Roundhill Cannabis ETF Price & Performance (WEED)

Good morning and thank you for joining us. On our call today, we have Canopy Growth's Chief Executive Officer Officer, Luc Mojot and Chief Financial Officer, Judy Hong. Before financial markets open today, Canopy Growth issued a news release announcing the financial results for our third quarter fiscal year twenty twenty five ended 12/31/2024. The news release and filed financial statements have been filed on EDGAR and SEDAR and will be available on our website under the Investors tab. Before we begin, I would like to remind you that our discussion during this call will include forward looking statements that are based on management's current views and assumptions and that this discussion is qualified in its entirety by the cautionary note regarding forward looking statements included at the end of the news release, issued today. Please review today's earnings release and Canopy's reports filed with the SEC in SEDAR for various factors that could cause actual results to differ materially from projections. In addition, reconciliations between any non GAAP measures to their closest reported GAAP measures are included in our earnings release. Please note that all financial information is provided in Canadian dollars unless otherwise stated. Following remarks from Luke and Judy, we will conduct a question and answer session where we will take questions from analysts, With that, I will turn the call over to Luke.

Thank you, Tyler. Good morning, everyone, and thank you for joining our quarter three fiscal year twenty twenty five earnings conference call. My name is Luc Mongeau, and I'm proud to join you for my first earnings call as CEO of Canopy Growth. I'm truly excited to lead the company forward as we start a new year and embark on a fresh chapter for Canopy. I would like to start by expressing my gratitude for the support that Academy Board of Directors and our entire team have given me as I begin this new role. I would also like to thank David Sline, for his leadership and support through the transition. For me, joining Canopy and stepping into the role of CEO to lead this Canadian and global organization is a non earned privilege And before we get into the results from Q3, which Judy will cover in greater depth, I'd like to share some details about my prior experience, why I've joined As CEO and speak at a high level about my view on the company the sector, and our path ahead. Over the last twenty five years, I've had the privilege of leading and working within organizations across the consumer packaged goods industry.

Companies like Weston Foods, [indiscernible] and Procter and Gamble. In all my roles, I've dedicated myself to identifying the most promising value creation opportunities working to understand the needs and wants of consumers and customers while building greater organization that meet and exceeds demand with high quality innovative products. I've led product innovation R and D revamp complex supply chains, executed global marketing campaigns, and developed fresh takes on commercial strategies out to power growth and profitability. This brings me to Canopy Canopy, When I first got involved with Canopy two years ago, through my engagement with the Board, I saw something unique. Cannabis in my view represents one of the most exciting The sector is evolving rapidly and we're still at the beginning of transforming how people view and experience cannabis products. Whether it's delivering new experiences, or redefining approaches to wellness, cannabis has the capacity to shape and influence the future of [indiscernible] While broadening cultural and lifestyle trends around the world.

However, my optimism is balanced with our reality today. As we all know, the cannabis sector has faced real challenges Regulations have not evolved as fast as expected Some consumer trends like beverages have taken longer develop The illicit market still endures And finally, the path to full legalization in The U. S. Remains uncertain. But for me, this is the exciting part. Opportunities ahead are just beginning to unfold. We continue to see more people move away from alcohol and instead choose cannabis to enhance their social life and support their wellness. The shifts in behaviors is not just a passing trend. It's a sign of deep lasting change that will only continue to grow. As I move forward, my focus is clear.

To drive Canopy rapidly towards sustained profitability and positive cash generation. Right now, I'm working with the team to identify key areas of improvement to enhance Canopy in every way possible for the benefit of our consumers, our people, our business partners and our shareholders. I'll have much more to say on this when we're together for Canopy's Canopy Q4 conference call in May.

