UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of February 7, 2024, there were
Table of Contents
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Page |
PART I. |
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Item 1. |
1 |
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1 |
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Condensed Interim Consolidated Statements of Operations and Comprehensive Loss |
2 |
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Condensed Interim Consolidated Statements of Shareholders’ Equity |
3 |
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7 |
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Notes to the Condensed Interim Consolidated Financial Statements |
9 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
38 |
Item 3. |
73 |
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Item 4. |
75 |
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PART II. |
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Item 1. |
77 |
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Item 1A. |
78 |
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Item 2. |
79 |
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Item 3. |
79 |
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Item 4. |
79 |
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Item 5. |
79 |
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Item 6. |
80 |
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81 |
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Unless otherwise noted or the context indicates otherwise, references in this Quarterly Report on Form 10-Q (“Quarterly Report”) to the “Company,” “Canopy Growth,” “we,” “us” and “our” refer to Canopy Growth Corporation and its direct and indirect wholly-owned subsidiaries; the term “cannabis” means the plant of any species or subspecies of genus Cannabis and any part of that plant, including all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers; and the term “U.S. hemp” has the meaning given to the term “hemp” in the U.S. Agricultural Improvement Act of 2018 (the “2018 Farm Bill”), including hemp-derived cannabidiol (“CBD”).
This Quarterly Report contains references to our trademarks and trade names and to trademarks and trade names belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trademarks or trade names to imply a relationship with, or endorsement or sponsorship of us or our business by, any other companies.
All currency amounts in this Quarterly Report are stated in Canadian dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “CDN$” are to Canadian dollars and all references to “US$” are to U.S. dollars.
i
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(in thousands of Canadian dollars, except number of shares and per share data, unaudited)
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December 31, |
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March 31, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Restricted short-term investments |
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Amounts receivable, net |
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Inventory |
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Assets of discontinued operations |
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Prepaid expenses and other assets |
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Total current assets |
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Other financial assets |
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Property, plant and equipment |
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Intangible assets |
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Goodwill |
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Noncurrent assets of discontinued operations |
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- |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Other accrued expenses and liabilities |
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Current portion of long-term debt and convertible debentures |
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Liabilities of discontinued operations |
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- |
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Other liabilities |
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Total current liabilities |
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Long-term debt |
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Noncurrent liabilities of discontinued operations |
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- |
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Other liabilities |
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Total liabilities |
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Canopy Growth Corporation shareholders' equity: |
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Common shares - $nil par value; Authorized - unlimited number of shares; |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Deficit |
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Total Canopy Growth Corporation shareholders' equity |
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Noncontrolling interests |
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Total shareholders' equity |
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Total liabilities and shareholders' equity |
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$ |
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$ |
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1
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
1
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS
(in thousands of Canadian dollars, except number of shares and per share data, unaudited)
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Three months ended December 31, |
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Nine months ended December 31, |
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2023 |
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2022 |
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2023 |
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2022 |
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(As Restated) |
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(As Restated) |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Excise taxes |
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Net revenue |
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Cost of goods sold |
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Gross margin |
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Operating expenses |
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Selling, general and administrative expenses |
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Share-based compensation |
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Loss on asset impairment and restructuring |
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Total operating expenses |
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Operating loss from continuing operations |
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( |
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Other income (expense), net |
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( |
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Loss from continuing operations before income taxes |
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( |
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( |
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Income tax recovery (expense) |
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( |
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Net loss from continuing operations |
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( |
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Discontinued operations, net of income tax |
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( |
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( |
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Net loss |
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( |
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( |
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( |
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( |
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Net loss from continuing operations attributable to |
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- |
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( |
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- |
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( |
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Discontinued operations attributable to noncontrolling |
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- |
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( |
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Net loss attributable to Canopy Growth Corporation |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Basic and diluted loss per share1 |
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Continuing operations |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Discontinued operations |
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( |
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Basic and diluted loss per share |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Basic and diluted weighted average common shares |
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Comprehensive income (loss): |
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Net loss from continuing operations |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Other comprehensive income (loss), net of income tax |
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Fair value changes of own credit risk of financial liabilities |
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Foreign currency translation |
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Total other comprehensive income (loss), net of income tax |
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Comprehensive loss from continuing operations |
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( |
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( |
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( |
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( |
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Comprehensive income (loss) from discontinued operations |
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( |
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( |
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( |
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Comprehensive loss |
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( |
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( |
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( |
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( |
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Comprehensive loss from continuing operations |
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- |
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( |
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- |
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( |
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Comprehensive loss from discontinued operations |
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- |
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( |
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( |
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( |
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Comprehensive loss attributable to Canopy Growth |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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1
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
2
CANOPY GROWTH CORPORATION
(in thousands of Canadian dollars, unaudited)
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Three months ended December 31, 2023 |
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Additional paid-in capital |
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Accumulated |
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Common shares |
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Share-based reserve |
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Warrants |
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Ownership changes |
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Redeemable noncontrolling interest |
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other comprehensive income (loss) |
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Deficit |
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Noncontrolling interests |
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Total |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
- |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Other issuances of common |
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( |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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Share-based compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Issuance and vesting of |
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( |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Comprehensive loss |
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- |
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- |
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- |
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- |
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- |
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( |
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- |
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( |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
- |
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$ |
( |
) |
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$ |
( |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed interim consolidated financial statements.
3
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands of Canadian dollars, unaudited)
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Nine months ended December 31, 2023 |
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Additional paid-in capital |
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Accumulated |
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Common shares |
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Share-based reserve |
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Warrants |
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Ownership changes |
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Redeemable noncontrolling interest |
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other comprehensive income (loss) |
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Deficit |
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Noncontrolling interests |
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Total |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Private Placement, net of |
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- |
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- |
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- |
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- |
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- |
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Other issuances of common |
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( |
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- |
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- |
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- |
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- |
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- |
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Exercise of Previous Equity |
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( |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Share-based compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Issuance and vesting of |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Changes in redeemable |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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- |
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- |
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Ownership changes relating to |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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Redemption of redeemable |
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- |
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- |
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( |
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- |
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- |
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- |
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( |
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Comprehensive loss |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Balance at December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
|
$ |
- |
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|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
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$ |
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|||||
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
4
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands of Canadian dollars, unaudited)
|
|
Three months ended December 31, 2022 |
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Additional paid-in capital |
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Accumulated |
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Common shares |
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Share-based reserve |
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Warrants |
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Ownership changes |
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Redeemable noncontrolling interest |
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other comprehensive income (loss) |
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Deficit |
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Noncontrolling interests |
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Total |
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|||||||||
Balance at September 30, 2022 |
|
$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
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Other issuances of common |
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|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Share-based compensation |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Issuance and vesting of |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Changes in redeemable |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|||
Ownership changes relating to |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Redemption of redeemable |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
Comprehensive loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance at December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
5
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands of Canadian dollars, unaudited)
|
|
Nine months ended December 31, 2022 |
|
|||||||||||||||||||||||||||||||||
|
|
|
|
|
Additional paid-in capital |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
|
Common shares |
|
|
Share-based reserve |
|
|
Warrants |
|
|
Ownership changes |
|
|
Redeemable noncontrolling interest |
|
|
other comprehensive income (loss) |
|
|
Deficit |
|
|
Noncontrolling interests |
|
|
Total |
|
|||||||||
Balance at March 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Cumulative effect from adoption |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
|
||
Other issuances of common |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Exercise of Previous Equity |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Share-based compensation |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Issuance and vesting of restricted |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Changes in redeemable |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||||
Ownership changes relating to |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Redemption of redeemable |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Settlement of unsecured |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
|
||
Comprehensive income (loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance at December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
6
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars, unaudited)
|
|
Nine months ended December 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
|
|
|
(As Restated) |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Loss from discontinued operations, net of income tax |
|
|
( |
) |
|
|
( |
) |
Net loss from continuing operations |
|
|
( |
) |
|
|
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation of property, plant and equipment |
|
|
|
|
|
|
||
Amortization of intangible assets |
|
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
|
||
(Gain) loss on asset impairment and restructuring |
|
|
( |
) |
|
|
|
|
Income tax expense |
|
|
|
|
|
|
||
Non-cash fair value adjustments and charges related to |
|
|
|
|
|
|
||
Change in operating assets and liabilities, net of effects from |
|
|
|
|
|
|
||
Amounts receivable |
|
|
( |
) |
|
|
|
|
Inventory |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable and accrued liabilities |
|
|
|
|
|
( |
) |
|
Other, including non-cash foreign currency |
|
|
( |
) |
|
|
( |
) |
Net cash used in operating activities - continuing operations |
|
|
( |
) |
|
|
( |
) |
Net cash used in operating activities - discontinued operations |
|
|
( |
) |
|
|
( |
) |
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchases of and deposits on property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
Purchases of intangible assets |
|
|
( |
) |
|
|
( |
) |
Proceeds on sale of property, plant and equipment |
|
|
|
|
|
|
||
Redemption of short-term investments |
|
|
|
|
|
|
||
Net cash (outflow) proceeds on sale of subsidiaries |
|
|
( |
) |
|
|
|
|
Investment in other financial assets |
|
|
( |
) |
|
|
( |
) |
Other investing activities |
|
|
( |
) |
|
|
|
|
Net cash provided by investing activities - operating activities |
|
|
|
|
|
|
||
Net cash used in investing activities - discontinued operations |
|
|
( |
) |
|
|
( |
) |
Net cash provided by investing activities |
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from issuance of common shares and warrants |
|
|
|
|
|
|
||
Proceeds from exercise of stock options |
|
|
- |
|
|
|
|
|
Repayment of long-term debt |
|
|
( |
) |
|
|
( |
) |
Other financing activities |
|
|
( |
) |
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
( |
) |
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents, beginning of period1 |
|
|
|
|
|
|
||
Cash and cash equivalents, end of period2 |
|
$ |
|
|
$ |
|
||
1 Includes cash of our discontinued operations of $
2 Includes cash of our discontinued operations of $
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
7
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars, unaudited)
|
|
Nine months ended December 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
||
Cash received during the period: |
|
|
|
|
|
|
||
Income taxes |
|
$ |
|
|
$ |
|
||
Interest |
|
$ |
|
|
$ |
|
||
Cash paid during the period: |
|
|
|
|
|
|
||
Income taxes |
|
$ |
|
|
$ |
|
||
Interest |
|
$ |
|
|
$ |
|
||
Noncash investing and financing activities |
|
|
|
|
|
|
||
Additions to property, plant and equipment |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
8
CANOPY GROWTH CORPORATION
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, unaudited, unless otherwise indicated)
1. DESCRIPTION OF BUSINESS
Canopy Growth Corporation is a publicly traded corporation, incorporated in Canada, with its head office located at 1 Hershey Drive, Smiths Falls, Ontario. References herein to “Canopy Growth” or “the Company” refer to Canopy Growth Corporation and its subsidiaries.
The principal activities of the Company are the production, distribution and sale of a diverse range of cannabis and cannabinoid-based products for both adult-use and medical purposes under a portfolio of distinct brands in Canada pursuant to the Cannabis Act, SC 2018, c 16 (the "Cannabis Act"), which came into effect on October 17, 2018 and regulates both the medical and adult-use cannabis markets in Canada. The Company has also expanded to jurisdictions outside of Canada where cannabis and/or hemp is federally lawful, permissible and regulated, and the Company, through its subsidiaries, operates in the United States, Australia, Germany, and certain other global markets. Additionally, the Company produces, distributes and sells vaporizers and similar cannabis accessories.
2. BASIS OF PRESENTATION
These condensed interim consolidated financial statements have been presented in Canadian dollars and are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Canopy Growth has determined that the Canadian dollar is the most relevant and appropriate reporting currency as, despite continuing shifts in the relative size of the Company's operations across multiple geographies, the majority of its operations are conducted in Canadian dollars and its financial results are prepared and reviewed internally by management in Canadian dollars. The Company's condensed interim consolidated financial statements, and the financial information contained herein, are reported in thousands of Canadian dollars, except share and per share amounts or as otherwise stated.
Certain information and footnote disclosures normally included in the audited annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted or condensed. These condensed interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023 (the “Annual Report”) and have been prepared on a basis consistent with the accounting policies as described in the Annual Report.
These condensed interim consolidated financial statements are unaudited and reflect adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods in accordance with U.S. GAAP.
The results reported in these condensed interim consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for an entire fiscal year. The policies set out below are consistently applied to all periods presented, unless otherwise noted.
Going Concern
The condensed interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
As reflected in the condensed interim consolidated financial statements, the Company has certain material debt obligations coming due in the short-term, has suffered recurring losses from operations and requires additional financing to fund its business and operations. If the Company is unable to raise additional capital, it is possible that it will be unable to meet certain of its financial obligations.
These matters, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern for at least twelve months from the issuance of these condensed interim consolidated financial statements.
In view of these matters, continuation as a going concern is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financial requirements and to raise additional capital, and the success of its future operations. The condensed interim consolidated financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should the Company not continue as a going concern.
Management plans to fund the operations and debt obligations of the Company through existing cash positions. The Company is also currently evaluating several different strategies and intends to pursue actions that are expected to increase its liquidity position, including, but not limited to, pursuing additional actions under the Company's cost-savings plan, seeking additional financing from both the public and private markets through the issuance of equity and/or debt securities, and monetizing additional assets.
9
The Company's management cannot provide assurances that the Company will be successful in accomplishing any of its proposed financing plans. Management also cannot provide any assurance as to unforeseen circumstances that could occur within the next twelve months or, if the Company raises capital, thereafter, which could increase the Company’s need to raise additional capital on an immediate basis, which capital may not be available to the Company.
Principles of consolidation
These condensed interim consolidated financial statements include the accounts of the Company and all entities in which the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. All intercompany accounts and transactions have been eliminated on consolidation. Information on the Company’s subsidiaries with noncontrolling interests is included in Note 22.
Use of estimates
The preparation of these condensed interim consolidated financial statements and notes in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates.
