Canopy Growth Reports Second Quarter Fiscal 2021 Financial Results

Canopy Growth Reports Second Quarter Fiscal 2021 Financial Results

PR Newswire

SMITHS FALLS, ON, Nov. 9, 2020

Achieved record quarterly net revenue of $135 million 

Net Loss of $97 million; Adjusted EBITDA loss of $86 million, a 43% improvement versus Q2 FY20

Implementing initiatives to capture $150-$200 million of savings across our cost structure

Increased market share by 200 basis points in Canadian recreational market based on our proprietary market share tracker

Building momentum in the U.S. and establishing foundation for long-term leadership position

SMITHS FALLS, ON, Nov. 9, 2020 /PRNewswire/ -- Canopy Growth Corporation ("Canopy Growth" or the "Company") (TSX: WEED) (NYSE: CGC) today announced its financial results for the second quarter fiscal 2021 ended September 30, 2020.  All financial information in this press release is reported in millions of Canadian dollars, unless otherwise indicated.

"Our renewed strategy of winning consumer mindshare, along with increased agility and execution, has resulted in record net revenue for the second quarter and momentum across key areas of business," said David Klein, CEO.  "Canopy Growth is positioned for continued growth as we establish a strong leadership position that is showcased through our vast portfolio of differentiated brands and products – including our industry leading cannabis-infused beverages."

"We saw another quarter of improvement in our operating expense ratio while our marketing and R&D investments are being re-directed to drive sales," added Mike Lee, CFO. "Importantly, our end-to-end review has identified cost savings opportunities in the range of $150-$200 million across cost of goods sold, general and administrative expenses, and inventory, and efforts are underway to quickly capture value.  Leveraging ongoing improvements across our business, we are accelerating our path to profitability, notably in our largest market, Canada."

Second Quarter Fiscal 2021 Financial Summary


Net revenue

Gross margin
percentage

Net loss

Adjusted
EBITDA1

Free cash flow2

Reported

$135.3

19%

$(96.6)

$(85.7)

$(190.4)

vs. Q2 2020

77%

1,400 bps

(140%)

43%

57%


1 Adjusted EBITDA is a non-GAAP measure. See "Non-GAAP Measures".

2 Free cash flow is a non-GAAP measure. See "Non-GAAP Measures".

Second Quarter Fiscal 2021 Corporate Financial Highlights

Business & Operational Highlights

Second Quarter Fiscal 2021 Financial and Operational Review

Revenue by Channel

(in millions of Canadian dollars, unaudited)

Q2 2021

Q2 2020

vs. Q2 2020





Canadian recreational net revenue




- Business to business1

$42.2

$8.8

380%

- Business to consumer

$18.7

$13.1

43%


$60.9

$21.9

178%

Canadian medical net revenue2

$13.9

$13.0

7%

International medical revenue

$17.5

$18.1

(3%)


$31.4

$31.1

1%

Cannabis net revenue

$92.3

$53.0

74%





All other revenue

$43.0

$23.6

82%

Net revenue

$135.3

$76.6

77%


1 Reflects excise taxes of $14.2 million and other revenue adjustments of $3.8 million for Q2 2021 (Q2 2020 - $7.8 million and $32.7 million, respectively).

2 Reflects excise taxes of $1.4 million (Q2 2020 - $1.2 million).

Revenue by Form

(in millions of Canadian dollars, unaudited)

Q2 2021

Q2 2020

vs. Q2 2020





Canadian recreational net revenue




- Dry bud1

$63.9

$59.0

8%

- Oils and softgels1

$7.0

$3.4

106%

- Cannabis 2.0 products2

$8.0

$-

NM

- Other revenue adjustments3

$(3.8)

$(32.7)

88%

- Excise taxes

$(14.2)

$(7.8)

(82%)


$60.9

$21.9

178%

Global medical net revenue




- Dry bud

$9.0

$9.6

(6%)

- Oils and softgels

$23.1

$22.7

2%

- Cannabis 2.0 products2

$0.7

$-

NM

- Excise taxes

$(1.4)

$(1.2)

(17%)


$31.4

$31.1

1%

Cannabis net revenue

$92.3

$53.0

74%





All other revenue

$43.0

$23.6

82%

Net revenue

$135.3

$76.6

77%


1 Excludes the impact of other revenue adjustments.

2 Cannabis 2.0 products include cannabis-infused chocolates, cannabis-infused beverages, and cannabis vape products (including power sources such as rechargeable and compact batteries, ready-to-go vape pens, and cartridges/vape pods)

3 Other revenue adjustments represent the Company's determination of returns and pricing adjustments, and relate to the Canadian recreational business-to-business channel.