For now, I would like to highlight some of the areas of our business that are showing promise and strong performance. First, our medical cannabis business. Whether in Canada or across our international markets, Canopy is a recognized leader in medical cannabis. In Canada, our spectrum therapeutics team has built a powerful reputation for outstanding service and for meeting the diverse needs of medical cannabis patients. Through an ever expanding product portfolio. Internationally, we have established a solid position across the markets with the highest potential. Germany, Poland and Australia. Across Europe, regulatory changes are helping power existing momentum. In Germany, we're bringing new and IPHC strain to market from our Canadian platform. In addition, collaboration with Europe based flower suppliers is helping us deliver the variety of products that patients are seeking. Overall, I believe we can really build upon cannabis Canopy cannabis business and continue to drive growth in the quarters and years ahead. Next, in our adult use business, I'd like to highlight the recent launch of the award winning Clay Borden brand in Canada Canopy. In less than six weeks, Claiborne has risen to become the number three infused pre roll in British Columbia and Ontario.

This showcases our ability to success successfully introduce innovative product that resonate with consumers and can quickly make an impact in the market. Overall, I believe our Canadian adult use business as the key ingredients necessary to grow our share of the market. Another example of Canopy Canopy is our Storz and Bakehol brand.

With its offering of premium vaporizers, including the iconic Volcano and the new iPerformance Venti, Storz and Beccle is an unparalleled leader in the premium vaporizer space. We are working to drive new innovation for stores and Bickel keep up the momentum for what is already a leading portfolio. I'm really excited about where this brand is today as well as where it's going. Next, I would like to speak to Canopy USA. Canopy USA is an exciting differentiated platform that we feel is well positioned to capitalize on its ecosystem of brands and operations. With the acquisitions of Wana, Jetty and Acreage finalized, Canopy USA is already well advanced on the process of integration. It is also now realizing cost synergies as well as marketing and joint sales advantages across key markets Canopy categories. As a final lament of bringing Canopy USA to life as a single cohesive organization Brooks Jorgensen was appointed as the organization first President in early January. Brooks brings a wealth of experience and a robust track record in building cannabis businesses.

Having recently led Kiva, the largest cannabis distributor in The U. S. Together with the broader CUSA team, Brooks is focused on driving strategic execution and growth of the Canopy U. S. A. Platform.

We see real potential in Canopy USA and expect to see even more growth as they continue to build and refine their presence.

As I wrap up today, I want to reiterate that I believe we have the right ingredients for success and are focused on positioning Canopy to grow profitably and sustainably. I look forward to sharing more detail about the company's plans and updated strategy in greater detail when we release our full year financials at the May this year. Thank you.

Judy will now speak to the results from the quarter.

Thank you very much, Luke, and good morning, everyone. I'll start by walking through our Q3 fiscal twenty twenty five results including performance by key business units, I'll then discuss progress on our balance sheet and cash flow, followed by a discussion on our priorities and outlook for the balance of fiscal twenty twenty five and into fiscal twenty twenty six. Let's begin with our third quarter results. Q3 was a solid quarter marked by continued momentum in medical cannabis and stores of medical as well as improvement in our adult use business in Canada. And combined with cost efficiencies, we significantly narrowed our adjusted EBITDA loss in the quarter. Canopy delivered consolidated net revenue of $75,000,000 in Q3 a decrease of 5% or up 8% excluding the impact of divested businesses compared to Q3 of last year.

Consolidated gross margin in Q3 was 32% down compared to 36% a year ago but broadly in line with our target range. Q3 adjusted EBITDA was a loss of $3,000,000 an improvement of 61% versus last year. And free cash flow was an outflow of $28,000,000 an improvement of 17% compared to Q3 of fiscal twenty twenty four and a significant improvement relative to the first half run rate of the current fiscal year. I'd like to now review the results of our key businesses in more detail starting with Canada Canopy. Q3 net revenue was 41,000,000 an increase of 1% compared to a year ago.

Canada Medical continued its momentum marking another record revenue quarter and posting year over year revenue growth of 16%. We're gaining market share with a growing number of insured patients and we've expanded our product assortment to meet the needs of our medical consumer. The growth relative to Q2 was also driven by return of Wana Gummies, as well as contribution from our newly launched Claiborne infused pre rolls.