Share Consolidation
The Share Consolidation was approved by the Company’s shareholders at the annual general and special meeting of shareholders held on September 25, 2023. The Share Consolidation became effective on December 15, 2023. No fractional common shares were issued in connection with the Share Consolidation. Any fractional common shares arising from the Share Consolidation were deemed to have been tendered by its registered owner to the Company for cancellation for no consideration. In addition, the exercise or conversion price and/or the number of common shares issuable under any of the Company’s outstanding convertible securities, were proportionately adjusted in connection with the Share Consolidation.
All issued and outstanding common shares, per share amounts, and outstanding equity instruments and awards exercisable into common shares, as well as the exchange ratios for the Fixed Shares (as defined below) and the Floating Shares (as defined below) in connection with the Acreage Amending Arrangement and the Floating Share Arrangement (as defined below), respectively, contained in the condensed interim consolidated financial statements of the Company and notes thereto have been retroactively adjusted to reflect the Share Consolidation for all prior periods presented.
New accounting policies
Recently Adopted Accounting Pronouncements
Convertible Instruments and Contracts in an Entity’s Own Equity
In August 2020, the Financial Accounting Standards Board (the "FASB") issued , Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for convertible instruments by removing the separation models for convertible debt instruments and convertible preferred stock with (1) cash conversion features, and (2) beneficial conversion features. In addition, ASU 2020-06 enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share guidance and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.
The Company adopted the guidance on April 1, 2022, using the modified retrospective approach with the cumulative effect recognized as an adjustment to the opening deficit balance, and, accordingly, prior period balances and disclosures have not been restated. Upon adoption of ASU 2020-06, the Supreme Debentures (as defined below) will be accounted for under the separation model for a substantial premium instead of a beneficial conversion feature resulting in an increased debt discount to be amortized over the life of the instrument. The adoption of this guidance resulted in increased additional paid-in capital by $
10
Accounting Guidance Not Yet Adopted
Segment Reporting
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is evaluating the impact on the consolidated financial statements and expects to implement the provisions of ASU 2023-07 for our fiscal year ending March 31, 2025.
Income Taxes
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which enhances income tax disclosures, primarily through changes to the rate reconciliation and disaggregation of income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the impact on the consolidated financial statements and expects to implement the provisions of ASU 2023-09 for our fiscal year ending March 31, 2026.
3. CANOPY USA
Reorganization - Creation of Canopy USA
On October 24, 2022, Canopy Growth completed a number of strategic transactions in connection with the creation of Canopy USA, LLC ("Canopy USA"), a new U.S.-domiciled holding company (the “Reorganization”). Following the implementation of the Reorganization, Canopy USA, as of October 24, 2022, holds certain U.S. cannabis investments previously held by Canopy Growth, which is expected to enable Canopy USA, following, among other things, the Meeting (as defined below) and the exercise of the Acreage Option (as defined below), including the issuance of the Fixed Shares to Canopy USA, to consummate the acquisitions of Acreage Holdings, Inc. ("Acreage"), Mountain High Products, LLC, Wana Wellness, LLC and The Cima Group, LLC (collectively, "Wana" and each, a "Wana Entity"), and Lemurian, Inc. ("Jetty"). There were no changes recorded in the estimated fair values of the U.S. cannabis investments described below upon implementation of the Reorganization, and their transfer from Canopy Growth to Canopy USA.
Following the implementation of the Reorganization, as of October 24, 2022, Canopy USA holds an ownership interest in the following assets, among others:
Canopy Growth currently retains the option to acquire the issued and outstanding Class E subordinate voting shares (the “Fixed Shares”) of Acreage (the “Acreage Option”), representing approximately
In addition, as of October 24, 2022, Canopy USA held direct and indirect interests in the capital of TerrAscend Corp. (“TerrAscend”), a leading North American cannabis operator with vertically integrated operations and a presence in Pennsylvania, New Jersey, Michigan and California as well as licensed cultivation and processing operations in Maryland. Canopy USA’s direct and indirect interests in TerrAscend included: (i)
On December 9, 2022, Canopy USA and certain limited partnerships that are controlled by Canopy USA entered into a debt settlement agreement with TerrAscend, TerrAscend Canada Inc. and Arise BioScience, Inc., whereby $
11
exchange for: (i)
Following the implementation of the Reorganization, Canopy USA was determined to be a variable interest entity pursuant to ASC 810 - Consolidations ("ASC 810") and prior to the completion of the Reorganization Amendments (as defined below), Canopy Growth was determined to be the primary beneficiary of Canopy USA. As a result of such determination and in accordance with ASC 810, Canopy Growth consolidated the financial results of Canopy USA.
Amendments to Canopy USA Structure
Following the creation of Canopy USA, the Nasdaq Stock Market LLC ("Nasdaq") communicated its position to the Company stating that companies that consolidate “the assets and revenues generated from activities in violation under federal law cannot continue to list on Nasdaq”. Since the Company is committed to compliance with the listing requirements of the Nasdaq,
On May 19, 2023, the Company and Canopy USA implemented the Reorganization Amendments, which included, entering into the First A&R Protection Agreement (as defined below) and amending and restating Canopy USA’s limited liability company agreement (the “A&R LLC Agreement”) in order to: (i) eliminate certain negative covenants that were previously granted by Canopy USA in favor of the Company as well as delegating to the managers of the Canopy USA Board (as defined below) not appointed by Canopy Growth the authority to approve the following key decisions (collectively, the “Key Decisions”): (a) the annual business plan of Canopy USA; (b) decisions regarding the executive officers of Canopy USA and any of its subsidiaries; (c) increasing the compensation, bonus levels or other benefits payable to any current, former or future employees or managers of Canopy USA or any of its subsidiaries; (d) any other executive compensation plan matters of Canopy USA or any of its subsidiaries; and (e) the exercise of the Wana Options or the Jetty Options, which for greater certainty means that the Company’s nominee on the Canopy USA Board will not be permitted to vote on any Key Decisions while the Company owns Non-Voting Shares (as defined below); (ii) reduce the number of managers on the Canopy USA Board from four to three, including, reducing the Company’s nomination right to a single manager; (iii) amend the share capital of Canopy USA to, among other things, (a) create a new class of Canopy USA Class B Shares (as defined below), which may not be issued prior to the conversion of the Non-Voting Shares or the Canopy USA Common Shares (as defined below) into Canopy USA Class B Shares; (b) amend the terms of the Non-Voting Shares such that the Non-Voting Shares will be convertible into Canopy USA Class B Shares (as opposed to Canopy USA Common Shares); and (c) amend the terms of the Canopy USA Common Shares such that upon conversion of all of the Non-Voting Shares into Canopy USA Class B Shares, the Canopy USA Common Shares will, subject to their terms, automatically convert into Canopy USA Class B Shares, provided that the number of Canopy USA Class B Shares to be issued to the former holders of the Canopy USA Common Shares will be equal to no less than
In connection with the Reorganization Amendments, on May 19, 2023, Canopy USA and Huneeus 2017 Irrevocable Trust (the “Trust”) entered into a share purchase agreement (the “Trust SPA”), which sets out the terms of the Trust’s investment in Canopy USA in the aggregate amount of up to US$
In addition, subject to the terms and conditions of the A&R Protection Agreement and the terms of the option agreements to acquire Wana and Jetty, as applicable, Canopy Growth may be required to issue additional common shares in satisfaction of certain deferred and/or option exercise payments to the shareholders of Wana and Jetty. Canopy Growth will receive additional Non-Voting Shares from Canopy USA as consideration for any Company common shares issued in the future to the shareholders of Wana and Jetty.
12
On November 3, 2023, the Company received a letter from the staff of the SEC (the “Staff”) in which the Staff indicated that, despite the Reorganization Amendments, it would object to the deconsolidation of the financial results of Canopy USA from the Company's financial statements in accordance with U.S. GAAP once Canopy USA acquires Wana, Jetty or the Fixed Shares of Acreage. The Company subsequently had discussions with the Office of Chief Accountant of the SEC (the "OCA") and determined to make certain additional amendments to the structure of Canopy USA (the “Additional Reorganization Amendments”) to facilitate the deconsolidation of Canopy USA from the financial results of Canopy Growth in accordance with U.S. GAAP upon Canopy USA’s acquisition of Wana, Jetty or Acreage. In that regard, the Company filed a revised preliminary proxy statement with the SEC on each of January 25, 2024 and February 5, 2024 in connection with the Amendment Proposal (as defined below) that discloses these Additional Reorganization Amendments. In connection with the Additional Reorganization Amendments, Canopy USA and its members expect to enter into a second amended and restated limited liability company agreement (the “Second A&R LLC Agreement”) immediately prior to the completion of the first tranche closing of the Trust Transaction. Upon the effective date of the Second A&R LLC Agreement, the terms of the Non-Voting Shares will be amended such that the Non-Voting Shares will only be convertible into Canopy USA Class B Shares following the date that the NASDAQ Stock Market or The New York Stock Exchange permit the listing of companies that consolidate the financial statements of companies that cultivate, distribute or possess marijuana (as defined in 21 U.S.C 802) in the United States (the “Triggering Event Date”). Based on the Company’s discussions with the OCA, upon effectuating the Additional Reorganization Amendments, the Company believes that the Staff would not object to the deconsolidation of the financial results of Canopy USA from the Company’s financial statements in accordance with U.S. GAAP once Canopy USA acquires Wana, Jetty or the Fixed Shares of Acreage.
Ownership of U.S. Cannabis Investments
Following the implementation of the Reorganization, the shares and interests in Acreage, Wana, Jetty and TerrAscend are held, directly or indirectly, by Canopy USA, and Canopy Growth no longer holds a direct interest in any shares or interests in such entities, other than the Acreage Option. Canopy Growth holds non-voting and non-participating shares (the “Non-Voting Shares”) in the capital of Canopy USA. The Non-Voting Shares do not carry voting rights, rights to receive dividends or other rights upon dissolution of Canopy USA. Following the Reorganization Amendments, the Non-Voting Shares are convertible into Class B shares of Canopy USA (the “Canopy USA Class B Shares”), provided that following the execution of the Second A&R LLC Agreement, such conversion shall only be permitted following the Triggering Event Date. The Company also has the right (regardless of the fact that its Non-Voting Shares are non-voting and non-participating) to appoint one member to the Canopy USA board of managers (the "Canopy USA Board").
As of December 31, 2023, a third party investor owned all of the issued and outstanding Class A shares of Canopy USA (the “Canopy USA Common Shares”) and a wholly-owned subsidiary of the Company holds Non-Voting Shares in the capital of Canopy USA, representing approximately more than
On October 24, 2022, Canopy USA and the Company also entered into an agreement with, among others, Nancy Whiteman, the controlling shareholder of Wana, which was amended and restated on May 19, 2023, whereby subsidiaries of Canopy USA agreed to pay additional consideration in order to acquire the Wana Options and the future payments owed in connection with the exercise of the Wana Options (as described in Note 11) will be reduced to US$
Canopy Growth and Canopy USA have also entered into a protection agreement (the "Protection Agreement") to provide for certain covenants in order to preserve the value of the Non-Voting Shares held by Canopy Growth until such time as the Non-Voting
13
Shares are converted in accordance with their terms, provided that following the execution of the Second A&R LLC Agreement, such conversion shall only be permitted following the Triggering Event Date, but does not provide Canopy Growth with the ability to direct the business, operations or activities of Canopy USA. The Protection Agreement was amended and restated in connection with: (a) the Reorganization Amendments (the “First A&R Protection Agreement”); and (b) the Additional Reorganization Amendments (the “Second A&R Protection Agreement” and together with the First A&R Protection Agreement, the “A&R Protection Agreement”).
Upon closing of Canopy USA’s acquisition of Acreage, Canopy Growth will receive additional Non-Voting Shares from Canopy USA in consideration for the issuance of common shares of the Company that shareholders of Acreage will receive in accordance with the terms of the Existing Acreage Arrangement Agreement (as defined below) and the Floating Share Arrangement Agreement (as defined below).
Until such time as Canopy Growth converts the Non-Voting Shares into Canopy USA Class B Shares following the Triggering Event Date, Canopy Growth will have no economic or voting interest in Canopy USA, Wana, Jetty, TerrAscend, or Acreage. Canopy USA, Wana, Jetty, TerrAscend, and Acreage will continue to operate independently of Canopy Growth.
Acreage Agreements
On October 24, 2022, Canopy Growth entered into an arrangement agreement with Canopy USA and Acreage, as amended (the “Floating Share Arrangement Agreement”), pursuant to which, subject to approval of the holders of the Floating Shares and the terms and conditions of the Floating Share Arrangement Agreement, Canopy USA will acquire all of the issued and outstanding Floating Shares by way of a court-approved plan on arrangement under the Business Corporations Act (British Columbia) (the “Floating Share Arrangement”) in exchange for
On October 24, 2022, the Company and Canopy USA entered into a third amendment to tax receivable agreement (the “Amended TRA”) with, among others, certain current or former unitholders (the “Holders”) of High Street Capital Partners, LLC, a subsidiary of Acreage (“HSCP”), pursuant to HSCP’s amended tax receivable agreement (the “TRA”) and related tax receivable bonus plans with Acreage. Pursuant to the Amended TRA, the Company, on behalf of Canopy USA, agreed to issue common shares of the Company with a value of US$
On October 24, 2022, Canopy Growth and Canopy USA entered into voting support agreements with certain of Acreage’s directors, officers and consultants pursuant to which such persons have agreed, among other things, to vote their Floating Shares in favor of the Floating Share Arrangement, representing approximately
In addition to shareholder and court approvals, the Floating Share Arrangement is subject to approval of the Amendment Proposal (as defined below) and applicable regulatory approvals including, but not limited to, Toronto Stock Exchange (“TSX”) approval and the satisfaction of certain other closing conditions customary in transactions of this nature. The Floating Share Arrangement received the requisite approval from the holders of Floating Shares at the special meeting of Acreage shareholders held on March 15, 2023 and on March 20, 2023 Acreage obtained a final order from the Supreme Court of British Columbia approving the Floating Share Arrangement. The Floating Share Arrangement Agreement has been amended several times to extend the Exercise Outside Date (as defined in the Floating Share Arrangement Agreement), which was initially March 31, 2023. The most recent amendment to the Floating Share Arrangement Agreement extended the Exercise Outside Date to March 31, 2024. The completion of the Floating Share Arrangement is subject to satisfaction or, if permitted, waiver of certain closing conditions, including, among others, approval of the Amendment Proposal on or prior to the Exercise Outside Date.
