Canopy Growth(US:CGC)2022-11-09 16:45Financial Data and Key Metrics Changes - In Q2, the company generated net revenue of CAD 118 million, representing a 10% decline year-over-year, but a 7% sequential increase compared to Q1 [34][35] - Gross margins and adjusted EBITDA improved significantly year-over-year, driven by lower inventory charges and cost savings initiatives [36][47] - Free cash flow in Q2 was an outflow of CAD 135 million, with CAD 41 million in interest payments [56] Business Line Data and Key Metrics Changes - Canadian cannabis revenues declined 27% year-over-year but were stable sequentially; medical revenue grew 8% year-over-year [39][40] - BioSteel delivered record revenues of nearly CAD 30 million, with year-over-year growth of 299% and sequential growth of 67% [21][43] - Storz & Bickel revenues decreased 7% year-over-year, but gross margins increased to 44% from 37% [44][46] Market Data and Key Metrics Changes - In Canada, adult-use B2B premium and mainstream sales accounted for 58% of sales, up from 56% last year [12] - BioSteel's share of isotonic beverage sales in Ontario reached 11.2%, representing an increase of 630 basis points year-over-year [23] - The Rest of World Cannabis segment saw a modest decline year-over-year, with strong growth in Australia offset by declines in the US CBD business [42] Company Strategy and Development Direction - The company is focused on fast-tracking entry into the US cannabis market through Canopy USA, which is expected to enhance growth and profitability [29][31] - The divestiture of Canadian retail operations aims to reduce channel conflict and improve distribution [20][53] - The company is committed to achieving profitability in Canada while investing in high-potential opportunities like BioSteel [67] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by labor disruptions and supply chain issues but expressed optimism about the company's strategic direction and market opportunities [10][36] - The company expects continued year-over-year growth from BioSteel and improvements in the Canadian adult-use B2B business [60][61] - Management anticipates that Canopy USA will significantly improve growth and profitability once the acquisitions close [66] Other Important Information - The company has entered into an agreement to tender approximately CAD 187.5 million of outstanding term loans at a discounted price [57] - The acquisition of a manufacturing facility in Virginia is expected to support BioSteel's growth strategy and improve margins [26][51] Q&A Session Summary Question: What is the plan for entering the US market? - The company plans to hold a shareholder vote to approve the creation of exchangeable shares in early 2023, followed by the acquisition of Acreage, Jetty, and Wana [69][70] Question: What is the plan if NASDAQ denies the pending acquisition? - The company is in constructive dialogue with NASDAQ and does not foresee imminent risks to its listing; there are multiple paths to address NASDAQ's concerns [71][72] Question: Can you explain the strategy for BioSteel's in-house manufacturing? - The acquisition of the Verona facility ensures supply and is expected to improve margins by eliminating co-packing costs [75][76] Question: What is the outlook for the Canadian cannabis business? - The company is focused on optimizing its portfolio and achieving profitability while navigating challenges in the market [96][101] Question: Will Canopy USA's assets be accessible to Canopy Growth shareholders? - The visibility of Canopy USA's performance and the streamlining of resources are expected to benefit Canopy Growth shareholders [109][111]