Our adult use business was down 10% year over year but increased 15% quarter over quarter. The improvement was driven by: one, Claiborne infused pre rolls launched in mid November are off to strong start. Two, we Wanagami's return to shelves after Q2 supply disruptions. And three, increased bulk flower sales as we cap opportunities to sell to other producers. And while some of our core brands are still facing competitive pressure in the [indiscernible] we've deployed targeted investments which are beginning to gain traction. We're focused on accelerating growth in the adult use market with the continued clayborn rollout, a strong pipeline of new products, and an enhanced field sales strategy to further grow doors and points of distribution. Canada gross margin in Q3 was 25% and cash gross margin adding back non cash depreciation costs was 35%. Growth in Canada Medical continues to be a positive contributor to overall Canada gross margin with the decline in gross margin in the quarter primarily attributable to higher initial cost to produce Claiborne. We're focused on improving the cost structure of Claiborne and expect cash gross margins to return to at least mid to high 30% targeted range based on the historical channel mix.

International Markets Canada's net revenue of $12,000,000 in Q3 FY twenty twenty five was up 14% compared to Q3 of last year. Within international, we again generated out sized growth in Poland, Germany also saw strong growth from additional product registrations that we've secured in prior quarters.

We launched Tweed branded flower products in Germany during Q3 and have secured additional EU based supply for the upcoming release of additional tweed flower products. The growth in Europe was partially offset by the decline in sales in a Australia medical cannabis business as well as U. S. CBD sales, which are no longer part of Canopy's business.

In Australia, the medical cannabis Canopy but there has been increased competition. Are sharpening our focus in Australia, transitioning the SMB business in to ensure dedicated support for our medical cannabis business in Australia. International markets Canada School margin was 41% in Q3 of FY twenty twenty five, up 100 basis points from Q3 FY twenty twenty four driven by increased sales in Poland, which carry higher gross margin. Sures and Bickel had another strong quarter with revenue of $22,000,000 in Q3 up 19% compared to last year. Q3 is traditionally a strong quarter for SMB given the holiday selling season. The growth was also led by robust direct to consumer online sales continued strong contribution from Venti which was launched during Q3 of last year, as well as growth in Germany. Surazimbego gross margin was 41% compared to 51% last year, due to higher indirect costs, including shipping costs. Looking at our SG and A expenses for Q3 of fiscal twenty twenty five, sales and marketing and G and A expenses declined 24% year over year primarily due to the cost reduction program undertaken during fiscal twenty twenty four. Year to date, our G and A cost excluding the impact of divestitures have also declined by approximately $10,000,000 versus the prior year.

And we're well on our way to achieving $10,000,000 to $15,000,000 in G and A costs savings by the end of this fiscal year.

Q3 fiscal twenty twenty five adjusted EBITDA was a loss of $3,000,000 compared to a loss of $9,000,000 a year ago. This was led by positive EBITDA contribution from all three business offset by unallocated corporate overhead costs including public company costs.

I'd like to now review our cash flow and balance sheet.

Free cash flow was an outflow of $28,000,000 in Q3 an improvement of 17% compared to the prior year. Cash used from continuing operations was $27,000,000 This included cash interest payments in the quarter of $17,000,000 The As I indicated during the previous call, we're driven by timing of certain payments and tight working capital management. Turning to the balance sheet. As of 12/31/2020 we had $178,000,000 in cash and short term investments and total principal debt balance of $460,000,000 In October, we further reduced our term loan balance by USD 100,000,000 by making an early prepayment in the amount of USD 97,500,000.0 bringing term loan principal balance to approximately USD $250,000,000. We have an option to further extend maturity of the term loan to September 2027 from December 2026 by making additional USD 100,000,000 payment at 97.5 to par before the March. Under the current ATM program that was launched in June, we've generated total gross proceeds of USD228 million including additional USD 41,000,000 that was completed post the end of Q3. We believe we have ample cash on our balance sheet to meet our near term obligations and the remaining ATM program should also provide us with the flexibility to invest in growth initiatives.

I'd like to now briefly discuss Canopy USA. Following the completion of eight Grids acquisition in December of twenty twenty four, Canopy SA has now moved forward with the full integration of the three business to capture revenue and cost synergies as quickly as possible. Given that it's only a little over a month, since Acreage acquisition has closed, and less than a month since the new President has been in place, we plan to provide more details around the business performance and financials of Canopy USA when we report our year end earnings in late May.