It is intended that Canopy Growth’s existing option to acquire the Fixed Shares on the basis of
14
On November 15, 2022, a wholly-owned subsidiary of Canopy Growth (the “Acreage Debt Optionholder”) and Acreage’s existing lenders (the “Lenders”) entered into an option agreement, which superseded the letter agreement dated October 24, 2022 between the parties, pursuant to which the Acreage Debt Optionholder was granted the right to purchase the outstanding principal, including all accrued and unpaid interest thereon, of Acreage’s debt, being an amount up to US$
Special Shareholder Meeting
In connection with the Reorganization, Canopy Growth expects to hold a special meeting of shareholders (the “Meeting”) at which Canopy Growth shareholders will be asked to consider and, if deemed appropriate, to pass a special resolution authorizing an amendment to its articles of incorporation, as amended (the “Amendment Proposal”), in order to: (i) create and authorize the issuance of an unlimited number of a new class of non-voting and non-participating exchangeable shares in the capital of Canopy Growth (the “Exchangeable Shares”); and (ii) restate the rights of the Company’s common shares to provide for a conversion feature whereby each common share may at any time, at the option of the holder, be converted into one Exchangeable Share. The Exchangeable Shares will not carry voting rights, rights to receive dividends or other rights upon dissolution of Canopy Growth but will be convertible into common shares.
The Amendment Proposal must be approved by at least
On October 24, 2022, CBG and Greenstar entered into a voting and support agreement with Canopy Growth (the “Voting and Support Agreement”). Pursuant to the terms of the Voting and Support Agreement, CBG and Greenstar agreed, subject to the terms and conditions thereof, among other things, to vote all of the Canopy Growth common shares beneficially owned, directed or controlled, directly or indirectly, by them for the Amendment Proposal.
In the event the Amendment Proposal is approved, and subject to the conversion by CBI of their Canopy Growth common shares into Exchangeable Shares, Canopy USA is expected to exercise the Wana Options and the Jetty Options. In the event the Amendment Proposal is not approved, Canopy USA will not be permitted to exercise its rights to acquire shares of Wana or Jetty and the Floating Share Arrangement Agreement will be terminated. In such circumstances, Canopy will retain the Acreage Option under the Existing Acreage Arrangement Agreement and Canopy USA will continue to hold the Wana Options and the Jetty Options, as well as the TerrAscend Exchangeable Shares and other securities in the capital of TerrAscend. In addition, the Company is contractually required to cause Canopy USA to exercise its repurchase right to acquire the Canopy USA Common Shares held by the third party investors.
Relationship with CBI
In connection with the Reorganization, CBI has indicated its current intention to convert all of its common shares of the Company into Exchangeable Shares, conditional upon the approval of the Amendment Proposal. However, any decision to convert will be made by CBI in its sole discretion, and CBI is not obligated to effect any such conversion.
In connection with the foregoing, on October 24, 2022, Canopy Growth entered into a consent agreement with CBG and Greenstar (the “Third Consent Agreement”), pursuant to which the parties agreed, among other things, that following the conversion by CBG and Greenstar of their respective Canopy Growth common shares into Exchangeable Shares, other than the Third Consent Agreement and the termination rights contained therein and the
In the event that CBI does not convert its Canopy Growth common shares into Exchangeable Shares, Canopy USA will not be permitted to exercise its rights to acquire the Fixed Shares from the Company or exercise its rights under the Wana Options or Jetty
15
Options, and the Floating Share Arrangement Agreement will be terminated. In such circumstances, Canopy Growth will retain the Acreage Option under the Existing Acreage Arrangement Agreement and Canopy USA will continue to hold the Wana Options and the Jetty Options, as well as the TerrAscend Exchangeable Shares and other securities in the capital of TerrAscend. If CBI does not convert its Canopy Growth common shares into Exchangeable Shares, the Company is also contractually required to cause Canopy USA to exercise its repurchase right to acquire the Canopy USA Common Shares held by the third party investors.
4. BIOSTEEL
On September 14, 2023, following a review of the strategic options for the BioSteel business unit, Canopy Growth ceased funding the operations of BioSteel Sports Nutrition Inc. ("BioSteel Canada") and commenced proceedings (the "CCAA Proceedings") under the Companies' Creditors Arrangement Act (the "CCAA") in the Ontario Superior Court of Justice (Commercial List) (the "CCAA Court") and sought and obtained recognition of that proceeding under Chapter 15 of the United States Bankruptcy Code. To assist with the sale process, the Court approved the appointment of a monitor.
The strategic decisions made encompassed all operations of the BioSteel business unit, including those of BioSteel Canada. For this reason, the BioSteel segment results for all periods prior to the September 14, 2023 deconsolidation of BioSteel Canada, including costs to exit, are classified as discontinued operations.
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
(As Restated) |
|
|
|
|
|
(As Restated) |
|
||||
Net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Operating loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other income (expense), net1 |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Income tax (expense) recovery |
|
|
- |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net income (loss) on discontinued operations, net of tax |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
1
Investment in BioSteel Entities
Canopy Growth continues to have a
Canopy Growth's Amounts Receivable from BioSteel Entities
Prior to Canopy Growth's deconsolidation of BioSteel Canada, Canopy Growth made significant secured loans to BioSteel Canada for purposes of funding its operations. The secured loans and corresponding interest were considered intercompany transactions and eliminated in Canopy Growth's consolidated financial statements prior to September 14, 2023, being the deconsolidation date. As of the deconsolidation date, the secured loans and corresponding interest are now considered related party transactions and have been recognized in Canopy Growth's consolidated financial statements at their estimated fair value of $
16
As of the deconsolidation date for BioSteel US and BioSteel Manufacturing, Canopy Growth has recorded remaining amounts legally receivable from BioSteel US and BioSteel Manufacturing at their estimated fair value.
The remaining amounts legally receivable from the BioSteel Entities are measured at their expected recoverable amounts.
|
|
December 31, |
|
|
March 31, |
|
||
|
|
2023 |
|
|
2023 |
|
||
Cash |
|
$ |
- |
|
|
$ |
|
|
Short-term investments |
|
|
- |
|
|
|
|
|
Amounts receivable, net |
|
|
- |
|
|
|
|
|
Receivable from BioSteel Entities |
|
|
|
|
|
- |
|
|
Inventory |
|
|
- |
|
|
|
|
|
Prepaid expenses and other assets |
|
|
- |
|
|
|
|
|
Property, plant and equipment |
|
|
- |
|
|
|
|
|
Intangible assets |
|
|
- |
|
|
|
|
|
Other assets |
|
|
- |
|
|
|
|
|
Total assets of discontinued operations |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Accounts payable |
|
|
- |
|
|
|
|
|
Other accrued expenses and liabilities |
|
|
- |
|
|
|
|
|
Other current liabilities |
|
|
- |
|
|
|
|
|
Deferred income tax liabilities |
|
|
- |
|
|
|
|
|
Other liabilities |
|
|
- |
|
|
|
|
|
Total liabilities of discontinued operations |
|
$ |
- |
|
|
$ |
|
|
5. LOSS ON ASSET IMPAIRMENT AND RESTRUCTURING
In the three months ended December 31, 2023, the Company recorded a loss on asset impairment and restructuring. The loss for the three months ended December 31, 2023 primarily relates to the This Works Divestiture (as defined below) as This Works was classified as held for sale and measured at its fair value less costs to sell which was lower than its carrying amount (refer to Note 27).
For the nine months ended December 31, 2023, the loss on asset impairment and restructuring was primarily related to: (i) the Company's divestiture of This Works; and (ii) various incremental impairment losses and other costs associated with the restructuring of the Company's Canadian cannabis operations that were initiated in the three months ended March 31, 2023. The loss on asset impairment and restructuring was partially offset by a gain on the sale of the Company's production facility at 1 Hershey Drive in Smiths Falls, Ontario. Such gain was due to the sale proceeds exceeding the carrying value that was previously impaired at March 31, 2023.
As a result, in the three and nine months ended December 31, 2023, the Company recognized a loss on asset impairment and restructuring of $
6. CASH AND CASH EQUIVALENTS
The components of cash and cash equivalents are as follows:
|
|
December 31, |
|
|
March 31, |
|
||
|
|
2023 |
|
|
2023 |
|
||
Cash |
|
$ |
|
|
$ |
|
||
Cash equivalents |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
17
7. SHORT-TERM INVESTMENTS
The components of short-term investments are as follows:
|
|
December 31, |
|
|
March 31, |
|
||
|
|
2023 |
|
|
2023 |
|
||
Government securities |
|
$ |
- |
|
|
$ |
|
|
Term deposits |
|
|
|
|
|
|
||
Commercial paper and other |
|
|
- |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||
The amortized cost of short-term investments at December 31, 2023 is $
8. AMOUNTS RECEIVABLE, NET
The components of amounts receivable, net are as follows:
|
|
December 31, |
|
|
March 31, |
|
||
|
|
2023 |
|
|
2023 |
|
||
Accounts receivable, net |
|
$ |
|
|
$ |
|
||
Indirect taxes receivable |
|
|
|
|
|
|
||
Interest receivable |
|
|
|
|
|
|
||
Other receivables |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Included in the accounts receivable, net balance at December 31, 2023 is an allowance for doubtful accounts of $
9. INVENTORY
The components of inventory are as follows:
|
|
December 31, |
|
|
March 31, |
|
||
|
|
2023 |
|
|
2023 |
|
||
Raw materials, packaging supplies and consumables |
|
$ |
|
|
$ |
|
||
Work in progress |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
In the three and nine months ended December 31, 2023, the Company recorded write-downs related to inventory in cost of goods sold of $
10. PREPAID EXPENSES AND OTHER ASSETS
The components of prepaid expenses and other assets are as follows:
|
|
December 31, |
|
|
March 31, |
|
||
|
|
2023 |
|
|
2023 |
|
||
Prepaid expenses |
|
$ |
|
|
$ |
|
||
Deposits |
|
|
|
|
|
|
||
Prepaid inventory |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
18
The following table outlines changes in other financial assets. Additional details on how the fair value of significant investments is calculated are included in Note 23.
|
|
|
|
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|
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Foreign |
|
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||||||
|
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Balance at |
|
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|
|
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|
currency |
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|
Balance at |
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||||||
|
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|
March 31, |
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|
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|
|
Fair value |
|
|
translation |
|
|
|
|
|
December 31, |
|
||||||
Entity |
|
Instrument |
|
2023 |
|
|
Additions |
|
|
changes |
|
|
adjustments |
|
|
Other |
|
|
2023 |
|
||||||
Acreage1 |
|
Fixed Shares option and Floating Shares agreement |
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
|
||
TerrAscend Exchangeable Shares |
|
Exchangeable shares |
|
|
|
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|||
TerrAscend - December 2022 |
|
Warrants |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
||||
TerrAscend |
|
Option |
|
|
|
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|||
Wana |
|
Option |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Jetty |
|
Options |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
|
||
Acreage Hempco1 |
|
Debenture |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Acreage Debt Option Premium |
|
Option |
|
|
|
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|||
Acreage Tax Receivable Agreement |
|
Other |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
|
||
Other - at fair value through net income (loss) |
|
Various |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
||||
Other - classified as held for investment |
|
Loan receivable |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
1 See Note 28 for information regarding the Acreage Amended Arrangement and Acreage Hempco.
For information regarding the Reorganization, Reorganization Amendments and Additional Reorganization Amendments, see Note 3. Following the implementation of the Reorganization, Canopy USA, as of October 24, 2022, holds an ownership interest in certain U.S. cannabis investments previously held by the Company, including, among others, interests in the Floating Shares of Acreage, Wana, Jetty, and TerrAscend.