Canadian Cannabis  

International Cannabis

Strategic Businesses

The second quarter fiscal 2021 and second quarter fiscal 2020 financial results presented in this press release have been prepared in accordance with U.S. GAAP. 

Webcast and Conference Call Information

The Company will host a conference call and audio webcast with David Klein, CEO and Mike Lee, CFO at 10:00 AM Eastern Time on November 9, 2020.

Webcast Information

A live audio webcast will be available at:
https://produceredition.webcasts.com/starthere.jsp?ei=1384068&tp_key=9317fbfde9

Replay Information

A replay will be accessible by webcast until 11:59 PM ET on February 7, 2021 at:
https://produceredition.webcasts.com/starthere.jsp?ei=1384068&tp_key=9317fbfde9

Non-GAAP Measures

Adjusted EBITDA is a non-GAAP measure used by management that is not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. Adjusted EBITDA is calculated as the reported net (loss) income, adjusted to exclude income tax recovery (expense); other income (expense), net; loss on equity method investments; share-based compensation expense; depreciation and amortization expense; asset impairment and restructuring costs; expected credit losses on financial assets and related charges; and charges related to the flow-through of inventory step-up on business combinations, and further adjusted to remove acquisition-related costs. The Adjusted EBITDA reconciliation is presented within this news release and explained in the Company's Quarterly Report on Form 10-Q to be filed with the SEC. 

Free Cash Flow is a non- GAAP measure used by management that is not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies.  This measure is calculated as net cash provided by (used in) operating activities less purchases of and deposits on property, plant and equipment. The Free Cash Flow reconciliation is presented within this news release and explained in the Company's Quarterly Report on Form 10-Q to be filed with the SEC. 

About Canopy Growth Corporation

Canopy Growth (TSX:WEED, NYSE:CGC) is a world-leading diversified cannabis, hemp and cannabis device company, offering distinct brands and curated cannabis varieties in dried, oil and Softgel capsule forms, as well as medical devices through the Company's subsidiary, Storz & Bickel GMbH & Co. KG. From product and process innovation to market execution, Canopy Growth is driven by a passion for leadership and a commitment to building a world-class cannabis company one product, site and country at a time. The Company has operations in over a dozen countries across five continents.

The Company's medical division, Spectrum Therapeutics is proudly dedicated to educating healthcare practitioners, conducting robust clinical research, and furthering the public's understanding of cannabis, and has devoted millions of dollars toward cutting edge, commercializable research and IP development. Spectrum Therapeutics sells a range of full-spectrum products using its colour-coded classification Spectrum system as well as single cannabinoid Dronabinol under the brand Bionorica Ethics.

The Company operates retail stores across Canada under its award-winning Tweed and Tokyo Smoke banners. Tweed is a globally recognized cannabis brand which has built a large and loyal following by focusing on quality products and meaningful customer relationships.

From our public listing on the Toronto Stock Exchange and New York Stock Exchange to our continued international expansion, pride in advancing shareholder value through leadership is engrained in all we do at Canopy Growth. Canopy Growth has established partnerships with leading sector names including cannabis icons Snoop Dogg and Seth Rogen, breeding legends DNA Genetics and Green House Seeds, and Fortune 500 alcohol leader Constellation Brands, to name but a few. For more information visit www.canopygrowth.com.

