Canopy Growth Corporation Reports Fourth Quarter and Fiscal year 2022 Financial Results

Published: May 30, 2022

Canopy Growth Corporation Reports Fourth Quarter and Fiscal year 2022 Financial Results

Canopy Growth Corporation announces its financial results for the fourth quarter and fiscal year ended March 31, 2022. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.

Highlights

  • The Company progressed its leading North American brand driven strategy with Canopy Growth entering into plans to acquire Wana Brands, the #1 cannabis edibles brand in North America, and Jetty Extracts (“Jetty”), a top 10 Cannabis brand in California, adding to the robust brand portfolio.
  • Premium brands gained ground with Canadian consumers with Company maintaining #1 share of premium flower category throughout FY20221, led by in demand offerings from Doja, 7ACRES and 7ACRES Collective brands; and improved market share performance in the mainstream flower category in Q4 FY2022 with the Tweed rebrand and new Tweed product offerings in flower and beverages.
  • Storz & Bickel posted 22nd year of consecutive revenue growth in FY2022; strong consumer demand for Storz & Bickel vaporizers including the new VOLCANO ONYX and MIGHTY+ drove 21% increase in revenue in Q4 FY2022 versus Q4 FY2021.
  • Increased distribution of BioSteel hydration products drove year-over-year revenue growth in FY2022 of 56% versus FY2021. Focusing strategic investments to accelerating brand growth with aspiration to be top 4 player in the North American sports drink market.
  • The Company generated Net revenue of $520 million in FY2022, representing a decline of 5% versus FY2021.
  • Through restructuring actions that were previously announced on April 26, 2022, management expects to generate COGS savings of $30 – $50 million and SG&A expense reductions of $70 – $100 million, both within 12 to 18 months.

“Canopy Growth is building the industry’s leading portfolio of premium brands across North America. We’ve taken concrete steps to advance this ambition by strengthening our positioning in Canada, and further bolstering our U.S. THC ecosystem through the addition of two high performance brands in Wana Brands and Jetty Extracts. In the fiscal year ahead, we will remain focused on growing our market share in the key segments that will drive profitable growth and continuing to scale our premium brands across North America,” said David Klein, Chief Executive Officer.

“Achieving profitability is critical and we have undertaken additional initiatives to streamline and drive efficiencies for our global cannabis business.  In FY2023, we are focused on executing our path to profitability in Canada, while we continue to invest in high potential opportunities – particularly in BioSteel, and further developing our U.S. THC ecosystem, which we believe remains significantly under-appreciated by the market,” said Judy Hong, Chief Financial Officer.

1 Unless otherwise indicated, market share data disclosed in this press release is calculated using the Company’s internal proprietary market share tool that utilizes point of sales data supplied by a third-party data provider, government agencies and our own retail store operations across the country. The tool captures point of sale data from an average of 28% of stores in Alberta, British Columbia, Saskatchewan, Manitoba and Newfoundland & Labrador, point of sale data from 100% of stores in New Brunswick, Nova Scotia, Prince Edward Island and Quebec, as well as depletions and e-commerce sales data from the OCS.

FY2023 Priorities & Outlook

With the foundation for long-term sustainable growth in place, Canopy Growth is committed to further advancing the Company’s aspiration to become the leading premium cannabis branded company in North America.

In FY2023, Canopy will focus on:

  • Strengthening our market position in premium segments in Canada – driven by our flower cultivation strategy, delivering flower with in-demand attributes under the Doja and 7ACRES brands;
  • Making strategic investments to increase distribution, brand activation and new product development in high-growth consumer packaged good (“CPG”) brands – BioSteel and Storz & Bickel;
  • Identifying opportunities to expand brands across the U.S. and within the Canadian recreational market, to fully realize the North American potential of the Canopy Growth brand portfolio; and
  • As a result of these actions, the Company expects to be Adjusted EBITDA positive in FY2024 excluding investments in BioSteel and U.S. THC.


