Canopy Growth Reports Full Year and 4th Quarter Fiscal 2020 Financial Results; Provides Strategic Review Update
- Generated Net Revenue of $399 million in FY 2020, up 76% over FY 2019
- In connection with previously announced organizational and strategic review, recorded impairment and restructuring charges of $743 million; the majority of which are non-cash charges
- Gross Margin of (85)% in Q4 FY2020; excluding restructuring and other charges, achieved Adjusted Gross Margin of 42%
- Net Loss of $1.3 billion; Adjusted EBITDA loss of $102 million in Q4 2020
SMITHS FALLS, ON, May 29, 2020 /PRNewswire/ – Canopy Growth Corporation (“Canopy Growth” or the “Company”) (TSX: WEED) (NYSE: CGC) today announced its financial results for the fourth quarter and full twelve-month fiscal year ended March 31, 2020. The Company is also sharing details of its new strategic plan aimed at winning in priority markets and categories and executing a path to profitability. All financial information in this press release is reported in millions of Canadian dollars, unless otherwise indicated. The fourth quarter and full twelve-month fiscal year 2020 financial results presented in this press release have been prepared in accordance with U.S. GAAP.
Through the COVID-19 pandemic we have worked hard to ensure the health and well-being of our teams and customers and the continuity of our business. During this time, our team has rolled out our exciting new cannabis-infused beverages and vape products in Canada and a portfolio of CBD products in the US.
CEO David Klein
True to key priorities that I have outlined for Canopy, we have taken steps to align our capacity with the current market demand and focus our resources against the core markets with the largest and most tangible near-term profit opportunity.
Added Klein, “I am excited to implement our strategy reset and organization redesign over the course of fiscal 2021. We have a renewed strategic focus and a clear change agenda that is already underway. We are building what we believe is the best cannabis company in the world by putting the consumer at the heart of everything we do and are re-aligning our organization to be faster and more agile.”
Strategic and Organizational Update
Canopy Growth’s overall strategy is to unleash the full potential of cannabis, capture sizable market share in focus categories and markets and execute a path to profitability to build sustainable, long-term shareholder value.
The Company no longer strives to be the first to every market, but strives to the best and become a leading consumer insights and product development company in select priority markets, that matches products and consumer preferences in the cannabis space. To achieve this, Canopy Growth will focus on:
- Becoming a relentlessly consumer-centric organization by building world-class consumer insights and analytics, coupled with focused, leading-edge R&D and innovation to produce a differentiated product portfolio that will delight consumers. The Company will bring these products to the hands of consumers through best-in-class sales execution;
- Markets and product categories with the highest and most tangible profit opportunities in the near term. Core markets will be Canada, US and Germany with focus on recreational and medical. To capture future opportunities in emerging markets and categories outside the core, Canopy Growth will deploy an asset-light approach;
- Driving quality in all aspects of our operation and be positioned to deliver the right product at the right time at the right price from the right facility; and
- Continuing to lead the industry and set industry standards. This includes spearheading the next phase of the cannabis industry evolution and shaping how the industry evolves. The Company will continue to give back to neighbors and communities through its Grow Good Together initiatives.
Canopy Growth expects Fiscal 2021 to be a transition year as the Company resets its strategic focus, rolls out a new organizational design, and implements a comprehensive operational and supply chain productivity program. Given this, as well as the significant COVID-19 related uncertainties that exist, the Company is withdrawing its previously communicated milestones for achieving positive Adjusted EBITDA and Net Income. Depending on the impacts of COVID-19, Canopy Growth may provide new metrics by which to measure the Company’s performance in the second half of fiscal 2021.
1 Adjusted gross margin is a non-GAAP measure, and for Q4 2020 excludes (i) restructuring and other charges of $132.1 million related to the impact of restructuring actions; and (ii) $4.7 million related to the flow-through of inventory step-up associated with fiscal 2020 business combinations. See “Non-GAAP Measures”.
2 Adjusted EBITDA is a non-GAAP measure. See “Non-GAAP Measures”.
3 Free cash flow is a non-GAAP measure. See “Non-GAAP Measures”.
4 Adjusted gross margin is a non-GAAP measure, and for fiscal 2020 excludes charges of $136.8 million incurred in Q4 2020, as described in footnote 1 above. See “Non-GAAP Measures”.