I'd like to now provide our key priorities and outlook for the balance of fiscal twenty twenty five and into fiscal twenty twenty six. In Canada Cannabis Canopy, we expect continued strength in our medical business and improved performance in our adult use business as we focus on building on the initial success of the Claiborne launch new product introductions and continued efforts to drive expanded distribution and improved velocity of our products. In international markets cannabis Canopy, we expect continued momentum in our European business as we focus on ensuring consistent product availability expanding points of distribution and launching new products. In Australia, we are in the process of transitioning stores and vehicle sales stores in Bickel Germany to ensure increased focus on the medical cannabis business in that market. For two, For Q4, we note that International Markets Canada sales in Q4 of last year included over $1,700,000 of sales in U. S. CBD, which is no longer part of our business.

For stores and Bickel, we expect another solid quarter in Q4 but year over year growth is likely to be challenged given the tough year over year ago comparison. Note that Q4 FY twenty twenty four benefited from outsized growth from Venti as production caught up with sales following supply constraints in Q3 of last year.

And finally, the impact from divested businesses plus The U. S. CBD sales will be approximately $2,100,000 in Q4. Based on our expectation of continued momentum across our medical business, [indiscernible] improvement in Canada adult use and continued cost discipline, we believe achieving positive adjusted EBITDA EBITDA at the consolidated level is firmly in sight in the coming quarters. And as we look forward to FY '26, we're focused on driving long term sustainable growth in our businesses while further improving our profitability and cash flow.

This concludes my prepared comments. We will now take questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Raised. To one question. The first question comes from Aaron Gray at Alliance Global Hi, Luke and Judy. Thank you for the question here.

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

Sure. Thanks, Erin. And then also start and Luke may have his view as well. So first of all, I do want to just call out that we did have a very strong international performance in the year [indiscernible] you have to really bifurcate the European performance versus the Australian performance. Just to give you a context, the European business, which includes key markets like Poland and Germany, account for roughly 60% of the international market segment. We have a strong position in the Polish market and we're seeing continued outsized growth in that market. And as I alluded to on the call, we've also had very strong growth in Germany from additional supply that we have secured. Overall, our European business in Q3 was up in excess of 70%. The Australian business however was down on a year over year basis We did call out last quarter that we saw increased for for medical cannabis sales for Australia. That part of the business also includes our SMB sales in Australia and we're really trying to transition that business into Germany to ensure [indiscernible] the performance of the medical cannabis sales in that market. Now if we step back and think about the business going forward, number one, the market is growing.

Based on the positive changes to regulation In Germany, the market is growing and we think that that provides us with the tailwind to benefit from the market growth. Secondly, as I said, we are partnering up with additional supply partners and we think that that gives us opportunity to really supply the market in a NASDAQ light model. Keep in mind, we also have our King Carden facility in Canada that is GMP certified and we are leveraging that facility, our low cost structure there to service the international market. So the combination of our Canadian supply as well as our third party partners in the European markets, we believe we have the right ingredients to really take advantage of the growth opportunities in that market.

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

Thank you. The next question Hey, good morning. Luke, I wanted to keep going there on that kind of management and strategy philosophy conversation like it's been I think five weeks, but in what ways do you view the company and opportunities differently than your predecessor? And in what ways so far that you've seen? Do you agree with the path and strategy that was in place? Good morning, Bill.

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

Thank you. The next question comes from Matt Bottomley at Canaccord Genuity. Please go ahead.

Good morning, everyone. Thanks for taking the questions. Question might be more for Judy. Just wondering, understanding some of the success that you guys have had on the cost cutting initiatives. You've had a number of quarters now where the free cash flow burn has come down. But if you look at sort of the ATM line there, dollars $2.50 some odd million of raises this year. The first nine months. I'm just wondering where you see the cadence of that going just as you continue to progress towards breakeven? And obviously, the question we all get just given the fact that the equity valuations right now continue to challenged in the sector overall. [indiscernible] Yes. Hey, good morning.

