinate voting share of Acreage held (following the automatic conversion of other classes of Acreage shares into subordinate voting shares in accordance with the Arrangement). In the event Acreage issues more than 188,235,587 subordinate voting shares on a fully diluted basis, and Canopy Growth has not provided written approval for the issuance of such additional securities, the Acreage exchange ratio shall be the fraction, calculated to six decimal places, determined by the formula of A x B/C where:

• “A” equals 0.5818,
• “B” equals 188,235,587, and
--- ---
• “C” equals the aggregate number of subordinate voting shares of Acreage on a fully diluted basis at<br>the time of acquisition.
--- ---

Page 24

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

On the Effective Date Canopy Growth also granted Acreage a non-exclusive, non-transferable, royalty-free license and right to use the intellectual property, systems and trademarks in the United States for a period of 90 months. Management has estimated the fair value of this license to be nominal.

On initial recognition, the Acreage financial instrument represented a financial asset and has been recorded at its fair value of $395,190, as the estimated fair value of the Acreage business is greater than the estimated fair value of the consideration to be provided upon required exercise of the Acreage financial instrument. Any subsequent changes in fair value will be recognized in net income (loss). The fair value determination includes a high degree of subjectivity and judgement, which results in significant estimation uncertainty. See Note 21 for additional details on how the fair value of the Acreage financial instrument is calculated on a recurring basis. From a measurement perspective, Canopy Growth has elected the fair value option under ASC 825 – FinancialInstruments.

(b) Amendment to the Constellation Investor Rights Agreement and warrants

On November 1, 2018 Canopy Growth issued 104,500,000 common shares from treasury and two tranches of warrants to a subsidiary of Constellation Brands, Inc. (“Constellation”) in exchange for proceeds of $5,072,500 and entered into an Amended and Restated Investor Rights Agreement. The first tranche warrants (“Tranche A Warrants”) allowed Constellation to acquire 88.5 million additional shares of Canopy Growth for a fixed price of $50.40 per share. The second tranche warrants (“Final Warrants”) allowed for the purchase of 51.3 million additional shares at a price equal to the 5-day volume-weighted average price immediately prior to exercise. The Final Warrants could only be exercised if the Tranche A Warrants had been exercised in full. Both the Tranche A Warrants and the Final Warrants expire on November 1, 2021. Canopy Growth accounted for the Tranche A Warrants as equity instruments with a relative fair value of $1,505,351 and the Final Warrants as equity instruments with a nominal value.

On June 27, 2019 Constellation and Canopy Growth entered into the Second Amended and Restated Investor Rights Agreement and Consent Agreement. In contemplation of these agreements, Canopy Growth also amended the terms of the Tranche A Warrants and Final Warrants as follows:

• Extended the term of the Tranche A Warrants to November 1, 2023 and the term of the Final Warrants to<br>November 1, 2026.
• The Final Warrants were also replaced by two tranches of warrants (the “Tranche B Warrants” and<br>“Tranche C Warrants”) with different terms:
--- ---
• Tranche B Warrants allow Constellation to acquire 38.5 million shares of Canopy Growth for a fixed price<br>of $76.68 per share.
--- ---
• Tranche C Warrants allow Constellation to acquire 12.8 million shares of Canopy Growth at a price equal<br>to the 5-day volume-weighted average price immediately prior to exercise.
--- ---
• In connection with the Tranche B Warrants and the Tranche C Warrants, Canopy Growth will provide Constellation<br>with a share repurchase credit of up to $1.583 billion on the aggregate exercise price of the Tranche B Warrants and Tranche C Warrants in the event that Canopy Growth does not repurchase the lesser of (i) 27,378,866 common shares, and<br>(ii) common shares with a value of $1.583 billion, during the period commencing on June 27, 2019 and ending on the date that is 24 months after the date that Constellation exercises all of the Tranche A Warrants.<br>
--- ---

The modifications to the Tranche A Warrants resulted in them meeting the definition of a derivative instrument under ASC 815 – Derivatives and Hedging. They continue to be classified in equity as the number of shares and the exercise price were both fixed at inception. The extension of the term of the Tranche A Warrants resulted in additional value being attributed to those warrants. On June 27, 2019 the fair value of the Tranche A Warrants was estimated to be $2,554,503 using a Monte Carlo model and assuming a volatility of 66.7%. The Company recorded a deemed dividend of $1,049,153 in deficit related to the difference between the original and modified Tranche A warrants.

The Tranche B Warrants failed the fixed-for-fixed criterion and, as a result, the Tranche B Warrants are classified as derivative instruments measured at fair value in accordance with ASC 815. On June 27, 2019 the fair value of the Tranche B Warrants was estimated to be $1,176,640 using a Monte Carlo model and assuming a volatility of 66.7%. The value of the Tranche B warrants was recorded directly in deficit as a deemed dividend. Any subsequent changes in fair value will be recorded in net income (loss). As at June 30, 2019, the fair value of the warrant derivative liability is $1,092,748, and a gain of $24,892 has been recorded during the three months ended June 30, 2019 in other income (expense), net. The fair value determination includes a high degree of

Page 25

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

subjectivity and judgement, which results in significant estimation uncertainty. See Note 21 for additional details on how the fair value of the warrant derivative liability is calculated on a recurring basis.

The Tranche C Warrants are also accounted for as derivative liabilities. Therefore, 12.8 million of the Final Warrants were derecognized and 12.8 million Tranche C Warrants were recognized as new derivative liabilities. The fair values of the Final Warrants and Tranche C Warrants both approximate $nil therefore there was no impact to shareholders’ equity. Any subsequent changes in fair value will be recorded in net income (loss).

The share repurchase credit feature is a derivative liability as Canopy Growth has an obligation to repurchase a variable number of its common shares in order to settle the liability in the future within the share repurchase period or has the option to settle the liability in cash. The fair value of this liability is nominal. The initial value of the derivative liability is a deemed dividend recorded directly in shareholders’ deficit. Any subsequent changes in fair value will be recorded in net income (loss).

27. LEASES

The Company primarily leases office and production facilities, warehouses, production equipment and vehicles. The Company assesses service arrangements to determine if an asset is explicitly or implicitly specified in the agreement and if we have the right to control the use of the identified asset.

The right-of-use asset is initially measured at cost, which is primarily comprised of the initial amount of the lease liability, plus initial direct costs and lease payments at or before the lease commencement date, less any lease incentives received, and is amortized on a straight-line basis over the remaining lease term. All right-of-use assets are reviewed periodically for impairment. The lease liability is initially measured at the present value of lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. We elected to recognize expenses for leases with a term of 12 months or less on a straight-line basis over the lease term and not to recognize these short-term leases on the balance sheet. Leases have varying terms with remaining lease terms of up to approximately 30 years. Certain of our lease arrangements provide us with the option to extend or to terminate the lease early.

Lease payments included in the measurement of the lease liability comprise (a) fixed payments, including in-substance fixed payments; (b) variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; (c) amounts expected to be payable under a residual value guarantee; and (d) the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

At inception or reassessment of a contract that contains lease and non-lease components, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

Balance Sheet location

A summary of lease right-of-use assets and liabilities are as follows:

Assets
Property, plant and equipment
Operating lease $ 80,047
Finance lease 27,871
$ 107,918
Liabilities
--- --- ---
Current:
Operating lease $ 11,947
Finance lease 24,079
Non-current:
Operating lease 78,409
Finance lease 4,210
$ 118,645

Page 26

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

Lease expense

The components of total lease expense are as follows:

Operating lease expense $ 1,982
Finance lease expense:
Amortization of<br>right-of-use assets **** 374
Interest on lease liabilities **** 318
$ 2,674

Lease maturities

As of June 30, 2019, the minimum payments due for lease liabilities for each of the five succeeding fiscal years and thereafter are as follows:

OperatingLeases Finance Leases
2021 $ 14,968 $ 25,031
2022 14,641 310
2023 12,923 310
2024 12,259 318
2025 10,338 325
Thereafter 45,325 4,699
Total lease payments 110,454 30,993
Less: Interest 20,098 2,704
Total lease liabilities $ 90,356 $ 28,289

As of June 30, 2019, we have additional operating leases that have not yet commenced with immaterial aggregated minimum payments on an undiscounted basis.

As of June 30, 2019, future lease expense for operating leases is expected to be as follows:

2021 $ 14,323
2022 13,407
2023 11,324
2024 10,280
2025 8,296
Thereafter 22,417
$ 80,047

Supplemental information

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 1,982 ****
Operating cash flows from finance leases **** 318 ****
Financing cash flows from finance leases **** 377 ****
Right-of-use<br>assets obtained in exchange for new lease liabilities:
Operating leases $ 9,024 ****
Finance leases **** — ****
Weighted average remaining lease term (in years):
Operating leases **** 7 ****
Finance leases **** 3 ****
Weighted average discount rate:
Operating leases **** 4.50 %
Finance leases **** 4.50 %

Page 27

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

28. SEGMENTED INFORMATION

(a) Reportable segments

The Company operates in two segments: 1) Cannabis, Hemp and Other Consumer Products, which encompasses the production, distribution and sale of a diverse range of cannabis, hemp-based, and other consumer products in Canada and internationally pursuant to applicable international and domestic legislation, regulations and permits; and 2) Canopy Rivers, a publicly-traded company in Canada, through which Canopy Growth provides growth capital and strategic support in the global cannabis sector, where federally lawful. Financial information for Canopy Rivers is included in the table below, and in Note 20.

June 30,<br>2019 March 31,<br>2019
Ownership interest 28 % 28 %
Cash and cash equivalents $ 88,750 $ 104,145
Prepaid expenses and other current assets 4,363 15,490
Investments in associates 81,376 64,606
Other financial assets 171,643 181,572
Other long-term assets 20,148 17,696
Deferred tax liability (4,648 ) (6,641 )
Other liabilities (2,705 ) (3,458 )
Non-controlling interests (270,411 ) (280,012 )
Equity attributable to Canopy Growth $ 88,516 $ 93,398

(b) Entity-wide disclosures

All property, plant and equipment and intangible assets are located in Canada, except for $441,662 which is located outside of Canada at June 30, 2019 (March 31, 2019 – $350,125).

All revenues were generated in Canada during the three months ended June 30, 2019, except for $22,541 related to medical cannabis and cannabis related devices and merchandise generated outside of Canada (three months ended June 30, 2018—$3,375).

For the three months ended June 30, 2019, one customer represented more than 10% of the Company’s net revenue (three months ended June 30, 2018 – none).

29. SUBSEQUENT EVENTS

These financial statements should be read in conjunction with the audited consolidated financial statements in the Company’s annual report on Form 10-K for the year ended March 31, 2020, which contain disclosures relating to subsequent events.

On June 25, 2020 the Company announced that it had entered into a proposal agreement (the “Proposal Agreement”) with Acreage to amend the terms of the arrangement (the “Existing Arrangement”) made pursuant to an arrangement agreement between the Company and Acreage dated April 18, 2019, as amended on May 15, 2019 (the “Arrangement Agreement”). Pursuant to the terms of the Proposal Agreement, the Existing Arrangement will be amended (the “Amended Arrangement”) to provide for, among other things, the following:

• The creation of two new classes of shares in the capital of Acreage with each existing Acreage subordinated<br>voting share (each, an “Existing Share”) being converted into 0.7 of a Fixed Share (as defined below) and 0.3 of a Floating Share (as defined below), with proportionate adjustments for the existing proportionate voting shares and existing<br>multiple voting shares;
• The new subordinated voting shares (the “Fixed Shares”) will have the same attributes as the<br>Existing Shares and will continue to be listed on the Canadian Securities Exchange (the “CSE”). The Fixed Shares will be subject to the terms of the existing call option in favour of Canopy Growth at an amended<br>
--- ---

Page 28

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

<br>exchange ratio equal to 0.3048 of a common share of Canopy Growth to be received for each Fixed Share held (reduced from 0.5818 per Existing Share pursuant to the Existing Arrangement);<br>
• The new floating shares (the “Floating Shares”), which Acreage will apply to have listed on the CSE,<br>will be subject to the terms of a new call right in favour of Canopy Growth, exercisable following the occurrence or waiver of the Triggering Event at a price equal to the 30-day volume weighted average<br>trading price of the Floating Shares on the CSE, subject to a minimum call price of US$6.41 per Floating Share, payable in either cash or Canopy Growth common shares at Canopy Growth’s option;
--- ---
• Upon implementation of the Amended Arrangement, a cash payment to Acreage shareholders and certain convertible<br>security holders in the aggregate amount of US$37,500; and
--- ---
• An aggregate of up to 32,700,000 Fixed Shares and Floating Shares that Acreage is permitted to issue following<br>the implementation of the Amended Arrangement.
--- ---

Following the occurrence or waiver (at the discretion of the Company) of the Triggering Event and subject to the satisfaction or waiver of the conditions set out in the Arrangement Agreement (as modified in connection with the Amended Arrangement), Canopy Growth will acquire all of the issued and outstanding Fixed Shares. At the time of the occurrence or waiver of the Triggering Event, Canopy Growth will also have the right, but not the obligation, to acquire all of the issued and outstanding Floating Shares. If the occurrence or waiver of the Triggering Event does not occur within 10 years from the date the Amended Arrangement is implemented, Canopy Growth’s rights to acquire both the Fixed Shares and the Floating Shares will terminate.

In connection with the Amended Agreement, Canopy Growth has agreed to loan a wholly-owned subsidiary of Acreage (“Acreage Hempco”) up to US$100,000 pursuant to a secured debenture, of which US$50,000 will be advanced upon the implementation of the Amended Arrangement, and the remaining US$50,000 will be subject to the satisfaction of certain conditions by Acreage Hempco. The secured debenture will bear interest at a rate of 6.1% per annum, and mature 10 years from the date the Amended Arrangement is implemented or such earlier date in accordance with the terms of the secured debenture.

Implementation of the Amended Arrangement is contingent upon obtaining the requisite prior approvals of the Acreage Shareholders, the Supreme Court of British Columbia and the CSE, and certain other closing conditions.

Page 29

EX-99.2

Exhibit 99.2

NOTICE TO READER

As of September 30, 2019, Canopy Growth Corporation (the “Company”) determined that it no longer qualified as a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act of 1933. This means that as of April 1, 2020, the Company has been required to comply with all of the periodic disclosure requirements of the Securities Exchange Act of 1934 applicable to U.S. domestic issues, such as Forms 10-K, 10-Q and 8-K, rather than the forms the Company has filed with the Securities and Exchange Commission (“SEC”) in the past as a foreign private issuer, such as Forms 40-F and 6-K.

Accordingly, the Company is now required to prepare its financial statements filed with the SEC in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). As required pursuant to section 4.3(4) of National Instrument 51-102 – Continuous Disclosure Obligations, the Company must restate its interim financial reports for the fiscal year ended March 31, 2020 in accordance with U.S. GAAP, such interim financial reports having previously been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The attached amended and restated management’s discussion and analysis (the “MD&A”) for **** the three months ended June 30, 2019 and 2018, is current as of August 14, 2019 and provides financial information for the three months ended June 30, 2019, as amended and restated on July 10, 2020, solely to reflect the filing of the amended and restated unaudited condensed interim consolidated financial statements for the three months ended June 30, 2019 and 2018 in accordance with U.S. GAAP. Other than as expressly set forth above, the revised MD&A does not, and does not purport to, update or restate the information in the original MD&A or reflect any events that occurred after the date of the filing of the original MD&A.

The Company’s Annual Report on Form 10-K (the “Annual Report”) dated June 1, 2020 is available under the Company’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Readers are cautioned that this MD&A should be read in conjunction with the Annual Report, including the consolidated financial statements and the related notes thereto included in Item 8 thereof.

CANOPY GROWTH CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2019

AUGUST 14, 2019

MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE THREE MONTHS ENDED JUNE 30, 2019

This amended and restated management’s discussion and analysis (the “MD&A”) for the three months ended June 30, 2019 is provided as of August 14, 2019 and provides financial information for the three months ended June 30, 2019, as amended and restated on July 10, 2020, solely to reflect the filing of the amended and restated unaudited condensed interim consolidated financial statements for the three months ended June 30, 2019 and 2018 prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Other than as expressly set forth above, the amended and restated MD&A does not, and does not purport to, update or restate the information in the original MD&A or reflect any events that occurred after the date of the filing of the original MD&A.

Unless the context indicates or requires otherwise, the terms “Canopy Growth”, “the Company”, “we”, “us” and “our” means Canopy Growth Corporation and its controlled entities. Canopy Growth is a publicly traded corporation, incorporated in Canada, with its head office located at 1 Hershey Drive, Smiths Falls, Ontario K7A 0A8. The common shares of Canopy Growth trade on the Toronto Stock Exchange (“TSX”) under the ticker symbol “WEED” and on the New York Stock Exchange (“NYSE”) under the symbol “CGC”.

This MD&A was prepared with reference to National Instrument 51-102 – ContinuousDisclosure Obligations of the Canadian Securities Administrators. Under the United States/Canada Multijurisdictional Disclosure System, we are permitted to prepare this MD&A in accordance with Canadian disclosure requirements which may differ from United States disclosure requirements. This MD&A provides information as at, and for the three months ended June 30, 2019 and up to and including August 14, 2019.

This amended and restated MD&A should be read in conjunction with Canopy Growth’s amended and restated unaudited condensed interim consolidated financial statements and the notes thereto for the three months ended June 30, 2019 (the “Interim Financial Statements”), which have been prepared in accordance with U.S. GAAP. The Interim Financial Statements include the accounts of Canopy Growth and its subsidiaries and its interests in affiliated companies, and all intercompany balances and transactions have been eliminated on consolidation. The Interim Financial Statements and this MD&A have been reviewed by Canopy Growth’s Audit Committee and were approved by Canopy Growth’s Board of Directors on July 10, 2020.

Financial information contained herein is expressed in thousands of Canadian dollars, except share and per share amounts, or as otherwise stated.

This MD&A contains forward-looking information within the meaning of Canadian securities laws, and the use of non-GAAP measures. Refer to “Cautionary Note Regarding Forward-Looking Statements” for cautionary statements regarding forward-looking statements.

Additional information filed by us with the Canadian Securities Administrators, including this MD&A, the Interim Financial Statements, audited annual consolidated financial statements, interim reports, annual reports and annual information forms have been filed electronically through the System for Electronic Document Analysis and Retrieval (“SEDAR”) and are available under the Company’s profile at www.sedar.com, on the Securities and Exchange Commission website (www.sec.gov/edgar) and also on our website at www.canopygrowth.com.

This MD&A provides additional information on our performance in the last fiscal year, and our financial condition and future prospects. It is organized as follows:

• Part 1 – Business Overview
• Part 2 – Strategy
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• Part 3 – Results of Operations
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• Part 4 – Financial Liquidity and Capital Resources
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• Part 5 – Critical Accounting Estimates and Judgments
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• Part 6 – Controls and Procedures
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• Part 7 – Risks and Uncertainties

Canopy Growth is not considered a U.S. Marijuana Issuer (as defined in the Canadian Securities Administrators Staff Notice 51-352 – Issuers with U.S. Marijuana-Related Activities (the “Staff Notice”)) nor does the Company have material ancillary involvement in the United States cannabis industry in accordance with the Staff Notice. While the Company has several partnerships with United States-based companies that may themselves participate in the United States cannabis market, these relationships are licensing relationships that see intellectual property developed in the United States brought into Canada, and in no manner involve Canopy Growth in any unlawful United States activities respecting cannabis. Where a non-controlled affiliate has expressed an intent to enter the United States cannabis market, we have taken steps to insulate the Company from all economic and voting interests until such time that United States federal permissibility changes in favour of cannabis related activities.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This MD&A contains certain “forward-looking statements” within the meaning of section 27A of the United States Securities Act of 1933, section 21E of the United States Securities Exchange Act of 1934, the United States Private Securities Litigation Reform Act of 1995 or in releases made by the United States Securities and Exchange Commission (“SEC”) all as may be amended from time to time, and “forward looking information” within the meaning of Canadian securities legislation, including but not limited to statements relating to:

• assumptions and expectations described in the Company’s critical accounting policies and estimates;<br>
• the adoption and impact of certain accounting pronouncements;
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• the legislation, regulations and licensing related to the cultivation, production and sale of cannabis and<br>hemp products by the Company’s subsidiaries and other business interests;
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• the potential time frame for the implementation of regulations with respect to the second phase of<br>recreational cannabis products in Canada, including the regulatory framework for ingestible cannabis, cannabis extracts and cannabis topical products;
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• the number of users of cannabis or the size of the legal cannabis market in Canada and internationally;<br>
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• the number of users of hemp or the size of the legal hemp market in Canada and internationally;<br>
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• the potential time frame for the implementation of legislation to legalize and regulate medical or<br>recreational cannabis or hemp (and the consumer products derived from each of the foregoing) in Canada and internationally, and the potential form the legislation and regulations will take, including the method of delivery and framework adopted or<br>to be adopted by Canada and various international jurisdictions;
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• the ability to enter and participate in international market opportunities;
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• the Company’s future financial and operating performance;
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• future performance, results and terms of strategic initiatives, strategic agreements and supply agreements;<br>
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• the success of the entities the Company acquires and the Company’s collaborations;
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• the market for the Company’s current and proposed product offerings, as well as the Company’s<br>ability to capture market share;
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• the benefits and applications of the Company’s product offering and expected sales thereof;<br>
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• development of affiliated brands, product diversification and future corporate development;<br>
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• anticipated investment in and results of research and development;
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• inventory and production capacity, including discussions of plans or potential for expansion of capacity at<br>existing or new facilities;
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• the Company’s exercise of its option to acquire Acreage (as defined below) and the eventual closing of<br>the acquisition of Acreage upon the occurrence or waiver of the Triggering Event (as defined below);
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• future expenditures, strategic investments and capital activities;
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• statements about expected use of proceeds from fund raising activities;
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• the competitive landscape in which the Company operates and the Company’s market expertise;<br>
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• the Company’s ability to achieve profitability; and
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• the Company’s ability to secure further equity or debt financing.
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The words “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates” “forecasts”, “intends”, “anticipates”, or “believes” or variations (including negative variations) of such words and phrases, or statements that certain actions, events, or results “may”, “could”, “would”, “might”, or “will” be taken, occur or to achieve are all forward-looking statements. Forward-looking statements are based on the reasonable assumptions, estimates, internal and external analysis and opinions of management made considering its experience and perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable at the date that such statements are made. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause actual results, performance or achievements of the Company to be

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materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Some of the risks and other factors which could cause actual results to differ materially from those expressed in the forward-looking statements contained in this MD&A include, but are not limited to, the factors included under “Part 7 - Risks and Uncertainties” in this MD&A, the factors included under “Part 7 – Risks and Uncertainties” in the Company’s MD&A for the three months and year ended March 31, 2019 and in the Company’s annual information form dated June 24, 2019 (the “AIF”). Although the Company has attempted to identify important factors that could cause actions, events or results to differ materially from those described in the forward-looking statements, there may be other factors that cause actions, events, or results to differ from those anticipated, estimated or intended. Forward-looking statements contained herein are made as at the date of this MD&A. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on the forward-looking statements. The Company does not undertake to update any forward-looking statements except as required by applicable securities laws.

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Evidence of these early challenges has been observable since the launch of recreational cannabis and we believe these challenges throughout the industry supply chain will continue in the months to come before stabilizing. Preliminary data has allowed us to glean preference for preferred formats (oils, gelcaps, dry bud), package sizes and potency profiles. As we continue to develop our understanding of the consumer demand profile, we have made supply chain adjustments to address early trends and will continue to do so as further trends emerge. The Company also continues to adapt its facilities and supply chain structure to serve international markets, which often have differing and more demanding requirements governing product supply.

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Strategic Investments and Business Development

• United States Market Development – Executing on our United States market development<br>strategy by (1) immediately entering the United States’ hemp and cannabidiol (“CBD”) market subsequent to the passage of the Farm Bill (as defined below), including conducting research and development into hemp cultivation, and<br>investing in hemp cultivation, processing, extraction and production facilities with an objective of bringing consumer CBD products to market in the United States by the end of the fourth quarter of fiscal 2020. We have invested in large-scale hemp<br>extraction, processing and production facilities in New York and Illinois. In addition, we have identified proven contract manufacturing partners in the United States in order to augment our hemp supply chain; and (2) in accordance with the<br>terms of the arrangement agreement entered into between Canopy Growth and Acreage on April 18, 2019 (the “Acreage Arrangement Agreement”), exercising the Company’s option (“Call Option”) to acquire all of the issued and<br>outstanding securities of Acreage Holdings, Inc. (“Acreage”), contingent on the occurrence or waiver of changes in United States federal law to permit the general cultivation, distribution, and possession of marijuana or to remove the<br>regulation of such activities from the federal laws of the United States (the “Triggering Event”). Acreage is a leading United States multi-state cannabis operator, and the Company anticipates that if the acquisition of Acreage is<br>completed, it will accelerate our pathway into cannabis markets in the United States, once federally-permissible. Through an existing licensing structure, our intellectual property and brand portfolio are available to Acreage to deploy in the United<br>States immediately.
• Global Expansion – Accelerating our global expansion and increasing our total<br>addressable market by pursuing strategic business opportunities in countries where it is federally legal and/or permissible to do so, including (1) building, acquiring, or entering into partnerships with third parties to expand our cannabis<br>growing and cultivation capacity, value-added cannabis- and hemp-based production capability, and sales operations; (2) advancing clinical research and<br>best-in-class patient and healthcare practitioner education programs through Spectrum Therapeutics; and (3) the introduction, and export of cannabis, cannabis-based<br>medicines, and consumer CBD products to countries outside of Canada and the United States. Further, we believe we have an opportunity to leverage and deploy the business model we developed in Canada over the past 5 years that has resulted in<br>significant growth, and which has been highly successful in both the Canadian medical and recreational cannabis markets, to establish ourselves as the early leader in countries where forms of cannabis are already legal and permissible or where<br>governments are actively moving towards legalization. Having established the necessary local teams and partnerships, the Company is now squarely focused on execution of commercial sales.
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• Innovation and Product Development – Conducting research and development and acquiring<br>businesses focused on developing intellectual property related to (1) new product development and introduction, including value-added, high-margin cannabis and hemp-based consumer products that are being developed in preparation for the second<br>phase of recreational cannabis in Canada. These products include beverages that span multiple categories and occasions, including recreational and athletic drinks; pain and anxiety relief therapies; sleep aids; other health and wellness products;<br>animal health products; and advanced consumer products such as vaporizers and other medically-approved cannabis-delivery devices. We believe this will increase our total addressable market, allow us to position our products as premium offerings at<br>the onset of the second phase of recreational cannabis products in Canada, and capture higher gross margins through the sale of value-added products; (2) creating research-driven, protectable medical product formulations and driving these<br>products through robust clinical studies to create new cannabis-based medicines; and (3) innovation focused on optimizing our cannabis growing and manufacturing capability, including developing higher-yielding plant genetics and continuing to<br>scale and enhance our extraction capability.
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• Production Capability and Capacity – Expanding our licensed production, processing, oil<br>extraction, advanced manufacturing and bottling infrastructure in order to establish the commercial scale required to supply the domestic Canadian recreational and medical markets, including preparing for the second phase of recreational cannabis<br>products in Canada, and permissible international markets. We are diversifying our licensed production capacity in Canada by investing in indoor, greenhouse and outdoor cannabis cultivation capacity, as well as outdoor hemp production capacity.<br>Additionally, we continue to invest in developing intellectual property in the areas of the manufacturing of device and delivery technologies, large-scale cannabis processing, production and packaging, and cannabis plant genetics. Internationally,<br>we hold licences for large-scale cultivation and production space in 3 continents and the expertise we have gained in developing our production capability in Canada will be leveraged as we continue<br>building-out our international supply chains.
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United States Market Development

Conducting Business in the United States

Canopy Growth will only conduct business activities related to growing or processing cannabis in jurisdictions where it is federally permissible to do so. Canopy Growth is not considered a U.S. Marijuana Issuer nor does the Company have material ancillary involvement in the United States cannabis industry in accordance with the Staff Notice.

While we have several partnerships with United States-based companies that may themselves participate in the United States cannabis market, these relationships are licensing relationships that see intellectual property developed in the United States brought into Canada, and in no manner involve Canopy Growth in any activities in the United States respecting cannabis. As discussed below, certain entities in which the Company holds securities may operate in the United States cannabis industry, however, our investment in such entities has been structured such that we hold non-participating, non-voting securities that are only exercisable or exchangeable upon cannabis becoming legal or permissible in the United States under federal law. Further, we have developed specific plans related to establishing business operations in the United States in the event cannabis becomes federally permissible which are discussed below.

Passage of the Farm Bill,Potential Future Permissibility of Cannabis in the United States and Our Related Investments in Hemp and CBD

On December 20, 2018, the Agricultural Improvement Act of 2018 (the “Farm Bill”) was signed into law in the United States. The Farm Bill, among other things, defines industrial hemp, removes industrial hemp and its cannabidiols, including CBD derived from industrial hemp but excluding tetrahydrocannabinol (“THC”), from the United States Controlled Substances Act (the “CSA”) and allows for industrial hemp production and sale in the United States. The United States Department of Agriculture, which has been tasked with promulgating regulations for the industrial hemp industry, is required to review and approve any state-promulgated regulations relating to industrial hemp and until such time as the Department of Agriculture approves a state’s industrial hemp regulations, commercial sale of industrial hemp may not be permissible. Further, the United States Food and Drug Administration (the “FDA”) has retained authority over the addition of CBD to products that fall within the Food, Drug, and Cosmetic Act (the “FDCA”). There can be no assurance that the FDA will approve CBD as an additive to products under the FDCA. Additionally, the 2018 Farm Bill does not legalize CBD derived from “marihuana” (as such term is defined in the CSA), which is and will remain a Schedule I controlled substance under the CSA. The FDA has expressed a willingness to take a flexible regulatory approach to foster the development of hemp-derived products such as CBD; however, the FDA has indicated that those actions will have to fit under the confines of current law and further legislation will likely be required. Furthermore, multiple legislative reforms related to cannabis are currently being considered by the federal government in the United States. Examples include the Strengthening the Tenth Amendment Through Entrusting States Act and the Secure and Fair Enforcement Banking Act. There can be no assurance that any of these pieces of legislation will become law in the United States.

Leading up to and following passage of the Farm Bill, we have positioned ourselves to advance our hemp interests in the United States. In January 2019, we were granted a hemp processing and production licence by New York State in order to establish commercial hemp operations in the United States and we are committed to investing in New York in order to establish large-scale production capabilities focused on hemp extraction and product manufacturing with the hemp industrial park. We intend to invest between $100 million USD and $150 million USD in our New York operations and in April 2019, we secured a 308,000 square foot facility on a 48-acre property in Kirkwood, New York with the renovation of the facility having commenced in July 2019. We plan to build the infrastructure necessary to support hemp-derived cannabinoid extraction and related manufacturing on this property, while providing an opportunity for participation by other businesses in the hemp industry.

Additionally, we own an industrial-scale facility in Batavia, Illinois through our recent acquisition of bio-product extractor KeyLeaf Life Sciences (“KeyLeaf”) (see “CBD Products” below for further details). This facility has been certified by the FDA and licensed by the state of Illinois for hemp processing and specializes in ensuring that extraction output is free of impurities in products intended for consumption. Furthermore, we have identified proven contract extraction and manufacturing partners to strengthen our supply chain for the cultivation, extraction, processing and production of hemp-derived products. Our facilities in Kirkwood, New York and Batavia, Illinois, together with our partnerships with third-party contract manufacturers, will be critical in processing the extract required to supply and sustain our program to bring CBD products to the United States market, which management expects to introduce by the end of the fourth quarter of fiscal 2020.

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We have also entered into strategic partnerships in order to build our brand awareness around hemp and CBD-based products, including engaging Martha Stewart in an advisory role to assist with developing and positioning a new line of CBD-based product offerings across multiple categories such as animal health and wellness.

Finally, in October 2018, we completed a legal transfer of cannabis products to a research partner in the United States which, to our knowledge, was the first export of legal cannabis products from Canada to the United States pursuant to an import permit issued by the federal United States Drug Enforcement Administration (“DEA”). The shipment was completed for the sole purpose of supporting medical research and development. To date, four such shipments have been made under DEA approval.

Acreage Transaction

In late June 2019, subsequent to receiving all necessary approvals from the shareholders of Acreage and Canopy Growth and obtaining the final order from the Supreme Court of British Columbia, Canopy Growth and Acreage implemented the previously-announced plan of arrangement (the “Acreage Plan of Arrangement”) which grants Canopy Growth the Call Option to acquire all of the issued and outstanding securities of Acreage upon the occurrence or waiver of the Triggering Event. Upon the implementation of the Acreage Plan of Arrangement, shareholders of Acreage and certain other holders of securities convertible into shares of Acreage received an upfront payment of US$300 million. Following the occurrence or waiver of the Triggering Event and completion of the acquisition of Acreage, shareholders of Acreage will receive 0.5818 of a Canopy Growth common share for each Acreage share held at the effective time, subject to adjustment in certain circumstances in accordance with the terms of the Acreage Arrangement Agreement (the “Exchange Ratio”). The value of the consideration to Acreage shareholders may change up until the Call Option is exercised as the value is based on the Exchange Ratio. Canopy Growth is permitted to waive the Triggering Event.

Acreage is headquartered in New York City and is a leading vertically-integrated, multi-state operator in United States cannabis. Acreage owns licences to operate in (or has management services agreements with licence holders to assist with operations in) 20 U.S. states with an estimated 2022 total addressable market of more than $17 billion in legal cannabis sales, and operates approximately 90 dispensaries and over 20 cultivation and processing sites. Canopy Growth and Acreage will operate as independent companies until Canopy Growth exercises its Call Option, at which time the combined operations of Canopy Growth and Acreage are expected to create a leader in the United States cannabis market. In connection with the Acreage Arrangement Agreement, the Company and Acreage executed a licensing agreement granting Acreage access to Canopy Growth’s award-winning line-up of brands such as Tweed and Tokyo Smoke, along with other intellectual property.

Pursuant to the Acreage Arrangement Agreement, Acreage may issue up to 58 million additional subordinate voting shares of Acreage in respect of potential acquisitions. Further information regarding the Acreage Plan of Arrangement is described in Canopy Growth’s Management Information Circular dated May 17, 2019, which is available under the Company’s profile on SEDAR at www.sedar.com.

Other United States Holdings

While TerrAscend Corp. (“TerrAscend”) and Slang Worldwide Inc. (“Slang”) have interests in cannabis-related business in the United States, we have undertaken steps to structure our security holdings in these entities to insulate Canopy Growth from engaging in any unlawful United States cannabis-related activities. Canopy Growth has no voting rights nor economic interests in these entities.

Canopy Growth holds conditionally exchangeable shares in the capital of TerrAscend. These shares are not entitled to voting rights, dividends or other rights upon dissolution of TerrAscend but are convertible into common shares of TerrAscend upon receipt of the approval of the stock exchanges upon which the Company’s securities are listed and following either changes in United States federal laws regarding the cultivation, distribution or possession of cannabis or changes in the policies of the stock exchanges upon which the Company’s securities are listed with respect to such activities. The exchangeable shares do not provide (and there are no related contractual rights that would otherwise provide) us with any right to dividends, entitlements upon dissolution of TerrAscend, cash flow or other current economic entitlements, voting rights or any form of control over the business, affairs, operation or financial condition of TerrAscend.

Similarly, Canopy Growth holds conditionally exercisable warrants in the capital of Slang. Canopy Growth is not permitted to exercise the warrants without, among other things, receipt of the approval of the stock exchanges upon which the Company’s securities are listed and following the date that the growth, cultivation, production, sale, use and consumption of cannabis and cannabis-related products are permitted in the United States for any and all purposes (including medical, therapeutic and recreational) under all applicable federal laws of the United States, including the CSA.

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We monitor the activities of TerrAscend, Slang and other entities which we are invested in for compliance with United States cannabis laws, and would make similar arrangements, if necessary, to ensure our ongoing compliance with United States federal laws.

See “Risk and Uncertainties – Stock Exchange Restrictions, Cannabis is a Controlled Substance in the United States, 2018 Farm Bill Risks, Entry Bans into the United States, Banking Risks and Enforceability of Contracts” below.

Global Expansion

Canada has designed and implemented federal regulatory models for both medical and recreational cannabis. Canopy Growth has established itself as a leader in both markets in Canada and achieved significant growth by successfully executing on our business model, which includes our investments in cannabis production capability and distribution, developing intellectual property, industry and regulatory knowledge and expertise, and industry-leading physician, pharmacist and patient education in order to build market share and customer loyalty at the outset. Accordingly, we believe that a significant opportunity exists today to leverage and deploy our Canadian “playbook” and our financial strength to establish ourselves as the first-mover and market leader in countries which have legalized or are exploring the legalization of medical cannabis.

In recent years, the actions of governments around the world have signaled a significant change in attitudes towards cannabis, and federal governments in over 40 countries have either formally legalized medical cannabis access or established government efforts to explore the legalization of medical cannabis access. Therefore, future opportunities are likely to exist for Canopy Growth in jurisdictions where governments are actively moving towards a legal framework.

To date, Canopy Growth has secured the necessary regulatory approvals to export cannabis or cannabis materials (such as clones or tissue cultures) to Australia, Brazil, Chile, Colombia, Czech Republic, Denmark, Germany, Jamaica, Lesotho, Poland, Spain, South Africa, the United Kingdom, and the United States.

To date, we have announced subsidiaries, partnerships or business activities in several countries as described below.

Figure 1: International subsidiaries, partnerships or business activities

LOGO

Europe

In the first quarter of fiscal 2020 we have continued to expand our product offerings in order to access a larger network of physicians and pharmacies with an expanded, medically-validated suite of cannabinoid therapies. With the integration of the recent acquisitions of Storz & Bickel and This Works, we are also now offering consumers a full suite of advanced,

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medically-approved vaporizers and other delivery devices, and are introducing new CBD-infused products and brands to the global beauty, wellness, and sleep solution spaces.

Our facility in Denmark is expected to supply the growing demand for Spectrum Therapeutics products across the continent and support our ultimate goal of increasing access for patients across Europe, offering a greater range of products, and allowing for an early-mover advantage as new countries open their doors to medical cannabis. In addition, following the acquisition of Cáñamo y Fibras Naturales, S.L. (“Cafina”), a Spanish licensed cannabis producer, in March 2019, we began actively planning the development of our second production site in Europe to further strengthen our supply chain across the continent.

Germany – Spectrum Therapeutics operates as a pharmaceutical distributor with the necessary approvals in Canada and Germany to export/import medical cannabis for sale to German patients. In May 2019 we acquired Germany’s C^3^, Europe’s largest cannabinoid-based pharmaceuticals company. C^3^ is a leading manufacturer and distributor of dronabinol, a registered active pharmaceutical ingredient in Germany, Austria, Switzerland and Denmark. In 2018, C^3^supplied approximately^^19,500 patients in Germany, a year-over-year increase of 85%. C^3^operates two state-of-the-art manufacturing facilities specializing in natural extraction and synthetic cannabinoid production, which are scheduled for further expansion this year to accommodate forecasted rapid growth in the business. The acquisition of C^3^ enhances our European infrastructure, including a robust sales and marketing organization which already serves pharmacies and healthcare practitioners. In addition, C3 holds several patents related to cannabis including extraction technology and the synthetic production process and has several clinical trials underway.

Additionally, we acquired Storz & Bickel GmbH & Co., KG (“Storz & Bickel”) and its related intellectual property in December 2018. Storz & Bickel is widely recognized as a global leader in the design and manufacture of medically-approved vaporizers and other delivery devices at its certified, automated factory, and exports its devices to 50 markets around the world.

Denmark – We retrofitted a building in Odense, Denmark which now includes approximately 300,000 square feet of greenhouse cultivation and post-harvest processing capability, and Spectrum Therapeutics received the necessary licensing which allows us to cultivate, harvest, export and sell medical cannabis in dried flower form. To our knowledge, Spectrum Therapeutics is the first Canadian company to receive a federal production licence in Denmark. We expect the cannabis production from the Danish greenhouse to begin serving European markets in the second half of calendar 2019, once we obtain the necessary regulatory approvals.

Poland – After completing a rigorous regulatory approval process, we completed our first import of medical cannabis into Poland in the fourth quarter of fiscal 2019. According to the Polish Pharmaceutical Chamber, which represents about 15,000 pharmacies in Poland, it is estimated that up to 300,000 patients could qualify for medical cannabis treatment and as the only producer that imports product in this country, we expect that our first-mover advantage will allow us to maintain dominant market share.

Spain – We completed the all-cash acquisition of Cafina in March 2019, with Cafina being one of three companies in Spain authorized to cultivate, distribute and export cannabis containing more than 0.2% THC for medical and research purposes. Cafina is also licensed to cultivate hemp. This acquisition allows us to expand our European production footprint and improve our long-term positioning to address demand across Europe for medical cannabis and CBD products. Additionally, we entered into a supply licence agreement with Spain’s Alcaliber S.A. (“Alcaliber”) in fiscal 2018 pursuant to which we will grant Alcaliber a licence to use certain strains and seeds to be grown and cultivated at Alcaliber’s facilities for sale worldwide. We completed a transfer of 1,500 cannabis clones to Alcaliber, and in early fiscal 2019 Alcaliber shipped the first group of clones to Denmark.

United Kingdom – We began operating in the United Kingdom in the fourth quarter of fiscal 2019 with a focus on providing patients with reliable access to cannabis-based medical products. We expect to complete our first fulfillment in the second quarter of fiscal 2020. Our focus in the United Kingdom so far has been in educating pharmacists and patients. Further, we acquired London, England-based TWP UK Holdings Limited (“This Works”) in May 2019, a global leader in natural skincare and sleep solutions with a customer base spanning 35 countries.

Czech Republic – We acquired Annabis Medical s.r.o., a leader in the Czech Republic’s medical cannabis industry, in the first quarter of fiscal 2019. We currently import and distribute cannabis products pursuant to federal Czech licences, with products sold through pharmacy channels across the Czech Republic.

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Latin America and the Caribbean

Our Latin America and Caribbean business will focus on advancing medical cannabis through the region, home to more than 650 million people. As individual nations modernize their medical cannabis legislation, we will coordinate all regional activities through our in-market operations in Colombia, Brazil, Chile, Peru, and Jamaica. We will advance our Spectrum Therapeutics brand in this region through the education of physicians and pharmacists.

Colombia –****Colombia is a regional production and processing hub where we own a farm that is fully licensed for 126 hectares (13.6 million square feet) of THC- or CBD-dominant production capacity. The farm is well-positioned and suitable for growing through its steady supply of fresh water and favourable electricity rates, with our first commercial harvest expected in early 2020. Our expectation is that once this farm is operational, it will be able to supply all of Latin America during the initial years of legislative roll-out. Further, we entered into a multi-year agreement with Procaps S.A.S. (“Procaps”), a global company that develops, manufactures and markets over-the-counter medications and nutritional supplements for a number of international pharmaceutical companies. Procaps exports to more than 50 international markets, including the United States. Canopy Growth will leverage Procaps’ industry-leading formulation and encapsulation capacity, which is especially critical in Latin American markets where there is a regulatory preference for oil-based products, such as softgels.

Brazil – Core activities in Brazil, Latin America’s most populous country, include supporting regional clinical trials, delivering product sales to patients through the compassionate patient stream, and educating and training for physicians. We recently completed a compassionate sale of Spectrum Therapeutics product, therefore validating the potential of serving Brazilian patients through an import model while our Latin American operations scale and regional regulations advance to support greater market access.

Chile – We have secured all required Chilean permits to import Spectrum Therapeutics product for the advancement of our ongoing clinical trial in Chile. Leveraging the uniquely advantageous climate for clinical trials in the country, Chile will serve as the research and development hub for Latin America, fully aligned with our global strategy for developing registered medical cannabis products for commercialization. Further, we recently completed a compassionate sale of Spectrum Therapeutics product similar to that completed in Brazil.

Peru – In the first quarter of fiscal 2019, we launched our operations in Peru and will actively pursue the soon-to-open Peruvian medical and CBD markets by leveraging our global expertise in patient and physician education, as well as in medical cannabis production. We have secured an exclusive distribution agreement with Peru’s largest pharmaceutical distributors, thus creating access to approximately 80% of pharmaceutical shelves in the country.

Jamaica – We own 49% of Tweed Limited JA, a Jamaican company that recently received its cultivation licence after completing construction of the greenhouse.

Asia/Pacific

Australia – Canopy Growth and the Victoria state government launched our Australian operations early in fiscal 2019. The first shipment of medical cannabis oil was received in Australia in April 2019, and Spectrum Therapeutics began selling to medical cannabis patients in May 2019. The Victoria-based greenhouse and processing facility is currently under construction and, when completed, will enable domestic cultivation and production of high-quality medical cannabis for patients while serving as a planned distribution hub for other jurisdictions in Asia/Pacific. Spectrum Therapeutics will continue supporting Australian patients through imports until the facility is operational. The Victoria-based facility will also operate as our Asia/Pacific Research and Development Center, supporting the ongoing research collaboration between Canopy Growth and Victoria state government on furthering innovations in medical cannabis.

Africa

Lesotho – We hold a licence to cultivate, manufacture, supply, hold, import, export and transport cannabis and its resin in the Kingdom of Lesotho. We have recently been granted a medical hemp production license for 200 hectares (21.5 million square feet), of outdoor grow space, with our first commercial hemp harvest expected in the first quarter of fiscal 2021. We have also commenced cultivation at our 322,000 square foot facility which includes an indoor propagation room, vegetation greenhouse, and an outdoor growing area. CBD-dominant and CBD-THC balanced varieties can both be cultivated at this facility.

Innovation and Product Development

Our intellectual property portfolio has increased to 111 issued patents and over 270 patent applications as of August 14, 2019, with more applications under development. Our patents cover cannabis-based beverage production and medical

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treatments, device and delivery technologies, large-scale cannabis processing, and plant genetics. We believe significant opportunity exists to improve our profit margins by vertically integrating up the value chain towards products that treat cannabis and cannabinoids as ingredients, a view which applies to both the medical and regulated recreational cannabis/cannabinoid markets. Therefore, we are investing in research and development and acquiring businesses focused on developing intellectual property related to new product innovation, including the development of cannabis-based consumer recreational products and cannabis-based medical therapies, CBD products, and device and delivery technology.

Product Innovation

Consumer Recreational Products

Our value-added, cannabis-based consumer recreational products, which we anticipate will be available for sale in Canada in December 2019, are expected to include higher concentrated vaping oils (along with related device hardware), edibles and beverages. In preparation for this launch, we invested in the constructing of extraction facilities, including KeyLeaf, and advanced manufacturing, edible and beverage production facilities in Smiths Falls, Ontario. We continue to invest in new product development through research and development and the acquisition of new technologies, while ensuring the protection of our intellectual property.

We believe cannabis-based beverages can be tailored to meet specific outcomes across a variety of consumption occasions, while avoiding such things as weight gain, “hangover” effects, and interactions with traditional pharmaceutical medications. Given this, cannabis-based beverages could serve as a disruptive alternative to traditional alcohol beverages while also expanding the total addressable market for all cannabis-based products. We have invested in researching and developing technologies, processes and applications in the creation of clear, shelf-stable cannabis-based beverages that offer a social experience that is superior to that of traditional sugar-based alcoholic beverages, specifically with a rapid on-set and shorter duration.

Medical Therapies – Spectrum Therapeutics

Our Spectrum Therapeutics medical division acts as a cannabis research incubator focusing on researching and developing clinically-ready cannabis drug formulations and dose delivery systems. This division serves as our pre-clinical and clinical research arm, which includes elements of product design and ingredient selection, formulation, safety and efficacy testing for a range of products, which we anticipate developing as the regulatory framework and market evolve. We are also testing and developing cannabis-derived products for applications in veterinary medicine, such as treating anxiety in animals.

To date, we have filed 38 United States provisional patent applications (which are included in the 270 total patent applications described above), across a range of cannabis and CBD uses, compositions, formulations, indications, methods of delivery, and dosing regimens.

We expect approximately 1,000 patients to participate in 60 human health clinical trials that are currently in the planning phase, ongoing, or completed. These trials include Phase IIB trials for sleep, pain and anxiety treatment, and Phase III trials for spasticity/multiple sclerosis. Additionally, affiliate and partner research programs are underway in the areas of opioid-sparing, smoking cessation and concussion treatment, and clinical trials are currently in the planning phase, ongoing or completed for companion animal anxiety, and pharmacokinetics, dosage and safety.

Hemp and CBD Products

We have taken steps to diversify our cannabis-related business into the development, production and sale of hemp-based medical, regulated recreational and industrial products. Hemp and cannabis come from the Cannabis sativa L specie but are genetically distinct and are further distinguished by use, chemical makeup and cultivation methods. Hemp, which refers to the non-psychoactive (less than 0.3% THC) varieties of Cannabis sativa L, is a renewable raw material used in thousands of products including health foods, body care, clothing, construction materials, biofuels and plastic composites. We believe that entry into the regulated hemp market, whose regulations allow for more robust consumer-facing brand marketing, advertising and retail channels, will serve to strengthen our consumer facing brands in the future.

We believe that we are positioned as a leader in low-cost, high-yield CBD production. We have expertise in large-scale cannabinoid extraction processes with our unique whole-plant hemp harvesting knowledge, and we continue investing in extraction capability to support our innovation in the value-added, consumer recreational products market. We first established a relationship with KeyLeaf, the owner of a bio-processing and large-scale extraction facility in Saskatchewan, in fiscal 2019 and controlled and consolidated KeyLeaf from that point and subsequently acquired the entity in June 2019. KeyLeaf adds over 45 years of experience in bio-product industries and significant intellectual

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property in the area of plant-based extraction to our capabilities. Also, KeyLeaf has been partnering with Canopy Growth over the past year to retrofit their facility in Saskatchewan in order to scale-up its ability to process hemp and cannabis biomass and refine its pre- and post-extraction processes. This facility, along with other owned and partner extraction capability, will be leveraged to process our outdoor hemp and cannabis output, as well as other raw materials from our indoor and greenhouse cultivation facilities.

Further, we have integrated the intellectual property of ebbu, Inc. (“ebbu”), a Colorado-based hemp research leader with over 40 cannabis-related patent applications representing over 1,500 inventions, into our broader portfolio of capabilities. Research and development and intellectual property advancements achieved by ebbu’s team apply directly to our hemp and THC-rich cannabis genetic breeding program and its cannabis-infused beverage capabilities, with the potential to reduce the cost of CBD production. In addition, ebbu’s intellectual property portfolio will contribute to the clinical formulations program being executed by Spectrum Therapeutics.

Our investments in CBD production capability, extraction processes and genetic breeding will allow us to produce a complimentary balance of low-cost, high-yield raw material input for the higher-margin, value-added products which we expect will be available for sale beginning in December 2019, as well as input for the CBD applications and products being developed by Spectrum Therapeutics.

Devices and Delivery Technology

We are focused on expanding our product development, manufacturing capacity and sales capability in the cannabis consumer products market. Our research and development group has been actively developing safety-approved smart vaporizer devices for use with cannabis concentrates. These devices, powered by Canopy Growth-owned intellectual property, are Bluetooth-enabled and communicate with a proprietary application to give users much more payload transparency while enabling safe and responsible usage. In addition, through Storz & Bickel we have entered the market for the manufacturing and sale of medical cannabis delivery devices. Storz & Bickel has developed an automated factory that is certified internationally for the production of medical devices, and exports medically-approved vaporizers and other similar devices to 50 markets around the world. We plan to build out the capacity of Storz & Bickel’s manufacturing facilities to support its continued growth through new product development and market expansion, while at the same continuing to integrate the product development expertise and capability of Storz & Bickel’s research and development and engineering teams with that of Canopy Growth.

Our Brands

Our diverse platform of brands “under the Canopy” allows us to effectively deploy the following brands that are targeted towards specific customer demographics, use occasions and product form factors.

LOGO

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Core Brands

Tweed – Tweed’s high-quality, highly-curated cannabis products, places and spaces are tailored to help people reconnect with one another. Our authentic local presence and desire for shared prosperity help us to be a good neighbor to those communities that invite us in.

Tokyo Smoke – Tokyo Smoke is an award-winning cannabis brand delivering immersive, innovative experiences to consumers through cannabis products, accessories, and best-in-class retail stores. From our thoughtfully-crafted intent-based classification system to our iconic red lantern logo, Tokyo Smoke pushes creative boundaries, unlocking new ways to explore cannabis.

Van der Pop – With a focus on education, empowerment and community building, Van der Pop is Canopy Growth’s female-focused cannabis brand. Van der Pop provides products and platforms for women to explore using cannabinoids for self-care in a way that is nuanced and respects stigma-free living.

Spectrum Therapeutics – Our international medical brand that serves as our physician and patient-facing identity across all federally-permissible jurisdictions where Canopy Growth operates. “Spectrum” in the name refers to the trademarked colour-coded cannabis strain classification system.

DOJA – **** DOJA is based in British Columbia’s Okanagan Valley, where DOJA grows premium, hand-crafted flower. DOJA represents celebrating the freedom from convention and a respect for the West Coast community and land from which it came from.

TWD– TWD is our basic line of safe and affordable cannabis products from Tweed.

This Works – Founded in 2004, London, England-based This Works offers a range of high-quality natural skincare and sleep solution products that have rewarded the company with a loyal following of customers spanning 35 countries. Through their unique approach of formulating solutions that work in harmony with the 24-hour body clock, This Works has evolved its product lines beyond a traditional viewpoint to a more complete regiment.

Affiliated Brands

*Houseplant –*An elevated Canadian cannabis company founded by Seth Rogen and Evan Goldberg and launched in 2019, Houseplant is rooted in commitment, authenticity and education. Their love affair with cannabis has spanned a lifetime, and they believe it should be treated with the reverence it deserves. Each element of their suite of products, and every part of their identity has been thoughtfully designed and considered.

DNA Genetics – DNA Genetics has won awards in every category in the Cannabis Cup, the world’s preeminent cannabis competition. Working with DNA Genetics, Canopy Growth breeds new strains for customers that simply are not available anywhere else in the world, bringing the best of existing DNA Genetics to Canopy Growth customers, bred and grown to DNA standards.

LBS – LBS is a premier cannabis brand by entertainment icon Snoop Dogg available in the United States and licensed by Canopy Growth in Canada. LBS embodies the “California Vibe”.

Green House Brands – Through Canopy Growth, Green House Brands is expected to bring the recognized and award-winning cannabis brand to the Canadian market in the second half of calendar 2019. Established in 1985, the Green House Brands portfolio includes Green House Seed Co. and Strain Hunters, both of which market exclusive cannabis strains.

Organa Brands **** – Organa Brands is home to some of the world’s largest consumer cannabis brands, including O.penVAPE, Bakked, Magic Buzz and District Edibles. Organa Brands is expected to launch in the Canadian recreational market, through Canopy Growth, in the second half of calendar 2019.

Technology Brands

Storz & Bickel – Based in Tuttlingen, Germany, Storz & Bickel are designers and manufacturers of medically approved vaporizers, most notably the Volcano Medic and the Mighty Medic. Exported to 50 markets around the world and with a 23-year track record of breakthrough innovations, Storz & Bickel is widely recognized as a global leader in vaporizer design and manufacturing.

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Retail Strategy and Brands

The Cannabis Act provides provincial, territorial and municipal governments with the authority to prescribe regulations regarding retail and distribution of recreational cannabis. As such, the distribution model for recreational cannabis is prescribed by provincial regulations and differs from province to province. Some provinces have government-run retailers, while others have government-licensed retailers, and some have a combination of the two. All of the Company’s recreational sales are conducted according to the applicable provincial and territorial legislation and through applicable local agencies. The Company continues to monitor the developing legislation to identify opportunities for its brands.

We finalized the acquisition of Hiku Brands Company Ltd. (“Hiku”) during the second quarter of fiscal 2019, adding the Tokyo Smoke retail network to our network of Tweed stores. We are pursuing a cannabis retail presence in provinces, where permitted, to capture retail gross margin, higher market share, educate consumers, build brand recognition, and establish direct connections with customers. Offering two distinct customer experiences will allow us to appeal to various consumer demographics without saturating any single segment.

In the first quarter of fiscal 2020, we opened 9 additional cannabis retail stores operating under the Tweed or Tokyo Smoke banner, of which 6 are corporate owned and 3 are operated by partners; we also launched the Tweed e-commerce platform for cannabis sales in Saskatchewan.

As of August 14, 2019, we have 26 cannabis retail stores operating under the Tweed or Tokyo Smoke banner, of which 21 are corporate-owned stores and the balance are operated by our partners. Tweed retail has 16 corporate-owned locations selling cannabis across Newfoundland & Labrador, Manitoba and Saskatchewan and has a branded e-commerce presence in Newfoundland & Labrador, Manitoba, Saskatchewan and Nunavut. Tokyo Smoke operates 5 corporate-owned retail cannabis stores and an e-commerce platform in Manitoba.

Further, we have received licences, rights to licences or permits to apply for licences to operate cannabis retail stores in 4 provinces:

• Newfoundland & Labrador - licences for up to 7 stores;
• Manitoba - licences for up to 15 stores;
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• Saskatchewan - licences for up to 6 stores; and
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• Alberta - development permits for 19 cannabis retail store locations.
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In Ontario, we have entered into multi-year licensing agreements to enable our partners to open two Tokyo Smoke-branded stores and one Tweed-branded cannabis store. We are continuing to explore additional opportunities to expand the Tokyo Smoke and Tweed retail banners across the province. We are also pursuing cannabis retail licences in British Columbia through the provincial retail licensing processes.

Positioning of Canopy Growth’s Brands in the United States

As part of the implementation of the Acreage Plan of Arrangement, Canopy Growth and Acreage executed a licensing agreement granting Acreage access to Canopy Growth’s diversified portfolio of brands, including Tweed, Spectrum Therapeutics, CraftGrow and Tokyo Smoke, across the United States. These licences, along with select retail locations under the Tweed and Tokyo Smoke brands, will build our brand awareness in the United States. See “United States Market Development – Conducting Business in the United States” above.

Production Capability and Capacity

Domestic Cannabis Production

We operate numerous state-of-the-art production facilities with approximately 5.2 million square feet of licensed greenhouse and indoor cultivation and post-harvest processing capacity. We have committed to major ongoing investments, including the construction of indoor production capacity in St. John’s, Newfoundland and Labrador and Edmonton, Alberta, the expansion of our Smiths Falls facilities to develop a 125,000 square foot beverage production facility, and the construction of a high-capacity extraction facility in Aldergrove, British Columbia. With the licensing of recently-completed expansion projects and the above-noted projects currently underway, we expect to have approximately 5.6 million square feet of licensed capacity in Canada for indoor and greenhouse cultivation, post-harvest processing, oil extraction, encapsulation, advanced manufacturing, vape manufacturing and beverage bottling capability.

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In addition, we recently expanded our Canadian outdoor footprint with a licence to cultivate cannabis at a 160 acre (approximately 7 million square feet) outdoor site in Saskatchewan, adding to our existing 5,500 acre outdoor hemp production platform.

Partner Capacity Offtake

We have established several programs designed to help partners, including licence applicants and licensed producers, establish and/or grow their licensed operations and achieve greater success faster. Through these programs, additional cannabis production capacity will be secured for sale to our customers.

CraftGrow – Recognizing that every patient is different and every condition requires a unique approach, CraftGrow provides customers options when it comes to finding medical cannabis products that best address their needs. By building a program that gathers passionate and skilled producers together in one place, Spectrum Therapeutics is able to bring its patients the best variety cannabis from some of the most innovative producers in the country. While medical patients benefit from additional innovation and variety, partner producers gain access to a vast market for their product lines. Our three partners can be found at www.spectrumtherapeutics.com.

Agripharm Corporation(“Agripharm”) – 40% owned by Canopy Growth, we have the right to purchase all the cannabis products produced by Agripharm, subject to the right of Agripharm to sell up to 25% of its products directly in its own bricks-and-mortar retail locations.

PharmHouse Inc.(“PharmHouse”) – In May 2019 we signed a second offtake agreement with PharmHouse, a 49%-owned joint venture of Canopy Rivers Inc. (“Canopy Rivers”). In July 2019 PharmHouse received a cultivation licence from Health Canada. Under the terms of the agreement, PharmHouse has agreed to allocate to Canopy Growth high-quality cannabis flower from an additional 20% of the flowering space available at its Leamington, Ontario facility over the next three years, bringing the total flowering space committed to Canopy Growth to 30%.

Canopy Rivers

Canopy Rivers (TSXV:RIV) works collaboratively with Canopy Growth to identify strategic counterparties seeking financial and/or operating support and affiliation. The result is an ecosystem of complementary companies operating throughout the cannabis value chain. As the portfolio continues to develop, each constituent benefits from opportunities to collaborate with Canopy Growth and amongst themselves, which we believe results in an ideal environment for innovation, synergy, and value creation for Canopy Rivers, Canopy Growth, and across the entire Canopy Rivers ecosystem. As a result of a dual-class share structure, Canopy Growth owns approximately 27.6% of the issued and outstanding shares in the capital of Canopy Rivers and approximately 84.6% of the voting power attached to all of the outstanding shares.

To date, in collaboration with Canopy Growth, Canopy Rivers has established a diversified portfolio of cannabis industry investments that includes large-scale greenhouse cannabis cultivators, small-scale premium cannabis cultivators, licence applicants, international hemp processors, pharmaceutical formulators, brand developers and distributors, retail distribution licence operators, technology and media platforms, beverage companies, beauty brands, and agriculture-technology companies.

Subsequent Events

July 2019

On July 2, 2019 Mark Zekulin was appointed as sole Chief Executive Officer and Rade Kovacevic was appointed President of the Company upon the termination of Bruce Linton as Co-Chief Executive Officer of the Company. A search has commenced to identify Mr. Zekulin’s replacement as the Company’s Chief Executive Officer.

August 2019

On August 9, 2019 the Company announced that it had entered into an agreement to acquire all of the remaining unowned shares in Beckley Canopy Therapeutics (“BCT”), a global cannabinoid-based medical researcher, for GBP 34,692, of which GBP 26,025 will be payable on closing. The closing of the transaction subject to regulatory approval and certain other closing conditions. In addition, the Company will issue options to purchase common shares of the Company in exchange for options previously issued by BCT based on an exchange ratio to be determined at the time of closing.

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Discussion of the First Quarter of Fiscal 2020 Results of Operations

Revenue

The following tables present revenue for the three months ended June 30, 2019 and 2018:

Revenue by Channel

Three months ended
June 30, June 30,
(CDN $000’s) 2019 2018 Change % Change
Recreational revenue
Business to business^1^ $ 50,425 $ — —
Business to consumer **** 10,638 — —
**** 61,063 — —
Medical revenue
Canadian **** 13,051 21,364 ) (39 %)
International **** 10,496 3,370 211 %
**** 23,547 24,734 ) (5 %)
Other revenue **** 18,781 1,182 1489 %
Gross revenue **** 103,391 25,916 299 %
Excise taxes^2^ **** 12,909 — —
Net revenue $ 90,482 $ 25,916 249 %

All values are in US Dollars.

^1^ Includes other revenue adjustments which represent the Company’s estimate of variable consideration<br>that may result from rights of return, and which primarily relate to oils and gelcaps.
^2^ Excise taxes is presented net of the impact from other revenue adjustments.
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Revenue by Form

Three months ended
(CDN $000’s) June 30,2019 As a %of grossrevenue Kilogramsandkilogramequivalentssold June 30,2018 As a %<br>of<br>gross<br>revenue Kilograms<br>and<br>kilogram<br>equivalents<br>sold
(CDN 000’s) (CDN 000’s)
Recreational revenue by form
Dry bud **** **** 59 % **** 7,673 — —
Oil (Includes oils and gelcaps) **** **** 8 % **** 1,387 — —
Other revenue adjustments^1^ ) **** (8 %) **** —
**** **** 59 % **** 9,060 — —
Medical revenue by form
Dry bud **** **** 7 % **** 807 71 % 2,244
Oil (Includes oils, gelcaps)^2^ **** **** 16 % **** 682 24 % 451
**** **** 23 % **** 1,489 95 % 2,695
Other revenue **** **** 18 % **** — 5 % —
Gross revenue **** **** 100 % **** 10,549 100 % 2,695
Excise taxes^3^ ****
Net revenue ****

All values are in US Dollars.

^1^ Other revenue adjustments represent the Company’s estimate of variable consideration that may result<br>from rights of return, and which primarily relate to oils and gelcaps.
^2^ Includes $8,783 of revenue related to C^3^ for the first<br>quarter of fiscal 2020.
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^3^ Excise taxes is presented net of the impact from other<br>revenue adjustments.
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Net revenue in the first quarter of fiscal 2020 was $90,482, as compared to $25,916 in the first quarter of fiscal 2019. The year-over-year increase is attributable to the launch of the Canadian recreational cannabis market in October 2018.

Recreational

Recreational revenue in the first quarter of fiscal 2020 was $61,063, with the increase from the first quarter of fiscal 2019 entirely due to the launch of the Canadian recreational cannabis market in October 2018. In the first quarter of fiscal 2020, we generated revenue of $60,854 from the sale of our dry bud format products, an increase of 88% from dry bud sales of $32,399 in the fourth quarter of fiscal 2019. We sold 1.4 million higher-margin pre-rolled cannabis products in the first quarter of fiscal 2020, which represented $9,768, or 16% of our total recreational cannabis revenue.