Fourth 
Quarter Fiscal Year 2022 Financial Summary

(in millions of Canadian

\dollars, unaudited)

Net Revenue

Gross margin

percentage

Adjusted

gross margin

percentage2

Net loss

Adjusted

EBITDA3

Free cash

flow4

Reported

$111.8

(142%)

(32%)

$(578.6)

$(121.8)

$(126.8)

vs. Q4 FY2021

(25%)

(14,900) bps

(4,600) bps

6%

(30%)

(2%)

Fiscal Year 2022 Financial Summary

(in millions of Canadian

\dollars, unaudited)

Net Revenue

Gross margin

percentage

Adjusted

gross margin

percentage5

Net loss

Adjusted

EBITDA3

Free cash

flow4

Reported

$520.3

(37%)

(11%)

$(320.5)

$(415.4)

$(582.5)

vs. FY2021

(5%)

(4,900) bps

(2,800) bps

81%

(22%)

8%

2 Adjusted gross margin is a non-GAAP measure, and for Q4 FY2022 excludes $4.2 million related to the flow-through of inventory step-up associated with the acquisition of Supreme Cannabis and $119.1 million of restructuring costs recorded in cost of goods sold (Q4 FY2021 – excludes $nil related to the flow-through of inventory step-up and $10.3 million of restructuring costs recorded in cost of goods sold). See “Non-GAAP Measures”.

3 Adjusted EBITDA is a non-GAAP measure. See “Non-GAAP Measures”.

4 Free cash flow is a non-GAAP measure. See “Non-GAAP Measures”.

5 Adjusted gross margin is a non-GAAP measure, and for FY2022 excludes $11.8 million related to the flow-through of inventory step-up associated with the acquisition of Supreme Cannabis and $123.7 million of restructuring costs recorded in cost of goods sold (FY2021 – excludes $1.5 million related to the flow-through of inventory step-up and $26.0 million of restructuring costs recorded in cost of goods sold). See “Non-GAAP Measures”.

Fourth Quarter and Fiscal Year 2022 Financial Summary

Revenues:

Net revenue of $112 million in Q4 FY2022 declined 25% versus Q4 FY2021. Total global cannabis net revenue of $66 million in Q4 FY2022, represented a decline of 35% over Q4 FY2021. Other consumer products revenue of $46 million in Q4 FY2022, represented a decline of 3% over Q4 FY2021. Excluding the impact from acquired businesses and divestiture of C3, net revenue declined 26% and global cannabis net revenue declined 38% versus Q4 FY2021.

Net revenue of $520 million in FY2022 declined 5% versus FY2021. Total global cannabis net revenue of $337 million in FY2022, represented a decline of 11% over FY2021. Other consumer products revenue of $183 million in FY2022, represented an increase of 9% over FY2021. Excluding the impact from acquired businesses and divestiture of C3, net revenue declined 9% and global cannabis net revenue declined 19% versus FY2021.

Gross margin:

Reported gross margin in Q4 FY2022 was (142%) as compared to 7% in Q4 FY2021. Excluding non-cash restructuring costs recorded in COGS of $119 million and inventory step-up charges from acquisitions of $4 million, adjusted gross margin was (32%). Comparatively gross margin in Q4 FY2021 was impacted by restructuring charges totaling $10 million. Gross margin in Q4 FY2022 was further impacted by lower production output and price compression in the Canadian recreational business as well as higher third-party shipping, distribution and warehousing costs across North America.

Reported gross margin in FY2022 was (37%) as compared to 12% in FY2021. Excluding non-cash restructuring costs recorded in cost of goods sold of $124 million and inventory step-up charges from acquisitions of $12 million, adjusted gross margin was approximately (11%). Gross margin in FY2022 was impacted by a year-over-year decrease in net revenue and continued price compression in the Canadian recreational business, inventory write-offs driven by lower than expected demand as well as higher third-party shipping, distribution and warehousing costs across North America. Gross margin in FY2022 benefited from payroll subsidies in the amount of $24 million received from the Canadian government, pursuant to a COVID-19 relief program, compared to $6 million in FY2021.

Operating expenses:

Total SG&A (“SG&A”) expenses in Q4 FY2022 declined by 21% versus Q4 FY2021, driven by year-over-year reductions in General & Administrative (“G&A”) and Research and Development (“R&D”) expenses. G&A expenses declined 38% year-over-year primarily due to reductions in staffing, professional fees, executive compensation and employee bonus, and continued cost reductions, partially offset by lower payroll subsidies received from the Canadian government pursuant to a COVID-19 relief program, relative to the prior year. R&D expenses declined 45% year-over-year principally due to a more disciplined approach to R&D investments and the closure of certain R&D facilities in the prior year. Sales & Marketing (“S&M”) expenses were flat year-over-year.