19
12. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
|
|
December 31, |
|
|
March 31, |
|
||
|
|
2023 |
|
|
2023 |
|
||
Buildings and greenhouses |
|
$ |
|
|
$ |
|
||
Production and warehouse equipment |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Office and lab equipment |
|
|
|
|
|
|
||
Computer equipment |
|
|
|
|
|
|
||
Land |
|
|
|
|
|
|
||
Right-of-use-assets |
|
|
|
|
|
|
||
Buildings and greenhouses |
|
|
|
|
|
|
||
Assets in process |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
Depreciation expense included in cost of goods sold for the three and nine months ended December 31, 2023 is $
13. INTANGIBLE ASSETS
The components of intangible assets are as follows:
|
|
December 31, 2023 |
|
|
March 31, 2023 |
|
||||||||||
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
||||
|
|
Carrying |
|
|
Carrying |
|
|
Carrying |
|
|
Carrying |
|
||||
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
||||
Finite lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Intellectual property |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Distribution channel |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating licenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Software and domain names |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Brands |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortizable intangibles in process |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Indefinite lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquired brands |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Total intangible assets |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Amortization expense included in cost of goods sold for the three and nine months ended December 31, 2023 is $
20
14. GOODWILL
The changes in the carrying amount of goodwill are as follows:
Balance, March 31, 2022 |
|
$ |
|
|
Disposal of consolidated entities |
|
|
( |
) |
Impairment losses |
|
|
( |
) |
Foreign currency translation adjustments |
|
|
|
|
Balance, March 31, 2023 |
|
$ |
|
|
Foreign currency translation adjustments |
|
|
( |
) |
Balance, December 31, 2023 |
|
$ |
|
The Company does not believe that an event occurred or circumstances changed during the nine months ended December 31, 2023 that would, more likely than not, reduce the fair value of the Storz & Bickel reporting unit below its carrying value. Therefore, the Company concluded that the quantitative goodwill impairment assessment was not required for the Storz & Bickel reporting unit at December 31, 2023. The carrying value of goodwill associated with the Storz & Bickel reporting unit was $
The Company is required to perform its next annual goodwill impairment analysis on March 31, 2024, or earlier should there be an event that occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
15. OTHER ACCRUED EXPENSES AND LIABILITIES
The components of other accrued expenses and liabilities are as follows:
|
|
December 31, |
|
|
March 31, |
|
||
|
|
2023 |
|
|
2023 |
|
||
Employee compensation |
|
$ |
|
|
$ |
|
||
Taxes and government fees |
|
|
|
|
|
|
||
Professional fees |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
16. DEBT
The components of debt are as follows:
|
|
|
|
December 31, |
|
|
March 31, |
|
||
|
|
Maturity Date |
|
2023 |
|
|
2023 |
|
||
Unsecured senior notes at |
|
|
|
|
|
|
|
|||
Principal amount |
|
|
|
$ |
- |
|
|
$ |
|
|
Accrued interest |
|
|
|
|
- |
|
|
|
|
|
Non-credit risk fair value adjustment |
|
|
|
|
- |
|
|
|
|
|
Credit risk fair value adjustment |
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
|
|
Supreme convertible debentures |
|
|
|
|
|
|
|
|||
Accretion debentures |
|
|
|
|
|
|
|
|||
Credit facility |
|
|
|
|
|
|
|
|||
Equity-settled convertible debentures |
|
|
|
- |
|
|
|
|
||
Promissory note |
|
|
|
|
|
|
- |
|
||
Other revolving debt facility, loan, and financings |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Less: current portion |
|
|
|
|
( |
) |
|
|
( |
) |
Long-term portion |
|
|
|
$ |
|
|
$ |
|
||
Credit Facility
On March 18, 2021, the Company entered into a term loan credit agreement (the "Credit Agreement") providing for a
21
24, 2022, the Company entered into agreements with certain of its lenders under the Credit Agreement pursuant to which the Company agreed to purchase in the aggregate US$
On July 13, 2023, as part of the Company's balance sheet deleveraging initiatives, the Company entered into agreements with certain of its lenders under the Credit Agreement pursuant to which certain additional amendments were made to the Credit Agreement (the Credit Agreement, as amended as of July 13, 2023, is referred to herein as the "Amended Credit Agreement"). The Amended Credit Agreement required the Company to prepay or repurchase principal indebtedness under the Credit Facility in an amount equal to the US dollar equivalent of $
On each of August 11, 2023 and September 14, 2023, pursuant to the terms of the Amended Credit Agreement, the Company repurchased additional outstanding principal amounts under the Credit Facility using certain net proceeds from completed asset sales (the "Second Quarter 2024 Paydowns"). The Second Quarter 2024 Paydowns resulted in an aggregate principal reduction of $
On each of November 28, 2023 and December 27, 2023, pursuant to the terms of the Amended Credit Agreement, the Company repurchased and repaid, as applicable, additional outstanding principal amounts under the Credit Facility using certain net proceeds from completed asset sales (the "Third Quarter 2024 Paydowns"). The Third Quarter 2024 Paydowns resulted in an aggregate principal reduction of $
The Amended Credit Facility continues to mature on
Unsecured Senior Notes
On June 20, 2018, the Company issued the Canopy Notes with an aggregate principal amount of $
The Canopy Notes were issued pursuant to an indenture dated June 20, 2018, as supplemented on April 30, 2019 and June 29, 2022 (collectively, the “Canopy Notes Indenture”). As a result of the supplement to the Canopy Notes Indenture dated June 29, 2022 (the “Second Supplemental Indenture”), the Company irrevocably surrendered its right to settle the conversion of any Canopy Note with its common shares. As a result, had there been any conversions of Canopy Notes following the execution of the Second Supplemental Indenture these would have been settled entirely in cash, unless otherwise negotiated.
22
The Canopy Notes were initially recognized at fair value on the balance sheet and continued to be recorded at fair value until their repayment. All changes in fair value following initial recognition, excluding the impact of the change in fair value related to the Company’s own credit risk, were recorded in other income (expense), net. The changes in fair value related to the Company’s own credit risk were recorded through other comprehensive income (loss). During the three months ended June 30, 2023, the Company entered into privately negotiated exchange agreements (the "June 2023 Exchange Agreements") with certain holders of the Canopy Notes (the "Noteholders"), pursuant to which the Company acquired and cancelled an aggregate principal amount of Canopy Notes of $
On July 13, 2023, the Company entered into privately negotiated redemption agreements (collectively, the "Redemption Agreements") with certain Noteholders of the Canopy Notes pursuant to which approximately $
The Debentures were issued pursuant to a debenture indenture dated July 14, 2023 between the Company and Odyssey Trust Company, in its capacity as trustee. The Debentures were convertible into Canopy Growth common shares (the “Debenture Shares”) at the option of the holder at any time or times following approval from the Company’s shareholders for the issuance of all of the Debenture Shares in excess of the Nasdaq threshold of
The Company obtained Shareholder Approval at its Annual General and Special Meeting of shareholders held on September 25, 2023. As of September 30, 2023, all conversions pursuant to the Debentures had been completed and the amount outstanding under the Debentures was $nil.
The acquisition and cancellation of the Canopy Notes pursuant to the June 2023 Exchange Agreements, Redemption of the Canopy Notes and conversions of the Debentures each resulted in a release of accumulated other comprehensive income into other income (expense), net for the three and nine months ended December 31, 2023 of $
On April 13, 2023, the Company entered into an exchange agreement (the “April 2023 Exchange Agreement”) with Greenstar in order to acquire and cancel $
The overall change in fair value of the Canopy Notes during the three and nine months ended December 31, 2023 was a decrease of $
Supreme Cannabis Convertible Debentures and Accretion Debentures
On October 19, 2018, The Supreme Cannabis Company, Inc. (“Supreme Cannabis”) entered into an indenture with Computershare Trust Company of Canada (the “Trustee”) pursuant to which Supreme Cannabis issued
23
other things: (i) the cancellation of $
In addition, on September 9, 2020, Supreme Cannabis issued new senior unsecured non-convertible debentures (the “Accretion Debentures”). The principal amount began at $nil and accreted at a rate of
As a result of the completion of an arrangement on June 22, 2021 by the Company and Supreme Cannabis, pursuant to which the Company acquired
In connection with the Supreme Arrangement, the Company, Supreme Cannabis and the Trustee entered into a supplemental indenture whereby the Company agreed to issue common shares upon conversion of any Supreme Debenture.
Prior to September 9, 2023, the Supreme Debentures were not redeemable. Beginning on and after September 9, 2023, Supreme Cannabis may from time to time, upon providing 60 days prior written notice to the Trustee, redeem the Convertible Debentures outstanding, provided that the Accretion Debentures have already been redeemed in full.
Convertible Debentures
On February 21, 2023, the Company entered into a subscription agreement (the “Convertible Debenture Agreement”) with an institutional investor (the “Institutional Investor”) pursuant to which the Institutional Investor agreed to purchase up to US$
In the three months ended June 30, 2023, $
24
17. OTHER LIABILITIES
The components of other liabilities are as follows:
|
|
As at December 31, 2023 |
|
|
As at March 31, 2023 |
|
||||||||||||||||||
|
|
Current |
|
|
Long-term |
|
|
Total |
|
|
Current |
|
|
Long-term |
|
|
Total |
|
||||||
Lease liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Acquisition consideration |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Refund liability |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||
Settlement liabilities and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The estimated deferred payments associated with the Wana financial instrument (the "Wana Deferred Payments") within acquisition consideration and other investment related liabilities at December 31, 2023 is $
18. REDEEMABLE NONCONTROLLING INTEREST
The net changes in the redeemable noncontrolling interests are as follows:
|
|
BioSteel |
|
|
Total |
|
||
As at March 31, 2023 |
|
$ |
- |
|
|
$ |
- |
|
Net income (loss) attributable to redeemable noncontrolling interest |
|
|
( |
) |
|
|
( |
) |
Adjustments to redemption amount |
|
|
|
|
|
|
||
As at December 31, 2023 |
|
$ |
|
|
$ |
|
||
|
|
Vert |
|
|
BioSteel |
|
|
Total |
|
|||
|
|
|
|
|
(As Restated) |
|
|
|
|
|||
As at March 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Net income (loss) attributable to redeemable noncontrolling interest |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Adjustments to redemption amount |
|
|
( |
) |
|
|
|
|
|
|
||
Redemption of redeemable noncontrolling interest |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
As at December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
In August 2023, the Company issued
19. SHARE CAPITAL
CANOPY GROWTH
Authorized
An unlimited number of common shares.
(i) Equity financings
On September 18, 2023, the Company entered into subscription agreements (the "Subscription Agreements") with certain institutional investors (the "Investors"). Pursuant to the terms of the Subscription Agreements, the Company issued
The gross proceeds from the Unit Offering were allocated to the Canopy Growth common shares, Warrants, and Over-Allotment Option based on their relative fair values.
25
(ii) Other issuances of common shares
During the nine months ended December 31, 2023, the Company issued the following common shares, net of share issuance costs, as a result of business combinations, milestones being met, and other equity-settled transactions:
|
|
Number of common shares1 |
|
|
Share |
|
|
Share |
|
|||
Settlement of Convertible Debentures |
|
|
|
|
$ |
|
|
$ |
- |
|
||
Settlement of Canopy Notes |
|
|
|
|
|
|
|
|
- |
|
||
Settlement of Debentures |
|
|
|
|
|
|
|
|
- |
|
||
Other issuances and share issue costs |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Total |
|
|
|
|
$ |
|
|
$ |
( |
) |
||
1
During the nine months ended December 31, 2022, the Company issued the following common shares, net of share issuance costs, as a result of business combinations, milestones being met, and other equity-settled transactions:
|
|
Number of common shares1 |
|
|
Share |
|
|
Share |
|
|||
Jetty Agreements |
|
|
|
|
$ |
|
|
$ |
- |
|
||
HSCP Holders pursuant to Amended TRA |
|
|
|
|
|
|
|
|
- |
|
||
Completion of acquisition milestones |
|
|
|
|
|
|
|
|
( |
) |
||
Other issuances |
|
|
|
|
|
|
|
|
( |
) |
||
Total |
|
|
|
|
$ |
|
|
$ |
( |
) |
||
1
(iii) Warrants
|
|
Number of |
|
|
Average |
|
|
Warrant |
|
|||
Balance outstanding at March 31, 20231 |
|
|
|
|
$ |
|
|
$ |
|
|||
Issuance of warrants from private placement |
|
|
|
|
|
|
|
|
|
|||
Expiry of warrants |
|
|
( |
) |
|
|
|
|
|
|
||
Balance outstanding at December 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|||
1
2
On November 1, 2023, the Tranche A Warrants (as defined below) expired in accordance with their terms without having been exercised. In accordance with the terms of the Tranche B Warrants (as defined below) and Tranche C Warrants, the vesting of the remaining Tranche B Warrants and Tranche C Warrants, as applicable, is conditioned on the exercise, in full, of the Tranche A Warrants. Accordingly, the Tranche B Warrants and Tranche C Warrants are not, and will not become, exercisable and are considered expired as of November 1, 2023.
|
|
Number of |
|
|
Average |
|
|
Warrant |
|
|||
Balance outstanding at March 31, 20221 |
|
|
|
|
$ |
|
|
$ |
|
|||
Expiry of warrants |
|
|
|
|
|
|
|
|
|
|||
Balance outstanding at December 31, 20221 |
|
|
|
|
$ |
|
|
$ |
|
|||
1
2
20. SHARE-BASED COMPENSATION
CANOPY GROWTH CORPORATION SHARE-BASED COMPENSATION PLAN
On September 25, 2023, the Company's shareholders approved a new Omnibus Equity Incentive Plan (the "Omnibus Equity Incentive Plan") pursuant to which the Company can issue share-based long-term incentives. The Omnibus Equity Incentive Plan replaces the Company’s previous equity incentive plan, which was originally approved by the Company’s shareholders on July 30, 2018 (the “Previous Equity Incentive Plan”). The approval of the Omnibus Equity Incentive Plan and replacement of the Previous
26
Equity Incentive Plan are detailed in the Company’s annual definitive proxy statement filed with the Securities and Exchange Commission on August 9, 2023.
All directors, employees and consultants of the Company are eligible to receive awards of common share purchase options (“Options”), restricted share units (“RSUs”), deferred share units or shares-based awards (collectively, the “Awards”) under the Omnibus Equity Incentive Plan, subject to certain limitations. The Omnibus Equity Incentive Plan allows for a maximum term of each Option to be
The Omnibus Equity Incentive Plan was adopted on September 25, 2023.
The maximum number of common shares reserved for Awards is
The Omnibus Equity Incentive Plan is administered by the Corporate Governance, Compensation and Nominating Committee of the Board (the “CGC&N Committee”) which establishes in its discretion, among other things, exercise prices, at not less than the Fair Market Value (as defined in the Omnibus Equity Incentive Plan) at the date of grant, vesting terms and expiry dates (set at up to
Under the Company’s Employee Share Purchase Plan (the “Purchase Plan”) the aggregate number of common shares that may be issued is
The following is a summary of the changes in the Options outstanding during the nine months ended December 31, 2023:
|
|
Options |
|
|
Weighted |
|
||
Balance outstanding at March 31, 2023 |
|
|
|
|
$ |
|
||
Options granted |
|
|
|
|
|
|
||
Options exercised |
|
|
( |
) |
|
|
|
|
Options forfeited |
|
|
( |
) |
|
|
|
|
Balance outstanding at December 31, 2023 |
|
|
|
|
$ |
|
||
1
The following is a summary of the Options outstanding as at December 31, 2023:
|
|
Options Outstanding |
|
|
Options Exercisable |
|
||||||||||
|
|
|
|
|
Weighted Average |
|
|
|
|
|
Weighted Average |
|
||||
|
|
|
|
|
Remaining |
|
|
|
|
|
Remaining |
|
||||
|
|
Outstanding at |
|
|
Contractual Life |
|
|
Exercisable at |
|
|
Contractual Life |
|
||||
Range of Exercise Prices1 |
|
December 31, 20231 |
|
|
(years) |
|
|
December 31, 20231 |
|
|
(years) |
|
||||
$ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
$ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
$ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
1 Prior period Options and exercise price amounts have been retrospectively adjusted to reflect the Share Consolidation, which became effective on December 15, 2023. See Note 2 for details.