As noted under “Part I – Business Overview” above we, and the provincial and territorial agencies, continue to develop a better understanding of the consumer demand profile for recreational cannabis products. As part of this learning process, we and our provincial and territorial partners undertake a regular review of inventory and demand levels. During

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the first quarter of fiscal 2020, we evaluated the form, type/strain, and estimated on-hand provincial and territorial inventory levels against the recent demand and sales trends that have been observed in the recreational market to ensure we make adjustments to our supply chain based on the purchasing preferences of recreational consumers. As a result of this evaluation we believe that the risk of over-supply of certain oil and gelcap formats may exist in certain markets due, in part, to incomplete retail platforms in most provinces. Based on this assessment, we have estimated variable consideration that may result from rights of return in the amount of $6,356, net of excise tax, and the net estimated return amount has been reflected in net revenue.

We continue to develop our understanding of market demand and are undertaking changes to our production levels to address trends such as this.

Medical

Medical cannabis revenue for the first quarter of fiscal 2020 was $23,547, as compared to $24,734 in the first quarter of fiscal 2019.

Canadian medical revenue in the first quarter of fiscal 2020 was $13,051, a decrease of $8,313 from the first quarter of fiscal 2019. The decrease is largely attributable to the transition of our medical customers to our new Spectrum Therapeutics online store in anticipation of the launch of the recreational market in October 2018. The Spectrum Therapeutics online store offered a more medical-focused range of cannabis products and several of our established brands and product offerings, including Tweed, LBS and DNA Genetics, were transitioned to the recreational channel. In recent months, however, we have responded to the demand profile of our Canadian medical patients and begun increasing our brands and product offerings on the Spectrum Therapeutics online store. This, together with addressing the supply constraints that we experienced in the fourth quarter of fiscal 2019, resulted in a sequential improvement in medical revenues in the first quarter of fiscal 2020. As at June 30, 2019 there were approximately 70,900 registered Canadian patients with Spectrum Therapeutics, down from approximately 73,600 patients at March 31, 2019 which reflects the factors noted above. However, we have seen stabilization in the number of registered patients subsequent to quarter-end.

International medical revenue in the first quarter of fiscal 2020 was $10,496, an increase of $7,126 from the first quarter of fiscal 2019 primarily due to the acquisition of C^3^ in May 2019. C^3^, which is based in Germany, is Europe’s largest cannabinoid-based pharmaceuticals company and is a leading manufacturer and distributor of multiple cannabinoid therapies including dronabinol, a registered active pharmaceutical ingredient in certain European countries. In addition, subsequent to quarter-end we have seen a notable increase in the amount of product shipped to Germany, demonstrating the resolution of the supply constraints that impacted our International medical business in the fourth quarter of fiscal 2019.

Other

Other revenue for the first quarter of fiscal 2020 was $18,781, as compared to $1,182 in the first quarter of fiscal 2019. The year-over-year increase is primarily attributable to revenues related to Storz & Bickel, which we acquired in the third quarter of fiscal 2019, and This Works, which we acquired in May 2019. The remainder of the increase is attributable to revenue from other strategic sources including extraction services and clinic partners. Other revenue for the first quarter of fiscal 2019 consisted predominantly of revenue from our clinic partners.

Net revenue is determined by deducting excise taxes which are included in gross revenue and subsequently remitted to the tax authorities.

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Cost of goods sold and gross margin

The following table presents cost of goods sold and gross margin for the three months ended June 30, 2019 and 2018:

Cost of Goods Sold

Three months ended
June 30, June 30,
(CDN $000’s) 2019 2018 Change % Change
Net revenue $ 90,482 **** $ 25,916 249 %
Cost of goods sold **** 72,192 **** 18,452 291 %
Gross margin **** 18,290 **** 7,464 145 %
Gross margin percentage **** 20 % 29 % (9 %)

All values are in US Dollars.

Cost of goods sold for the first quarter of fiscal 2020 was $72,192, as compared to $18,452 in the first quarter of fiscal 2019. These costs were primarily comprised of the costs of the inventory sold in the period, distribution charges, and the operating costs relating to facilities that were not yet cultivating or processing cannabis, not yet producing cannabis-related products, or having under-utilized capacity.

Gross margin in the first quarter of fiscal 2020 was $18,290, or 20% of net revenue. Comparatively, in the first quarter of fiscal 2019 gross margin was $7,464 or 29% of net revenue. The lower gross margin percentage in the first quarter of fiscal 2020 was primarily attributable to:

• The impact of operating costs of $16,236 relating to facilities not yet cultivating or processing cannabis,<br>not yet producing cannabis-related products or having under-utilized capacity, and adjustments related to the net realizable value of inventory; and
• A shift in the product mix in the first quarter of 2020 towards a lower percentage of higher-margin, advanced<br>manufactured products as compared to the comparable period.
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We continued to invest in the first quarter of fiscal 2020 in the expansion of our Canadian cultivation facilities, our hemp-based CBD business, and our advanced manufacturing capabilities in Smiths Falls, Ontario in preparation for the second phase of Canadian recreational cannabis. Accordingly, as several of our production facilities were not yet cultivating cannabis or had under-utilized capacity, we incurred higher inventory production costs as we increased our cannabis harvest to over 40,000 kilograms. At our greenhouse facilities in Aldergrove and Delta, British Columbia and Mirabel, Quebec, we have the ability to plant in a manner that allows for ongoing harvests, rather than one large harvest; this will allow for the increased utilization of assets for post-harvest processes and provide for a steady supply of product going forward. Accordingly, we expect our gross margins to improve in the coming quarters when all of our cultivation facilities reach, and are utilized at, full production capacity.

Operating expenses

The following table presents operating expenses for the three months ended June 30, 2019 and 2018:

Operating Expenses

Three months ended
June 30, June 30,
(CDN $000’s) 2019 2018 Change % Change
Operating expenses
Sales and marketing $ 50,547 $ 18,693 170 %
Research and development **** 8,490 756 1023 %
General and administration **** 63,288 19,588 223 %
Acquisition-related costs **** 13,182 1,884 600 %
Share-based compensation expense **** 77,081 18,472 317 %
Share-based compensation expense related to acquisition milestones **** 10,281 7,095 45 %
Depreciation and amortization **** 10,140 3,030 235 %
Total operating expenses $ 233,009 $ 69,518 235 %

All values are in US Dollars.

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Sales and marketing

Sales and marketing expense in the first quarter of fiscal 2020 was $50,547, as compared to $18,693 in the first quarter of fiscal 2019. The increase of $31,854 is attributable to the following areas:

• Product marketing campaigns associated with our preparation for the launch of the second phase of recreational<br>cannabis consumer products in December 2019,
• Driving brand awareness and educating consumers through marketing and promotional campaigns focused on concept<br>creation and placing advertising at key venues and events and in key media channels in support of our Tweed and Tokyo Smoke brands;
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• Increased staffing as we build-out our network of Tweed- and Tokyo<br>Smoke-branded retail stores in Canada, along with an increase in the number of employees in our marketing and sales functions servicing our Canadian and international markets; and
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• Our medical outreach program, including costs associated with our Apollo and Bodystream clinics.<br>
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Included in sales and marketing expense for the first quarter of fiscal 2020 are strategic investments of $2,206 related to sales and marketing staff, product marketing campaigns, and brand awareness and consumer education initiatives related to our continued commercial expansion into new markets, most notably the planned launch of CBD products in the United States which we anticipate to occur by the end of the fourth quarter of fiscal 2020 (for the first quarter of fiscal 2019 - $77).

Research anddevelopment

Research and development expense in the first quarter of fiscal 2020 was $8,490, as compared to $756 in the first quarter of fiscal 2019. The increase of $7,734 is attributable to increased compensation costs associated with an increase in the number of employees conducting research into several intellectual property opportunities, costs associated with conducting external laboratory testing and clinical trials for CBD-based human and animal health products, and other strategic investments including developing patent-pending technology in the following areas:

• New cannabis-based product form factors that will enter the market when permitted, which we expect to be in mid-December 2019;
• Device and delivery technology, including vaporizers; and
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• Growth patterns under different environmental scenarios and the genetics of various strains.<br>
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General and administration

General and administration expense in the first quarter of fiscal 2020 was $63,288, as compared to $19,588 in the first quarter of fiscal 2019. The increase of $43,700 is attributable to:

• Costs associated with enhancing our finance and information technology capabilities;
• Increased public company compliance and regulatory requirements; and
--- ---
• Compliance costs related to meeting Health Canada requirements.
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Included in general and administration expense for the first quarter of fiscal 2020 are strategic investments of $7,325 attributable to administrative staffing and facilities, insurance, information technology, regulatory and other administrative costs incurred as we execute on our strategy of global expansion (for the first quarter of fiscal 2019 - $1,072).

Acquisition-related costs

Acquisition-related costs were $13,182 in the first quarter of fiscal 2020, as compared to $1,884 in the first quarter of fiscal 2019. The year-over-year increase of $11,298 is attributable to mergers and acquisitions activity in the first quarter of 2020, most notably entering into and implementing the plan of arrangement with Acreage and closing the acquisitions of C^3^ and This Works.

Share-based compensation expense

Share-based compensation expense was $77,081 in the first quarter of fiscal 2020, as compared to $18,472 in the first quarter of fiscal 2019. The increase of $58,609 is primarily attributable to the continued increase in the number of stock options granted to employees, which is primarily related to the increase in the number of employees of the Company from approximately 1,400 at June 30, 2018 to approximately 3,850 at June 30, 2019. The number of outstanding stock options increased from 19.0 million at June 30, 2018 to 30.7 million at June 30, 2019. Additionally, the grant date fair

24

value of the stock options has increased over the past year, which is primarily attributable to the Company’s higher stock price.

Share-based compensation expense related to acquisition milestones was $10,281 in the first quarter of fiscal 2020, as compared to $7,095 in the first quarter of fiscal 2019. The increase of $3,186 is predominantly attributable to the acquisitions of Spectrum Cannabis Colombia S.A.S. (“Spectrum Colombia”) and Canindica Capital Ltd. (“Canindica”) in July 2018, as consideration for these transactions included the issuance of share-based compensation upon the achievement of specified cultivation and sales milestones. Partially offsetting these increases was lower share-based compensation expense associated with the achievement of certain milestones associated with the acquisitions of Spectrum Cannabis Denmark Aps and the Apollo and Bodystream clinics in previous fiscal years.

Depreciation and amortization expense

Depreciation and amortization expense was $10,140 in the first quarter of fiscal 2020, as compared to $3,030 in the first quarter of fiscal 2019. The increase of $7,110 is attributable to property, plant and equipment being put into operation during fiscal 2019 and the first quarter of fiscal 2020 as we continue to build our infrastructure across Canada and internationally.

Adjusted EBITDA (Non-GAAP Measure)

The Company’s “Adjusted EBITDA” is a non-GAAP measure used by management that does not have any standardized meaning prescribed by U.S. GAAP and may not be comparable to similar measures presented by other companies. Management defines Adjusted EBITDA as the income (loss) from operations, as reported, before interest and tax, adjusted for removing share-based compensation expense, depreciation and amortization, and further adjusted to remove acquisition related costs.

The Company has provided further disclosure around Adjusted EBITDA by attributing Adjusted EBITDA to its (1) operations and corporate overhead, (2) strategic investments and business development, and (3) non-operating or under-utilized facilities. As discussed under “Part 2 – Strategy” above, the Company has made, and will continue to make, significant strategic investments and incur significant business development costs to expand our business into attractive new geographies in Latin America and the Caribbean, Asia / Pacific, and Africa. These investments include developing our administrative infrastructure, along with early sales and marketing initiatives focused on patient and healthcare professional education. As part of its business development, the Company has also invested in research and development, particularly in relation to new product innovation, conducting clinical trials supporting new cannabis-based medicines, and optimizing our operations. The expenses associated with the aforementioned strategic investments have been included in General and administration, Sales and marketing, and Research and development in our condensed interim consolidated statements of operations. In addition, we have incurred significant costs related to facilities which are not yet cultivating or processing cannabis, not yet producing cannabis-related products, or had under-utilized capacity. These costs have been included in Inventory production costs expensed to cost of goods sold in our condensed interim consolidated statements of operations. These investments are not consistent with the financial results from our businesses in Canada and Europe, for which our infrastructure build-out is nearly complete and revenue-generating operations have commenced.

Accordingly, management believes that Adjusted EBITDA, and the attribution of Adjusted EBITDA in the manner described above, provides meaningful and useful financial information as these measures demonstrate the performance of our operating businesses, and the level of investment that we continue to incur in research and development and the expansion of our global business.

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The following table presents Adjusted EBITDA for the three months ended June 30, 2019 and 2018:

Three months ended
(In CDN$000’s) June 30,<br>2019 June 30,<br>2018
Adjusted EBITDA^1^Reconciliation
Loss from operations - as reported $ (214,719 ) $ (62,054 )
Share-based compensation expense (per statements of cash flows) **** 87,362 **** 26,351
Acquisition-related costs **** 13,182 **** 1,884
Depreciation and amortization (per statements of cash flows) **** 20,752 **** 6,293
**** 121,296 **** 34,528
Adjusted EBITDA $ (93,423 ) $ (27,526 )
^1^ Adjusted EBITDA is earnings before interest, tax, depreciation and amortization, share-based compensation<br>expense, fair value changes and other non-cash items, and further adjusted to remove acquisition-related costs.
--- ---

The Adjusted EBITDA loss for the first quarter of fiscal 2020 was $93,423, as compared to an Adjusted EBITDA loss of $27,526 for the first quarter of fiscal 2019. Of the Adjusted EBITDA loss for the current quarter, $59,182 is attributed to our operations and corporate overhead, and is reflective of:

• Sales and marketing costs related to product marketing in preparation for the launch of the second phase of<br>recreational cannabis consumer products in December 2019, brand awareness and consumer education initiatives for our recreational cannabis brands, and employee compensation costs related to the build-out of<br>our Tweed and Tokyo Smoke retail store network and sales and marketing functions; and
• General and administrative costs associated with our public company and Health Canada compliance and<br>regulatory requirements, and with enhancing our finance and information technology capabilities.
--- ---

The Adjusted EBITDA loss attributed to strategic investments and business development of $18,005 predominantly relates to general and administrative costs associated with the build-out of our administrative infrastructure in support of our global expansion strategy, strategic marketing initiatives including the commencement of product marketing, branding and educational campaigns in advance of our planned launch of CBD products in the United States for the fourth quarter of fiscal 2020, and research and development initiatives related to new product innovation for the recreational markets, conducting clinical trials to support new cannabis-based human and animal medicines, and innovation focused on optimizing our growing and manufacturing capability.

The Adjusted EBITDA loss attributed to non-operating or under-utilized facilities of $16,236 relates to inventory production costs expensed to cost of goods sold and is discussed further above under “Cost of goods sold and gross margin”.

Total other income (expense), net

Total other income, net was $32,768 in the first quarter of fiscal 2020, as compared to other expense, net of $31,169 in the first quarter of fiscal 2019. The change of $63,937 is primarily attributable to:

• Change of $34,266, from an expense amount of $2,820 to an income amount of $31,446, related to the non-cash fair value changes related to our senior convertible notes. This change is primarily due to the decrease in Canopy Growth’s stock price from March 31, 2019 to June 30, 2019;<br>
• An income amount of $24,892 related to fair value changes on the warrant derivative liability associated with<br>the Tranche B warrants held by Constellation Brands. The decrease in the fair value of the warrant derivative liability is primarily attributable to the decline in our share price from March 31, 2019 to June 30, 2019;<br>
--- ---
• Incremental interest income of $21,712 attributable to the higher cash and cash equivalents and short-term<br>investments balances in the first quarter of fiscal 2020 resulting from the investment by Constellation;
--- ---
• Convertible debt issuance costs of $16,045 that were incurred in the first quarter of fiscal 2019; and<br>
--- ---
• An increase in the expense amount of $32,897 related to the non-cash<br>fair value changes on our other financial assets.
--- ---

Further information is disclosed in Note 23 of the Interim Financial Statements.

Income tax (expense) recovery

Income tax expense was $10,267 in the first quarter of fiscal 2020, consisting of deferred income tax expense of $8,237 (compared to a recovery of $2,493 in the first quarter of fiscal 2019) and current income tax expense of $2,030 ($nil in

26

the first quarter of fiscal 2019). The increase of $10,730 in the deferred income tax expense is primarily a result of recording deferred tax liabilities, in excess of applicable deferred tax assets, that arose in connection with the required revaluation of the accounting carrying value, but not the tax basis, of other financial assets and other assets. The group continues to claim a valuation allowance in connection with certain deferred tax assets in respect of losses for tax purposes, where the accounting criteria for recognition of these losses as an asset has yet to be satisfied. The increase of $2,030 in the balance of current income tax expense arose primarily in connection with acquired businesses that generated taxable income, which income could not be offset against the group’s tax attributes.

Net loss

Net loss was $194,051 in the first quarter of fiscal 2020, as compared to $93,299 in the first quarter of fiscal 2019. The increase in net loss reflects the variances described above.

Segmented Analysis

The Company operates in two segments: 1) Cannabis operations, which encompasses the production, distribution and sale of both medical and recreational cannabis; and 2) Canopy Rivers, through which the Company provides growth capital and strategic support in the global cannabis sector, where federally lawful.

In the first quarters of both fiscal 2020 and fiscal 2019, all of the Company’s revenue was earned by the Cannabis operations segment. Canopy Rivers contributed a net loss of $3,261 in the first quarter of 2020, of which $899 was attributable to Canopy Growth. In the first quarter of fiscal 2019, Canopy Rivers contributed a net loss of $13,414, of which $4,037 was attributable to Canopy Growth. The decrease reflects the year-over-year decrease in the fair value changes on Canopy Rivers’ strategic equity investments, along with an increase in share-based compensation expense due to the stock options which have been granted in fiscal 2019. Refer to Notes 20 and 28 of the Interim Financial Statements for further information on the non-controlling interests in Canopy Rivers.

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Summary of quarterly financial information

The following table presents a summary of unaudited quarterly financial information for the last eight consecutive quarters:

SELECTED QUARTERLY INFORMATION

(CDN $000’s, except share amounts) Q1 2020 Q4 2019 Q3 2019 Q2 2019
Net revenue - Recreational $ 49,519 $ 58,087 $ 57,686 $ —
Net revenue - Medical & Other $ 40,963 $ 35,963 $ 25,362 $ 23,327
Net (loss) income attributable to Canopy Growth Corporation $ (185,869 ) $ (379,516 ) $ 50,736 $ (317,830 )
(Loss) income per share - basic $ (0.54 ) $ (1.10 ) $ 0.17 $ (1.43 )
Weighted average shares - basic 346,779,156 343,877,591 303,281,549 221,725,511
Loss per share - diluted $ (0.54 ) $ (1.10 ) $ (0.44 ) $ (1.43 )
Weighted average shares - diluted 346,779,156 343,877,591 315,974,639 221,725,511
Q1 2019 Q4 2018 Q3 2018 Q2 2018
Net revenue - Recreational $ — $ — $ — $ —
Net revenue - Medical and other $ 25,916 $ 22,806 $ 21,700 $ 17,569
Net loss attributable to Canopy Growth Corporation $ (89,671 ) $ (20,259 ) $ (14,929 ) $ (15,103 )
Loss per share - basic and diluted $ (0.45 ) $ (0.10 ) $ (0.08 ) $ (0.09 )
Weighted average shares - basic and diluted 200,160,740 196,571,715 182,029,481 167,226,218

Additional U.S. GAAP Measure

The Company uses “Loss from operations” as an additional U.S. GAAP financial measure within the Interim Financial Statements and this MD&A, but it is not a defined term under U.S. GAAP to assess performance. Management believes that this measure provides useful supplemental information to investors and is computed on a consistent basis for each reporting period. Loss from operations is calculated as net revenue less cost of goods sold and less total operating expenses, all of which are derived from the consolidated statements of operations. It is used by management to analyze operating performance, but it is not intended to represent an alternative to net loss or other measures of financial performance in accordance with U.S. GAAP.

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growing capacity, and in the construction of advanced manufacturing capability and a bottling plant at our Smiths Falls location. The cash used for acquisitions was $430,948, with the most notable cash outflows relating to our acquisitions of C^3^ and This Works. We also completed strategic investments totaling $424,604 in the equity instruments of certain entities, most notably the Acreage Call Option. Partially offsetting these outflows of cash was the redemption of short-term investments in the amount of $687,818, with the cash proceeds used for the purposes described above.

Financing activities

The cash used in financing activities totaled $81,691 in the first quarter of fiscal 2020, as compared to cash provided of $585,958 in the first quarter of fiscal 2019. The increase was primarily due to the repayment of the Alberta Treasury Board financing in the amount of $95,180.

Debt

The Company manages its capital with the objective of maximizing shareholder value and sustaining future development of the business. The Company defines capital as the Company’s equity and any debt it may issue. The Company manages its capital structure and adjusts it, based on the funds available to the Company, in order to support the Company’s activities. The Company, upon approval from its Board of Directors, will undertake to balance its overall capital structure through new share issuances, the issue of debt or by undertaking other activities as deemed appropriate under the specific circumstances.

The Company’s principal capital needs are for funds to execute its strategy, as described in “Part 2 – Strategy” above, and general working capital requirements to fund operations. Since its formation, the Company has financed its cash requirements primarily through the issuance of capital stock, including the $5,072,500 investment by Constellation in the third quarter of fiscal 2019, with the following exceptions:

Convertible senior notes

In June 2018, we issued convertible senior notes (“the notes”) with an aggregate principal amount of $600,000. The notes bear interest at a rate of 4.25% per annum and are payable semi-annually on January 15th and July 15th of each year commencing from January 15, 2019. The notes mature on July 15, 2023. Holders of the notes may convert the notes at their option at any time from January 15, 2023 to the maturity date. The notes will be convertible, at the holder’s option, at a conversion rate of 20.7577 common shares for every $1 principal amount of notes, subject to adjustments in certain events. In addition, the holder has the right to exercise the conversion option from September 30, 2018 to January 15, 2023, if (i) the market price of the Company’s common shares for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day, (ii) during the 5 business day period after any consecutive 5 trading day period (the “measurement period”) in which the trading price per $1 principal amount of the notes for each trading day in the measurement period was less than 98% of the product of the last reported sales price of the Company’s common shares and the conversion rate on each such trading day, (iii) the notes are called for redemption or (iv) upon occurrence of certain corporate events (a “fundamental change”). The Company may, upon conversion by the holder, elect to settle in either cash, common shares, or a combination of cash and common shares, subject to certain circumstances.

Additional information regarding the conversion rights of the notes is included in Note 14 of the Interim Financial Statements.

Other

On June 14, 2019 the Company settled the outstanding loan amount with Alberta Treasury Board, along with accrued interest, with cash payment of $95,180. The Company has revolving lines of credit for up to $6,018 with Farm Credit Canada, which were undrawn as at June 30, 2019.

Contractual obligations and commitments

The Company leases production and retail space under operating leases which range in expiration from April 2019 to November 2046 and which include minimum lease payments. The Company also has royalty, capital equipment, and

30

other purchase commitments with varying terms. All production and retail operating leases have optional renewal terms that the Company may exercise at its option.

Discussion of market risk and credit risk

The Company’s activities expose it to a variety of financial risks, including market risk (i.e., foreign currency risk and interest rate risk) and credit risk.

Market risk

Market risk is defined as the risk that the fair value or future cash flows of a financial instrument held by the Company will fluctuate because of changes in market prices. The Company faces market risk from the impact of changes in foreign currency exchange rates, changes in interest rates, and changes in market prices due to other factors including changes in equity prices. Financial instruments held by the Company that are subject to market risk include cash and cash equivalents and short-term investments denominated in currencies other than the Canadian dollar, investments in other financial assets, and variable-rate debt. The categories of financial instruments that can give rise to significant variability are described below:

Foreign currency risk

Foreign currency risk is defined for these purposes as the risk that the fair value of a financial instrument held by the Company will fluctuate because of changes in foreign currency rates. The Company has exposure to the U.S. dollar, Euro, Danish Krone and certain other currencies through its investments in foreign operations. Consequently, fluctuations in the Canadian dollar exchange rate against these currencies increase the volatility of net income (loss) and other comprehensive income (loss). At June 30, 2019, the Company has not entered into any hedging agreements or purchased any financial instruments to hedge its foreign currency risk.

Interest rate risk

Interest rate risk is defined for these purposes as the risk that the fair value or future cash flows of a financial instrument held by the Company will fluctuate because of changes in interest rates. The Company’s financial liabilities consist primarily of long-term fixed-rate debt or floating-rate debt. Fluctuations in interest rates could impact the Company’s cash flows, primarily with respect to the interest payable on the Company’s variable-rate debt, which consists of certain borrowings with a total principal value of $4,272 at June 30, 2019 (March 31, 2019 - $97,471). The Company may invest surplus cash in highly liquid investments with short terms to maturity that would accumulate interest at prevailing rates for such investments. As at June 30, 2019, the Company’s cash and cash equivalents, and short-term investments, consist of $2,081,632 (March 31, 2019 - $2,821,512) in interest rate-sensitive instruments.

Other market risk

The Company holds other financial assets and liabilities in the form of investments in shares, warrants, options and put liabilities that are measured at fair value and recorded through either net income (loss) or other comprehensive income (loss). The Company is exposed to price risk on these financial assets, which is the risk of variability in fair value due to movements in equity or market prices. Information regarding the fair value of financial instrument assets and liabilities that are measured at fair value on a recurring basis, and the relationship between the unobservable inputs used in the valuation of these financial assets and their fair value is presented in Note 21 of the annual consolidated financial statements.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s accounts receivable. The Company is exposed to credit-related losses in the event of non-performance by the counterparties.

The Company provides credit to its customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk. The Company has limited risk due to the fact that the majority of recreational cannabis sales are transacted with Canadian provincial/territorial agencies, and the majority of medical cannabis and other sales are transacted with credit cards.

The carrying amount of cash and cash equivalents, short-term investments, short-term restricted investments and amounts receivable represent the maximum exposure to credit risk and as at June 30, 2019, this amounted to $3,263,186

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(March 31, 2019 - $4,643,357). Since the inception of the Company, no losses have been suffered in relation to cash held by its banking institutions.

As at June 30, 2019, 75% of the Company’s accounts receivable are considered current (March 31, 2019 – 89%). The Company’s accounts receivable are primarily driven by sales to government agencies which represented 58% of trade accounts receivable as at June 30, 2019 (March 31, 2019 – 72%)

Shareholders’ equity

The Company’s authorized share capital is an unlimited number of common shares of which 347,865,673 common shares were issued and outstanding as at August 14, 2019 (June 19, 2019 - 345,878,755 common shares after including 6,940,531 escrowed shares to be released after meeting certain conditions).

The Company has 29,099,010 stock options outstanding at August 14, 2019 under the Company’s Omnibus Incentive Plan at prices between $1.32 and $67.64 per share (June 19, 2019 - 31,374,828 stock options outstanding at prices between $0.22 and $67.64 per share).

At August 14, 2019, the Company had 159,108,391 outstanding warrants for common shares, after including 12,818,148 warrants for common shares treated as a derivative liability with a nominal value, at prices between $12.98 and $76.68, which expire between January 31, 2020 and November 1, 2021 (June 19, 2019 - 159,106,116 outstanding warrants).

At August 14, 2019, there were up to 5,175,843 shares to be issued on the completion of acquisition and asset purchase milestones (June 19, 2019 - 5,371,154 shares). In certain cases, the number of shares to be issued is based on the volume-weighted average share price at the time the milestones are met. The number of shares has been estimated assuming the milestones were met at August 14, 2019. The number of shares excludes shares to be issued on July 4, 2023 to the previous shareholders of Spectrum Colombia and Canindica based on the fair market value of the Company’s Latin American business on that date.

At August 14, 2019, there were up to 12,454,620 shares issuable on the conversion of the senior convertible notes.

Off-balance sheet arrangements

The Company has no off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors other than those as stated below in the section titled “Transactions with related parties”.

Transactions with related parties

The Company has entered into cannabis offtake agreements with certain of its equity method investees and entities in which it holds equity or other financial instruments. These agreements are in the normal course of operations and will be measured at the exchange amounts agreed to by the parties.

PART 5 – CRITICAL ESTIMATES, CRITICAL JUDGMENTS AND SIGNIFICANT ACCOUNTING POLICIES

Critical judgments in applying accounting policies

The following are the critical judgments, apart from those involving estimations (refer to discussion below), that have the most significant effect on the amounts recognized in the Interim Financial Statements.

Business combinations

Judgment is used in determining whether an acquisition is a business combination or an asset acquisition. Judgement is also required to assess whether the amounts paid on achievement of milestones represents contingent consideration or compensation for post-acquisition services. Judgment is also required to assess whether contingent consideration should be classified as equity or a liability. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as a liability is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognized in net income (loss).

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Control, joint control or level of influence

When determining the appropriate basis of accounting for the Company’s interests in affiliates, the Company makes judgments about the degree of influence that it exerts directly or through an arrangement over the investees’ relevant activities. Information about these judgments is included in Notes 8, 9 and 21 of the Interim Financial Statements.

Critical accounting estimates

The preparation of the Interim Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and in any future years affected.

Inventory

Inventory is valued at the lower of cost and net realizable value. A component of our analysis involves determining whether there is excess, slow-moving or obsolete inventory on hand. In making this determination, management makes assumptions around future demand and production forecasts, which are then compared to current inventory levels. Management also makes assumptions around future pricing, and considers historical experience and the application of the specific identification method for identifying obsolete inventory.

Estimated useful lives and depreciation and amortization of property, plant and equipment and intangible assets

Depreciation and amortization of property, plant and equipment and intangible assets are dependent upon estimates of useful lives, which are determined through the exercise of judgment. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions and the useful lives of assets.

Share-based compensation

In calculating the share-based compensation expense, key estimates such as the rate of forfeiture of options granted, the expected life of the option, the volatility of the Company’s stock price and the risk-free interest rate are used. To calculate the share-based compensation expense related to key employee performance milestones associated with the terms of an acquisition, the Company must estimate the number of shares that will be earned if and when they will be issued based on estimated discounted probabilities.

Fair value measurements

Certain of the Company’s assets and liabilities are measured at fair value. In estimating fair value, the Company uses market-observable data to the extent it is available. In certain cases where Level 1 inputs are not available, the Company will engage third party qualified valuers to perform the valuation.

Information about the valuation techniques and inputs used in determining the fair value is disclosed in the notes to our Interim Financial Statements: acquired intangible assets in Note 25; and financial instruments in Note 21.

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Adoption of ASC 842, Leases (“ASC 842”) and resultingchanges to lease accounting policy

In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on the recognition and measurement of leases, ASC 842 - Leases. Under this guidance, a lessee recognizes assets and liabilities on its balance sheet for most leases. Lease expense continues to be consistent with previous guidance. Additionally, this guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leasing arrangements.

The Company adopted the guidance on April 1, 2019, using the modified retrospective approach and, accordingly, prior period balances and disclosures have not been restated. The Company elected the package of transition practical expedients for expired or existing contracts, which retains prior conclusions reached on lease identification, classification, and initial direct costs incurred.

The Company primarily leases office and production facilities, warehouses, production equipment and vehicles. The Company assesses service arrangements to determine if an asset is explicitly or implicitly specified in the agreement and if we have the right to control the use of the identified asset.

The right-of-use asset is initially measured at cost, which is primarily comprised of the initial amount of the lease liability, plus initial direct costs and lease payments at or before the lease commencement date, less any lease incentives received, and is amortized on a straight-line basis over the remaining lease term. All right-of-use assets are reviewed periodically for impairment. The lease liability is initially measured at the present value of lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. We elected to recognize expenses for leases with a term of 12 months or less on a straight-line basis over the lease term and not to recognize these short-term leases on the balance sheet. Leases have varying terms with remaining lease terms of up to approximately 30 years. Certain of our lease arrangements provide us with the option to extend or to terminate the lease early.

Lease payments included in the measurement of the lease liability comprise (a) fixed payments, including in-substance fixed payments; (b) variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; (c) amounts expected to be payable under a residual value guarantee; and (d) the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

At inception or reassessment of a contract that contains lease and non-lease components, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

The adoption of this guidance resulted in the recognition of operating lease right-of-use assets of $99,880, net of lease provisions of $10,703 and $110,583 of lease liabilities, with a $nil impact on deficit. The transition to ASC 842 did not have a material impact on the Company’s results of operations or liquidity. When measuring lease liabilities, the Company used its incremental borrowing rate of April 1, 2019 of 4.5%.

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Remediation is expected to be completed within fiscal 2020.

There have been no changes in the Company’s ICFR during the three months ended June 30, 2019 that have materially affected, or are likely to materially affect, the Company’s ICFR.

No assurance can be provided at this time that the actions and remediation efforts will effectively remediate the material weakness described above or prevent the incidence of other material weaknesses in the Company’s ICFR in the future. Management, including the CEO and CFO, does not expect that disclosure controls and procedures or ICFR will prevent all errors, even as the remediation measures are implemented and further improved to address the material weaknesses. A control system is subject to inherent limitations and even those systems determined to be effective can provide only reasonable, but not absolute, assurance that control objectives will be met with respect to financial statement preparation and presentation.

The Company’s management, with the participation of its CEO and CFO, has limited the scope of the design of the Company’s disclosure controls and procedures and internal controls over financial reporting to exclude controls, policies and procedures and internal controls over financial reporting of the recently acquired operations of:

• Spectrum Colombia (acquired on July 5, 2018);
• Canopy Health Innovations Inc. (“CHI”) (acquired on August 3, 2018);
--- ---
• Hiku (acquired on September 5, 2018);
--- ---
• ebbu (acquired 100% interest on November 23, 2018);
--- ---
• POS Holdings Inc. (“POS”, and now referred to as KeyLeaf) (acquired 100% control on<br>November 23, 2018);
--- ---
• Storz & Bickel (acquired 100% interest on December 6, 2018);
--- ---
• Cafina (acquired on March 25, 2019);
--- ---
• C^3^ (acquired on April 30, 2019); and<br>
--- ---
• This Works (acquired on May 21, 2019).
--- ---

The operations of Spectrum Colombia, CHI, Hiku, ebbu, POS, Storz & Bickel, Cafina, C^3^ and This Works, combined, represent approximately 26% of the Company’s assets (approximately 3% of current assets and 55% of non-current assets); they also represent approximately 30% of current liabilities and 4% of long-term liabilities, 27% of the Company’s gross revenues and 12% of operating expenses for the three months ended June 30, 2019.

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EX-99.3

Exhibit 99.3

Form 52-109F2R

Certification of Refiled Interim Filings

This certificate is being filed on the same date that Canopy Growth Corporation (the “issuer”) has refiled interim financial statements for the three months ended June 30, 2019.

I, David Klein, the Chief Executive Officer of Canopy Growth Corporation, certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the<br>“interim filings”) of the issuer for the interim period ended June 30, 2019.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim<br>filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the<br>period covered by the interim filings.
--- ---
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim<br>financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods<br>presented in the interim filings.
--- ---
4. Responsibility: The issuer’s other certifying officer and I are responsible for establishing<br>and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure inIssuers’ Annual and Interim Filings, for the issuer.
--- ---
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the<br>issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
--- ---
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that<br>
--- ---
(i) material information relating to the issuer is made known to us by others, particularly during the period in<br>which the interim filings are being prepared; and
--- ---
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports<br>filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
--- ---
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the<br>reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
--- ---

1

5.1 Control framework: The control framework the issuer’s other certifying officer and I used to<br>design the issuer’s ICFR is the Internal Control - Integrated Framework (COSO Framework 2013) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 ICFR - material weakness relating to design: The issuer has disclosed in its interim MD&A for<br>each material weakness relating to design existing at the end of the interim period
--- ---
(a) a description of the material weakness;
--- ---
(b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and<br>
--- ---
(c) the issuer’s current plans, if any, or any actions already undertaken, for remediating the material<br>weakness.
--- ---
5.3 Limitation on scope of design: The issuer has disclosed in its interim MD&A<br>
--- ---
(a) the fact that the issuer’s other certifying officer and I have limited the scope of our design of DC&P<br>and ICFR to exclude controls, policies and procedures of
--- ---
(i) N/A;
--- ---
(ii) N/A; or
--- ---
(iii) a business that the issuer acquired not more than 365 days before the last day of the period covered by the<br>interim filings; and
--- ---
(b) summary financial information about the proportionately consolidated entity, special purpose entity or business<br>that the issuer acquired that has been proportionately consolidated or consolidated in the issuer’s financial statements.
--- ---
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the<br>issuer’s ICFR that occurred during the period beginning on April 1, 2019 and ended on June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
--- ---
Date: July 10, 2020
---
/s/ David Klein
David Klein
Chief Executive Officer

2

EX-99.4

Exhibit 99.4

Form 52-109F2R

Certification of Refiled Interim Filings

This certificate is being filed on the same date that Canopy Growth Corporation (the “issuer”) has refiled interim financial statements for the three months ended June 30, 2019.

I, Mike Lee, the Chief Financial Officer of Canopy Growth Corporation, certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the<br>“interim filings”) of the issuer for the interim period ended June 30, 2019.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim<br>filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the<br>period covered by the interim filings.
--- ---
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim<br>financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods<br>presented in the interim filings.
--- ---
4. Responsibility: The issuer’s other certifying officer and I are responsible for establishing<br>and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure inIssuers’ Annual and Interim Filings, for the issuer.
--- ---
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the<br>issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
--- ---
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that<br>
--- ---
(i) material information relating to the issuer is made known to us by others, particularly during the period in<br>which the interim filings are being prepared; and
--- ---
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports<br>filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
--- ---
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the<br>reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
--- ---

1

5.1 Control framework: The control framework the issuer’s other certifying officer and I used to<br>design the issuer’s ICFR is the Internal Control - Integrated Framework (COSO Framework 2013) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 ICFR - material weakness relating to design: The issuer has disclosed in its interim MD&A for<br>each material weakness relating to design existing at the end of the interim period
--- ---
(a) a description of the material weakness;
--- ---
(b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and<br>
--- ---
(c) the issuer’s current plans, if any, or any actions already undertaken, for remediating the material<br>weakness.
--- ---
5.3 Limitation on scope of design: The issuer has disclosed in its interim MD&A<br>
--- ---
(a) the fact that the issuer’s other certifying officer and I have limited the scope of our design of DC&P<br>and ICFR to exclude controls, policies and procedures of
--- ---
(i) N/A;
--- ---
(ii) N/A; or
--- ---
(iii) a business that the issuer acquired not more than 365 days before the last day of the period covered by the<br>interim filings; and
--- ---
(b) summary financial information about the proportionately consolidated entity, special purpose entity or business<br>that the issuer acquired that has been proportionately consolidated or consolidated in the issuer’s financial statements.
--- ---
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the<br>issuer’s ICFR that occurred during the period beginning on April 1, 2019 and ended on June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
--- ---

Date: July 10, 2020

/s/ Mike Lee
Mike Lee
Chief Financial Officer

2

EX-99.5

Exhibit 99.5

NOTICE TO READER

As of September 30, 2019, Canopy Growth Corporation (the “Company”) determined that it no longer qualified as a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act of 1933. This means that as of April 1, 2020, the Company has been required to comply with all of the periodic disclosure requirements of the Securities Exchange Act of 1934 applicable to U.S. domestic issues, such as Forms 10-K, 10-Q and 8-K, rather than the forms the Company has filed with the Securities and Exchange Commission (“SEC”) in the past as a foreign private issuer, such as Forms 40-F and 6-K.

Accordingly, the Company is now required to prepare its financial statements filed with the SEC in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). As required pursuant to section 4.3(4) of National Instrument 51-102 – Continuous Disclosure Obligations, the Company must restate its interim financial reports for the fiscal year ended March 31, 2020 in accordance with U.S. GAAP, such interim financial reports having previously been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The attached amended and restated condensed interim consolidated financial statements (“Financial Statements”) for the three and six months ended September 30, 2019 and 2018 have been prepared in accordance with U.S. GAAP, are current as of November 14, 2019 and provide financial information for the three and six months ended September 30, 2019, as amended and restated on July 10, 2020. Other than as expressly set forth above, the revised Financial Statements do not, and do not purport to, update or restate the information in the original condensed interim consolidated financial statements or reflect any events that occurred after the date of the filing of the original condensed interim consolidated financial statements.

The Company’s Annual Report on Form 10-K (the “Annual Report”) dated June 1, 2020 is available under the Company’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Readers are cautioned that these Financial Statements should be read in conjunction with the Annual Report, including the consolidated financial statements and the related notes thereto included in Item 8 thereof.

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THETHREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(IN CANADIAN DOLLARS)

CANOPY GROWTH CORPORATION

TABLE OF CONTENTS

Condensed interim consolidated balance sheets 1
Condensed interim consolidated statements of operations and comprehensive income (loss) 2
Condensed interim consolidated statements of changes in shareholders’ equity 3
Condensed interim consolidated statements of cash flows 4
Notes to the condensed interim consolidated financial statements 5-30

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS

UNAUDITED

September 30, March 31,
(Expressed in CDN 000’s) 2019 2019
Assets
Current assets
Cash and cash equivalents 3 $ 1,102,464 **** $ 2,480,830
Short-term investments 4 **** 1,633,692 **** 2,034,133
Restricted short-term investments **** 18,252 **** 21,432
Amounts receivable, net 5 **** 107,487 **** 106,974
Inventory 6 **** 346,513 **** 190,072
Prepaid expenses and other assets 7 **** 118,111 **** 85,691
**** 3,326,519 **** 4,919,132
Equity method investments 8 **** 113,046 **** 112,385
Other financial assets 9 **** 449,028 **** 363,427
Property, plant and equipment 10 **** 1,638,463 **** 1,096,340
Intangible assets 11 **** 554,455 **** 558,070
Goodwill 12 **** 1,858,288 **** 1,489,859
Other assets **** 34,781 **** 25,902
$ 7,974,580 **** $ 8,565,115
Liabilities and Shareholders’ equity
Current liabilities
Accounts payable $ 249,596 **** $ 188,920
Other accrued expenses and liabilities 13 **** 37,266 **** 37,613
Current portion of long-term debt 14 **** 14,115 **** 103,716
Other liabilities 15 **** 142,816 **** 81,414
**** 443,793 **** 411,663
Long-term debt 14 **** 590,373 **** 842,259
Deferred income tax liabilities 24 **** 101,984 **** 105,081
Warrant derivative liability 26 **** 450,894 **** —
Other liabilities 15 **** 182,953 **** 134,004
**** 1,769,997 **** 1,493,007
Redeemable noncontrolling interest 16 **** 9,300 **** 6,400
Canopy Growth Corporation shareholders’ equity:
Common shares - nil par value; Authorized -<br>unlimited number of shares; Issued - 348,327,845<br>shares and 337,510,408 shares, respectively 17 **** 6,333,929 **** 6,029,222
Additional paid-in capital **** 2,548,882 **** 1,592,024
Accumulated other comprehensive income (loss) 19 **** (21,362 ) (5,905 )
Deficit **** (2,928,861 ) (835,118 )
Total Canopy Growth Corporation shareholder’s equity **** 5,932,588 **** 6,780,223
Non-controlling interests 20 **** 262,695 **** 285,485
Total shareholders’ equity **** 6,195,283 **** 7,065,708
Total liabilities and shareholders’ equity $ 7,974,580 **** $ 8,565,115

All values are in US Dollars.

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

Page 1

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

UNAUDITED

Three months ended Six months ended
September 30, September 30, September 30, September 30,
(Expressed in CDN $000’s except share amounts) Notes 2019 2018 2019 2018
Revenue 22 $ 85,621 **** $ 23,327 $ 189,012 **** $ 49,243
Excise taxes 22 **** 9,008 **** — **** 21,917 **** —
Net revenue 22 **** 76,613 **** 23,327 **** 167,095 **** 49,243
Cost of goods sold **** 72,970 **** 42,663 **** 145,162 **** 61,115
Gross margin **** 3,643 **** (19,336 ) **** 21,933 **** (11,872 )
Selling, general and administrative expenses **** 181,601 **** 86,024 **** 327,248 **** 129,975
Share-based compensation **** 92,881 **** 86,555 **** 180,243 **** 112,122
Total operating expenses **** 274,482 **** 172,579 **** 507,491 **** 242,097
Operating loss **** (270,839 ) (191,915 ) **** (485,558 ) (253,969 )
Loss from equity method investments 8 **** (2,171 ) (4,363 ) **** (4,004 ) (6,932 )
Other income (expense), net 23 **** 509,893 **** (113,147 ) **** 542,661 **** (144,316 )
Income (loss) before income taxes **** 236,883 **** (309,425 ) **** 53,099 **** (405,217 )
Income tax recovery (expense) 24 **** 5,767 **** (1,003 ) **** (4,500 ) 1,490
Net income (loss) $ 242,650 **** $ (310,428 ) $ 48,599 **** $ (403,727 )
Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling<br>interest **** (16,268 ) 7,402 **** (24,450 ) 3,774
Net income (loss) attributable to Canopy Growth Corporation $ 258,918 **** $ (317,830 ) $ 73,049 **** $ (407,501 )
Basic income (loss) per share $ 0.75 **** $ (1.43 ) $ 0.21 **** $ (1.93 )
Basic weighted average common shares outstanding **** 347,226,921 **** 221,725,511 **** 346,028,903 **** 210,972,889
Diluted income (loss) per share $ 0.25 **** $ (1.43 ) $ 0.19 **** $ (1.93 )
Diluted weighted average common shares outstanding **** 380,323,118 **** 221,725,511 **** 382,765,533 **** 210,972,889
Comprehensive income (loss):
Net income (loss) **** 242,650 **** (310,428 ) **** 48,599 **** (403,727 )
Fair value changes of own credit risk of financial liabilities **** 22,050 **** (65,610 ) **** 36,660 **** (75,030 )
Foreign currency translation **** 8,627 **** (3,386 ) **** (52,117 ) (4,706 )
Total other comprehensive income (loss), net of income tax effect **** 30,677 **** (68,996 ) **** (15,457 ) (79,736 )
Comprehensive income (loss) **** 273,327 **** (379,424 ) **** 33,142 **** (483,463 )
Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling<br>interest **** (16,268 ) 7,402 **** (24,450 ) 3,774
Comprehensive income (loss) attributable to Canopy Growth Corporation **** 289,595 **** (386,826 ) **** 57,592 **** (487,237 )

The accompanying notes are an integral part of these condensed interim consolidated financialstatements.

Page 2

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

UNAUDITED

Additional paid-in capital
(Expressed in CDN<br>$000’s except share<br>amounts) Note Common<br>shares Share-based<br>reserve Warrants Ownership<br>changes Redeemable<br>noncontrollinginterest Accumulatedothercomprehensiveincome (loss) Deficit Noncontrolling<br>interests Total
Balance at March 31, 2018 $ 1,079,442 $ 57,982 **** $ 70,455 **** $ (1,019 ) $ (64,745 ) $ 35,408 **** $ (132,904 ) $ 85,732 **** $ 1,130,351 ****
Cumulative effect from adoption of ASU 2016-1 — — — — — (34,800 ) 34,800 — —
Other issuances of common shares and warrants 966,708 226,674 — (424,113 ) — — — 331 769,600
Exercise of warrants 322 — (189 ) — — — — — 133
Exercise of Omnibus Plan stock options 51,669 (26,776 ) — — — — — — 24,893
Share-based compensation — 99,102 — — — — — — 99,102
Issuance of replacement equity instruments — 22,686 30,611 — — — — — 53,297
Issuance and vesting of restricted share units 2,191 56 — — — — — — 2,247
Changes in redeemable noncontrolling interest — — — — (20,760 ) — — 1,810 (18,950 )
Ownership changes relating to noncontrolling interests — — — 9,398 — — (769 ) 119,661 128,290
Comprehensive income (loss) — — — — — (79,736 ) (407,501 ) 3,774 (483,463 )
Balance at September 30, 2018 $ 2,100,332 $ 379,724 **** $ 100,877 **** $ (415,734 ) $ (85,505 ) $ (79,128 ) $ (506,374 ) $ 211,308 **** $ 1,705,500 ****
Balance at March 31, 2019 $ 6,029,222 $ 505,172 **** $ 1,589,925 **** $ (500,963 ) $ (2,110 ) $ (5,905 ) $ (835,118 ) $ 285,485 **** $ 7,065,708 ****
Other issuances of common shares and warrants 17 244,622 (244,877 ) 359 — — — — — 104
Exercise of warrants 17 (iii) 932 — (486 ) — — — — — 446
Exercise of Omnibus Plan stock options 18 58,764 (22,741 ) — — — — — — 36,023
Share-based compensation 18 — 175,395 — — — — — — 175,395
Issuance and vesting of restricted share units 389 (389 ) — — — — — — —
Acreage warrant modification 26 — — 1,049,153 — — — (2,166,792 ) — (1,117,639 )
Changes in redeemable noncontrolling interest 19 — — — — 779 — — (3,679 ) (2,900 )
Ownership changes relating to noncontrolling interests 20 — — — (335 ) — — — 5,339 5,004
Comprehensive income (loss) — — — — — (15,457 ) 73,049 (24,450 ) 33,142
Balance at September 30, 2019 $ 6,333,929 $ 412,560 **** $ 2,638,951 **** $ (501,298 ) $ (1,331 ) $ (21,362 ) $ (2,928,861 ) $ 262,695 **** $ 6,195,283 ****

The accompanying notes are an integral part of these condensed interim consolidated financialstatements.

Page 3

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

UNAUDITED

September 30, September 30,
(Expressed in CDN $000’s) Notes 2019 2018
Cash flows from operating activities
Net income (loss) $ 48,599 **** $ (403,727 )
Adjustments for:
Depreciation of property, plant and equipment **** 29,813 **** 10,446
Amortization of intangible assets **** 15,955 **** 5,236
Share of loss on equity investments 8 **** 4,004 **** 6,932
Share-based compensation 18 **** 180,243 **** 116,796
Income tax expense (recovery) 24 **** 4,500 **** (1,490 )
Non-cash foreign currency **** (1,463 ) (410 )
Interest paid **** (12,750 ) —
Change in operating assets and liabilities, net of effects from purchases of businesses:
Amounts receivable **** 11,390 **** (21,242 )
Prepaid expenses and other assets **** (50,224 ) (6,811 )
Inventory **** (143,229 ) (28,964 )
Accounts payable and accrued liabilities **** 10,584 **** 1,150
Other, including non-cash fair value<br>adjustments **** (469,507 ) 123,948
Net cash used in operating activities **** (372,085 ) (198,136 )
Cash flows from investing activities
Purchases of and deposits on property, plant<br><br><br>and equipment **** (440,150 ) (293,179 )
Purchases of intangible assets **** (9,538 ) (6,341 )
Redemption (purchase) of short-term investments **** 388,027 **** (2,829 )
Investments in equity method investees 8 **** (4,719 ) (42,439 )
Investments in other financial assets 9 **** (36,423 ) (29,695 )
Investment in Acreage Arrangement 9, 26 **** (395,190 ) —
Change in acquisition related liabilities **** (21,447 ) —
Net cash outflow on acquisition of NCI **** — **** (1,999 )
Net cash outflow on acquisition of subsidiaries 25 **** (416,028 ) 428
Net cash used in investing activities **** (935,468 ) (376,054 )
Cash flows from financing activities:
Payment of share issue costs **** (129 ) (6,819 )
Proceeds from issuance of shares by Canopy Rivers **** 156 **** 91,218
Proceeds from exercise of stock options 18 **** 36,023 **** 13,626
Proceeds from exercise of warrants 17 **** 446 **** 133
Issuance of long-term debt 14 **** 5,278 **** 600,000
Payment of debt issue costs 14 **** — **** (16,380 )
Repayment of long-term debt **** (104,282 ) (747 )
Net cash (used) provided by financing activities **** (62,508 ) 681,031
Effect of exchange rate changes on cash and cash equivalents **** (8,305 ) —
Net cash (outflow) inflow **** (1,378,366 ) 106,841
Cash and cash equivalents, beginning of period **** 2,480,830 **** 322,560
Cash and cash equivalents, end of period $ 1,102,464 **** $ 429,401
Supplemental disclosure of cash flow information
Cash paid during the year:
Income taxes **** 1,305 **** —
Noncash investing and financing activities
Additions to property, plant and equipment **** 128,440 **** 110,608

The accompanying notes are an integral part of these condensed interim consolidated financialstatements.

Page 4

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

1. DESCRIPTION OF BUSINESS

Canopy Growth Corporation is a publicly traded corporation, incorporated in Canada, with its head office located at 1 Hershey Drive, Smiths Falls, Ontario with its common shares listed on the TSX, under the trading symbol “WEED” and as of May 24, 2018 on the NYSE, under the trading symbol “CGC”. References in these condensed interim consolidated financial statements to “Canopy Growth” or “the Company” refer to Canopy Growth Corporation and its subsidiaries.

The principal activities of the Company are the production, distribution and sale of cannabis as regulated by the Access to Cannabis for Medical Purposes Regulations (“ACMPR”) in Canada, up to and including October 16, 2018. On October 17, 2018, the ACMPR was superseded by The Cannabis Act which regulates the production, distribution, and possession of cannabis for both medical and adult recreational access in Canada. The Company is also expanding to jurisdictions outside of Canada where federally lawful and regulated for cannabis and/or hemp including subsidiaries which operate in the United States, Europe, Latin America and the Caribbean, Asia / Pacific, and Africa. Through its partially owned subsidiary Canopy Rivers Inc. (“Canopy Rivers”), the Company also provides growth capital and a strategic support platform that pursues investment opportunities in the global cannabis sector, where federally lawful.

2. BASIS OF PRESENTATION

These condensed interim consolidated financial statements have been presented in Canadian dollars and are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Canopy Growth has determined that the Canadian dollar is the most relevant and appropriate reporting currency as, despite continuing shifts in the relative size of our operations across multiple geographies, the majority of our operations are conducted in Canadian dollars and our financial results are prepared and reviewed internally by management in Canadian dollars. Our condensed interim consolidated financial statements, and the financial information contained herein, are reported in thousands of Canadian dollars, except share and per share amounts or as otherwise stated.

Certain information and footnote disclosures normally included in the audited annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted or condensed. These condensed interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended March 31, 2020 (the “Annual Consolidated Financial Statements”), and have been prepared on a basis consistent with the accounting policies as described in the Annual Consolidated Financial Statements.

These condensed interim consolidated financial statements are unaudited and reflect adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods in accordance with U.S. GAAP.

The results reported in these condensed interim consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for an entire fiscal year. The policies set out below are consistently applied to all periods presented, unless otherwise noted.

(i) Principles of consolidation

The accompanying condensed interim consolidated financial statements include the accounts of the Company and all entities in which the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. All intercompany accounts and transactions have been eliminated on consolidation. Information on the Company’s subsidiaries with noncontrolling interests is included in Note 20.

(ii) Variable interest entities

A variable interest entity (“VIE”) is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to control the entity’s activities or do not substantially participate in the gains and losses of the entity. Upon inception of a contractual agreement, and thereafter, if a reconsideration event occurs, the Company performs an assessment to determine whether the arrangement contains a variable interest in an entity and whether that entity is a VIE. The primary beneficiary of a VIE is the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Under Accounting Standards Codification (“ASC”) 810 – Consolidations, where the Company concludes that it is the primary beneficiary of a VIE, the Company consolidates the accounts of that VIE.

Page 5

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

(iii) Equity method investments

Investments accounted for using the equity method include those investments where the Company (i) can exercise significant influence over the other entity and (ii) holds common stock and/or in-substance common stock of the other entity. Under the equity method, investments are carried at cost, and subsequently adjusted for the Company’s share of net income (loss), comprehensive income (loss) and distributions received from the investee. If the current fair value of an investment falls below its carrying amount, this may indicate that an impairment loss should be recorded. Any impairment losses recognized are not reversed in subsequent periods. Refer to Note 8 for additional information on the Company’s investments accounted for using the equity method.

(iv) Use of estimates

The preparation of these condensed interim consolidated financial statements and accompanying notes in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates.

(v) New accounting policies

(a) Recently adopted accounting pronouncements

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on the recognition and measurement of leases, ASC 842—Leases. Under this guidance, a lessee recognizes assets and liabilities on its balance sheet for most leases. Lease expense continues to be consistent with previous guidance. Additionally, this guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leasing arrangements.

The Company adopted the guidance on April 1, 2019, using the modified retrospective approach and, accordingly, prior period balances and disclosures have not been restated. The Company elected the package of transition practical expedients for expired or existing contracts, which retains prior conclusions reached on lease identification, classification, and initial direct costs incurred.

The adoption of this guidance resulted in the recognition of operating lease right-of-use assets of $99,880, net of lease provisions of $10,703 and $110,583 of lease liabilities, with a $nil impact on deficit. The transition to ASC 842 did not have a material impact on the Company’s results of operations or liquidity. When measuring lease liabilities, the Company used its incremental borrowing rate of April 1, 2019 of 4.5%. Further information is disclosed in Note 27.

Revenues

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which provides a single comprehensive model for accounting for revenue from contracts with customers and supersedes nearly all previously existing revenue recognition guidance. The core principle of ASU 2014-09 is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Canopy Growth adopted the new standard as of April 1, 2018. There was no impact of adopting ASU 2014-09 on the condensed interim consolidated financial statements.

Financial Instruments

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, which provides new guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. Canopy Growth adopted the standard on April 1, 2018. Under the new standard, changes in the fair value of equity investments with readily determinable fair values are recorded in other (income) expense, net within the condensed interim consolidated statement of operations. Previously, such fair value changes were recorded in other comprehensive income (loss). The impact of this transition is a cumulative-effect adjustment to deficit of $34,800.

Canopy Growth has elected to continue to measure its equity investments without readily determinable fair values at fair value. Changes in the measurement of these investments will continue to be recorded in other (income) expense, net within the condensed interim consolidated statement of operations.

Page 6

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

Income taxes

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which requires the recognition of the income tax effects of intercompany sales and transfers of assets, other than inventory, in the period in which the transfer occurs. Canopy Growth adopted the standard on April 1, 2018, using a modified retrospective approach. There was minimal impact of adopting ASU 2016-16 on the condensed interim consolidated financial statements.

(b) Accounting guidance not yet adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Adoption of ASU 2016-13 will require financial institutions and other organizations to use forward-looking information to better formulate their credit loss estimates. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is evaluating the impact on the consolidated financial statements and expects to implement the provisions of ASU 2016-13 effective April 1, 2020.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820) (“ASU 2018-13”). ASU 2018-13 adds, modifies, and removes certain fair value measurement disclosure requirements. ASU 2018-13 is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact on the consolidated financial statements and expects to implement the provisions of ASU 2018-13 effective April 1, 2020.

3. CASH AND CASH EQUIVALENTS

Cash and cash equivalents are disaggregated as follows:

September 30,2019 March 31,<br>2019
Cash $ 492,804 $ 1,703,550
Cash equivalents **** 609,660 777,280
Total cash and cash equivalents $ 1,102,464 $ 2,480,830
4. SHORT-TERM INVESTMENTS
--- ---

The components of short-term investments are as follows:

September 30,2019 March 31,<br>2019
U.S. government securities $ 1,270,819 $ 1,663,245
Term deposits **** 268,323 1,600
Canadian government securities **** 94,550 369,288
Total short-term investments $ 1,633,692 $ 2,034,133

The amortized cost of short-term investments at September 30, 2019 is $1,633,123 (March 31, 2019 – $2,032,770).

Page 7

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

5. AMOUNTS RECEIVABLE, NET

Amounts receivable, net is comprised of:

September 30, March 31,
2019 2019
Accounts receivable, net $ 55,442 $ 61,830
Indirect taxes receivable **** 39,886 27,805
Interest receivable **** 8,696 7,193
Other receivables **** 3,463 10,146
Total amounts receivable $ 107,487 $ 106,974

Included in the accounts receivable, net balance at September 30, 2019 is an allowance for doubtful accounts of $272 (March 31, 2019—$635).

6. INVENTORY

Inventory is comprised of the following items:

September 30, March 31,
2019 2019
Raw materials $ 39,049 $ 845
Work-in-process **** 240,537 109,672
Finished goods **** 35,998 30,054
Supplies and consumables **** 30,929 49,501
Total inventory $ 346,513 $ 190,072

The Company recorded write-downs related to inventory in the three and six months ended September 30, 2019 of $21,747 and $26,536, respectively.

7. PREPAID EXPENSES AND OTHER ASSETS

The Company’s prepaid expenses and other assets consists of the following:

September 30, March 31,
2019 2019
Prepaid expenses $ 70,372 $ 26,339
Deposits **** 16,515 29,138
Prepaid inventory **** 29,370 21,267
Other assets **** 1,854 8,947
Total prepaid expenses and other assets $ 118,111 $ 85,691

Page 8

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

8. EQUITY METHOD INVESTMENTS

The following table outlines changes in the investments in associates that are accounted for using the equity method. Where the Company does not have the same reporting date as its investees, the Company will account for its investments one quarter in arrears. Accordingly, certain of the figures in the following table, including the Company’s share of the investee’s net income (loss), are based on the investees’ results for the period ended June 30, 2019, with adjustments for any significant transactions.

Entity Instrument Participatingshare Balance atMarch 31,2019 Additions Share ofnet loss Balance atSeptember 30,2019
PharmHouse Shares 49.0 % $ 39,278 $ — $ (695 ) $ 38,583
Agripharm Shares 40.0 % 36,127 — (1,593 ) **** 34,534
Beckley Canopy Therapeutics Shares 42.2 % 11,653 — (385 ) **** 11,268
CanapaR Shares 49.1 % 18,062 — (259 ) **** 17,803
Other Shares 18.2% to 66.7 % 7,265 4,665 (1,072 ) **** 10,858
$ 112,385 $ 4,665 $ (4,004 ) $ 113,046

Page 9

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

9. OTHER FINANCIAL ASSETS

The following tables outlines changes in Other financial assets. Additional details on how the fair value of significant investments is calculated are included in Note 21.

Entity Instrument Note Balance atMarch 31,2019 Additions FVTPL Interestincome Exercise ofoptions /disposalof shares /repayments Balance atSeptember 30,2019
Acreage Option 26 $ — $ 395,190 $ (235,190 ) $ — $ — $ 160,000
TerrAscend Exchangeable shares 160,000 — (60,000 ) — — **** 100,000
PharmHouse Loan receivable 40,000 — — — — **** 40,000
Agripharm Royalty interest 10,254 8,000 1,292 — — **** 19,546
ZeaKal Shares 9 (i) — 13,487 (245 ) — — **** 13,242
Greenhouse Convertible debenture 5,944 3,000 1,947 — — **** 10,891
SLANG Warrants 44,000 — (33,000 ) — — **** 11,000
Other - classified as fair value through net income (loss) Various 72,144 5,908 (13,634 ) — (1,201 ) **** 63,217
Other - elected as fair value through net income (loss) Various 29,236 1,200 (7,182 ) — (3,635 ) **** 19,619
Other - classified as held for investment Loan receivable 1,849 9,650 — 92 (78 ) **** 11,513
$ 363,427 $ 436,435 $ (346,012 ) $ 92 $ (4,914 ) $ 449,028
(i) On June 14, 2019, Canopy Rivers acquired 248,473 preferred shares of ZeaKal, Inc. (“ZeaKal”),<br>a California-based plant science company, for $13,487 which represents a 9% equity interest on a fully diluted basis.
--- ---

Page 10

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

10. PROPERTY, PLANT AND EQUIPMENT

The components of property, plant and equipment are as follows:

September 30,2019 March 31,2019
Buildings and greenhouses $ 543,855 $ 361,958
Production and warehouse<br><br><br>equipment 212,222 175,325
Leasehold improvements 46,757 32,264
Land 58,407 37,681
Office and lab equipment 28,336 23,495
Computer equipment 25,256 19,228
Right-of-use<br>assets
Buildings and greenhouses 106,071 —
Production and warehouse<br><br><br>equipment 927 —
Assets in process 694,744 491,722
1,716,575 1,141,673
Less: Accumulated depreciation (78,112 ) (45,333 )
Total $ 1,638,463 $ 1,096,340

Depreciation expense included in cost of goods sold for the three and six months ended September 30, 2019 is $12,138 and $21,455, respectively (three and six months ended September 30, 2018 – $5,674 and $8,926, respectively). Depreciation expense included in selling, general and administrative expenses for the three and six months ended September 30, 2019 is $4,087 and $8,358, respectively (three and six months ended September 30, 2018 – $1,111 and $1,520, respectively).