Total SG&A expenses in FY2022 declined by 18% versus FY2021, driven by year-over-year reductions in G&A and R&D expenses, partially offset by an increase in S&M expenses. G&A expenses declined 46% year-over-year primarily due to reductions in staffing, professional fees, executive compensation and employee bonus, and continued cost reductions. R&D expenses declined 44% year-over-year principally due to a more disciplined approach to R&D investments and the closure of certain R&D facilities in the prior year. S&M expenses increased 23% year-over-year primarily due to a return to more normal advertising and promotional spending in fiscal 2022. S&M expenses was further driven by higher sponsorship fees associated with BioSteel and increased sales and marketing costs associated with the acquisitions of Supreme Cannabis and Ace Valley.

Net Loss:

Net Loss in Q4 FY2022 was $579 million, which is a $38 million improvement versus Q4 FY2021, driven primarily by non-cash fair value changes, partially offset by higher non-cash asset impairment and restructuring charges.

Net Loss in FY2022 was $320 million, which is a $1,350 million improvement versus FY2021, driven primarily by non-cash fair value changes, lower operating expenses, including lower non-cash asset impairment and restructuring charges, partially offset by lower gross margins.

Adjusted EBITDA:

Adjusted EBITDA loss in Q4 FY2022 was $122 million, a $28 million increase in Adjusted EBITDA loss versus Q4 FY2021 primarily driven by lower sales and a decline in gross margins, partially offset by the reduction in our total SG&A expenses.

Adjusted EBITDA loss in FY2022 was $415 million, a $75 million increase in Adjusted EBITDA loss versus FY2021, driven primarily driven by lower sales and a decline in gross margins, partially offset by the reduction in our total SG&A expenses.

Free Cash Flow:

Free Cash Flow in Q4 FY2022 was an outflow of $127 million, a 2% increase in outflow versus Q4 FY2021. Relative to Q4 FY2021, the Free Cash Flow outflow increase reflects higher interest paid partially offset by lower capital expenditures.

Free Cash Flow in FY2022 was an outflow of $582 million, an 8% decrease in outflow versus FY2021. Relative to FY2021, the Free Cash Flow outflow decrease is due to lower S&GA expenses and reduction in capital expenditures, partially offset by higher cash interest payments.

Cash Position:

Cash and Short-term investments amounted to $1.4 billion at March 31, 2022, representing a decrease of $0.9 billion from $2.3 billion at March 31, 2021 reflecting EBITDA losses, capital investments and the upfront payment made as consideration for the option to acquire Wana Brands upon federal permissibility of THC in the U.S.

Business Highlights

Developing a robust North American brand driven strategy – In the very competitive Canadian adult-use market, the Company’s Doja, 7ACRES, 7ACRES Craft Collection, Deep Space, Tweed, and Ace Valley branded product offerings:

  • Maintained Canopy Growth’s #1 share of the premium flower market in FY2022 by leveraging established cannabis brands – Doja and 7ACRES;

  • Nearly doubled the Company’s share of the mainstream flower market in Q4 FY2022. Performance benefited from strong consumer demand for new Tweed flower strains, Chemdawg and Powdered Donuts, launched in Q3 FY2022;

  • The introduction of new beverage flavour extensions including, Tweed Iced Tea Guava and Deep Space Orange Orbit, have helped drive Tweed to the #1 market share rank in the under 5 mg THC beverage category and Deep Space is the fastest growing brand and #2 rank in the over 5 mg THC beverage category; and

  • Following investments in plans to acquire Wana Brands and Jetty Extracts, exploring avenues through which these brands can expand across the U.S. and within the Canadian recreational market, to fully realize the North American potential.


Driving Growth in our Consumer Product Brands

  • Storz & Bickel: Gains in distribution and strong consumer demand for new Storz & Bickel vaporizers including the VOLCANO ONYX and MIGHTY+ drove 21% increase in revenue in Q4 FY2022 versus Q4 FY2021.

  • BioSteel: Gains in distribution and sales velocity of BioSteel ready-to-drink (“RTD”) products drove a 56% increase in revenue in FY2022 versus FY2021; BioSteel RTDs have achieved 18% ACV7; New Grape and Cherry Lime RTD flavors began shipping in Q4 FY202
  • Martha Stewart CBD: Launched new Martha Stewart CBD Tropical Medley CBD Wellness Gummies in Q4 FY2022. Launched Martha Stewart CBD Wellness Topicals – Super Strength CBD, Sleep Science CBD and Daily De-Stress CBD Creams.