Notice Regarding Forward Looking Statements

This press release contains "forward-looking statements" within the meaning of applicable securities laws, which involve certain known and unknown risks and uncertainties. Forward-looking statements predict or describe our future operations, business plans, business and investment strategies and the performance of our investments. These forward-looking statements are generally identified by their use of such terms and phrases as "intend," "goal," "strategy," "estimate," "expect," "project," "projections," "forecasts," "plans," "seeks," "anticipates," "potential," "proposed," "will," "should," "could," "would," "may," "likely," "designed to," "foreseeable future," "believe," "scheduled" and other similar expressions. Our actual results or outcomes may differ materially from those anticipated. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

Forward-looking statements include, but are not limited to, statements with respect to:

Certain of the forward-looking statements contained herein concerning the industries in which we conduct our business are based on estimates prepared by us using data from publicly available governmental sources, market research, industry analysis and on assumptions based on data and knowledge of these industries, which we believe to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. The industries in which we conduct our business involve risks and uncertainties that are subject to change based on various factors, which are described further below.

The forward-looking statements contained herein are based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including: (i) management's perceptions of historical trends, current conditions and expected future developments; (ii) our ability to generate cash flow from operations; (iii) general economic, financial market, regulatory and political conditions in which we operate; (iv) the production and manufacturing capabilities and output from our facilities and our joint ventures, strategic alliances and equity investments; (v) consumer interest in our products; (vi) competition; (vii) anticipated and unanticipated costs; (viii) government regulation of our activities and products including but not limited to the areas of taxation and environmental protection; (ix) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses; (x) our ability to obtain qualified staff, equipment and services in a timely and cost-efficient manner; (xi) our ability to conduct operations in a safe, efficient and effective manner; (xii) our ability to realize anticipated benefits, synergies or generate revenue, profits or value from our recent acquisitions into our existing operations; (xiii) our ability to continue to operate in light of the COVID-19 pandemic and the impact of the pandemic on demand for, and sales of, our products and our distribution channels; and (xiv) other considerations that management believes to be appropriate in the circumstances. While our management considers these assumptions to be reasonable based on information currently available to management, there is no assurance that such expectations will prove to be correct.

By their nature, forward-looking statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of factors, including known and unknown risks, many of which are beyond our control, could cause actual results to differ materially from the forward-looking statements in this press release and other reports we file with, or furnish to, the Securities and Exchange Commission (the "SEC") and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf. Such factors include, without limitation, the risk that the COVID-19 pandemic may disrupt our operations and those of our suppliers and distribution channels and negatively impact the use of our products; consumer demand for cannabis and U.S. hemp products; that cost savings and any other synergies from the CBI Group Investments may not be fully realized or may take longer to realize than expected; future levels of revenues; our ability to manage disruptions in credit markets or changes to our credit rating; future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses; the success or timing of completion of ongoing or anticipated capital or maintenance projects; business strategies, growth opportunities and expected investment; the adequacy of our capital resources and liquidity, including but not limited to, availability of sufficient cash flow to execute our business plan (either within the expected timeframe or at all); the potential effects of judicial or other proceedings on our business, financial condition, results of operations and cash flows; volatility in and/or degradation of general economic, market, industry or business conditions; compliance with applicable environmental, economic, health and safety, energy and other policies and regulations and in particular health concerns with respect to vaping and the use of cannabis and U.S. hemp products in vaping devices; the anticipated effects of actions of third parties such as competitors, activist investors or federal, state, provincial, territorial or local regulatory authorities, self-regulatory organizations, plaintiffs in litigation or persons threatening litigation; changes in regulatory requirements in relation to our business and products; and the factors discussed under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended March 31, 2020 filed with the SEC on June 1, 2020. Readers are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements.

Forward-looking statements are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash flows as of and for periods ended on certain dates and to present information about management's current expectations and plans relating to the future, and the reader is cautioned that the forward-looking statements may not be appropriate for any other purpose. While we believe that the assumptions and expectations reflected in the forward-looking statements are reasonable based on information currently available to management, there is no assurance that such assumptions and expectations will prove to have been correct. Forward-looking statements are made as of the date they are made and are based on the beliefs, estimates, expectations and opinions of management on that date. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such forward-looking statements, except as required by law. The forward-looking statements contained in this press release and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf are expressly qualified in their entirety by these cautionary statements.