11. INTANGIBLE ASSETS

The components of intangible assets are as follows:

September 30, 2019 March 31, 2019
GrossCarryingAmount NetCarryingAmount GrossCarryingAmount NetCarryingAmount
Finite lived intangible assets
Licensed brands $ 68,432 $ 64,754 $ 57,802 $ 57,678
Distribution channel 42,446 21,259 42,400 25,297
Health Canada and operating licenses 104,967 98,911 104,608 99,587
Intellectual property 151,634 141,254 153,797 149,360
Software and domain names 13,282 9,273 9,701 6,819
Amortizable intangibles in process 4,637 4,561 4,122 4,046
Total 385,398 340,012 372,430 342,787
Indefinite lived intangible assets
Operating licenses 151,509 151,509
Acquired brands 62,934 63,774
Total intangible assets $ 554,455 $ 558,070

Amortization expense included in cost of goods sold for the three and six months ended September 30, 2019 is $26 and $38, respectively (three and six months ended September 30, 2018 – $25 and $35, respectively). Amortization expense included in selling, general and administrative expenses for the three and six months ended September 30, 2019 is $8,764 and $15,917, respectively (three and six months ended September 30, 2018 – $2,579 and $5,201, respectively).

Page 11

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

12. GOODWILL

The net change in goodwill is as follows:

Note
As at March 31, 2018 $ 277,445
Purchase accounting allocations 1,215,750
Foreign currency translation adjustments (3,336 )
As at March 31, 2019 $ 1,489,859
Purchase accounting allocations 25 388,586
Foreign currency translation adjustments (20,157 )
As at September 30, 2019 $ 1,858,288 ****
13. OTHER ACCRUED EXPENSES AND LIABILITIES
--- ---

The components of other accrued expenses and liabilities are as follows:

September 30,2019 March 31,2019
Property, plant and equipment $ 6,890 $ 8,013
Professional fees **** 930 2,059
Employee compensation **** 23,118 20,577
Other **** 6,328 6,964
Total accounts payable and accrued liabilities $ 37,266 $ 37,613
14. DEBT
--- ---

The components of debt are as follows:

September 30, March 31,
2019 2019
Convertible senior notes at 4.25% interest with semi-annual interest payments July 15, 2023
Principal amount $ 600,000 **** $ 600,000
Accrued interest **** 5,454 **** 5,454
Non-credit risk fair value adjustment (FVTPL) **** (25,470 ) 183,120
Credit risk fair value adjustment (FVOCI) **** 10,470 **** 47,130
**** 590,454 **** 835,704
Term loan facility advanced in the form of prime rate operating loan $ — **** $ 95,000
Transferred receivables, bearing interest rate of IBOR plus 0.850% **** 2,924 **** —
Other revolving debt facility, loan, and financings **** 11,110 **** 15,271
**** 604,488 **** 945,975
Less: current portion **** (14,115 ) (103,716 )
Long-term portion $ 590,373 **** $ 842,259

All values are in Euros.

Page 12

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

(i) Convertible senior notes

On June 20, 2018, the Company issued convertible senior notes (“the notes”) with an aggregate principal amount of $600,000. The notes are subordinated in right of payment to any existing and future senior indebtedness, including indebtedness under the revolving credit facility. The notes will rank senior in right of payment to any future subordinated borrowings.

Holders of the notes have the right to exercise the conversion option at a rate of 20.7577 common shares for every $1 of principal amount of notes from September 30, 2018 to January 15, 2023, if (i) the market price of the Company common shares for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day, (ii) during the 5 business day period after any consecutive 5 trading day period (the “measurement period”) in which the trading price per $1 principal amount of the notes for each trading day in the measurement period was less than 98% of the product of the last reported sales price of the Company’s common shares and the conversion rate on each such trading day, (iii) the notes are called for redemption or (iv) upon occurrence of certain corporate events (“Fundamental Change”).

The Company may also redeem the notes if certain tax laws related to Canadian withholding tax change subject to certain further conditions. The redemption of the notes shall be at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest.

The overall change in fair value of the notes during the three and six months ended September 30, 2019 was a decrease of $199,194 and $245,250 respectively (three and six months ended September 30, 2018 – $288,984 and $301,224), which included accrued contractual interest of $6,306 and $12,750 respectively (three and six months ended September 30, 2018 – $990 and $7,224). Refer to Note 21 for additional details on how the fair value of the notes is calculated.

(ii) Alberta Treasury Board (“ATB”) financing

On June 14, 2019, the Company repaid its ATB term loan facility. A payment of $95,180 was made to settle the loan balance which included interest of $180.

(iii) Transferred receivables

The carrying amounts of the transferred receivables include receivables which are subject to a factoring arrangement. Under this arrangement, C^3^ has transferred the relevant receivables to PB Factoring GmbH in exchange for cash. The transferred receivables to PB Factoring GmbH is $3,249 and the associated secured borrowing is $2,924.

(iv) Other revolving debt facility, loans, and financings

The revolving debt facility is secured by a first charge on the properties in Niagara-on-the-Lake, Ontario, a corporate guarantee from the Company, and a general corporate security agreement.

15. OTHER LIABILITIES

The components of other liabilities are as follows:

September 30, 2019 March 31, 2019
Notes Current Long-term Total Current Long-term Total
Acquisition consideration related liabilities $ 25,616 $ 81,591 $ 107,207 $ 22,176 $ 87,747 $ 109,923
Lease liabilities 27 53,621 65,402 **** 119,023 — — —
Minimum royalty obligations 6,308 22,069 **** 28,377 3,445 24,392 27,837
Due to former shareholders of Storz & Bickel — — **** — 21,447 — 21,447
Refund liability 22 37,790 — **** 37,790 — — —
Settlement liability 15 (a) 5,347 9,824 **** 15,171 11,980 16,631 28,611
Other 14,134 4,067 **** 18,201 22,366 5,234 27,600
Total $ 142,816 $ 182,953 $ 325,769 $ 81,414 $ 134,004 $ 215,418

Page 13

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

(a) Settlement liability

During the year ended March 31, 2019, the Company reached a settlement with certain co-investors in Bedrocan Brasil S.A. and Entourage Phytolab S.A. to facilitate organizational changes to support the Company’s growth in Latin America. Under the terms of the agreement the Company agreed to make cash payments totaling $25,185 and a final payment equal to 1.2% of the fair value of the Company’s Latin American business as of June 30, 2023. The fair value of the settlement was estimated to be $28,611 and was recorded as an expense. The final payment represents a derivative liability that was initially measured at fair value with subsequent period end remeasurements of fair value recorded through net income (loss).

During the three and six months ended September 30, 2019, payments totalling $5,600 and $13,908 respectively, were made, with the remaining change in liability relating to accretion expense and fair value changes.

16. REDEEMABLE NONCONTROLLING INTEREST

The net change in the redeemable noncontrolling interests is as follows:

Vert<br>Mirabel
As at March 31, 2019 $ 6,400
Income attributable to noncontrolling interest 3,679
Adjustments to redemption amount (779 )
As at September 30, 2019 $ 9,300 ****
Vert<br>Mirabel BC Tweed Total
--- --- --- --- --- --- --- --- --- ---
As at March 31, 2018 $ 4,850 $ 56,300 $ 61,150
Income attributable to noncontrolling interest (1,810 ) — (1,810 )
Adjustments to redemption amounts 4,460 16,300 20,760
Purchase of redeemable noncontrolling interest — (72,600 ) (72,600 )
As at September 30, 2018 $ 7,500 **** $ — **** $ 7,500 ****

Page 14

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

17. SHARE CAPITAL

CANOPY GROWTH

Authorized

An unlimited number of common shares.

(i) Equity financings

There were no equity financings during the six months ended September 30, 2019.

(ii) Other issuances of common shares

During the three and six months ended September 30, 2019, the Company issued 84,530 and 566,851 (three and six months ended September 30, 2018 – 19,167,538 and 20,494,376) shares with an increase of $3,041 and $21,715 (three and six months ended September 30, 2018 – $930,063 and $968,256) in share capital respectively.

(iii) Warrants
Note Number of<br>whole<br>warrants Average<br>exercise<br>price Warrant<br>value
--- --- --- --- --- --- --- --- --- --- ---
Balance outstanding at March 31, 2019 107,848,322 $ 43.80 $ 1,589,925
Tranche A warrant modification 26 — — 1,049,153
Issuance of Tranche B warrants 26 38,454,444 76.68 —
Other issuance of warrants 9,200 32.83 359
Exercise of warrants (12,523 ) 35.55 (486 )
Balance outstanding at September 30,2019^1^ **** 146,299,443 **** $ 52.44 $ 2,638,951 ****
^1^ This balance excludes the Tranche C Warrants, which represent a derivative liability and have nominal value,<br>see note 26.
--- ---

CANOPY RIVERS

(a) Authorized

Canopy Rivers Corporation (“Canopy Rivers”) is authorized to issue an unlimited number of common shares. There are two classes of common shares: Multiple Voting Shares and Subordinated Voting Shares. Each Multiple Voting Share is entitled to receive 20 votes, while each Subordinated Voting Share is entitled to receive one vote at all meetings of the shareholders. There is no priority or distinction between the two classes of shares in respect of their entitlement to the payment of dividends or participation on liquidation, dissolution or winding-up of the Company.

(b) Issued and outstanding

As at September 30, 2019, Canopy Rivers had 36,468,318 Multiple Voting Shares (March 31, 2019 – 36,468,318) and 151,731,576 Subordinated Voting Shares (March 31, 2019 – 150,592,136) issued and outstanding. As at September 30, 2019, the Company held 36,468,318 Multiple Voting Shares (March 31, 2019 – 36,468,318) and 15,223,938 Subordinated Voting shares (March 31, 2019 – 15,223,938) which represented a 27.5% ownership interest in Canopy Rivers and 84.5% of the voting rights (March 31, 2019 – 27.6% and 84.6% respectively). The voting rights allow the Company to direct the relevant activities of Canopy Rivers such that the Company has control over Canopy Rivers and Canopy Rivers is consolidated in these financial statements.

Page 15

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

(c) Financings

There were no financings during the six months ended September 30, 2019, other than the release of shares related to share purchase financing ****

(d) Initial financing and seed capital options

The 10,066,668 Subordinated Voting Shares acquired by way of share purchase loans, whereby funds were advanced to Canopy Rivers by the Company on behalf of certain employees of the Company and another individual, were initially accounted for as seed capital options and are not considered issued for accounting purposes until the loans are repaid on an individual employee/consultant basis. During the three and six months ended September 30, 2019, share purchase loans in the amount of $29 and $48 respectively (three and six months ended September 30, 2018 – $nil and $288 respectively) relating to Canopy Rivers shares held in trust by the Company on behalf of certain Canopy Growth employees were repaid, resulting in the release from escrow of Subordinated Voting Shares of 583,333 and 961,108 respectively (three and six months ended September 30, 2018 – nil and 5,750,000 respectively). As at September 30, 2019, there were 2,877,784 seed capital options outstanding (March 31, 2019 – 3,838,892).

18. SHARE BASED COMPENSATION

CANOPY GROWTH CORPORATION SHARE-BASED COMPENSATION PLAN

Canopy Growth’s eligible employees participate in a share-based compensation plan as noted below.

On September 15, 2017, shareholders approved an Omnibus Incentive Plan (as amended and restated, the “Omnibus Plan”) pursuant to which the Company can issue share-based long-term incentives. All directors, officers, employees and independent contractors of the Company are eligible to receive awards of common share purchase options (“Options”), restricted share units (“RSUs”), deferred share units, stock appreciation rights (“Stock Appreciation Rights”), performance awards (“Performance Awards”) or other stock based awards (collectively, the “Awards”) under the Omnibus Plan. In addition, shareholders also approved the 2017 Employee Stock Purchase Plan of the Company (the “Purchase Plan”). Under the Purchase Plan, the aggregate number of common shares that may be issued is 400,000, and the maximum number of common shares which may be issued in any one fiscal year shall not exceed 200,000.

Under the Omnibus Plan, the maximum number of shares issuable from treasury pursuant to Awards shall not exceed 15% of the total outstanding shares from time to time less the number of shares issuable pursuant to all other security-based compensation arrangements of the Company. The maximum number of common shares reserved for Awards is 52,249,177 at September 30, 2019. As of September 30, 2019, the only Awards issued have been options and RSUs under the Omnibus Plan.

The Omnibus Plan is administered by the Board of Directors of the Company who establishes exercise prices, at not less than the market price at the date of grant, and expiry dates. Options under the Omnibus Plan generally remain exercisable in increments with 1/3 being exercisable on each of the first, second and third anniversaries from the date of grant, with expiry dates set at six years from issuance. The Board of Directors has the discretion to amend general vesting provisions and the term of any award, subject to limits contained in the Omnibus Plan.

The following is a summary of the changes in the Company’s Omnibus Plan employee options during the six months ended September 30, 2019:

Options<br>issued Weighted<br>average<br>exercise price
Balance outstanding at March 31, 2019 32,831,895 $ 34.10
Options granted 5,327,689 41.74
Options exercised (3,290,212 ) 10.95
Options forfeited/cancelled (1,956,398 ) 45.84
Balance outstanding at September 30, 2019 **** 32,912,974 **** $ 36.95

Page 16

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

The following is a summary of the outstanding stock options as at September 30, 2019:

Options Exercisable
Range of Exercise Prices Weighted Average<br>Remaining<br>Contractual Life<br>(years) Exercisable at<br>September 30,<br>2019 Weighted Average<br>Remaining<br>Contractual Life<br>(years)
1.32 - 27.94 6,155,483 3.56 2,888,874 3.30
27.95 - 35.00 3,666,663 4.78 609,686 4.41
35.01 - 38.88 7,815,201 5.29 500,000 5.23
38.89 - 42.84 6,267,481 4.89 1,439,214 4.56
42.85 - 67.64 9,008,146 5.42 853,363 4.99
32,912,974 4.87 6,291,137 4.08

All values are in US Dollars.

At September 30, 2019, the weighted average exercise price of options outstanding and options exercisable was $36.95 and $27.81, respectively (at March 31, 2019 – $34.10 and $13.99, respectively).

For the three and six months ended September 30, 2019, the Company recorded $79,163 and $149,979 in share-based compensation expense related to options issued to employees (for the three and six months ended September 30, 2018 – $31,312, and $44,859) and $1,062 and $3,339, respectively, in share-based compensation expense related to options issued to contractors (for the three and six months ended September 30, 2018 – $2,313, and $2,910). The compensation expense for the six months ended September 30, 2019 includes an amount related to 445,000 options being provided in exchange for services which are subject to performance conditions (for the six months ended September 30, 2018 – 422,974).

In determining the amount of share-based compensation related to options issued during the period, the Company used the Black-Scholes option pricing model to establish the fair value of options granted during the three months ended September 30, 2019 and 2018 on their measurement date by applying the following assumptions:

September 30, 2019 September 30, 2018
Risk-free interest rate **** 1.44 % 2.18 %
Expected life of options (years) **** 3 - 5 **** 2 - 5
Expected annualized volatility **** 72 % 76 %
Expected forfeiture rate **** 11 % 11 %
Expected dividend yield **** nil **** nil
Black-Scholes value of each option $ 22.57 **** $ 29.13

Volatility was estimated by using the historical volatility of the Company. The expected life in years represents the period of time that options granted are expected to be outstanding. The risk-free rate was based on the zero coupon Canada government bonds with a remaining term equal to the expected life of the options.

During the six months ended September 30, 2019, 3,290,212 Omnibus Plan options were exercised ranging in price from $0.22 to $40.68 for gross proceeds of $36,023 (for the six months ended September 30, 2018 –3,844,191 Omnibus Plan options were exercised ranging in price from $1.32 to $27.99 for gross proceeds of $24,893).

During the three and six months ended September 30, 2019, the Company issued nil RSUs. As at September 30, 2019, the Company had 141,630 RSUs issued and outstanding, of which 17,820 were exercisable. For the three and six months ended September 30, 2019, the Company recorded $1,287 and $2,681 respectively, in share-based compensation expense related to these RSUs (for the three and six months ended September 30, 2018 – $428 and $2,675).

Page 17

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

Share-based compensation expense related to acquisition milestones is comprised of:

Three months ended Six months ended
September 30,<br>2019 September 30,<br>2018 September 30,<br>2019 September 30,<br>2018
Colombia $ 4,141 $ 9,417 $ 6,400 $ 9,417
Canindica **** 2,286 29,358 **** 6,296 29,358
Other **** 2,687 11,955 **** 6,699 19,050
$ 9,114 $ 50,730 $ 19,395 $ 57,825

During the three and six months ended September 30, 2019, 84,530 and 566,851 shares, respectively (three and six months ended September 30, 2018 – 1,637,074 and 1,908,532 respectively) were released on completion of acquisition milestones. At September 30, 2019, there were up to 5,206,438 shares to be issued on the completion of acquisition and asset purchase milestones. In certain cases, the number of shares to be issued is based on the volume weighted average share price at the time the milestones are met. The number of shares has been estimated assuming the milestones were met at September 30, 2019. The number of shares excludes shares to be issued on July 4, 2023 to the previous shareholders of Spectrum Cannabis Colombia S.A.S. (“Spectrum Colombia”) and Canindica Capital Ltd. (“Canindica”) based on the fair market value of the Company’s Latin American business on that date.

During the three and six months ended September 30, 2019, the Company recorded share-based payments of $nil (three and six months ended September 30, 2018 – $3,801 and $4,585 respectively), related to shares issued for payment of royalties and sales and marketing services.

CANOPY RIVERS SHARE-BASED COMPENSATION PLAN

Seed Capital Options

On May 12, 2017, seed capital options were issued. These seed capital options consistent of 10,066,668 Class B shares acquired by way of share purchase loans. Since they were issued through loans, they are not considered issued for accounting purposes until the loans are repaid. The seed capital options were measured at fair value on May 12, 2017, using a Black-Scholes option pricing model and will be expensed over their vesting period. Where there are performance conditions in addition to service requirements Canopy Rivers has estimated the number of shares it expects to vest and is amortizing the expense over the expected vesting period.

Seed capitaloptions issued Seed capitalloan balance
Balance outstanding at March 31, 2019 3,838,892 $ 192
Options exercised (961,108 ) (48 )
Balance outstanding at September 30, 2019 **** 2,877,784 **** $ 144 ****

Canopy Rivers has a stock option plan (the “Plan”) under which non-transferable options to purchase Subordinated Voting Shares of the Company may be granted to directors, officers, employees, or independent contractors of the Company. Pursuant to the Plan, the maximum number of Subordinated Voting Shares issuable from treasury pursuant to outstanding options shall not exceed 10% of the issued and outstanding Subordinated Voting Shares. The Plan is administered by the Board who establishes exercise prices, at not less than the market price at the date of the grant, and expiry dates. Options under the Plan generally remain exercisable in increments, with one-third being exercisable on each of the first, second, and third anniversaries from the date of grant, and have expiry dates five years from the date of grant. The Board has the discretion to amend general vesting provisions and the term of any option grant, subject to limits contained in the Plan. The seed capital options are not within the scope of the Plan.

Page 18

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

The following is a summary of the changes in Canopy Rivers’ stock options, excluding the seed capital options presented separately, during the six months ended September 30, 2019:

Options<br>issued Weighted<br>average<br>exercise price
Balance outstanding at March 31, 2019 12,522,255 $ 1.98
Options granted 1,703,000 3.76
Options exercised (178,332 ) 0.60
Balance outstanding at September 30, 2019 **** 14,046,923 **** $ 2.21

In determining the amount of share-based compensation related to options issued during the period, Canopy Rivers used the Black-Scholes option pricing model to establish the fair value of options granted during the three months ended September 30, 2019 and 2018 on their measurement date by applying the following assumptions:

September 30, 2019 September 30, 2018
Risk-free interest rate **** 1.41 % 2.02 %
Expected life of options (years) **** 3 - 4 **** 3 - 5
Expected annualized volatility **** 70 % 70 %
Expected forfeiture rate **** nil **** nil
Expected dividend yield **** nil **** nil
Black-Scholes value of each option $ 1.23 **** $ 1.53

Volatility was estimated using companies that Canopy Rivers considers comparable that have trading and volatility history prior to Canopy Rivers becoming public. The expected life in years represents the period of time that options granted are expected to be outstanding. The risk-free rate was based on zero coupon Canada government bonds with a remaining term equal to the expected life of the options.

For the three and six months ended September 30, 2019, the Company recorded $2,255 and $4,849 respectively, (three and six months ended September 30, 2018 – $1,771 and $3,853) in share-based compensation expense related to these options and the seed capital options with a corresponding increase to non-controlling interests.

19. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) includes the following components:

Foreigncurrencytranslationadjustments Changes ofown creditrisk offinancialliabilities Accumulatedothercomprehensiveincome (loss)
Balance at March 31, 2019 $ 41,225 **** $ (47,130 ) $ (5,905 )
Other comprehensive income (loss) (52,117 ) 36,660 (15,457 )
Balance at September 30, 2019 $ (10,892 ) $ (10,470 ) $ (21,362 )
Foreigncurrencytranslationadjustments Changesof owncredit riskoffinancialliabilities Fair valueof otherfinancialassets Accumulatedothercomprehensiveincome (loss)
--- --- --- --- --- --- --- --- --- --- --- --- ---
Balance at March 31, 2018 $ 608 **** $ — **** $ 34,800 **** $ 35,408 ****
Cumulative effect from adoption of ASU2016-1 — — (34,800 ) (34,800 )
Other comprehensive (loss) income (4,706 ) (75,030 ) — (79,736 )
Balance at September 30, 2018 $ (4,098 ) $ (75,030 ) $ — **** $ (79,128 )

Page 19

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

20. NONCONTROLLING INTERESTS

The net change in the noncontrolling interests is as follows:

Canopy<br>Rivers Vert<br>Mirabel Othernon-<br>material<br>interests Total
As at March 31, 2019 $ 280,012 $ 2,422 $ 3,051 $ 285,485
Comprehensive (loss) income (30,214 ) 5,764 — (24,450 )
Net loss attributable to redeemable noncontrolling interest — (3,679 ) — (3,679 )
Share-based compensation 4,849 — — 4,849
Ownership changes 490 — — 490
As at September 30, 2019 $ 255,137 **** $ 4,507 **** $ 3,051 $ 262,695 ****
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
--- ---

(a) Fair value of financial instrument assets and liabilities that are measured at fair value on a recurring basis

The following table summarizes the valuation techniques and key inputs used in the fair value measurement of significant level 2 financial instruments:

Financial asset / financial liability Valuation techniques Key inputs
AusCann Group Holdings options Black-Scholes option pricing model Quoted prices in active market
Convertible senior note Convertible note pricing model Quoted prices in over-the-counter broker market

Page 20

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

The following table summarizes the valuation techniques and significant unobservable inputs in the fair value measurement of significant level 3 financial instruments:

Financial asset / financialliability Valuation techniques Significant unobservableinputs Relationship of unobservable inputs to fairvalue
Acreage financial instrument Discounted cash flow Intrinsic value of Acreage Increase or decrease in intrinsic value will result in an increase or decrease in fair value
Probability and timing of US legalization Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
Estimated premium on US legalization Increase or decrease in estimated premium on US legalization will result in an increase or decrease in fair value
Control premium Increase or decrease in estimated control premium will result in an increase or decrease in fair value
Synergy value to Canopy Growth Increase or decrease in estimated synergy value to Canopy Growth will result in an increase or decrease in fair value
TerrAscend exchangeable shares Put option pricing model Probability and timing of US legalization Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
HydRx Farms shares Market approach Share price Increase or decrease in share price will result in an increase or decrease in fair value
ZeaKal shares Market approach Share price Increase or decrease in share price will result in an increase or decrease in fair value
Greenhouse convertible debenture FinCAD model Share price Increase or decrease in share price will result in an increase or decrease in fair value
Good Leaf shares Market approach Share price Increase or decrease in share price will result in an increase or decrease in fair value
Agripharm royalty interest and repayable debenture Discounted cash flow Discount rate Increase or decrease in discount rate will result in a decrease or increase in fair value
Future royalties Increase in future royalties to be paid will result in an increase in fair value
SLANG Worldwide warrant Black-Scholes option pricing model Probability and timing of US legalization Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
Warrant derivative liability Monte Carlo simulation model Volatility of Canopy Growth share price Increase or decrease in volatility will result in an increase or decrease in fair value
Expected life Increase or decrease in expected life will result in an increase or decrease in fair value
Vert Mirabel redeemable noncontrolling interest Discounted cash flow Discount rate Increase or decrease in discount rate will result in a decrease or increase in fair value
Future wholesale price and production levels Increase in future wholesale price and production levels will result in an increase in fair value

Page 21

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

During the six months ended September 30, 2019 and September 30, 2018, there were no transfers of amounts between levels.

(b) Fair value of financial instrument assets and liabilitiesthat are not measured at fair value but fair value disclosures are required

The carrying values of cash and cash equivalents, short-term investments, accounts payable and other accrued expenses and liabilities approximate their fair values due to their short-term to maturity.

22. REVENUE

Revenues are disaggregated as follows:

Three months ended Six months ended
September 30, September 30, September 30, September 30,
2019 2018 2019 2018
Recreational revenue
Business to business $ 16,677 $ — $ 67,102 $ —
Business to consumer **** 13,100 — **** 23,738 —
Medical revenue
Canadian **** 14,149 19,903 **** 27,200 41,267
International **** 18,090 2,222 **** 28,586 5,592
Other revenue **** 23,605 1,202 **** 42,386 2,384
Gross revenue **** 85,621 23,327 **** 189,012 49,243
Excise taxes **** 9,008 — **** 21,917 —
Net revenue $ 76,613 $ 23,327 $ 167,095 $ 49,243

The Company records an allowance for estimated returns and price adjustments to ensure that recognized revenue reflects the consideration that the Company expects to receive. The allowance is based on historical experience and Management’s expectation of future returns and price adjustments. Net revenue reflects actual returns and the allowance for estimated returns and price adjustments in the amounts of $32,727 and $40,727 for the three and six months ended September 30, 2019, respectively (three and six months ended September 30, 2018 – $nil). As of September 30, 2019, the liability for estimated returns and price adjustments was $37,790 (March 31, 2019 – $nil).

Page 22

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

23. OTHER INCOME (EXPENSE), NET

Other income (expense), net is disaggregated as follows:

Three months ended Six months ended
September 30, September 30, September 30, September 30,
Notes 2019 2018 2019 2018
Fair value changes on other financial assets 9 $ (69,735 ) $ 44,773 $ (110,822 ) $ 36,583
Fair value changes on asset arising from Acreage Arrangement 9, 26 **** (235,190 ) — **** (235,190 ) —
Fair value changes on convertible senior notes 14 **** 164,394 **** (223,374 ) **** 195,840 **** (226,194 )
Fair value change on warrant derivative liability 26 **** 641,854 **** — **** 666,746 **** —
Fair value changes on acquisition related contingent consideration **** (70 ) — **** (1,640 ) —
Interest income **** 16,463 **** 2,546 **** 39,181 **** 3,552
Interest expense **** (1,165 ) (192 ) **** (2,371 ) (348 )
Foreign currency loss **** (5,553 ) (704 ) **** (8,409 ) (2,957 )
Gain on acquisition of consolidated entity **** — **** 62,682 **** — **** 62,682
Debt issuance costs **** — **** (335 ) **** — **** (16,380 )
Other income (expense), net **** (1,105 ) 1,457 **** (674 ) (1,254 )
Total other income (expense), net $ 509,893 **** $ (113,147 ) $ 542,661 **** $ (144,316 )
24. INCOME TAXES
--- ---

There have been no material changes to income tax matters in connection with normal course operations during the six months ended September 30, 2019.

The Company is subject to income tax in numerous jurisdictions with varying income tax rates. During the most recent period ended and the fiscal year to date, there were no material changes to the statutory income tax rates in the taxing jurisdictions where the majority of the Company’s income for tax purposes was earned, or where its temporary differences or losses are expected to be realized or settled. Although statutory income tax rates remain stable, the Company’s effective income tax rate may fluctuate, arising as a result of the Company’s evolving footprint, discrete transactions and other factors that, to the extent material, are disclosed in these financial statements.

The Company continues to believe the amount of unrealized tax benefits appropriately reflects the uncertainty of items that are or may in the future be under discussion, audit, dispute or appeal with a tax authority or which otherwise result in uncertainty in the determination of income for tax purposes. If appropriate, an unrealized tax benefit will be realized in the reporting period in which the Company determines that realization is not in doubt. Where the final determined outcome is different from the Company’s estimate, such difference will impact the Company’s income taxes in the reporting period during which such determination is made.

Page 23

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

25. ACQUISITIONS

Acquisitions completed in the six months ended September 30, 2019

The following table summarizes the consolidated statements of financial position impact on the acquisition date of the Company’s business combinations that occurred in the six months ended September 30, 2019

C^3^ This Works
(i) (ii) Total
Cash and cash equivalents $ 2,818 $ 1,619 $ 4,437 ****
Other current assets 13,326 6,484 **** 19,810 ****
Property, plant and equipment 8,345 478 **** 8,823 ****
Intangible assets
Brands 10,229 2,319 **** 12,548 ****
Intellectual property — 164 **** 164 ****
Software and domain names 8 176 **** 184 ****
Goodwill 322,334 66,252 **** 388,586 ****
Accounts payable and other accrued expenses and liabilities (4,454 ) (5,691 ) **** (10,145 )
Debt and other liabilities (3,942 ) — **** (3,942 )
Net assets acquired $ 348,664 $ 71,801 $ 420,465 ****
Consideration paid in cash $ 348,664 $ 71,801 $ 420,465 ****
Other consideration — — **** — ****
Total consideration $ 348,664 $ 71,801 $ 420,465 ****
Consideration paid in cash $ 348,664 $ 71,801 $ 420,465 ****
Less: Cash and cash equivalents acquired (2,818 ) (1,619 ) **** (4,437 )
Net cash outflow $ 345,846 $ 70,182 $ 416,028 ****

Page 24

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

The table above summarizes the fair value of the consideration given and the fair values assigned to the assets acquired and liabilities assumed for each acquisition. Goodwill arose in these acquisitions because the cost of acquisition included a control premium. In addition, the consideration paid for the combination reflected the benefit of expected revenue growth and future market development. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill arising on these acquisitions is expected to be deductible for tax purposes.

(i) C^3^

On April 30, 2019, the Company acquired 100% of the shares of C^3^ Cannabinoid Compound Company (“C^3^”) for total cash consideration of $348,664. C^3^ is a European based biopharmaceutical company that develops, manufactures and commercializes natural and synthetic cannabinoid based active ingredients. In connection with the acquisition, the Company entered into a five year cooperation agreement with the former majority shareholder of C^3^, for which the Company paid $8,694 which will be expensed ratably over the contract term.

Due to the timing of this acquisition, the purchase price allocation for the C^3^ acquisition is provisional. The fair value assigned to the consideration paid, intangible assets and net assets acquired is based on management’s best estimate using the information currently available and may be revised by the Company as additional information is received.

(ii) This Works

On May 21, 2019, the Company acquired 100% of the shares of TWP UK Holdings Limited (“This Works”) and its subsidiary companies, This Works Products Limited, TWP USA Inc. and TWP IP Limited for total cash consideration of $71,801 (GBP 42,144). Based in London, United Kingdom, This Works is a natural skincare and sleep solutions company.

Due to the timing of this acquisition, the purchase price allocation for the This Works acquisition is provisional. The fair value assigned to the consideration paid, intangible assets and net assets acquired is based on management’s best estimate using the information currently available and may be revised by the Company as additional information is received.

26. ACREAGE TRANSACTIONS

(a) Acreage Arrangement

On June 27, 2019 (the “Effective date”) Canopy Growth and Acreage Holdings, Inc. (“Acreage”) completed a Plan of Arrangement (the “Arrangement”). Pursuant to the terms of the Arrangement, Acreage shareholders and holders of certain securities convertible into Acreage shares as of June 26, 2019, received an immediate aggregate total payment of US$300 million ($395,190) in exchange for granting Canopy Growth both the right and the obligation (the “Acreage financial instrument”) to acquire 100% of the shares of Acreage, at such time as the occurrence or waiver of changes in U.S. federal law to permit the general cultivation, distribution, and possession of marijuana or to remove the regulation of such activities from the federal laws of the United States (the “Acreage Triggering Event”). If the Acreage Triggering Event is not satisfied or waived by December 27, 2026, the Arrangement will terminate.

Following the occurrence, or waiver by Canopy Growth, of the Acreage Triggering Event and the satisfaction or waiver of certain customary closing conditions to the completion of the acquisition, Canopy Growth will issue to the shareholders of Acreage 0.5818 of a common share of Canopy Growth (the “Acreage exchange ratio”) for each issued and outstanding subordinate voting share of Acreage held (following the automatic conversion of other classes of Acreage shares into subordinate voting shares in accordance with the Arrangement). In the event Acreage issues more than 188,235,587 subordinate voting shares on a fully diluted basis, and Canopy Growth has not provided written approval for the issuance of such additional securities, the Acreage exchange ratio shall be the fraction, calculated to six decimal places, determined by the formula of A x B/C where:

• “A” equals 0.5818,
• “B” equals 188,235,587, and
--- ---
• “C” equals the aggregate number of subordinate voting shares of Acreage on a fully diluted basis at<br>the time of acquisition.
--- ---

On the Effective Date Canopy Growth also granted Acreage a non-exclusive, non-transferable, royalty-free license and right to use the intellectual property, systems and trademarks in the United States for a period of 90 months. Management has estimated the fair value of this license to be nominal.

Page 25

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

On initial recognition, the Acreage financial instrument represented a financial asset and has been recorded at its fair value of $395,190, as the estimated fair value of the Acreage business is greater than the estimated fair value of the consideration to be provided upon required exercise of the Acreage financial instrument. Any subsequent changes in fair value will be recognized in net income (loss). The fair value determination includes a high degree of subjectivity and judgement, which results in significant estimation uncertainty. See Note 21 for additional details on how the fair value of the Acreage financial instrument is calculated on a recurring basis. From a measurement perspective, Canopy Growth has elected the fair value option under ASC 825.

(b) Amendment to the Constellation Investor Rights Agreement and warrants

On November 1, 2018 Canopy Growth issued 104,500,000 common shares from treasury and two tranches of warrants to a subsidiary of Constellation Brands, Inc. (“Constellation”) in exchange for proceeds of $5,072,500 and entered into an Amended and Restated Investor Rights Agreement. The first tranche warrants (“Tranche A Warrants”) allowed Constellation to acquire 88.5 million additional shares of Canopy Growth for a fixed price of $50.40 per share. The second tranche warrants (“Final Warrants”) allowed for the purchase of 51.3 million additional shares at a price equal to the 5-day volume-weighted average price immediately prior to exercise. The Final Warrants could only be exercised if the Tranche A Warrants had been exercised in full. Both the Tranche A Warrants and the Final Warrants expire on November 1, 2021. Canopy Growth accounted for the Tranche A Warrants as equity instruments with a relative fair value of $1,505,351 and the Final Warrants as equity instruments with a nominal value.

On June 27, 2019 Constellation and Canopy Growth entered into the Second Amended and Restated Investor Rights Agreement and Consent Agreement. In contemplation of these agreements, Canopy Growth also amended the terms of the Tranche A Warrants and Final Warrants as follows:

• Extended the term of the Tranche A Warrants to November 1, 2023 and the term of the Final Warrants to<br>November 1, 2026.
• The Final Warrants were also replaced by two tranches of warrants (the “Tranche B Warrants” and<br>“Tranche C Warrants”) with different terms:
--- ---
• Tranche B Warrants allow Constellation to acquire 38.5 million shares of Canopy Growth for a fixed price of<br>$76.68 per share.
--- ---
• Tranche C Warrants allow Constellation to acquire 12.8 million shares of Canopy Growth at a price equal to<br>the 5-day volume-weighted average price immediately prior to exercise.
--- ---
• In connection with the Tranche B Warrants and the Tranche C Warrants, Canopy Growth will provide Constellation<br>with a share repurchase credit of up to $1.583 billion on the aggregate exercise price of the Tranche B Warrants and Tranche C Warrants in the event that Canopy Growth does not repurchase the lesser of (i) 27,378,866 common shares, and<br>(ii) common shares with a value of $1.583 billion, during the period commencing on June 27, 2019 and ending on the date that is 24 months after the date that Constellation exercises all of the Tranche A Warrants.<br>
--- ---

The modifications to the Tranche A Warrants resulted in them meeting the definition of a derivative instrument under ASC 815 – Derivatives and Hedging. They continue to be classified in equity as the number of shares and the exercise price were both fixed at inception. The extension of the term of the Tranche A Warrants resulted in additional value being attributed to those warrants. On June 27, 2019 the fair value of the Tranche A Warrants was estimated to be $2,554,503 using a Monte Carlo model and assuming a volatility of 66.7%. The Company recorded a deemed dividend of $1,049,153 in deficit related to the difference between the original and modified Tranche A warrants.

The Tranche B Warrants failed the fixed-for-fixed criterion and, as a result, the Tranche B Warrants are classified as derivative instruments measured at fair value in accordance with ASC 815. On June 27, 2019 the fair value of the Tranche B Warrants was estimated to be $1,117,640 using a Monte Carlo model and assuming a volatility of 66.7%. The value of the Tranche B warrants was recorded directly in deficit as a deemed dividend. Any subsequent changes in fair value will be recorded in net income (loss). As at September 30, 2019, the fair value of the warrant derivative liability is $450,894, and a gain of $666,746 has been recorded during the six months ended September 30, 2019 in Other income (expense), net. The fair value determination includes a high degree of subjectivity and judgement, which results in significant estimation uncertainty. See Note 21 for additional details on how the fair value of the warrant derivative liability is calculated on a recurring basis.

Page 26

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

The Tranche C Warrants are also accounted for as derivative liabilities. Therefore, 12.8 million of the Final Warrants were derecognized and 12.8 million Tranche C Warrants were recognized as new derivative liabilities. The fair values of the Final Warrants and Tranche C Warrants both approximate $nil therefore there was no impact to shareholders’ equity. Any subsequent changes in fair value will be recorded in net income (loss).

The share repurchase credit feature is a derivative liability as Canopy Growth has an obligation to repurchase a variable number of its common shares in order to settle the liability in the future within the share repurchase period or has the option to settle the liability in cash. The fair value of this liability is nominal. The initial value of the derivative liability is a deemed dividend recorded directly in shareholders’ deficit. Any subsequent changes in fair value will be recorded in net income (loss).

27. LEASES

The Company primarily leases office and production facilities, warehouses, production equipment and vehicles. The Company assesses service arrangements to determine if an asset is explicitly or implicitly specified in the agreement and if we have the right to control the use of the identified asset.

The right-of-use asset is initially measured at cost, which is primarily comprised of the initial amount of the lease liability, plus initial direct costs and lease payments at or before the lease commencement date, less any lease incentives received, and is amortized on a straight-line basis over the remaining lease term. All right-of-use assets are reviewed periodically for impairment. The lease liability is initially measured at the present value of lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. We elected to recognize expenses for leases with a term of 12 months or less on a straight-line basis over the lease term and not to recognize these short-term leases on the balance sheet. Leases have varying terms with remaining lease terms of up to approximately 30 years. Certain of our lease arrangements provide us with the option to extend or to terminate the lease early.

Lease payments included in the measurement of the lease liability comprise (a) fixed payments, including in-substance fixed payments; (b) variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; (c) amounts expected to be payable under a residual value guarantee; and (d) the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

At inception or reassessment of a contract that contains lease and non-lease components, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

Balance Sheet location

A summary of lease right-of-use assets and liabilities are as follows:

Assets:
Property, plant and equipment
Operating lease $ 74,124
Finance lease 27,498
$ 101,622
Liabilities:
Current:
Operating lease $ 29,894
Finance lease 23,727
Non-current:
Operating lease 61,222
Finance lease 4,180
$ 119,023

Lease Expense

The components of total lease expense are as follows:

Page 27

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

September 30, 2019
Three monthsended Six months<br>ended
Operating lease expense $ 2,885 $ 4,867
Finance lease expense:
Amortization of<br>right-of-use assets **** 374 **** 748
Interest on lease liabilities **** 314 **** 688
$ 3,573 $ 6,303

Lease maturities

As of September 30, 2019, the minimum payments due for lease liabilities for each of the five succeeding fiscal years and thereafter are as follows:

September 30, 2019
Operating Leases Finance Leases
2021 $ 13,647 $ 24,352
2022 13,124 310
2023 12,543 310
2024 11,712 321
2025 9,787 325
Thereafter 37,800 4,916
Total lease payments 98,613 30,534
Less: Interest (7,497 ) (2,627 )
Total lease liabilities $ 91,116 **** $ 27,907 ****

As of September 30, 2019, we have additional operating leases that have not yet commenced with immaterial aggregated minimum payments on an undiscounted basis.

As of September 30, 2019, future lease expense for operating leases is expected to be as follows:

September 30, 2019
2021 $ 13,059
2022 12,018
2023 10,991
2024 9,821
2025 7,854
Thereafter 20,381
$ 74,124

Page 28

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

Supplemental information

Cash paid for amounts included in the measurement of lease liabilities:

September 30, 2019
Three monthsended Six months<br>ended
Operating cash flows from operating leases $ 2,885 $ 4,867 ****
Operating cash flows from finance leases **** 374 **** 748 ****
Financing cash flows from finance leases **** 377 **** 754 ****
Right-of- use<br>assets obtained in exchange for new lease liabilities:
Operating leases $ 13,370 ****
Finance leases **** — ****
Weighted average remaining lease term (in years):
Operating leases **** 7 ****
Finance leases **** 3 ****
Weighted average discount rate:
Operating leases **** 4.50 %
Finance leases **** 4.50 %
28. SEGMENTED INFORMATION
--- ---

(a) Reportable segments

The Company operates in two segments. 1) Cannabis operations, which encompasses the production, distribution and sale of both medical and recreational cannabis and 2) Canopy Rivers, through which the Company provides growth capital and strategic support in the global cannabis sector, where federally lawful. Financial information for Canopy Rivers is included in the table below, and in Note 20.

September 30,2019 March 31,<br>2019
Ownership interest 28 % 28 %
Cash and cash equivalents $ 82,779 $ 104,145
Prepaid expenses and other current assets 5,399 15,490
Investments in associates 66,052 64,606
Other financial assets 167,505 181,572
Other long-term assets 20,108 17,696
Deferred tax liability (2,303 ) (6,641 )
Other liabilities (2,807 ) (3,458 )
Non-controlling interests (255,137 ) (280,012 )
Equity attributable to Canopy Growth $ 81,596 $ 93,398

(b) Entity-wide disclosures

All property, plant and equipment and intangible assets are located in Canada, except for $488,916 which is located outside of Canada at September 30, 2019 (March 31, 2019 – $350,125).

All revenues were generated in Canada during the three and six months ended September 30, 2019, except for $34,866 and $57,407 respectively, related to medical cannabis and cannabis related devices and merchandise generated outside of Canada (three and six months ended September 30, 2018 – $2,235 and $5,610, respectively).

Page 29

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

For the three months ended September 30, 2019, no customer represented more than 10% of the Company’s revenue (three months ended September 30, 2018 – none).

For the six months ended September 30, 2019, one customer represented more than 10% of the Company’s revenue (six months ended September 30, 2018 – none).

29. SUBSEQUENT EVENTS

These financial statements should be read in conjunction with the audited consolidated financial statements in the Company’s annual report on Form 10-K for the year ended March 31, 2020, which contain disclosures relating to subsequent events through June 1, 2020.

On June 25, 2020 the Company announced that it had entered into a proposal agreement (the “Proposal Agreement”) with Acreage to amend the terms of the arrangement (the “Existing Arrangement”) made pursuant to an arrangement agreement between the Company and Acreage dated April 18, 2019, as amended on May 15, 2019 (the “Arrangement Agreement”). Pursuant to the terms of the Proposal Agreement, the Existing Arrangement will be amended (the “Amended Arrangement”) to provide for, among other things, the following:

• The creation of two new classes of shares in the capital of Acreage with each existing Acreage subordinated<br>voting share (each, an “Existing Share”) being converted into 0.7 of a Fixed Share (as defined below) and 0.3 of a Floating Share (as defined below), with proportionate adjustments for the existing proportionate voting shares and existing<br>multiple voting shares;
• The new subordinated voting shares (the “Fixed Shares”) will have the same attributes as the<br>Existing Shares and will continue to be listed on the Canadian Securities Exchange (the “CSE”). The Fixed Shares will be subject to the terms of the existing call option in favour of Canopy Growth at an amended exchange ratio equal to<br>0.3048 of a common share of Canopy Growth to be received for each Fixed Share held (reduced from 0.5818 per Existing Share pursuant to the Existing Arrangement);
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• The new floating shares (the “Floating Shares”), which Acreage will apply to have listed on the CSE,<br>will be subject to the terms of a new call right in favour of Canopy Growth, exercisable following the occurrence or waiver of the Triggering Event at a price equal to the 30-day volume weighted average<br>trading price of the Floating Shares on the CSE, subject to a minimum call price of US$6.41 per Floating Share, payable in either cash or Canopy Growth common shares at Canopy Growth’s option;
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• Upon implementation of the Amended Arrangement, a cash payment to Acreage shareholders and certain convertible<br>security holders in the aggregate amount of US$37,500; and
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• An aggregate of up to 32,700,000 Fixed Shares and Floating Shares that Acreage is permitted to issue following<br>the implementation of the Amended Arrangement.
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Following the occurrence or waiver (at the discretion of the Company) of the Triggering Event and subject to the satisfaction or waiver of the conditions set out in the Arrangement Agreement (as modified in connection with the Amended Arrangement), Canopy Growth will acquire all of the issued and outstanding Fixed Shares. At the time of the occurrence or waiver of the Triggering Event, Canopy Growth will also have the right, but not the obligation, to acquire all of the issued and outstanding Floating Shares. If the occurrence or waiver of the Triggering Event does not occur within 10 years from the date the Amended Arrangement is implemented, Canopy Growth’s rights to acquire both the Fixed Shares and the Floating Shares will terminate.

In connection with the Amended Agreement, Canopy Growth has agreed to loan a wholly-owned subsidiary of Acreage (“Acreage Hempco”) up to US$100,000 pursuant to a secured debenture, of which US$50,000 will be advanced upon the implementation of the Amended Arrangement, and the remaining US$50,000 will be subject to the satisfaction of certain conditions by Acreage Hempco. The secured debenture will bear interest at a rate of 6.1% per annum, and mature 10 years from the date the Amended Arrangement is implemented or such earlier date in accordance with the terms of the secured debenture.

Implementation of the Amended Arrangement is contingent upon obtaining the requisite prior approvals of the Acreage Shareholders, the Supreme Court of British Columbia and the CSE, and certain other closing conditions.

Page 30

EX-99.6

Exhibit 99.6

NOTICE TO READER

As of September 30, 2019, Canopy Growth Corporation (the “Company”) determined that it no longer qualified as a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act of 1933. This means that as of April 1, 2020, the Company has been required to comply with all of the periodic disclosure requirements of the Securities Exchange Act of 1934 applicable to U.S. domestic issues, such as Forms 10-K, 10-Q and 8-K, rather than the forms the Company has filed with the Securities and Exchange Commission (“SEC”) in the past as a foreign private issuer, such as Forms 40-F and 6-K.

Accordingly, the Company is now required to prepare its financial statements filed with the SEC in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). As required pursuant to section 4.3(4) of National Instrument 51-102 – Continuous Disclosure Obligations, the Company must restate its interim financial reports for the fiscal year ended March 31, 2020 in accordance with U.S. GAAP, such interim financial reports having previously been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The attached amended and restated management’s discussion and analysis (the “MD&A”) for the three and six months ended September 30, 2019 and 2018, is current as of November 14, 2019 and provides financial information for the three and six months ended September 30, 2019, as amended and restated on July 10, 2020, solely to reflect the filing of the amended and restated unaudited condensed interim consolidated financial statements for the three and six months ended September 30, 2019 and 2018 in accordance with U.S. GAAP. Other than as expressly set forth above, the revised MD&A does not, and does not purport to, update or restate the information in the original MD&A or reflect any events that occurred after the date of the filing of the original MD&A.

The Company’s Annual Report on Form 10-K (the “Annual Report”) dated June 1, 2020 is available under the Company’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Readers are cautioned that this MD&A should be read in conjunction with the Annual Report, including the consolidated financial statements and the related notes thereto included in Item 8 thereof.

CANOPY GROWTH CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019

NOVEMBER 14, 2019

MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019

This amended and restated management’s discussion and analysis (the “MD&A”) for the three and six months ended September 30, 2019 is provided as of November 14, 2019 and provides financial information for the three and six months ended September 30, 2019, as amended and restated on July 10, 2020, solely to reflect the filing of the amended and restated unaudited condensed interim consolidated financial statements for the three and six months ended September 30, 2019 and 2018 prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Other than as expressly set forth above, the amended and restated MD&A does not, and does not purport to, update or restate the information in the original MD&A or reflect any events that occurred after the date of the filing of the original MD&A.

Unless the context indicates or requires otherwise, the terms “Canopy Growth”, “the Company”, “we”, “us” and “our” refers to Canopy Growth Corporation and its controlled entities. Canopy Growth is a publicly traded corporation, incorporated in Canada, with its head office located at 1 Hershey Drive, Smiths Falls, Ontario K7A 0A8. The common shares of Canopy Growth trade on the Toronto Stock Exchange (“TSX”) under the ticker symbol “WEED” and on the New York Stock Exchange (“NYSE”) under the ticker symbol “CGC”.

This MD&A was prepared with reference to National Instrument 51-102 – ContinuousDisclosure Obligations of the Canadian Securities Administrators. Under the United States/Canada Multijurisdictional Disclosure System, we are permitted to prepare this MD&A in accordance with Canadian disclosure requirements which may differ from United States disclosure requirements. This MD&A provides information as at, and for the three and six months ended September 30, 2019 and up to and including November 14, 2019.

This amended and restated MD&A should be read in conjunction with Canopy Growth’s amended and restated unaudited condensed interim consolidated financial statements and the notes thereto for the three and six months ended September 30, 2019 (the “Interim Financial Statements”), which have been prepared in accordance with U.S. GAAP. The Interim Financial Statements include the accounts of Canopy Growth and its subsidiaries and its interests in affiliated companies, and all intercompany balances and transactions have been eliminated on consolidation. The Interim Financial Statements and this MD&A have been reviewed by Canopy Growth’s Audit Committee and were approved by Canopy Growth’s Board of Directors on July 10, 2020.

Financial information contained herein is expressed in thousands of Canadian dollars, except share and per share amounts, or as otherwise stated.

This MD&A contains forward-looking information within the meaning of Canadian securities laws, and the use of non-U.S. GAAP measures. Refer to “Cautionary Note Regarding Forward-Looking Statements” for cautionary statements regarding forward-looking statements.

Additional information filed by us with the Canadian Securities Administrators, including this MD&A, the Interim Financial Statements, audited annual consolidated financial statements, interim reports, annual reports and annual information forms have been filed electronically through the System for Electronic Document Analysis and Retrieval (“SEDAR”) and are available under the Company’s profile at www.sedar.com, on the Securities and Exchange Commission (“SEC”) website (www.sec.gov/edgar) and also on our website at www.canopygrowth.com.

This MD&A provides additional information on our performance in the last three and six month periods, and our financial condition and future prospects. It is organized as follows:

• Part 1 – Business Overview
• Part 2 – Strategy
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• Part 3 – Results of Operations
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• Part 4 – Financial Liquidity and Capital Resources
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• Part 5 – Critical Accounting Estimates and Judgments
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• Part 6 – Controls and Procedures
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• Part 7 – Risks and Uncertainties

Canopy Growth is not considered a U.S. Marijuana Issuer (as defined in the Canadian Securities Administrators Staff Notice 51-352 – Issuers with U.S. Marijuana-Related Activities (the “Staff Notice”)) nor does the Company have material ancillary involvement in the United States cannabis industry in accordance with the Staff Notice. While the Company has several partnerships with United States-based companies that may themselves participate in the United States cannabis market, these relationships are licensing relationships that see intellectual property developed in the United States brought into Canada, and in no manner involve Canopy Growth in any unlawful United States activities respecting cannabis. Where a non-controlled affiliate has expressed an intent to enter the United States cannabis market, we have taken steps to insulate the Company from all economic and voting interests until such time that United States federal permissibility changes in favour of cannabis related activities.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This MD&A contains certain “forward-looking statements” within the meaning of section 27A of the United States Securities Act of 1933, section 21E of the United States Securities Exchange Act of 1934, the United States Private Securities Litigation Reform Act of 1995 or in releases made by the United States Securities and Exchange Commission (“SEC”) all as may be amended from time to time, and “forward looking information” within the meaning of Canadian securities legislation, including but not limited to statements relating to:

• assumptions and expectations described in the Company’s critical accounting policies and estimates;<br>
• the adoption and impact of certain accounting pronouncements;
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• the legislation, regulations and licensing related to the cultivation, production and sale of cannabis and<br>hemp products by the Company’s subsidiaries and other business interests;
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• the potential time frame for the implementation of regulations with respect to the second phase of<br>recreational cannabis products in Canada, including the regulatory framework for ingestible cannabis, cannabis extracts and cannabis topical products;
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• the number of users of cannabis or the size of the legal cannabis market in Canada and internationally;<br>
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• the number of users of hemp or the size of the legal hemp market in Canada and internationally;<br>
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• the potential time frame for the implementation of legislation to legalize and regulate medical or<br>recreational cannabis or hemp (and the consumer products derived from each of the foregoing) in Canada and internationally, and the potential form the legislation and regulations will take, including the method of delivery and framework adopted or<br>to be adopted by Canada and various international jurisdictions;
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• the ability to enter and participate in international market opportunities;
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• the Company’s future financial and operating performance;
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• future performance, results and terms of strategic initiatives, strategic agreements and supply agreements;<br>
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• the success of the entities the Company acquires and the Company’s collaborations;
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• the market for the Company’s current and proposed product offerings, as well as the Company’s<br>ability to capture market share;
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• the benefits and applications of the Company’s product offerings and expected sales thereof;<br>
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• development of affiliated brands, product diversification and future corporate development;<br>
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• anticipated investment in and results of research and development;
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• inventory and production capacity, including discussions of plans or potential for expansion of capacity at<br>existing or new facilities;
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• the Company’s exercise of its option to acquire Acreage (as defined below) and the eventual closing of<br>the acquisition of Acreage upon the occurrence or waiver of the Triggering Event (as defined below);
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• future expenditures, strategic investments and capital activities;
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• statements about expected use of proceeds from fund raising activities;
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• the competitive landscape in which the Company operates and the Company’s market expertise;<br>
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• the Company’s ability to achieve profitability; and
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• the Company’s ability to secure further equity or debt financing.
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The words “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates” “forecasts”, “intends”, “anticipates”, or “believes” or variations (including negative variations) of such words and phrases, or statements that certain actions, events, or results “may”, “could”, “would”, “might”, or “will” be taken, occur or to achieve are all forward-looking statements. Forward-looking statements are based on the reasonable assumptions, estimates, internal and external analysis and opinions of management made considering its experience and perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable at the date that such statements are made. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and

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other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Some of the risks and other factors which could cause actual results to differ materially from those expressed in the forward-looking statements contained in this MD&A include, but are not limited to, the factors included under “Part 7 – Risks and Uncertainties” in this MD&A, the factors included under “Part 7 – Risks and Uncertainties” in the Company’s MD&A for the three months and year ended March 31, 2019 and in the Company’s annual information form dated June 24, 2019 (the “AIF”). Although the Company has attempted to identify important factors that could cause actions, events or results to differ materially from those described in the forward-looking statements, there may be other factors that cause actions, events, or results to differ from those anticipated, estimated or intended. Forward-looking statements contained herein are made as at the date of this MD&A. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on the forward-looking statements. The Company does not undertake to update any forward-looking statements except as required by applicable securities laws.

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35 million square feet of cultivation and production space in Denmark, Colombia and Lesotho, with other expansion projects currently underway to continue building-out our global infrastructure footprint.

In November 2018, we closed the $5 billion strategic investment from global beverage leader Constellation Brands Inc. (“Constellation”). In addition to Constellation providing us with their expertise in the areas of operations, product distribution and marketing, the funds will allow us to accelerate our global expansion strategy, including entering the United States market when federally permissible to do so; investing in the recently-legalized hemp market in the United States; building-out infrastructure in new markets; investing in intellectual property development; advancing clinical research programs; and completing strategic acquisitions to continue establishing long-term competitive advantages.

Overview of Financial Results for the Second Quarter of Fiscal 2020

Total net revenue in the second quarter of fiscal 2020 was $76,613, as compared to $90,482 in the first quarter of fiscal 2020.

Our medical cannabis gross revenue increased 37% from the first quarter of fiscal 2020 to $32,239, with 72% growth and 8% growth in our international and Canadian medical cannabis businesses, respectively. Revenue for our international medical cannabis business was $18,090 in the second quarter of fiscal 2020, with the growth driven by the acquisition of C^3^ Cannabinoid Compound Company (“C^3^”), which contributed a full quarter to our results in the second quarter of fiscal 2020, and the return to growth of our German medical business as a result of the resolution of supply constraints experienced in previous quarters. Gross revenue for our Canadian medical cannabis business was $14,149 in the second quarter of fiscal 2020, as our larger harvests in recent months, the broadening of our brand and product offerings for our medical customers, and an increase in the number of patients registered with Spectrum Therapeutics to 75,600 have resulted in sequential improvements over the previous quarter in the number of orders placed by our customers and growth in our gross revenues.

Gross revenue from our recreational cannabis business was $29,777 in the second quarter of fiscal 2020. This included $13,100 of gross revenue from the business-to-consumer channel, which represented growth of 23% from the previous quarter as we continue to build-out our retail store platform in Canada. Gross revenue from the business-to-business channel was $16,677, which reflects our determination of returns and pricing adjustments as discussed below. Approximately one year after the opening of the Canadian recreational cannabis market we, along with our provincial and territorial agency partners, are continuing to monitor our sales of recreational cannabis products, including the format (dry bud, oils, softgels); the type, strain and potency profile; and the quantity and package size of products. We also monitor and evaluate, on an ongoing basis, inventory levels at our own facilities and those held by our provincial and territorial agency partners against both the recent consumer demand and sales trends that are being observed in the recreational market, and the anticipated longer-term growth in the market.

In the second quarter of fiscal 2020, this evaluation indicated that the risk of over-supply of certain oil and softgel formats existed in certain markets due, in part, to underdeveloped retail markets in several provinces. Since identifying the oversupply risk, we have implemented new pricing and retail customer education strategies in order to improve the sell-through velocity of oils and softgel products and we expect these activities to lead to an appreciable reduction in provincial and territorial inventories. However, based on this assessment, we have determined returns and pricing adjustments related primarily to the risk of over-supply of certain oil and softgel products in the amount of $32,727, and this amount has been reflected in revenue.

As overall demand for oils and softgels in the recreational cannabis market has not met our initial forecasts and expectations at the time of launch, in an effort to balance supply and demand in the recreational cannabis retail channel we have reduced the production of certain of our recreational cannabis oil and softgel products in the second quarter of fiscal 2020.

Our reported gross margin was 5% of net revenue in the second quarter of fiscal 2020, and was impacted by the following items: (1) operating costs of $10,536 relating to non-operating or under-utilized production facilities, (2) the impact on gross margin of $9,157 related to returns and pricing adjustments, as described above, (3) charges for excess finished recreational cannabis inventory of $17,000 recorded primarily in conjunction with our evaluation of the estimated on-hand provincial and territorial inventory levels. We have assessed current and forecasted “sell-in” rates of certain oils and softgel products and concluded a risk exists that a portion of our inventory of certain recreational oil and softgel products may not be sold within a reasonable timeframe. While the product will continue to be stored and is well within its expiry date, we believe this is a prudent step at this time, and (4) other adjustments related to the net realizable value of inventory.

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We continue to build high-quality, dried flower inventory that we believe will be necessary to meet the increased demand that will be generated by growth in the recreational cannabis retail platform across the country over the next 6 to 18 months, particularly in the province of Ontario. Ontario, with 24 retail stores currently open, is underserved on a per capita basis and we believe Ontario can support over 1,000 retail stores. We expect the government of Ontario to soon announce a new and expanded recreational cannabis retail program in that province. Adopting a pace of store openings similar to that accomplished in Alberta, which saw the number of retail stores increase over a 5-month period from approximately 65 to approximately 290 at the end of September 2019, the number of stores serving Ontario consumers could approach 600 within 12 to 18 months. The larger retail store count in Ontario can be expected to focus on the greater Toronto area and southwestern Ontario, which has a significantly higher population density than that of Alberta. In light of this anticipated growth, we believe that our current inventory of dried flower and production output levels are appropriate.

As we continue to scale-up production and increase our product offerings, we are applying the lessons learned from the first year of legal recreational cannabis and planning for more conservative production and finished goods inventory levels for the second phase of recreational cannabis products, with the ability to ramp up production as demand increases while ensuring a consistent and reliable supply for provincial and territorial customers, retailers, and Canadian consumers.

Our Adjusted EBITDA^1^ loss for the second quarter of fiscal 2020 was $150,380, as compared to an Adjusted EBITDA loss of $92,060 for the previous quarter. The Adjusted EBITDA loss attributed to strategic investments and business development was $36,208 in the second quarter, compared to a loss of $18,005 for the previous quarter, as we continue to invest in (1) the build-out of our administrative infrastructure in support of our global expansion strategy, (2) marketing initiatives in advance of our planned launch of CBD products in the United States and other international markets in the coming months, and (3) research and development initiatives related to new product innovation for the recreational markets, and conducting clinical trials to support new cannabis-based human and animal medicines. The Adjusted EBITDA loss attributed to operations in Canada and Europe and corporate overhead was $103,636, compared to $57,819 for the previous quarter. The increase in the loss is largely reflective of our gross margin results, as described above, and other investments made including brand awareness and product marketing initiatives in support of the launch of the second phase of recreational cannabis products in Canada.

The results of our operations in comparison to the second quarter of fiscal 2019 are discussed below under “Part 3—Results ofOperations”.

^1^ Adjusted EBITDA is a non-GAAP measure, and is calculated as earnings<br>before interest, tax, depreciation and amortization, share-based compensation expense, fair value changes and other non-cash items, and further adjusted to remove acquisition-related costs. The Company<br>attributes Adjusted EBITDA to its operations and corporate overhead, strategic investments and business development, and non-operating or underutilized facilities. See “Adjusted EBITDA (Non-GAAP Measure)”.

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<br>converting more occasions from the illicit market are key areas of focus. Our diverse portfolio of brands allows us to effectively target specific customer demographics, use occasions and product<br>form factors.

LOGO

Strategic Investments and Business Development

• United States Market Development – Executing on our United States market development<br>strategy by (1) immediately entering the United States hemp and CBD market subsequent to the passage of the Farm Bill (as defined below), including conducting research and development into hemp cultivation, and investing in hemp cultivation,<br>processing, extraction and production facilities with an objective of bringing consumer CBD products, which may include skincare and cosmetics, topical creams, vape products, beverages, edibles, oils and softgels, to market in the United States. We<br>have invested in large-scale hemp extraction, processing and production facilities in New York and Illinois. In addition, we have built our hemp supply chain in the United States through partnering with a diverse group of contract farmers and<br>manufacturers across several states for the cultivation, extraction, processing and production of hemp-derived products; and (2) entering into the arrangement agreement with Acreage, a leading United States multi-state cannabis operator, in<br>April 2019 (the “Acreage Arrangement Agreement”). This provides Canopy Growth with the option (“Call Option”) and the requirement to acquire all of the issued and outstanding securities of Acreage, contingent on the occurrence<br>(or waiver) of changes in United States federal law to permit the general cultivation, distribution, and possession of marijuana or to remove the regulation of such activities from the federal laws of the United States (the “Triggering<br>Event”). We anticipate that if the acquisition of Acreage is completed, it will accelerate our pathway into cannabis markets in the United States, once federally-permissible. Finally, Canopy Growth and Acreage executed a licensing agreement<br>granting Acreage access to Canopy Growth’s brands, including Tweed and Tokyo Smoke, along with other intellectual property. We, together with Acreage, are evaluating opportunities to begin deploying these brands in the United States.<br>
• Global Expansion – Expanding globally and increasing our total addressable market by<br>pursuing business opportunities in countries where it is federally legal and/or permissible to do so, including (1) building, acquiring, or entering into partnerships with third parties to expand our cannabis growing and cultivation capacity,<br>value-added cannabis- and hemp-based production capability, and sales operations; (2) advancing clinical research and best-in-class healthcare practitioner and<br>patient education programs through Spectrum Therapeutics; and (3) the introduction, and export of cannabis, cannabis-based medicines, and consumer CBD products to countries outside of Canada. Further, we believe we have an opportunity to<br>leverage and deploy the business model we developed in Canada over the past 5 years that has resulted in significant growth, and which has been highly successful in both the Canadian medical and recreational markets, to establish ourselves as the<br>early leader in countries where forms of cannabis are already legal and permissible or where governments are actively
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<br>moving towards legalization. Having established the necessary local teams and partnerships, we are now squarely focused on execution of commercial sales.
• Innovation and Product Development – Conducting research and development and acquiring<br>businesses focused on developing intellectual property related to (1) new product development and introduction, including value-added, high-margin cannabis and hemp-based consumer products that are being developed in preparation for the second<br>phase of recreational cannabis and hemp in Canada. These products include beverages that span multiple categories and occasions, including recreational and athletic drinks; pain and anxiety relief therapies; sleep aids; other health and wellness<br>products; animal health products; and advanced consumer products such as vapes and other medically-approved cannabis-delivery devices. With the acquisition of a majority interest in BioSteel Sports Nutrition Inc. (“BioSteel”) in October<br>2019, we entered the sports nutrition and hydration market with a strong and growing brand and laid the groundwork for infusing CBD in future product offerings in accordance with global regulations. We believe these investments will increase our<br>total addressable market, allow us to position our products as premium offerings at the onset of the second phase of recreational consumer products in Canada, and capture higher gross margins through the sale of value-added products;<br>(2) creating research-driven, protectable medical product formulations and driving these products through robust clinical studies to create new cannabis-based medicines; and (3) innovation focused on optimizing our cannabis growing and<br>manufacturing capability, including developing higher-yielding plant genetics and continuing to scale and enhance our extraction capability.
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• Production Capability and Capacity – Expanding our licensed production, processing, oil<br>extraction, advanced manufacturing and beverage production infrastructure in order to establish the commercial scale required to supply the domestic Canadian recreational and medical markets, including preparing for the second phase of recreational<br>consumer products in Canada and permissible international markets. We are diversifying our licensed production capacity in Canada by investing in indoor, greenhouse and outdoor cannabis cultivation capacity, as well as outdoor hemp production<br>capacity. Additionally, we continue to invest in developing intellectual property in the areas of the manufacturing of device and delivery technologies, large-scale cannabis processing, production and packaging, and cannabis plant genetics.<br>Internationally, we hold licences for large-scale cultivation and production space in 3 continents and the expertise we have gained in developing our production capability in Canada will be leveraged as we continue<br>building-out our international supply chains.
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United States Market Development

Conducting Business in the United States

Canopy Growth will only conduct business activities related to growing or processing cannabis in jurisdictions where it is federally permissible to do so. Canopy Growth is not considered a U.S. Marijuana Issuer nor does the Company have material ancillary involvement in the United States cannabis industry in accordance with the Staff Notice.