Strengthening U.S. THC ecosystem, investing in plans to acquire scalable brands in must‑win categories

  • Jetty Extracts8: Strengthened U.S. THC ecosystem with plan to acquire Jetty, a Top 5 cannabis brand9, Top 10 California vape brand9, and market leader with greater than 75% of the solventless vape market10. Plan establishes the opportunity to scale the Jetty brand to additional U.S. state markets and across the border into Canada leveraging Jetty’s industry leading intellectual property.

  • Wana Brands11: Wana strengthened its management team with the appointment of a new Chief Financial Officer and new Chief Operating Officer. In addition, the company expanded its U.S. footprint in Q4 FY2022 with the signing of license agreements covering Puerto Rico, its fourteenth license in the U.S.. At least three more markets are expected to come online by the end of CY2022. In Q4 FY2022, launched Wana Quick Spectrum Live Rosin Quick Fast-Acting Gummies in Colorado.

7 IRI data for the 4 weeks ended April 17, 2022

8 Until such time as the Company elects to exercise its rights to acquire Jetty, the Company will have no direct or indirect economic or voting interests in Jetty, the Company will not directly or indirectly control Jetty, and the Company, on the one hand, and Jetty, on the other hand, will continue to operate independently of one another.    

9 Based on March 2022 BDSA data for dollars sold for all product categories

10 Based on year-to-date BDSA data for dollars sold of rosin cartridges through March 2022

11 Until such time as the Company exercises its rights to acquire each Wana Entity, the Company will have no economic or voting interests in Wana, the Company will not control Wana, and the Company and Wana will continue to operate independently of one another.

Driving brand awareness through omni channel activations

Fourth Quarter and Fiscal Year 2022 Revenue Review

Revenue by Channel

(in millions of Canadian dollars, unaudited)

Q4 FY2022

Q4 FY2021

Vs. Q4
FY2021

FY2022

FY2021

Vs. FY2021

Canadian recreational cannabis

Business to business12

$25.8

$43.3

(40%)

$143.7

$163.6

(12%)

Business to consumer

$13.1

$17.8

(26%)

$61.6

$66.0

(7%)

$38.9

$61.1

(36%)

$205.3

$229.6

(11%)

Canadian medical cannabis13

$13.1

$13.7

(4%)

$52.6

$55.5

(5%)

$52.0

$74.8

(30%)

$257.9

$285.1

(10%)

International and other

C3

$3.1

$15.8

(80%)

$36.1

$62.3

(42%)

Other14

$10.9

$10.7

2%

$43.2

$31.3

38%

$14.0

$26.5

(47%)

$79.3

$93.6

(15%)

Global cannabis net revenue

$66.0

$101.3

(35%)

$337.2

$378.7

(11%)

Other consumer products

Storz & Bickel

$21.6

$17.9

21%

$85.4

$81.0

5%

This Works

$6.0

$8.5

(29%)

$32.3

$33.3

(3%)

BioSteel15

$13.5

$13.6

(1%)

$44.6

$28.5

56%

Other

$4.7

$7.1

(34%)

$20.8

$25.1

(17%)

Other consumer products revenue

$45.8

$47.1

(3%)

$183.1

$167.9

9%

Net revenue

$111.8

$148.4

(25%)

$520.3

$546.6

(5%)

12 For Q4 FY2022, amount is net of excise taxes of $13.2 million and other revenue adjustments of $3.3 million (Q4 FY2021 – $17.5 million and $3.1 million, respectively). For FY2022, amount is net of excise taxes of $56.7 million and other revenue adjustments of $7.3 million (FY2021 – $54.9 million and $14.0 million, respectively).

13 For Q4 FY2022, amount is net of excise taxes of $1.2 million (Q4 FY2021 – $1.4 million). For FY2022, amount is net of excise taxes of $5.2 million (FY2021 – $5.6 million).

14 For Q4 FY2022, amount reflects other revenue adjustments of $1.0 million (Q4 FY2021 – $0.3 million). For FY2022, amount reflects other revenue adjustments of $4.3 million (FY2021 – $0.7 million).

15 For Q4 FY2022, amount reflects other revenue adjustments of $3.9 million (Q4 FY2021 – $4.2 million). For FY2022, amount reflects other revenue adjustments of $9.9 million (FY2021 – $9.2 million).