 


CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS

(in thousands of Canadian dollars, except number of shares and per share data, unaudited)








September 30,

2020


March 31,

2020

ASSETS

Current assets:





Cash and cash equivalents


$673,287


$1,303,176

Short-term investments


1,048,921


673,323

Restricted short-term investments


14,332


21,539

Amounts receivable, net


79,668


90,155

Inventory


398,454


391,086

Prepaid expenses and other assets


77,227


85,094

Total current assets


2,291,889


2,564,373

Equity method investments


25,663


65,843

Other financial assets


381,878


249,253

Property, plant and equipment


1,495,143


1,524,803

Intangible assets


437,344


476,366

Goodwill


1,933,476


1,954,471

Other assets


8,337


22,636

Total assets


$6,573,730


$6,857,745






LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:





Accounts payable


$81,064


$123,393

Other accrued expenses and liabilities


83,064


64,994

Current portion of long-term debt


13,272


16,393

Other liabilities


147,060


215,809

Total current liabilities


324,460


420,589

Long-term debt


520,424


449,022

Deferred income tax liabilities


39,569


47,113

Liability arising from Acreage Arrangement


147,000


250,000

Warrant derivative liability


221,948


322,491

Other liabilities


167,267


190,660

Total liabilities


1,420,668


1,679,875

Commitments and contingencies





Redeemable noncontrolling interest


83,900


69,750

Canopy Growth Corporation shareholders' equity:





Common shares - $nil par value; Authorized - unlimited number of shares;
Issued - 372,046,111 shares and 350,112,927 shares, respectively


6,745,255


6,373,544

Additional paid-in capital


2,533,112


2,615,155

Accumulated other comprehensive income


103,306


220,899

Deficit


(4,463,798)


(4,323,236)

Total Canopy Growth Corporation shareholders' equity


4,917,875


4,886,362

Noncontrolling interests


151,287


221,758

Total shareholders' equity


5,069,162


5,108,120

Total liabilities and shareholders' equity


$6,573,730


$6,857,745

 

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands of Canadian dollars, except number of shares and per share data, unaudited)












Three months ended
September 30,


Six months ended
September 30,



2020


2019


2020


2019

Revenue


$150,828


$85,621


$269,916


$189,012

Excise taxes


15,562


9,008


24,234


21,917

Net revenue


135,266


76,613


245,682


167,095

Cost of goods sold


109,186


72,970


213,107


145,162

Gross margin


26,080


3,643


32,575


21,933

Operating expenses:









Selling, general and administrative expenses


147,253


181,601


282,645


327,248

Share-based compensation


21,984


92,881


52,669


180,243

Expected credit losses on financial assets and related charges


94,745


-


94,745


-

Asset impairment and restructuring costs


46,363


-


59,157


-

Total operating expenses


310,345


274,482


489,216


507,491

Operating loss


(284,265)


(270,839)


(456,641)


(485,558)

Loss from equity method investments


(32,991)


(2,171)


(40,180)


(4,004)

Other income (expense), net


221,256


509,893


269,461


542,661

(Loss) income before income taxes


(96,000)


236,883


(227,360)


53,099

Income tax (expense) recovery


(552)


5,767


2,486


(4,500)

Net (loss) income


(96,552)


242,650


(224,874)


48,599

Net loss attributable to noncontrolling interests
   and redeemable noncontrolling interest


(64,491)


(16,268)


(84,312)


(24,450)

Net (loss) income attributable to Canopy

   Growth Corporation


$(32,061)


$258,918


$(140,562)


$73,049










Basic (loss) earnings per share


$(0.09)


$0.75


$(0.38)


$0.21

Basic weighted average common shares outstanding


371,520,534


347,226,921


367,663,135


346,028,903










Diluted (loss) earnings per share


$(0.09)


$0.25


$(0.38)


$0.19

Diluted weighted average common shares outstanding


371,520,534


380,323,118


367,663,135


382,765,533

 

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of Canadian dollars, unaudited)








Six months ended September 30,



2020


2019

Cash flows from operating activities:





Net loss


$(224,874)