Fourth Quarter Fiscal 2020 Corporate Financial Highlights
- Revenues: Net revenue in Q4 2020 decreased 13% versus Q3 2020 driven primarily by lower Canadian recreational revenue.
- Gross margin: : Reported gross margin, including one-time restructuring and other charges, was (85%). Adjusted gross margin, excluding one-time restructuring and other charges and inventory step-up costs, was 42% in Q4 2020, representing an increase of 1,100 bps from Q3 2020. Adjusted gross margin performance in Q4 2020 was positively impacted by higher facility utilization and growth in high margin international medical cannabis sales.
- Operating expenses: SG&A expenses in Q4 2020 increased 17% over Q3 2020 driven primarily by a combined $15 million increase in General & Administrative and Sales & Marketing expenses.
- Net Loss: Net loss of $1.3 billion in Q4 2020, primarily driven by impairment and restructuring charges, other impairment charges which were primarily identified during our annual impairment testing, and other non-cash fair value changes.
- Adjusted EBITDA: Adjusted EBITDA loss of $102 million in Q4 2020, a $5 million wider loss versus Q3 2020 driven by lower sales and higher operating expenses.
- Cash Position: Gross cash balance was $2.0 billion at March 31, 2020, down from $2.3 billion at the end of Q3 2020 reflecting the EBITDA loss, capital investments and mergers and acquisitions activities.
- Restructuring and Impairment Costs: In line with our previous announcement (March 4, 2020), we recorded a pre-tax restructuring and impairment charge of $743 million in Q4 2020, of which $28 million is estimated to be a cash charge. Additionally, we recorded impairment charges of $100 million Q4 2020, which were primarily identified during our annual impairment testing process.
Business & Operational Highlights
- COVID-19 response: Management has been closely monitoring the impact of COVID-19, with a focus on the health and safety of our employees, business continuity and supporting our communities. The majority of non-production related staff continue to work from home; we implemented daily screening process for production facility access; temporarily closed corporate-owned retail stores in mid-March but re-opened 20 stores with reduced hours as well as click & collect ordering; rolled out click & collect to 100% of all Tokyo Smoke and Tweed licensed stores and added same day delivery for Tokyo Smoke partner stores.
- UL certified Juju Power 510 battery as well as 510 vape cartridges under Tweed and Twd. brands, representing a total of five SKUs, are available in the Canadian recreational market.
- UL certified Tokyo Smoke Luma pod-based vape devices, Luma “Go” pods and Luma “Pause” pods are available in the Canadian recreational market.
- Ready to Drink (“RTD”) beverages under Tweed and Houseplant brands, representing a total of three SKUs, are available in the Canadian recreational market.
- Company has expanded offering of Hemp-derived CBD products with the launch of a line of First & Free topical creams in select states in the US and the launch of This Works’ line of clinically-proven CBD Booster skin products in the United Kingdom, Germany and select states in the US.
- On May 1, 2020, an indirect wholly-owned subsidiary of Constellation Brands (NYSE:STZ) exercised warrants for approximately C$245 million , representing approximately 5.1% of our issued and outstanding common shares.
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.
4 Excise taxes is presented net of the impact from other revenue adjustments.
- Recreational B2B sales in Q4 2020 decreased 31% from Q3 2020 as growth in softgels, oil, and Cannabis 2.0 products was more than offset by an overall decline in flower and pre-roll joints.
- Recreational B2C sales in Q4 2020 decreased 14% from prior quarter due to the expected off peak seasonal demand decline and the closure of corporate-owned retail stores late in the quarter in response to COVID-19.
- Medical sales in Q4 2020 remained consistent quarter over quarter (Q3 2020 vs. Q4 2020).
- C3 revenue in Q4 2020 increased 10% over Q3 2020.
- Germany cannabis sales increased 14% in Q4 2020 over Q3 2020 benefiting from improved supply and increased demand.
- International cannabis revenue accounted for 24% of total cannabis revenues in Q4 2020.