At December 31, 2023, the weighted average exercise price of the Options outstanding and Options exercisable was $
27
The Company recorded $
The Company uses the Black-Scholes option pricing model to establish the fair value of Options granted during the three months ended December 31, 2023 and 2022, on their measurement date by applying the following assumptions:
|
|
December 31, |
|
December 31, |
|
|
2023 |
|
2022 |
Risk-free interest rate |
|
|
||
Expected life of options (years) |
|
|
||
Expected volatility |
|
|
||
Expected forfeiture rate |
|
|
||
Expected dividend yield |
|
|
||
Black-Scholes value of each option1 |
|
$ |
|
$ |
1
Volatility was estimated by using the historical volatility of the Company. The expected life in years represents the period of time that Options granted are expected to be outstanding. The risk-free rate was based on zero coupon Canada government bonds with a remaining term equal to the expected life of the Options.
For the three and nine months ended December 31, 2023, the Company recorded $
The following is a summary of the changes in the Company’s RSUs and PSUs during the nine months ended December 31, 2023:
|
|
Number of RSUs |
|
|
Balance outstanding at March 31, 2023 |
|
|
|
|
RSUs and PSUs granted |
|
|
|
|
RSUs and PSUs released |
|
|
( |
) |
RSUs and PSUs cancelled and forfeited |
|
|
( |
) |
Balance outstanding at December 31, 2023 |
|
|
|
|
1
21. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income includes the following components:
|
|
Foreign currency translation adjustments |
|
|
Changes of own credit risk of financial liabilities |
|
|
Accumulated other comprehensive income (loss) |
|
|||
As at March 31, 2023 |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Settlement of unsecured senior notes, net of deferred income tax |
|
|
- |
|
|
|
|
|
|
|
||
Other comprehensive (loss) income |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
As at December 31, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
|
|
Foreign currency translation adjustments |
|
|
Changes of own credit risk of financial liabilities |
|
|
Accumulated other comprehensive income (loss) |
|
|||
As at March 31, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Settlement of unsecured senior notes, net of deferred income tax |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|||
As at December 31, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
28
22. NONCONTROLLING INTERESTS
The net change in the noncontrolling interests is as follows:
|
|
BioSteel |
|
|
Other |
|
|
Total |
|
|||
As at March 31, 2023 |
|
|
|
|
|
|
|
|
|
|||
Comprehensive loss |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Net loss attributable to redeemable noncontrolling interest |
|
|
|
|
|
- |
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
- |
|
|
|
|
||
Ownership changes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
As at December 31, 2023 |
|
$ |
- |
|
|
$ |
|
|
$ |
|
||
|
|
Vert |
|
|
BioSteel |
|
|
Other non- |
|
|
Total |
|
||||
|
|
|
|
|
(As Restated) |
|
|
|
|
|
|
|
||||
As at March 31, 2022 |
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
Comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net (income) loss attributable to redeemable noncontrolling |
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
|
||
Share-based compensation |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Ownership changes |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Redemption of redeemable noncontrolling interests, net |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
As at December 31, 2022 |
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
23. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value measurements are made using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value:
The fair value measurement is categorized in its entirety by reference to its lowest level of significant input.
The Company records cash, accounts receivable, interest receivable and accounts payable, and other accrued expenses and liabilities at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis may include items such as property, plant and equipment, goodwill and other intangible assets, equity and other investments and other assets. The Company determines the fair value of these items using Level 3 inputs, as described in the related sections below.
29
The following table represents the Company's financial assets and liabilities measured at estimated fair value on a recurring basis:
|
|
Fair value measurement using |
|
|
|
|
||||||||||
|
|
Quoted |
|
|
Significant |
|
|
|
|
|
|
|
||||
|
|
prices in |
|
|
other |
|
|
Significant |
|
|
|
|
||||
|
|
active |
|
|
observable |
|
|
unobservable |
|
|
|
|
||||
|
|
markets |
|
|
inputs |
|
|
inputs |
|
|
|
|
||||
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
||||
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term investments |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Restricted short-term investments |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Other financial assets |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Long-term debt |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Other liabilities |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term investments |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Restricted short-term investments |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Other financial assets |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unsecured senior notes |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Other liabilities |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
The following table summarizes the valuation techniques and significant unobservable inputs in the fair value measurement of significant level 2 financial instruments:
|
Financial asset / financial liability |
|
Valuation techniques |
|
Key inputs |
|
Unsecured senior notes |
|
|
The following table summarizes the valuation techniques and significant unobservable inputs in the fair value measurement of significant level 3 financial instruments:
|
Financial asset / financial liability |
|
Valuation techniques |
|
Significant unobservable inputs |
|
Relationship of unobservable inputs to fair value |
|
Acreage financial instrument |
|
|
|
|||
|
|
|
model |
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
30
|
TerrAscend Exchangeable Shares, TerrAscend Option |
|
|
|
|||
|
Hempco Debenture |
|
|
|
|||
|
TerrAscend warrants - December 2022 |
|
|
|
|||
|
Wana financial instrument - Call |
|
|
|
|||
|
Options |
|
|
|
|
||
|
Wana financial instrument - Deferred Payments |
|
|
|
|||
|
|
|
|
|
|
||
|
Jetty financial instrument - |
|
|
|
|||
|
Call Options |
|
|
|
|
||
|
Jetty financial instrument - Deferred Payments |
|
|
|
|||
|
|
|
|
|
|
||
|
CBI promissory note |
|
|
|
|||
|
BioSteel redeemable noncontrolling |
|
|
|
|||
|
interest |
|
|
|
|
||
|
Acreage Debt Option Premium |
|
|
|
|||
|
Acreage Tax Receivable |
|
|
|
|||
|
Agreement |
|
|
|
|||
|
|
|
model |
|
|
31
24. REVENUE
Revenue is disaggregated as follows:
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Canada cannabis |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Canadian adult-use cannabis |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Business-to-business1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Business-to-consumer |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Canadian medical cannabis2 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rest-of-world cannabis |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Storz & Bickel |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
This Works |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
1
2
The Company recognizes variable consideration related to estimated future product returns and price adjustments as a reduction of the transaction price at the time revenue for the corresponding product sale is recognized. Net revenue reflects actual returns and variable consideration related to estimated returns and price adjustments in the amount of $
25. OTHER INCOME (EXPENSE), NET
Other income (expense), net is disaggregated as follows:
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Fair value changes on other financial assets |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Fair value changes on liability arising from Acreage |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Fair value changes on debt |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Fair value changes on warrant derivative liability |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Fair value changes on acquisition related contingent |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Charges) and gain related to settlement of debt |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Foreign currency gain (loss) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Other income (expense), net |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
32
26. INCOME TAXES
There have been no material changes to income tax matters in connection with normal course operations during the nine months ended December 31, 2023.
The Company is subject to income tax in numerous jurisdictions with varying income tax rates. During the most recent period ended and the fiscal year to date, there were no material changes to the statutory income tax rates in the taxing jurisdictions where the majority of the Company’s income for tax purposes was earned, or where its temporary differences or losses are expected to be realized or settled. Although statutory income tax rates remain stable, the Company’s effective income tax rate may fluctuate, arising as a result of the Company’s evolving footprint, discrete transactions and other factors that, to the extent material, are disclosed in these financial statements.
The Company continues to believe that the amount of unrealized tax benefits appropriately reflects the uncertainty of items that are or may in the future be under discussion, audit, dispute or appeal with a tax authority or which otherwise result in uncertainty in the determination of income for tax purposes. If appropriate, an unrealized tax benefit will be realized in the reporting period in which the Company determines that realization is not in doubt. Where the final determined outcome is different from the Company’s estimate, such difference will impact the Company’s income taxes in the reporting period during which such determination is made.
27. THIS WORKS DIVESTITURE
On December 18, 2023, the Company entered into an agreement to divest all of its interest in This Works to a London-based investment firm (the “This Works Divestiture”). The Company completed the This Works Divestiture on December 18, 2023, pursuant to which the Company received a cash payment of $
Prior to closing of the This Works Divestiture, the net assets of This Works were recorded as held for sale and the Company recorded asset impairment and restructuring charges of $
Current assets1 |
|
$ |
|
|
Intangible assets |
|
|
|
|
Less: valuation allowance |
|
|
( |
) |
Current liabilities |
|
|
( |
) |
Cumulative translation adjustment |
|
|
|
|
Net assets disposed |
|
$ |
|
|
|
|
|
|
|
Consideration received in cash |
|
$ |
|
|
Future cash consideration |
|
|
|
|
Costs to sell |
|
|
( |
) |
Total consideration |
|
$ |
|
|
|
|
|
|
|
Gain on disposal of consolidated entity |
|
$ |
- |
|
1 Included in current assets is $
The gain calculated on the derecognition of the assets and liabilities of This Works is the difference between the carrying amounts of the derecognized assets and liabilities, and the fair value of consideration received, net of costs to sell.
28. ACREAGE ARRANGEMENT AND AMENDMENTS TO CBI INVESTOR RIGHTS AGREEMENT AND WARRANTS
Acreage Arrangement
On September 23, 2020, the Company and Acreage entered into a second amendment (the “Acreage Amending Agreement”) to the arrangement agreement (the “Original Acreage Arrangement Agreement”) and plan of arrangement (the “Original Acreage Arrangement”) between the Company and Acreage dated April 18, 2019, as amended on May 15, 2019. In connection with the Acreage Amending Agreement, the Company and Acreage implemented an amended and restated plan of arrangement (the “Acreage Amended Arrangement”) on September 23, 2020. Pursuant to the terms of the Original Acreage Arrangement, shareholders of Acreage and holders of certain securities convertible into the existing Acreage subordinated voting shares as of June 26, 2019, received an immediate aggregate total payment of US$
33
regulation of such activities from the federal laws of the United States (the “Triggering Event”) and subject to the satisfaction or waiver of the conditions set out in the Original Acreage Arrangement Agreement.
The Acreage Amended Arrangement provides for, among other things, the following:
See Note 3 for information regarding the Reorganization. In connection with the Reorganization and the Floating Share Arrangement Agreement, Canopy Growth irrevocably waived the Acreage Floating Option and subject to, among other things, the terms of the Floating Share Arrangement Agreement, Canopy USA will acquire all of the issued and outstanding Floating Shares. Following the implementation of the Reorganization, Canopy USA, as of October 24, 2022, holds certain U.S. cannabis investments previously held by the Company, which is expected to enable Canopy USA, following, among other things, the Meeting and the exercise of the Acreage Option, including the issuance of the Fixed Shares to Canopy USA, to consummate the acquisitions of Acreage, Wana and Jetty.
At December 31, 2023, the right and the obligation to: (i) acquire the Fixed Shares pursuant to the Existing Acreage Arrangement Agreement; and (ii) acquire the Floating Shares pursuant to the Floating Share Arrangement Agreement (together, the “Acreage financial instrument”), represents a financial asset of $
In connection with the Acreage Amended Arrangement, on September 23, 2020, an affiliate of the Company advanced US$
The amount advanced on September 23, 2020 pursuant to the Hempco Debenture has been recorded in other financial assets (see Note 11), and the Company has elected the fair value option under ASC 825 (see Note 23). At December 31, 2023, the estimated fair value of the Hempco Debenture issued to an affiliate of the Company by Acreage Hempco was $
34
$
Amendment to the CBI Investor Rights Agreement and warrants
On April 18, 2019, certain wholly owned subsidiaries of CBI and Canopy Growth entered into the Second Amended and Restated Investor Rights Agreement (the "Amended Investor Rights Agreement") and a consent agreement. In connection with these agreements, on June 27, 2019, Canopy Growth (i) extended the term of the first tranche of warrants, which allow CBI to acquire
In connection with the Tranche B Warrants and the Tranche C Warrants, Canopy Growth agreed to provide CBI with a share repurchase credit of up to $
The modifications to the Tranche A Warrants resulted in them meeting the definition of a derivative instrument under ASC 815 - Derivatives and Hedging (“ASC 815”). They were classified in equity as the number of shares and exercise price were both fixed at inception. The Tranche B Warrants were accounted for as derivative instruments (the “warrant derivative liability”) measured at fair value in accordance with ASC 815.
On November 1, 2023, the Tranche A Warrants expired in accordance with their terms without having been exercised. In accordance with the terms of the Tranche B Warrants and Tranche C Warrants, the vesting of the remaining Tranche B Warrants and Tranche C Warrants, as applicable, is conditioned on the exercise, in full, of the Tranche A Warrants. Accordingly, the Tranche B Warrants and Tranche C Warrants are not, and will not become, exercisable and are considered expired as of November 1, 2023.
As described in Note 3, in connection with the Reorganization, the Company entered into the Third Consent Agreement, pursuant to which CBG and Greenstar agreed, among other things, that in the event that CBG and Greenstar convert their ownership in the Company's common shares into Exchangeable Shares, CBG will surrender the warrants held by CBG to purchase
29. COMMITMENTS AND CONTINGENCIES
Legal proceedings
In the ordinary course of business, the Company is at times subject to various legal proceedings and disputes, including the proceedings specifically discussed below. The Company assesses the liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Company will incur a loss and the amount of the loss can be reasonably estimated, a liability is recorded in the consolidated financial statements. Where a loss is only reasonably possible or the amount of the loss cannot be reasonably estimated, no liability is recorded in the consolidated financial statements, but disclosures, as necessary, are provided.