$48,599

Adjustments to reconcile net loss to net cash used in operating activities:





Depreciation of property, plant and equipment


36,373


29,813

Amortization of intangible assets


29,432


15,955

Share of loss on equity method investments


40,180


4,004

Share-based compensation


52,669


180,243

Asset impairment and restructuring costs


59,157


-

Expected credit losses on financial assets and related charges


94,745


-

Income tax (recovery) expense


(2,486)


4,500

Non-cash foreign currency


(17,756)


(1,463)

Interest paid


(12,837)


(12,750)

Change in operating assets and liabilities, net of effects from purchases of businesses:





Amounts receivable


1,498


11,390

Prepaid expenses and other assets


(6,604)


(50,224)

Inventory


(23,500)


(143,229)

Accounts payable and accrued liabilities


(11,408)


10,584

Other, including non-cash fair value adjustments


(294,884)


(469,507)

Net cash used in operating activities


(280,295)


(372,085)

Cash flows from investing activities:





Purchases of and deposits on property, plant and equipment


(90,195)


(440,150)

Purchases of intangible assets


(7,604)


(9,538)

Proceeds on sale of intangible assets


18,337


-

(Purchases) redemption of short-term investments


(367,779)


388,027

Investments in equity method investments


-


(4,719)

Investments in other financial assets


(7,526)


(36,423)

Investment in Acreage Arrangement


(49,849)


(395,190)

Loan advanced to Acreage Hempco


(66,995)


-

Recovery of amounts related to construction financing


10,000


-

Payment of acquisition related liabilities


(6,394)


(21,447)

Net cash outflow on acquisition of noncontrolling interests


(125)


-

Net cash outflow on acquisition of subsidiaries


-


(416,028)

Net cash used in investing activities


(568,130)


(935,468)

Cash flows from financing activities:





Payment of share issue costs


(677)


(129)

Proceeds from issuance of shares by Canopy Rivers


92


156

Proceeds from exercise of stock options


10,756


36,023

Proceeds from exercise of warrants


244,990


446

Issuance of long-term debt


1,564


5,278

Repayment of long-term debt


(5,920)


(104,282)

Net cash provided by (used in) financing activities


250,805


(62,508)

Effect of exchange rate changes on cash and cash equivalents


(32,269)


(8,305)

Net decrease in cash and cash equivalents


(629,889)


(1,378,366)

Cash and cash equivalents, beginning of period


1,303,176


2,480,830

Cash and cash equivalents, end of period


$673,287


$1,102,464











Adjusted EBITDA1 Reconciliation (Non-GAAP Measure)







Three months ended September 30,

(in thousands of Canadian dollars, unaudited)


2020


2019

Net (loss) income


$(96,552)


$242,650

Income tax expense (recovery)


552


(5,767)

Other (income) expense, net


(221,256)


(509,893)

Loss on equity method investments


32,991


2,171

Share-based compensation2


21,984


92,881

Acquisition-related costs


3,472


2,562

Depreciation and amortization2


31,758


25,016

Asset impairment and restructuring costs


46,363


-

Expected credit losses on financial assets and related charges


94,745


-

Charges related to the flow-through of inventory step-up on business combinations


281


-

Adjusted EBITDA1


$(85,662)


$(150,380)






1Adjusted EBITDA is a non-GAAP measure. See "Non-GAAP Measures".

2 From Condensed Interim Consolidated Statements of Cash Flows.















Free Cash Flow Reconciliation1







Three months ended September 30,

(in thousands of Canadian dollars, unaudited)


2020


2019

Net cash used in operating activities


$(161,749)


$(213,795)

Purchases of and deposits on property, plant and equipment


(28,648)


(228,326)

Free cash flow1


$(190,397)


$(442,121)






1Free cash flow is a non-GAAP measure. See "Non-GAAP Measures".

 

Contact:  Laura Nadeau, Media Relations, media@canopygrowth.com; Judy Hong, Vice President, Investor Relations & Competitive Intelligence, Judy.hong@canopygrowth.com; Tyler Burns, Director, Investor Relations, Tyler.burns@canopygrowth.com

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