- This Works sales in Q4 2020 were consistent with seasonally strong Q3 2020.
- Storz & Bickel (“S&B”) vaporizer revenue decreased over Q3 2020 due to seasonal decline.
- BioSteel Sports Nutrition revenue decreased by 20% over Q3 2020 due to expected seasonal decline and reduction of thirty-party distribution and retail in response to COVID-19.
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 May 29, 2020.
A live audio webcast will be available at:
A replay of the call will be accessible by webcast, until 11:59 PM ET on August 27, 2020, at
U.S. GAAP Financial Reporting
Effective April 1, 2020, Canopy Growth is considered a U.S. domestic issuer and is required to prepare financial statements in compliance with U.S. GAAP. Accordingly, our consolidated audited financial statements for the year ended March 31, 2020, including all comparative figures, have been restated in accordance with these standards.
As part of this transition, Canopy Growth will also be required to provide an auditor attestation report under Section 404(b) of the Sarbanes-Oxley Act in connection with its Annual Report on Form 10-K to be filed with the Securities and Exchange Commission (“SEC”).
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, adjusted to exclude income tax recovery (expense), other income (expense), net, and loss on equity method investments, share-based compensation expense, depreciation and amortization expense, asset impairment and restructuring costs, restructuring and other charges recorded in cost of goods sold, 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 Annual Report on Form 10-K to be filed with the SEC.
Adjusted Gross Margin 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 Gross Margin is calculated as gross margin excluding restructuring and other charges recorded in cost of goods sold and charges related to the flow-through of inventory step-up associated with business combinations. The Adjusted Gross Margin reconciliation is presented within this news release.
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 Annual Report on Form 10-K to be filed with the SEC.
The following schedules are provided in this news release:
- Schedule 1 – Consolidated Balance Sheet at March 31, 2020 and March 31, 2019
- Schedule 2 – Consolidated Statements of Operations for FY2020 and FY2019
- Schedule 3 – Consolidated Statements of Operations for Q4 2020 and Q4 2019
- Schedule 4 – Consolidated Statements of Cash Flows for FY2020 and FY2019
- Schedule 5 – Adjusted EBITDA Reconciliations for Q4 2020, Q3 2020, Q2 2020, Q1 2020, and FY2020
- Schedule 6 – Adjusted EBITDA – IFRS to US GAAP Differences for Q3 2020, Q2 2020, and Q1 2020
- Schedule 7 – Gross Margin – IFRS to US GAAP Differences for Q4 2020, Q3 2020, Q2 2020, Q1 2020, and FY2020
- Schedule 8 – Adjusted Gross Margin Reconciliations for Q4 2020, Q3 2020, Q2 2020, Q1 2020, and FY2020
- Schedule 9 – Free Cash Flow Reconciliation for Q4 2020 and FY2020
Exemption for Filing of Restated Interim Financial Reports
As of April 1, 2020, the Company is considered an “SEC issuer” as defined under National Instrument 51-102 – Continuous Disclosure Obligations (“NI-51-102”) and must file restated interim financial reports prepared in accordance with the generally accepted accounting principles in the United States that the SEC has identified as having substantial authoritative support, as supplemented by Regulation S-X and Regulation S-B under the 1934 Act (“U.S. GAAP”) for the interim periods since its most recently completed financial year for which annual financial statements have been filed (the “Restated Interim Financial Reports”) on or before the deadline for the Company to file its audited annual financial statements for the year ended March 31, 2020, being June 1, 2020.
The Company is relying on an exemption granted by the Ontario Securities Commission to provide the Company with an additional 45 days from the deadline otherwise applicable under NI 51-102. As such, the Company will be filing its Restated Interim Financial Reports and related MD&A prepared in accordance with U.S. GAAP on or before July 16, 2020. The Company confirms that its management and other insiders are subject to our Insider Trading Policy which contains an insider trading black-out policy that reflects the principles in Section 9 of National Policy 11-207 – Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions.
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. Canopy Growth operates eleven licensed cannabis production sites with over 5.2 million square feet of production capacity, including over one million square feet of GMP certified production space. For more information visit www.canopygrowth.com