For the purposes of these condensed interim consolidated financial statements, there have been no material changes with respect to legal proceedings that the Company is subject to since our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, except with respect to certain aspects of the legal proceedings disclosed below:
Request for arbitration
On December 29, 2023, a request for arbitration was made to the Company. Damages are being sought in the amount of US$
35
believes that the respondents have meritorious defenses, and expects to vigorously defend the claims, although the Company cannot predict when or how the arbitration will be resolved or estimate what the potential loss or range of loss would be, if any.
30. SEGMENT INFORMATION
Reportable segments
Prior to the three months ended September 30, 2022, the Company had the following
These segments reflect how the Company's operations are managed, how the Company's Chief Executive Officer, who is the Chief Operating Decision Maker (“CODM”), allocates resources and evaluates performance, and how the Company's internal management financial reporting is structured. The Company's CODM evaluates the performance of these segments, with a focus on (i) segment net revenue, and (ii) segment gross margin as the measure of segment profit or loss. Accordingly, information regarding segment net revenue and segment gross margin for the comparative periods has been restated to reflect the aforementioned change in reportable segments. The remainder of the Company's operations include revenue derived from, and cost of sales associated with, the Company's non-cannabis extraction activities and other ancillary activities; these are included within "other".
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Segmented net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Canada cannabis |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Rest-of-world cannabis |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Storz & Bickel |
|
|
|
|
|
|
|
|
|
|
|
|
||||
This Works |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Segmented gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Canada cannabis |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Rest-of-world cannabis |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Storz & Bickel |
|
|
|
|
|
|
|
|
|
|
|
|
||||
This Works |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss on asset impairment and restructuring |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other income (expense), net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Loss before incomes taxes |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Asset information by segment is not provided to, or reviewed by, the Company’s CODM as it is not used to make strategic decisions, allocate resources, or assess performance.
36
Entity-wide disclosures
Disaggregation of net revenue by geographic area:
|
|
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Disaggregation of property, plant and equipment by geographic area:
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December 31, |
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For the three months ended December 31, 2023,
For the nine months ended December 31, 2023,
31. SUBSEQUENT EVENTS
January 2024 Private Placement
On January 18, 2024, the Company entered into subscription agreements (the "January 2024 Subscription Agreements") with certain institutional investors (the "January 2024 Investors"). Pursuant to the terms of the January 2024 Subscription Agreements, the Company issued
Expiration of Supreme January 2021 Warrants
On January 29, 2024, the warrants governed by the warrant indenture dated January 29, 2021 between Supreme Cannabis and Computershare Trust Company of Canada, in its capacity as warrant agent (the “Warrant Agent”), as supplemented by the supplemental indenture dated June 22, 2021 between Supreme Cannabis, the Company and the Warrant Agent expired in accordance with their terms without having been exercised.
37
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Introduction
This Management’s Discussion and Analysis (“MD&A”) should be read together with other information, including our unaudited condensed interim consolidated financial statements and the related notes to those statements included in Part I, Item 1 of this Quarterly Report (the “Interim Financial Statements”), our consolidated financial statements appearing in our Annual Report on Form 10-K for the year ended March 31, 2023 (the “Annual Report”), Part I, Item 1A, Risk Factors, of the Annual Report and Part II, Item 1A, Risk Factors, of this Quarterly Report. This MD&A provides additional information on our business, recent developments, financial condition, cash flows and results of operations, and is organized as follows:
We prepare and report our Interim Financial Statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Our Interim Financial Statements, and the financial information contained herein, are reported in thousands of Canadian dollars, except share and per share amounts or as otherwise stated. We have determined that the Canadian dollar is the most relevant and appropriate reporting currency as, despite continuing shifts in the relative size of our operations across multiple geographies, the majority of our operations are conducted in Canadian dollars and our financial results are prepared and reviewed internally by management in Canadian dollars.
Special Note Regarding Forward-Looking Statements
This Quarterly Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and other applicable securities laws, which involve certain known and unknown risks and uncertainties. Forward-looking statements predict or describe our future operations, business plans, business and investment strategies and the performance of our investments. These forward-looking statements are generally identified by their use of such terms and phrases as “intend,” “goal,” “strategy,” “estimate,” “expect,” “project,” “projections,” “forecasts,” “plans,” “seeks,” “anticipates,” “potential,” “proposed,” “will,” “should,” “could,” “would,” “may,” “likely,” “designed to,” “foreseeable future,” “believe,” “scheduled” and other similar expressions. Our actual results or outcomes may differ materially from those anticipated. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.
Forward-looking statements include, but are not limited to, statements with respect to:
38
39
Certain of the forward-looking statements contained herein concerning the industries in which we conduct our business are based on estimates prepared by us using data from publicly available governmental sources, market research, industry analysis and on assumptions based on data and knowledge of these industries, which we believe to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. The industries in which we conduct our business involve risks and uncertainties that are subject to change based on various factors, which are described further below.
The forward-looking statements contained herein are based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including: (i) management’s perceptions of historical trends, current conditions and expected future developments; (ii) our ability to generate cash flow from operations; (iii) general economic, financial market, regulatory and political conditions in which we operate; (iv) the production and manufacturing capabilities and output from our facilities and our joint ventures, strategic alliances and equity investments; (v) consumer interest in our products; (vi) competition; (vii) anticipated and unanticipated costs; (viii) government regulation of our activities and products including but not limited to the areas of taxation and environmental protection; (ix) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses; (x) our ability to obtain qualified staff, equipment and services in a timely and cost-efficient manner; (xi) our ability to conduct operations in a safe, efficient and effective manner; (xii) our ability to realize anticipated benefits, synergies or generate revenue, profits or value from our recent acquisitions into our existing operations; and (xiii) other considerations that management believes to be appropriate in the circumstances. While our management considers these assumptions to be reasonable based on information currently available to management, there is no assurance that such expectations will prove to be correct.
By their nature, forward-looking statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of factors, including known and unknown risks, many of which are beyond our control, could cause actual results to differ materially from the forward-looking statements in this Quarterly Report and other reports we file with, or furnish to, the Securities and Exchange Commission (the “SEC”) and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf. Such factors include, without limitation, risks related to our ability to remediate the material weaknesses in our internal
40
control over financial reporting, or inability to otherwise maintain an effective system of internal control; the risk that our recent restatement could negatively affect investor confidence and raise reputation risks; our ability to continue as a going concern; our limited operating history; risks that we may be required to write down intangible assets, including goodwill, due to impairment; the diversion of management time on issues related to Canopy USA; the ability of parties to certain transactions to receive, in a timely manner and on satisfactory terms, the necessary regulatory, court and shareholder approvals; the risks that the Trust’s ownership interest in Canopy USA is currently not quantifiable and the Trust may have significant ownership and influence over Canopy USA upon completion of the Trust Transaction (as defined below); the risks relating to the conditions in the Floating Share Arrangement and the Acreage Amending Agreement (as defined below) not being satisfied or waived; the risks related to Acreage’s financial statements expressing doubt about its ability to continue as a going concern; the risks related to the Company losing the Option Premium in the event Acreage cannot satisfy its debt obligations as they become due; the risks related to the fact that the Company has not received audited financial statements with respect to Jetty; the adequacy of our capital resources and liquidity, including but not limited to, availability of sufficient cash flow to execute our business plan (either within the expected timeframe or at all); volatility in and/or degradation of general economic, market, industry or business conditions; risks relating to our current and future operations in emerging markets; compliance with applicable environmental, economic, health and safety, energy and other policies and regulations and in particular health concerns with respect to vaping and the use of cannabis and U.S. hemp products in vaping devices; risks and uncertainty regarding future product development; changes in regulatory requirements in relation to our business and products; our reliance on licenses issued by and contractual arrangements with various federal, state and provincial governmental authorities; inherent uncertainty associated with projections; future levels of revenues and the impact of increasing levels of competition; third-party manufacturing risks; third-party transportation risks; inflation risks; our exposure to risks related to an agricultural business, including wholesale price volatility and variable product quality; changes in laws, regulations and guidelines and our compliance with such laws, regulations and guidelines; risks relating to inventory write downs; risks relating to our ability to refinance debt as and when required on terms favorable to us and to comply with covenants contained in our debt facilities and debt instruments; risks associated with jointly owned investments; our ability to manage disruptions in credit markets or changes to our credit ratings; the success or timing of completion of ongoing or anticipated capital or maintenance projects; risks related to the integration of acquired businesses; the timing and manner of the legalization of cannabis in the United States; business strategies, growth opportunities and expected investment; counterparty risks and liquidity risks that may impact our ability to obtain loans and other credit facilities on favorable terms; the potential effects of judicial, regulatory or other proceedings, litigation or threatened litigation or proceedings, or reviews or investigations, on our business, financial condition, results of operations and cash flows; risks associated with divestment and restructuring; the anticipated effects of actions of third parties such as competitors, activist investors or federal, state, provincial, territorial or local regulatory authorities, self-regulatory organizations, plaintiffs in litigation or persons threatening litigation; consumer demand for cannabis and U.S. hemp products; the risks that the Canadian Transformative Plan will not result in the expected cost-savings, efficiencies and other benefits or will result in greater than anticipated turnover in personnel; the implementation and effectiveness of key personnel changes; risks related to stock exchange restrictions; risks related to the protection and enforcement of our intellectual property rights; the risks related to the Exchangeable Shares having different rights from our common shares and there may never be a trading market for the Exchangeable Shares; future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses; risks relating to the long term macroeconomic effects of the COVID-19 pandemic and any future pandemic or epidemic; and the factors discussed under the heading “Risk Factors” in the Annual Report and in Item 1A of Part II of this Quarterly Report. Readers are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements.
Forward-looking statements are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash flows as of and for periods ended on certain dates and to present information about management’s current expectations and plans relating to the future, and the reader is cautioned that the forward-looking statements may not be appropriate for any other purpose. While we believe that the assumptions and expectations reflected in the forward-looking statements are reasonable based on information currently available to management, there is no assurance that such assumptions and expectations will prove to have been correct. Forward-looking statements are made as of the date they are made and are based on the beliefs, estimates, expectations and opinions of management on that date. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such forward-looking statements, except as required by law. The forward-looking statements contained in this Quarterly Report and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf are expressly qualified in their entirety by these cautionary statements.
Part 1 - Business Overview
We are a world-leading cannabis and consumer packaged goods (“CPG”) company which produces, distributes, and sells a diverse range of cannabis, hemp, and CPG products. Cannabis products are principally sold for adult-use and medical purposes under a portfolio of distinct brands in Canada pursuant to the Cannabis Act, SC 2018, c 16 (the “Cannabis Act”), and globally pursuant to applicable international and Canadian legislation, regulations, and permits. Our core operations are in Canada, the United States, and
41
priority growth markets internationally, including Australia, Germany, Poland and Czech Republic. Our other product offerings, which are sold by our subsidiaries in jurisdictions where it is permissible to do so, include Storz & Bickel GmbH (“Storz & Bickel”) vaporizers and accessories.
We currently offer product varieties in dried cannabis flower, cannabis extracts and concentrates, cannabis beverages, cannabis gummies and cannabis vapes with product availability varying based on provincial and territorial regulations. In Canada, our adult-use cannabis products are predominantly sold to provincial and territorial agencies under a “business-to-business” wholesale model, with those provincial and territorial agencies then being responsible for the distribution of our products to brick-and-mortar stores and for online retail sales. In fiscal 2023, we completed the divestiture of our retail business across Canada, which included the retail stores operating under the Tweed and Tokyo Smoke banners under a “business-to-consumer” model.
Our Spectrum Therapeutics medical brand is a leader in medical cannabis. Spectrum Therapeutics produces and distributes a diverse portfolio of medical cannabis products to medical patients in Canada, and in several other countries where it is federally permissible to do so.
Subsequent to the passage of the 2018 Farm Bill in the United States, we currently offer a line of premium quality, hemp-derived wellness gummies, oils, softgels and topicals under the Martha Stewart CBD brand.
In June 2019, we implemented a plan of arrangement pursuant to an arrangement agreement (the “Original Acreage Arrangement Agreement”) with Acreage Holdings, Inc. (“Acreage”), a U.S. multi-state cannabis operator. In September 2020, we entered into a second amendment to the Original Acreage Arrangement Agreement (the “Acreage Amending Agreement”) and implemented an amended and restated plan of arrangement (the “Acreage Amended Arrangement”). Pursuant to the Acreage Amended Arrangement, following the occurrence or waiver (at our discretion) of changes in U.S. federal law to permit the general cultivation, distribution, and possession of marijuana or to remove the regulation of such activities from the federal laws of the United States (the “Triggering Event”) and subject to the satisfaction or waiver of the conditions set out in the Original Acreage Arrangement Agreement (as modified by the Acreage Amending Agreement), we: (i) agreed to acquire approximately 70% of the issued and outstanding shares of Acreage, and (ii) obtained the right (the “Acreage Floating Option”) to acquire the other approximately 30% of the issued and outstanding shares of Acreage. In connection with the Floating Share Arrangement Agreement (as defined below), Canopy Growth has irrevocably waived the Acreage Floating Option existing under the Existing Acreage Arrangement Agreement (as defined below). The acquisition of Acreage, if completed through Canopy USA, will provide a pathway into cannabis markets in the United States; however, we and Acreage will continue to operate as independent companies until the acquisition of Acreage is completed.
On October 14, 2021, we entered into definitive option agreements (the “Wana Agreements”) with Mountain High Products, LLC, Wana Wellness, LLC and The Cima Group, LLC (collectively, “Wana”) providing us with the right, upon the occurrence or waiver (at our discretion) of the Triggering Event, to acquire 100% of the outstanding membership interests of Wana. Wana manufactures and sells gummies in the state of Colorado and licenses its intellectual property to partners, who manufacture, distribute, and sell Wana-branded gummies across the United States, including in California, Arizona, Illinois, Michigan and Florida, and across Canada. Additionally, on May 17, 2022, we and Lemurian, Inc. (“Jetty”) entered into definitive agreements (the “Jetty Agreements”) providing us with the right to acquire up to 100% of the outstanding equity interests in Jetty upon the Triggering Event. Jetty is a California-based producer of high-quality cannabis extracts and pioneer of clean vape technology.