While we have several partnerships with United States-based companies that may themselves participate in the United States cannabis market, these relationships are licensing relationships that see intellectual property developed in the United States brought into Canada, and in no manner involve Canopy Growth in any activities in the United States respecting cannabis. As discussed below, certain entities in which the Company holds securities may operate in the United States cannabis industry, however, our investment in such entities has been structured such that we hold non-participating, non-voting securities that are only exercisable or exchangeable upon cannabis becoming legal or permissible in the United States under federal law. Further, we have developed specific plans related to establishing business operations in the United States in the event cannabis becomes federally permissible which are discussed below.

Passage of the Farm Bill,Potential Future Permissibility of Cannabis in the United States and Our Related Investments in Hemp and CBD

On December 20, 2018, the Agricultural Improvement Act of 2018 (the “Farm Bill”) was signed into law in the United States. The Farm Bill, among other things, defines industrial hemp, removes industrial hemp and its cannabidiols, including CBD derived from industrial hemp but excluding THC, from the United States Controlled Substances Act (the “CSA”) and allows for industrial hemp production and sale in the United States. On October 29, 2019 the United States Department of Agriculture (“USDA”) announced the establishment of the U.S. Domestic Hemp Production Program, providing a consistent regulatory framework around hemp production through the United States. An interim final rule formalizing the program was released in early November, and will allow hemp to be grown under federally-approved

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plans and make hemp producers eligible for a number of agricultural programs. The rule will also include provisions for the USDA to approve hemp production plans developed by states, including testing the levels of THC and licensing requirements. The United States Food and Drug Administration (the “FDA”) has retained authority over the addition of CBD to products that fall within the Food, Drug, and Cosmetic Act (the “FDCA”). There can be no assurance that the FDA will approve CBD as an additive to products under the FDCA. Additionally, the 2018 Farm Bill does not legalize CBD derived from “marihuana” (as such term is defined in the CSA), which is and will remain a Schedule I controlled substance under the CSA. The FDA has expressed a willingness to take a flexible regulatory approach to foster the development of hemp-derived products such as CBD; however, the FDA has indicated that those actions will have to fit under the confines of current law and further legislation will likely be required. Furthermore, multiple legislative reforms related to cannabis are currently being considered by the federal government in the United States. Examples include the Strengthening the Tenth Amendment Through Entrusting States Act and the Secure and Fair Enforcement Banking Act. There can be no assurance that any of these pieces of legislation will become law in the United States.

Leading up to and following passage of the Farm Bill, we have positioned ourselves to advance our hemp interests in the United States. We have built our hemp supply chain in the United States through partnering with a diverse group of contract cultivators and growers across several states. In 2019, we secured a 308,000 square foot facility in Kirkwood, New York. The renovation of the facility in Kirkwood recently commenced, and once fully renovated it will support our large-scale hemp-derived cannabinoid extraction and related product manufacturing capability in the United States.

Additionally, we own an industrial-scale facility in Batavia, Illinois through our recent acquisition of bio-product extractor KeyLeaf Life Sciences (“KeyLeaf”) (see “Hemp and CBD Products” below for further details). This facility has been certified by the FDA and licensed by the state of Illinois for hemp processing and specializes in ensuring that extraction output is free of impurities in products intended for consumption. Furthermore, we have identified proven contract extraction and manufacturing partners to strengthen our supply chain for the extraction, processing and production of hemp-derived products. Our facilities in Kirkwood, New York and Batavia, Illinois, together with our partnerships with third-party contract manufacturers, will be critical in processing the extract required to supply and sustain our program in which we plan to bring a broad portfolio of CBD products to the United States market, which may include skincare and cosmetics, topical creams, vape products, beverages, edibles, oils and softgels, as permissible by regulations or law.

We have also entered into strategic partnerships in order to build our brand awareness around hemp and CBD-based products, including engaging Martha Stewart in an advisory role to assist with developing and positioning a new line of CBD-based product offerings across multiple categories such as animal health and wellness.

Acreage Transaction

In late June 2019, subsequent to receiving all necessary approvals from the shareholders of Acreage and Canopy Growth and obtaining the final order from the Supreme Court of British Columbia, Canopy Growth and Acreage implemented the previously-announced plan of arrangement (the “Acreage Plan of Arrangement”) which grants Canopy Growth the Call Option and the requirement to acquire all of the issued and outstanding securities of Acreage upon the occurrence (or waiver) of the Triggering Event. Upon the implementation of the Acreage Plan of Arrangement, shareholders of Acreage and certain other holders of securities convertible into shares of Acreage received an upfront payment of US$300 million. Following the occurrence (or waiver) of the Triggering Event and completion of the acquisition of Acreage, shareholders of Acreage will receive 0.5818 of a Canopy Growth common share for each Acreage share held at the effective time, subject to adjustment in certain circumstances in accordance with the terms of the Acreage Arrangement Agreement (the “Exchange Ratio”). The value of the consideration to Acreage shareholders may change up until the Call Option is exercised as the value is based on the Exchange Ratio. Canopy Growth is permitted to waive the Triggering Event.

Acreage is headquartered in New York City and is a leading vertically-integrated, multi-state operator in United States cannabis. Acreage owns licences to operate (or has management services agreements with licence holders to assist with operating) approximately 90 dispensaries and over 20 cultivation and processing sites in 20 U.S. states. Canopy Growth and Acreage will operate as independent companies until Canopy Growth exercises its Call Option, at which time the combined operations of Canopy Growth and Acreage are expected to create a leader in the United States cannabis market. In connection with the Acreage Arrangement Agreement, Canopy Growth and Acreage executed a licensing agreement granting Acreage access to Canopy Growth’s award-winning line-up of brands such as Tweed and Tokyo Smoke, along with other intellectual property. We, together with Acreage, are in the process of evaluating opportunities to begin deploying these brands in the United States.

Pursuant to the Acreage Arrangement Agreement, Acreage may issue up to 58 million additional subordinate voting shares of Acreage in respect of potential acquisitions. Further information regarding the Acreage Plan of Arrangement is

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described in Canopy Growth’s Management Information Circular dated May 17, 2019, which is available under Canopy Growth’s profile on SEDAR at www.sedar.com.

Other United States Holdings

While TerrAscend Corp. (“TerrAscend”) and Slang Worldwide Inc. (“Slang”) have interests in cannabis-related business in the United States, we have undertaken steps to structure our security holdings in these entities to insulate Canopy Growth from engaging in any unlawful United States cannabis-related activities. Canopy Growth has no voting rights nor economic interests in these entities.

Canopy Growth holds conditionally exchangeable shares in the capital of TerrAscend. These shares are not entitled to voting rights, dividends or other rights upon dissolution of TerrAscend but are convertible into common shares of TerrAscend upon receipt of the approval of the stock exchanges upon which Canopy Growth’s securities are listed and following either changes in United States federal laws regarding the cultivation, distribution or possession of cannabis or changes in the policies of the stock exchanges upon which Canopy Growth’s securities are listed with respect to such activities. The exchangeable shares do not provide (and there are no related contractual rights that would otherwise provide) us with any right to dividends, entitlements upon dissolution of TerrAscend, cash flow or other current economic entitlements, voting rights or any form of control over the business, affairs, operation or financial condition of TerrAscend.

Similarly, Canopy Growth holds conditionally exercisable warrants in the capital of Slang. Canopy Growth is not permitted to exercise the warrants without, among other things, receipt of the approval of the stock exchanges upon which Canopy Growth’s securities are listed and following the date that the growth, cultivation, production, sale, use and consumption of cannabis and cannabis-related products are permitted in the United States for any and all purposes (including medical, therapeutic and recreational) under all applicable federal laws of the United States, including the CSA.

We monitor the activities of TerrAscend, Slang and other entities in which we are invested for compliance with United States cannabis laws, and would make similar arrangements, if necessary, to ensure our ongoing compliance with United States federal laws.

See “Risk and Uncertainties – Stock Exchange Restrictions, Cannabis is a Controlled Substance in the United States, 2018 Farm Bill Risks, Entry Bans into the United States, Banking Risks and Enforceability of Contracts” below.

Global Expansion

Canada has designed and implemented federal regulatory models for both medical and recreational cannabis. Since the legalization of recreational cannabis on October 17, 2018, Canopy Growth has established itself as a leader in both markets in Canada and achieved significant growth by successfully executing on our business model, which includes our investments in cannabis production capability and distribution, developing intellectual property, industry and regulatory knowledge and expertise, and industry-leading physician, pharmacist and patient education in order to build market share and customer loyalty at the outset. Accordingly, we believe that a significant opportunity exists today to leverage and deploy our Canadian “playbook” and our financial strength to establish ourselves as the first-mover and market leader in countries which have legalized or are exploring the legalization of medical cannabis.

In recent years, the actions of governments around the world have signaled a significant change in attitudes towards cannabis, and federal governments in over 40 countries have either formally legalized medical cannabis access or established government efforts to explore the legalization of medical cannabis access. Therefore, future opportunities are likely to exist for Canopy Growth in jurisdictions where governments are actively moving towards a legal framework.

To date, Canopy Growth has secured the necessary regulatory approvals to export cannabis or cannabis materials (such as clones or tissue cultures) to Australia, Brazil, Chile, Colombia, Czech Republic, Denmark, Germany, Jamaica, Lesotho, Poland, Spain, South Africa, the United Kingdom, and the United States.

To date, we have announced subsidiaries, partnerships or business activities in several countries as described below.

Figure 1: International subsidiaries, partnerships or business activities

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Europe

In the second quarter of fiscal 2020 we continued our progress on the integration of the recent acquisition of C^3^ and are offering a full portfolio of medically-validated cannabinoid therapies and products to our healthcare practitioners and patients in Europe, and advanced, medically-approved Storz & Bickel vaporizers and other delivery devices. In addition, with the acquisition of This Works we plan to introduce new CBD-infused products and brands to the global beauty, wellness, and sleep solution spaces.

We have continued to invest in our infrastructure in Europe. Our state-of-the-art greenhouse facility in Denmark is expected to supply the growing demand for Spectrum Therapeutics products across the continent and support our ultimate goal of increasing access for patients across Europe, offering a greater range of products, and allowing for an early-mover advantage as new countries open their doors to medical cannabis. In October 2019, Spectrum Therapeutics was awarded the exclusive contract to supply medical cannabis to Luxembourg.

Germany – Spectrum Therapeutics operates as a pharmaceutical distributor with the necessary approvals in Canada and Germany to export/import medical cannabis for sale to German patients. In May 2019 we acquired Germany’s C^3^, Europe’s largest cannabinoid-based pharmaceuticals company and a leading manufacturer and distributor of dronabinol, a registered active pharmaceutical ingredient in Germany, Austria, Switzerland and Denmark. C^3^operates two state-of-the-art manufacturing facilities specializing in natural extraction and synthetic cannabinoid production, which are scheduled for further expansion this year to accommodate forecasted rapid growth in the business. The acquisition of C^3^ enhances our European infrastructure and provides a robust sales and marketing organization which already serves pharmacies and healthcare practitioners. In addition, C^3^ holds several patents related to cannabis including extraction technology and the synthetic production process and has several clinical trials underway.

Additionally, we acquired Storz & Bickel GmbH & Co., KG (“Storz & Bickel”) in December 2018. Storz & Bickel is widely recognized as a global leader in the design and manufacture of medically-approved vaporizers and other delivery devices at its certified, automated factory, and exports its devices to 50 markets around the world.

Denmark – We retrofitted a building in Odense, Denmark which now includes approximately 300,000 square feet of licensed greenhouse cultivation and post-harvest processing capability, and Spectrum Therapeutics received the necessary licensing which allows us to cultivate, harvest, export and sell medical cannabis in dried flower form. To our knowledge, Spectrum Therapeutics is the first Canadian company to receive a federal production licence in Denmark. The Danish greenhouse has completed pilot harvests, and commercial-scale cultivation has begun. The necessary

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regulatory approvals were received from the Danish government in October 2019, and we expect the cannabis harvested and processed by the Danish facility to begin serving European markets in late calendar 2019.

Poland – After completing a rigorous regulatory approval process, we completed our first import of medical cannabis into Poland in the fourth quarter of fiscal 2019. According to the Polish Pharmaceutical Chamber, which represents about 15,000 pharmacies in Poland, it is estimated that up to 300,000 patients could qualify for medical cannabis treatment and as the only producer that imports product in this country, we expect that our first-mover advantage will allow us to maintain dominant market share.

Spain – We completed the all-cash acquisition of Cáñamo y Fibras Naturales, S.L. (“Cafina”) in March 2019, with Cafina being one of three companies in Spain authorized to cultivate, distribute and export cannabis containing more than 0.2% THC for medical and research purposes. Cafina is also licensed to cultivate hemp. This acquisition allows us to expand our European production footprint and improve our long-term positioning to address demand across Europe for medical cannabis and CBD products. Additionally, we entered into a supply licence agreement with Spain’s Alcaliber S.A. (“Alcaliber”) in fiscal 2018 pursuant to which we will grant Alcaliber a licence to use certain strains and seeds to be grown and cultivated at Alcaliber’s facilities for sale worldwide. We completed a transfer of 1,500 cannabis clones to Alcaliber, and in early fiscal 2019 Alcaliber shipped the first group of clones to Denmark.

United Kingdom – We began operating in the United Kingdom in early 2019 with a focus on providing patients with reliable access to cannabis-based medical products. In October 2019, Spectrum Therapeutics received the necessary government licenses to store and distribute medical cannabis products, reducing prescription delivery times and allowing the importation of medical cannabis into the United Kingdom from our European and global networks. Our focus in the United Kingdom so far has been in educating pharmacists and patients. Further, we recently completed two acquisitions:

• TWP UK Holdings Limited (“This Works”) in May 2019, a global leader in natural skincare and sleep<br>solutions with a customer base spanning 35 countries; and
• The outstanding, unowned shares in Beckley Canopy Therapeutics (“BCT”) in October 2019, including<br>the joint commercial venture Spectrum Biomedical UK. BCT was formed as a joint venture in January 2018 to research and develop clinically-validated cannabis-based medicines, with a strong focus on intellectual property protection, and will be<br>integrated into the broader Spectrum Therapeutics organization to increase the breadth of the clinical research being pursued under the Spectrum banner and to combine the continental European and United Kingdom commercial teams.<br>
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Czech Republic – We acquired Annabis Medical s.r.o., a leader in the Czech Republic’s medical cannabis industry, in the first quarter of fiscal 2019. We currently import and distribute cannabis products pursuant to federal Czech licences, with products sold through pharmacy channels across the Czech Republic.

Latin America and the Caribbean

Our Latin America and Caribbean business continues to advance medical cannabis in this region, home to more than 650 million people and host to more than 70 million tourist visitors per year. Several individual nations have recently modernized, or are in the process of exploring, legislation for medical and recreational cannabis and CBD products. In alignment with Canopy Growth’s global expansion strategy, our initiatives have been focused on low-cost cannabis production in Colombia and early commercialization efforts for medical cannabis and CBD products in Peru. We will continue to pursue opportunities in Brazil, Chile, and other countries as their regulatory environments evolve, and advance our Spectrum Therapeutics brand in Latin America through the education of physicians and pharmacists.

Colombia – **** We continue to establish Colombia as our production and processing hub for Latin America and have begun positioning our operations in Colombia as a potential low-cost supplier for markets beyond Latin America in the future. Operations at our fully licensed 126 hectares (13.6 million square feet) growing site continue to move forward, with a harvest expected to be completed in November that will be used to register our cannabis with the Colombia government. Once registered, we will begin our first commercial grow, with the harvest expected in early-to-mid 2020. In addition, we signed a multi-year agreement with Procaps S.A.S. (“Procaps”), a global company that develops, manufactures and markets over-the-counter medications and nutritional supplements for a number of international pharmaceutical companies. Procaps exports to more than 50 international markets, including the United States, and Canopy Growth will leverage Procaps’ industry-leading formulation and encapsulation capacity, which is especially critical in Latin American markets where there is a regulatory preference for oil-based products, such as softgels. The first batch of Procaps products is expected to be sold in Latin America, where legal and permissible, by the summer of 2020.

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Peru – We launched our operations in Peru in fiscal 2019 and we will actively pursue the Peruvian medical and CBD markets, once open, by leveraging our global expertise in patient and physician education, as well as in medical cannabis production. We have secured an exclusive distribution agreement with Peru’s largest pharmaceutical distributors, thus creating access to approximately 80% of pharmaceutical shelves in the country.

Brazil and Chile– Our core activities in these countries include serving patients through the compassionate patient stream and educating and training physicians through cooperation agreements with leading universities in each country. Further, we remain focused on productive engagement with government and regulators to advance the conversation on access to medical cannabis and CBD-based products in each country.

Caribbean – Across the Caribbean, we are currently focused on medical cannabis sales to the Cayman Islands and setting the stage for future regional sales through marketing activates. Considerable progress has been made towards serving this region with distributor channels in place covering several of the island nations. We also own 49% of Tweed Limited JA, a Jamaican company that holds a cultivation licence and greenhouse.

Asia/Pacific

Australia – Canopy Growth and the Victoria state government launched our Australian operations early in fiscal 2019. The first shipment of medical cannabis oil was received in Australia in April 2019, and Spectrum Therapeutics began selling to medical cannabis patients in May 2019. Construction of a Victoria-based greenhouse and processing facility is currently underway, with completion expected in March 2020. This will enable domestic cultivation and production of high-quality medical cannabis for patients while serving as a planned distribution hub for other jurisdictions in Asia/Pacific. Spectrum Therapeutics will continue supporting Australian patients through imports until the facility is operational. The Victoria-based facility will also operate as our Asia/Pacific research and development center, supporting the ongoing research collaboration between Canopy Growth and the Victoria state government on furthering innovations in medical cannabis.

Additionally, in October 2019 Spectrum Therapeutics announced a partnership with Emerald Clinics Australia which allows the collection of real-world, clinical outcome data for up to 500 patients who had been prescribed Spectrum Therapeutics products throughout the course of their treatment. This data will produce regulatory grade evidence for our medical cannabis products and enable us to better understand the safety and efficacy of our products, with a specific focus on the therapeutic areas of pain, mood and sleep.

Africa

Canopy Growth Africa is headquartered in Cape Town, South Africa and has built a team with expertise across various fields to lead our African expansion strategy. We were accredited in October 2019 with the first and only cannabinoid based medical educational program for Health Care Professionals in Africa. This will enable doctors and allied medical professionals to gain crucial insights into the potential of medical cannabis across a range of conditions.

Lesotho – We hold a licence to cultivate, manufacture, supply, hold, import, export and transport cannabis and its resin in the Kingdom of Lesotho. We have recently been granted a medical hemp production license for 200 hectares (21.5 million square feet) of outdoor grow space, with our first commercial hemp harvest expected in the first quarter of fiscal 2021. We have also commenced cultivation at our 322,000 square foot facility which includes an indoor propagation room, vegetation greenhouse, and an outdoor growing area. High THC and CBD-THC balanced varieties can both be cultivated at this facility. This facility was Africa’s first Good Agricultural Practices (GAP) certified medical cannabis growing facility.

South Africa—We completed our first import and sale of medical cannabis in South Africa during September 2019 and plan to launch a range of CBD products in the coming months. This product launch will be underpinned by a customer education program aimed at assisting the public to make the most informed decisions around quality, standards and usage.

Our Brands

Our diverse platform of brands “under the Canopy” allows us to effectively target specific customer demographics, use occasions and product form factors.

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Core Brands

Tweed – Tweed’s high-quality, highly-curated cannabis products, places and spaces are tailored to help people reconnect with one another. Our authentic local presence and desire for shared prosperity help us to be a good neighbor to those communities that invite us in.

Tokyo Smoke – Tokyo Smoke is an award-winning cannabis brand delivering immersive, innovative experiences to consumers through cannabis products, accessories, and best-in-class retail stores. From our thoughtfully-crafted intent-based classification system to our iconic red lantern logo, Tokyo Smoke pushes creative boundaries, unlocking new ways to explore cannabis.

Van der Pop – With a focus on education, empowerment and community building, Van der Pop is Canopy Growth’s female-focused cannabis brand. Van der Pop provides products and platforms for women to explore using cannabinoids for self-care in a way that is nuanced and respects stigma-free living.

Spectrum Therapeutics – Our international medical brand that serves as our physician and patient-facing identity across all federally-permissible jurisdictions where Canopy Growth operates. “Spectrum” in the name refers to the trademarked colour-coded cannabis strain classification system. Spectrum Therapeutics is positioned as the rational voice in the medical cannabis space with a focus on industry-leading, high-quality research, healthcare professional education, and quality products for patients with pain, mood and sleep conditions.

DOJA – **** DOJA is based in British Columbia’s Okanagan Valley, where DOJA grows premium, hand-crafted flower. DOJA represents celebrating the freedom from convention and a respect for the West Coast community and land from which it came.

TWD– TWD is our basic line of safe and affordable cannabis products from Tweed.

This Works – Founded in 2004, London, England-based This Works offers a range of high-quality natural skincare and sleep solution products that have rewarded the company with a loyal following of customers spanning 35 countries. Through their unique approach of formulating solutions that work in harmony with the 24-hour body clock, This Works has evolved its product lines beyond a traditional viewpoint to a more complete regiment. This Works plans to introduce a CBD-based line of offerings in federally permissible markets.

BioSteel – BioSteel is a leading sports nutrition brand that was built on the mandate of providing the safest, healthiest and most effective line of nutritional products. Originally formulated for the best athletes in the world, BioSteel’s line of nutritional products have become adopted by the masses through authentic partnerships with our #TEAMBIOSTEEL athletes. BioSteel plans to introduce CBD-based products in federally permissible markets.

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Beverage Brands

Quatreau – Quatreau is a line of deliciously refreshing cannabis-infused, naturally flavoured sparkling water beverages available in CBD-only and THC/CBD balanced varieties. Quatreau believes in making daily situations a little more simple, enabling consumers to reset and recharge before tackling what’s next.

Deep Space – Deep Space is a mysterious and full flavoured cannabis-infused spiced cola beverage with a higher dose of THC than other offerings across Canopy Growth’s portfolio. With 10 milligrams of THC per serving offered in an easy-travel 222 milliliter mini can, Deep Space aims to unlock a collective journey of possibility and discovery.

Edibles Brands

Bean & Bud Craft Cannabis Company – Bean & Bud is a line of premium, bean to bar cannabis-infused dark chocolate with 5 milligrams of THC per serving. Hand-crafted by the award-winning chocolate makers at Hummingbird Chocolates and made in small batches – the attention to detail and meticulous process adds a special touch for consumers to savour life’s moments.

Technology Brands

Storz & Bickel – Based in Tuttlingen, Germany, Storz & Bickel are designers and manufacturers of medically approved vaporizers, most notably the Volcano Medic and the Mighty Medic. Exported to 50 markets around the world and with a 23-year track record of breakthrough innovations, Storz & Bickel is widely recognized as a global leader in vaporizer design and manufacturing.

Affiliated Brands

Houseplant – An elevated Canadian cannabis company founded by Seth Rogen and Evan Goldberg and launched in 2019, Houseplant is rooted in commitment, authenticity and education. Their love affair with cannabis has spanned a lifetime, and they believe it should be treated with the reverence it deserves. Each element of their suite of products, and every part of their identity have been thoughtfully designed and considered.

More Life Growth Company – A wellness-based cannabis company and joint venture between two Canadian trailblazers. Owner/Founder Aubrey “Drake” Graham – a cultural leader, entrepreneur and entertainment icon – joined forces with Canopy Growth to commercialize a premium, licensed product lineup in Canada and future global markets.

DNA Genetics – DNA Genetics has won awards in every category in the Cannabis Cup, the world’s preeminent cannabis competition. Working with DNA Genetics, Canopy Growth breeds new strains for customers that are simply not available anywhere else in the world, bringing the best of existing DNA Genetics to Canopy Growth customers, bred and grown to DNA standards.

LBS – LBS is a premier cannabis brand by entertainment icon Snoop Dogg available in the United States and licensed by Canopy Growth in Canada. LBS embodies the “California Vibe”.

*Green House Brands –*Green House Brands are globally recognized award-winning cannabis brands that will be introduced into Canada market. Established in 1985, the Green House Brands portfolio includes Green House Seed Co. and Strain Hunters, both of which market exclusive cannabis strains. Green House Brands are expected to launch in 2020.

Organa Brands – Organa Brands is home to some of the world’s largest consumer cannabis brands, including O.penVAPE, Bakked, Magic Buzz and District Edibles. Organa Brands is expected to launch in the Canadian recreational market in 2020.

Retail Strategy and Brands

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The Cannabis Act provides provincial, territorial and municipal governments with the authority to prescribe regulations regarding retail and distribution of recreational cannabis. As such, the distribution model for recreational cannabis is prescribed by provincial regulations and differs from province to province. Some provinces have government-run retailers, while others have government-licensed retailers, and some have a combination of the two. All of our recreational sales are conducted according to the applicable provincial and territorial legislation and through applicable local agencies. We continue to monitor the developing legislation to identify opportunities for our brands.

We are pursuing a cannabis retail presence in provinces, where permitted, to capture retail gross margin, higher market share, educate consumers, build recognition for our Tweed and Tokyo Smoke brands, and establish direct connections with customers. Offering two distinct customer experiences will allow us to appeal to various consumer demographics without saturating any single segment.

In the second quarter of fiscal 2020, we opened 2 additional cannabis retail stores operating under the Tweed or Tokyo Smoke banner, of which 1 is corporate owned and 1 is operated by partners.

As of November 14, 2019, we have 27 cannabis retail stores operating under the Tweed or Tokyo Smoke banner, of which 22 are corporate-owned stores and the balance are operated by our partners. Tweed has 16 corporate-owned locations selling cannabis across Newfoundland & Labrador, Manitoba and Saskatchewan and has a branded e-commerce presence in Newfoundland & Labrador, Manitoba, Saskatchewan and Nunavut. Tokyo Smoke operates 6 corporate-owned retail cannabis stores and an e-commerce platform in Manitoba.

Further, we have received licences, rights to licences or permits to apply for licences to operate cannabis retail stores in 4 provinces:

– Newfoundland & Labrador—licences for up to 7 stores;
– Manitoba—licences for up to 15 stores;
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– Saskatchewan—licences for up to 5 stores; and
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– Alberta – development permits for 18 cannabis retail store locations.
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In Ontario, we have entered into multi-year licensing agreements to enable our partners to open 2 Tokyo Smoke-branded stores and 1 Tweed-branded cannabis store. We are continuing to explore additional opportunities to expand the Tokyo Smoke and Tweed retail banners across the province. We are also pursuing cannabis retail licences in British Columbia through the provincial retail licensing processes.

Positioning of Canopy Growth’s Brands in the United States

As part of the implementation of the Acreage Plan of Arrangement, Canopy Growth and Acreage executed a licensing agreement granting Acreage access to Canopy Growth’s diversified portfolio of brands, including Tweed, Spectrum Therapeutics, CraftGrow and Tokyo Smoke, across the United States. See “United States Market Development – Conducting Business in the United States” above.

Innovation and Product Development

Our intellectual property portfolio has increased to an industry-leading 130 issued patents and over 300 patent applications as of November 14, 2019, with more applications under development. Our patents cover cannabis-based beverage production and medical treatments, device and delivery technologies, large-scale cannabis processing, and plant genetics. We believe significant opportunity exists to improve our profit margins by vertically integrating up the value chain towards products that treat cannabis and cannabinoids as ingredients, a view which applies to both the medical and regulated recreational cannabis/cannabinoid markets. Therefore, we are investing in research and development and acquiring businesses focused on developing intellectual property related to new product innovation, including the development of cannabis-based consumer recreational products and cannabis-based medical therapies, CBD products, and device and delivery technology.

Product Innovation

Consumer Recreational Products

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Based on the legalization and regulation of the second phase of recreational cannabis and hemp products in Canada, which was announced by the federal government on October 17, 2019, we plan on having our value-added, cannabis-based consumer recreational products available for sale in Canada beginning in mid-December 2019 and will include:

• Cannabis-infused beverages, which are being produced in our new 160,000 square foot beverage facility<br>in Smiths Falls. Through our extensive research and development efforts we have developed a proprietary process that distills whole flower cannabis into a clear liquid that will be used as an active ingredient in our beverages. Our beverages will<br>include a portfolio of 10 ready-to-drink products and 3 distilled cannabis products that can be combined with non-alcoholic<br>mixers and that will be offered in a variety of flavours and sizes under the Tweed, Quatreau, Houseplant and Deep Space brands. We believe that high-quality cannabis-based beverages that offer sophisticated taste and dose control with a rapid on-set and shorter duration can be tailored to meet specific outcomes across a variety of consumption occasions, while avoiding such things as weight gain, “hangover” effects, and interactions with<br>traditional pharmaceutical medications. Given this, we believe cannabis-infused beverages could serve as a disruptive alternative to traditional alcohol beverages while also expanding the total addressable market for all cannabis-based products.<br>While our products will contain THC, CBD, or a combination of the two cannabinoids up to the limit of 10 milligrams of THC per package set by Health Canada, we believe a standard serving of 2 milligrams of THC is ideal for consumers and allows for<br>more control for the user, and therefore most of our beverages will be available at this potency. Images of our Tweed brand Penelope + Tonic, and Quatreau brand Ginger + Lime products are below:

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• Cannabis-infused craft chocolates, which are being produced in the same factory in Smiths Falls where<br>Hershey Canada made chocolates for over 50 years. We have partnered with award-winning chocolate makers Hummingbird Chocolate to build and refine our chocolate manufacturing process and will be selling 3 distinct products under the Tweed,<br>Tokyo Smoke and Bean & Bud brands. We have taken a “bean-to-bar” approach to our chocolates, sourcing our beans from Peru, the Dominican Republic and<br>Colombia and then roasting them onsite in Smiths Falls to achieve optimal flavour. Similar to our beverages, our chocolates will contain specific amounts of specifically-formulated cannabis up to a limit of 10 milligrams of THC per package. We will<br>launch more edible products in the months and years ahead.

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In preparation for this launch, we invested in the construction of extraction facilities and advanced manufacturing, edible and beverage production facilities in Smiths Falls, Ontario. We continue to invest in new product development through research and development and the acquisition of new technologies, while ensuring the protection of our intellectual property.

BioSteel

On October 2, 2019 we completed the purchase of a majority interest in BioSteel, a leading producer of sports nutrition products. BioSteel provides us with a platform to enter the sports nutrition and hydration market, and lays the foundation for the infusion of CBD in future product offerings in accordance with global regulations. BioSteel has achieved a reputation for being the hydration provider of choice for high performance athletes, and its products have been purchased by over 70% of the teams in North America’s four major sports. Additionally, BioSteel has over 10,000 distribution points in Canada and the United States and continues to expand in both markets and into Europe.

Devices and Delivery Technology

We are focused on expanding our product development, manufacturing capacity and sales capability in the cannabis consumer products market. Our research and development group has been actively developing safety-approved smart vaporizer devices for use with cannabis concentrates. These devices, powered by Canopy Growth-owned intellectual property, are Bluetooth-enabled and communicate with a proprietary application to give users much more payload transparency while enabling safe and responsible usage. Further information about our vaping products will be released in late November 2019, and they will be available for sale when laws and licenses permit.

In addition, through Storz & Bickel we have entered the market for the manufacture and sale of medical cannabis delivery devices. Storz & Bickel has developed an automated factory that is certified internationally for the production of medical devices, and exports medically-approved vaporizers and other similar devices to 50 markets around the world. We plan to build out the capacity of Storz & Bickel’s manufacturing facilities to support its continued growth through new product development and market expansion, while at the same continuing to integrate the product development expertise and capability of Storz & Bickel’s research and development and engineering teams with that of Canopy Growth.

Medical Therapies – Spectrum Therapeutics

Our Spectrum Therapeutics medical division acts as a cannabis research incubator focusing on researching and developing clinically-ready cannabis drug formulations and dose delivery systems. This division serves as our pre-clinical and clinical research arm, which includes elements of product design and ingredient selection, formulation, safety and efficacy testing for a range of products, which we will continue to develop as the regulatory framework and market evolve. We are also testing and developing cannabis-derived products for applications in veterinary medicine, such as treating anxiety in animals.

To date, we have filed 84 United States provisional patent applications (which are included in the 300 total patent applications described above), across a range of cannabis and CBD uses, compositions, formulations, indications, methods of delivery, and dosing regimens.

Human health clinical trials are currently being planned, are ongoing, or have been completed in the areas of sleep, pain and anxiety treatment (Phase IIB), and spasticity/multiple sclerosis (Phase III). Additionally, affiliate and partner research programs are underway in the areas of opioid-sparing, smoking cessation and concussion treatment, and clinical trials are currently in the planning phase, ongoing or completed for companion animal anxiety, and pharmacokinetics, dosage and safety.

Hemp and CBD Products

We have taken steps to diversify our cannabis-related business into the development, production and sale of hemp-based medical, regulated recreational and industrial products. Hemp and cannabis come from the Cannabis sativa L specie but are genetically distinct and are further distinguished by use, chemical makeup and cultivation methods. Hemp, which refers to the non-psychoactive (less than 0.3% THC) varieties of Cannabis sativa L, is a renewable raw material used in thousands of products including health foods, body care, clothing, construction materials, biofuels and plastic composites. We believe that entry into the regulated hemp market, whose regulations allow for more robust consumer-facing brand marketing, advertising and retail channels, will serve to strengthen our consumer facing brands in the future.

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We believe that we are positioned as a leader in low-cost, high-yield CBD production. We have expertise in large-scale cannabinoid extraction processes with our unique whole-plant hemp harvesting knowledge, and we continue investing in extraction capability to support our innovation in the value-added, consumer recreational products market. We first established a relationship with KeyLeaf, the owner of a bio-processing and large-scale extraction facility in Saskatchewan, in fiscal 2019 and controlled and consolidated KeyLeaf from that point and subsequently acquired the entity in June 2019. KeyLeaf adds over 45 years of experience in bio-product industries and significant intellectual property in the area of plant-based extraction to our capabilities. Also, KeyLeaf has been partnering with Canopy Growth over the past year to retrofit their facility in Saskatchewan in order to scale-up their ability to process hemp and cannabis biomass and refine their pre- and post-extraction processes, and the facility was recently licensed by Health Canada. The KeyLeaf facility is located in close proximity to our large-scale outdoor hemp and cannabis growing operations. This facility, along with our other licensed extraction facilities in Smiths Falls and Aldergrove, British Columbia and partner extraction capability, will be leveraged to process our outdoor hemp and cannabis output, as well as other raw materials from our indoor and greenhouse cultivation facilities.

Further, we have integrated the intellectual property of ebbu, Inc. (“ebbu”), a Colorado-based hemp research leader with over 40 cannabis-related patent applications representing over 1,500 inventions, into our broader portfolio of capabilities. Research and development and intellectual property advancements achieved by ebbu’s team apply directly to our hemp and THC-rich cannabis genetic breeding program and its cannabis-infused beverage capabilities, with the potential to reduce the cost of CBD production. In addition, ebbu’s intellectual property portfolio will contribute to the clinical formulations program being executed by Spectrum Therapeutics.

Our investments in CBD production capability, extraction processes and genetic breeding will allow us to produce a complimentary balance of low-cost, high-yield raw material input for the higher-margin, value-added products which will be launched as part of the second phase of recreational cannabis in Canada, as well as input for the CBD applications and products being developed by Spectrum Therapeutics.

Production Capability and Capacity

Domestic Cannabis Production and Manufacturing Capability

We operate numerous state-of-the-art production facilities and have approximately 5.4 million square feet of licensed capacity in Canada for greenhouse and indoor cultivation, post-harvest processing, oil extraction, encapsulation, advanced manufacturing for pre-rolled joints and chocolates, vape manufacturing and beverage production capability. We have invested in the readiness of our facilities to establish a leadership position at the onset of the second phase of recreational consumer products in Canada in mid-December 2019, including the expansion of our Smiths Falls facilities:

• We have completed construction of our 160,000 square foot beverage manufacturing facility, for which we expect<br>to receive licensing and begin operations in November;
• New facilities designed for vape filling and packaging have received licensing from Health Canada, and<br>automated vape production and packaging systems have been tested and will be placed into operation in November; and
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• Advanced manufacturing equipment related to chocolate manufacturing are onsite and tested, and the associated<br>facilities have received licensing.
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In addition, we recently expanded our Canadian outdoor footprint with a licence to cultivate cannabis at a 160 acre (approximately 7 million square feet) outdoor site in Saskatchewan, adding to our existing 5,500 acre outdoor hemp production platform.

Partner Capacity Offtake

We have established several programs designed to help partners, including licence applicants and licensed producers, establish and/or grow their licensed operations and achieve greater success faster. Through these programs, additional cannabis production capacity will be secured for sale to our customers.

CraftGrow – Recognizing that every patient is different and every condition requires a unique approach, CraftGrow provides customers options when it comes to finding medical cannabis products that best address their needs. By building a program that gathers passionate and skilled producers together in one place, Spectrum Therapeutics is able to bring its patients the best variety cannabis from some of the most innovative producers in the country. While medical patients

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benefit from additional innovation and variety, partner producers gain access to a vast market for their product lines. Our three partners can be found at www.spectrumtherapeutics.com.

Agripharm Corporation (“Agripharm”) – 40% owned by Canopy Growth, we have the right to purchase all the cannabis products produced by Agripharm, subject to the right of Agripharm to sell up to 25% of its products directly in its own bricks-and-mortar retail locations.

PharmHouse Inc. (“PharmHouse”) – In May 2019 we signed a second offtake agreement with PharmHouse, a 49%-owned joint venture of Canopy Rivers Inc. (“Canopy Rivers”). In July 2019 PharmHouse received a cultivation licence from Health Canada. Under the terms of the agreement, PharmHouse has agreed to allocate to Canopy Growth high-quality cannabis flower from an additional 20% of the flowering space available at its Leamington, Ontario facility over the next three years, bringing the total flowering space committed to Canopy Growth to 30%. Under the terms of the offtake agreement PharmHouse is committed to complying with Good Manufacturing Practices-certified flower within 18 months of receiving its cultivation licence, allowing us to export flower produced by PharmHouse internationally.

Canopy Rivers

Canopy Rivers (TSXV:RIV) works collaboratively with Canopy Growth to identify strategic counterparties seeking financial and/or operating support and affiliation. The result is an ecosystem of complementary companies operating throughout the cannabis value chain. As the portfolio continues to develop, each constituent benefits from opportunities to collaborate with Canopy Growth and amongst themselves, which we believe results in an ideal environment for innovation, synergy, and value creation for Canopy Rivers, Canopy Growth, and across the entire Canopy Rivers ecosystem. As a result of a dual-class share structure, Canopy Growth owns approximately 27.5% of the issued and outstanding shares in the capital of Canopy Rivers and approximately 84.5% of the voting power attached to all of the outstanding shares.

To date, in collaboration with Canopy Growth, Canopy Rivers has established a diversified portfolio of cannabis industry investments that includes large-scale greenhouse cannabis cultivators, small-scale premium cannabis cultivators, licence applicants, international hemp processors, pharmaceutical formulators, brand developers and distributors, retail distribution licence operators, technology and media platforms, beverage companies, beauty brands, and agriculture-technology companies.

Other Matters

As part of our United States financial reporting requirements, Canopy Growth is required by the SEC to test whether it continues to qualify as a foreign private issuer at the end of every second fiscal quarter. Canopy Growth confirmed that, as of September 30, 2019, it no longer met the criteria for qualification as a foreign private issuer because (1) more than 50% of the outstanding voting securities are held by residents of the United States, and (2) the majority of Canopy Growth’s directors are United States citizens.

Therefore, as of April 1, 2020 Canopy Growth will be considered a United States domestic issuer and a large accelerated filer. As a result of this change, Canopy Growth will be required to issue its consolidated financial statements in conformity with accounting principles generally accepted in the United States, and provide an auditor attestation report under Section 404(b) of the Sarbanes-Oxley Act.

Subsequent Events

Acquisition of BioSteel

On October 1, 2019, we completed an all-cash transaction to purchase a controlling interest in BioSteel, a North America-based producer of sports nutrition products. Initial cash consideration was $50,535, subject to certain adjustments and holdbacks. The purchase price will be subject to a further adjustment based on a multiple of BioSteel’s 2019 net revenue. Immediately following the closing we subscribed for additional shares of BioSteel for consideration of $14,000. After completing the investment, Canopy Growth’s ownership interest in BioSteel is 76.7%.

The shares not purchased by Canopy Growth will be retained by current shareholders and management for a period of up to 5 years (the “rollover shareholders”). On the third anniversary of the closing Canopy Growth will have a right to purchase, and rollover shareholders will have a right to sell one half of the remaining interest held by the rollover shareholders to Canopy Growth at a specified valuation based on a multiple of BioSteel’s net revenue. On the fifth anniversary of the closing Canopy Growth will have a right to purchase, and rollover shareholders will have a right to sell the balance of the remaining interest held by the rollover shareholders to Canopy Growth at a valuation to be mutually agreed upon by the parties.

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Acquisition of Beckley Canopy Therapeutics

On October 11, 2019, we closed the previously announced acquisition of all of the unowned shares in BCT, a global cannabinoid-based medical researcher for cash consideration of $58,000 of which $44,000 was advanced on closing. Through this acquisition Canopy Growth will also acquire BCT’s 33% equity interest in Spectrum Biomedical UK, which was formed as a joint venture between Canopy Growth and BCT and is to be the exclusive UK distributor of cannabis-based medicinal products made by Canopy Growth.

Sale of interestin AusCann

On October 15, 2019, Canopy Growth sold its shares in AusCann Group Holdings for gross proceeds of $5,616.

More Life Growth Company

On November 7, 2019, Canopy Growth announced that it had entered into agreements with certain entities that are controlled by Aubrey “Drake” Graham to launch the More Life Growth Company (“More Life”).

Under the agreements Canopy Growth will sell 100% of the shares of 1955625 Ontario Inc., a wholly-owned subsidiary of Canopy Growth that holds the Health Canada license for a facility located in Scarborough, Ontario to More Life in exchange for a 40% interest in More Life. Drake will hold a 60% ownership interest. As consideration for Drake’s interest, Drake has granted More Life the right to exclusively exploit certain intellectual property and brands in association with the growth, manufacture, production, marketing and sale of cannabis and cannabis-related products, accessories, merchandise and paraphernalia in Canada and internationally. The maintenance of the non-Canada rights after 18 months is contingent upon certain performance criteria of More Life. More Life has sublicensed such rights in Canada to Canopy Growth in exchange for royalty payments.

Canopy Growth and Drake have entered into a shareholders agreement, investor rights agreements, and various other ancillary agreements to govern the operations of More Life. Canopy Growth will continue to provide all of the day-to-day operations and maintenance of the More Life Facility and will retain all of the rights to distribute the product that is cultivated at the More Life Facility.

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the average selling price per gram for our international medical business is attributable to our acquisition of C^3^ in May 2019, which generated revenue of $14,018 in the second quarter of fiscal 2020.

We harvested 40,570 kilograms of cannabis in the second quarter of fiscal 2020, as compared to 15,217 kilograms in the second quarter of fiscal 2019, reflecting the year-over-year growth of our production capacity.

Discussion of the Second Quarter of Fiscal 2020 Results of Operations

Revenue

The following tables present revenue for the three months ended September 30, 2019 and 2018:

Revenue by Channel

Three months ended
September 30 September 30,
(CDN $000’s) 2019 2018 Change % Change
Recreational revenue
Business-to-business^1^ $ 49,404 **** $ — —
Business-to-consumer **** 13,100 **** — —
Other revenue adjustments^2^ **** (32,727 ) — ) —
**** 29,777 **** — —
Medical revenue
Canadian **** 14,149 **** 19,903 ) (29 %)
International **** 18,090 **** 2,222 714 %
**** 32,239 **** 22,125 46 %
Other revenue **** 23,605 **** 1,202 1864 %
Gross revenue **** 85,621 **** 23,327 267 %
Excise taxes^3^ **** 9,008 **** — —
Net revenue $ 76,613 **** $ 23,327 228 %

All values are in US Dollars.

^1^ Excludes the impact of other revenue adjustments.
^2^ Other revenue adjustments represent the Company’s determination of returns and pricing adjustments, and<br>which primarily relate to oils and softgels.
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^3^ Excise taxes is presented net of the impact from other revenue adjustments.
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Revenue by Form

Three months ended
Kilograms Kilograms
and and
As a % of kilogram As a % of kilogram
September 30, gross equivalents September 30, gross equivalents
2019 revenue sold 2018 revenue sold
(CDN 000’s) (CDN 000’s)
Recreational revenue by form
Dry bud **** **** 69 % **** 8,561 — —
Oil (Includes oils and softgels) **** **** 4 % **** 357 — —
Other revenue adjustments^1^ ) **** (38 %) **** — — —
**** **** 35 % **** 8,918 — —
Medical revenue by form
Dry bud **** **** 11 % **** 998 63 % 1,698
Oil (Includes oils and softgels)^2^ **** **** 27 % **** 997 32 % 499
**** **** 38 % **** 1,995 95 % 2,197
Other revenue **** **** 27 % **** — 5 % —
Gross revenue **** **** 100 % **** 10,913 100 % 2,197
Excise taxes^3^ ****
Net revenue ****

All values are in US Dollars.

^1^ Other revenue adjustments represent the Company’s determination of returns and pricing adjustments, and<br>which primarily relate to oils and softgels.
^2^ Includes $14,018 of revenue related to C^3^ for the three<br>months ended September 30, 2019.
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^3^ Excise taxes is presented net of the impact from other revenue adjustments.
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Net revenue in the second quarter of fiscal 2020 was $76,613, as compared to $23,327 in the second quarter of fiscal 2019. The year-over-year increase is primarily attributable to the launch of the Canadian recreational cannabis market in

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October 2018, and our acquisitions of Storz & Bickel in the third quarter of fiscal 2019 and C^3^ and This Works in May 2019.

Recreational

Recreational revenue in the second quarter of fiscal 2020 was $29,777, with the increase from the second quarter of fiscal 2019 entirely due to the launch of the Canadian recreational cannabis market in October 2018. Revenue from the business-to-consumer channel was $13,100, which represented growth of 23% from the first quarter of fiscal 2020 as we continue to build-out our retail store platform in Canada. Revenue from the business-to-business channel was $16,677, net of the impact of other revenue adjustments described below. As noted under “Part I –Business Overview” above we, and the provincial and territorial agencies, continue to monitor the inventory levels, demand, and “sell-through” of recreational cannabis products. During the second quarter of fiscal 2020, we evaluated the estimated on-hand provincial and territorial inventory levels against the recent demand and sales trends that have been observed in the recreational market. As a result of this evaluation we believe that the risk of over-supply of certain oil and softgel formats may exist in certain markets due, in part, to underdeveloped retail platforms in most provinces. Based on this assessment, we have determined returns and pricing adjustments primarily related to certain oil and softgel products in the amount of $32,727, and this amount has been reflected in revenue.

In the second quarter of fiscal 2020, we generated revenue of $59,040 from the sale of our dry bud format products, of which $7,780 related to sales of 1.2 million higher-margin pre-rolled cannabis products.

Medical

Medical cannabis revenue for the second quarter of fiscal 2020 was $32,239, as compared to $22,125 in the second quarter of fiscal 2019.

Canadian medical revenue in the second quarter of fiscal 2020 was $14,149, a decrease of $5,754 from the second quarter of fiscal 2019. The decrease is largely attributable to the transition of our medical customers to our Spectrum Therapeutics online store prior to the launch of the recreational market, as several of our established brands and product offerings were moved to the recreational channel and our Canadian medical patients were offered a more medical-focused range of cannabis products. Medical customers who had been loyal to our Tweed, LBS and DNA Genetics products and brands before recreational legalization were able to purchase these products in the recreational market after October 17, 2018, which impacted our medical revenues. In recent months, we broadened the brand and product offerings available on the Spectrum Therapeutics online store in response to patient demand, and our larger harvests in the first six months of fiscal 2020 have allowed us to address recent supply constraints in making certain high-demand products available to our medical patients. These actions, along with an increase in the number of medical patients registered with Spectrum Therapeutics from approximately 70,900 patients at June 30, 2019 to 75,600 patients at September 30, 2019, have led to sequential improvements in the number of medical cannabis orders placed by our customers and in our medical revenues in the second quarter of fiscal 2020. In the second quarter of fiscal 2020, sales of our higher-margin oils and softgels represented approximately 59% of our Canadian medical sales, an increase from 49% in the first quarter of fiscal 2020.

International medical revenue in the second quarter of fiscal 2020 was $18,090, an increase of $15,868 from the second quarter of fiscal 2019 which was primarily attributable to the acquisition of C^3^. Additionally, the resolution of previous supply constraints and the notable increase in the amount of product shipped to Germany in July and early August 2019, which we highlighted in our MD&A for the previous quarter, resulted in strong year-over-year growth in our German medical revenues.

Other

Other revenue for the second quarter of fiscal 2020 was $23,605, as compared to $1,202 in the second quarter of fiscal 2019. The year-over-year increase is primarily attributable to the acquisitions of Storz & Bickel and This Works. The remainder of the increase is attributable to revenue from other strategic sources including extraction services and clinic partners. Other revenue for the second quarter of fiscal 2019 consisted predominantly of revenue from our clinic partners.

Net revenue is determined by deducting excise taxes which are included in gross revenue and subsequently remitted to the tax authorities.

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Cost of goods sold and gross margin

The following table presents cost of goods sold and gross margin for the three months ended September 30, 2019 and 2018:

Cost of Goods Sold

Three months ended
September 30, September 30,
(CDN $000’s) 2019 2018 Change % Change
Net revenue $ 76,613 **** $ 23,327 228 %
Cost of goods sold **** 72,970 **** 42,663 71 %
Gross margin **** 3,643 **** (19,336 ) 119 %
Gross margin percentage **** 5 % (83 %) 88 %

All values are in US Dollars.

Cost of goods sold for the second quarter of fiscal 2020 was, $72,970 as compared to $42,663 in the second quarter of fiscal 2019. These costs were primarily comprised of the costs of the inventory sold in the period, distribution charges, and the operating costs relating to facilities that were not yet cultivating or processing cannabis, not yet producing cannabis-related products, or having under-utilized capacity.

Gross margin in the second quarter of fiscal 2020 was $3,643, or 5% of net revenue. The gross margin percentage in the second quarter of fiscal 2020 was impacted by (i) charges for excess finished recreational cannabis inventory of $17,000 recorded primarily in conjunction with our evaluation of the estimated on-hand provincial and territorial inventory levels; (ii) the impact on gross margin of $9,157 reflecting the returns and pricing adjustments relating primarily to the over-supply of certain oil and softgel products; and (iii) other adjustments related to the net realizable value of inventory. These charges are described under “Part 1 – Business Overview” above. Further, we incurred operating costs of $10,536 relating to facilities not yet cultivating or processing cannabis, not yet producing cannabis-related products or having under-utilized capacity, primarily related to start-up costs associated with our advanced manufacturing and beverage facilities in Smiths Falls, and our greenhouse in Denmark.

Comparatively, in the second quarter of fiscal 2019 gross margin was $(19,336) or negative 83% of net revenue. The gross margin percentage in the second quarter of fiscal 2019 was impacted by the destruction of plants largely resulting from delays in obtaining post-harvest processing licenses and approvals for our greenhouses in British Columbia. Additionally, we recorded other adjustments related to the net realizable value of inventory and collectively, the impact on our gross margin was $23,083. We also incurred operating costs of $7,026 related to start-up costs associated with our greenhouses in Aldergrove and Delta, British Columbia; Mirabel, Quebec; Edmonton, Alberta; and Fredericton, New Brunswick.

We continued to invest in the second quarter of fiscal 2020 in the expansion of our Canadian cultivation facilities, our hemp-based CBD business, and our advanced manufacturing and beverage capabilities in Smiths Falls, Ontario in preparation for the second phase of Canadian recreational cannabis. Accordingly, as several of our production facilities were not yet cultivating cannabis, had under-utilized capacity, or were not yet producing consumer products, we incurred higher inventory production costs as we increased our cannabis harvest to over 40,000 kilograms over the past two quarters. At our greenhouse facilities in Aldergrove and Delta, British Columbia and Mirabel, Quebec, we have the ability to plant in a manner that allows for ongoing harvests, rather than one large harvest; this will allow for the increased utilization of assets for post-harvest processes and provide for a steady supply of product going forward. Accordingly, we expect our gross margins to improve in the coming quarters when all of our cultivation, advanced manufacturing and beverage facilities reach, and are utilized at, full production capacity.

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Operating expenses

The following table presents operating expenses for the three months ended September 30, 2019 and 2018:

Operating Expenses

Three months ended
September 30, September 30,
(CDN $000’s) 2019 2018 Change % Change
Operating expenses
Sales and marketing $ 62,089 $ 40,182 55 %
Research and development **** 11,935 1,944 514 %
General and administration **** 94,228 37,101 154 %
Acquisition-related costs **** 2,562 3,202 ) (20 %)
Share-based compensation expense **** 83,767 35,825 134 %
Share-based compensation expense related to acquisition milestones **** 9,114 50,730 ) (82 %)
Depreciation and amortization **** 10,787 3,595 200 %
Total operating expenses $ 274,482 $ 172,579 59 %

All values are in US Dollars.

Sales and marketing

Sales and marketing expense in the second quarter of fiscal 2020 was $62,089, as compared to $40,182 in the second quarter of fiscal 2019. The increase of $21,907 is attributable to the following areas:

• Driving brand awareness and educating consumers through advertising and media campaigns, including the<br>placement of advertising at key venues and events and in key media channels in support of our brands. In the second quarter of fiscal 2020, these initiatives focused on product marketing and brand awareness campaigns in preparation for the launch of<br>the second phase of recreational consumer products in Canada, and the launch of CBD products in the United States and certain international markets in the coming months;
• Increased staffing costs as we continue to enhance our marketing and sales capabilities servicing our Canadian<br>market, particularly in the areas of creative design and advertising, brand insights and launch support, and brand management, and the United States and certain other international markets, where we plan to launch CBD products in the coming months;<br>and
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• The growth in our business through the recent acquisitions of Storz & Bickel, C^3^ and This Works, which has resulted in a year-over-year increase in sales and marketing expense.
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Included in sales and marketing expense for the second quarter of fiscal 2020 are strategic investments of $3,919 related to sales and marketing staff, product marketing campaigns, and brand awareness and consumer education initiatives related to our continued commercial expansion into new markets, most notably the planned launch of CBD products in the United States (for the second quarter of fiscal 2019—$140).

Research and development

Research and development expense in the second quarter of fiscal 2020 was $11,935, as compared to $1,944 in the second quarter of fiscal 2019. The increase of $9,991 is attributable to increased compensation costs associated with an increase in the number of employees conducting research into several intellectual property opportunities, costs associated with conducting external laboratory testing and clinical trials for CBD-based human and animal health products, and other strategic investments including developing patent-pending technology in the following areas:

• New cannabis-based product form factors, including beverage products and edibles, that will be launched as<br>part of the second phase of recreational cannabis in Canada;
• Device and delivery technology, including vaporizers and vapes; and
--- ---
• Growth patterns under different environmental scenarios and the genetics of various strains.<br>
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General and administration

General and administration expense in the second quarter of fiscal 2020 was $94,228, as compared to $37,101 in the second quarter of fiscal 2019. The increase of $57,127 is attributable to:

• Costs associated with enhancing our finance and information technology capabilities, including both increased<br>compensation costs for our employees and increased professional service costs;
• Increased costs associated with public company compliance and regulatory requirements;
--- ---
• Pre-revenue business development and administrative costs related to<br>expanding our operations into the United States, and internationally;
--- ---
• Losses of $10,798 incurred related to legal disputes with a third-party supplier;
--- ---
• Losses in the amount of $8,828 associated with the additional reserves on onerous retail lease obligations,<br>driven by an overall softening of the retail real estate market throughout Canada; and
--- ---
• Compliance costs related to meeting Health Canada requirements.
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Included in general and administration expense for the second quarter of fiscal 2020 are strategic investments and business development costs of $20,354 attributable to administrative staffing and facilities, insurance, information technology, regulatory, and other administrative and start-up costs incurred as we execute on our strategy of global expansion (for the second quarter of fiscal 2019—$2,218).

Acquisition-related costs

Acquisition-related costs were $2,562 in the second quarter of fiscal 2020, as compared to $3,202 in the second quarter of fiscal 2019. The decrease of $640 is attributable to less mergers and acquisitions activity as compared to the prior year. In the second quarter of fiscal 2019, acquisition costs were incurred in relation to the acquisitions of Hiku Brands Company Ltd., the remaining non-controlling interest in BC Tweed (a large-scale greenhouse operator in Aldergrove and Delta, British Columbia), and the remaining unowned shares in Canopy Health Innovations Inc. (“CHI”) and evaluating other opportunities. Comparatively, in the second quarter of fiscal 2020, acquisition costs were incurred primarily in relation to evaluating acquisition opportunities.

Share-based compensation expense

Share-based compensation expense was $83,767 in the second quarter of fiscal 2020, as compared to $35,825 in the second quarter of fiscal 2019. The increase of $47,942 is primarily attributable to the continued increase in the number of stock options granted to employees, which is primarily related to the increase in the number of employees of the Company from approximately 2,000 at September 30, 2018 to approximately 4,550 at September 30, 2019. The number of outstanding stock options increased from 22.2 million at September 30, 2018 to 32.9 million at September 30, 2019.

Share-based compensation expense related to acquisition milestones was $9,114 in the second quarter of fiscal 2020, as compared to $50,730 in the second quarter of fiscal 2019. Consideration for certain acquisitions in previous fiscal years, most notably those of Spectrum Cannabis Colombia S.A.S. (“Spectrum Colombia”) and Spectrum Cannabis Denmark Aps (“Spectrum Denmark”), included the issuance of share-based compensation upon the achievement of specified cultivation and sales milestones. The year-over-year decrease of $41,616 is primarily attributable to the achievement, in earlier quarters, of the major milestones associated with these acquisitions, which had resulted in the recognition of share-based compensation expense at that time. Additionally, in the second quarter of fiscal 2019 we acquired the outstanding shares of Canindica Capital Ltd. (“Canindica”) in exchange for Canopy Growth common shares, and the consideration paid of $23,004 was recognized as share-based compensation expense as Canindica did not meet the definition of a business. The remaining share-based compensation expense which is being recognized currently relates largely to the final specific milestones for these acquisitions.

Depreciation andamortization expense

Depreciation and amortization expense was $10,787 in the second quarter of fiscal 2020, as compared to $3,595 in the second quarter of fiscal 2019. The increase of $7,192 is attributable to property, plant and equipment being put into operation during the second half of fiscal 2019 and the first six months of fiscal 2020 as we continue to build our infrastructure across Canada and internationally.

Adjusted EBITDA (Non-GAAP Measure)

The Company’s “Adjusted EBITDA” is a non-GAAP measure used by management that does not have any standardized meaning prescribed by U.S. GAAP and may not be comparable to similar measures presented by other companies.

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Management defines Adjusted EBITDA as the income (loss) from operations, as reported, before interest and tax, adjusted for removing share-based compensation expense, depreciation and amortization, and further adjusted to remove acquisition related costs.

The Company has provided further disclosure around Adjusted EBITDA by attributing Adjusted EBITDA to its (1) operations and corporate overhead, (2) strategic investments and business development, and (3) non-operating or under-utilized facilities. As discussed under “Part 2 – Strategy” above, the Company has made, and will continue to make, significant strategic investments and incur significant business development costs to expand our business into attractive new geographies in the United States, Latin America and the Caribbean, Asia / Pacific, and Africa. These investments include developing our administrative infrastructure, along with early sales and marketing initiatives focused on patient and healthcare professional education, and brand and product awareness initiatives associated with the launch of CBD products, where permissible. As part of its business development, the Company has also invested in research and development, particularly in relation to new product innovation, conducting clinical trials supporting new cannabis-based medicines, and optimizing our operations. The expenses associated with the aforementioned strategic investments have been included in General and administration, Sales and marketing, and Research and development in our condensed interim consolidated statements of operations. These investments are not consistent with the financial results from our businesses in Canada and Europe, for which our infrastructure build-out is nearly complete and revenue-generating operations have commenced. In addition, we have incurred significant costs related to facilities which are not yet cultivating or processing cannabis, not yet producing cannabis-related products, or had under-utilized capacity. These costs have been included in Inventory production costs expensed to cost of goods sold in our condensed interim consolidated statements of operations.

Accordingly, management believes that Adjusted EBITDA, and the attribution of Adjusted EBITDA in the manner described above, provides meaningful and useful financial information as these measures demonstrate the performance of our operating businesses, and the level of investment that we continue to incur in research and development and the expansion of our global business.

The following table presents Adjusted EBITDA for the three months ended September 30, 2019 and 2018:

Three months ended
(In CDN$000’s) September 30,<br>2019 September 30,<br>2018
Adjusted EBITDA^1^Reconciliation
Loss from operations - as reported $ (270,839 ) $ (191,915 )
Share-based compensation expense (per statements of cash flows) **** 92,881 **** 90,445
Acquisition-related costs **** 2,562 **** 3,202
Depreciation and amortization (per statements of cash flows) **** 25,016 **** 9,389
**** 120,459 **** 103,036
Adjusted EBITDA $ (150,380 ) $ (88,879 )
^1^ Adjusted EBITDA is earnings before interest, tax, depreciation and amortization, share-based compensation<br>expense, fair value changes and other non-cash items, and further adjusted to remove acquisition-related costs.
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The Adjusted EBITDA loss for the second quarter of fiscal 2020 was $150,380, as compared to an Adjusted EBITDA loss of $88,879 for the second quarter of fiscal 2019. Of the Adjusted EBITDA loss for the current quarter, $103,636 is attributed to our operations and corporate overhead, and is reflective of:

• Sales and marketing costs related to brand awareness and product marketing in preparation for the launch of<br>the second phase of recreational cannabis consumer products, which we plan on beginning in mid-December 2019;
• Brand awareness and consumer education initiatives for our recreational cannabis brands, and employee<br>compensation costs related to the build-out of our Tweed and Tokyo Smoke retail store network and sales and marketing functions;
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• General and administrative costs associated with enhancing our finance and information technology<br>capabilities;
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• Losses associated with additional reserves on onerous retail lease obligations; and
--- ---
• Costs associated with public company and Health Canada compliance and regulatory requirements.<br>
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The Adjusted EBITDA loss attributed to strategic investments and business development of $36,208 has increased from a loss of $4,302 for the second quarter of fiscal 2019, and is primarily attributable to:

• General and administrative costs associated with the build-out of our<br>administrative infrastructure in support of our global expansion strategy;
• Strategic marketing initiatives including product marketing, branding and educational campaigns in advance of<br>our planned launch of CBD products in the United States and other international markets in the coming months;
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• Research and development initiatives related to new product innovation for the recreational markets,<br>conducting clinical trials to support new cannabis-based human and animal medicines, and innovation focused on optimizing our growing and manufacturing capability; and
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• Other start-up costs, including the losses incurred related to legal<br>disputes with a third-party supplier.
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The Adjusted EBITDA loss attributed to non-operating or under-utilized facilities of $10,536 relates to inventory production costs expensed to cost of goods sold and is discussed further above under “Cost of goods sold and gross margin”.

