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Canopy Growth Corporation (TSX: WEED) (Nasdaq: CGC) announced its financial results for the third quarter ended December 31, 2022 today. All financial information below is reported in Canadian dollars, unless otherwise indicated, and compared to the previous quarter.

Q3 Financial Highlights

• Total Revenue: -14.2% to $101.2M
  • Canadian: -11.9% to $46.6M 
    • Recreational: -14.7% to $32.5M
    • Medical: -0.7% to $14.1M
  • International: -45.3% to $5.8M
  • Total Cannabis: -16.7% to $52.4M
    • Share of Total Revenue: down to 51.8% from 53.4%
  • Other Consumer Products: -11.3% to $55.0M
    • BioSteel (beverages): -45.2% to $16.4M
    • Storz & Bickel (vaporizers): +49.6% to $20.2M
    • The Works: +20.3% to $8.3M
    • Other: -17.0% to $3.9M
  • Consumer Products Share of Total Revenue: up to 48.2% from 46.6%
• Net Income (Loss): Loss increased 15.2% to $(267.1)M
• Adj. EBITDA: Loss increased by 12.0% to $(87.5)M

Restructuring Plans & Progress

Canopy is in the process of transitioning to an asset-light model in Canada by:

• exiting cannabis flower cultivation in its Smiths Falls, Ontario facility,
• ceasing the sourcing of cannabis flower from the Mirabel, Quebec facility, 
• consolidating cultivation at existing facilities in Kincardine, Ontario and Kelowna, British Columbia and
• moving to a third-party sourcing model for cannabis beverages, edibles, vapes, and extracts.

The changes come in addition to cost reduction activities within FY2023, including:

• the divestiture of Canopy's Canadian retail operations,
• the organizational restructuring of certain corporate functions, and
• the closure of the Scarborough, Ontario research facility.

In addition to the above changes, the company plans to:

• close its facility in Smiths Falls, Ontario,
• reduce headcount across the business by ~60%, including 800 positions impacted by the changes announced Thursday, of which 40% are impacted immediately.

Based on the company's current revenue run rate and the above-mentioned cost reduction initiatives, management reaffirms its expectation to achieve positive Adjusted EBITDA in FY2024, with the exception of investment in BioSteel.

Management Commentary

David Klein, Chief Executive Officer, said:

• "We are transforming our Canadian business to an asset-light model and significantly reducing the overall size of our organization. These changes are difficult but necessary to drive our business to profitability and growth."

Judy Hong, Chief Financial Officer, said:

• "The right-sizing of our Canadian business is expected to significantly reduce our cash costs. Canopy is firmly on the path to deliver at least quarterly breakeven adjusted EBITDA in our Canadian cannabis business in Fiscal 2024, even at current revenue run-rate."

U.S. Strategy 

Canopy Growth states that it continues to progress its U.S. strategy through CUSA and is committed to remaining dual-listed on the TSX and NASDAQ through continued engagement with NASDAQ on a path forward that is focused on delivering on the benefits of this transformational strategy.

As a result of the formation of CUSA, and related transaction with CUSA, the Company expects to reduce its annual operating expenditures through a more streamlined and singular approach to its U.S. strategy. In the near term, CUSA is expected to:

• generate revenue and cost synergies by leveraging its brand portfolio, routes to market and operations of the full U.S. cannabis ecosystem
• eliminate redundancies and the public company reporting costs of Acreage, all of which are expected to be realized while cannabis remains federally illegal in the United States.

Recent Stock Performance

• The stock price:
  • declined 17% during the 3-month period of Q3 (October, November, December),
  • jumped 20% between December 31st and yesterday, February 8th and
  • declined 15% as of mid-day, today, February 9th, as a result of the release of the Qs financial report before the markets opened today.

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