Revenue by Form

(in millions of Canadian dollars, unaudited)

Q4 FY2022

Q4 FY2021

Vs. Q4
FY2021

FY2022

FY2021

Vs. FY2021

Canadian recreational cannabis

Dry bud16,17

$41.9

$67.9

(38%)

$211.7

$238.0

(11%)

Oils and softgels16,17

$5.5

$6.7

(18%)

$25.5

$28.8

(11%)

Beverages, edibles, topicals and vapes16,17

$8.0

$7.1

13%

$32.1

$31.7

1%

Other revenue adjustments17

$(3.3)

$(3.1)

(6%)

$(7.3)

$(14.0)

48%

Excise taxes

$(13.2)

$(17.5)

25%

$(56.7)

$(54.9)

(3%)

$38.9

$61.1

(36%)

$205.3

$229.6

(11%)

Medical cannabis and other18

Dry bud

$13.7

$9.7

41%

$45.4

$40.5

12%

Oils and soft gels

$11.6

$25.5

(55%)

$71.2

$101.9

(30%)

Beverages, edibles, topicals and vapes

$3.0

$6.4

(53%)

$20.5

$12.3

67%

Excise taxes

$(1.2)

$(1.4)

14%

$(5.2)

$(5.6)

7%

$27.1

$40.2

(33%)

$131.9

$149.1

(12%)

Global cannabis net revenue

$66.0

$101.3

(35%)

$337.2

$378.7

(11%)

Other consumer products

Storz & Bickel

$21.6

$17.9

21%

$85.4

$81.0

5%

This Works

$6.0

$8.5

(29%)

$32.3

$33.3

(3%)

BioSteel18

$13.5

$13.6

(1%)

$44.6

$28.5

56%

Other

$4.7

$7.1

(34%)

$20.8

$25.1

(17%)

Other consumer products revenue

$45.8

$47.1

(3%)

$183.1

$167.9

9%

Net revenue

$111.8

$148.4

(25%)

$520.3

$546.6

(5%)


Canadian Cannabis

  • Recreational B2B net sales in Q4 FY2022 decreased 40% over the prior year period primarily due to the continued insufficient supply of flower products with in-demand attributes and continued price compression, particularly in the value-priced dried flower category. These factors were partially offset by contribution from the acquisitions of Ace Valley and Supreme Cannabis.
  • Recreational B2C net sales in Q4 FY2022 decreased 26% versus Q4 FY2021 largely driven by increased competition from the rapid increase in third party retail locations across provinces.
  • Medical net revenue in Q4 FY2022 decreased 4% from Q4 FY2021 driven primarily by higher average order sizes offset by a fewer number of orders.


International Cannabis

  • C3 revenue in Q4 FY2022 decreased 80% year-over-year as a result of the divestiture that was completed on January 31, 2022.
  • Other revenue in Q4 FY2022 increased 2% over the prior year period primarily due to bulk cannabis sales by Supreme Cannabis into the Israel medical cannabis market, offset by lower U.S. CBD sales.


Other Consumer Products

  • BioSteel sales in Q4 FY2022 decreased 1% over Q4 FY2021 in part due to shipment timing.
  • Storz & Bickel vaporizer revenue in Q4 FY2022 increased 21% over Q4 FY2021 due primarily to sales of new VOLCANO ONYX and MIGHTY+ vaporizers launched late in the second quarter of FY2022.
  • This Works sales in Q4 FY2022 decreased 29% over Q4 FY2021 due in part to lapping strong sales in the prior year.

The Q4 FY2022, FY2022, Q4 FY2021 and FY2021 financial results presented in this press release have been prepared in accordance with U.S. GAAP.

16 Excludes the impact of other revenue adjustments.

17 Other revenue adjustments represent the Company’s determination of returns and pricing adjustments, and relate to the Canadian recreational business‐to‐business channel.

18 Includes the impact of other revenue adjustments, which represent the Company’s determination of returns and other pricing adjustments.

About Canopy Growth Corporation
Canopy Growth is a world-leading diversified cannabis and cannabinoid-based consumer product company, driven by a passion to improve lives, end prohibition, and strengthen communities by unleashing the full potential of cannabis. Leveraging consumer insights and innovation, we offer product varieties in high quality dried flower, oil, softgel capsule, infused beverage, edible, and topical formats, as well as vaporizer devices by Canopy Growth and industry-leader Storz & Bickel. Our global medical brand, Spectrum Therapeutics, sells a range of full-spectrum products using its colour-coded classification system and is a market leader in both Canada and Germany. For more information visit www.canopygrowth.com.