Total other income (expense), net

Total other income, net was $509,893 in the second quarter of fiscal 2020, as compared to other expense, net of $113,147 in the second quarter of fiscal 2019. The change of $623,040 in is primarily attributable to the following year-over-year variances:

• An income amount of $641,854 related to fair value changes on the warrant derivative liability associated with<br>the Tranche B warrants held by Constellation Brands. The decrease in the fair value of the warrant derivative liability is primarily attributable to the decline in our share price from March 31, 2019 to September 30, 2019;<br>
• Change of $387,768, from an expense amount of $223,374 to an income amount of $164,394, in the non-cash fair value changes related to our senior convertible notes. This change is primarily due to the decrease in Canopy Growth’s stock price from June 30, 2019 to September 30, 2019;<br>
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• Incremental interest income of $13,917 attributable to the higher cash and cash equivalents and short-term<br>investments balances in the second quarter of fiscal 2020 resulting from the investment by Constellation Brands;
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• Change of $349,698, from an income amount of $44,773 to an expense amount of $304,925, related to the non-cash fair value changes on our other financial assets. This change was driven by a fair value decrease of $235,190 in the Acreage Call Option attributable to an overall decline in both Canopy Growth’s and<br>Acreage’s share prices, as well as share prices across the United States multi-state operator sector; and
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• Decrease of $62,682 related to the gain on the acquisition of CHI recorded in the second quarter of fiscal<br>2019;
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Further information is disclosed in Notes 23 and 26 of the Interim Financial Statements.

Income tax recovery (expense)

Income tax recovery was $5,767 in the second quarter of fiscal 2020, consisting of a deferred income tax recovery of $11,851 (compared to a deferred tax expense of $1,003 in the second quarter of fiscal 2019) and current income tax expense of $6,084 ($nil in the second quarter of fiscal 2019). The increase of $12,854 in the deferred income tax recovery amount is primarily a result of recording a reduction in deferred tax liabilities, in excess of applicable deferred tax assets, that arose in connection with the required revaluation of the accounting carrying value, but not the tax basis, of other financial assets and other assets net of the use of losses carried forward from prior year’s, for which a deferred tax asset had been recorded. In connection with certain deferred tax assets, mainly in respect to losses for tax purposes, where the accounting criteria for recognition as an asset have yet to be satisfied and it is not probable that they will be used, the deferred tax asset has not been recognized. The increase of $6,084 in the amount of current income tax expense arose primarily in connection with acquired legal entities that generated taxable income, where income could not be offset against the group’s tax attributes, and legal entities which have fully utilized their loss carry forward balances and have current period taxable income.

Net income (loss)

Net income was $242,650 in the second quarter of fiscal 2020, as compared to a net loss of $310,428 in the second quarter of fiscal 2019. The change is reflective of the variances described above.

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Segmented Analysis

The Company operates in two segments: 1) Cannabis operations, which encompasses the production, distribution and sale of both medical and recreational cannabis; and 2) Canopy Rivers, through which the Company provides growth capital and strategic support in the global cannabis sector, where federally lawful.

In the second quarters of both fiscal 2020 and fiscal 2019, all of the Company’s revenue was earned by the Cannabis operations segment. Canopy Rivers contributed a net loss of $2,689 in the second quarter of 2020, of which $738 was attributable to Canopy Growth. In the second quarter of fiscal 2019, Canopy Rivers contributed net income of $11,808, of which $3,476 was attributable to Canopy Growth. The change from net income in the second quarter of fiscal 2019 to a net loss in the second quarter of fiscal 2020 reflects the year-over-year decrease in the fair value changes on Canopy Rivers’ strategic equity investments, along with an increase in share-based compensation expense due to the stock options which have been granted in fiscal 2019. Refer to Note 20 of the Interim Financial Statements for further information on the non-controlling interests in Canopy Rivers and Note 18 for further information on share-based compensation expense.

Summary of quarterly financial information

The following table presents a summary of unaudited quarterly financial information for the last eight consecutive quarters:

SELECTED QUARTERLY INFORMATION

(CDN $000’s, except share amounts) Q2 2020 Q1 2020 Q4 2019 Q3 2019
Net revenue - Recreational $ 21,954 $ 49,519 $ 58,087 $ 57,686
Net revenue - Medical & Other $ 54,659 $ 40,963 $ 35,963 $ 25,362
Net income (loss) attributable to Canopy<br><br><br>Growth Corporation $ 258,918 $ (185,869 ) $ (379,516 ) $ 50,736
Income (loss) per share - basic $ 0.75 $ (0.54 ) $ (1.10 ) $ 0.17
Weighted average shares - basic 347,226,921 346,779,156 343,877,591 303,281,549
Income (loss) per share - diluted $ 0.25 $ (0.54 ) $ (1.10 ) $ (0.44 )
Weighted average shares - diluted 380,323,118 346,779,156 343,877,591 315,974,639
Q2 2019 Q1 2019 Q4 2018 Q3 2018
Net revenue - Recreational $ — $ — $ — $ —
Net revenue - Medical and other $ 23,327 $ 25,916 $ 22,806 $ 21,700
Net loss attributable to Canopy<br><br><br>Growth Corporation $ (317,830 ) $ (89,671 ) $ (20,259 ) $ (14,929 )
Loss per share - basic and diluted $ (1.43 ) $ (0.45 ) $ (0.10 ) $ (0.08 )
Weighted average shares - basic and diluted 221,725,511 200,160,740 196,571,715 182,029,481

Additional U.S. GAAP Measure

The Company uses “Loss from operations” as an additional U.S. GAAP financial measure within the Interim Financial Statements and this MD&A, but it is not a defined term under U.S. GAAP to assess performance. Management believes that this measure provides useful supplemental information to investors and is computed on a consistent basis for each reporting period. Loss from operations is calculated as net revenue less cost of goods sold, and less total operating expenses, all of which are derived from the consolidated statements of operations. It is used by management to analyze operating performance, but it is not intended to represent an alternative to net loss or other measures of financial performance in accordance with U.S. GAAP.

33

Operational and Financial Highlights – Six Months Ended September 30, 2019

The following table presents selected operational and financial information for the six months ended September 30, 2019 and 2018:
September 30,
2018 Change % Change
Operational information
Kilogram and kilogram equivalents<br>sold1 21,462 **** 4,892 16,570 339 %
Average selling price per gram - Recreational 6.02 **** $ — — —
Average selling price per gram - Canadian Medical 8.50 **** $ 8.97 $ (0.47 ) (5 %)
Average selling price per gram - International medical 48.86 **** $ 13.60 $ 35.26 259 %
Average selling price per gram - Total 7.53 **** $ 9.36 $ (1.83 ) (20 %)
Kilograms harvested 81,530 **** 24,902 56,628 227 %
(CDN 000’s, except share amounts and where otherwise<br>indicated) ****
Selected financial information
Revenue 167,095 **** $ 49,243 $ 117,852 239 %
Gross margin percentage 13 % (24 %) $ — 37 %
Adjusted EBITDA2 (243,803 ) $ (116,405 ) $ (127,398 ) (109 %)
Attributed as follows:
- Operations and corporate overhead (162,818 ) $ (94,196 ) $ (68,622 ) (73 %)
- Strategic investments and business development (54,213 ) $ (6,207 ) $ (48,006 ) (773 %)
- Non-operating or under-utilized facilities (26,772 ) $ (16,002 ) $ (10,770 ) (67 %)
Net income (loss) 48,599 **** $ (403,727 ) $ 452,326 112 %
Net income (loss) attributable to Canopy Growth Corporation 73,049 **** $ (407,501 ) $ 480,550 118 %
Earnings (loss) per share -<br>basic3 0.21 **** $ (1.93 ) $ 2.14 111 %
Earnings (loss) per share -<br>diluted3 0.19 **** $ (1.93 ) $ 2.12 110 %

All values are in US Dollars.

^1^ Kilogram equivalents refers to cannabis oils, where 8 ml is the equivalent of approximately 1 gram of dried<br>cannabis, and softgels, where one bottle is the equivalent of approximately 5 grams of dried cannabis.
^2^ Adjusted EBITDA is a non-GAAP measure, and is calculated as earnings<br>before interest, tax, depreciation and amortization, share-based compensation expense, fair value changes and other non-cash items, and further adjusted to remove acquisition-related costs. The Company<br>attributes Adjusted EBITDA to its operations and corporate overhead, strategic investments and business development, and non-operating or under-utilized facilities. See “Adjusted EBITDA (Non-GAAP Measure)”. ^^
--- ---
^3^ For the six months ended September 30, 2019, the weighted average number of outstanding common shares,<br>basic and diluted, totaled 346,028,903, and 382,765,533, respectively (six months ended September 30, 2018 – 210,972,889)
--- ---

The total quantity of cannabis sold during the six months ended September 30, 2019 was 21,462 kilogram and kilogram equivalents, up from 4,892 kilograms and kilogram equivalents in the six months ended September 30, 2018 due to the launch of the recreational cannabis market in October 2018.

Recreational cannabis accounted for 17,978 kilogram and kilogram equivalents sold in the six months ended September 30, 2019 (84% of total cannabis sold), of which 74% was sold directly to the Canadian provinces and the remainder through our direct retail and on-line consumer channels. Medical cannabis accounted for 3,484 kilogram and kilogram equivalents in the six months ended September 30, 2019 (16% of total cannabis sold), representing a decrease of 29% from the 4,892 kilograms and kilogram equivalents sold in the six months ended September 30, 2018, due primarily to the repositioning to more medical-focused Spectrum brand offerings and product availability for the on-line store in advance of the opening of the recreational market on October 17, 2018. Medical customers who had been loyal to our Tweed, LBS and DNA Genetics products and brands were able to purchase these products in the recreational market after legalization, which impacted our medical sales.

The average selling price per gram, net of excise tax, was $7.53 in the six months ended September 30, 2019, a decrease from $9.36 in the six months ended September 30, 2018 due primarily to the wholesale pricing which we realized when selling to the provincial and territorial crown corporations in the recreational market, and a shift in the product mix, particularly in the second quarter of fiscal 2020, towards a higher percentage of certain lower-margin dried flower products. The average selling price per gram, net of excise taxes, reflects the shipments made during the six months ended September 30, 2019, which we believe provides the most meaningful and relevant metric regarding the pricing we achieved on our sales during the period. The increase in the average selling price per gram for our international medical business is attributable to our acquisition of C^3^ in May 2019, which generated revenue of $22,801 in the six months ended September 30, 2019.

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We harvested 81,530 kilograms of cannabis in the six months ended September 30, 2019, as compared to 24,902 kilograms in the six months ended September 30, 2018, reflecting the growth of our production capacity over the past year.

Discussion of the Results of Operations for the Six Months Ended September 30, 2019

Revenue

The following tables present revenue for the six months ended September 30, 2019 and 2018:

Revenue by Channel

Six months ended
September 30, September 30,
(CDN $000’s) 2019 2018 Change % Change
Recreational revenue
Business-to-business^1^ $ 107,829 **** $ — —
Business-to-consumer **** 23,738 **** — —
Other revenue adjustments^2^ **** (40,727 ) — ) —
90,840 — —
Medical revenue
Canadian **** 27,200 **** 41,267 ) (34 %)
International **** 28,586 **** 5,592 411 %
**** 55,786 **** 46,859 19 %
Other revenue **** 42,386 **** 2,384 1678 %
Gross revenue **** 189,012 **** 49,243 284 %
Excise taxes^3^ **** 21,917 **** — —
Net revenue $ 167,095 **** $ 49,243 239 %

All values are in US Dollars.

^1^ Excludes the impact of other revenue adjustments. ^^
^2^ Other revenue adjustments represent the Company’s determination of returns and pricing adjustments, and<br>which primarily relate to oils and softgels. ^^
--- ---
^3^ Excise taxes is presented net of the impact from other revenue adjustments.
--- ---

Revenue by Form

Six months ended
Kilograms Kilograms
and and
As a % of kilogram As a % of kilogram
September 30, gross equivalents September 30, gross equivalents
2019 revenue sold 2018 revenue sold
(CDN 000’s) (CDN 000’s)
Recreational revenue by form
Dry bud **** **** 63 % **** 16,234 — —
Oil (Includes oils and softgels) **** **** 6 % **** 1,744 — —
Other revenue adjustments^1^ ) **** (21 %) **** — — —
**** **** 48 % **** 17,978 — —
Medical revenue by form
Dry bud **** **** 9 % **** 1,805 67 % 3,942
Oil (Includes oils and softgels)^2^ **** **** 21 % **** 1,679 28 % 950
**** **** 30 % **** 3,484 95 % 4,892
Other revenue **** **** 22 % **** — 5 % —
Gross revenue **** **** 100 % **** 21,462 100 % 4,892
Excise taxes^3^ ****
Net revenue ****

All values are in US Dollars.

^1^ Other revenue adjustments represent the Company’s determination of returns and pricing adjustments, and<br>which primarily relate to oils and softgels.
^2^ Includes $22,801 of revenue related to C^3^for the six<br>months ended September 30, 2019. ^^
--- ---
^3^ Excise taxes is presented net of the impact from other revenue adjustments.
--- ---

Net revenue in the six months ended September 30, 2019 was $167,095, as compared to $49,243 in the six months ended September 30, 2018. The year-over-year increase is primarily attributable to the launch of the Canadian

35

recreational cannabis market in October 2018, and our acquisitions of Storz & Bickel in the third quarter of fiscal 2019 and C^3^ and This Works in May 2019.

Recreational

Recreational revenue in the six months ended September 30, 2019 was $90,840, with the increase from the six months ended September 30, 2018 entirely due to the launch of the Canadian recreational cannabis market in October 2018. Revenue from the business-to-consumer channel was $23,738 in the six months ended September 30, 2019, as we continue to build-out our retail store platform in Canada. Revenue from the business-to-business channel was $67,102, net of the impact of other revenue adjustments described below. As noted above under “Part I – BusinessOverview”, we conducted an assessment in both the first and second quarters of fiscal 2020 of estimated on-hand provincial and territorial inventory levels against recent demand and sales trends that have been observed in the recreational market. As a result of this evaluation we believe that the risk of over-supply of certain oil and softgel formats may exist in certain markets due, in part, to underdeveloped retail platforms in most provinces. Based on this assessment, we have determined returns and pricing adjustments primarily related to certain oil and softgel products in the amount of $40,727, and this amount has been reflected in revenue.

Medical

Medical cannabis revenue in the six months ended September 30, 2019 was $55,786, as compared to $46,859 in the six months ended September 30, 2018.

Canadian medical revenue in the six months ended September 30, 2019 was $27,200, a decrease of $14,067 from the six months ended September 30, 2018. The decrease is largely attributable to the transition of our medical customers to our Spectrum Therapeutics online store prior to the launch of the recreational market in October 2018, as several of our established brands and product offerings were transitioned to the recreational channel and our Canadian medical patients were offered a more medical-focused range of cannabis products. Medical patients who had been loyal to our Tweed, LBS and DNA Genetics products and brands before recreational legalization were able to purchase these products in the recreational market after October 17, 2018, which impacted our medical revenues.

International medical revenue in the six months ended September 30, 2019 was $28,586, an increase of $22,994 from the six months ended September 30, 2018 due to the acquisition of C^3^.

Other

Other revenue in the six months ended September 30, 2019 was $42,386, as compared to $2,384 in the six months ended September 30, 2018. The year-over-year increase is primarily attributable to the acquisitions of Storz & Bickel and This Works. The remainder of the increase is attributable to revenue from other strategic sources including extraction services, and clinic partners. Other revenue for the six months ended September 30, 2018 consisted predominantly of revenue from our clinic partners.

Net revenue is determined by deducting excise taxes which are included in gross revenue and subsequently remitted to the tax authorities.

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Cost of goods sold and gross margin

The following table presents cost of goods sold and gross margin for the six months ended September 30, 2019 and 2018:

Cost of Goods Sold

Six months ended
September 30, September 30,
(CDN $000’s) 2019 2018 Change % Change
Net revenue $ 167,095 **** $ 49,243 239 %
Cost of goods sold **** 145,162 **** 61,115 138 %
Gross margin **** 21,933 **** (11,872 ) 285 %
Gross margin percentage **** 13 % (24 %) 37 %

All values are in US Dollars.

Cost of goods sold in the six months ended September 30, 2019 was $145,162, as compared to $61,115 in the six months ended September 30, 2018. These costs were primarily comprised of the costs of the inventory sold in the period, distribution charges, and the operating costs relating to facilities that were not yet cultivating or processing cannabis, not yet producing cannabis-related products, or having under-utilized capacity.

Gross margin in the six months ended September 30, 2019 was $21,933, or 13% of net revenue. Our gross margin was impacted by the charges described above, in our analysis of cost of goods sold and gross margin for the three months ended September 30, 2019, that related to (i) excess finished recreational cannabis inventory of $17,000 recorded primarily in conjunction with our evaluation of the estimated on-hand provincial and territorial inventory levels; (ii) the impact on gross margin of reflecting the returns and pricing adjustments relating primarily to the over-supply of certain oil and softgel products; (iii) other adjustments related to the net realizable value of inventory. Additionally, our gross margin was impacted by a shift in the product mix towards a lower percentage of higher-margin, advanced manufactured products as compared to the comparable period, and operating costs of $26,772 relating to facilities not yet cultivating or processing cannabis, not yet producing cannabis-related products or having under-utilized capacity, primarily related to start-up costs associated with our advanced manufacturing and beverage facilities in Smiths Falls, and our greenhouse in Denmark.

Comparatively, in the six months ended September 30, 2018 gross margin was $(11,872) or negative 24% of net revenue. Our gross margin was impacted by the destruction of plants largely resulting from delays in obtaining post-harvest processing licenses and approvals for our greenhouses in British Columbia, other adjustments related to the net realizable value of inventory, and operating costs of $16,002 relating to non-producing and under-utilized facilities.

Operating expenses

The following table presents operating expenses for the six months ended September 30, 2019 and 2018:

Operating Expenses

Six months ended
September 30, September 30,
(CDN $000’s) 2019 2018 Change % Change
Operating expenses
Sales and marketing $ 112,636 $ 58,875 91 %
Research and development **** 20,425 2,700 656 %
General and administration **** 157,516 56,689 178 %
Acquisition-related costs **** 15,744 5,086 210 %
Share-based compensation expense **** 160,848 54,297 196 %
Share-based compensation expense related to acquisition milestones **** 19,395 57,825 ) (66 %)
Depreciation and amortization **** 20,927 6,625 216 %
Total operating expenses $ 507,491 $ 242,097 110 %

All values are in US Dollars.

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Sales and marketing

Sales and marketing expense in the six months ended September 30, 2019 was $112,636, as compared to $58,875 in the six months ended September 30, 2018. The increase of $53,761 is attributable to the following areas:

• Driving brand awareness and educating consumers through advertising and media campaigns, including concept<br>creation and placing advertising at key venues and events and in key media channels in support of our brands. In particular, our initiatives focused on product marketing and brand awareness campaigns in preparation for the launch of the second phase<br>of recreational consumer products in Canada, and continuing to establish our Tweed and Tokyo Smoke brands;
• Increased staffing costs as we continue to (1) enhance our marketing and sales capabilities servicing our<br>Canadian market and brands, and the United States market, as we plan to launch CBD products in the coming months; and (2) build-out our network of Tweed- and Tokyo Smoke-branded retail stores in Canada;<br>
--- ---
• Our medical outreach program, including costs associated with our Apollo and Bodystream clinics; and<br>
--- ---
• The growth in our business through the recent acquisitions of Storz & Bickel, C^3^ and This Works, which has resulted in a year-over-year increase in sales and marketing expense.
--- ---

Included in sales and marketing expense for the six months ended September 30, 2019 are strategic investments of $6,125 related to sales and marketing staff, product marketing campaigns, and brand awareness and consumer education initiatives related to our continued commercial expansion into new markets, most notably the planned launch of CBD products in the United States (for the six months ended September 30, 2018 – $217).

Research and development

Research and development expense in the six months ended September 30, 2019 was $20,425, as compared to $2,700 in the six months ended September 30, 2018. The increase of $17,725 is attributable to increased compensation costs associated with an increase in the number of employees conducting research into several intellectual property opportunities, costs associated with conducting external laboratory testing and clinical trials for CBD-based human and animal health products, and other strategic investments including developing patent-pending technology in the following areas:

• New cannabis-based product form factors, including beverage products and edibles, that will be launched as<br>part of the second phase of recreational cannabis in Canada;
• Device and delivery technology, including vaporizers and vapes; and
--- ---
• Growth patterns under different environmental scenarios and the genetics of various strains.<br>
--- ---

General and administration

General and administration expense in the six months ended September 30, 2019 was $157,516, as compared to $56,689 in the six months ended September 30, 2018. The increase of $100,827 is attributable to:

• Costs associated with enhancing our finance and information technology capabilities, including both increased<br>compensation costs for our employees and increased professional service costs;
• Increased costs associated with public company compliance and regulatory requirements;
--- ---
• Pre-revenue business development and administrative costs related to<br>expanding our operations into the United States, and internationally;
--- ---
• Losses of $10,798 incurred related to legal disputes with a third-party supplier;
--- ---
• Losses in the amount of $8,828 associated with the additional reserves on onerous retail lease obligations,<br>driven by an overall softening of the retail real estate market throughout Canada; and
--- ---
• Compliance costs related to meeting Health Canada requirements.
--- ---

Included in general and administration expense in the six months ended September 30, 2019 are strategic investments of $27,679 attributable to administrative staffing and facilities, insurance, information technology, regulatory, and other administrative and start-up costs incurred as we execute on our strategy of global expansion (in the six months ended September 30, 2018 – $3,290).

Acquisition-related costs

Acquisition-related costs were $15,744 in the six months ended September 30, 2019, as compared to $5,086 in the six months ended September 30, 2018. The year-over-year increase of $10,658 is attributable to increased mergers and acquisitions activity so far in fiscal 2020, as in the first quarter we implemented the plan of arrangement with Acreage

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and closed the acquisitions of C^3^ and This Works. We also incurred acquisition costs in relation to evaluating other acquisition opportunities.

Share-based compensation expense

Share-based compensation expense was $160,848 in the six months ended September 30, 2019, as compared to $54,297 in the six months ended September 30, 2018. The increase of $106,551 is primarily attributable to the continued increase in the number of stock options granted to employees, which is primarily related to the increase in the number of employees of the Company from approximately 2,000 at September 30, 2018 to approximately 4,550 at September 30, 2019. The number of outstanding stock options increased from 22.2 million at September 30, 2018 to 32.9 million at September 30, 2019.

Share-based compensation expense related to acquisition milestones was $19,395 in the six months ended September 30, 2019, as compared to $57,825 in the six months ended September 30, 2018. The decrease of $38,430 is primarily attributable to the achievement, in earlier quarters, of the major milestones associated with the acquisitions of Spectrum Colombia and Spectrum Denmark, and the recognition of share-based compensation expense at that time. Additionally, in the second quarter of fiscal 2019 we acquired the outstanding shares of Canindica in exchange for Canopy Growth common shares, and the consideration paid of $23,004 was recognized as share-based compensation expense as Canindica did not meet the definition of a business.

Depreciation and amortization expense

Depreciation and amortization expense was $20,927 in the six months ended September 30, 2019, as compared to $6,625 in six months ended September 30, 2018. The increase of $14,302 is attributable to property, plant and equipment being put into operation during the latter half of fiscal 2019 and the first six months of fiscal 2020 as we continue to build our infrastructure across Canada and internationally.

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Adjusted EBITDA (Non-GAAP Measure)

The following table presents Adjusted EBITDA for the six months ended September 30, 2019 and 2018:

Six months ended
(In CDN$000’s) September 30,<br>2019 September 30,<br>2018
Adjusted EBITDA^1^Reconciliation
Loss from operations - as reported $ (485,558 ) $ (253,969 )
Share-based compensation expense (per statements of cash flows) **** 180,243 **** 116,796
Acquisition-related costs **** 15,744 **** 5,086
Depreciation and amortization (per statements of cash flows) **** 45,768 **** 15,682
**** 241,755 **** 137,564
Adjusted EBITDA $ (243,803 ) $ (116,405 )
^1^ Adjusted EBITDA is earnings before interest, tax, depreciation and amortization, share-based compensation<br>expense, fair value changes and other non-cash items, and further adjusted to remove acquisition-related costs.
--- ---

The Adjusted EBITDA loss for the six months ended September 30, 2019 was $243,803, as compared to an Adjusted EBITDA loss of $116,405 for the six months ended September 30, 2018. Of the Adjusted EBITDA loss for the current period, $162,818 is attributed to our operations and corporate overhead, and is reflective of:

• Sales and marketing costs related to product marketing in preparation for the planned launch of the second<br>phase of recreational cannabis consumer products beginning in mid-December 2019;
• Brand awareness and consumer education initiatives for our recreational cannabis brands, and employee<br>compensation costs related to the build-out of our Tweed and Tokyo Smoke retail store network and sales and marketing functions;
--- ---
• General and administrative costs associated with enhancing our finance and information technology<br>capabilities; Losses associated with additional reserves on onerous retail lease obligations; and
--- ---
• Costs associated with public company and Health Canada compliance and regulatory requirements.<br>
--- ---

The Adjusted EBITDA loss attributed to strategic investments and business development of $54,213 has increased from a loss of $6,207, and is primarily attributable to:

• General and administrative costs associated with the build-out of our<br>administrative infrastructure in support of our global expansion strategy;
• Strategic marketing initiatives including the commencement of product marketing, branding and educational<br>campaigns in advance of our planned launch of CBD products in the United States and other international markets in the coming months;
--- ---
• Research and development initiatives related to new product innovation for the recreational markets,<br>conducting clinical trials to support new cannabis-based human and animal medicines, and innovation focused on optimizing our growing and manufacturing capability; and
--- ---
• Other start-up costs, including the losses incurred related to legal<br>disputes with a third-party supplier.
--- ---

The Adjusted EBITDA loss attributed to non-operating or under-utilized facilities of $26,772 relates to inventory production costs expensed to cost of goods sold and is discussed further above under “Cost of goods sold and gross margin”.

Total other income (expense), net

Total other income, net was $542,661 in the six months ended September 30, 2019, as compared to other expense, net of $144,316 in the six months ended September 30, 2018. The change of $686,977 is primarily attributable to the following year-over-year variances:

• An income amount of $666,746 related to fair value changes on the warrant derivative liability associated with<br>the Tranche B warrants held by Constellation Brands. The decrease in the fair value of the warrant derivative liability is primarily attributable to the decline in our share price from March 31, 2019 to September 30, 2019;<br>
• Change of $422,034, from an expense amount of $226,194 to an income amount of $195,840, related to the non-cash fair value changes in our senior convertible notes, which is largely due to the decrease in Canopy Growth’s stock price from March 31, 2019 to September 30, 2019;
--- ---
• Incremental interest income of $35,629 attributable to the higher cash and cash equivalents and short-term<br>investments balances in fiscal 2020 resulting from the investment by Constellation Brands;
--- ---

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• Convertible debt issuance costs of $16,380 that were incurred in the first quarter of fiscal 2019;<br>
• Change of $382,595, from an income amount of $36,583 to an expense amount of $346,012 related to the non-cash fair value changes on our other financial assets, driven by a fair value decrease of $235,190 in the Acreage Call Option which was attributable to an overall decline in both Canopy Growth’s and<br>Acreage’s share prices, as well as share prices across the United States multi-state operator sector; and
--- ---
• Decrease of $62,682 related to the gain recorded in the second quarter of fiscal 2019 on the acquisition of<br>CHI
--- ---

Further information is disclosed in Notes 23 and 26 of the Interim Financial Statements.

Income tax (expense) recovery

Income tax expense was $4,500 in the six months ended September 30, 2019, consisting of deferred income tax recovery of $3,614 (compared to a deferred income tax recovery of $1,490 in the six months ended September 30, 2018) and current income tax expense of $8,114 ($nil in the six months ended September 30, 2018). The increase of $2,124 in the deferred income tax recovery is primarily a result of the reduction of deferred tax liabilities, in excess of applicable deferred tax assets, that arose in connection with the required revaluation of the accounting carrying value, but not the tax basis, of other financial assets and other assets net of the use of losses carried forward from prior years’, for which a deferred tax asset had been recorded. In connection with certain deferred tax assets, mainly in respect to losses for tax purposes, where the accounting criteria for recognition of an asset has yet to be satisfied and it is not probable that they will be used, the deferred tax asset has not been recognized. The increase of $8,114 in the balance of current income tax expense arose primarily in connection with acquired legal entities that generated taxable income, where income could not be offset against the group’s tax attributes, and legal entities which have fully utilized their loss carry forward balances and have current period taxable income.

Net income (loss)

Net income was $48,599 in the six months ended September 30, 2019, as compared to a net loss of $403,727 in the six months ended September 30, 2018. The change in net income (loss) reflects the variances described above.

Segmented Analysis

The Company operates in two segments: 1) Cannabis operations, which encompasses the production, distribution and sale of both medical and recreational cannabis; and 2) Canopy Rivers, through which the Company provides growth capital and strategic support in the global cannabis sector, where federally lawful.

In the six months ended September 30, 2019 and 2018, all of the Company’s revenue was earned by the Cannabis operations segment. Canopy Rivers contributed a net loss of $5,950 in the six months ended September 30, 2019, of which $1,637 was attributable to Canopy Growth. In the six months ended September 30, 2018, Canopy Rivers contributed a net loss of $1,606, of which $561 was attributable to Canopy Growth. The increase in the net loss reflects the year-over-year decrease in the fair value changes on Canopy Rivers’ strategic equity investments, along with an increase in share-based compensation expense due to the stock options which have been granted in fiscal 2020.

PART 4 – FINANCIAL LIQUIDITY ANDCAPITAL RESOURCES

The following table presents selected balance sheet information as at September 30, 2019, March 31, 2019 and March 31, 2018:

(CDN $000’s) September 30,<br>2019 March 31,<br>2019 March 31,<br>2018
Cash and cash equivalents $ 1,102,464 $ 2,480,830 $ 322,560
Short-term investments **** 1,633,692 2,034,133 —
Total assets **** 7,974,580 8,565,115 1,317,698
Current and long-term debt **** 604,488 945,975 8,422
Deferred income tax liabilities **** 101,984 105,081 27,304
Other long-term liabilities **** 633,847 134,004 —
Canopy Growth shareholders’ equity **** 5,932,588 6,780,223 1,044,619

Available liquidity and liquidity risk

As at September 30, 2019 the Company had cash and cash equivalents of $1,102,464 and short-term investments of $1,633,692 which, when combined, represent a decrease of $1,778,807 from March 31, 2019. This decrease was due primarily to cash used in the six months ended September 30, 2019 to fund operations of $372,085, cash used totaling

41

$935,468 for investments in facility enhancements, the acquisition of subsidiaries, and strategic investments including the Acreage Call Option, and the repayment of debt in the amount of $104,282. The Company’s excess cash resources are predominantly invested in liquid securities issued by the United States and Canadian governments.

The Company manages liquidity risk by reviewing, on an ongoing basis, its capital requirements. As at September 30, 2019 the Company believes it has adequate available liquidity, in the form of cash and cash equivalents, and short-term investments, to enable it to meet working capital and other operating requirements, fund growth initiatives and capital expenditures, settle its liabilities, and repay scheduled principal and interest payments on debt. The Company’s objective is to generate sufficient cash to fund the Company’s operating requirements and expansion plans. While the Company has incurred losses to date, with an accumulated deficit of $2,928,861 at September 30, 2019 (March 31, 2019 – $835,118), management anticipates the success and eventual profitability of the business. The Company also ensures that it has access to public capital markets through its public stock exchange listings. However, there can be no assurance that the Company will gain adequate market acceptance for its products or be able to generate sufficient positive cash flow to achieve its business plans. Therefore, the Company is subject to risks including, but not limited to, its inability to raise additional funds through debt and/or equity financing to support the Company’s continued development and operations and to meet the Company’s liabilities and commitments as they come due. See “Part 7—Risks and Uncertainties”.

Statements of cashflows

The table below presents the Company’s cash flows for the six months ended September 30, 2019 and 2018:

(CDN $000’s) Six months ended
Net cash provided by (used in) September 30,<br>2019 September 30,<br>2018
Operating activities $ (372,085 ) $ (198,136 )
Investing activities **** (935,468 ) (376,054 )
Financing activities **** (62,508 ) 681,031
Effect of exchange rate changes on cash and cash equivalents **** (8,305 ) —
Cash and cash equivalents, beginning of year **** 2,480,830 **** 322,560
Cash and cash equivalents, end of period $ 1,102,464 **** $ 429,401

Operating activities

Cash used in operating activities in the six months ended September 30, 2019 totaled $372,085, as compared to cash used of $198,136 in the six months ended September 30, 2018. The increase in the cash used during the six months ended September 30, 2019 was primarily due to the year-over-year increases in the net loss and our investments in working capital, partially offset by an overall increase in non-cash expense items impacting the net loss including the non-cash loss on the extinguishment of warrants, depreciation and amortization and share-based compensation expense.

Investing activities

The cash used in investing activities totaled $935,468 in the six months ended September 30, 2019, as compared to cash used of $376,054 in the six months ended September 30, 2018. In the six months ended September 30, 2019, we invested $440,150 in expanding our growing capacity, and the construction of advanced manufacturing capability and a beverage facility at our Smiths Falls location. The cash used for acquisitions was $421,952, with the most notable cash outflows relating to our acquisitions of C^3^ and This Works. We also completed strategic investments totaling $431,613 in the equity instruments of certain entities, most notably the Acreage Call Option. Partially offsetting these outflows of cash was the net redemption of short-term investments in the amount of $388,027, with the cash proceeds primarily used for the purposes described above.

Financing activities

The cash used in financing activities totaled $62,508 in the six months ended September 30, 2019, as compared to cash provided of $681,031 in the six months ended September 30, 2018. The outflow in the six months ended September 30, 2019 related primarily to the repayment of the Alberta Treasury Board financing in the amount of $95,180 and other scheduled debt repayments. In the six months ended September 30, 2018 we issued convertible senior notes with an aggregate principal amount of $600,000, leading to the year-over-year change.

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Debt

The Company manages its capital with the objective of maximizing shareholder value and ensuring future development of the business. The Company defines capital as the Company’s equity and any debt it may issue. The Company manages its capital structure and adjusts it, based on the funds available to the Company, in order to support the Company’s activities. The Company, upon approval from its Board of Directors, will undertake to balance its overall capital structure through new share issuances, the issue of debt or by undertaking other activities as deemed appropriate under the specific circumstances.

The Company’s principal capital needs are for funds to execute its strategy, as described in “Part 2 – Strategy” above, and general working capital requirements to fund ongoing operations. Since its formation, the Company has financed its cash requirements primarily through the issuance of capital stock, including the $5,072,500 investment by Constellation in the third quarter of fiscal 2019, with the following exceptions:

Convertible senior notes

In June 2018, we issued convertible senior notes (“the notes”) with an aggregate principal amount of $600,000. The notes bear interest at a rate of 4.25% per annum, payable semi-annually on January 15th and July 15th of each year commencing from January 15, 2019. The notes mature on July 15, 2023. Holders of the notes may convert the notes at their option at any time from January 15, 2023 to the maturity date. The notes will be convertible, at the holder’s option, at a conversion rate of 20.7577 common shares for every $1 principal amount of notes, subject to adjustments in certain events. In addition, the holder has the right to exercise the conversion option from September 30, 2018 to January 15, 2023, if (i) the market price of the Company’s common shares for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day, (ii) during the 5 business day period after any consecutive 5 trading day period (the “measurement period”) in which the trading price per $1 principal amount of the notes for each trading day in the measurement period was less than 98% of the product of the last reported sales price of the Company’s common shares and the conversion rate on each such trading day, (iii) the notes are called for redemption or (iv) upon occurrence of certain corporate events (a “fundamental change”). The Company may, upon conversion by the holder, elect to settle in either cash, common shares, or a combination of cash and common shares, subject to certain circumstances.

Additional information regarding the conversion rights of the notes is included in Note 14 of the Interim Financial Statements.

Other

On June 14, 2019 we repaid the outstanding loan amount with Alberta Treasury Board, along with accrued interest, with a cash payment of $95,180.

On August 13, 2019 we entered into a $40,000 revolving debt facility with Farm Credit Canada (“FCC”). The new facility replaces all previous loans with FCC and is secured by our property on Niagara-on-the-Lake, Ontario. The outstanding balance at September 30, 2019 is $5,268, and the facility bears interest of 4.95%, or the FCC prime rate plus 1.0%, and matures on September 1, 2024.

Contractual obligations and commitments

The Company leases production and retail space under operating leases which range in expiration from October 2019 to December 2038 and which include minimum lease payments. The Company also has royalty, capital equipment, and other purchase commitments with varying terms. All production and retail operating leases have optional renewal terms that the Company may exercise at its option.

Discussion of market risk and credit risk

The Company’s activities expose it to a variety of financial risks, including market risk (i.e., foreign currency risk and interest rate risk) and credit risk.

Market risk

Market risk is defined as the risk that the fair value or future cash flows of a financial instrument held by the Company will fluctuate because of changes in market prices. The Company faces market risk from the impact of changes in foreign

43

currency exchange rates, changes in interest rates, and changes in market prices due to other factors including changes in equity prices. Financial instruments held by the Company that are subject to market risk include cash and cash equivalents and short-term investments denominated in currencies other than the Canadian dollar, investments in other financial assets, and variable-rate debt. The categories of financial instruments that can give rise to significant variability are described below:

Foreign currency risk

Foreign currency risk is defined for these purposes as the risk that the fair value of a financial instrument held by the Company will fluctuate because of changes in foreign currency rates. The Company has exposure to the U.S. dollar, Euro, Danish Krone, British Pound and certain other currencies through its investments in foreign operations. Consequently, fluctuations in the Canadian dollar exchange rate against these currencies increase the volatility of net income (loss) and other comprehensive income (loss). At September 30, 2019, the Company has not entered into any hedging agreements or purchased any financial instruments to hedge its foreign currency risk.

Interest rate risk

Interest rate risk is defined for these purposes as the risk that the fair value or future cash flows of a financial instrument held by the Company will fluctuate because of changes in interest rates. The Company’s financial liabilities consist primarily of long-term fixed-rate debt or floating-rate debt. Fluctuations in interest rates could impact the Company’s cash flows, primarily with respect to the interest payable on the Company’s variable-rate debt, which consists of certain borrowings with a total principal value of $8,192 at September 30, 2019 (March 31, 2019 – $97,471). The Company may invest surplus cash in highly liquid investments with short terms to maturity that would accumulate interest at prevailing rates for such investments. As at September 30, 2019, the Company’s cash and cash equivalents, and short-term investments, consist of $2,243,352 (March 31, 2019 – $2,821,512) in interest rate sensitive instruments.

Other market risk

The Company holds other financial assets and liabilities in the form of investments in shares, warrants, options and put liabilities that are measured at fair value and recorded through either net income (loss) or other comprehensive income (loss). The Company is exposed to price risk on these financial assets, which is the risk of variability in fair value due to movements in equity or market prices. Information regarding the fair value of financial instrument assets and liabilities that are measured at fair value on a recurring basis, and the relationship between the unobservable inputs used in the valuation of these financial assets and their fair value is presented in Note 31 of the annual consolidated financial statements.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s accounts receivable. The Company is exposed to credit-related losses in the event of non-performance by the counterparties.

The Company provides credit to its customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk. The Company has limited risk due to the fact that the majority of recreational cannabis sales are transacted with Canadian provincial/territorial agencies, and the majority of medical cannabis and other sales are transacted with credit cards.

The carrying amount of cash and cash equivalents, short-term investments, short-term restricted investments and amounts receivable represent the maximum exposure to credit risk and as at September 30, 2019, this amounted to $2,861,895 (March 31, 2019 – $4,643,369). Since the inception of the Company, no losses have been suffered in relation to cash held by its banking institutions.

As at September 30, 2019, 75% of the Company’s accounts receivable are considered current (March 31, 2019 – 89%). The Company’s accounts receivable are primarily driven by sales to government agencies which represented 65% of trade accounts receivable as at September 30, 2019 (March 31, 2019 – 72%)

Shareholders’ equity

The Company’s authorized share capital is an unlimited number of common shares of which 348,566,575 common shares were issued and outstanding as at November 14, 2019 (August 14, 2019 – 347,865,673 common shares after including 6,940,531 escrowed shares to be released after meeting certain conditions).

44

The Company has 32,293,870 stock options outstanding at November 14, 2019 under the Company’s Omnibus Incentive Plan at prices between $0.06 and $67.64 per share (August 14, 2019 – 29,099,010 stock options outstanding at prices between $1.32 and $67.64 per share.

At November 14, 2019, the Company had 159,117,591 outstanding warrants for common shares, after including 12,818,148 warrants for common shares treated as a derivative liability with a nominal value, at prices between $12.98 and $76.68, which expire between January 31, 2020 and November 1, 2026 (August 14, 2019 – 159,108,391 outstanding warrants).

At November 14, 2019, there were up to 5,156,456 shares to be issued on the completion of acquisition and asset purchase milestones (August 14, 2019 – 5,175,843 shares). In certain cases, the number of shares to be issued is based on the volume-weighted average share price at the time the milestones are met. The number of shares has been estimated assuming the milestones were met at November 14, 2019. The number of shares excludes shares to be issued on July 4, 2023 to the previous shareholders of Spectrum Colombia and Canindica based on the fair market value of the Company’s Latin American business on that date.

At November 14, 2019, there were up to 12,454,620 shares issuable on the conversion of the senior convertible notes.

Off-balance sheet arrangements

The Company has no off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors other than those as stated below in the section titled “Transactions with related parties”.

Transactions with related parties

The Company has entered into cannabis offtake agreements with certain of its equity method investees and entities in which it holds equity or other financial instruments. These agreements are in the normal course of operations and will be measured at the exchange amounts agreed to by the parties.

PART 5 – CRITICAL ESTIMATES, CRITICAL JUDGMENTS AND SIGNIFICANT ACCOUNTING POLICIES

Critical judgments in applying accounting policies

The following are the critical judgments, apart from those involving estimations (refer to discussion below), that have the most significant effect on the amounts recognized in the Interim Financial Statements.

Business combinations

Judgment is used in determining whether an acquisition is a business combination or an asset acquisition. Judgement is also required to assess whether the amounts paid on achievement of milestones represents contingent consideration or compensation for post-acquisition services. Judgment is also required to assess whether contingent consideration should be classified as equity or a liability. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as a liability is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognized in net income (loss).

Control, joint control or level of influence

When determining the appropriate basis of accounting for the Company’s interests in affiliates, the Company makes judgments about the degree of influence that it exerts directly or through an arrangement over the investees’ relevant activities. Information about these judgments is included in Notes 8, 9 and 25 of the Interim Financial Statements.

Critical accounting estimates

The preparation of the Interim Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and in any future years affected.

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Inventory

Inventory is valued at the lower of cost and net realizable value. A component of our analysis involves determining whether there is excess, slow-moving or obsolete inventory on hand. In making this determination, management makes assumptions around future demand and production forecasts, which are then compared to current inventory levels. Management also makes assumptions around future pricing, and considers historical experience and the application of the specific identification method for identifying obsolete inventory.

Estimateduseful lives and depreciation and amortization of property, plant and equipment and intangible assets

Depreciation and amortization of property, plant and equipment and intangible assets are dependent upon estimates of useful lives, which are determined through the exercise of judgment. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions and the useful lives of assets.

Share-based compensation

In calculating the share-based compensation expense, key estimates such as the rate of forfeiture of options granted, the expected life of the option, the volatility of the Company’s stock price and the risk-free interest rate are used. To calculate the share-based compensation expense related to key employee performance milestones associated with the terms of an acquisition, the Company must estimate the number of shares that will be earned if and when they will be issued based on estimated discounted probabilities.

Fair valuemeasurements

Certain of the Company’s assets and liabilities are measured at fair value. In estimating fair value, the Company uses market-observable data to the extent it is available. In certain cases where Level 1 inputs are not available, the Company will engage third party qualified valuers to perform the valuation.

Information about the valuation techniques and inputs used in determining the fair value is disclosed in the notes to our Interim Financial Statements: acquired intangible assets in Note 25; and financial instruments in Note 21.

46

Adoption of ASC 842, Leases (“ASC 842”) and resultingchanges to lease accounting policy

In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on the recognition and measurement of leases, ASC 842 - Leases. Under this guidance, a lessee recognizes assets and liabilities on its balance sheet for most leases. Lease expense continues to be consistent with previous guidance. Additionally, this guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leasing arrangements.

The Company adopted the guidance on April 1, 2019, using the modified retrospective approach and, accordingly, prior period balances and disclosures have not been restated. The Company elected the package of transition practical expedients for expired or existing contracts, which retains prior conclusions reached on lease identification, classification, and initial direct costs incurred.

The Company primarily leases office and production facilities, warehouses, production equipment and vehicles. The Company assesses service arrangements to determine if an asset is explicitly or implicitly specified in the agreement and if we have the right to control the use of the identified asset.

The right-of-use asset is initially measured at cost, which is primarily comprised of the initial amount of the lease liability, plus initial direct costs and lease payments at or before the lease commencement date, less any lease incentives received, and is amortized on a straight-line basis over the remaining lease term. All right-of-use assets are reviewed periodically for impairment. The lease liability is initially measured at the present value of lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. We elected to recognize expenses for leases with a term of 12 months or less on a straight-line basis over the lease term and not to recognize these short-term leases on the balance sheet. Leases have varying terms with remaining lease terms of up to approximately 30 years. Certain of our lease arrangements provide us with the option to extend or to terminate the lease early.

Lease payments included in the measurement of the lease liability comprise (a) fixed payments, including in-substance fixed payments; (b) variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; (c) amounts expected to be payable under a residual value guarantee; and (d) the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

At inception or reassessment of a contract that contains lease and non-lease components, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

The adoption of this guidance resulted in the recognition of operating lease right-of-use assets of $99,880, net of lease provisions of $10,703 and $110,583 of lease liabilities, with a $nil impact on deficit. The transition to ASC 842 did not have a material impact on the Company’s results of operations or liquidity. When measuring lease liabilities, the Company used its incremental borrowing rate of April 1, 2019 of 4.5%.

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No assurance can be provided at this time that the actions and remediation efforts will effectively remediate the material weakness described above or prevent the incidence of other material weaknesses in the Company’s ICFR in the future. Management, including the CEO and CFO, does not expect that disclosure controls and procedures or ICFR will prevent all errors, even as the remediation measures are implemented and further improved to address the material weaknesses. A control system is subject to inherent limitations and even those systems determined to be effective can provide only reasonable, but not absolute, assurance that control objectives will be met with respect to financial statement preparation and presentation.

The Company’s management, with the participation of its CEO and CFO, has limited the scope of the design of the Company’s disclosure controls and procedures and internal controls over financial reporting to exclude controls, policies and procedures and internal controls over financial reporting of the recently acquired operations of:

• ebbu (acquired 100% interest on November 23, 2018);
• POS Holdings Inc. (“POS”, and now referred to as KeyLeaf) (acquired 100% control on<br>November 23, 2018);
--- ---
• Storz & Bickel (acquired 100% interest on December 6, 2018);
--- ---
• Cafina (acquired on March 25, 2019);
--- ---
• C^3^ (acquired on April 30, 2019); and<br>
--- ---
• This Works (acquired on May 21, 2019).
--- ---

The operations of ebbu, POS, Storz & Bickel, Cafina, C^3^ and This Works, combined, represent approximately 16% of the Company’s assets (approximately 2% of current assets and 31% of non-current assets); they also represent approximately 26% of current liabilities and 4% of long-term liabilities, 36% of the Company’s gross revenues and 12% of operating expenses for the three months ended September 30, 2019.

49

EX-99.7

Exhibit 99.7

Form 52-109F2R

Certification of Refiled Interim Filings

This certificate is being filed on the same date that Canopy Growth Corporation (the “issuer”) has refiled interim financial statements for the three months ended September 30, 2019.

I, David Klein, the Chief Executive Officer of Canopy Growth Corporation, certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the<br>“interim filings”) of the issuer for the interim period ended September 30, 2019.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim<br>filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the<br>period covered by the interim filings.
--- ---
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim<br>financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods<br>presented in the interim filings.
--- ---
4. Responsibility: The issuer’s other certifying officer and I are responsible for establishing<br>and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure inIssuers’ Annual and Interim Filings, for the issuer.
--- ---
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the<br>issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
--- ---
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that<br>
--- ---
(i) material information relating to the issuer is made known to us by others, particularly during the period in<br>which the interim filings are being prepared; and
--- ---
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports<br>filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
--- ---
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the<br>reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
--- ---

1

5.1 Control framework: The control framework the issuer’s other certifying officer and I used to<br>design the issuer’s ICFR is the Internal Control - Integrated Framework (COSO Framework 2013) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 ICFR - material weakness relating to design: The issuer has disclosed in its interim MD&A for<br>each material weakness relating to design existing at the end of the interim period
--- ---
(a) a description of the material weakness;
--- ---
(b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and<br>
--- ---
(c) the issuer’s current plans, if any, or any actions already undertaken, for remediating the material<br>weakness.
--- ---
5.3 Limitation on scope of design: The issuer has disclosed in its interim MD&A<br>
--- ---
(a) the fact that the issuer’s other certifying officer and I have limited the scope of our design of DC&P<br>and ICFR to exclude controls, policies and procedures of
--- ---
(i) N/A;
--- ---
(ii) N/A; or
--- ---
(iii) a business that the issuer acquired not more than 365 days before the last day of the period covered by the<br>interim filings; and
--- ---
(b) summary financial information about the proportionately consolidated entity, special purpose entity or business<br>that the issuer acquired that has been proportionately consolidated or consolidated in the issuer’s financial statements.
--- ---
6. Reporting cha nges in ICFR: The issuer has disclosed in its interim MD&A any<br>change in the issuer’s ICFR that occurred during the period beginning on July 1, 2019 and ended on September 30, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.<br>
--- ---

Date: July 10, 2020

/s/ David Klein
David Klein
Chief Executive Officer

2

EX-99.8

Exhibit 99.8

Form 52-109F2R

Certification of Refiled Interim Filings

This certificate is being filed on the same date that Canopy Growth Corporation (the “issuer”) has refiled interim financial statements for the three months ended September 30, 2019.

I, Mike Lee, the Chief Financial Officer of Canopy Growth Corporation, certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the<br>“interim filings”) of the issuer for the interim period ended September 30, 2019.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim<br>filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the<br>period covered by the interim filings.
--- ---
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim<br>financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods<br>presented in the interim filings.
--- ---
4. Responsibility: The issuer’s other certifying officer and I are responsible for establishing<br>and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure inIssuers’ Annual and Interim Filings, for the issuer.
--- ---
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the<br>issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
--- ---
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that<br>
--- ---
(i) material information relating to the issuer is made known to us by others, particularly during the period in<br>which the interim filings are being prepared; and
--- ---
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports<br>filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
--- ---
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the<br>reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
--- ---

1

5.1 Control framework: The control framework the issuer’s other certifying officer and I used to<br>design the issuer’s ICFR is the Internal Control - Integrated Framework (COSO Framework 2013) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 ICFR - material weakness relating to design: The issuer has disclosed in its interim MD&A for<br>each material weakness relating to design existing at the end of the interim period
--- ---
(a) a description of the material weakness;
--- ---
(b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and<br>
--- ---
(c) the issuer’s current plans, if any, or any actions already undertaken, for remediating the material<br>weakness.
--- ---
5.3 Limitation on scope of design: The issuer has disclosed in its interim MD&A<br>
--- ---
(a) the fact that the issuer’s other certifying officer and I have limited the scope of our design of DC&P<br>and ICFR to exclude controls, policies and procedures of
--- ---
(i) N/A;
--- ---
(ii) N/A; or
--- ---
(iii) a business that the issuer acquired not more than 365 days before the last day of the period covered by the<br>interim filings; and
--- ---
(b) summary financial information about the proportionately consolidated entity, special purpose entity or business<br>that the issuer acquired that has been proportionately consolidated or consolidated in the issuer’s financial statements.
--- ---
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the<br>issuer’s ICFR that occurred during the period beginning on July 1, 2019 and ended on September 30, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
--- ---

Date: July 10, 2020

/s/ Mike Lee
Mike Lee
Chief Financial Officer

2

EX-99.9

Exhibit 99.9

NOTICE TO READER

As of September 30, 2019, Canopy Growth Corporation (the “Company”) determined that it no longer qualified as a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act of 1933. This means that as of April 1, 2020, the Company has been required to comply with all of the periodic disclosure requirements of the Securities Exchange Act of 1934 applicable to U.S. domestic issues, such as Forms 10-K, 10-Q and 8-K, rather than the forms the Company has filed with the Securities and Exchange Commission (“SEC”) in the past as a foreign private issuer, such as Forms 40-F and 6-K.

Accordingly, the Company is now required to prepare its financial statements filed with the SEC in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). As required pursuant to section 4.3(4) of National Instrument 51-102 – Continuous Disclosure Obligations, the Company must restate its interim financial reports for the fiscal year ended March 31, 2020 in accordance with U.S. GAAP, such interim financial reports having previously been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The attached amended and restated condensed interim consolidated financial statements (the “Financial Statements”) for the three and nine months ended December 31, 2019 and 2018 have been prepared in accordance with U.S. GAAP, are current as of February 14, 2020 and provide financial information for the three and nine months ended December 31, 2019, as amended and restated on July 10, 2020. Other than as expressly set forth above, the revised Financial Statements do not, and do not purport to, update or restate the information in the original condensed interim consolidated financial statements or reflect any events that occurred after the date of the filing of the original condensed interim consolidated financial statements.

The Company’s Annual Report on Form 10-K (the “Annual Report”) dated June 1, 2020 is available under the Company’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Readers are cautioned that these Financial Statements should be read in conjunction with the Annual Report, including the consolidated financial statements and the related notes thereto included in Item 8 thereof.

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THETHREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(IN CANADIAN DOLLARS)

CANOPY GROWTH CORPORATION

TABLE OF CONTENTS

Condensed interim consolidated balance sheets 1
Condensed interim consolidated statements of operations and comprehensive (loss) income 2
Condensed interim consolidated statements of changes in shareholders’ equity 3
Condensed interim consolidated statements of cash flows 4
Notes to the condensed interim consolidated financial statements 5-32

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS

UNAUDITED

December 31, March 31,
(Expressed in CDN 000’s) 2019 2019
Assets
Current assets
Cash and cash equivalents 3 $ 1,561,664 **** $ 2,480,830
Short-term investments 4 **** 705,921 **** 2,034,133
Restricted short-term investments **** 12,468 **** 21,432
Amounts receivable, net 5 **** 108,822 **** 106,974
Inventory 6 **** 417,218 **** 190,072
Prepaid expenses and other assets 7 **** 102,548 **** 85,691
**** 2,908,641 **** 4,919,132
Equity method investments 8 **** 123,077 **** 112,385
Other financial assets 9 **** 351,952 **** 363,427
Property, plant and equipment 10 **** 1,752,734 **** 1,096,340
Intangible assets 11 **** 607,637 **** 558,070
Goodwill 12 **** 2,014,500 **** 1,489,859
Other assets **** 37,074 **** 25,902
$ 7,795,615 **** $ 8,565,115
Liabilities and Shareholders’ equity
Current liabilities
Accounts payable $ 165,296 **** $ 188,920
Other accrued expenses and liabilities 13 **** 59,885 **** 37,613
Current portion of long-term debt 14 **** 21,652 **** 103,716
Other liabilities 15 **** 185,206 **** 81,414
**** 432,039 **** 411,663
Long-term debt 14 **** 536,107 **** 842,259
Deferred income tax liabilities 24 **** 96,623 **** 105,081
Warrant derivative liability 26 **** 368,382 **** —
Other liabilities 15 **** 147,228 **** 134,004
**** 1,580,379 **** 1,493,007
Redeemable noncontrolling interest 16 **** 37,600 **** 6,400
Canopy Growth Corporation shareholders’ equity:
Common shares - nil par value; Authorized - unlimited number of shares; Issued - 349,365,307<br>shares and 337,510,408 shares, respectively 17 **** 6,362,247 **** 6,029,222
Additional paid-in capital **** 2,576,155 **** 1,592,024
Accumulated other comprehensive income (loss) 19 **** 12,590 **** (5,905 )
Deficit **** (3,020,215 ) (835,118 )
Total Canopy Growth Corporation shareholder’s equity **** 5,930,777 **** 6,780,223
Noncontrolling interests 20 **** 246,859 **** 285,485
Total shareholders’ equity **** 6,177,636 **** 7,065,708
Total liabilities and shareholders’ equity $ 7,795,615 **** $ 8,565,115

All values are in US Dollars.

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

Page 1

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

UNAUDITED

Three months ended Nine months ended
December 31, December 31, December 31, December 31,
(Expressed in CDN $000’s except share amounts) Notes 2019 2018 2019 2018
Revenue 22 $ 135,546 **** $ 97,703 $ 324,558 **** $ 146,946
Excise taxes 22 **** 11,782 **** 14,655 **** 33,699 **** 14,655
Net revenue 22 **** 123,764 **** 83,048 **** 290,859 **** 132,291
Cost of goods sold **** 85,556 **** 63,976 **** 230,718 **** 125,091
Gross margin **** 38,208 **** 19,072 **** 60,141 **** 7,200
Selling, general and administrative expenses **** 168,910 **** 109,211 **** 496,158 **** 239,186
Share-based compensation **** 61,679 **** 70,711 **** 241,922 **** 182,833
Total operating expenses **** 230,589 **** 179,922 **** 738,080 **** 422,019
Operating loss **** (192,381 ) (160,850 ) **** (677,939 ) (414,819 )
Loss from equity method investments 8 **** (2,664 ) (2,089 ) **** (6,668 ) (9,021 )
Other income, net 23 **** 57,963 **** 198,858 **** 600,624 **** 54,542
(Loss) income before income taxes **** (137,082 ) 35,919 **** (83,983 ) (369,298 )
Income tax recovery 24 **** 27,448 **** 3,275 **** 22,948 **** 4,765
Net (loss) income $ (109,634 ) $ 39,194 $ (61,035 ) $ (364,533 )
Net loss attributable to noncontrolling interests and redeemable noncontrolling<br>interest **** (18,280 ) (11,542 ) **** (42,730 ) (7,768 )
Net (loss) income attributable to Canopy Growth Corporation $ (91,354 ) $ 50,736 $ (18,305 ) $ (356,765 )
Basic loss per share $ (0.26 ) $ 0.17 $ (0.05 ) $ (1.48 )
Basic weighted average common shares outstanding **** 348,530,622 **** 303,281,549 **** 346,877,660 **** 241,806,351
Diluted loss per share $ (0.26 ) $ (0.44 ) $ (0.05 ) $ (1.48 )
Diluted weighted average common shares outstanding **** 348,530,622 **** 315,974,639 **** 346,877,660 **** 241,806,351
Comprehensive (loss) income:
Net (loss) income **** (109,634 ) 39,194 **** (61,035 ) (364,533 )
Fair value changes of own credit risk of financial liabilities **** 32,830 **** 12,510 **** 69,490 **** (62,520 )
Foreign currency translation **** 1,122 **** 114,153 **** (50,995 ) 109,447
Fair value changes on available for sale assets
Total other comprehensive income, net of income tax effect **** 33,952 **** 126,663 **** 18,495 **** 46,927
Comprehensive (loss) income **** (75,682 ) 165,857 **** (42,540 ) (317,606 )
Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling<br>interest **** (18,280 ) (11,542 ) **** (42,730 ) (7,768 )
Comprehensive (loss) income attributable to Canopy Growth Corporation **** (57,402 ) 177,399 **** 190 **** (309,838 )

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

Page 2

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

UNAUDITED

Additional paid-in capital
(Expressed in CDN $000’s except share<br>amounts) Note Common<br>shares Share-based<br>reserve Warrants Ownership<br>changes Redeemable<br>noncontrollinginterest Accumulatedothercomprehensiveincome (loss) Deficit Noncontrolling<br>interests Total
Balance at March 31, 2018 $ 1,079,442 $ 57,982 **** $ 70,455 **** $ (1,019 ) $ (64,745 ) $ 35,408 **** $ (132,904 ) $ 85,732 **** $ 1,130,351 ****
Equity financings and private placements, net of costs 3,558,640 — 1,501,760 — — — — — 5,060,400
Cumulative effect from adoption of ASU 2016-1 — — — — — (34,800 ) 34,800 — —
Other issuances of common shares and warrants 1,215,541 250,272 — (427,843 ) — — — 331 1,038,301
Exercise of warrants 31,493 — (12,809 ) — — — — — 18,684
Exercise of Omnibus Plan stock options 63,012 (34,282 ) — — — — — — 28,730
Share-based compensation — 171,941 — — — — — — 171,941
Issuance of replacement equity instruments — 22,686 30,611 — — — — — 53,297
Issuance and vesting of restricted share units 2,191 56 — — — — — — 2,247
Changes in redeemable noncontrolling interest — — — — (24,733 ) — — 3,683 (21,050 )
Ownership changes relating to noncontrolling interests — — — 9,393 — — (769 ) 117,628 126,252
Comprehensive (loss) income — — — — — 46,927 (356,765 ) (7,768 ) (317,606 )
Balance at December 31, 2018 $ 5,950,319 $ 468,655 **** $ 1,590,017 **** $ (419,469 ) $ (89,478 ) $ 47,535 **** $ (455,638 ) $ 199,606 **** $ 7,291,547 ****
Balance at March 31, 2019 $ 6,029,222 $ 505,172 **** $ 1,589,925 **** $ (500,963 ) $ (2,110 ) $ (5,905 ) $ (835,118 ) $ 285,485 **** $ 7,065,708 ****
Other issuances of common shares and warrants 17 266,462 (266,711 ) 359 — — — — — 110
Exercise of warrants 17 932 — (486 ) — — — — — 446
Exercise of Omnibus Plan stock options 18 64,342 (25,193 ) — — — — — — 39,149
Share-based compensation 18 — 235,493 — — — — — — 235,493
Issuance of replacement equity instruments — 1,885 — — — — — — 1,885
Issuance and vesting of restricted share units 1,289 (1,289 ) — — — — — — —
Acreage warrant modification 26 — — 1,049,153 — — — (2,166,792 ) — (1,117,639 )
Changes in redeemable noncontrolling interest — — — — (8,924 ) — — (3,543 ) (12,467 )
Ownership changes relating to noncontrolling interests 20 — — — (156 ) — — — 7,647 7,491
Comprehensive (loss) income — — — — — 18,495 (18,305 ) (42,730 ) (42,540 )
Balance at December 31, 2019 $ 6,362,247 $ 449,357 **** $ 2,638,951 **** $ (501,119 ) $ (11,034 ) $ 12,590 **** $ (3,020,215 ) $ 246,859 **** $ 6,177,636 ****

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

Page 3

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

UNAUDITED

December 31, December 31,
(Expressed in CDN $000’s) Notes 2019 2018
Cash flows from operating activities
Net loss $ (61,035 ) $ (364,533 )
Adjustments for:
Depreciation of property, plant and equipment **** 49,582 **** 15,703
Amortization of intangible assets **** 26,650 **** 7,869
Share of loss on equity investments 8 **** 6,668 **** 9,021
Share-based compensation 18 **** 241,922 **** 194,686
Income tax recovery 24 **** (22,948 ) (4,765 )
Non-cash foreign currency **** (3,945 ) 1,394
Interest paid **** (13,738 ) —
Change in operating assets and liabilities, net of effects from purchases of businesses:
Amounts receivable **** 13,749 **** (56,137 )
Prepaid expenses and other assets **** (6,214 ) (22,007 )
Inventory **** (240,555 ) (74,449 )
Accounts payable and accrued liabilities **** (11,559 ) 57,362
Other, including non-cash fair value adjustments **** (540,573 ) (59,043 )
Net cash used in operating activities **** (561,996 ) (294,899 )
Cash flows from investing activities
Purchases of and deposits on property, plant and equipment **** (610,858 ) (495,236 )
Purchases of intangible assets **** (13,724 ) (40,141 )
Redemption (purchase) of short-term investments **** 1,324,682 **** (802,247 )
Investments in equity method investees 8 **** (4,719 ) (27,201 )
Investments in other financial assets 9 **** (46,647 ) (74,071 )
Investment in Acreage Arrangement 9, 26 **** (395,190 ) —
Change in acquisition related liabilities **** (29,837 ) —
Net cash outflow on acquisition of NCI **** — **** (1,996 )
Net cash outflow on acquisition of subsidiaries 25 **** (505,156 ) (344,471 )
Net cash used in investing activities **** (281,449 ) (1,785,363 )
Cash flows from financing activities:
Proceeds from issuance of common shares and warrants **** — **** 5,072,500
Payment of share issue costs 17 **** (245 ) (18,617 )
Proceeds from issuance of shares by Canopy Rivers **** 1,062 **** 91,218
Proceeds from exercise of stock options 18 **** 39,149 **** 28,730
Proceeds from exercise of warrants 17 **** 446 **** 18,684
Issuance of long-term debt 14 **** 10,268 **** 600,000
Payment of debt issue costs 14 (i) **** — **** (16,380 )
Payment of interest on long-term debt **** — **** —
Repayment of long-term debt **** (122,036 ) (6,227 )
Net cash (used) provided by financing activities **** (71,356 ) 5,769,908
Effect of exchange rate changes on cash and cash equivalents **** (4,365 ) 103,664
Net cash (outflow) inflow **** (919,166 ) 3,793,310
Cash and cash equivalents, beginning of period **** 2,480,830 **** 322,560
Cash and cash equivalents, end of period $ 1,561,664 **** $ 4,115,870
Supplemental disclosure of cash flow information
Cash paid during the year:
Income Taxes **** 3,220 **** —
Noncash investing and financing activities
Additions to property, plant and equipment **** 66,402 **** 98,043

The accompanying notes are an integral partof these condensed interim consolidated financial statements.