So as you said, we certainly did make significant progress on our balance sheet and our cash flow improved significantly on a year over year basis and over the last few years. We do expect further improvement in FY 2026 from a cash flow perspective. Certainly, the expectations for improved operations and improved profitability across our businesses will be a contributor We're also looking at on a year over year basis in improvement in cash interest expenses following the pay down of our our term loan that we made in October. We also have an option to pay down additional $100,000,000 in the coming months as well. So when you unpack our cash flow for next year, really a significant portion of the outflow is expected to be in the interest expenses line. We expect relatively modest CapEx investments in the year. And there's some additional cash costs related to the legacy facilities that we're still incurring, but we've made significant progress also in reducing some of those cash costs as well. So we think that the combination of the cash balance that we have continued actions that we're taking to improve our cash flow and reduce our leverage will really provide us an ample flexibility to reinvest into the business as well to continue to fuel growth opportunities in our Thank you.

Ladies and gentlemen, as a reminder, should you have any questions, The next question comes from Frederico Gomez at ATB Capital Markets. Please go ahead.

Good morning. Thanks for taking my question. Just a question on Poland. I think Judy mentioned that you saw size growth in that market. So could you talk a little bit more about that market specifically? What's the size right now? How fast it is growing?

How the competitive environment in Poland looks like?

In terms of market share that you have in that market? Any further color about the Poland market? Thanks.

Sure, sure. Thank you for the question. So within our European business, as you called out Poland has really been one of the strongest contributor to that growth in Europe. You look at the marketplace itself, it is more insulated from some of the competitive pressure just because the government actually issues import permits. And we've been able to secure those imports by really providing consistent supply and quality the products that the patients are demanding. And so right now, we're effectively fulfilling all of the import registrations that we have. It's It's demand is exceeding supply. It has been demand has been exceeding supply. Over the last couple of years. We understand that there may be some market dynamics and regulations that that could evolve over time. But at this point, we're very excited about the market dynamics and our leadership position. In that market and our ability to really full Thank you. The next question comes from Pablo Zwanik at Zwanik and Associates.

Yes. Good morning, everyone, and thank you for the questions. Look, first, I want to ask regarding Constellation Brands. And maybe just a bit of a reminder for the audience, compared to three, four years ago, how involved is Constellation Brands Distribution assets of our Constellation Brands in The U. S. As Juana begins to roll out their Hemp Derivative products. That's one question. And the second one, if I may ask right now, I mean, of course, congratulations on the 60% growth in Europe. Very impressive number. Maybe, Judy, just a reminder for us in terms of the strength of your route to market capabilities there, distribution capabilities, we're beginning to realize that one thing is exporting from Canada, another thing is being able to distribute the product there. So just remind us whether that those assets were impacted by cost cuts in the past or whether they are strong or do you need to rebuild them a bit?

So why don't I start with the second part of the questions and then we we'll adjust your first part of your question as well. So the ZYAR International infrastructure is primarily we have supply coming in from Canada as well as a third party. Partners in those markets. And we have distribution partners. So we have worked closely with our partners both in in Germany and in some instances even in The UK to make sure that we have collaboration across those markets to have distribution channels available to us in those markets. I would say, if you take a step back in an international market, the biggest constraint over the last couple of years has really been about supply. I think as you know, we've gone through a big improvement in in terms of our flower quality and and supply continuity in the Canadian market. And that is also helping our international business with improved flower quality, more consistent supply and higher THC going into expected to be a big step change in terms of really the investments required to change our business in that market. I think it's really leveraging what we have from a product perspective our partnership with distributors perspective and taking advantage of the market growth.

From your question on Constellation, I mean, think as you know, they remain our largest shareholder. They are now more of a passive shareholder given the exchangeable share ownership that they have in Canopy. We still have relationship with them in the context of just sharing best practices or just changing ideas. But I think from their perspective, it's it's really about investments as an investor in Canopy. Less about operational exchanges in that sense.

Thank you. This concludes Canopy Growth's third quarter fiscal twenty twenty five financial results conference call. A replay of this conference call will be available until 05/08/2025. And can be accessed following the instructions provided in the company's press release issued earlier today. Canopy Growth's Canopy