As described below under “Recent Developments”, on October 25, 2022, we announced the implementation of our internal reorganization pursuant to which, among other things, we formed Canopy USA, a new Delaware holding company (the “Reorganization”). Following the implementation of the Reorganization, as of October 24, 2022, Canopy USA holds certain U.S. cannabis investments that were previously held by Canopy Growth, which is expected to enable Canopy USA, following, among other things, the Meeting (as defined below) and the exercise of the Acreage Option (as defined below), including the issuance of the Fixed Shares (as defined below) to Canopy USA, to consummate the acquisitions of Acreage, Wana, and Jetty.
Our cannabis products contain THC, CBD, or a combination of these two cannabinoids which are found in the cannabis sativa plant species. THC is the primary psychoactive or intoxicating cannabinoid found in cannabis. We also refer throughout this MD&A to “hemp,” which is a term used to classify varieties of the cannabis sativa plant that contain CBD and 0.3% or less THC content (by dry weight). Conversely, references to the term “marijuana” refers to varieties of the cannabis sativa plant with more than 0.3% THC.
Our licensed operational capacity in Canada includes advanced manufacturing capability for oil and softgel encapsulation and pre-rolled joints which is primarily completed at our Smiths Falls facility. Our Canadian cannabis cultivation facilities are now concentrated at our existing licensed facilities in Kincardine, Ontario and Kelowna, British Columbia. Our remaining products are manufactured through third-party sourcing and manufacturing for certain cannabis beverages, edibles, vapes and extracts.
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Segment Reporting
Prior to the second quarter of fiscal 2023, we had the following two reportable segments: (i) global cannabis; and (ii) other consumer products. Following the completion of certain restructuring actions which were initiated in the fourth quarter of fiscal 2022, and which were aligned with our strategic review of our business, we have changed the structure of our internal management financial reporting. In addition, the commencement of the CCAA Proceedings resulted in the removal of one of our segments. We now report our financial results for the following four reportable segments:
These segments reflect how our operations are managed, how our Chief Executive Officer, who is the Chief Operating Decision Maker (“CODM”), allocates resources and evaluates performance, and how our internal management financial reporting is structured. Our CODM evaluates the performance of these segments, with a focus on (i) segment net revenue, and (ii) segment gross margin as the measure of segment profit or loss. The information regarding segment net revenue and segment gross margin for the comparative periods has been restated to reflect the aforementioned change in reportable segments. The remainder of our operations include revenue derived from, and cost of sales associated with, our non-cannabis extraction activities and other ancillary activities; these are included within "other."
Recent Developments
Reorganization - Creation of Canopy USA
On October 24, 2022, Canopy Growth completed a number of strategic transactions in connection with the creation of a new U.S.-domiciled holding company, Canopy USA (the “Reorganization”). Following the implementation of the Reorganization, Canopy USA, as of October 24, 2022, holds certain U.S. cannabis investments previously held by Canopy Growth, which is expected to enable Canopy USA, following, among other things, the Meeting (as defined below) and the exercise of the Acreage Option, including the issuance of the Fixed Shares to Canopy USA, to consummate the acquisitions of Acreage, Wana, and Jetty.
Following the implementation of the Reorganization, as of October 24, 2022, Canopy USA holds an ownership interest in the following assets, among others:
Canopy Growth currently retains the option to acquire the issued and outstanding Class E subordinate voting shares (the “Fixed Shares”) of Acreage (the “Acreage Option”), representing approximately 70% of the total shares of Acreage, at a fixed share exchange ratio of 0.03048 of a Canopy Growth common share per Fixed Share. Concurrently with the closing of the acquisition of the Fixed Shares pursuant to the exercise of the Acreage Option, the Fixed Shares will be issued to Canopy USA. In addition, Canopy USA has agreed to acquire all of the issued and outstanding Class D subordinate voting shares of Acreage (the “Floating Shares”) by way of a court-approved plan of arrangement (the “Floating Share Arrangement”) in exchange for 0.045 of a common share of Canopy Growth for each Floating Share held. Acreage is a leading vertically-integrated multi-state cannabis operator, with its main operations in densely populated states across the Northeast U.S. including New Jersey and New York.
In addition, as of October 24, 2022, Canopy USA held direct and indirect interests in the capital of TerrAscend Corp. (“TerrAscend”), a leading North American cannabis operator with vertically integrated operations and a presence in Pennsylvania, New Jersey, Michigan and California as well as licensed cultivation and processing operations in Maryland. Canopy USA’s direct and
43
indirect interests in TerrAscend included: (i) 38,890,570 exchangeable shares in the capital of TerrAscend (the “TerrAscend Exchangeable Shares”), an option to purchase 1,072,450 TerrAscend common shares (the “TerrAscend Common Shares”) for an aggregate purchase price of $1.00 (the “TerrAscend Option”), and 22,474,130 TerrAscend Common Share purchase warrants previously held by Canopy Growth (the “TerrAscend Warrants”); and (ii) the debentures and loan agreement between Canopy Growth and certain TerrAscend subsidiaries.
On December 9, 2022, Canopy USA and certain limited partnerships that are controlled by Canopy USA entered into a debt settlement agreement (the "Debt Settlement Agreement") with TerrAscend, TerrAscend Canada Inc. (“TerrAscend Canada”) and Arise Bioscience, Inc. (“Arise Bioscience”) whereby $125,467 in aggregate loans, including accrued interest thereon, payable by certain subsidiaries of TerrAscend, were extinguished and 22,474,130 TerrAscend Warrants, being all of the previously issued TerrAscend Warrants controlled by Canopy USA (the “Prior Warrants”) were cancelled in exchange for: (i) 24,601,467 TerrAscend Exchangeable Shares at a notional price of $5.10 per TerrAscend Exchangeable Share; and (ii) 22,474,130 new TerrAscend Warrants (the “New Warrants” and, together with the TerrAscend Exchangeable Shares, the “New TerrAscend Securities”) with a weighted average exercise price of $6.07 per TerrAscend Common Share and expiring on December 31, 2032. Following the issuance of the New TerrAscend Securities, Canopy USA beneficially owns: (i) 63,492,037 TerrAscend Exchangeable Shares; (ii) 22,474,130 New Warrants; and (iii) the TerrAscend Option. The TerrAscend Exchangeable Shares can be converted into TerrAscend Common Shares at Canopy USA’s option, subject to the terms of the A&R Protection Agreement (as defined below).
Following the implementation of the Reorganization Canopy USA was determined to be a variable interest entity pursuant to ASC 810 - Consolidations ("ASC 810") and prior to the completion of the Reorganization Amendments (as defined below), Canopy Growth was determined to be the primary beneficiary of Canopy USA. As a result of such determination and in accordance with ASC 810, Canopy Growth consolidated the financial results of Canopy USA.
Amendments to Canopy USA Structure
Following the creation of Canopy USA, Nasdaq communicated its position to us stating that companies that consolidate “the assets and revenues generated from activities in violation under federal law cannot continue to list on Nasdaq”. Since we are committed to compliance with the listing requirements of the Nasdaq, we and Canopy USA effectuated certain changes to the initial structure of the Company’s interest in Canopy USA that were intended to facilitate the deconsolidation of the financial results of Canopy USA within our financial statements. These changes included, among other things, modifying the terms of the Protection Agreement between us, our wholly-owned subsidiary and Canopy USA as well as the terms of Canopy USA’s limited liability company agreement and amending the terms of certain agreements with third-party investors in Canopy USA to eliminate any rights to guaranteed returns (collectively, the “Reorganization Amendments”).
On May 19, 2023, Canopy Growth and Canopy USA implemented the Reorganization Amendments, which included, entering into the First A&R Protection Agreement (as defined below) and amending and restating Canopy USA’s limited liability company agreement (the “A&R LLC Agreement”) in order to: (i) eliminate certain negative covenants that were previously granted by Canopy USA in favor of Canopy Growth as well as delegating to the managers of the Canopy USA Board not appointed by Canopy Growth the authority to approve the following key decisions (collectively, the “Key Decisions”): (a) the annual business plan of Canopy USA; (b) decisions regarding the executive officers of Canopy USA and any of its subsidiaries; (c) increasing the compensation, bonus levels or other benefits payable to any current, former or future employees or managers of Canopy USA or any of its subsidiaries; (d) any other executive compensation plan matters of Canopy USA or any of its subsidiaries; and (e) the exercise of the Wana Options or the Jetty Options, which for greater certainty means that Canopy Growth’s nominee on the Canopy USA Board will not be permitted to vote on any Key Decisions while Canopy Growth owns Non-Voting Shares; (ii) reduce the number of managers on the Canopy USA Board from four to three, including, reducing Canopy Growth’s nomination right to a single manager; (iii) amend the share capital of Canopy USA to, among other things, (a) create a new class of Canopy USA Class B Shares, which may not be issued prior to the conversion of the Non-Voting Shares or the Canopy USA Common Shares into Canopy USA Class B Shares; (b) amend the terms of the Non-Voting Shares such that the Non-Voting Shares will be convertible into Canopy USA Class B Shares (as opposed to Canopy USA Common Shares); and (c) amend the terms of the Canopy USA Common Shares such that upon conversion of all of the Non-Voting Shares into Canopy USA Class B Shares, the Canopy USA Common Shares will, subject to their terms, automatically convert into Canopy USA Class B Shares, provided that the number of Canopy USA Class B Shares to be issued to the former holders of the Canopy USA Common Shares will be equal to no less than 10% of the total issued and outstanding Canopy USA Class B Shares following such issuance. Accordingly, as a result of the Reorganization Amendments, in no circumstances will Canopy Growth, at the time of such conversions, own more than 90% of the Canopy USA Class B Shares.
In connection with the Reorganization Amendments, on May 19, 2023, Canopy USA and Huneeus 2017 Irrevocable Trust (the “Trust”) entered into a share purchase agreement (the “Trust SPA”), which sets out the terms of the Trust’s investment in Canopy USA in the aggregate amount of up to US$20 million (the "Trust Transaction"). Agustin Huneeus, Jr. is the trustee of the Trust and is an affiliate of a shareholder of Jetty. Pursuant to the terms of the Trust SPA, the Trust will, subject to certain terms and conditions
44
contained in the Trust SPA be issued Canopy USA Common Shares in two tranches with an aggregate value of up to US$10 million along with warrants of Canopy USA to acquire additional Canopy USA Common Shares. In addition, subject to the terms of the Trust SPA, the Trust has also been granted options to acquire additional Voting Shares (as defined in the A&R LLC Agreement) with a value of up to an additional US$10 million and one such additional option includes the issuance of additional warrants of Canopy USA.
In addition, subject to the terms and conditions of the A&R Protection Agreement and the terms of the option agreements to acquire Wana and Jetty, as applicable, Canopy Growth may be required to issue additional common shares in satisfaction of certain deferred and/or option exercise payments to the shareholders of Wana and Jetty. Canopy Growth will receive additional Non-Voting Shares from Canopy USA as consideration for any Canopy Growth common shares issued in the future to the shareholders of Wana and Jetty.
On November 3, 2023, we received a letter from the staff of the SEC (the “Staff”) in which the Staff indicated that, despite the Reorganization Amendments, it would object to the deconsolidation of the financial results of Canopy USA from the Company's financial statements in accordance with U.S. GAAP once Canopy USA acquires Wana, Jetty or the Fixed Shares of Acreage. We subsequently had discussions with the Office of Chief Accountant of the SEC (the "OCA") and determined to make certain additional amendments to the structure of Canopy USA (the “Additional Reorganization Amendments”) to facilitate the deconsolidation of Canopy USA from the financial results of Canopy Growth in accordance with U.S. GAAP upon Canopy USA’s acquisition of Wana, Jetty or Acreage. In that regard, we filed a revised preliminary proxy statement with the SEC on each of January 25, 2024 and February 5, 2024 in connection with the Amendment Proposal (as defined below) that discloses these Additional Reorganization Amendments. In connection with the Additional Reorganization Amendments, Canopy USA and its members expect to enter into a second amended and restated limited liability company agreement (the “Second A&R LLC Agreement”) immediately prior to the completion of the first tranche closing of the Trust Transaction. Upon the effective date of the Second A&R LLC Agreement, the terms of the Non-Voting Shares will be amended such that the Non-Voting Shares will only be convertible into Canopy USA Class B Shares following the date that the NASDAQ Stock Market or The New York Stock Exchange permit the listing of companies that consolidate the financial statements of companies that cultivate, distribute or possess marijuana (as defined in 21 U.S.C 802) in the United States (the “Triggering Event Date”). Based on our discussions with the OCA, upon effectuating the Additional Reorganization Amendments, we believe that the Staff would not object to the deconsolidation of the financial results of Canopy USA from the Company’s financial statements in accordance with U.S. GAAP once Canopy USA acquires Wana, Jetty or the Fixed Shares of Acreage.
Ownership of U.S. Cannabis Investments
Following the implementation of the Reorganization, the shares and interests in Acreage, Wana, Jetty and TerrAscend are held, directly or indirectly, by Canopy USA, and Canopy Growth no longer holds a direct interest in any shares or interests in such entities, other than the Acreage Option. Canopy Growth holds non-voting and non-participating shares (the "Non-Voting Shares") in the capital of Canopy USA. The Non-Voting Shares do not carry voting rights, rights to receive dividends or other rights upon dissolution of Canopy USA. Following the Reorganization Amendments, the Non-Voting Shares are convertible into Class B shares of Canopy USA (the “Canopy USA Class B Shares”), provided that following the execution of the Second A&R LLC Agreement, such conversion shall only be permitted following the Triggering Event Date. Canopy Growth also has the right (regardless of the fact that its Non-Voting Shares are non-voting and non-participating) to appoint one member to the Canopy USA board of managers (the “Canopy USA Board”).