Page 4

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

1. DESCRIPTION OF BUSINESS

Canopy Growth Corporation is a publicly traded corporation, incorporated in Canada, with its head office located at 1 Hershey Drive, Smiths Falls, Ontario with its common shares listed on the TSX, under the trading symbol “WEED” and as of May 24, 2018 on the NYSE, under the trading symbol “CGC”. References in these condensed interim consolidated financial statements to “Canopy Growth” or “the Company” refer to Canopy Growth Corporation and its subsidiaries.

The principal activities of the Company are the production, distribution and sale of cannabis as regulated by the Access to Cannabis for Medical Purposes Regulations (“ACMPR”) in Canada, up to and including October 16, 2018. On October 17, 2018, the ACMPR was superseded by The Cannabis Act which regulates the production, distribution, and possession of cannabis for both medical and adult recreational access in Canada. The Company is also expanding to jurisdictions outside of Canada where federally lawful and regulated for cannabis and/or hemp including subsidiaries which operate in the United States, Europe, Latin America and the Caribbean, Asia / Pacific, and Africa. Through its partially owned subsidiary Canopy Rivers Inc. (“Canopy Rivers”), the Company also provides growth capital and a strategic support platform that pursues investment opportunities in the global cannabis sector, where federally lawful.

2. BASIS OF PRESENTATION

These condensed interim consolidated financial statements have been presented in Canadian dollars and are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Canopy Growth has determined that the Canadian dollar is the most relevant and appropriate reporting currency as, despite continuing shifts in the relative size of our operations across multiple geographies, the majority of our operations are conducted in Canadian dollars and our financial results are prepared and reviewed internally by management in Canadian dollars. Our condensed interim consolidated financial statements, and the financial information contained herein, are reported in thousands of Canadian dollars, except share and per share amounts or as otherwise stated.

Certain information and footnote disclosures normally included in the audited annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted or condensed. These condensed interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended March 31, 2020 (the “Annual Consolidated Financial Statements”), and have been prepared on a basis consistent with the accounting policies as described in the Annual Consolidated Financial Statements.

These condensed interim consolidated financial statements are unaudited and reflect adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods in accordance with U.S. GAAP.

The results reported in these condensed interim consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for an entire fiscal year. The policies set out below are consistently applied to all periods presented, unless otherwise noted.

(i) Principles of consolidation

The accompanying condensed interim consolidated financial statements include the accounts of the Company and all entities in which the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. All intercompany accounts and transactions have been eliminated on consolidation. Information on the Company’s subsidiaries with non-controlling interests is included in Note 20.

(ii) Variableinterest entities

A variable interest entity (“VIE”) is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to control the entity’s activities or do not substantially participate in the gains and losses of the entity. Upon inception of a contractual agreement, and thereafter, if a reconsideration event occurs, the Company performs an assessment to determine whether the arrangement contains a variable interest in an entity and whether that entity is a VIE. The primary beneficiary of a VIE is the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Under Accounting Standards

Page 5

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

Codification (“ASC”) 810 – Consolidations, where the Company concludes that it is the primary beneficiary of a VIE, the Company consolidates the accounts of that VIE.

(iii) Equity method investments

Investments accounted for using the equity method include those investments where the Company (i) can exercise significant influence over the other entity and (ii) holds common stock and/or in-substance common stock of the other entity. Under the equity method, investments are carried at cost, and subsequently adjusted for the Company’s share of net income (loss), comprehensive income (loss) and distributions received from the investee. If the current fair value of an investment falls below its carrying amount, this may indicate that an impairment loss should be recorded. Any impairment losses recognized are not reversed in subsequent periods. Refer to Note 8 for additional information on the Company’s investments accounted for using the equity method.

(iv) Use of estimates

The preparation of these condensed interim consolidated financial statements and accompanying notes in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates.

(v) New accounting policies

(a) Recently adopted accounting pronouncements

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on the recognition and measurement of leases, ASC 842 - Leases. Under this guidance, a lessee recognizes assets and liabilities on its balance sheet for most leases. Lease expense continues to be consistent with previous guidance. Additionally, this guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leasing arrangements.

The Company adopted the guidance on April 1, 2019, using the modified retrospective approach and, accordingly, prior period balances and disclosures have not been restated. The Company elected the package of transition practical expedients for expired or existing contracts, which retains prior conclusions reached on lease identification, classification, and initial direct costs incurred.

The adoption of this guidance resulted in the recognition of operating lease right-of-use assets of $99,880, net of lease provisions of $10,703 and $110,583 of lease liabilities, with a $nil impact on deficit. The transition to ASC 842 did not have a material impact on the Company’s results of operations or liquidity. When measuring lease liabilities, the Company used its incremental borrowing rate of April 1, 2019 of 4.5%. Further information is disclosed in Note 27.

Revenues

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which provides a single comprehensive model for accounting for revenue from contracts with customers and supersedes nearly all previously existing revenue recognition guidance. The core principle of ASU 2014-09 is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Canopy Growth adopted the new standard as of April 1, 2018. There was no impact of adopting ASU 2014-09 on the condensed interim consolidated financial statements.

Financial Instruments

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, which provides new guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. Canopy Growth adopted the standard on April 1, 2018. Under the new standard, changes in the fair value of equity investments with readily determinable fair values are recorded in other (income) expense, net within the condensed interim consolidated statement of operations. Previously, such fair value changes were recorded in other comprehensive income (loss). The impact of this transition is a cumulative-effect adjustment to deficit of $34,800.

Page 6

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

Canopy Growth has elected to continue to measure its equity investments without readily determinable fair values at fair value. Changes in the measurement of these investments will continue to be recorded in other (income) expense, net within the condensed interim consolidated statement of operations.

Income taxes

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which requires the recognition of the income tax effects of intercompany sales and transfers of assets, other than inventory, in the period in which the transfer occurs. Canopy Growth adopted the standard on April 1, 2018, using a modified retrospective approach. There was minimal impact of adopting ASU 2016-16 on the condensed interim consolidated financial statements.

(b) Accounting guidance not yet adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Adoption of ASU 2016-13 will require financial institutions and other organizations to use forward-looking information to better formulate their credit loss estimates. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is evaluating the impact on the consolidated financial statements and expects to implement the provisions of ASU 2016-13 effective April 1, 2020.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820) (“ASU 2018-13”). ASU 2018-13 adds, modifies, and removes certain fair value measurement disclosure requirements. ASU 2018-13 is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact on the consolidated financial statements and expects to implement the provisions of ASU 2018-13 effective April 1, 2020.

3. CASH AND CASH EQUIVALENTS

Cash and cash equivalents are disaggregated as follows:

December 31, March 31,
2019 2019
Cash $ 1,020,869 $ 1,703,550
Cash equivalents **** 540,795 777,280
Total cash and cash equivalents $ 1,561,664 $ 2,480,830
4. SHORT-TERM INVESTMENTS
--- ---

The components of short-term investments are as follows:

December 31, March 31,
2019 2019
Term deposits $ 370,000 $ 1,600
U.S. government securities **** 90,063 1,663,245
Canadian government securities **** 115,646 369,288
U.S. commercial paper and other **** 130,212 —
Total short-term investments $ 705,921 $ 2,034,133

The amortized cost of short-term investments at December 31, 2019 is $705,902 (March 31, 2019—$2,032,770).

Page 7

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

5. AMOUNTS RECEIVABLE, NET

Amounts receivable, net is comprised of:

December 31, March 31,
2019 2019
Accounts receivable $ 49,683 $ 61,830
Indirect taxes receivable **** 45,973 27,805
Interest receivable **** 8,449 7,193
Other receivables **** 4,717 10,146
Total amounts receivable $ 108,822 $ 106,974

Included in the amounts receivable, net balance at December 31, 2019 is an allowance for doubtful accounts of $552 (March 31, 2019—$635).

6. INVENTORY

Inventory is comprised of the following items:

December 31, March 31,
2019 2019
Raw materials $ 36,507 $ 845
Work-in-process **** 284,906 109,672
Finished goods **** 57,483 30,054
Supplies and consumables **** 38,322 49,501
Total inventory $ 417,218 $ 190,072

The Company recorded write-downs related to inventory in the three and nine months ended December 31, 2019 of $6,018 and $32,554, respectively.

7. PREPAID EXPENSES AND OTHER ASSETS

The Company’s prepaid expenses and other assets consists of the following:

December 31, March 31,
2019 2019
Prepaid expenses $ 34,335 $ 26,339
Deposits **** 9,975 29,138
Prepaid inventory **** 27,354 21,267
Other assets **** 30,884 8,947
Total prepaid expenses and other assets $ 102,548 $ 85,691

Page 8

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

8. EQUITY METHOD INVESTMENTS

The following table outlines changes in the investments in associates that are accounted for using the equity method. Where the Company does not have the same reporting date as its investees, the Company will account for its investments one quarter in arrears. Accordingly, certain of the figures in the following table, including the Company’s share of the investee’s net income (loss), are based on the investees’ results for the period ended September 30, 2019, with adjustments for any significant transactions.

Balance at Share Balance at
Participating March 31, of net Derecognition December 31,
Entity Instrument share 2019 Additions loss of investment 2019
PharmHouse Shares 49.0% $ 39,278 $ — $ (1,238 ) $ — $ 38,040
Agripharm Shares 40.0% 36,127 — (1,964 ) — **** 34,163
More Life Shares 40.0% — 25,200 — — **** 25,200
CanapaR Shares 49.1% 18,062 — (1,253 ) — **** 16,809
Beckley Canopy Therapeutics^1^ Shares 46.8% 11,653 — (385 ) (11,268 ) **** —
Other^1^ Shares 18.2% to 66.7% 7,265 4,617 (1,828 ) (1,189 ) **** 8,865
$ 112,385 $ 29,817 $ (6,668 ) $ (12,457 ) $ 123,077
^1^ On October 11, 2019 Canopy Growth acquired all of its unowned interest in Beckley Canopy Therapeutics<br>and Spectrum Biomedical UK, see note 25(a)(iv).
--- ---

Investment in More Life

On November 7, 2019, the Company entered into agreements with certain entities that are controlled by Aubrey “Drake” Graham to launch the More Life Growth Company (“More Life”). Under the agreements Canopy Growth will sell 100% of the shares of 1955625 Ontario Inc., a wholly owned subsidiary of Canopy Growth that holds the Health Canada license for a facility located in Scarborough, Ontario to More Life (“More Life Facility”) in exchange for a 40% interest in More Life. Certain entities that are controlled by Drake will hold a 60% ownership interest.

As consideration for the 60% interest in More Life , certain entities that are controlled by Drake have granted More Life the right to exclusively exploit certain intellectual property and brands in association with the growth, manufacture, production, marketing and sale of cannabis and cannabis-related products, accessories, merchandise and paraphernalia in Canada and internationally. The maintenance of the non-Canada rights after 18 months is contingent upon certain performance criteria of More Life. More Life has sublicensed such rights in Canada to Canopy Growth in exchange for royalty payments. On the transaction date Canopy Growth recorded an intangible asset equal to the present value of the agreed minimum royalty payments. The intangible asset will be amortized over its estimated useful life.

Following this transaction, the Company no longer controls 1955625 Ontario Inc. and the Company derecognized the assets and liabilities of 1955625 Ontario Inc. from its consolidated financial statements at their carrying amounts. Management has concluded that the subsidiary does not meet the definition of an operation and no goodwill was allocated. The derecognized assets and liabilities on November 7, 2019, were as follows:

Cash $ 100
Intangible assets 2,810
Net assets disposed $ 2,910
Fair value of retained interest 25,200
Gain on disposal of consolidated entity $ 22,290

The gain calculated on the derecognition of 1955625 Ontario Inc.’s assets and liabilities is the difference between the carrying amounts of the derecognized assets and liabilities of 1955625 Ontario Inc. and the fair value of the consideration received, being the fair value of the Company’s interest in More Life. The fair value of this interest was estimated on the transaction date to be $25,200 which was determined using a discounted cash flow approach. The most significant inputs to the fair value measurement are the discount rate and expectations about future royalties.

Through its ownership and other rights, the Company has significant influence over More Life and will account for its interest in More Life using the equity method of accounting. The investment will initially be recognized at

Page 9

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

its fair value and adjusted thereafter to recognize the Company’s share of net income or loss and other comprehensive income or loss. The Company will record its share of net income or loss one quarter in arrears with adjustments for any significant transactions. The accounting for More Life has only been provisionally determined at the end of the reporting period. To the extent that there are differences between the fair value of the assets and liabilities of More Life and the book value of these assets and liabilities that would impact earnings the Company will account for these differences in its equity earnings in the investee.

Canopy Growth and certain entities controlled by Drake have entered into an operating agreement which governs the operations of the More Life Facility. Under this agreement Canopy Growth will continue to provide all of the day-to-day operations and maintenance of the More Life Facility and will retain all of the rights to distribute the product that is cultivated at the More Life Facility in exchange for the payment of an additional royalty to More Life on the sales of cannabis produced at the More Life Facility. The term of the Operating Agreement is five years plus two five subsequent year renewals at Canopy’s option, provided that the Canopy Sub-License Term is also extended for such periods. Since Canopy Growth controls the facility and the biological assets and inventory grown at that facility, the property, plant and equipment at the facility and the related inventory will be recorded as assets of Canopy Growth.

Page 10

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

9. OTHER FINANCIAL ASSETS

The following tables outlines changes in Other financial assets. Additional details on how the fair value of significant investments is calculated are included in Note 21.

Exercise of
options /
Balance at disposal Balance at
March 31, Interest of shares / December 31,
Entity Instrument Note 2019 Additions FVTPL income repayments 2019
Acreage Option 26 $ — $ 395,190 $ (265,190 ) $ — $ — $ 130,000
TerrAscend Exchangeable shares 160,000 — (102,000 ) — — **** 58,000
PharmHouse Loan receivable 40,000 — — — — **** 40,000
Agripharm Royalty interest 10,254 8,000 108 — — **** 18,362
ZeaKal Shares 9 (ii) — 13,487 (500 ) — — **** 12,987
Greenhouse Convertible debenture 5,944 3,000 1,862 — — **** 10,806
TerrAscend Canada Term loan / debenture 9 (i) — 10,853 (66 ) — — **** 10,787
SLANG Warrants 44,000 — (35,000 ) — — **** 9,000
Good Leaf Shares 4,611 — — — — **** 4,611
Other - classified as fair value through net income (loss) Various 9 (iii) 49,922 9,307 (29,263 ) — (6,840 ) **** 23,126
Other - elected as fair value through net income (loss) Various 46,847 1,394 (23,263 ) — (3,635 ) **** 21,343
Other - classified as held for investment Loan receivable 1,849 11,120 — 155 (194 ) **** 12,930
$ 363,427 $ 452,351 $ (453,312 ) $ 155 $ (10,669 ) $ 351,952

(i) TerrAscend Canada Inc. (“TerrAscend Canada”)

On October 2, 2019, Canopy Rivers completed a $13,243 (US$10,000) investment in TerrAscend Canada, a wholly-owned subsidiary of TerrAscend Corp. (“TerrAscend”). The investment included a term loan with a fair value of $10,853 and warrants with a fair value of $2,390.

(ii) Zeakal, Inc. (“Zeakal”)

On June 14, 2019, Canopy Rivers acquired 248,473 preferred shares of Zeakal, a California-based plant science company, for $13,487 which represents a 9% equity interest on a fully diluted basis.

(iii) AusCann Group Holdings(“AusCann”)

On October 15, 2019, the Company sold its shares in AusCann.

Page 11

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

10. PROPERTY, PLANT AND EQUIPMENT

The components of property, plant and equipment are as follows:

December 31, March 31,
2019 2019
Buildings and greenhouses $ 768,104 $ 361,958
Production and warehouse<br><br><br>equipment 239,086 175,325
Leasehold improvements 57,194 32,264
Land 61,926 37,681
Office and lab equipment 28,169 23,495
Computer equipment 23,045 19,228
Right-of-use<br>assets
Buildings and greenhouses 109,218 —
Production and warehouse equipment 927 —
Assets in process 568,507 491,722
1,856,176 1,141,673
Less: Accumulated depreciation (103,442 ) (45,333 )
Total $ 1,752,734 $ 1,096,340

Depreciation expense included in cost of goods sold for the three and nine months ended December 31, 2019 is $13,568 and $35,023, respectively (three and nine months ended December 31, 2018 – $4,712 and $13,638, respectively). Depreciation expense included in selling, general and administrative expenses for the three and nine months ended December 31, 2019 is $6,201 and $14,559, respectively (three and nine months ended December 31, 2018 – $545 and $2,065, respectively).

11. INTANGIBLE ASSETS

The components of intangible assets are as follows:

December 31, 2019 March 31, 2019
Gross Net Gross Net
Carrying Carrying Carrying Carrying
Amount Amount Amount Amount
Finite lived intangible assets
Licensed brands $ 95,178 $ 89,746 $ 57,802 $ 57,678
Distribution channel 42,567 19,313 42,400 25,297
Health Canada and operating licenses 104,679 99,313 104,608 99,587
Intellectual property 176,886 160,716 153,797 149,360
Software and domain names 14,538 9,465 9,701 6,819
Amortizable intangibles in process 14,238 14,236 4,122 4,046
Total 448,086 392,789 372,430 342,787
Indefinite lived intangible assets
Operating licenses 151,509 151,509
Acquired brands 63,339 63,774
Total intangible assets $ 607,637 $ 558,070

Amortization expense included in cost of goods sold for the three and nine months ended December 31, 2019 is $71 and $109, respectively (three and nine months ended December 31, 2018 – $nil and $35, respectively). Amortization expense included in selling, general and administrative expenses for the three and nine months

Page 12

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

ended December 31, 2019 is $10,624 and $26,541, respectively (three and nine months ended December 31, 2018 – $2,633 and $7,834, respectively).

12. GOODWILL

The net change in goodwill is as follows:

Note
As at March 31, 2018 $ 277,445
Purchase accounting allocations 1,215,750
Foreign currency translation adjustments (3,336 )
As at March 31, 2019 1,489,859
Purchase accounting allocations 25 (a) 566,496
Finalization of S&B purchase price allocation 25 (b) (24,990 )
Foreign currency translation adjustments (16,865 )
As at December 31, 2019 $ 2,014,500 ****
13. OTHER ACCRUED EXPENSES AND LIABILITIES
--- ---

The components of other accrued expenses and liabilities are as follows:

December 31, March 31,
2019 2019
Property, plant and equipment $ 9,463 $ 8,013
Professional fees **** 1,815 2,059
Employee compensation **** 32,414 20,577
Other **** 16,193 6,964
$ 59,885 $ 37,613
14. DEBT
--- ---

The components of debt are as follows:

December 31, March 31,
2019 2019
Convertible senior notes at 4.25% interest with semi-annual interest payments July 15, 2023
Principal amount $ 600,000 $ 600,000
Accrued interest **** 11,898 **** 5,454
Non-credit risk fair value adjustment (FVTPL) **** (38,640 ) 183,120
Credit risk fair value adjustment (FVOCI) **** (30,360 ) 47,130
**** 542,898 **** 835,704
Term loan facility advanced in the form of a prime rate operating loan $ — **** $ 95,000
Transferred receivables, bearing an interest rate of IBOR plus 0.850% **** 4,069 **** —
Other revolving debt facility, loan, and financings **** 10,792 **** 15,271
**** 557,759 **** 945,975
Less: current portion **** (21,652 ) (103,716 )
Long-term portion $ 536,107 **** $ 842,259

All values are in Euros.

Page 13

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

(i) Convertible senior notes

On June 20, 2018, the Company issued convertible senior notes (“the notes”) with an aggregate principal amount of $600,000. The notes are subordinated in right of payment to any existing and future senior indebtedness, including indebtedness under the revolving credit facility. The notes will rank senior in right of payment to any future subordinated borrowings.

Holders of the notes have the right to exercise the conversion option at a rate of 20.7577 common shares for every $1 of principal amount of notes from September 30, 2018 to January 15, 2023, if (i) the market price of the Company common shares for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day, (ii) during the 5 business day period after any consecutive 5 trading day period (the “measurement period”) in which the trading price per $1 principal amount of the notes for each trading day in the measurement period was less than 98% of the product of the last reported sales price of the Company’s common shares and the conversion rate on each such trading day, (iii) the notes are called for redemption or (iv) upon occurrence of certain corporate events (“Fundamental Change”).

The Company may also redeem the notes if certain tax laws related to Canadian withholding tax change subject to certain further conditions. The redemption of the notes shall be at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest.

Interest paid during the three and nine months ended December 31, 2019 was $nil and $12,750, respectively (three and nine months ended December 31, 2018 was $nil).

(ii) Alberta Treasury Board (“ATB”) financing

On June 14, 2019, the Company repaid its ATB term loan facility. A payment of $95,180 was made to settle the loan balance which included interest of $180.

(iii) Transferred receivables

The carrying amounts of the transferred receivables include receivables which are subject to a factoring arrangement. Under this arrangement, C^3^ has transferred the relevant receivables to PB Factoring GmbH in exchange for cash. The transferred receivables to PB Factoring GmbH is $4,521 and the associated secured borrowing is $4,069.

(iv) Other revolving debt facility, loans, and financings

The revolving debt facility is secured by a first charge on the properties in Niagara-on-the-Lake, Ontario, a corporate guarantee from the Company, and a general corporate security agreement.

15. OTHER LIABILITIES

The components of other liabilities are as follows:

December 31, 2019 March 31, 2019
Notes Current Long-term Total Current Long-term Total
Acquisition consideration related liabilities $ 95,447 $ 13,476 $ 108,923 $ 22,176 $ 87,747 $ 109,923
Lease liabilities 27 49,128 64,372 **** 113,500 — — —
Minimum royalty obligations 5,088 55,473 **** 60,561 3,445 24,392 27,837
Due to former shareholders of Storz & Bickel — — **** — 21,447 — 21,447
Refund liability 17 16,885 — **** 16,885 — — —
Settlement liability 15 (a) 5,296 9,893 **** 15,189 11,980 16,631 28,611
Other 13,362 4,014 **** 17,376 22,366 5,234 27,600
Total $ 185,206 $ 147,228 $ 332,434 $ 81,414 $ 134,004 $ 215,418

Page 14

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

(a) Settlement liability

During the year ended March 31, 2019, the Company reached a settlement with certain co-investors in Bedrocan Brasil S.A. and Entourage Phytolab S.A. to facilitate organizational changes to support the Company’s growth in Latin America. Under the terms of the agreement the Company agreed to make cash payments totaling $25,185 and a final payment equal to 1.2% of the fair value of the Company’s Latin American business as of June 30, 2023. The fair value of the settlement was estimated to be $28,611 and was recorded as an expense. The final payment represents a derivative liability that was initially measured at fair value with subsequent period end remeasurements of fair value recorded through net income (loss).

During the three and nine months ended December 31, 2019, payments totalling $nil and $13,908 respectively, were made, with the remaining change in liability relating to accretion expense and fair value changes.

16. REDEEMABLE NONCONTROLLING INTEREST

The net changes in the redeemable noncontrolling interests are as follows:

Vert<br>Mirabel BioSteel Total
As at March 31, 2019 $ 6,400 $ — $ 6,400
Initial recognition of noncontrolling interest — 18,733 18,733
Income (loss) attributable to<br><br><br>noncontrolling interest 4,573 (889 ) 3,685
Adjustments to redemption amounts 1,627 7,155 8,782
As at December 31, 2019 $ 12,600 $ 25,000 **** $ 37,600
Vert<br>Mirabel BC Tweed Total
--- --- --- --- --- --- --- --- --- ---
As at March 31, 2018 $ 4,850 $ 56,300 $ 61,150
Income (loss) attributable to noncontrolling interest (3,683 ) — (3,683 )
Adjustments to redemption amounts 8,433 16,300 24,733
Purchase of redeemable noncontrolling interest — (72,600 ) (72,600 )
As at December 31, 2018 $ 9,600 **** $ — **** $ 9,600 ****
17. SHARE CAPITAL
--- ---

CANOPY GROWTH

Authorized

An unlimited number of common shares.

(i) Equity financings

There were no equity financings for the nine months ended December 31, 2019.

(ii) Other issuances of common shares

During the three and nine months ended December 31, 2019, the Company issued 665,297 and 8,172,679 (three and nine months ended December 31, 2018 – 5,551,151 and 26,045,527, respectively) shares respectively, with an increase of $21,841 and $266,462 (three and nine months ended December 31, 2018 – $248,249 and $1,216,505, respectively) in share capital.

Page 15

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

(iii) Warrants
Note Number of<br>whole<br>warrants Average<br>exercise<br>price Warrant<br>value
--- --- --- --- --- --- --- --- --- --- ---
Balance outstanding at March 31, 2019 107,848,322 $ 43.80 $ 1,589,925
Tranche A warrant modification 26 — — 1,049,153
Issuance of Tranche B Warrants 26 38,454,444 76.68 —
Other issuance of warrants 9,200 32.83 359
Exercise of warrants (12,523 ) 35.55 (486 )
Balance outstanding at December 31,2019^1^ **** 146,299,443 **** $ 52.44 $ 2,638,951 ****
^1^ This balance excludes the Tranche C Warrants, which represent a derivative liability and have nominal value,<br>see note 26.
--- ---

CANOPY RIVERS

Authorized capital

Canopy Rivers is authorized to issue an unlimited number of common shares. There are two classes of common shares: Multiple Voting Shares and Subordinated Voting Shares. Each Multiple Voting Share is entitled to receive 20 votes, while each Subordinated Voting Share is entitled to receive one vote at all meetings of the shareholders. There is no priority or distinction between the two classes of shares in respect of their entitlement to the payment of dividends or participation on liquidation, dissolution or winding-up of the Company.

Issued and outstanding

As at December 31, 2019, Canopy Rivers had 36,468,318 Multiple Voting Shares (March 31, 2019 – 36,468,318) and 152,653,798 Subordinated Voting Shares (March 31, 2019 – 150,592,136) issued and outstanding. As at December 31, 2019, the Company held 36,468,318 Multiple Voting Shares (March 31, 2019 – 36,468,318) and 15,223,938 Subordinated Voting shares (March 31, 2019 – 15,223,938) which represented a 27.3% ownership interest in Canopy Rivers and 84.4% of the voting rights (March 31, 2019 – 27.6% and 84.6% respectively). The voting rights allow the Company to direct the relevant activities of Canopy Rivers such that the Company has control over Canopy Rivers and Canopy Rivers is consolidated in these financial statements.

Financings

There were no financings during the nine months ended December 31, 2019.

Initial financing

The 10,066,668 Subordinated Voting Shares acquired by way of share purchase loans, whereby funds were advanced to Canopy Rivers by the Company on behalf of certain employees of the Company and another individual, were initially accounted for as seed capital options and are not considered issued for accounting purposes until the loans are repaid on an individual employee/consultant basis. During the three and nine months ended December 31, 2019, share purchase loans in the amount of $2 and $50 respectively (three and nine months ended December 31, 2018 – $nil and $288 respectively) relating to Canopy Rivers shares held in trust by the Company on behalf of certain Canopy Growth employees were repaid, resulting in the release from escrow of Subordinated Voting Shares of 38,890 and 999,998 respectively (three and nine months ended December 31, 2018 – nil and 5,750,000 respectively). As at December 31, 2019, there were 2,838,894 seed capital options outstanding (March 31, 2019 – 3,838,892). Please refer to Note 18 for additional details on the seed capital options.

18. SHARE BASED COMPENSATION

CANOPY GROWTH CORPORATION SHARE-BASED COMPENSATION PLAN

Canopy Growth’s eligible employees participate in a share-based compensation plan as noted below.

On September 15, 2017, shareholders approved an Omnibus Incentive Plan (as amended and restated, the “Omnibus Plan”) pursuant to which the Company can issue share-based long-term incentives. All directors, officers, employees and independent contractors of the Company are eligible to receive awards of common share purchase options (“Options”), restricted share units **** (“RSUs”), deferred share units, stock appreciation rights (“Stock Appreciation Rights”), performance awards (“Performance Awards”) or other stock based awards

Page 16

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

(collectively, the “Awards”) under the Omnibus Plan. In addition, shareholders also approved the 2017 Employee Stock Purchase Plan of the Company (the “Purchase Plan”). Under the Purchase Plan, the aggregate number of common shares that may be issued is 400,000, and the maximum number of common shares which may be issued in any one fiscal year shall not exceed 200,000. ****

Under the Omnibus Plan, the maximum number of shares issuable from treasury pursuant to Awards shall not exceed 15% of the total outstanding shares from time to time less the number of shares issuable pursuant to all other security-based compensation arrangements of the Company. The maximum number of common shares reserved for Awards is 52,404,337 at December 31, 2019. As of December 31, 2019, the only Awards issued have been options and RSUs under the Omnibus Plan.

The Omnibus Plan is administered by the Board of Directors of the Company who establishes exercise prices, at not less than the market price at the date of grant, and expiry dates. Options under the Omnibus Plan generally remain exercisable in increments with 1/3 being exercisable on each of the first, second and third anniversaries from the date of grant, with expiry dates set at six years from issuance. The Board of Directors has the discretion to amend general vesting provisions and the term of any award, subject to limits contained in the Omnibus Plan.

The following is a summary of the changes in the Company’s Omnibus Plan employee options during the nine months ended December 31, 2019:

Options<br>issued Weighted<br>average<br>exercise price
Balance outstanding at March 31, 2019 32,831,895 $ 34.10
Options granted 8,305,120 35.46
Options exercised (3,642,733 ) 10.75
Options forfeited/cancelled (3,867,648 ) 45.23
Balance outstanding at December 31, 2019 **** 33,626,634 **** $ 35.68

The following is a summary of the outstanding stock options as at December 31, 2019:

Options Outstanding Options Exercisable
Range of Exercise Prices Outstanding at<br>December 31,<br>2019 Weighted<br>Average<br>Remaining<br>Contractual Life<br>(years) Exercisable at<br>December 31,<br>2019 Weighted<br>Average<br>Remaining<br>Contractual Life<br>(years)
$0.06 - $25.49 7,425,796 3.87 3,053,858 2.95
$25.50 - $35.00 4,758,268 4.82 683,286 4.15
$35.01 - $38.88 7,424,558 4.90 2,776,244 4.62
$38.89 - $42.84 5,859,870 4.63 2,003,936 4.50
$42.85 - $67.64 8,158,142 5.16 889,821 4.74
33,626,634 4.68 9,407,145 4.03

At December 31, 2019, the weighted average exercise price of options outstanding and options exercisable was $35.68 and $30.56, respectively (at March 31, 2019 - $34.10 and $13.99, respectively).

For the three and nine months ended December 31, 2019, the Company recorded $57,322 and $207,301 in share-based compensation expense related to options issued to employees (for the three and nine months ended December 31, 2018 - $33,869, and $78,727) and $413 and $3,752, respectively, in share-based compensation expense related to options issued to contractors (for the three and nine months ended December 31, 2018 - $5,778 , and $8,689). The compensation expense for the nine months ended December 31, 2019, includes an amount related to 445,000 options being provided in exchange for services which are subject to performance conditions (for the nine months ended December 31, 2018 - 545,000).

Page 17

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

In determining the amount of share-based compensation related to options issued during the period, the Company used the Black-Scholes option pricing model to establish the fair value of options granted during the three months ended December 31, 2019 and 2018 on their measurement date by applying the following assumptions:

December 31, 2019 December 31, 2018
Risk-free interest rate **** 1.60 % 1.96 %
Expected life of options (years) **** 3 - 5 **** 2 - 5
Expected annualized volatility **** 73 % 77 %
Expected forfeiture rate **** 13 % 12 %
Expected dividend yield nil nil
Black-Scholes value of each option $ 14.58 **** $ 21.56

Volatility was estimated by using the historical volatility of the Company. The expected life in years represents the period of time that options granted are expected to be outstanding. The risk-free rate was based on the zero coupon Canada government bonds with a remaining term equal to the expected life of the options.

During the nine months ended December 31, 2019, 3,642,733 Omnibus Plan options were exercised ranging in price from $0.22 to $40.68 for gross proceeds of $39,149 (for the nine months ended December 31, 2018 – 4,278,671 Omnibus Plan options were exercised ranging in price from $0.56 to $29.57 for gross proceeds of $28,728).

During the three and nine months ended December 31, 2019, the Company issued nil RSUs. As at December 31, 2019, the Company had 10,264 RSUs issued and outstanding, of which 1,464 were exercisable. Included in the share-based compensation expense during the three and nine months ended December 31, 2019, was a forfeiture of 100,000 RSUs, resulting in a recovery of share-based compensation expense of $(2,552) (three and nine months ended December 31, 2018 – $nil). For the three and nine months ended December 31, 2019, the Company recorded $(2,552) and $129 respectively, in share-based compensation expense related to these RSUs (for the three and nine months ended December 31, 2018 – $400 and $3,075).

Share-based compensation expense related to acquisition milestones is comprised of:

Three months ended Nine months ended
December 31,2019 December 31,<br>2018 December 31,2019 December 31,<br>2018
Colombia $ 3,365 **** $ 9,845 $ 9,765 $ 19,262
Canindica **** 1,629 **** 6,643 **** 7,925 36,001
Other **** (78 ) 7,361 **** 6,621 26,411
$ 4,916 **** $ 23,849 $ 24,311 $ 81,674

During the three and nine months ended December 31, 2019, 665,297 and 1,232,148 shares, respectively (three and nine months ended December 31, 2018 – nil and 1,908,532 respectively) were released on completion of acquisition milestones. At December 31, 2019, there were up to 5,354,764 shares to be issued on the completion of acquisition and asset purchase milestones. In certain cases, the number of shares to be issued is based on the volume weighted average share price at the time the milestones are met. The number of shares has been estimated assuming the milestones were met at December 31, 2019. The number of shares excludes shares to be issued on July 4, 2023 to the previous shareholders of Spectrum Cannabis Colombia S.A.S. (“Spectrum Colombia”) and Canindica Capital Ltd. (“Canindica”) based on the fair market value of the Company’s Latin American business on that date.

During the three and nine months ended December 31, 2019, the Company recorded share-based payments of $nil (three and nine months ended December 31, 2018 – $177 and $4,763 respectively), related to shares issued for payment of royalties and sales and marketing services.

Page 18

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

BioSteel share-based payments

On October 1, 2019, the Company purchased 72% of the outstanding shares of BioSteel Sports Nutrition Inc. (“BioSteel”) (see Note 24(a)(iii)). BioSteel has a stock option plan (the “Plan”) under which non-transferable options to purchase common shares of BioSteel may be granted to directors, officers, employees, or independent contractors of the BioSteel. As at December 31, 2019, the Company had 1,004,000 options outstanding which vest in equal tranches over a 5 year period. In determining the amount of share-based compensation related to these options, BioSteel used the Black-Scholes option pricing model to establish the fair value of options on their measurement date. The Company recorded $247 of share-based compensation expense related to the BioSteel options during both the three and nine months ended December 31, 2019.

CANOPY RIVERS SHARE-BASEDCOMPENSATION PLAN

Seed Capital Options

On May 12, 2017, seed capital options were issued. These seed capital options consist of 10,066,668 Subordinated Voting Shares acquired by way of share purchase loans. Since they were issued through loans, they are not considered issued for accounting purposes until the loans are repaid. The seed capital options were measured at fair value on May 12, 2017, using a Black-Scholes option pricing model and will be expensed over their vesting period. Where there are performance conditions in addition to service requirements Canopy Rivers has estimated the number of shares it expects to vest and is amortizing the expense over the expected vesting period.

Seed capitaloptions issued Seed capitalloan balance
Balance outstanding at March 31, 2019 3,838,892 $ 192
Options exercised (999,998 ) (50 )
Balance outstanding at December 31, 2019 **** 2,838,894 **** $ 142 ****

Canopy Rivers has a stock option plan (the “Plan”) under which non-transferable options to purchase Subordinated Voting Shares of the Company may be granted to directors, officers, employees, or independent contractors of the Company. Pursuant to the Plan, the maximum number of Subordinated Voting Shares issuable from treasury pursuant to outstanding options shall not exceed 10% of the issued and outstanding Subordinated Voting Shares. The Plan is administered by the Board who establishes exercise prices, at not less than the market price at the date of the grant, and expiry dates. Options under the Plan generally remain exercisable in increments, with one-third being exercisable on each of the first, second, and third anniversaries from the date of grant, and have expiry dates five years from the date of grant. The Board has the discretion to amend general vesting provisions and the term of any option grant, subject to limits contained in the Plan. The seed capital options are not within the scope of the Plan.

The following is a summary of the changes in Canopy Rivers’ stock options, excluding the seed capital options presented separately, during the nine months ended December 31, 2019:

Options<br>issued Weighted<br>average<br>exercise price
Balance outstanding at March 31, 2019 12,522,255 $ 1.98
Options granted 1,993,000 3.46
Options exercised (1,061,664 ) 0.95
Options forfeited (155,920 ) 0.90
Balance outstanding at December 31, 2019 **** 13,297,671 **** $ 2.30

Page 19

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

In determining the amount of share-based compensation related to options issued during the period, Canopy Rivers used the Black-Scholes option pricing model to establish the fair value of options granted during the three months ended December 31, 2019 and 2018 on their measurement date by applying the following assumptions:

December 31, 2019 December 31, 2018
Risk-free interest rate **** 1.61 % 2.29 %
Expected life of options (years) **** 3 - 4 **** 3 - 5
Expected annualized volatility **** 70 % 70 %
Expected forfeiture rate nil nil
Expected dividend yield nil nil
Black-Scholes value of each option $ 0.84 **** $ 2.06

Volatility was estimated using companies that Canopy Rivers considers comparable that have trading and volatility history prior to Canopy Rivers becoming public. The expected life in years represents the period of time that options granted are expected to be outstanding. The risk-free rate was based on zero coupon Canada government bonds with a remaining term equal to the expected life of the options.

For the three and nine months ended December 31, 2019, the Company recorded $1,333 and $6,182 respectively, (three and nine months ended December 31, 2018—$6,815 and $10,668) in share-based compensation expense related to these options and the seed capital options with a corresponding increase to non-controlling interests.

19. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income includes the following components:

Foreigncurrencytranslationadjustments Changes ofown creditrisk offinancialliabilities Accumulatedothercomprehensiveincome (loss)
Balance at March 31, 2019 $ 41,225 $ (47,130 ) $ (5,905 )
Other comprehensive income (loss) (50,995 ) 77,490 26,495
Income tax expense — (8,000 ) (8,000 )
Balance at December 31, 2019 $ (9,770 ) $ 22,360 **** $ 12,590 ****
Foreigncurrencytranslationadjustments Changes ofown creditrisk offinancialliabilities Fair valueof otherfinancialassets Accumulatedothercomprehensiveincome (loss)
--- --- --- --- --- --- --- --- --- --- --- ---
Balance at March 31, 2018 $ 608 $ — $ 34,800 $ 35,408
Cumulative effect from adoption of ASU2016-1 — — (34,800 ) (34,800 )
Other comprehensive (loss) income 109,447 (62,520 ) — 46,927
Balance at December 31, 2018 $ 110,055 $ (62,520 ) $ — **** $ 47,535 ****

Page 20

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

20. NON-CONTROLLING INTERESTS

The net change in the non-controlling interests is as follows:

Canopy<br>Rivers Vert<br>Mirabel Other non-<br>material<br>interests BioSteel Total
As at March 31, 2019 $ 280,012 $ 2,422 $ 3,051 $ — $ 285,485
Comprehensive (loss) income (49,005 ) 7,164 — (889 ) (42,730 )
Net loss attributable to redeemable<br><br><br>noncontrolling interest — (4,573 ) — — (4,573 )
Share-based compensation 6,182 — — 247 6,429
Ownership changes 1,361 — — 887 2,248
As at December 31, 2019 $ 238,550 **** $ 5,013 **** $ 3,051 $ 245 **** $ 246,859 ****
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
--- ---

(a) Fair value of financial instrument assets and liabilities that are measured at fair value on a recurring basis

The following table summarizes the valuation techniques and key inputs used in the fair value measurement of significant level 2 financial instruments:

Financial asset / financial liability Valuation techniques Key inputs
Convertible senior note Convertible note pricing model Quoted prices in over-the-counter broker market

The following table summarizes the valuation techniques and significant unobservable inputs in the fair value measurement of significant level 3 financial instruments:

Financial asset /<br><br><br>financial liability Valuation<br><br><br>techniques Significant<br><br><br>unobservable<br><br><br>inputs Relationship of unobservable inputs to<br><br><br>fair value
Acreage financial instrument Discounted cash flow Intrinsic value of Acreage Increase or decrease in intrinsic value will result in an increase or decrease in fair value
Probability and timing of US legalization Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
Estimated premium on US legalization Increase or decrease in estimated premium on US legalization will result in an increase or decrease in fair value
Control premium Increase or decrease in estimated control premium will result in an increase or decrease in fair value
Market access premium Increase or decrease in estimated value to Canopy Growth will result in an increase or decrease in fair value
TerrAscend exchangeable shares Put option pricing model Probability and timing of US legalization Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
TerrAscend Canada term loan Discounted cash flow Probability and timing of US legalization Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
ZeaKal shares Market approach Share price Increase or decrease in share price will result in an increase or decrease in fair value

Page 21

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

Financial asset /<br><br><br>financial liability Valuation<br><br><br>techniques Significant<br><br><br>unobservable<br><br><br>inputs Relationship of unobservable inputs to<br><br><br>fair value
Greenhouse convertible debenture FinCAD model Share price Increase or decrease in share price will result in an increase or decrease in fair value
Good Leaf shares Market approach Share price Increase or decrease in share price will result in an increase or decrease in fair value
Agripharm royalty interest and repayable debenture Discounted cash flow Discount rate Increase or decrease in discount rate will result in a decrease or increase in fair value
Future royalties Increase in future royalties to be paid will result in an increase in fair value
SLANG Worldwide warrant Black-Scholes option pricing model Probability and timing of US legalization Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
Warrant derivative liability Monte Carlo simulation model Volatility of Canopy Growth share price Increase or decrease in volatility will result in an increase or decrease in fair value
Expected life Increase or decrease in expected life will result in an increase or decrease in fair value
Bio Steel redeemable noncontrolling interest Discounted cash flow Discount rate Increase or decrease in discount rate will result in a decrease or increase in fair value
Future wholesale price and production levels Increase in future wholesale price and production levels will result in an increase in fair value
Vert Mirabel redeemable noncontrolling interest Discounted cash flow Discount rate Increase or decrease in discount rate will result in a decrease or increase in fair value
Future wholesale price and production levels Increase in future wholesale price and production levels will result in an increase in fair value

During the nine months ended December 31, 2019 and December 31, 2018, there were no transfers of amounts between levels.

(b) Fair value of financial instrument assets and liabilities that are notmeasured at fair value but fair value disclosures are required

The carrying values of cash and cash equivalents, accounts receivable, interest receivable, and trade payables and accrued liabilities approximate their fair values due to their short-term to maturity.

Page 22

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

22. REVENUE

Revenues are disaggregated as follows:

Three months ended Nine months ended
December 31, December 31, December 31, December 31,
2019 2018 2019 2018
Recreational revenue
Business to business $ 53,454 $ 60,141 $ 120,556 $ 60,141
Business to consumer **** 15,242 11,477 **** 38,980 11,477
Medical revenue
Canadian **** 14,765 15,931 **** 41,965 57,198
International **** 18,701 2,702 **** 47,287 8,294
Other revenue **** 33,384 7,452 **** 75,770 9,836
Gross revenue **** 135,546 97,703 **** 324,558 146,946
Excise taxes **** 11,782 14,655 **** 33,699 14,655
Net revenue $ 123,764 $ 83,048 $ 290,859 $ 132,291

The Company records an allowance for estimated returns and price adjustments to ensure that recognized revenue reflects the consideration that the Company expects to receive. The allowance is based on historical experience and management’s expectation of future returns and price adjustments. Net revenue reflects actual returns and the allowance for estimated returns and price adjustments in the amounts of $5,343 and $46,070 for the three and nine months ended December 31, 2019, respectively (three and nine months ended December 31, 2018 – $nil). As of December 31, 2019, the liability for estimated returns and price adjustments was $16,885 (March 31, 2019 – $nil).

23. OTHER INCOME (EXPENSE), NET

Other income (expense), net is disaggregated as follows:

Three months ended Nine months ended
December 31, December 31, December 31, December 31,
Notes 2019 2018 2019 2018
Fair value changes on other financial assets 9 **** (77,300 ) (2,016 ) **** (188,122 ) 34,567
Fair value changes on asset arising from Acreage Arrangement 9, 26 **** (30,000 ) — **** (265,190 ) —
Fair value changes on convertible senior notes 14 **** 6,726 **** 185,796 **** 202,566 **** (40,398 )
Fair value change related to warrant derivative liability 26 **** 82,512 **** — **** 749,258 **** —
Fair value changes on acquisition related contingent consideration **** 4,718 **** 1,621 **** 3,078 **** 1,621
Interest income **** 12,348 **** 18,643 **** 51,529 **** 22,195
Interest expense **** (2,240 ) (1,025 ) **** (4,611 ) (1,373 )
Foreign currency (loss) gain **** (767 ) 693 **** (9,176 ) (2,264 )
Gain on acquisition/disposal of consolidated entity 25 (a)(iv), 8 **** 61,775 **** — **** 61,775 **** 62,682
Debt issuance costs **** — **** — **** — **** (16,380 )
Other income (expense), net **** 191 **** (4,854 ) **** (483 ) (6,108 )
Total other income (expense), net $ 57,963 **** $ 198,858 $ 600,624 **** $ 54,542

Page 23

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

24. INCOME TAXES

There have been no material changes to income tax matters in connection with normal course operations during the nine months ended December 31, 2019.

The Company is subject to income tax in numerous jurisdictions with varying income tax rates. During the most recent period ended and the fiscal year to date, there were no material changes to the statutory income tax rates in the taxing jurisdictions where the majority of the Company’s income for tax purposes was earned, or where its temporary differences or losses are expected to be realized or settled. Although statutory income tax rates remain stable, the Company’s effective income tax rate may fluctuate, arising as a result of the Company’s evolving footprint, discrete transactions and other factors that, to the extent material, are disclosed in these financial statements.

The Company continues to believe the amount of unrealized tax benefits appropriately reflects the uncertainty of items that are or may in the future be under discussion, audit, dispute or appeal with a tax authority or which otherwise result in uncertainty in the determination of income for tax purposes. If appropriate, an unrealized tax benefit will be realized in the reporting period in which the Company determines that realization is not in doubt. Where the final determined outcome is different from the Company’s estimate, such difference will impact the Company’s income taxes in the reporting period during which such determination is made.

Page 24

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

25. ACQUISITIONS

(a) Acquisitions completed in the nine months ended December 31, 2019

The following table summarizes the consolidated statements of financial position impact on the acquisition date of the Company’s business combinations that occurred in the nine months ended December 31, 2019:

C^3^ This Works BioSteel BCT Spectrum UK
(i) (ii) (iii) (iv) (iv) Total
Cash and cash equivalents $ 2,818 $ 1,619 $ (3,534 ) $ 7,886 $ — $ 8,789 ****
Other current assets 13,326 6,484 12,662 2,481 145 **** 35,098 ****
Property, plant and equipment 8,345 478 391 5 895 **** 10,114 ****
Intangible assets
Brands 10,229 2,319 — — — **** 12,548 ****
Intellectual property — 164 — 422 — **** 586 ****
Software and domain names 8 176 541 — — **** 725 ****
Goodwill 322,334 67,116 74,032 89,108 13,906 **** 566,496 ****
Accounts payable and other accrued expenses and liabilities (4,454 ) (5,691 ) (3,852 ) (2,168 ) (923 ) **** (17,088 )
Debt and other liabilities (3,942 ) — (2,300 ) — — **** (6,242 )
Net assets 348,664 72,665 77,940 97,734 14,023 **** 611,026 ****
Non-controlling interests — — (18,733 ) — — **** (18,733 )
Net assets acquired $ 348,664 $ 72,665 $ 59,207 $ 97,734 $ 14,023 $ 592,293 ****
Consideration paid in cash $ 348,664 $ 72,665 $ 47,924 $ 44,692 $ — $ 513,945 ****
Fair value of previously held equity interest — — — 37,919 14,023 **** 51,942 ****
Replacement options — — — 1,885 — **** 1,885 ****
Other consideration — — 11,283 13,238 — **** 24,521 ****
Total consideration $ 348,664 $ 72,665 $ 59,207 $ 97,734 $ 14,023 $ 592,293 ****
Consideration paid in cash $ 348,664 $ 72,665 $ 47,924 $ 44,692 $ — $ 513,945 ****
Less: Cash and cash equivalents acquired (2,818 ) (1,619 ) 3,534 (7,886 ) — **** (8,789 )
Net cash outflow $ 345,846 $ 71,046 $ 51,458 $ 36,806 $ — $ 505,156 ****

Page 25

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

The table above summarizes the fair value of the consideration given and the fair values assigned to the assets acquired and liabilities assumed for each acquisition. Goodwill arose in these acquisitions because the cost of acquisition included a control premium. In addition, the consideration paid for the combination reflected the benefit of expected revenue growth and future market development. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill arising on these acquisitions is expected to be deductible for tax purposes.

(i) C^3^

On April 30, 2019, the Company acquired 100% of the shares of C3 Cannabinoid Compound Company (“C3”) for total cash consideration of $348,664. C3 is a European based biopharmaceutical company that develops, manufactures and commercializes natural and synthetic cannabinoid based active ingredients. In connection with the acquisition, the Company entered into a five year cooperation agreement with the former majority shareholder of C3, for which the Company paid $8,694 which will be expensed ratably over the contract term.

Due to the timing of this acquisition, the purchase price allocation for the C3 acquisition is provisional. The fair value assigned to the consideration paid, intangible assets and net assets acquired is based on management’s best estimate using the information currently available and may be revised by the Company as additional information is received.

(ii) This Works

On May 21, 2019, the Company acquired 100% of the shares of TWP UK Holdings Limited (“This Works”) and its subsidiary companies, This Works Products Limited, TWP USA Inc. and TWP IP Limited for total cash consideration of $72,665 (GBP 42,144). Based in London, United Kingdom, This Works is a natural skincare and sleep solutions company.

Due to the timing of this acquisition, the purchase price allocation for the This Works acquisition is provisional. The fair value assigned to the consideration paid, intangible assets and net assets acquired is based on management’s best estimate using the information currently available and may be revised by the Company as additional information is received.

(iii) BioSteel

On October 1, 2019, the Company purchased 72% of the outstanding shares of BioSteel, a North America-based producer of sports nutrition products. Initial cash consideration was $50,707 subject to certain adjustments and holdbacks such that $47,924 was advanced on closing. The purchase price will be further adjusted based on a multiple of Biosteel’s calendar 2019 net revenue. This purchase price adjustment will be accounted for as a contingent consideration liability which will be fair valued on the date of acquisition. Management has estimated that this purchase price adjustment will be nominal.

Through its voting rights, the Company controls BioSteel and therefore, the acquisition was accounted for as a business combination. The non-controlling interests of $18,733 recognized at acquisition date were recorded at their proportionate share of fair value.

Prior to September 30, 2019 the Company had advanced a total of $8,500 to BioSteel under a secured loan agreement. The acquisition resulted in an effective settlement of the loan payable of $8,500 which has been recorded as other consideration. Immediately following the October 1 acquisition the Company subscribed for additional shares of BioSteel for consideration of $14,000 which was funded through a cash advance of $10,000 and the conversion of $4,000 of the loan payable. After completing this investment the Company’s ownership interest in BioSteel is 76.7%.

The shares not purchased by the Company will be retained by certain current shareholders and management for a period of up to 5 years (the “Rollover Shareholders”). On the third anniversary of the closing Canopy Growth will have a right to purchase, and Rollover Shareholders will have a right to sell one half of the remaining interest held by the Rollover Shareholders to Canopy Growth at a specified valuation based on a multiple of Biosteel’s net revenue. On the fifth anniversary of the closing Canopy Growth will have a right to purchase, and Rollover Shareholders will have a right to sell the balance of the remaining interest held by the Rollover Shareholders to Canopy Growth at a valuation to be mutually agreed upon by the parties. The put options give rise to a liability for the Company (“BioSteel Put Liability”) and is recorded in the consolidated statements of financial position in Other long-term liabilities with an offsetting charge to equity. The BioSteel Put Liability is subsequently measured at fair value with changes in fair value recorded in Net income (loss) in the period in which they arise. On the acquisition date and December 31, 2019 the fair value of the BioSteel Put Liability was

Page 26

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

estimated to be $25,000. In connection with this transaction, an amount of $143 has been recorded as an increase in equity attributable to the parent.

Due to the timing of this acquisition, the purchase price allocation for the BioSteel acquisition is provisional. The fair value assigned to the consideration paid, intangible assets and net assets acquired is based on management’s best estimate using the information currently available and may be revised by the Company as additional information is received.

(iv) BCT and Spectrum UK

Beckley Canopy Therapeutics (“BCT”) is a cannabis research and development organization in the United Kingdom which was formed in fiscal 2018 through a collaboration agreement between CHI and Beckley Research and Innovations Limited. In the fourth quarter of fiscal 2019, the Company and BCT had formed another joint venture – Spectrum Biomedical UK (“Spectrum UK”). The purpose of Spectrum UK was to become the exclusive distributor of cannabis-based medicinal products made by the Company. Since their inception the Company had been accounting for its 42% interest in BCT and its 67% interest in Spectrum UK using the equity method.

On October 11, 2019, the Company acquired all of its unowned interest in BCT to increase its total ownership of BCT’s issued and outstanding shares to 100%. Following this transaction, the Company will control both BCT and Spectrum UK, and both BCT and Spectrum UK will be accounted for as wholly-owned subsidiaries.

Cash consideration for this transaction was $57,930 of which $44,692 was advanced on closing, $1,170 is held in trust subject to finalizing purchase price adjustments, and $14,427 will be paid on October 1, 2020 and 2021 and has a fair value of $13,238.

Consideration also included 155,565 replacement options. The fair value of the replacement options was determined using a Black-Scholes model and $1,885 of the total fair value has been included as consideration paid to acquire BCT as it related to pre-combination vesting service and $1,987 of the fair value will be recognized as share-based compensation expense rateably over the post-combination vesting period.

The acquisition of the unowned interests are accounted for as business combinations achieved in stages under IFRS 3. The Company remeasured its 42% interest in BCT and its 67% interest in Spectrum UK to fair value and recognized a total gain of $39,485 which reflects the difference between the carrying value of $12,457 and the implied fair value $51,942. The fair value was estimated to be the transaction price less an estimated control premium of 5%.

The fair value of net assets acquired and consideration has been provisionally determined at December 31, 2019. Upon completion of a comprehensive valuation and finalization of the purchase price allocation, goodwill may be adjusted retrospectively to the acquisition date in future reporting periods. The consideration paid for BCT included $250 cash and 16,430 replacement options that were issued to a member of key management of the Company that was a shareholder and option holder in BCT.

(b) Finalization of S&B purchase price allocation

During the period ended December 2019, the Company completed its final assessment of the fair value of the assets acquired and liabilities assumed of Storz & Bickel. The measurement period adjustments resulted in an increase to the fair value of intangible assets of $24,990 and a corresponding decrease to goodwill. On finalization of the purchase price allocation (“PPA”), a charge to amortization expense of $2,030 was recorded in the statement of consolidated operations to reflect the increased fair value of the amortizable intangible assets acquired and related depreciation.

26. ACREAGE TRANSACTIONS

(a) Acreage Arrangement

On June 27, 2019 (the “Effective date”) Canopy Growth and Acreage Holdings, Inc. (“Acreage”) completed a Plan of Arrangement (the “Arrangement”). Pursuant to the terms of the Arrangement, Acreage shareholders and holders of certain securities convertible into Acreage shares as of June 26, 2019, received an immediate aggregate total payment of US$300 million ($395,190) in exchange for granting Canopy Growth both the right and the obligation (the “Acreage financial instrument”) to acquire 100% of the shares of Acreage, at such time as the occurrence or waiver of changes in U.S. federal law to permit the general cultivation, distribution, and possession of marijuana or to remove the regulation of such activities from the federal laws of the United States (the “Acreage Triggering Event”). If the Acreage Triggering Event is not satisfied or waived by December 27, 2026, the Arrangement will terminate.

Page 27

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

Following the occurrence, or waiver by Canopy Growth, of the Acreage Triggering Event and the satisfaction or waiver of certain customary closing conditions to the completion of the acquisition, Canopy Growth will issue to the shareholders of Acreage 0.5818 of a common share of Canopy Growth (the “Acreage exchange ratio”) for each issued and outstanding subordinate voting share of Acreage held (following the automatic conversion of other classes of Acreage shares into subordinate voting shares in accordance with the Arrangement). In the event Acreage issues more than 188,235,587 subordinate voting shares on a fully diluted basis, and Canopy Growth has not provided written approval for the issuance of such additional securities, the Acreage exchange ratio shall be the fraction, calculated to six decimal places, determined by the formula of A x B/C where:

• “A” equals 0.5818,
• “B” equals 188,235,587, and
--- ---
• “C” equals the aggregate number of subordinate voting shares of Acreage on a fully diluted basis at<br>the time of acquisition.
--- ---

On the Effective Date Canopy Growth also granted Acreage a non-exclusive, non-transferable, royalty-free license and right to use the intellectual property, systems and trademarks in the United States for a period of 90 months. Management has estimated the fair value of this license to be nominal.

On initial recognition, the Acreage financial instrument represented a financial asset and has been recorded at its fair value of $395,190. In the nine months ended December 31, 2019, fair value changes of ($265,190) were recognized in Other income (expense), net (see Note 23). The fair value determination includes a high degree of subjectivity and judgement, which results in significant estimation uncertainty. See Note 21 for additional details on how the fair value of the Acreage financial instrument is calculated on a recurring basis. From a measurement perspective, Canopy Growth has elected the fair value option under ASC 825 – Financial Instruments.

(b) Amendment to the Constellation Investor Rights Agreement and warrants

On November 1, 2018 Canopy Growth issued 104,500,000 common shares from treasury and two tranches of warrants to a subsidiary of Constellation Brands, Inc. (“Constellation”) in exchange for proceeds of $5,072,500 and entered into an Amended and Restated Investor Rights Agreement. The first tranche warrants (“Tranche A Warrants”) allowed Constellation to acquire 88.5 million additional shares of Canopy Growth for a fixed price of $50.40 per share. The second tranche warrants (“Final Warrants”) allowed for the purchase of 51.3 million additional shares at a price equal to the 5-day volume-weighted average price immediately prior to exercise. The Final Warrants could only be exercised if the Tranche A Warrants had been exercised in full. Both the Tranche A Warrants and the Final Warrants expire on November 1, 2021. Canopy Growth accounted for the Tranche A Warrants as equity instruments with a relative fair value of $1,505,351 and the Final Warrants as equity instruments with a nominal value.

On June 27, 2019 Constellation and Canopy Growth entered into the Second Amended and Restated Investor Rights Agreement and Consent Agreement. In contemplation of these agreements, Canopy Growth also amended the terms of the Tranche A Warrants and Final Warrants as follows:

• Extended the term of the Tranche A Warrants to November 1, 2023 and the term of the Final Warrants to<br>November 1, 2026.
• The Final Warrants were also replaced by two tranches of warrants (the “Tranche B Warrants” and<br>“Tranche C Warrants”) with different terms:
--- ---
• Tranche B Warrants allow Constellation to acquire 38.5 million shares of Canopy Growth at a fixed price<br>of $76.68 per share.
--- ---
• Tranche C Warrants allow Constellation to acquire 12.8 million shares of Canopy Growth at a price equal<br>to the 5-day volume-weighted average price immediately prior to exercise.
--- ---
• In connection with the Tranche B Warrants and the Tranche C Warrants, Canopy Growth will provide Constellation<br>with a share repurchase credit of up to $1.583 billion on the aggregate exercise price of the Tranche B Warrants and Tranche C Warrants in the event that Canopy Growth does not repurchase the lesser of (i) 27,378,866 common shares, and<br>(ii) common shares with a value of $1.583 billion, during the period commencing on June 27, 2019 and ending on the date that is 24 months after the date that Constellation exercises all of the Tranche A Warrants.<br>
--- ---

The modifications to the Tranche A Warrants resulted in them meeting the definition of a derivative instrument under ASC 815 - Derivatives and Hedging. They continue to be classified in equity as the number of shares and

Page 28

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

exercise price were both fixed at inception. The extension of the term of the Tranche A Warrants resulted in additional value being attributed to those warrants. On June 27, 2019 the fair value of the Tranche A Warrants was estimated to be $2,554,503 using a Monte Carlo model and assuming a volatility of 67.7%. The Company recorded a deemed dividend of $1,049,153 in deficit related to the difference between the original and modified Tranche A warrants.

The Tranche B Warrants failed the fixed-for-fixed criterion and, as a result, the Tranche B Warrants are classified as derivative instruments measured at fair value ASC 815. On June 27, 2019 the fair value of the Tranche B Warrants was estimated to be $1,117,640 using a Monte Carlo model and assuming a volatility of 66.7%. The value of the Tranche B warrants was recorded directly in deficit as a deemed dividend. Any subsequent changes in fair value will be recorded in net income (loss). As at December 31, 2019, the fair value of the warrant derivative liability is $368,382, and a gain of $749,258 has been recorded during the nine months ended December 31, 2019 in Other income (expense), net. The fair value determination includes a high degree of subjectivity and judgement, which results in significant estimation uncertainty. See Note 21 for additional details on how the fair value of the warrant derivative liability is calculated on a recurring basis.

The Tranche C Warrants are also accounted for as derivative liabilities. Therefore, 12.8 million of the Final Warrants were derecognized and 12.8 million Tranche C Warrants were recognized as new derivative liabilities. The fair values of the Final Warrants and Tranche C Warrants both approximate $nil therefore there was no impact to shareholders’ equity. Any subsequent changes in fair value will be recorded in net income (loss).

The share repurchase credit feature is a derivative liability as Canopy Growth has an obligation to repurchase a variable number of its common shares in order to settle the liability in the future within the share repurchase period or has the option to settle the liability in cash. The fair value of this liability is nominal. The initial value of the derivative liability is a deemed dividend recorded directly in shareholders’ deficit. Any subsequent changes in fair value will be recorded in net income (loss).

27. LEASES

The Company primarily leases office and production facilities, warehouses, production equipment and vehicles. The Company assesses service arrangements to determine if an asset is explicitly or implicitly specified in the agreement and if we have the right to control the use of the identified asset.

The right-of-use asset is initially measured at cost, which is primarily comprised of the initial amount of the lease liability, plus initial direct costs and lease payments at or before the lease commencement date, less any lease incentives received, and is amortized on a straight-line basis over the remaining lease term. All right-of-use assets are reviewed periodically for impairment. The lease liability is initially measured at the present value of lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. We elected to recognize expenses for leases with a term of 12 months or less on a straight-line basis over the lease term and not to recognize these short-term leases on the balance sheet. Leases have varying terms with remaining lease terms of up to approximately 30 years. Certain of our lease arrangements provide us with the option to extend or to terminate the lease early.

Lease payments included in the measurement of the lease liability comprise (a) fixed payments, including in-substance fixed payments; (b) variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; (c) amounts expected to be payable under a residual value guarantee; and (d) the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

At inception or reassessment of a contract that contains lease and non-lease components, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

Balance Sheet location

A summary of lease right-of-use assets and liabilities are as follows:

Assets
Property, plant and equipment
Operating lease $ 74,723
Finance lease 27,124
$ 101,847

Page 29

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

Liabilities
Current:
Operating lease $ 25,755
Finance lease 23,373
Non-current:
Operating lease 60,223
Finance lease 4,149
$ 113,500

Lease expense

The components of total lease expense are as follows:

December 31, 2019
Three monthsended Nine months<br>ended
Operating lease expense $ 2,645 $ 7,512
Finance lease expense:
Amortization of<br>right-of-use assets **** 374 **** 1,122
Interest on lease liabilities **** 310 **** 942
$ 3,329 $ 9,576

Lease maturities

As of December 31, 2019, the minimum payments due for lease liabilities for each of the five succeeding fiscal years and thereafter are as follows:

OperatingLeases Finance Leases
2021 $ 15,533 $ 23,734
2022 14,119 310
2023 12,365 310
2024 11,012 325
2025 9,572 325
Thereafter 34,324 4,835
Total lease payments 96,925 29,839
Less: Interest (10,947 ) (2,317 )
Total lease liabilities $ 85,978 **** $ 27,522 ****

As of December 31, 2019, we have additional operating leases that have not yet commenced with immaterial aggregated minimum payments on an undiscounted basis.

