• Consolidated Net Revenue: $63 million in Q2 FY 2025, a decrease of 9% year-over-year, or an increase of 3% excluding divested businesses.
• Gross Margin: 35% in Q2, a 100 basis point improvement compared to last year.
• Adjusted EBITDA: Loss of $6 million, an improvement of 54% versus last year.
• Free Cash Flow: Outflow of $56 million, an improvement of 16% compared to the prior year.
• Storz & Bickel Revenue: $16 million in Q2, up 32% year-over-year.
• Canada Medical Revenue: Up 16% year-over-year.
• International Markets Cannabis Revenue: $10 million in Q2, up 12% year-over-year.
• Canada Adult-Use Revenue: Down 24% year-over-year.
• Cash and Short-term Investments: $231 million as of September 30, 2024.
• Total Principal Debt Balance: $574 million as of September 30, 2024.

• Warning! GuruFocus has detected 5 Warning Signs with CGC.

Release Date: November 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Storz & Bickel device business achieved a 32% year-over-year net revenue growth, driven by strong demand in Germany and the U.S.
• The Canadian medical cannabis business saw a 16% increase in revenue year-over-year, supported by an expanded product selection and more insured patients.
• International medical cannabis revenue grew by 72% year-over-year, with significant growth in Germany and Poland.
• Canopy USA is well-positioned for growth in the U.S. cannabis and hemp-derived markets, independent of federal legalization.
• The company has made progress in reducing corporate G&A costs, achieving a $10 million reduction year-to-date.

Negative Points

• Consolidated net revenue decreased by 9% compared to the previous year, impacted by divested businesses.
• The Canadian adult-use cannabis business experienced a 24% decline in revenue year-over-year, partly due to supply interruptions.
• Free cash flow was an outflow of $56 million, although it showed a 16% improvement compared to the previous year.
• The adjusted EBITDA loss was $6 million, despite a 54% improvement from the previous year.
• The company faces increased price competition in the Australian medical cannabis market, impacting sales.

Q & A Highlights

Q: Can you provide more details on the hemp initiative in the US, particularly regarding distribution plans and potential regulatory impacts? A: David Klein, CEO: The opportunity for hemp-derived offerings in the US is significant. We believe states will largely determine the regulatory path forward, and we're prepared to operate in that environment. Wana has set up a direct-to-consumer infrastructure and is working on B2B engagements to get products on retail shelves, leveraging our connections in the beverage alcohol industry. We're excited about the potential of hemp, although it's still early in the process.

Q: How do you plan to address the competitive dynamics in the Australian market? A: Judy Hong, CFO: We've experienced good growth in Australia by supplying the market from Canada. However, increased competition has led to price pressures. We're leveraging our lower cost structure in Canada and expanding our product assortment to remain competitive in Australia.

Q: Regarding the outlook for positive adjusted EBITDA, is there a change in expectations? A: Judy Hong, CFO: We're pleased with our progress towards positive adjusted EBITDA. While we initially expected this in the second half, the timing of growth in our Canada adult-use business has influenced our outlook. We're focused on achieving consistent positive adjusted EBITDA across all business units.

Q: Why were there higher rebates on the Mighty vaporizer in the quarter? A: David Klein, CEO: The rebates were part of portfolio management as we phased out certain SKUs. However, the strong quarter for Storz & Bickel was driven by growth in Germany and the US, as well as the strength of the Venti innovation, not just the rebates.

Q: Can you elaborate on the international market dynamics, particularly in Europe and Australia? A: David Klein, CEO: We've focused on high-margin markets like Germany and Poland. While Australia faces price competition, we've adjusted our offerings to remain competitive. In Germany, we anticipate eventual price compression but have prepared to be a leader with an asset-light infrastructure.

Q: Can you discuss the growth opportunities for Canopy USA and the impact of federal permissibility? A: David Klein, CEO: Our structure allows exposure to the US THC market while trading on a US exchange, independent of federal legalization. Canopy USA focuses on execution, with a deeper strategy in existing markets. We see opportunities for Jetty and Wana to expand and collaborate, and we're open to partnerships to build the business further.

Q: Could you clarify the cash flow expectations for the second half of the fiscal year? A: Judy Hong, CFO: We expect cash outflow in the second half to be about half of the first half, due to timing of payments and reduced interest expenses. We will tightly manage working capital and expect lower CapEx, improving our cash flow position.

Q: How do you plan to expand Canopy USA's brand presence and operations? A: David Klein, CEO: Canopy USA is focused on deepening its presence in existing states and leveraging Acreage's production assets to support Wana and Jetty. Jetty will expand its solventless capabilities, and Wana will strengthen its market presence. We continue to explore partnerships and opportunities to enhance our brand-led approach.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.