As of December 31, 2019, future lease expense for operating leases is expected to be as follows:

2021 $ 14,864
2022 12,929
2023 10,835
2024 9,234
2025 7,681
Thereafter 19,180
$ 74,723

Page 30

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

Supplemental information

Cash paid for amounts included in the measurement of lease liabilities:

December 31, 2019
Three monthsended Nine months<br>ended
Operating cash flows from operating leases $ 6,878 $ 11,745 ****
Operating cash flows from finance leases **** 374 **** 1,122 ****
Financing cash flows from finance leases **** 377 **** 1,131 ****
Right-of-use<br>assets obtained in exchange for new lease liabilities:
Operating leases $ 15,543 ****
Finance leases **** — ****
Weighted average remaining lease term (in years):
Operating leases **** 7 ****
Finance leases **** 3 ****
Weighted average discount rate:
Operating leases **** 4.50 %
Finance leases **** 4.50 %
28. SEGMENTED INFORMATION
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(a) Reportable segments

The Company operates in two segments: 1) Cannabis, Hemp and Other Consumer Products, which encompasses the production, distribution and sale of a diverse range of cannabis, hemp-based, and other consumer products in Canada and internationally pursuant to applicable international and domestic legislation, regulations and permits; and 2) Canopy Rivers, a publicly-traded company in Canada, through which Canopy Growth provides growth capital and strategic support in the global cannabis sector, where federally lawful. Financial information for Canopy Rivers is included in the table below, and in Note 20.

December 31,<br>2019 March 31,<br>2019
Ownership interest 27 % 28 %
Cash and cash equivalents $ 63,178 $ 104,145
Prepaid expenses and other current assets 10,413 15,490
Investments in equity method investees 63,713 64,606
Other financial assets 154,262 181,572
Other long-term assets 23,453 17,696
Deferred tax liability — (6,641 )
Other liabilities (1,903 ) (3,458 )
Non-controlling interests (238,550 ) (280,012 )
Equity attributable to Canopy Growth $ 74,566 $ 93,398

(b) Entity-wide disclosures

All property, plant and equipment and intangible assets are located in Canada, except for $533,857 which is located outside of Canada at December 31, 2019 (March 31, 2019 – $350,125).

All revenues were generated in Canada during the three and nine months ended December 31, 2019, except for $43,029 and $100,436 respectively, related to medical cannabis and cannabis related devices and merchandise generated outside of Canada (three and nine months ended December 31, 2018 – $6,089 and $11,699, respectively).

Page 31

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in CDN $000’s except share amounts)

For the three months ended December 31, 2019, one customer represented more than 10% of the Company’s revenue (three months ended December 31, 2018 – one).

For the nine months ended December 31, 2019, one customer represented more than 10% of the Company’s revenue (nine months ended December 31, 2018 – one).

29. SUBSEQUENT EVENTS

These financial statements should be read in conjunction with the audited consolidated financial statements in the Company’s annual report on Form 10-K for the year ended March 31, 2020, which contain disclosures relating to subsequent events through June 1, 2020.

On June 25, 2020 the Company announced that it had entered into a proposal agreement (the “Proposal Agreement”) with Acreage to amend the terms of the arrangement (the “Existing Arrangement”) made pursuant to an arrangement agreement between the Company and Acreage dated April 18, 2019, as amended on May 15, 2019 (the “Arrangement Agreement”). Pursuant to the terms of the Proposal Agreement, the Existing Arrangement will be amended (the “Amended Arrangement”) to provide for, among other things, the following:

• The creation of two new classes of shares in the capital of Acreage with each existing Acreage subordinated<br>voting share (each, an “Existing Share”) being converted into 0.7 of a Fixed Share (as defined below) and 0.3 of a Floating Share (as defined below), with proportionate adjustments for the existing proportionate voting shares and existing<br>multiple voting shares;
• The new subordinated voting shares (the “Fixed Shares”) will have the same attributes as the<br>Existing Shares and will continue to be listed on the Canadian Securities Exchange (the “CSE”). The Fixed Shares will be subject to the terms of the existing call option in favour of Canopy Growth at an amended exchange ratio equal to<br>0.3048 of a common share of Canopy Growth to be received for each Fixed Share held (reduced from 0.5818 per Existing Share pursuant to the Existing Arrangement);
--- ---
• The new floating shares (the “Floating Shares”), which Acreage will apply to have listed on the CSE,<br>will be subject to the terms of a new call right in favour of Canopy Growth, exercisable following the occurrence or waiver of the Triggering Event at a price equal to the 30-day volume weighted average<br>trading price of the Floating Shares on the CSE, subject to a minimum call price of US$6.41 per Floating Share, payable in either cash or Canopy Growth common shares at Canopy Growth’s option;
--- ---
• Upon implementation of the Amended Arrangement, a cash payment to Acreage shareholders and certain convertible<br>security holders in the aggregate amount of US$37,500; and
--- ---
• An aggregate of up to 32,700,000 Fixed Shares and Floating Shares that Acreage is permitted to issue following<br>the implementation of the Amended Arrangement.
--- ---

Following the occurrence or waiver (at the discretion of the Company) of the Triggering Event and subject to the satisfaction or waiver of the conditions set out in the Arrangement Agreement (as modified in connection with the Amended Arrangement), Canopy Growth will acquire all of the issued and outstanding Fixed Shares. At the time of the occurrence or waiver of the Triggering Event, Canopy Growth will also have the right, but not the obligation, to acquire all of the issued and outstanding Floating Shares. If the occurrence or waiver of the Triggering Event does not occur within 10 years from the date the Amended Arrangement is implemented, Canopy Growth’s rights to acquire both the Fixed Shares and the Floating Shares will terminate.

In connection with the Amended Agreement, Canopy Growth has agreed to loan a wholly-owned subsidiary of Acreage (“Acreage Hempco”) up to US$100,000 pursuant to a secured debenture, of which US$50,000 will be advanced upon the implementation of the Amended Arrangement, and the remaining US$50,000 will be subject to the satisfaction of certain conditions by Acreage Hempco. The secured debenture will bear interest at a rate of 6.1% per annum, and mature 10 years from the date the Amended Arrangement is implemented or such earlier date in accordance with the terms of the secured debenture.

Implementation of the Amended Arrangement is contingent upon obtaining the requisite prior approvals of the Acreage Shareholders, the Supreme Court of British Columbia and the CSE, and certain other closing conditions.

Page 32

EX-99.10

Exhibit 99.10

NOTICE TO READER

As of September 30, 2019, Canopy Growth Corporation (the “Company”) determined that it no longer qualified as a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act of 1933. This means that as of April 1, 2020, the Company has been required to comply with all of the periodic disclosure requirements of the Securities Exchange Act of 1934 applicable to U.S. domestic issues, such as Forms 10-K, 10-Q and 8-K, rather than the forms the Company has filed with the Securities and Exchange Commission (“SEC”) in the past as a foreign private issuer, such as Forms 40-F and 6-K.

Accordingly, the Company is now required to prepare its financial statements filed with the SEC in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). As required pursuant to section 4.3(4) of National Instrument 51-102 – Continuous Disclosure Obligations, the Company must restate its interim financial reports for the fiscal year ended March 31, 2020 in accordance with U.S. GAAP, such interim financial reports having previously been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The attached amended and restated management’s discussion and analysis (the “MD&A”) for the three and nine months ended December 31, 2019 and 2018, is current as of February 14, 2020 and provides financial information for the three and nine months ended December 31, 2019, as amended and restated on July 10, 2020, solely to reflect the filing of the amended and restated unaudited condensed interim consolidated financial statements for the three and nine months ended December 31, 2019 and 2018 in accordance with U.S. GAAP. Other than as expressly set forth above, the revised MD&A does not, and does not purport to, update or restate the information in the original MD&A or reflect any events that occurred after the date of the filing of the original MD&A.

The Company’s Annual Report on Form 10-K (the “Annual Report”) dated June 1, 2020 is available under the Company’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Readers are cautioned that this MD&A should be read in conjunction with the Annual Report, including the consolidated financial statements and the related notes thereto included in Item 8 thereof.

CANOPY GROWTH CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019

FEBRUARY 14, 2020

MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019

This amended and restated management’s discussion and analysis (“MD&A”) for the three and nine months ended December 31, 2019 is provided as of February 14, 2020 and provides financial information for the three and nine months ended December 31, 2019, as amended and restated on July 10, 2020, solely to reflect the filing of the amended and restated unaudited condensed interim consolidated financial statements for the three and nine months ended December 31, 2019 and 2018 prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Other than as expressly set forth above, the amended and restated MD&A does not, and does not purport to, update or restate the information in the original MD&A or reflect any events that occurred after the date of the filing of the original MD&A.

Unless the context indicates or requires otherwise, the terms “Canopy Growth”, “the Company”, “we”, “us” and “our” refers to Canopy Growth Corporation and its controlled entities. Canopy Growth is a publicly traded corporation, incorporated in Canada, with its head office located at 1 Hershey Drive, Smiths Falls, Ontario K7A 0A8. The common shares of Canopy Growth trade on the Toronto Stock Exchange (“TSX”) under the ticker symbol “WEED” and on the New York Stock Exchange (“NYSE”) under the ticker symbol “CGC”.

This MD&A was prepared with reference to National Instrument 51-102 – ContinuousDisclosure Obligations of the Canadian Securities Administrators. Under the United States/Canada Multijurisdictional Disclosure System, we are permitted to prepare this MD&A in accordance with Canadian disclosure requirements which may differ from United States disclosure requirements. This MD&A provides information as at, and for the three and nine months ended December 31, 2019 and up to and including February 14, 2020.

This amended and restated MD&A should be read in conjunction with Canopy Growth’s amended and restated unaudited condensed interim consolidated financial statements and the notes thereto for the three and nine months ended December 31, 2019 (the “Interim Financial Statements”), which have been prepared in accordance with U.S. GAAP. The Interim Financial Statements include the accounts of Canopy Growth and its subsidiaries and its interests in affiliated companies, and all intercompany balances and transactions have been eliminated on consolidation. The Interim Financial Statements and this MD&A have been reviewed by Canopy Growth’s Audit Committee and were approved by Canopy Growth’s Board of Directors on July 10, 2020.

Financial information contained herein is expressed in thousands of Canadian dollars, except share and per share amounts, or as otherwise stated.

This MD&A contains forward-looking information within the meaning of Canadian securities laws, and the use of non-GAAP measures. Refer to “Cautionary Note Regarding Forward-Looking Statements” for cautionary statements regarding forward-looking statements.

Additional information filed by us with the Canadian Securities Administrators, including this MD&A, the Interim Financial Statements, audited annual consolidated financial statements, interim reports and annual information forms have been filed electronically through the System for Electronic Document Analysis and Retrieval (“SEDAR”) and are available under the Company’s profile at www.sedar.com, on the Securities and Exchange Commission (“SEC”) website (www.sec.gov/edgar) and also on our website at www.canopygrowth.com.

This MD&A provides additional information on our performance in the last three and nine month periods, and our financial condition and future prospects. It is organized as follows:

• Part 1 – Business Overview
• Part 2 – Strategy
--- ---
• Part 3 – Results of Operations
--- ---
• Part 4 – Financial Liquidity and Capital Resources
--- ---
• Part 5 – Critical Accounting Estimates and Judgments
--- ---
• Part 6 – Controls and Procedures
--- ---

2

• Part 7 – Risks and Uncertainties

Canopy Growth is not considered a U.S. Marijuana Issuer (as defined in the Canadian Securities Administrators Staff Notice 51-352 – Issuers with U.S. Marijuana-Related Activities (the “Staff Notice”)) nor does the Company have material ancillary involvement in the United States cannabis industry in accordance with the Staff Notice. While the Company has several arrangements with United States-based companies that may themselves participate in the United States cannabis market, these relationships do not violate the federal laws of the United States respecting cannabis and in no manner involve Canopy Growth in any activities in the United States respecting cannabis. Where a non-controlled affiliate has expressed an intent to enter the United States cannabis market, we have taken steps to insulate the Company from all economic and voting interests until such time that United States federal permissibility changes in favour of cannabis related activities.

3

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This MD&A contains certain “forward-looking statements” within the meaning of section 27A of the United States Securities Act of 1933, section 21E of the United States Securities Exchange Act of 1934, the United States Private Securities Litigation Reform Act of 1995 or in releases made by the United States Securities and Exchange Commission (“SEC”) all as may be amended from time to time, and “forward looking information” within the meaning of Canadian securities legislation, including but not limited to statements relating to:

• assumptions and expectations described in the Company’s critical accounting policies and estimates;<br>
• the adoption and impact of certain accounting pronouncements;
--- ---
• the legislation, regulations and licensing related to the cultivation, production and sale of cannabis and<br>hemp products by the Company’s subsidiaries and other business interests;
--- ---
• the number of users of cannabis or the size of the legal cannabis market in Canada and internationally;<br>
--- ---
• the number of users of hemp or the size of the legal hemp market in Canada and internationally;<br>
--- ---
• the potential time frame for the implementation of legislation to legalize and regulate medical or<br>recreational cannabis or hemp (and the consumer products derived from each of the foregoing) internationally, and the potential form the legislation and regulations will take, including the method of delivery and framework adopted or to be adopted<br>by various international jurisdictions;
--- ---
• the ability to enter and participate in international market opportunities;
--- ---
• the Company’s future financial and operating performance;
--- ---
• future performance, results and terms of strategic initiatives, strategic agreements and supply agreements;<br>
--- ---
• the success of the entities the Company acquires and the Company’s collaborations;
--- ---
• the market for the Company’s current and proposed product offerings, as well as the Company’s<br>ability to capture market share;
--- ---
• the benefits and applications of the Company’s product offerings and expected sales thereof;<br>
--- ---
• development of affiliated brands, product diversification and future corporate development;<br>
--- ---
• anticipated investment in and results of research and development;
--- ---
• inventory and production capacity;
--- ---
• the Company’s exercise of its option to acquire Acreage (as defined below) and the eventual closing of<br>the acquisition of Acreage upon the occurrence or waiver of the Triggering Event (as defined below);
--- ---
• future expenditures, strategic investments and capital activities;
--- ---
• the competitive landscape in which the Company operates and the Company’s market expertise; and<br>
--- ---
• the Company’s ability to achieve profitability.
--- ---

The words “plans”, “expects”, “is expected”, “budget”, “strategy”, “scheduled”, “estimates” “forecasts”, “future”, “intends”, “anticipates”, or “believes” or variations (including negative variations) of such words and phrases, or statements that certain actions, events, or results “may”, “could”, “would”, “might”, “likely” or “will” be taken, occur or to achieve are all forward-looking statements. Forward-looking statements are based on the reasonable assumptions, estimates, internal and external analysis and opinions of management made considering its experience and perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable at the date that such statements are made. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Some of the risks and other factors which could cause actual results to differ materially from those expressed in the forward-looking statements contained in this MD&A include, but are not limited to, the factors included under “Part 7 – Risks and Uncertainties” in this MD&A, the factors included under “Part 7 – Risksand Uncertainties” in the Company’s MD&A for the three months and year ended March 31, 2019 and in the Company’s annual information form dated June 24, 2019 (the “AIF”). Although the Company has attempted to identify important factors that could cause actions, events or results to differ materially from those described in the forward-looking statements, there may be other

4

factors that cause actions, events, or results to differ from those anticipated, estimated or intended. Forward-looking statements contained herein are made as at the date of this MD&A. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on the forward-looking statements. The Company does not undertake to update any forward-looking statements except as required by applicable securities laws.

5

Overview of Financial Results for the Third Quarter of Fiscal 2020

Three months ended
December 31, September 30,
(CDN $000’s, except where otherwiseindicated) 2019 2019 Change % Change
Canadian recreational cannabis revenue
Business-to-business $ 53,454 **** $ 16,677 $ 36,777 221 %
Business-to-consumer **** 15,242 **** 13,100 2,142 16 %
**** 68,696 **** 29,777 38,919 131 %
Canadian medical cannabis revenue **** 14,765 **** 14,149 616 4 %
International medical cannabis revenue **** 18,701 **** 18,090 611 3 %
Other revenue **** 33,384 **** 23,605 9,779 41 %
Excise taxes **** 11,782 **** 9,008 2,774 31 %
Net revenue $ 123,764 **** $ 76,613 $ 47,151 62 %
Gross margin percentage **** 31 % 23 % — 8 %
Adjusted EBITDA^1^ $ (96,982 ) $ (150,380 ) $ 53,398 36 %
Attributed as follows:
- Operations and corporate overhead $ (49,734 ) $ (103,636 ) $ 53,902 52 %
- Strategic investments and business development $ (39,111 ) $ (36,208 ) $ (2,903 ) (8 %)
- Non-operating or under-utilized facilities $ (8,137 ) $ (10,536 ) $ 2,399 23 %
^1^   Adjusted EBITDA is a non-GAAP measure, and is calculated as earnings before interest, tax, depreciation and amortization, share-based compensation expense, fair value changes and other non-cash<br>items, and further adjusted to remove acquisition-related costs. The Company attributes Adjusted EBITDA to its operations and corporate overhead, strategic investments and business development, and<br>non-operating or under-utilized facilities. See “Adjusted EBITDA (Non-GAAP Measure)”.
---

Revenue

Gross revenue from the Canadian recreational business-to-business channel was $53,454 in the third quarter of fiscal 2020, an increase of $36,777 from the previous quarter. Excluding other revenue adjustments recorded in the second quarter of fiscal 2020 in relation to our determination of returns and pricing adjustments in the amount of $32,727, gross revenue from the business-to-business channel increased sequentially from $49,404 to $53,454. The increase of 8% was primarily attributable to the overall increase in demand resulting from the opening of approximately 140 new retail stores across Canada during the third quarter of fiscal 2020, and growth in the sales of pre-rolled joints and THC-dominant dry flower. Gross revenue from the Canadian recreational business-to-consumer channel was $15,242 in the third quarter of fiscal 2020, with the quarter-over-quarter increase of 16% primarily attributable to same-store sales growth for our corporate-owned Tweed and Tokyo Smoke retail stores of 11%.

Medical cannabis gross revenue was $33,466 in the third quarter of fiscal 2020, an increase of $1,227 from the previous quarter. Gross revenue for our Canadian medical cannabis business was $14,765 in the third quarter of fiscal 2020, with the quarter-over-quarter increase of 4% primarily attributable to the broadening of our brand and product offerings for our medical customers and an increase in the number of customers registered with Spectrum Therapeutics to 76,750. Revenue for our international medical cannabis business was $18,701 in the third quarter of fiscal 2020, with the quarter-over-quarter increase of 3% driven by the performance of C^3^ Cannabinoid Compound Company (“C^3^”).

Other revenue was $33,384 in the third quarter of fiscal 2020, an increase $9,779 from the previous quarter due primarily to strong seasonal performance by Storz & Bickel GmbH & Co., KG (“Storz & Bickel”) and TWP UK Holdings Limited (“This Works”), and the acquisition of BioSteel Sports Nutrition Inc. (“BioSteel”) in October 2019.

Gross margin

Our gross margin percentage 31% of net revenue in the third quarter of fiscal 2020. Comparatively, our gross margin percentage was 5% in the second quarter of fiscal 2020. As detailed in our MD&A for the second quarter of fiscal 2020, we recorded charges associated with excess recreational cannabis inventory, primarily related to oils and softgels, in the amount of $17,000, our gross margin was impacted by $9,157 related to returns and pricing adjustments, and we recorded other adjustments related to the net realizable value of inventory. These charges did not recur to the same extent in the third quarter of fiscal 2020. Our gross margin in the third quarter of fiscal 2020 also benefited from a quarter-over-quarter decrease in operating costs relating to non-operating or under-utilized production facilities, from $10,536 in the previous quarter to $8,137 in the third quarter of fiscal 2020, which was largely attributable to the commencement of commercial-scale cultivation and processing at our facility in Denmark, and improved utilization of our advanced

7

manufacturing facilities in Smiths Falls. See “Cost of goods sold and gross margin” under “Part 3 – Results of Operations” in this MD&A.

Adjusted EBITDA

Our Adjusted EBITDA loss in the third quarter of fiscal 2020 was $96,982, as compared to an Adjusted EBITDA loss of $150,380 in the previous quarter.

The Adjusted EBITDA loss attributed to strategic investments and business development was $39,111 in the third quarter of fiscal 2020, compared to a loss of $36,208 in the previous quarter, as we continued to invest in (1) the build-out of our administrative infrastructure in support of our global expansion strategy, (2) marketing initiatives in advance of the launch of CBD products in certain states in the United States in December 2019, and (3) research and development initiatives related to new product innovation for the recreational markets, and conducting clinical trials to support new cannabis-based human and animal medicines.

The Adjusted EBITDA loss attributed to operations in Canada and Europe and corporate overhead was $49,734 in the third quarter of fiscal 2020, compared to a loss of $103,636 in the previous quarter. The quarter-over-quarter improvement is largely reflective of the increase in net revenue and the increase in our gross margin percentage, which was driven primarily by the adjustments of $32,727 recorded in the second quarter of fiscal 2020 for returns, return provisions and pricing allowances related primarily to our oils and softgels portfolio.

The results of our operations for the current quarter in comparison to the third quarter of fiscal 2019 are discussed below under “Part 3 - Results of Operations”.

8

<br>in the first half of fiscal 2021, as we expand our distribution network, product formats (including topical creams, beverages, and edibles) and brand portfolio.
• Brand recognition in advance of the potential future permissibility of cannabis in the United States. In<br>connection with the Acreage Plan of Arrangement, Canopy Growth and Acreage executed a licensing agreement which provides Acreage with the ability to use Canopy Growth’s brands, along with other intellectual property, on a no-fee basis. In accordance with this licensing agreement, in December 2019 Acreage began selling certain Tweed-branded cannabis products at select dispensaries in Illinois, Maine, Massachusetts and Oregon. Any<br>products sold by Acreage under the Tweed brand in the United States are cultivated and processed by Acreage at its facilities in the respective states in the United States where permissible under state laws.
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Global Expansion

We are expanding globally and increasing our total addressable market by pursuing cannabis-related business opportunities in countries where it is federally legal and/or permissible to do so, including:

• Through Spectrum Therapeutics, introducing medically-validated cannabinoid products and offering education and<br>support programs for healthcare practitioners and medical customers in several countries in Latin America, Asia/Pacific and Africa.
• Building, acquiring, or entering into arrangements with third parties to expand our cannabis cultivation,<br>finished goods manufacturing capability and sales operations in those countries.
--- ---

Since the legalization of recreational cannabis in Canada on October 17, 2018, Canopy Growth has established itself as a leader in both the recreational and medical cannabis markets in Canada by successfully executing on our business model, which includes making investments in cannabis production and consumer product manufacturing capability and distribution, developing intellectual property and industry and local regulatory knowledge and expertise, and providing physician, pharmacist and patient education programs in order to build market share and customer loyalty. Accordingly, we believe that an opportunity exists today to deploy our Canadian “playbook” and our financial strength to establish ourselves as the first-mover and market leader in countries which have legalized or are exploring the legalization of medical cannabis.

Developing Intellectual Property and Innovative New Products

We believe a significant opportunity exists to improve our gross margins by vertically integrating up the value chain towards recreational and medical products that include cannabis and cannabinoids as ingredients. We believe this will increase our total addressable market and position our products as premium offerings. We have been continuously focused on conducting research and development of intellectual property related to:

• Innovation and new product development, including the Cannabis 2.0 products that have been or will be rolled-out across Canada. With the recent acquisitions of BioSteel and This Works we have added platforms that we believe can be leveraged for infusing CBD in sports nutrition and hydration beverages, and in beauty,<br>wellness and sleep products, where permissible.
• Creating evidence-based, protectable medical product formulations and driving these products through robust<br>clinical studies towards the creation of new cannabis-based medicines. Our pre-clinical and clinical research includes elements of product design and ingredient selection, delivery systems, safety and efficacy<br>testing. Human clinical trials are currently being planned or are ongoing in the areas of sleep, pain, mood/anxiety and spasticity/multiple sclerosis. Additionally, research programs are under development with our regional partners, and clinical<br>trials are currently in the planning phase, ongoing or completed for companion animal anxiety, and pharmacokinetics, dosage and safety.
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Our intellectual property portfolio has increased to over 130 issued patents and over 350 patent applications as of February 14, 2020 (including 94 United States provisional patents) covering cannabis-infused beverage production and medical treatments, device and delivery technologies, large-scale cannabis processing, and plant genetics.

Our Products

Cannabis 2.0 Products

The legalization and regulation of Cannabis 2.0 products in Canada was announced by the federal government on October 17, 2019 pursuant to certain amendments to the regulations under the Cannabis Act. We began shipping our products in late December 2019, with the first wave of our cannabis-infused chocolates being available at retail locations

10

in early January 2020. We expect the first of our cannabis-infused beverage offerings to be available to customers over the next few months. We introduced our vape pen power sources to customers in January 2020, with product availability varying based on provincial regulations. We expect that additional vape products will be available in participating provinces over the next few months. Our Cannabis 2.0 product offerings include:

Cannabis-infused beverages, which are being produced in our licensed 150,000 square foot beverage facility in Smiths Falls. Through our extensive research and development efforts we have developed a proprietary process that distills whole flower cannabis into a clear liquid that we refer to as “Distilled Cannabis”, which is used as an active ingredient in our THC and CBD infused beverages. Our beverage portfolio will include 10 ready-to-drink products, pre-mixed with Distilled Cannabis, and 3 Distilled Cannabis beverage mixer products that can be combined with non-alcoholic beverages or enjoyed neat or on the rocks. Our beverages will be offered in a variety of flavours and sizes under the Tweed, Quatreau, Houseplant and Deep Space brands. We believe that cannabis-infused beverages that offer sophisticated taste and dose control with a rapid onset and shorter duration can be tailored to meet specific outcomes across a variety of consumption occasions, while avoiding such things as weight gain, “hangover” effects, and interactions with traditional pharmaceutical medications. While our products will contain THC, CBD, or a combination of the two up to the limit of 10 milligrams of THC per package, in accordance with the regulations under the Cannabis Act, we believe a standard serving of 2 milligrams of THC is ideal for consumers and allows for more control for the user, and therefore most of our cannabis-infused beverages will be available at this potency.

Cannabis-infused craft chocolates, which are being produced in the same factory in Smiths Falls where Hershey Canada made chocolates for over 50 years. We have worked with award-winning chocolate maker, Hummingbird Chocolate, to build and refine our chocolate manufacturing process and are selling 3 distinct products under the Tweed, Tokyo Smoke and Bean & Bud brands. We have taken a “bean-to-bar” approach to our chocolates, sourcing our beans from Peru, the Dominican Republic and Colombia and then roasting them onsite in Smiths Falls to achieve optimal flavour. Similar to our beverages, our chocolates contain specific amounts of specifically-formulated cannabis up to a limit of 10 milligrams of THC per package.

Cannabis vapes, including a range of proprietary hardware designed to bring reliable technology to the vaping category. We are offering rechargeable and compact batteries under the JUJU Power brand, designed for compatibility with our 510-threaded cannabis concentrate vape cartridges. Our “510” vape concentrate cartridges will be available in a variety of Tweed, Van der Pop, and Twd. strains, and with a range of THC and CBD levels. Our JUJU Joints line includes ready-to-go vape pens containing Tweed cannabis concentrate and terpenes, and feature several convenient safety capabilities. Finally, we are offering Tokyo Smoke Luma rechargeable batteries and vape pods using our precise ceramic heating technology. Some of our devices will feature Bluetooth connectivity, allowing users to lock, locate, and set specific temperatures from their Android smartphones.

Vape Safety

Recent reports on vape safety underscore the importance of federal regulation for vape pen devices. We are committed to a high standard for cannabis extracts without the use of polyethylene glycol, vegetable glycerin or vitamin E acetate. Our vape cartridges use surgical-grade steel and specialized glass to ensure the reduction of heavy metal poisoning and contaminants leaching into the extract. Our vape products are produced using UL 8139 Certified Safe Manufacturing standards, meaning that each component of our hardware has been certified by UL (Underwriters Laboratories), or undergoing the review process with certification expected in advance of product on-sale dates. UL is a world leader in product safety testing and certification, and developed industry standard UL 8139 to help manufacturers address lithium battery hazards for vaping devices. UL 8139 evaluates the safety of the electrical, heating, battery and charging systems of these products. Further, our vapes are tamper-resistant, serialized, traceable, and adhere to Health Canada’s regulations. We are continually reviewing and testing all inputs to ensure the highest quality and reliability of cannabinoids, terpenes, tamper-resistance and product serialization features.

See “Risks and Uncertainties – Recent Announcements and Risks Regarding Vaping Products” under “Part 7 – Risks andUncertainties” in this MD&A.

Hemp-Derived CBD Products

Our branded CBD products include our First & Free line of hemp-derived CBD products, including oils and softgels, which we launched in December 2019 in states where permissible in the United States. Developed as a result of our investments in technology and rigorous testing, First & Free’s products were created by extracting and isolating derivatives from the hemp plant to produce consistent CBD formulations that are packaged in easy-to-use formats. We

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are committed to selling high-quality, tested and reliable products, and ensuring we make no claims unless clinically validated. This means selling First & Free products only in states where permissible under state law in order to ensure compliance with state consumer protection mandates and following the most stringent state laws regarding the sale of CBD. The Company is also abiding by existing United States Food and Drug Administration (“FDA”) regulations for manufacturing, labeling and marketing dietary supplements. We expect the scope of our United States CBD business to increase beginning in the first half of fiscal 2021, as we expand our distribution network, product formats (including topical creams, beverages, and edibles) and brand portfolio, and begin building-out a bricks-and-mortar retail presence.

We have also entered into strategic arrangements in order to build our brand awareness around hemp-derived CBD products, including engaging Martha Stewart in an advisory role to assist with developing and positioning a new line of CBD-based product offerings across multiple categories such as animal health and wellness.

Devices and Delivery Technology

In addition to the vape pens and cartridge products that we are rolling-out as part of our Cannabis 2.0 offerings, through Storz & Bickel we have entered the market for the manufacture and sale of medical cannabis delivery devices. Storz & Bickel has developed a factory that is certified internationally for the production of medical devices, and exports medically-approved vaporizers and other similar devices to 50 markets around the world. We are building-out the capacity of Storz & Bickel’s manufacturing facilities to support its continued growth through new product development and market expansion, while continuing to integrate the product development expertise and capability of Storz & Bickel’s research and development and engineering teams with that of Canopy Growth.

Our Brands **** ****

Our diverse platform of brands “under the Canopy” allows us to effectively target specific customer demographics, use occasions and product form factors.

LOGO

Core Brands

Tweed – Tweed’s highly-curated cannabis products, places and spaces are tailored to help people reconnect with one another. Our authentic local presence and desire for shared prosperity help us to be a good neighbor to those communities that invite us in.

Tokyo Smoke – Tokyo Smoke is an award-winning cannabis brand delivering immersive, innovative experiences to consumers through cannabis products, accessories, and retail stores. From our thoughtfully-crafted intent-based

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classification system to our iconic red lantern logo, Tokyo Smoke pushes creative boundaries, unlocking new ways to explore cannabis.

Van der Pop – With a focus on education, empowerment and community building, Van der Pop is Canopy Growth’s female-focused cannabis brand. Van der Pop provides products and platforms for women to explore using cannabinoids for self-care in a way that is nuanced and respects stigma-free living.

Spectrum Therapeutics – Our international medical brand that serves as our physician and patient-facing identity across all federally-permissible jurisdictions where Canopy Growth operates. “Spectrum” in the name refers to the trademarked colour-coded cannabis strain classification system. Spectrum Therapeutics is positioned as a rational voice in the medical cannabis space with a focus on high-quality research, healthcare professional education, and quality products for medical customers with pain, mood and sleep conditions.

First & Free – **** Our therapeutic CBD-based brand designed for consumers that are proactive about their health and advocates of self-care. We believe in taking care of you first, so you can be free to be you. Only First & Free combines years of cannabinoid research and development and clinical expertise with purified, hemp-derived CBD technologies that currently include oils and softgels.

DOJA – DOJA is based in British Columbia’s Okanagan Valley, where DOJA grows premium, hand-crafted flower. DOJA represents celebrating the freedom from convention and a respect for the West Coast community and land from which it came from.

TWD – TWD is our basic line of safe and affordable cannabis products from Tweed.

This Works – Founded in 2004, London, England-based This Works offers a range of high-quality natural skincare and sleep solution products that have rewarded the company with a loyal following of customers spanning 35 countries. Through their unique approach of formulating solutions that work in harmony with the 24-hour body clock, This Works has evolved its product lines beyond a traditional viewpoint to a more complete regiment.

BioSteel – BioSteel is an innovative sports nutrition brand that was built on the mandate of providing the safest, healthiest and most effective line of nutritional products. Originally formulated for the best athletes in the world, BioSteel’s line of nutritional products have become adopted by the masses through authentic partnerships with our #TEAMBIOSTEEL athletes.

Beverage and Edibles Brands

Quatreau – Quatreau is a line of deliciously refreshing cannabis-infused, naturally flavoured sparkling water beverages available in CBD-only and THC/CBD balanced varieties. Quatreau believes in making daily situations a little more simple, enabling consumers to reset and recharge before tackling what’s next.

Deep Space – Deep Space is a mysterious and full flavoured cannabis-infused spiced cola beverage with a higher dose of THC than other offerings across Canopy Growth’s portfolio. With 10 milligrams of THC per serving offered in an easy-travel 222 milliliter mini can, Deep Space aims to unlock a collective journey of possibility and discovery.

Bean & Bud Craft Cannabis Company – Bean & Bud is a line of premium, bean to bar cannabis-infused dark chocolate with 5 milligrams of THC per serving. Hand-crafted by the award-winning chocolate makers at Hummingbird Chocolates. Made in small batches - the attention to detail and meticulous process adds a special touch for consumers to savour life’s moment.

Technology Brands

Storz & Bickel – Based in Tuttlingen, Germany, Storz & Bickel are designers and manufacturers of medically approved vaporizers, most notably the Volcano Medic and the Mighty Medic. Exported to 50 markets around the world and with a 23-year track record of breakthrough innovations, Storz & Bickel is widely recognized as a global leader in vaporizer design and manufacturing.

JUJU Technologies – JUJU represents the cutting edge of cannabis technology. Available in a variety of products ranging from premium, ready-to-go vape pens (under our JUJU Joints line), to cutting-edge cannabis vape battery systems (under our JUJU Power line), to an advanced app that enables control over a user’s vape experience. JUJU believes in sharing positive energy and vibes with the world.

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Affiliated Brands

Houseplant – An elevated Canadian cannabis company founded by Seth Rogen and Evan Goldberg and launched in 2019, Houseplant is rooted in commitment, authenticity and education. Their love affair with cannabis has spanned a lifetime, and they believe it should be treated with the reverence it deserves. Each element of their suite of products, and every part of their identity have been thoughtfully designed and considered.

More Life Growth Company – A wellness-based cannabis company and joint venture between two Canadian trailblazers. Owner/Founder Aubrey “Drake” Graham – a cultural leader, entrepreneur and entertainment icon – joined forces with Canopy Growth to commercialize a premium, licensed product lineup in Canada and future global markets.

DNA Genetics – DNA Genetics has won awards in every category in the Cannabis Cup, the world’s preeminent cannabis competition. Working with DNA Genetics, Canopy Growth breeds new strains for customers that are simply not available anywhere else in the world, bringing the best of existing DNA Genetics to Canopy Growth customers, bred and grown to DNA standards.

LBS – LBS is a premier cannabis brand by entertainment icon Snoop Dogg available in the United States and licensed by Canopy Growth in Canada. LBS embodies the “California Vibe”.

Canadian Retail Store Strategy and Brands

The Cannabis Act provides provincial, territorial and municipal governments with the authority to prescribe regulations regarding retail and distribution of recreational cannabis. As such, the distribution model for recreational cannabis is prescribed by provincial and territorial regulations and differs in each jurisdiction. Some provinces have government-run retailers, while others have government-licensed retailers, and some have a combination of the two. All of our recreational sales are conducted according to the applicable provincial and territorial legislation and through applicable local agencies. We continue to monitor the developing legislation to identify opportunities for our brands.

As of February 14, 2020, we have 28 cannabis retail stores operating under the Tweed or Tokyo Smoke banner, of which 22 are corporate-owned stores and the balance are independently operated. Tweed has 16 corporate-owned locations selling cannabis across Newfoundland & Labrador, Manitoba and Saskatchewan and has a branded e-commerce presence in Newfoundland & Labrador, Manitoba, Saskatchewan and Nunavut. Tokyo Smoke operates 6 corporate-owned retail cannabis stores and an e-commerce platform in Manitoba.

Further, we have received licences, rights to licences or permits to apply for licences to operate cannabis retail stores in 4 provinces:

• Newfoundland & Labrador - licences for up to 7 stores;
• Manitoba - licences for up to 15 stores;
--- ---
• Saskatchewan - licences for up to 5 stores; and
--- ---
• Alberta - development permits for 18 cannabis retail store locations.
--- ---

In Ontario, we have entered into multi-year licensing agreements to enable licence holders to open 9 new Tokyo Smoke-branded stores. We anticipate that all of these stores will be open by May. In addition, we have submitted an application for a farm-gate store at our Smiths Falls production facility. We are continuing to explore additional opportunities to expand the Tokyo Smoke and Tweed retail banners across the province. We are also pursuing cannabis retail licences in British Columbia through the provincial retail licensing processes.

After a restricted lottery-based retail rollout, the government of Ontario announced on December 12, 2019 changes to the cannabis licensing regulations under the Cannabis License Act, 2018. Premier Doug Ford announced several changes to the licensing rules governing private cannabis retail stores in Ontario, that will have an immediate positive impact on Ontario’s access to the regulated adult use market. The government of Ontario anticipates that, initially, approximately 20 retail store authorizations will be issued per month in Ontario, starting in April 2020. We believe the province of Ontario can support upwards of 1,000 retail stores within the province, and we anticipate the retail store authorizations to focus on the greater Toronto area and southern Ontario, which has a significantly higher population density. Additionally, on February 10, 2020 the government of Ontario initiated public consultations on providing consumers with more choice and convenience on cannabis, including consumption venues.

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Global Expansion

In recent years, the actions of governments around the world have signaled a significant change in attitudes towards cannabis, and federal governments in over 40 countries have either formally legalized medical cannabis access or established government efforts to explore the legalization of medical cannabis access. Therefore, future opportunities are likely to exist for Canopy Growth in jurisdictions where governments are actively moving towards a legal framework.

Europe

Our investment in our European infrastructure is complete. We have recently commenced commercial-scale cultivation and processing at our facility in Denmark and, having obtained the necessary regulatory approvals from the Danish government in October 2019, we expect to begin shipping the cannabis harvested and processed by the Danish facility to European markets in early fiscal 2021. Through C^3^, we also operate two manufacturing facilities specializing in natural extraction and synthetic cannabinoid production. Our infrastructure is expected to supply the growing demand for our medical cannabis products across the continent, where permissible, and support our objective of offering a greater range of medically-validated cannabinoid products and therapies to healthcare professionals and medical customers.

In October 2019, Spectrum Therapeutics received the necessary government licences to store and distribute medical cannabis products in the United Kingdom, reducing prescription delivery times and allowing the importation of medical cannabis from our European and global networks. In October 2019, we completed the acquisition of the outstanding, unowned interest in Beckley Canopy Therapeutics (“BCT”), including the joint commercial venture Spectrum Biomedical UK Limited (“Spectrum UK”). BCT will be integrated into the broader Spectrum Therapeutics organization to increase the breadth of the clinical research being pursued in the area of cannabis-based medicines.

We continue to explore and pursue opportunities to develop the medical cannabis markets in Poland, Czech Republic, and other European countries where permissible.

Latin America and the Caribbean

The cannabis landscape in Latin America and the Caribbean continues to evolve rapidly, with final regulations for medical cannabis being published in both Peru and Brazil in December 2019. We are monitoring regulatory developments across the region, including in Mexico where we anticipate medical access rules and regulations to advance towards final governmental approval in the coming months. We continue to develop our regional production and operating infrastructure, and pursue distribution agreements, to support the future commercialization of regionally-produced products. Operations are advancing at our fully licensed cultivation site in Colombia, and we continue to collaborate with Procaps with the objective of launching products in Latin America, where legal and permissible, in 2020.

Asia/Pacific

Early in fiscal 2019, we launched our Australian operations and Spectrum Therapeutics began selling medical cannabis to doctors prescribing its products. Construction of a Victoria-based greenhouse and processing facility is currently underway, with completion expected in March 2020. This will enable domestic cultivation and production of medical cannabis for customers while serving as a planned distribution hub for other jurisdictions in Asia/Pacific. Spectrum Therapeutics will continue supporting Australian medical customers through imports until the facility is operational. The Victoria-based facility will also operate as our Asia/Pacific research and development center, supporting the ongoing research collaboration between Canopy Growth and the Victoria state government on furthering innovations in medical cannabis.

Africa

We completed our first import and sale of medical cannabis in South Africa during September 2019 and plan to launch a range of CBD products under the First & Free brand beginning in February 2020. This product launch will be underpinned by a customer education program aimed at assisting the public to make the most informed decisions around quality, standards and usage of CBD products.

We hold a licence to cultivate, process, import and export cannabis and its resin in the Kingdom of Lesotho. We have also secured a medical hemp production licence for outdoor grow space in Lesotho, with our first commercial hemp harvest expected in the first quarter of fiscal 2021. We have also commenced cultivation at our 322,000 square foot facility which includes an indoor grow room, a greenhouse, and an outdoor growing area. High THC and CBD-THC balanced varieties can both be cultivated at this facility. This facility was Africa’s first Good Agricultural Practices (GAP) certified medical cannabis growing facility.

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Production, Extraction and Finished Goods Manufacturing Capacity

Canada

We have built, and now operate, a Canada-wide supply chain including a balanced portfolio of licensed indoor and greenhouse cultivation facilities and outdoor cannabis and hemp growing area. We believe that our production capability is sufficient to meet the diverse needs of our recreational and medical cannabis consumers in Canada, from cost-effective, high-yield input material for our oils, softgels, Cannabis 2.0 and CBD products to sophisticated finished product cannabis flowers.

We have also invested in large-scale cannabinoid extraction capability to process our outdoor hemp and cannabis output and other raw materials from our indoor and greenhouse cultivation facilities, in support of our innovation. This includes a licensed cannabis and hemp biomass processing and extraction facility in close proximity to our large-scale outdoor hemp and cannabis growing operations in Saskatchewan, and licensed extraction facilities in Smiths Falls and Aldergrove, British Columbia.

Our licensed infrastructure in Canada also includes advanced manufacturing for products such as vape pens and cartridges, softgel encapsulation, a 150,000 square foot beverage production facility, and a bean-to-bar chocolate manufacturing facility. In addition, we have secured additional cannabis production capacity through offtake agreements with other licensed producers.

United States

Immediately following passage of the Farm Bill, we began investing in our supply chain in the United States through a diverse group of contract hemp cultivators and growers across several states. In 2019, we secured a 308,000 square foot facility in Kirkwood, New York. The renovation of the facility in Kirkwood recently commenced, and once complete it is expected to support our large-scale cannabinoid extraction and related product manufacturing capability in the eastern part of the United States. Additionally, we own an industrial-scale facility in Batavia, Illinois that has been certified by the FDA and licensed by the state of Illinois for hemp processing. Our facilities in Kirkwood and Batavia, together with third-party contract manufacturers, are critical in processing the extract required to supply and sustain the broad portfolio of hemp-derived CBD products that we rolled-out in certain states in the United States in December 2019.

See “Risks and Uncertainties” under “Part 7 – Risks and Uncertainties” in this MD&A, the factors included under “Part 7 – Risks and Uncertainties” in the Company’s MD&A for the three months and year ended March 31, 2019 and in the AIF.

Conducting Business in the United States

Canopy Growth will only conduct business activities related to growing or processing cannabis in jurisdictions where it is federally permissible to do so. Canopy Growth is not considered a U.S. Marijuana Issuer nor does the Company have material ancillary involvement in the United States cannabis industry in accordance with the Staff Notice.

While we have several arrangements with United States-based companies that may themselves participate in the United States cannabis market, these relationships do not violate the federal laws of the United States respecting cannabis and in no manner involve Canopy Growth in any activities in the United States respecting cannabis. As discussed below, certain entities in which the Company holds securities may operate in the United States cannabis industry, however, our investment in such entities has been structured such that we hold non-participating, non-voting securities that are only exercisable or exchangeable upon cannabis becoming legal or permissible in the United States under federal law. Further, we have developed specific plans related to establishing business operations in the United States in the event cannabis becomes federally permissible which are discussed below.

Overview of the Farm Bill and Potential Future Permissibility of Cannabis in the United States

On December 20, 2018, the Agricultural Improvement Act of 2018 (the “Farm Bill”) was signed into law in the United States. The Farm Bill, among other things, defines industrial hemp, removes industrial hemp and its cannabidiols, including CBD derived from industrial hemp but excluding THC, from the United States Controlled Substances Act (the “CSA”) and allows for industrial hemp production and sale in the United States. The FDA has retained authority over the addition of CBD to products that fall within the Food, Drug and Cosmetic Act (the “FDCA”). In late November 2019, the FDA released a consumer update, the purpose of which was to warn consumers about CBD products. Specifically, the FDA stated that (a), to date, it has approved only one CBD product (a prescription drug to treat two forms of epilepsy), (b) it has seen only limited data about CBD safety and the data it has seen points to risks that need to be considered

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before taking CBD for any reason, (c) some CBD products are being marketed with unproven medical claims and are of unknown quality and (d) it is currently illegal to market CBD by adding it to a food or labeling it as a dietary supplement. On the same day, the FDA issued warning letters to 15 companies for illegally selling CBD products in violation of the FDCA and indicated that it cannot conclude that CBD is “generally recognized as safe” among qualified experts for its use in human or animal food.

There can be no assurance that the FDA will approve CBD as an additive to products under the FDCA. Additionally, the 2018 Farm Bill does not legalize CBD derived from “marihuana” (as such term is defined in the CSA), which is and will remain a Schedule I controlled substance under the CSA. The FDA has expressed a willingness to take a flexible regulatory approach to foster the development of hemp-derived products such as CBD; however, the FDA has indicated that those actions will have to fit under the confines of current law and further legislation will likely be required. Multiple legislative reforms related to cannabis are currently being considered by the federal government in the United States. Examples include the Strengthening the Tenth Amendment Through EntrustingStates Act, the Marijuana Opportunity, Reinvestment and Expungement Act and the Secure and Fair Enforcement Banking Act. There can be no assurance that any of these pieces of legislation will become law in the United States.

Acreage Transaction

In late June 2019, Canopy Growth and Acreage implemented the previously-announced plan of arrangement (the “Acreage Plan of Arrangement”) which grants Canopy Growth the right (the “Call Option”) and the requirement to acquire all of the issued and outstanding securities of Acreage upon the occurrence (or waiver) of changes in United States federal law to permit the general cultivation, distribution and possession of marijuana or to remove the regulation of such activities from the federal laws of the United States (the “Triggering Event”). Upon the implementation of the Acreage Plan of Arrangement, shareholders of Acreage and certain other holders of securities convertible into shares of Acreage received an upfront payment of US$300 million. Following the occurrence (or waiver) of the Triggering Event and the satisfaction (or waiver) of the conditions to completion of the acquisition of Acreage, upon closing, shareholders of Acreage will receive 0.5818 of a Canopy Growth common share for each Acreage share held at the effective time, subject to adjustment in certain circumstances in accordance with the terms of the arrangement agreement with Acreage (the “Exchange Ratio”). The value of the consideration payable to Acreage shareholders may change up to closing of the Acreage Plan of Arrangement, as the value is based on the Exchange Ratio. Further information regarding the Acreage Plan of Arrangement is described in Canopy Growth’s Management Information Circular dated May 17, 2019, which is available under Canopy Growth’s profile on SEDAR at www.sedar.com.

Acreage is headquartered in New York City and is a leading vertically-integrated, multi-state operator in United States cannabis. Acreage owns licences to operate (or has management services agreements with licence holders to assist with operating) approximately 90 dispensaries and over 20 cultivation and processing sites in 20 U.S. states. Canopy Growth and Acreage will operate as independent companies until completion of the Acreage Plan of Arrangement, at which time the combined operations of Canopy Growth and Acreage are expected to create a leader in the United States cannabis market.

Other United States Holdings

While Canopy Growth does not engage in activities in the United States relating to cultivating and distributing cannabis so long as cannabis remains illegal under United States federal law, certain companies that we have invested in may operate in the United States cannabis industry, provided that the securities held by Canopy Growth are non-participating and non-voting securities that are only convertible, exercisable, or exchangeable for common shares upon cannabis becoming legal or permissible in the United States under federal law. For instance, TerrAscend Corp. (“TerrAscend”) and Slang Worldwide Inc. (“Slang”) have interests in cannabis-related business in the United States, we have undertaken steps to structure our security holdings in these entities to insulate Canopy Growth from engaging in any unlawful United States cannabis-related activities.

Canopy Growth holds conditionally exchangeable shares in the capital of TerrAscend. These shares are not entitled to voting rights, dividends or other rights upon dissolution of TerrAscend but are convertible into common shares of TerrAscend upon receipt of the approval of the stock exchanges upon which Canopy Growth’s securities are listed and following either changes in United States federal laws regarding the cultivation, distribution or possession of cannabis or changes in the policies of the stock exchanges upon which Canopy Growth’s securities are listed with respect to such activities. The exchangeable shares do not provide (and there are no related contractual rights that would otherwise provide) us with any right to dividends, entitlements upon dissolution of TerrAscend, cash flow or other current economic entitlements, voting rights or any form of control over the business, affairs, operation or financial condition of TerrAscend.

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Additionally, Canopy Growth (through its ownership interest in Canopy Rivers Inc. (“Canopy Rivers”)), indirectly holds conditionally exercisable warrants in the capital of TerrAscend (the “TerrAscend Warrants”). The TerrAscend Warrants are only exercisable following changes in United States federal laws regarding the cultivation, distribution or possession of cannabis or approval of the various securities exchanges upon which the securities of the holder of the TerrAscend Warrants are listed.

Similarly, Canopy Growth holds conditionally exercisable warrants in the capital of Slang. Canopy Growth is not permitted to exercise the warrants without, among other things, receipt of the approval of the stock exchanges upon which Canopy Growth’s securities are listed and following the date that the growth, cultivation, production, sale, use and consumption of cannabis and cannabis-related products are permitted in the United States for any and all purposes (including medical, therapeutic and recreational) under all applicable federal laws of the United States, including the CSA.

The Company may also acquire rights, options or other securities in entities that are currently engaged in activities in the United States related to cultivating and distributing cannabis that are only exercisable, convertible, or exchangeable for common shares following the date that the federal laws in the United States in regards to cannabis are amended and/or, if applicable, the date that the stock exchange(s) upon which the common shares of Canopy Growth are listed permit the investment in an entity that is involved in the cultivation or distribution of marijuana in the United States, provided that the Company (i) does not provide funds to such entities, and (ii) is not entitled to voting rights, dividends, or other rights upon dissolution in connection with the holding of such rights, options, or other securities. The Company may also invest in or loan funds to subsidiaries of entities that are currently engaged in activities in the United States related to cultivating and distributing cannabis, provided that (i) such subsidiaries do not engage in activities in the United States related to cultivating and distributing cannabis, and (ii) the funds invested or loaned to such entity are only used for lawful purposes and not in connection with activities in the United States related to cultivating and distributing cannabis.

We monitor the activities of TerrAscend, Slang and other entities in which we are invested for compliance with United States cannabis laws and would make similar arrangements, if necessary, to ensure our ongoing compliance with United States federal laws.

Canopy Growth will only conduct business and will only invest in entities in jurisdictions outside of Canada where such operations are legally permissible and in compliance with the policies of the TSX and the NYSE. However, there is a risk that the Company’s interpretation of laws, regulations and guidelines, including, but not limited to, the Cannabis Act, the associated regulations, various United States state regulations and applicable stock exchange rules and regulations may differ from those of others, including those of government authorities, securities regulators and stock exchanges. In addition, the Company has and will endeavour to cause the entities that it invests in, to only conduct business and invest in entities in federally-legal jurisdictions by including appropriate representations, warranties and covenants in its agreements with such entities. Any violation of these terms would result in a breach of the applicable agreement between the Company and such entity and, accordingly, may have a material adverse effect on the business, operations and financial condition of the Company. In particular, the Company may be required to divest its interest in an entity or risk significant fines, penalties, administrative sanctions, convictions, settlements, or delisting from the TSX and/or NYSE and there is no assurance that any divestiture will be completed on terms favourable to the Company, or at all.

See “Risk and Uncertainties” under “Part 7 – Risks and Uncertainties” in this MD&A, the factors included under “Part 7 – Risks and Uncertainties” in the Company’s MD&A for the three months and year ended March 31, 2019 and in the AIF.

Canopy Rivers

Canopy Rivers (TSXV:RIV) identifies strategic counterparties seeking financial and/or operating support and affiliation to create an ecosystem of complementary companies operating throughout the cannabis value chain. As a result of a dual-class share structure, Canopy Growth owns approximately 27.3% of the issued and outstanding shares in the capital of Canopy Rivers and approximately 84.4% of the voting power attached to all of the outstanding shares.

To date, Canopy Rivers has established a diversified portfolio of cannabis industry investments that includes large-scale greenhouse cannabis cultivators, small-scale cannabis cultivators, international hemp processors, pharmaceutical formulators, brand developers and distributors, cannabis retail store operators, technology and media platforms, beverage companies, beauty brands, and agriculture-technology companies.

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Other Matters

Appointment of Chief Executive Officer (“CEO”)

On December 9, 2019, we announced the appointment of David Klein as Canopy Growth’s CEO effective January 14, 2020. Mark Zekulin stepped down from his role as CEO of the Company and resigned as a director of Canopy Growth’s Board of Directors effective December 20, 2019.

Transition to United States Generally Accepted Accounting Principles (“US GAAP”)

As part of our United States financial reporting requirements, Canopy Growth is required by the SEC to test whether it continues to qualify as a foreign private issuer at the end of every second fiscal quarter. Canopy Growth confirmed that, as of September 30, 2019, it no longer met the criteria for qualification as a foreign private issuer because (a) more than 50% of the outstanding voting securities are held by residents of the United States, and (b) the majority of Canopy Growth’s directors are United States citizens.

Therefore, as of April 1, 2020 Canopy Growth will be considered a United States domestic issuer and a large accelerated filer. As a result of this change, as of April 1, 2020 Canopy Growth will be required to prepare its consolidated financial statements, including the Company’s March 31, 2020 audited annual consolidated financial statements, in conformity with U.S. GAAP, with such change being applied retrospectively. The extent of the impact of this change in accounting framework has not yet been quantified by the Company. Canopy Growth will also be required to provide an auditor attestation report under Section 404(b) of the Sarbanes-Oxley Act.

Subsequent Events

Effective January 14, 2020, David Klein became the CEO of Canopy Growth. Mr. Klein remains a member of Canopy Growth’s Board of Directors.

On January 22, 2020, Judy Schmeling was appointed as Chair of Canopy Growth’s Board of Directors, and Jim Sabia was appointed to the Board of Directors subject to receiving clearance from Health Canada.

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oil products, from 1 gram being equivalent to 8 milliliters of oil, to 1 gram being equivalent to 4 milliliters of oil. Assuming the application of this change to the three months ended December 31, 2018, the impact would be an increase of 403 kilogram equivalents of oil sold, and a decrease in the average selling price per gram, net of excise tax for our Canadian medical products to $6.79. The year-over-year increase in the average selling price per gram from $6.79 to $7.16 is primarily attributable to the Canadian federal government exempting medical CBD product sales from excise taxes beginning in May 2019. The increase in the average selling price per gram for our international medical business is attributable to our acquisition of C^3^ in April 2019.

We harvested 29,920 kilograms of cannabis in the third quarter of fiscal 2020, as compared to 7,556 kilograms in the third quarter of fiscal 2019, reflecting the year-over-year growth of our production capacity.

Discussion of the Third Quarter of Fiscal 2020 Results of Operations

Revenue

The following tables present revenue for the three months ended December 31, 2019 and 2018:

Revenue by Channel Three months ended
December 31, December 31,
(CDN $000’s) 2019 2018 Change % Change
Recreational revenue
Business-to-business^1^ $ 53,454 $ 60,141 ) (11 %)
Business-to-consumer **** 15,242 11,477 33 %
**** 68,696 71,618 ) (4 %)
Medical revenue
Canadian **** 14,765 15,931 ) (7 %)
International **** 18,701 2,702 592 %
**** 33,466 18,633 80 %
Other revenue **** 33,384 7,452 348 %
Gross revenue **** 135,546 97,703 39 %
Excise taxes^2^ **** 11,782 14,655 ) (20 %)
Net revenue $ 123,764 $ 83,048 49 %

All values are in US Dollars.

^1^ Includes other revenue adjustments of $5,343, which represent the Company’s determination of returns<br>and pricing adjustments.
^2^ Excise taxes is presented net of the impact from other revenue adjustments.
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Revenue by Form Three months ended
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Kilograms<br>and<br>kilogram<br>equivalents<br>sold Kilograms<br>and<br>kilogram<br>equivalents<br>sold
As a % of As a % of
December 31, gross December 31, gross
2019 revenue 2018 revenue
(CDN 000’s) (CDN 000’s)
Recreational revenue by form
Dry bud **** **** 51 % **** 10,269 51 % 6,394
Oil (Includes oils and softgels) **** **** 4 % **** 711 22 % 1,893
Other revenue adjustments^1^ ) **** (4 %) **** — — —
**** **** 51 % **** 10,980 73 % 8,287
Medical revenue by form
Dry bud **** **** 7 % **** 946 11 % 1,196
Oil (Includes oils and softgels)^2^ **** **** 18 % **** 1,311 8 % 619
**** **** 25 % **** 2,257 19 % 1,815
Other revenue **** **** 24 % **** — 8 % —
Gross revenue **** **** 100 % **** 13,237 100 % 10,102
Excise taxes^2^ ****
Net revenue ****

All values are in US Dollars.

^1^ Other revenue adjustments represent the Company’s determination of returns and pricing adjustments.<br>
^2^ Excise taxes is presented net of the impact from other revenue adjustments.
--- ---

Net revenue in the third quarter of fiscal 2020 was $123,764, as compared to $83,048 in the third quarter of fiscal 2019. The year-over-year increase of $40,716 is primarily attributable to an increase in medical revenue, largely resulting from

21

the acquisition of C^3^ in April 2019, and an increase in other revenue attributable to our acquisitions of Storz & Bickel in December 2018, This Works in May 2019 and BioSteel in October 2019.

Recreational

Canadian recreational cannabis revenue in the third quarter of fiscal 2020 was $68,696, as compared to $71,618 in the third quarter of fiscal 2019. Revenue from the business-to-business channel was $53,454, a year-over-year decrease of $6,687. This decrease is primarily a result of the opening of the Canadian recreational cannabis market on October 17, 2018, as our provincial and territorial agency partners ordered significant quantities of cannabis products in the third quarter of fiscal 2019 in order to have a sufficient and diverse supply of products to meet the expected recreational cannabis consumer demand. Revenue from the business-to-consumer channel was $15,242, with the year-over-year growth of $3,765 primarily attributable to the continued build-out of our retail store platform in Canada. There were 22 corporate-owned Tweed and Tokyo Smoke stores open at December 31, 2019, an increase from the 14 corporate-owned stores that were open one year earlier.

In the third quarter of fiscal 2020, we generated revenue of $69,283 from the sale of our dry bud format products, of which $12,136 related to sales of 1.9 million higher-margin pre-rolled cannabis products.

Medical

Medical cannabis revenue for the third quarter of fiscal 2020 was $33,466, as compared to $18,633 in the third quarter of fiscal 2019.

Canadian medical revenue in the third quarter of fiscal 2020 was $14,765, a decrease of $1,166 from the third quarter of fiscal 2019 due primarily to the continuing impact of the opening of the Canadian recreational cannabis market and the transition of our medical customers to the Spectrum Therapeutics online store, which offered a more medical-focused range of cannabis products. We continue to broaden our brand and medical cannabis product offerings available on the Spectrum Therapeutics online store in response to patient demand, and in the third quarter of fiscal 2020 sales of our higher-margin oils and softgels represented approximately 66% of our Canadian medical sales, an increase from 59% in the second quarter of fiscal 2020.

International medical revenue in the third quarter of fiscal 2020 was $18,701, with the increase of $15,999 from the third quarter of fiscal 2019 attributable to the acquisition of C^3^, which generated revenue of $14,775 in the current quarter, and year-over-year growth of $1,224 in our German medical revenues which resulted from the resolution of the supply constraints we had previously experienced and which were associated with the opening of the recreational cannabis market in Canada.

Other

Other revenue for the third quarter of fiscal 2020 was $33,384, as compared to $7,452 in the third quarter of fiscal 2019. The year-over-year increase is primarily attributable to Storz & Bickel which, in addition to contributing a full quarter to our results in the third quarter of fiscal 2020, had a strong performance in the current quarter’s holiday season with revenue of $15,889. Also contributing to the year-over-year increase were the acquisitions of This Works in May 2019 and BioSteel in October 2019. The remainder of other revenue for the third quarter of fiscal 2020 is comprised of revenue from other strategic sources including extraction services and clinic partners.

Net revenue is determined by deducting excise taxes which are included in gross revenue and subsequently remitted to the tax authorities.

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Cost of goods sold and gross margin

The following table presents cost of goods sold and gross margin for the three months ended December 31, 2019 and 2018:

Cost of Goods Sold

Three months ended
December 31, December 31,
(CDN $000’s) 2019 2018 Change % Change
Net revenue $ 123,764 **** $ 83,048 49 %
Cost of goods sold **** 85,556 **** 63,976 34 %
Gross margin **** 38,208 **** 19,072 100 %
Gross margin percentage **** 31 % 23 % 8 %

All values are in US Dollars.

Cost of goods sold for the third quarter of fiscal 2020 was $85,556, as compared to $63,976 in the third quarter of fiscal 2019. These costs were primarily comprised of the costs of the inventory sold in the period, distribution charges, and the operating costs relating to facilities that were not yet cultivating or processing cannabis, not yet producing cannabis-related products, or having under-utilized capacity.

Gross margin in the third quarter of fiscal 2020 was $38,208, or 31% of net revenue. Comparatively, in the third quarter of fiscal 2019 gross margin was $19,072 or 23% of net revenue. The year-over-year increase in the gross margin percentage was primarily attributable to a year-over-year decrease in the impact of operating costs relating to facilities not yet cultivating or processing cannabis, not yet producing cannabis-related products or having under-utilized capacity. In the third quarter of fiscal 2020, these operating costs amounted to $8,137 and primarily related to start-up costs associated with our advanced manufacturing and beverage facilities in Smiths Falls, our greenhouse in Denmark, and under-utilized capacity associated with our KeyLeaf extraction facility in Saskatchewan. Comparatively, these operating costs amounted to $13,092 in the third quarter of fiscal 2019 and related to the under-utilization of several of our larger greenhouse facilities, including those in Delta and Aldergrove, British Columbia, and Mirabel, Quebec. These operating costs impacted our gross margin percentage to a greater degree in the third quarter of fiscal 2019.

Operating expenses

The following table presents operating expenses for the three months ended December 31, 2019 and 2018:

Operating Expenses

Three months ended
December 31, December 31,
(CDN $000’s) 2019 2018 Change % Change
Operating expenses
Sales and marketing $ 63,382 $ 48,324 31 %
Research and development **** 20,808 5,264 295 %
General and administration **** 67,812 46,088 47 %
Acquisition-related costs **** 3,256 4,520 ) (28 %)
Share-based compensation expense **** 56,763 46,862 21 %
Share-based compensation expense related to acquisition milestones **** 4,916 23,849 ) (79 %)
Depreciation and amortization **** 13,652 5,015 172 %
Total operating expenses $ 230,589 $ 179,922 28 %

All values are in US Dollars.

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Sales and marketing

Sales and marketing expense in the third quarter of fiscal 2020 was $63,382, as compared to $48,324 in the third quarter of fiscal 2019. The increase of $15,058 is attributable to the following areas:

• The growth in our business through the recent acquisitions of<br>C^3^, This Works, and BioSteel, which has resulted in a year-over-year increase in sales and marketing expense. Specifically, This Works and BioSteel incurred marketing and promotional costs<br>associated with driving awareness and demand during the holiday season;
• Driving brand awareness and educating consumers through advertising and media campaigns, including the<br>placement of advertising at venues and events and in key media channels in support of our brands. In the third quarter of fiscal 2020, these initiatives focused on product marketing and brand awareness campaigns in preparation for the launch of our<br>Cannabis 2.0 products in Canada, including brand launches for our new Quatreau, Deep Space, and Bean & Bud brands, and the launch of our First & Free CBD products in the United States in December 2019; and
--- ---
• Increased staffing costs as we continue to enhance our marketing and sales capabilities servicing our Canadian<br>market, particularly in the areas of creative design and advertising, brand insights and launch support, and brand management, and the United States market, where we launched CBD products in certain states in December 2019.
--- ---

Included in sales and marketing expense for the third quarter of fiscal 2020 are strategic investments of $3,776 related to sales and marketing staff, product marketing campaigns, and brand awareness and consumer education initiatives related to our continued commercial expansion into new markets, most notably the launch of CBD products under the First & Free brand in certain states in the United States in December 2019 (for the third quarter of fiscal 2019 - $1,117).

Research and development

Research and development expense in the third quarter of fiscal 2020 was $20,808, as compared to $5,264 in the third quarter of fiscal 2019. The increase of $15,544 is attributable to:

• Increased compensation costs associated with an increase in the number of employees conducting research into<br>several intellectual property opportunities;
• Costs associated with conducting external laboratory testing and clinical trials for CBD-based human and animal health products and other cannabinoid-based therapies;
--- ---
• New cannabis-based product form factors, including beverage products and edibles, that have been or will be<br>launched as part of our Cannabis 2.0 product offerings in Canada;
--- ---
• Device and delivery technology, including vaporizers and vapes;
--- ---
• Plant science, including growth patterns under different environmental scenarios and the genetics of various<br>strains; and
--- ---
• Cannabinoid extraction technology.
--- ---

General and administration

General and administration expense in the third quarter of fiscal 2020 was $67,812, as compared to $46,088 in the third quarter of fiscal 2019. The increase of $21,724 is attributable to:

• Costs associated with enhancing our finance and information technology capabilities, including both increased<br>compensation costs for our employees and increased professional service costs;
• Increased costs associated with public company compliance and regulatory requirements, including costs related<br>to our transition to U.S. GAAP for our March 31, 2020 consolidated financial statements and other requirements associated with the loss of our foreign private issuer status;
--- ---
• Pre-revenue business development and administrative costs related to<br>expanding our operations into the United States, and internationally;
--- ---
• The growth in our business through the recent acquisitions of<br>C^3^, This Works, and BioSteel, which has resulted in a year-over-year increase in general and administration expense; and
--- ---
• Compliance costs related to meeting Health Canada requirements.
--- ---

Included in general and administration expense for the third quarter of fiscal 2020 are strategic investments and business development costs of $14,540 attributable to administrative staffing and facilities, insurance, information technology,

24

regulatory, and other administrative and start-up costs incurred as we continue to expand globally (for the third quarter of fiscal 2019 - $2,488).

Acquisition-related costs

Acquisition-related costs were $3,256 in the third quarter of fiscal 2020, as compared to $4,520 in the third quarter of fiscal 2019. The decrease of $1,264 is attributable to less mergers and acquisitions activity as compared to the prior year. In the third quarter of fiscal 2019, acquisition costs were incurred in relation to the acquisitions of ebbu Inc., POS Holdings Inc. (now referred to as KeyLeaf) and Storz & Bickel. Comparatively, in the third quarter of fiscal 2020 we completed the acquisitions of BioSteel and the unowned interest in BCT, which included Spectrum UK, and the transaction to launch More Life Growth Company. These transactions were largely evaluated in the previous quarter. Additionally, we incurred acquisition costs in the current quarter to evaluate other potential opportunities.

Share-based compensation expense

Share-based compensation expense was $56,763 in the third quarter of fiscal 2020, as compared to $46,862 in the third quarter of fiscal 2019. The increase of $9,901, or 21%, is primarily attributable to the continued increase in the number of stock options granted to employees, which is primarily related to the increase in the number of employees of Canopy Growth from approximately 2,700 at December 31, 2018 to approximately 4,890 at December 31, 2019. The number of outstanding stock options increased from 31.6 million at December 31, 2018 to 33.6 million at December 31, 2019, an increase of approximately 6%. However, included in the outstanding stock options at December 31, 2018 were option grants totaling 10.5 million, the majority of which were granted in late December 2018 and which therefore did not result in significant share-based compensation expense in the third quarter of fiscal 2019. Excluding the December 2018 stock option grants results in outstanding stock options of 22.2 million at September 30, 2018, which increased approximately 51% to December 31, 2019. Share-based compensation expense in the current quarter was also impacted by 3.9 million forfeited or cancelled stock options.

Share-based compensation expense related to acquisition milestones was $4,916 in the third quarter of fiscal 2020, as compared to $23,849 in the third quarter of fiscal 2019. Consideration for certain acquisitions in previous fiscal years, including those of Spectrum Cannabis Colombia S.A.S. (“Spectrum Colombia”) and Canindica Capital Ltd. (“Canindica”), included the issuance of share-based compensation upon the achievement of specified cultivation and sales milestones. The year-over-year decrease of $18,933 is primarily attributable to the achievement, in earlier quarters, of the major milestones associated with these acquisitions, which had resulted in the recognition of share-based compensation expense at that time. The remaining share-based compensation expense which is being recognized currently relates largely to the final specific milestones for these acquisitions.

Depreciation and amortization expense

Depreciation and amortization expense was $13,652 in the third quarter of fiscal 2020, as compared to $5,015 in the third quarter of fiscal 2019. The increase of $8,637 is attributable to property, plant and equipment being put into operation during the first nine months of fiscal 2020 as we continue to build our infrastructure across Canada and internationally.

Adjusted EBITDA (Non-GAAP Measure)

The Company’s “Adjusted EBITDA” is a non-GAAP measure used by management that does not have any standardized meaning prescribed by U.S. GAAP and may not be comparable to similar measures presented by other companies. Management defines the Adjusted EBITDA as the income (loss) from operations, as reported, before interest and tax, adjusted for removing share-based compensation expense, depreciation and amortization, and further adjusted to remove acquisition related costs.

The Company has provided further disclosure around Adjusted EBITDA by attributing Adjusted EBITDA to its (1) operations and corporate overhead, (2) strategic investments and business development, and (3) non-operating or under-utilized facilities. As discussed under “Part 2 – Strategy” above, we have made, and will continue to make, significant strategic investments and incur significant business development costs to expand our business into attractive new geographies in the United States, Latin America and the Caribbean, Asia / Pacific, and Africa. These investments include developing our administrative infrastructure, along with early sales and marketing initiatives focused on patient and healthcare professional education, and brand and product awareness initiatives associated with the launch of CBD products, where permissible. As part of our business development, we have also invested in research and development, particularly in relation to new product innovation, conducting clinical trials supporting new cannabis-based medicines, and optimizing our operations. The expenses associated with the aforementioned strategic investments have been

25

included in General and administration, Sales and marketing, and Research and development in our condensed interim consolidated statements of operations. These investments are not consistent with the financial results from our businesses in Canada and Europe, for which our infrastructure build-out is substantially complete and revenue-generating operations have commenced. In addition, we have incurred significant costs related to facilities which are not yet cultivating or processing cannabis, not yet producing cannabis-related products, or had under-utilized capacity. These costs have been included in Inventory production costs expensed to cost of goods sold in our condensed interim consolidated statements of operations.

Accordingly, management believes that Adjusted EBITDA, and the attribution of Adjusted EBITDA in the manner described above, provides meaningful and useful financial information as these measures demonstrate the performance of our operating businesses, and the level of investment that we continue to incur in research and development and the expansion of our global business.

The following table presents Adjusted EBITDA for the three months ended December 31, 2019 and 2018:

Three months ended
(In CDN$000’s) December 31,<br>2019 December 31,<br>2018
Adjusted EBITDA^1^Reconciliation
Loss from operations - as reported $ (192,381 ) $ (160,850 )
Share-based compensation expense (per statements of cash flows) **** 61,679 **** 77,890
Acquisition-related costs **** 3,256 **** 4,520
Depreciation and amortization (per statements of cash flows) **** 30,464 **** 7,890
95,399 90,300
Adjusted EBITDA $ (96,982 ) $ (70,550 )
^1^ Adjusted EBITDA is earnings before interest, tax, depreciation and amortization, share-based compensation<br>expense, fair value changes and other non-cash items, and further adjusted to remove acquisition-related costs.
--- ---

The Adjusted EBITDA loss for the third quarter of fiscal 2020 was $96,982, as compared to an Adjusted EBITDA loss of $70,550 for the third quarter of fiscal 2019. Of the Adjusted EBITDA loss for the current quarter, $49,734 is attributed to our operations and corporate overhead, and is reflective of:

• Sales and marketing costs related to brand awareness and product marketing in preparation for the launch of<br>our Cannabis 2.0 products, which we began rolling-out in December 2019;
• Brand awareness and consumer education initiatives for our recreational cannabis brands, and costs related to<br>the build-out of our Tweed and Tokyo Smoke retail store network;
--- ---
• General and administrative costs associated with enhancing our finance and information technology<br>capabilities; and
--- ---
• Costs associated with public company and Health Canada compliance and regulatory requirements.<br>
--- ---

The Adjusted EBITDA loss attributed to strategic investments and business development of $39,111 has increased from a loss of $8,869 for the third quarter of fiscal 2019, and is primarily attributable to:

• General and administrative costs associated with the build-out of our<br>administrative infrastructure in support of our global expansion strategy;
• Strategic marketing initiatives including product marketing, branding and educational campaigns related to the<br>launch of our First & Free CBD products in the United States in December 2019; and
--- ---
• Research and development initiatives related to new product innovation for the recreational markets,<br>conducting clinical trials to support new cannabis-based human and animal medicines, and innovation focused on optimizing our growing, extraction and manufacturing capability.
--- ---

The Adjusted EBITDA loss attributed to non-operating or under-utilized facilities of $8,137 relates to inventory production costs expensed to cost of goods sold and is discussed further above under “Cost of goods sold and gross margin”.

Totalother income, net

Total other income, net was $57,963 in the third quarter of fiscal 2020, as compared to $198,858 in the third quarter of fiscal 2019. The year-over-year decrease in the other income amount of $140,895 is primarily attributable to the following year-over-year variances:

26

• Decrease in income of $179,070 in the non-cash fair value changes<br>related to our senior convertible notes. The year-over-year change is primarily due to the relative movements in Canopy Growth’s stock price. The Company’s stock price declined approximately 5% from October 1, 2019 to<br>December 31, 2019, as compared to a decline of approximately 39% between October 1, 2018 and December 31, 2018. The steeper decline in the third quarter of fiscal 2019 resulted in the significantly higher income amount being<br>recognized.
• Change of $75,284 related to the non-cash fair value changes on our<br>other financial assets, from an expense amount of $2,016 in the third quarter of fiscal 2019 to an expense amount of $107,300 in the current quarter. The increase in the expense amount was primarily driven by a fair value decrease of $30,000 in the<br>Acreage Call Option attributable to an overall decline in both Canopy Growth’s and Acreage’s share prices, as well as share prices of other United States multi-state operators. Comparatively, the income amount in the prior year was<br>primarily attributable to fair value changes in our holdings in TerrAscend and Slang, each of which have interests in cannabis-related businesses in the United States.
--- ---
• Income of $82,512 related to fair value changes on the warrant derivative liability associated with the<br>Tranche B warrants held by Constellation Brands. The decrease in the fair value of the warrant derivative liability is primarily attributable to the decline in our share price from October 1, 2019 to December 31, 2019;<br>
--- ---
• As described in Note 25 of the Interim Financial Statements, we recognized the following gains during the<br>third quarter of fiscal 2020: (a) $39,485 related to our acquisition of the unowned interest in BCT, increasing our total ownership to 100% of BCT’s issued and outstanding shares; and (b) $22,290 related to our disposal of a<br>previously-consolidated subsidiary in conjunction with the transaction completed to launch More Life Growth Company.
--- ---

Income taxrecovery

Income tax recovery was $27,448 in the third quarter of fiscal 2020, consisting of a deferred income tax recovery of $33,917 (compared to $3,275 in the third quarter of fiscal 2019) and current income tax expense of $6,469 ($nil in the third quarter of fiscal 2019).

The increase of $30,642 in the deferred income tax recovery balance is primarily a result: of (i) recording a reduction in deferred tax liabilities that arose in connection with the required revaluation of the accounting carrying value, but not the tax basis, of other financial assets and other assets; and (ii) the recognition of losses carried forward, net of the use of losses carried forward from prior years for which a deferred tax asset had been recorded. In connection with certain deferred tax assets, mainly in respect to losses for tax purposes, where the accounting criteria for recognition as an asset has yet to be satisfied and it is not probable that they will be used, the deferred tax asset has not been recognized.

The increase of $6,469 in the current income tax expense balance arose primarily in connection with acquired legal entities that generated taxable income, where income could not be offset against the group’s tax attributes, and legal entities which have fully utilized their loss carry forward balances and have current period taxable income.

Net (loss) income

Net loss was $109,634 in the third quarter of fiscal 2020, as compared to net income of $39,194 in the third quarter of fiscal 2019. The change from net income to net loss is reflective of the variances described above.

Segmented Analysis

The Company operates in two segments: 1) Cannabis operations, which encompasses the production, distribution and sale of both medical and recreational cannabis; and 2) Canopy Rivers, through which the Company provides growth capital and strategic support in the global cannabis sector, where federally lawful.

In the third quarters of both fiscal 2020 and fiscal 2019, all of the Company’s revenue was earned by the Cannabis operations segment. Canopy Rivers contributed a net loss of $5,102 in the third quarter of 2020, of which $1,394 was attributable to Canopy Growth. In the third quarter of fiscal 2019, Canopy Rivers contributed net income of $13,467, of which $3,114 was attributable to Canopy Growth. The change from net income in the third quarter of fiscal 2019 to a net loss in the third quarter of fiscal 2020 reflects the year-over-year decrease in the fair value changes on Canopy Rivers’ strategic equity investments, along with an increase in share-based compensation expense due to the stock options which have been granted in fiscal 2019. Refer to Note 20 of the Interim Financial Statements for further information on the non-controlling interests in Canopy Rivers and Note 18 for further information on share-based compensation expense.

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Summary of quarterly financial information

The following table presents a summary of unaudited quarterly financial information for the last eight consecutive quarters:

SELECTED QUARTERLY INFORMATION
(CDN $000’s, except shareamounts) Q3 2020 Q2 2020 Q1 2020 Q4 2019
Net revenue - Recreational $ 58,239 $ 21,954 $ 49,519 $ 58,087
Net revenue - Medical & Other $ 65,525 $ 54,659 $ 40,963 $ 35,963
(Loss) income attributable to Canopy Growth Corporation $ (91,354 ) $ 258,918 $ (185,869 ) $ (379,516 )
(Loss) income per share - basic $ (0.26 ) $ 0.75 $ (0.54 ) $ (1.10 )
Weighted average shares - basic 348,530,622 347,226,921 346,779,156 343,877,591
(Loss) income per share - diluted $ (0.26 ) $ 0.25 $ (0.54 ) $ (1.10 )
Weighted average shares - diluted 348,530,622 380,323,118 346,779,156 343,877,591
Q3 2019 Q2 2019 Q1 2019 Q4 2018
Net revenue - Recreational $ 57,686 $ — $ — $ —
Net revenue - Medical and other $ 25,362 $ 23,327 $ 25,916 $ 22,806
Net income (loss) attributable to Canopy Growth Corporation $ 50,736 $ (317,830 ) $ (89,671 ) $ (20,259 )
Income (loss) per share - basic $ 0.17 $ (1.43 ) $ (0.45 ) $ (0.10 )
Weighted average shares - basic 303,281,549 221,725,511 200,160,740 196,571,715
Loss per share - diluted $ (0.44 ) $ (1.43 ) $ (0.45 ) $ (0.10 )
Weighted average shares - diluted 315,974,639 221,725,511 200,160,740 196,571,715

Additional GAAP Measure

The Company uses “Loss from operations” as an additional U.S. GAAP financial measure within the Interim Financial Statements and this MD&A, but it is not a defined term under U.S. GAAP to assess performance. Management believes that this measure provides useful supplemental information to investors and is computed on a consistent basis for each reporting period. Loss from operations is calculated as net revenue less cost of goods sold (which includes inventory production costs expensed to cost of goods sold, and less total operating expenses, all of which are derived from the consolidated statements of operations). It is used by management to analyze operating performance, but it is not intended to represent an alternative to net loss or other measures of financial performance in accordance with U.S. GAAP.

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Operational and Financial Highlights – Nine Months Ended December 31, 2019

The following table presents selected operational and financial information for the nine months ended December 31, 2019 and 2018:
December 31,
2018 Change % Change
Operational information
Kilogram and kilogram equivalents<br>sold1 34,699 **** 14,994 19,705 131 %
Average selling price per gram - Recreational 5.93 **** $ 6.96 $ (1.03 ) (15 %)
Average selling price per gram - Canadian Medical 7.97 **** $ 8.84 $ (0.87 ) (10 %)
Average selling price per gram - International medical 49.05 **** $ 13.49 $ 35.56 264 %
Average selling price per gram - Total 7.41 **** $ 7.99 $ (0.58 ) (7 %)
Kilograms harvested 111,450 **** 32,458 78,992 243 %
(CDN 000’s, except share amounts and where otherwise<br>indicated) ****
Selected financial information
Revenue 290,859 **** $ 132,291 $ 158,568 120 %
Gross margin percentage 21 % 5 % $ — 16 %
Adjusted EBITDA2 (340,785 ) $ (186,955 ) $ (153,830 ) (82 %)
Attributed as follows:
- Operations and corporate overhead (212,565 ) $ (142,785 ) $ (69,780 ) (49 %)
- Strategic investments and business development (93,311 ) $ (15,076 ) $ (78,235 ) (519 %)
- Non-operating or under-utilized facilities (34,909 ) $ (29,094 ) $ (5,815 ) (20 %)
Net loss (61,035 ) $ (364,533 ) $ 303,498 83 %
Net loss attributable to Canopy Growth Corporation (18,305 ) $ (356,765 ) $ 338,460 95 %
Loss per share - basic and<br>diluted3 (0.05 ) $ (1.48 ) $ 1.43 97 %

All values are in US Dollars.

^1^ Kilogram equivalents refers to cannabis oils where, for the three months ended December 31, 2019, 4 ml<br>is the equivalent of approximately 1 gram of dried cannabis (six months ended September 30, 2019 and nine months ended December 31, 2019 - 8 ml was the equivalent of approximately 1 gram of dried cannabis), and softgels, where one bottle<br>is the equivalent of approximately 5 grams of dried cannabis.
^2^ Adjusted EBITDA is a non-GAAP measure, and is calculated as earnings<br>before interest, tax, depreciation and amortization, share-based compensation expense, fair value changes and other non-cash items, and further adjusted to remove acquisition-related costs. The Company<br>attributes Adjusted EBITDA to its operations and corporate overhead, strategic investments and business development, and non-operating or under-utilized facilities. See “Adjusted EBITDA (Non-GAAP Measure)”. ^^
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^3^ For the nine months ended December 31, 2019, the weighted average number of outstanding common shares,<br>basic and diluted, totaled 346,877,660. For the nine months ended December 31, 2018, the weighted average number of common shares outstanding, basic and diluted, totaled 241,806,351 and 242,044,821, respectively.
--- ---

The total quantity of cannabis sold during the nine months ended December 31, 2019 was 34,699 kilogram and kilogram equivalents, up from 14,994 kilograms and kilogram equivalents in the nine months ended December 31, 2018 due primarily to the launch of the recreational cannabis market in October 2018.

Recreational cannabis accounted for 28,958 kilogram and kilogram equivalents sold in the nine months ended December 31, 2019 (83% of total cannabis sold), of which 76% was sold directly to the Canadian provinces and the remainder through our direct retail and on-line consumer channels. Medical cannabis accounted for 5,741 kilogram and kilogram equivalents in the nine months ended December 31, 2019 (17% of total cannabis sold), representing a decrease of 14% from the 6,707 kilograms and kilogram equivalents sold in the nine months ended December 31, 2018 due primarily to the transition of our medical customers to the Spectrum Therapeutics online store prior to the opening of the recreational market, as discussed above. This was partially offset by the contribution from the acquisition of C^3^ in April 2019.

The average selling price per gram, net of excise tax, was $7.41 in the nine months ended December 31, 2019, a decrease from $7.99 in the nine months ended December 31, 2018. The average selling price per gram metric reflects the shipments made during the nine months ended December 31, 2019, which we believe provides the most meaningful and relevant metric regarding the pricing we achieved on our sales during the period. The average selling price per gram for our recreational products decreased year-over-year due largely to a general decline in selling prices for dried cannabis products since the opening of the Canadian recreational market in October 2018 and shifts in the product mix during fiscal 2020. In the third quarter of fiscal 2020 we changed the equivalency factor for our Canadian medical oil products, as described above. Assuming the application of this change to the first two quarter of fiscal 2020 and the nine months ended December 31, 2018, the impact would be (1) for the nine months ended December 31, 2018, an increase of 1,088 kilogram equivalents of oil sold, and a decrease in the average selling price per gram, net of excise tax for our Canadian

29

medical business to $7.50, and (2) for the nine months ended December 31, 2019, an increase of 606 kilogram equivalents of oil sold, and a decrease in the average selling price per gram, net of excise tax for our Canadian medical business to $7.08. The year-over-year decrease in the average selling price per gram from $7.50 to $7.08 is primarily attributable to our absorption of excise taxes for our medical customers upon the opening of the Canadian recreational market in October 2018. The increase in the average selling price per gram for our international medical business is attributable to our acquisition of C^3^ in April 2019.

We harvested 111,450 kilograms of cannabis in the nine months ended December 31, 2019, as compared to 32,458 kilograms in the nine months ended December 31, 2018, reflecting the year-over-year growth of our production capacity.

Discussion of the Results ofOperations for the Nine Months Ended December 31, 2019

Revenue

The following tables present revenue for the nine months ended December 31, 2019 and 2018:

Revenue by Channel Nine months ended
December 31, December 31,
(CDN $000’s) 2019 2018 Change % Change
Recreational revenue
Business-to-business^1^ $ 166,626 **** $ 60,141 177 %
Business-to-consumer **** 38,980 **** 11,477 240 %
Other revenue adjustments^2^ **** (46,070 ) — ) —
**** 159,536 **** 71,618 123 %
Medical revenue
Canadian **** 41,965 **** 57,198 ) (27 %)
International **** 47,287 **** 8,294 470 %
**** 89,252 **** 65,492 36 %
Other revenue **** 75,770 **** 9,836 670 %
Gross revenue **** 324,558 **** 146,946 121 %
Excise taxes^3^ **** 33,699 **** 14,655 130 %
Net revenue $ 290,859 **** $ 132,291 120 %

All values are in US Dollars.

^1^ Excludes the impact of other revenue adjustments.
^2^ Other revenue adjustments represent the Company’s determination of returns and pricing adjustments, and<br>which primarily relate to oils and softgels.
--- ---
^3^ Excise taxes is presented net of the impact from other revenue adjustments.
--- ---
Revenue by Form Nine months ended
--- --- --- --- --- --- --- --- --- --- --- --- --- ---
Kilograms Kilograms
and and
As a % of kilogram As a % of kilogram
December 31, gross equivalents December 31, gross equivalents
2019 revenue sold 2018 revenue sold
(CDN 000’s) (CDN 000’s)
Recreational revenue by form
Dry bud **** **** 58 % **** 26,503 34 % 6,394
Oil (Includes oils and softgels) **** **** 5 % **** 2,455 14 % 1,893
Other revenue adjustments^1^ ) **** (14 %) **** — — —
**** **** 49 % **** 28,958 48 % 8,287
Medical revenue by form
Dry bud **** **** 8 % **** 2,751 30 % 5,137
Oil (Includes oils and softgels) **** **** 20 % **** 2,990 15 % 1,570
**** **** 28 % **** 5,741 45 % 6,707
Other revenue **** **** 23 % **** — 7 % —
Gross revenue **** **** 100 % **** 34,699 100 % 14,994
Excise taxes^2^ ****
Net revenue ****

All values are in US Dollars.

^1^ Other revenue adjustments represent the Company’s determination of returns and pricing adjustments, and<br>which primarily relate to oils and softgels.
^2^ Excise taxes is presented net of the impact from other revenue adjustments.
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Net revenue in the nine months ended December 31, 2019 was $290,859, as compared to $132,291 in the nine months ended December 31, 2018. The year-over-year increase of $158,568 is primarily attributable to the launch of the

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Canadian recreational cannabis market in October 2018, which resulted in a full nine months of recreational revenue contribution in the current year as compared to approximately two and a half months in the prior year. Additionally, medical revenue increased, which was primarily a result of the acquisition of C^3^ in April 2019, and other revenue increased due to our acquisitions of Storz & Bickel in December 2018 and This Works in May 2019.

Recreational

Canadian recreational revenue in the nine months ended December 31, 2019 was $159,536, as compared to $71,618 in the nine months ended December 31, 2018. Revenue from the business-to-business channel in the nine months ended December 31, 2019 was $120,556, net of the impact of other revenue adjustments in the amount of $46,070 related to our determination of returns and pricing adjustments, and which were described in our MD&A for the second quarter of fiscal 2020. Comparatively, revenue from the business-to-business channel in the nine months ended December 31, 2018 was $60,141, with the year-over-year increase attributable to the opening of the Canadian recreational cannabis market on October 17, 2018. Revenue from the business-to-consumer channel was $38,980 in the nine months ended December 31, 2019, an increase of $27,503 from the nine months ended December 31, 2018 due to the opening of the Canadian recreational cannabis market and our build-out our retail store platform in Canada.

Medical

Medical cannabis revenue in the nine months ended December 31, 2019 was $89,252, as compared to $65,492 in the nine months ended December 31, 2018. Canadian medical revenue in the nine months ended December 31, 2019 was $41,965, a decrease of $15,233 from the nine months ended December 31, 2018 due primarily to the transition of our medical customers to the Spectrum Therapeutics online store and its medical-focused product offerings prior to the opening of the recreational market, as discussed above. International medical revenue in the nine months ended December 31, 2019 was $47,287, an increase of $38,993 from the nine months ended December 31, 2018. The increase was primarily due to the acquisition of C^3^, which generated revenue of $37,576 in the current year-to-date period.

Other

Other revenue in the nine months ended December 31, 2019 was $75,770, as compared to $9,836 in the nine months ended December 31, 2018. The year-over-year increase is primarily attributable to the acquisitions of Storz & Bickel and This Works. The remainder of the increase is attributable to revenue from other strategic sources including extraction services, and clinic partners. Other revenue for the nine months ended December 31, 2018 consisted predominantly of revenue from our clinic partners and one month of revenue contribution from Storz & Bickel.

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Cost of goods sold and gross margin

The following table presents cost of goods sold and gross margin for the nine months ended December 31, 2019 and 2018:

Cost of Goods sold

Nine months ended
December 31, December 31,
(CDN $000’s) 2019 2018 Change % Change
Net revenue $ 290,859 **** $ 132,291 120 %
Cost of goods sold **** 230,718 **** 125,091 84 %
Gross margin **** 60,141 **** 7,200 735 %
Gross margin percentage **** 21 % 5 % 15 %

All values are in US Dollars.

Cost of goods sold in the nine months ended December 31, 2019 was $230,718, as compared to $125,091 in the nine months ended December 31, 2018. These costs were primarily comprised of the costs of the inventory sold in the period, distribution charges, and the operating costs relating to facilities that were not yet cultivating or processing cannabis, not yet producing cannabis-related products, or having under-utilized capacity.

Gross margin in the nine months ended December 31, 2019 was $60,141, or 21% of net revenue. Our gross margin was impacted by (i) charges for excess finished recreational cannabis inventory and trim inventory which, together, amounted to $19,811 and related primarily to our evaluation of the estimated on-hand provincial and territorial inventory levels compared to forecasted “sell-in” rates of certain oils and softgel products which led to our conclusion that a portion of this inventory may not be sold within a reasonable timeframe; (ii) the impact on gross margin of $9,157 reflecting the returns and pricing adjustments relating primarily to the over-supply of certain oil and softgel products; and (iii) other adjustments related to the net realizable value of inventory. The majority of these charges were recorded in the second quarter of fiscal 2020. Additionally, our margin was impacted by operating costs of $34,909 relating to facilities not yet cultivating or processing cannabis, not yet producing cannabis-related products or having under-utilized capacity. These costs primarily related to start-up costs associated with our advanced manufacturing and beverage facilities in Smiths Falls, our greenhouse in Denmark, and under-utilized capacity associated with our KeyLeaf extraction facility.

Comparatively, in the nine months ended December 31, 2018 gross margin was $7,200 or 5% of net revenue. Our gross margin was impacted by operating costs of $29,094 relating to non-producing or under-utilized facilities, and these costs had a more significant impact on our gross margin in the nine months ended December 31, 2018 than they did in the comparative period in fiscal 2020.

Operating expenses

The following table presents operating expenses for the nine months ended December 31, 2019 and 2018:

Operating Expenses

Nine months ended
December 31, December 31,
(CDN $000’s) 2019 2018 Change % Change
Operating expenses
Sales and marketing $ 176,018 $ 107,199 64 %
Research and development **** 41,233 7,964 418 %
General and administration **** 225,328 102,777 119 %
Acquisition-related costs **** 19,000 9,606 98 %
Share-based compensation expense **** 217,611 101,159 115 %
Share-based compensation expense related to acquisition milestones **** 24,311 81,674 ) (70 %)
Depreciation and amortization **** 34,579 11,640 197 %
Total operating expenses $ 738,080 $ 422,019 75 %

All values are in US Dollars.

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Sales and marketing

Sales and marketing expense in the nine months ended December 31, 2019 was $176,018, as compared to $107,199 in the nine months ended December 31, 2018. The increase of $68,819 is attributable to the following areas:

• The growth in our business through the recent acquisitions of Storz & Bickel, C^3^, This Works and BioSteel, which has resulted in a year-over-year increase in sales and marketing expense;
• Driving brand awareness and educating consumers through advertising and media campaigns, including concept<br>creation and placing advertising at key venues and events and in key media channels in support of our brands. In particular, our initiatives focused on product marketing and brand awareness campaigns in preparation for the launch of our Cannabis 2.0<br>products in Canada, and continuing to establish our Tweed and Tokyo Smoke brands; and
--- ---
• Increased staffing costs as we continue to (1) enhance our marketing and sales capabilities servicing our<br>Canadian market and brands, and the United States market, as we launched CBD products in December 2019 in certain states; and (2) build-out our network of Tweed- and Tokyo Smoke-branded retail stores in<br>Canada.
--- ---

Included in sales and marketing expense for the nine months ended December 31, 2019 are strategic investments of $9,901 related to sales and marketing staff, product marketing campaigns, and brand awareness and consumer education initiatives related to our continued commercial expansion into new markets, most notably the launch of CBD products in certain states in the United States in December 2019 (for the nine months ended December 31, 2018 - $1,334).

Research and development

Research and development expense in the nine months ended December 31, 2019 was $41,233, as compared to $7,964 in the nine months ended December 31, 2018. The increase of $33,269 is attributable to:

• Increased compensation costs associated with an increase in the number of employees conducting research into<br>several intellectual property opportunities;
• Costs associated with conducting external laboratory testing and clinical trials for CBD-based human and animal health products and other cannabinoid-based therapies;
--- ---
• New cannabis-based product form factors, including our beverage products and edibles that have been or will be<br>launched as part of our Cannabis 2.0 product offerings in Canada;
--- ---
• Device and delivery technology, including vaporizers and vapes;
--- ---
• Plant science, including growth patterns under different environmental scenarios and the genetics of various<br>strains; and
--- ---
• Cannabinoid extraction technology.
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General and administration

General and administration expense in the nine months ended December 31, 2019 was $225,328, as compared to $102,777 in the nine months ended December 31, 2018. The increase of $122,551 is attributable to:

• Costs associated with enhancing our finance and information technology capabilities, including both increased<br>compensation costs for our employees and increased professional service costs;
• Increased costs associated with public company compliance and regulatory requirements;
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• Pre-revenue business development and administrative costs related to<br>expanding our operations into the United States, and internationally;
--- ---
• Losses of $10,798 incurred related to legal disputes with a third-party supplier;
--- ---
• Losses in the amount of $8,828 associated with the additional reserves on onerous retail lease obligations,<br>driven by an overall softening of the retail real estate market throughout Canada; and
--- ---
• Compliance costs related to meeting Health Canada requirements.
--- ---

Included in general and administration expense in the nine months ended December 31, 2019 are strategic investments of $42,219 attributable to administrative staffing and facilities, insurance, information technology, regulatory, and other administrative and start-up costs incurred as we continue to expand globally (in the nine months ended December 31, 2018 - $5,778).

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Acquisition-related costs

Acquisition-related costs were $19,000 in the nine months ended December 31, 2019, as compared to $9,606 in the nine months ended December 31, 2018. The year-over-year increase of $9,394 is attributable to increased mergers and acquisitions activity in fiscal 2020, as we implemented the Acreage Plan of Arrangement, closed the acquisitions of C^3^, This Works, BioSteel and BCT, and closed the transaction with More Life Growth Company. Additionally, we also incurred acquisition costs in relation to evaluating other acquisition opportunities.

Share-based compensation expense

Share-based compensation expense was $217,611 in the nine months ended December 31, 2019, as compared to $101,159 in the nine months ended December 31, 2018. The increase of $116,452 is primarily attributable to the continued increase in the number of stock options granted to employees, which is primarily related to the increase in the number of employees of Canopy Growth from approximately 2,700 at December 31, 2018 to approximately 4,890 at December 31, 2019. The average number of stock options outstanding increased from 19.5 million during the nine months ended December 31, 2018 (excluding the 10.5 million stock options granted in late December 2018, as described above) to 33.2 million during the nine months ended December 31, 2019.

Our share-based compensation program was modified in the first half of fiscal 2020, and as a result we expect share-based compensation expense to decrease over the next two fiscal years.

Share-based compensation expense related to acquisition milestones was $24,311 in the nine months ended December 31, 2019, as compared to $81,674 in the nine months ended December 31, 2018. The decrease of $57,363 is primarily attributable to the achievement, in earlier quarters, of the major milestones associated with the acquisitions of Spectrum Colombia and Spectrum Cannabis Denmark Aps, and the recognition of share-based compensation expense at that time. Additionally, in the second quarter of fiscal 2019 we acquired the outstanding shares of Canindica in exchange for Canopy Growth common shares, and the consideration paid of $23,004 was recognized as share-based compensation expense as Canindica did not meet the definition of a business.

Depreciation and amortization expense

Depreciation and amortization expense was $34,579 in the nine months ended December 31, 2019, as compared to $11,640 in nine months ended December 31, 2018. The increase of $22,939 is attributable to property, plant and equipment being put into operation during the latter half of fiscal 2019 and the first nine months of fiscal 2020 as we continue to build our infrastructure across Canada and internationally.

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Adjusted EBITDA (Non-GAAP Measure)

The following table presents Adjusted EBITDA for the nine months ended December 31, 2019 and 2018

Nine months ended
(In CDN$000’s) December 31,<br>2019 December 31,<br>2018
Adjusted EBITDA^1^Reconciliation
Loss from operations - as reported $ (677,939 ) $ (414,819 )
Share-based compensation expense (per statements of cash flows) **** 241,922 **** 194,686
Acquisition-related costs **** 19,000 **** 9,606
Depreciation and amortization (per statements of cash flows) **** 76,232 **** 23,572
**** 337,154 **** 227,864
Adjusted EBITDA $ (340,785 ) $ (186,955 )
^1^ Adjusted EBITDA is earnings before interest, tax, depreciation and amortization, share-based compensation<br>expense, fair value changes and other non-cash items, and further adjusted to remove acquisition-related costs.
--- ---

The Adjusted EBITDA loss for the nine months ended December 31, 2019 was $340,785, as compared to an Adjusted EBITDA loss of $186,955 for the nine months ended December 31, 2018. Of the Adjusted EBITDA loss for the current period, $212,565 is attributed to our operations and corporate overhead, and is reflective of:

• Sales and marketing costs related to product marketing in preparation for the launch of our Cannabis 2.0<br>products beginning in December 2019, brand awareness and consumer education initiatives for our recreational cannabis brands, and employee compensation costs related to the build-out of our Tweed and Tokyo<br>Smoke retail store network and sales and marketing functions;
• General and administrative costs associated with enhancing our finance and information technology<br>capabilities;
--- ---
• Losses associated with additional reserves on onerous retail lease obligations; and
--- ---
• Costs associated with public company and Health Canada compliance and regulatory requirements.<br>
--- ---

The Adjusted EBITDA loss attributed to strategic investments and business development of $93,311 has increased from a loss of $15,076, and is primarily attributable to:

• General and administrative costs associated with the build-out of our<br>administrative infrastructure in support of our global expansion strategy;
• Strategic marketing initiatives including the commencement of product marketing, branding and educational<br>campaigns related to our launch of CBD products in certain states in the United States in December 2019;
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• Research and development initiatives related to new product innovation for the recreational markets,<br>conducting clinical trials to support new cannabis-based human and animal medicines, and innovation focused on optimizing our growing and manufacturing capability; and
--- ---
• Other start-up costs, including the losses incurred related to legal<br>disputes with a third-party supplier in the second quarter of fiscal 2020.
--- ---

The Adjusted EBITDA loss attributed to non-operating or under-utilized facilities of $34,909 relates to inventory production costs expensed to cost of goods sold and is discussed further above under “Cost of goods sold and gross margin”.

Total other income, net

Total other income, net was $600,624 in the nine months ended December 31, 2019, as compared to total other income, net of $54,542 in the nine months ended December 31, 2018. The change of $546,082 is primarily attributable to:

• An income amount of $749,258 related to fair value changes on the warrant derivative liability associated with<br>the Tranche B warrants held by Constellation Brands. The decrease in the fair value of the warrant derivative liability is primarily attributable to the decline in our share price from March 31, 2019 to December 31, 2019;<br>
• Change of $242,964, from an expense amount of $40,398 to an income amount of $202,566, related to the non-cash fair value changes in our senior convertible notes. The stock price declined approximately 57% from April 1, 2019 to December 31, 2019, resulting in income being recognized, as compared to an<br>increase of approximately 35% between April 1, 2018 and December 31, 2018, which resulted in an expense being recognized;
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• Incremental interest income of $29,334 attributable to the higher cash and cash equivalents and short-term<br>investments balances in the first nine months of fiscal 2020 resulting from the investment by Constellation Brands;
• Convertible debt issuance costs of $16,380 that were incurred in the first quarter of fiscal 2019.<br>
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• Change of $222,689 related to the non-cash fair value changes on our<br>other financial assets, from an income amount of $34,567 in the nine months ended December 31, 2018 to an expense amount of $453,312 in the current period. Included in this amount are fair value decrease of $265,190 in the Acreage Call Option<br>attributable to an overall decline in both Canopy Growth’s and Acreage’s share prices, as well as the share prices of other United States multi-state operators, and of $35,000 in the fair value of our warrants in the capital of Slang, a<br>company which has interests in cannabis-related businesses in the United States.\
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Income tax recovery

Income tax recovery was $22,948 in the nine months ended December 31, 2019, consisting of a deferred income tax recovery of $37,531 (compared to $4,765 in the nine months ended December 31, 2018) and current income tax expense of $14,583 ($nil in the nine months ended December 31, 2018).

The increase of $32,766 in the deferred income tax recovery balance is primarily a result of: (1) recording a reduction in deferred tax liabilities that arose in connection with the required revaluation of the accounting carrying value, but not the tax basis, of other financial assets and other assets; and (ii) the recognition of losses carried forward net of the use of losses carried forward from prior years for which a deferred tax asset had been recorded. In connection with certain deferred tax assets, mainly in respect to losses for tax purposes, where the accounting criteria for recognition of an asset has yet to be satisfied and it is not probable that they will be used, the deferred tax asset has not been recognized.

The increase of $14,583 in the current income tax expense balance arose primarily in connection with acquired legal entities that generated taxable income, where income could not be offset against the group’s tax attributes, and legal entities which have fully utilized their loss carry forward balances and have current period taxable income.

Net loss

Net loss was $61,035 in the nine months ended December 31, 2019, as compared to $364,533 in the nine months ended December 31, 2018. The decrease in net loss reflects the variances as described above.

Segmented Analysis

The Company operates in two segments: 1) Cannabis operations, which encompasses the production, distribution and sale of both medical and recreational cannabis; and 2) Canopy Rivers, through which the Company provides growth capital and strategic support in the global cannabis sector, where federally lawful.

In the nine months ended December 31, 2019 and 2018, all of the Company’s revenue was earned by the Cannabis operations segment. Canopy Rivers contributed a net loss of $11,052 in the nine months ended December 31, 2019, of which $3,031 was attributable to Canopy Growth. In the nine months ended December 31, 2018, Canopy Rivers contributed net income of $11,861, of which $2,533 was attributable to Canopy Growth. The increase in the net loss reflects the year-over-year decrease in the fair value changes on Canopy Rivers’ strategic equity investments, along with an increase in share-based compensation expense due to the stock options which have been granted in fiscal 2020.

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Statements of cash flows and Free cash flow (non-GAAP measure)

The table below presents Canopy Growth’s cash flows and free cash flow for the nine months ended December 31, 2019 and 2018:

(CDN $000’s) Three months ended Nine months ended
Net cash provided by (used in) December 31,<br>2019 December 31,<br>2018 December 31,<br>2019 December 31,<br>2018
Operating activities $ (189,911 ) $ (96,763 ) $ (561,996 ) $ (294,899 )
Investing activities **** 654,019 **** (1,409,309 ) **** (281,449 ) (1,785,363 )
Financing activities **** (8,848 ) 5,088,877 **** (71,356 ) 5,769,908
Effect of exchange rate changes on cash and cash equivalents **** 3,940 **** 103,664 **** (4,365 ) 103,664
Cash and cash equivalents, beginning of year **** 1,102,464 **** 429,401 **** 2,480,830 **** 322,560
Cash and cash equivalents, end of period $ 1,561,664 **** 4,115,870 $ 1,561,664 **** $ 4,115,870
Free cash flowreconciliation^1^
Net cash used in operating activities $ (189,911 ) $ (96,763 ) $ (561,996 ) $ (294,899 )
Purchases and deposits of property, plant and equipment **** (170,708 ) (202,057 ) **** (610,858 ) (495,236 )
Free cash flow $ (360,619 ) $ (298,820 ) $ (1,172,854 ) $ (790,135 )
^1^   Free cash flow, a non-GAAP measure, is net cash used in operating activities, less purchases and deposits of property, plant and equipment.
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Operating activities

Cash used in operating activities in the three months ended December 31, 2019 totaled $189,911, as compared to cash used of $96,763 in the three months ended December 31, 2018. The increase in cash used during the three months ended December 31, 2019 was primarily due to the year-over-year increase in the net loss and our investments in working capital, partially offset by an overall increase in non-cash expense items impacting the net loss including depreciation and amortization.

Cash used in operating activities in the nine months ended December 31, 2019 totaled $561,996, as compared to cash used of $294,899 in the nine months ended December 31, 2018. The increase in the cash used during the nine months ended December 31, 2019 was primarily due to the year-over-year increases in the net loss and our investments in working capital, partially offset by an overall increase in non-cash expense items impacting the net loss including the non-cash loss on the extinguishment of warrants, depreciation and amortization and share-based compensation expense.

Investing activities

The cash provided by investing activities totaled $654,019 in the three months ended December 31, 2019, as compared to cash used of $1,409,309 in the three months ended December 31, 2018. The primary driver of the year-over-year change was the redemption of short-term investments in the amount of $936,655, with the cash proceeds primarily used for the investing purposes described in this paragraph. Comparatively, in the three months ended December 31, 2018, our net purchases of short-term investments were $799,418, with the change due primarily to the investment of the $5,072,500 in cash received from Constellation Brands. In the three months ended December 31, 2019, we invested $170,708 in expanding our growing capacity and the construction of advanced manufacturing capability and a beverage facility at our Smiths Falls location. The cash used for acquisitions was $89,128, with the most notable cash outflows relating to our acquisitions of BioSteel ($51,458), and BCT ($36,806). Comparatively, the cash used for acquisitions in the third quarter of fiscal 2019 was $344,899, as we acquired Storz & Bickel ($203,786) and KeyLeaf ($128,958).

The cash used in investing activities totaled $281,449 in the nine months ended December 31, 2019, as compared to cash used of $1,785,363 in the nine months ended December 31, 2018. In the nine months ended December 31, 2019, we invested $610,858 in expanding our growing capacity, and the construction of advanced manufacturing capability and a beverage facility at our Smiths Falls location. The cash used for acquisitions was $511,080, with the most notable cash outflows relating to our acquisitions of C^3^ ($345,846), This Works ($71,046), BioSteel and BCT. We also completed strategic investments totaling $441,837 in the equity instruments of certain entities, most notably the Acreage Call Option. Partially offsetting these outflows of cash was the net redemption of short-term investments in the amount of $1,324,682, with the cash proceeds primarily used for the purposes described above. Comparatively, in the nine months ended December 31, 2018 we purchased short-term investments in the net amount of $802,247.

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Financing activities

The cash used in financing activities totaled $8,848 in the three months ended December 31, 2019, as compared to cash provided of $5,088,887 in the three months ended December 31, 2018. In the third quarter of fiscal 2019 we received the investment of $5,072,500 from Constellation Brands.

The cash used in financing activities totaled $71,356 in the nine months ended December 31, 2019, as compared to cash provided of $5,769,908 in the nine months ended December 31, 2018. The outflow in the nine months ended December 31, 2019 related primarily to the repayment of the Alberta Treasury Board financing and related interest in the amount of $95,180 and other scheduled debt repayments. In the nine months ended December 31, 2018 we received the investment of $5,072,500 from Constellation Brands and issued convertible senior notes with an aggregate principal amount of $600,000, leading to the year-over-year change.

Free cash flow (non-GAAP measure)

“Free cash flow” is a non-GAAP measure used by management that does not have a standardized meaning prescribed by U.S. GAAP and may not be comparable to similar measures presented by other companies. Management uses its free cash flow measure to determine the cash flow remaining after all expenditures required to maintain or expand our organic business have been paid. Our free cash flow measure also provides management with supplemental information to assess our liquidity needs. Management believes that this measure provides useful supplemental information to investors. We define free cash flow as net cash provided by (used in) operating activities less purchases and deposits of property, plant and equipment.

Free cash flow in the three months ended December 31, 2019 was an outflow of $360,619, as compared to an outflow of $298,820 in the three months ended December 31, 2018. The increase in the outflow reflects the increase in the cash used for operating activities, as described above, and our investment in expanding our growing capacity and the construction of advanced manufacturing capability and a beverage facility at our Smiths Fall location.

Free cash flow for the nine months ended December 31, 2019 was an outflow of $1,172,854, as compared to an outflow of $790,135 for the nine months ended December 31, 2018. The increase in the outflow was primarily due to the increase in the cash used in operating activities, as described above, and our investment in expanding our growing capacity and the construction of advanced manufacturing capability and a beverage facility at our Smiths Fall location.

Debt

The Company manages its capital with the objective of maximizing shareholder value and ensuring future development of the business. The Company defines capital as the Company’s equity and any debt it may issue. The Company manages its capital structure and adjusts it, based on the funds available to the Company, in order to support the Company’s activities. The Company, upon approval from its Board of Directors, will undertake to balance its overall capital structure through new share issuances, the issue of debt or by undertaking other activities as deemed appropriate under the specific circumstances.

The Company’s principal capital needs are for funds to execute its strategy, as described in “Part 2 – Strategy” above, and general working capital requirements to fund ongoing operations. Since its formation, the Company has financed its cash requirements primarily through the issuance of capital stock, including the $5,072,500 investment by Constellation in the third quarter of fiscal 2019, with the following exceptions:

Convertible senior notes

In June 2018, we issued convertible senior notes (“the notes”) with an aggregate principal amount of $600,000. The notes bear interest at a rate of 4.25% per annum, payable semi-annually on January 15th and July 15th of each year commencing from January 15, 2019. The notes mature on July 15, 2023. Holders of the notes may convert the notes at their option at any time from January 15, 2023 to the maturity date. The notes will be convertible, at the holder’s option, at a conversion rate of 20.7577 common shares for every $1 principal amount of notes, subject to adjustments in certain events. In addition, the holder has the right to exercise the conversion option from September 30, 2018 to January 15, 2023, if (i) the market price of the Company’s common shares for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day, (ii) during the 5 business day period after any consecutive 5 trading day period (the “measurement period”) in which the trading price per $1 principal amount of the notes for each trading day in the measurement period was less than 98% of the product of the last reported sales price of the Company’s

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common shares and the conversion rate on each such trading day, (iii) the notes are called for redemption or (iv) upon occurrence of certain corporate events (a “fundamental change”). The Company may, upon conversion by the holder, elect to settle in either cash, common shares, or a combination of cash and common shares, subject to certain circumstances.

Additional information regarding the conversion rights of the notes is included in Note 14 of the Interim Financial Statements.

Other

On June 14, 2019 we repaid the outstanding loan amount with Alberta Treasury Board, along with accrued interest, with a cash payment of $95,180.

Contractualobligations and commitments

The Company leases production and retail space under operating leases which range in expiration from January 2020 to December 2038 and which include minimum lease payments. The Company also has royalty, capital equipment, and other purchase commitments with varying terms. All production and retail operating leases have optional renewal terms that the Company may exercise at its option.

Discussion of market risk and credit risk

The Company’s activities expose it to a variety of financial risks, including market risk (i.e., foreign currency risk and interest rate risk) and credit risk.

Market risk

Market risk is defined as the risk that the fair value or future cash flows of a financial instrument held by the Company will fluctuate because of changes in market prices. The Company faces market risk from the impact of changes in foreign currency exchange rates, changes in interest rates, and changes in market prices due to other factors including changes in equity prices. Financial instruments held by the Company that are subject to market risk include cash and cash equivalents and short-term investments denominated in currencies other than the Canadian dollar, investments in other financial assets, and variable-rate debt. The categories of financial instruments that can give rise to significant variability are described below:

Foreign currency risk

Foreign currency risk is defined for these purposes as the risk that the fair value of a financial instrument held by the Company will fluctuate because of changes in foreign currency rates. The Company has exposure to the U.S. dollar, Euro, Danish Krone, British Pound and certain other currencies through its investments in foreign operations. Consequently, fluctuations in the Canadian dollar exchange rate against these currencies increase the volatility of net income (loss) and other comprehensive income (loss). At December 31, 2019, the Company has not entered into any hedging agreements or purchased any financial instruments to hedge its foreign currency risk.

Interest rate risk

Interest rate risk is defined for these purposes as the risk that the fair value or future cash flows of a financial instrument held by the Company will fluctuate because of changes in interest rates. The Company’s financial liabilities consist primarily of long-term fixed-rate debt or floating-rate debt. Fluctuations in interest rates could impact the Company’s cash flows, primarily with respect to the interest payable on the Company’s variable-rate debt, which consists of certain borrowings with a total principal value of $9,337 at December 31, 2019 (March 31, 2019 - $97,471). The Company may invest surplus cash in highly liquid investments with short terms to maturity that would accumulate interest at prevailing rates for such investments. As at December 31, 2019, the Company’s cash and cash equivalents, and short-term investments, consist of $1,787,513 (March 31, 2019 - $2,821,512) in interest rate sensitive instruments.

Other market risk

The Company holds other financial assets and liabilities in the form of investments in shares, warrants, options and put liabilities that are measured at fair value and recorded through either net income (loss) or other comprehensive income (loss). The Company is exposed to price risk on these financial assets, which is the risk of variability in fair value due to movements in equity or market prices. Information regarding the fair value of financial instrument assets and liabilities

40

that are measured at fair value on a recurring basis, and the relationship between the unobservable inputs used in the valuation of these financial assets and their fair value is presented in Note 31 of the annual consolidated financial statements.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s accounts receivable. The Company is exposed to credit-related losses in the event of non-performance by the counterparties.

The Company provides credit to its customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk. The Company has limited risk due to the fact that the majority of recreational cannabis sales are transacted with Canadian provincial/territorial agencies, and the majority of medical cannabis and other sales are transacted with credit cards.

The carrying amount of cash and cash equivalents, short-term investments, short-term restricted investments and amounts receivable represent the maximum exposure to credit risk and as at December 31, 2019, this amounted to $2,388,875 (March 31, 2019 - $4,643,369). Since the inception of the Company, no losses have been suffered in relation to cash held by its banking institutions.

As at December 31, 2019, 75% of the Company’s accounts receivable are considered current (March 31, 2019 – 89%). The Company’s accounts receivable are primarily driven by sales to government agencies which represented 49% of trade accounts receivable as at December 31, 2019 (March 31, 2019 – 72%)

Shareholders’ equity

The Company’s authorized share capital is an unlimited number of common shares of which 349,650,694 common shares were issued and outstanding as at February 14, 2020 (November 14, 2019 – 348,566,575 common shares).

The Company has 33,318,477 stock options outstanding at February 14, 2020 under the Company’s Omnibus Incentive Plan at prices between $0.06 and $67.64 per share (November 14, 2019 – 32,293,870 stock options outstanding at prices between $0.06 and $67.64 per share).

At February 14, 2020, the Company had 158,622,354 outstanding warrants for common shares, after including 12,818,148 warrants for common shares treated as a derivative liability with a nominal value, at prices between $12.98 and $76.68, which expire between August 1, 2020 and November 1, 2026 (November 14, 2019 - 159,117,591 outstanding warrants).

At February 14, 2020, there were up to 5,168,867 shares to be issued on the completion of acquisition and asset purchase milestones (November 14, 2019 - 5,156,456 shares). In certain cases, the number of shares to be issued is based on the volume-weighted average share price at the time the milestones are met. The number of shares has been estimated assuming the milestones were met at February 14, 2020. The number of shares excludes shares to be issued on July 4, 2023 to the previous shareholders of Spectrum Colombia and Canindica based on the fair market value of the Company’s Latin American business on that date.

At February 14, 2020, there were up to 12,454,620 shares issuable on the conversion of the senior convertible notes.

Off-balance sheet arrangements

The Company has no off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors other than those as stated below in the section titled “Transactions with related parties”.

Transactions with related parties

On October 11, 2019, the Company acquired all of its unowned interest in BCT to increase its total ownership of BCT’s issued and outstanding shares to 100%. Following this transaction, the Company will control both BCT and Spectrum UK, a joint venture formed by the Company and CBT, and both BCT and Spectrum UK will be accounted for as wholly-owned subsidiaries.

41

Cash consideration for this transaction was $57,930 of which $44,692 was advanced on closing, $1,170 was held back subject to standard representations and warranties of the sellers, and $14,427 will be paid on October 1, 2020 and 2021 and has a fair value of $13,238. Consideration also included 155,565 replacement options. The fair value of the replacement options was determined using a Black-Scholes model and $1,885 of the total fair value has been included as consideration paid to acquire BCT as it related to pre-combination vesting service and $1,987 of the fair value will be recognized as share-based compensation expense ratably over the post-combination vesting period. The consideration paid for BCT included $250 cash and 16,430 replacement options that were issued to a member of key management of the Company that was a shareholder and option holder in BCT.

The Company has entered into cannabis offtake agreements with certain of its equity method investees and entities in which it holds equity or other financial instruments. These agreements are in the normal course of operations and will be measured at the exchange amounts agreed to by the parties.

42

Adoption of ASC 842, Leases (“ASC 842”) and resultingchanges to lease accounting policy

In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on the recognition and measurement of leases, ASC 842 - Leases. Under this guidance, a lessee recognizes assets and liabilities on its balance sheet for most leases. Lease expense continues to be consistent with previous guidance. Additionally, this guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leasing arrangements.

The Company adopted the guidance on April 1, 2019, using the modified retrospective approach and, accordingly, prior period balances and disclosures have not been restated. The Company elected the package of transition practical expedients for expired or existing contracts, which retains prior conclusions reached on lease identification, classification, and initial direct costs incurred.

The Company primarily leases office and production facilities, warehouses, production equipment and vehicles. The Company assesses service arrangements to determine if an asset is explicitly or implicitly specified in the agreement and if we have the right to control the use of the identified asset.

The right-of-use asset is initially measured at cost, which is primarily comprised of the initial amount of the lease liability, plus initial direct costs and lease payments at or before the lease commencement date, less any lease incentives received, and is amortized on a straight-line basis over the remaining lease term. All right-of-use assets are reviewed periodically for impairment. The lease liability is initially measured at the present value of lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. We elected to recognize expenses for leases with a term of 12 months or less on a straight-line basis over the lease term and not to recognize these short-term leases on the balance sheet. Leases have varying terms with remaining lease terms of up to approximately 30 years. Certain of our lease arrangements provide us with the option to extend or to terminate the lease early.

Lease payments included in the measurement of the lease liability comprise (a) fixed payments, including in-substance fixed payments; (b) variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; (c) amounts expected to be payable under a residual value guarantee; and (d) the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

At inception or reassessment of a contract that contains lease and non-lease components, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

The adoption of this guidance resulted in the recognition of operating lease right-of-use assets of $99,880, net of lease provisions of $10,703 and $110,583 of lease liabilities, with a $nil impact on deficit. The transition to ASC 842 did not have a material impact on the Company’s results of operations or liquidity. When measuring lease liabilities, the Company used its incremental borrowing rate of April 1, 2019 of 4.5%.

44

No assurance can be provided at this time that the actions and remediation efforts will effectively remediate the material weakness described above or prevent the incidence of other material weaknesses in the Company’s ICFR in the future. Management, including the CEO and CFO, does not expect that disclosure controls and procedures or ICFR will prevent all errors, even as the remediation measures are implemented and further improved to address the material weakness. A control system is subject to inherent limitations and even those systems determined to be effective can provide only reasonable, but not absolute, assurance that control objectives will be met with respect to financial statement preparation and presentation.

The Company’s management, with the participation of its CEO and CFO, has limited the scope of the design of the Company’s disclosure controls and procedures and internal controls over financial reporting to exclude controls, policies and procedures and internal controls over financial reporting of the recently acquired operations of:

• Cafina (acquired on March 25, 2019);
• C^3^ (acquired on April 30, 2019);<br>
--- ---
• This Works (acquired on May 21, 2019);
--- ---
• BioSteel (acquired October 1, 2019);
--- ---
• BCT (acquired October 11, 2019); and
--- ---
• Spectrum UK (acquired October 11, 2019).
--- ---

The operations of Cafina, C^3^, This Works, BioSteel, BCT, and Spectrum UK, combined, represent approximately 9% of the Company’s assets (approximately 2% of current assets and 14% of non-current assets); they also represent approximately 7% of current liabilities and 0% of long-term liabilities, 19% of the Company’s gross revenues and 10% of operating expenses for the three months ended December 31, 2019.

46

Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of products.

Product Recalls

Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including, but not limited to, product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety, lack of consumer demand and inadequate or inaccurate labeling disclosure. If any of the products produced by the Company are recalled due to an alleged product defect or for any other reason, the Company could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. All customers who are potentially impacted are notified, corrective actions are put in place, and existing product and procedures re-tested and examined. The Company may also lose a significant amount of sales and may not be able to replace those sales at an acceptable margin or at all. In addition, a product recall may require significant management attention. Although the Company has detailed procedures in place for testing finished products, there can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits. Additionally, if one of the products produced by the Company is subject to recall, the Company’s reputation and the reputation of that product could be harmed. A recall for any of the foregoing reasons could lead to decreased demand and could have a material adverse effect on the Company’s results of operations and financial condition. Additionally, product recalls may lead to increased scrutiny of the Company’s operations by regulatory agencies, requiring further management attention and potential legal fees and other expenses, which may also have an adverse effect on the Company.

Securities Class Action Litigation Risks

The Company and certain of its current and former officers have been named as defendants to various purported class action claims. The complaints allege that the defendants made false and/or misleading statements and/or failed to disclose material adverse facts, regarding the Company’s receivables, business, operations, and prospects relating to, among other things, the demand for the Company’s softgel and oil products. The class actions have not yet been certified. The Company has retained counsel and intends to vigorously defend itself against any such suits. While the Company maintains that it has conducted itself in accordance with all relevant securities laws, and that the claims are without merit, we cannot predict the outcome.

In addition, the Company may from time to time be involved in various other claims, legal proceedings and disputes arising in the ordinary course of business. If the Company is unable to resolve these disputes favourably, it may have a material adverse effect on the Company. Even if the Company successfully defends against the purported class actions described above and/or is involved in other litigation and wins, litigation can redirect significant company resources, divert management’s attention and the legal fees and costs incurred in connection with such activities may be significant. Additionally, the Company may be subject to judgments or enter into settlements of claims for significant monetary damages. Such litigation may also create a negative perception of the Company. Any decision resulting from any such litigation that is adverse to the Company could have a negative impact on its financial position.

Customer Acquisitions

The Company’s success depends on its ability to attract and retain customers. There are many factors which could impact the Company’s ability to attract and retain customers, including but not limited to its ability to continually produce desirable and effective product, the successful implementation of customer-acquisition plans and the continued growth in the aggregate number of customers. The failure to acquire and retain customers would have a material adverse effect on the Company’s business, operating results and financial condition.

Future Product Development

The Company expects to derive a portion of its future revenues from the sale of new products, including Cannabis 2.0 products, some of which are still being actively developed and put into production. If the Company fails to adequately meet market demand for such products in a timely fashion, it may adversely impact the Company’s profitability.

48

EX-99.11

Exhibit 99.11

Form 52-109F2R

Certification of Refiled Interim Filings

This certificate is being filed on the same date that Canopy Growth Corporation (the “issuer”) has refiled interim financial statements for the three months ended December 31, 2019.

I, David Klein, the Chief Executive Officer of Canopy Growth Corporation, certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the<br>“interim filings”) of the issuer for the interim period ended December 31, 2019.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim<br>filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the<br>period covered by the interim filings.
--- ---
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim<br>financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods<br>presented in the interim filings.
--- ---
4. Responsibility: The issuer’s other certifying officer and I are responsible for establishing<br>and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure inIssuers’ Annual and Interim Filings, for the issuer.
--- ---
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the<br>issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
--- ---
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that<br>
--- ---
(i) material information relating to the issuer is made known to us by others, particularly during the period in<br>which the interim filings are being prepared; and
--- ---
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports<br>filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
--- ---
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the<br>reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
--- ---

1

5.1 Control framework: The control framework the issuer’s other certifying officer and I used to<br>design the issuer’s ICFR is the Internal Control - Integrated Framework (COSO Framework 2013) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 ICFR - material weakness relating to design: The issuer has disclosed in its interim MD&A for<br>each material weakness relating to design existing at the end of the interim period
--- ---
(a) a description of the material weakness;
--- ---
(b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and<br>
--- ---
(c) the issuer’s current plans, if any, or any actions already undertaken, for remediating the material<br>weakness.
--- ---
5.3 Limitation on scope of design: The issuer has disclosed in its interim MD&A<br>
--- ---
(a) the fact that the issuer’s other certifying officer and I have limited the scope of our design of DC&P<br>and ICFR to exclude controls, policies and procedures of
--- ---
(i) N/A;
--- ---
(ii) N/A; or
--- ---
(iii) a business that the issuer acquired not more than 365 days before the last day of the period covered by the<br>interim filings; and
--- ---
(b) summary financial information about the proportionately consolidated entity, special purpose entity or business<br>that the issuer acquired that has been proportionately consolidated or consolidated in the issuer’s financial statements.
--- ---
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the<br>issuer’s ICFR that occurred during the period beginning on October 1, 2019 and ended on December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
--- ---

Date: July 10, 2020

/s/ David Klein
David Klein
Chief Executive Officer

2

EX-99.12

Exhibit 99.12

Form 52-109F2R

Certification of Refiled Interim Filings

This certificate is being filed on the same date that Canopy Growth Corporation (the “issuer”) has refiled interim financial statements for the three months ended December 31, 2019.

I, Mike Lee, the Chief Financial Officer of Canopy Growth Corporation, certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the<br>“interim filings”) of the issuer for the interim period ended December 31, 2019.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim<br>filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the<br>period covered by the interim filings.
--- ---
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim<br>financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods<br>presented in the interim filings.
--- ---
4. Responsibility: The issuer’s other certifying officer and I are responsible for establishing<br>and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure inIssuers’ Annual and Interim Filings, for the issuer.
--- ---
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the<br>issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
--- ---
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that<br>
--- ---
(i) material information relating to the issuer is made known to us by others, particularly during the period in<br>which the interim filings are being prepared; and
--- ---
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports<br>filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
--- ---
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the<br>reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
--- ---

1

5.1 Control framework: The control framework the issuer’s other certifying officer and I used to<br>design the issuer’s ICFR is the Internal Control - Integrated Framework (COSO Framework 2013) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 ICFR - material weakness relating to design: The issuer has disclosed in its interim MD&A for<br>each material weakness relating to design existing at the end of the interim period
--- ---
(a) a description of the material weakness;
--- ---
(b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and<br>
--- ---
(c) the issuer’s current plans, if any, or any actions already undertaken, for remediating the material<br>weakness.
--- ---
5.3 Limitation on scope of design: The issuer has disclosed in its interim MD&A<br>
--- ---
(a) the fact that the issuer’s other certifying officer and I have limited the scope of our design of DC&P<br>and ICFR to exclude controls, policies and procedures of
--- ---
(i) N/A;
--- ---
(ii) N/A; or
--- ---
(iii) a business that the issuer acquired not more than 365 days before the last day of the period covered by the<br>interim filings; and
--- ---
(b) summary financial information about the proportionately consolidated entity, special purpose entity or business<br>that the issuer acquired that has been proportionately consolidated or consolidated in the issuer’s financial statements.
--- ---
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the<br>issuer’s ICFR that occurred during the period beginning on October 1, 2019 and ended on December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
--- ---

Date: July 10, 2020

/s/ Mike Lee
Mike Lee
Chief Financial Officer

2

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