As of December 31, 2023, a third party investor owned all of the issued and outstanding Class A shares of Canopy USA (the “Canopy USA Common Shares”) and a wholly-owned subsidiary of Canopy Growth holds Non-Voting Shares in the capital of Canopy USA, representing approximately more than 99% of the issued and outstanding shares in Canopy USA on an as-converted basis.
On October 24, 2022, Canopy USA and Canopy Growth also entered into an agreement with, among others, Nancy Whiteman, the controlling shareholder of Wana, which was amended and restated on May 19, 2023, whereby subsidiaries of Canopy USA agreed to pay additional consideration in order to acquire the Wana Options and the future payments owed in connection with the exercise of the Wana Options will be reduced to US$3.00 in exchange for the issuance of Canopy USA Common Shares and Canopy Growth common shares (the “Wana Amending Agreement”). In accordance with the terms of the Wana Amending Agreement, Canopy USA Common Shares and Canopy Growth common shares will be issued to the shareholders of Wana, each with a value equal to 7.5% of the fair market value of Wana as of the later of: (i) the date that the Wana Options are exercised; and (ii) the closing date of the first tranche of the Trust Transaction (the “Wana Valuation Date”) less any net debt of Wana as of the Wana Valuation Date plus any net cash of Wana as of Wana Valuation Date. The value of Wana and the number of Canopy USA Common Shares will be determined based on the fair market value of Wana and the Canopy USA Common Shares, respectively, as determined by an appraiser appointed by Canopy Growth and an appraiser appointed by the shareholders of Wana (and, if required, a third appraiser to be appointed by the
45
initial two appraisers). The Canopy USA Common Shares and Canopy Growth common shares will only be issued to Ms. Whiteman, or entities controlled by Ms. Whiteman, on the later of: (i) the date of exercise of the Wana Options and (ii) the date that CBG and Greenstar, indirect, wholly-owned subsidiaries of CBI, have converted their Canopy Growth common shares into Exchangeable Shares. The Wana Amending Agreement may be terminated and no Canopy USA Common Shares or Canopy Growth common shares will be issued to Ms. Whiteman, or entities controlled by Ms. Whiteman in the event that CBG and Greenstar have not converted their Canopy Growth common shares into Exchangeable Shares by the later of: (i) sixty days after the Meeting; or (ii) December 31, 2023. The Canopy USA Common Shares issuable to Ms. Whiteman, or entities controlled by Ms. Whiteman, will also be subject to a repurchase right exercisable at any time after the 36 month anniversary of the closing of the transaction contemplated by the Wana Amending Agreement (the “Wana Repurchase Right”) to repurchase all Canopy USA Common Shares that have been issued at a price per Canopy USA Common Share equal to the fair market value as determined by an appraiser. As part of this agreement, Canopy USA has granted Ms. Whiteman the right to appoint one member to the Canopy USA Board and a put right on the same terms and conditions as the Wana Repurchase Right.
Canopy Growth and Canopy USA have also entered into a protection agreement (the "Protection Agreement") to provide for certain covenants in order to preserve the value of the Non-Voting Shares held by Canopy Growth until such time as the Non-Voting Shares are converted in accordance with their terms, provided that following the execution of the Second A&R LLC Agreement, such conversion shall only be permitted following the Triggering Event Date, but does not provide Canopy Growth with the ability to direct the business, operations or activities of Canopy USA. The Protection Agreement was amended and restated in connection with: (a) the Reorganization Amendments (the "First A&R Protection Agreement"); and (b) the Additional Reorganization Amendments (the “Second A&R Protection Agreement” and together with the First A&R Protection Agreement, the “A&R Protection Agreement”).
Upon closing of Canopy USA’s acquisition of Acreage, Canopy Growth will receive additional Non-Voting Shares from Canopy USA in consideration for the issuance of common shares of Canopy Growth that shareholders of Acreage will receive in accordance with the terms of the Existing Acreage Arrangement Agreement and the Floating Share Arrangement Agreement.
Until such time as Canopy Growth converts the Non-Voting Shares into Canopy USA Class B Shares following the Triggering Event Date, Canopy Growth will have no economic or voting interest in Canopy USA, Wana, Jetty, TerrAscend, or Acreage. Canopy USA, Wana, Jetty, TerrAscend, and Acreage will continue to operate independently of Canopy Growth.
Acreage Agreements
On October 24, 2022, Canopy Growth entered into an arrangement agreement with Canopy USA and Acreage, as amended (the “Floating Share Arrangement Agreement”), pursuant to which, subject to approval of the holders of the Floating Shares and the terms and conditions of the Floating Share Arrangement Agreement, Canopy USA will acquire all of the issued and outstanding Floating Shares by way of a court-approved plan on arrangement under the Business Corporations Act (British Columbia) (the “Floating Share Arrangement”) in exchange for 0.045 of a Company common share for each Floating Share held. In connection with the Floating Share Arrangement Agreement, Canopy Growth has irrevocably waived the Acreage Floating Option existing under the Existing Acreage Arrangement Agreement.
On October 24, 2022, Canopy Growth and Canopy USA entered into a third amendment to tax receivable agreement (the “Amended TRA”) with, among others, certain current or former unitholders (the “Holders”) of High Street Capital Partners, LLC, a subsidiary of Acreage (“HSCP”), pursuant to HSCP’s amended tax receivable agreement (the “TRA”) and related tax receivable bonus plans with Acreage. Pursuant to the Amended TRA, Canopy Growth, on behalf of Canopy USA, agreed to issue Canopy Growth common shares with a value of US$30.4 million to certain Holders as consideration for the assignment of such Holder’s rights under the TRA to Canopy USA. As a result of the Amended TRA, Canopy USA is the sole member and beneficiary under the TRA. In connection with the foregoing, Canopy Growth issued: (i) 564,893 common shares with a value of $20.6 million (US$15.2 million) to certain Holders on November 4, 2022 as the first installment under the Amended TRA; and (ii) 710,208 common shares with a value of $20.6 million (US$15.2 million) to certain Holders on March 17, 2023, as the second installment under the Amended TRA. Canopy Growth, on behalf of Canopy USA, also agreed to issue Canopy Growth common shares with a value of approximately US$19.6 million to certain eligible participants pursuant to HSCP’s existing tax receivable bonus plans to be issued immediately prior to completion of the Floating Share Arrangement.
On October 24, 2022, Canopy Growth and Canopy USA entered into voting support agreements with certain of Acreage’s directors, officers and consultants pursuant to which such persons have agreed, among other things, to vote their Floating Shares in favor of the Floating Share Arrangement, representing approximately 7.3% of the issued and outstanding Floating Shares.
In addition to shareholder and court approvals, the Floating Share Arrangement is subject to approval of the Amendment Proposal and applicable regulatory approvals including, but not limited to, TSX approval and the satisfaction of certain other closing conditions customary in transactions of this nature. The Floating Share Arrangement received the requisite approval from the holders
46
of Floating Shares at the special meeting of Acreage shareholders held on March 15, 2023 and on March 20, 2023 Acreage obtained a final order from the Supreme Court of British Columbia approving the Floating Share Arrangement. The Floating Share Arrangement Agreement has been amended several times to extend the Exercise Outside Date (as defined in the Floating Share Arrangement Agreement), which was initially March 31, 2023. The most recent amendment to the Floating Share Arrangement Agreement extended the Exercise Outside Date to March 31, 2024. The completion of the Floating Share Arrangement is subject to satisfaction or, if permitted, waiver of certain closing conditions, including, among others, approval of the Amendment Proposal on or prior to the Exercise Outside Date.
It is intended that Canopy Growth’s existing option to acquire the Fixed Shares on the basis of 0.03048 of a Canopy Growth common share per Fixed Share will be exercised after the Meeting in accordance with the terms of the arrangement agreement dated April 18, 2019, as amended on May 15, 2019, September 23, 2020 and November 17, 2020 (the “Existing Acreage Arrangement Agreement”). Canopy Growth will not hold any Fixed Shares or Floating Shares. Completion of the acquisition of the Fixed Shares following exercise of the Acreage Option is subject to the satisfaction of certain conditions set forth in the Existing Acreage Arrangement Agreement. The acquisition of the Floating Shares pursuant to the Floating Share Arrangement is anticipated to occur immediately prior to the acquisition of the Fixed Shares pursuant to the Existing Acreage Arrangement Agreement such that 100% of the issued and outstanding shares of Acreage will be owned by Canopy USA on closing of the acquisition of both the Fixed Shares and the Floating Shares.
On November 15, 2022, a wholly-owned subsidiary of Canopy Growth (the “Acreage Debt Optionholder”) and Acreage’s existing lenders (the “Lenders”) entered into an option agreement, which superseded the letter agreement dated October 24, 2022 between the parties, pursuant to which the Acreage Debt Optionholder was granted the right to purchase the outstanding principal, including all accrued and unpaid interest thereon, of Acreage’s debt, being an amount up to US$150.0 million (the “Acreage Debt”) from the Lenders in exchange for an option premium payment of $38.0 million (US$28.5 million) (the “Option Premium”), which was deposited into an escrow account on November 17, 2022. The Acreage Debt Optionholder has the right to exercise the option at its discretion, and if the option is exercised, the Option Premium will be used to reduce the purchase price to be paid for the outstanding Acreage Debt. In the event that Acreage repays the Acreage Debt on or prior to maturity, the Option Premium will be returned to the Acreage Debt Optionholder. In the event that Acreage defaults on the Acreage Debt and the Acreage Debt Optionholder does not exercise its option to acquire the Acreage Debt, the Option Premium will be released to the Lenders.
Special Shareholder Meeting
In connection with the Reorganization, Canopy Growth expects to hold a special meeting of shareholders (the “Meeting”) at which Canopy Growth shareholders will be asked to consider and, if deemed appropriate, to pass a special resolution authorizing an amendment to its articles of incorporation, as amended (the “Amendment Proposal”), in order to: (i) create and authorize the issuance of an unlimited number of a new class of non-voting and non-participating exchangeable shares in the capital of Canopy Growth (the “Exchangeable Shares”); and (ii) restate the rights of Canopy Growth’s common shares to provide for a conversion feature whereby each common share may at any time, at the option of the holder, be converted into one Exchangeable Share. The Exchangeable Shares will not carry voting rights, rights to receive dividends or other rights upon dissolution of Canopy Growth but will be convertible into common shares.
The Amendment Proposal must be approved by at least 66⅔% of the votes cast on a special resolution by Canopy Growth’s shareholders present in person or represented by proxy at the Meeting. On October 24, 2022, CBG and Greenstar, indirect, wholly-owned subsidiaries of CBI, entered into a voting and support agreement (the "Voting and Support Agreement") with Canopy Growth. Pursuant to the terms of the Voting and Support Agreement, CBG and Greenstar agreed, subject to the terms and conditions thereof, among other things, to vote all of the Canopy Growth common shares beneficially owned, directed or controlled, directly or indirectly, by them for the Amendment Proposal.
In the event the Amendment Proposal is approved, and subject to the conversion by CBI of their Canopy Growth common shares into Exchangeable Shares, Canopy USA is expected to exercise the Wana Options and the Jetty Options. In the event the Amendment Proposal is not approved, Canopy USA will not be permitted to exercise its rights to acquire shares of Wana or Jetty, and the Floating Share Arrangement Agreement will be terminated. In such circumstances, Canopy Growth will retain the Acreage Option under the Existing Acreage Arrangement Agreement and Canopy USA will continue to hold the Wana Options and the Jetty Options, as well as the TerrAscend Exchangeable Shares and other securities in the capital of TerrAscend. In addition, Canopy Growth is contractually required to cause Canopy USA to exercise its repurchase right to acquire the Canopy USA Common Shares held by the third party investors.
47
Relationship with CBI
In connection with the Reorganization, CBI has indicated its current intention to convert all of its Canopy Growth common shares into Exchangeable Shares, conditional upon the approval of the Amendment Proposal. However, any decision to convert will be made by CBI in its sole discretion, and CBI is not obligated to effect any such conversion.
In connection with the foregoing, on October 24, 2022, Canopy Growth entered into a consent agreement with CBG and Greenstar (the “Third Consent Agreement”), pursuant to which the parties agreed, among other things, that following the conversion by CBG and Greenstar of their respective Canopy Growth common shares into Exchangeable Shares, other than the Third Consent Agreement and the termination rights contained therein and the 4.25% unsecured senior notes due in 2023 (the “Canopy Notes”) held by Greenstar, all agreements between Canopy Growth and CBI, including the Second Amended and Restated Investor Rights Agreement, dated as of April 18, 2019, by and among certain wholly-owned subsidiaries of CBI and Canopy Growth (the “Second Amended and Restated Investor Rights Agreement”), will be terminated. Pursuant to the terms of the Third Consent Agreement, CBG and Greenstar also agreed, among other things, that at the time of the conversion by CBG and Greenstar of their Canopy Growth common shares into Exchangeable Shares, (i) CBG will surrender the warrants held by CBG to purchase 13,974,545 common shares for cancellation for no consideration; and (ii) all nominees of CBI that are currently sitting on the board of directors of Canopy Growth (the “Board”) will resign from the Board. In addition, pursuant to the Third Consent Agreement and following the Reorganization Amendments, Canopy Growth is contractually required to convert its Non-Voting Shares into Canopy USA Class B Shares, provided that following the execution of the Second A&R LLC Agreement, such conversion shall only be permitted following the Triggering Event Date, and cause Canopy USA to repurchase the Canopy USA Common Shares held by certain third-party investors in Canopy USA in the event CBG and Greenstar have not converted their respective common shares into Exchangeable Shares by sixty days after the Meeting (the “Termination Date”). The Third Consent Agreement will automatically terminate on the Termination Date.
In the event that CBI does not convert its Canopy Growth common shares into Exchangeable Shares, Canopy USA will not be permitted to exercise its rights to acquire the Fixed Shares from Canopy Growth or exercise its rights under the Wana Options or Jetty Options and the Floating Share Arrangement Agreement will be terminated. In such circumstances, Canopy Growth will retain the Acreage Option under the Existing Acreage Arrangement Agreement and Canopy USA will continue to hold the Wana Options and the Jetty Options, as well as the TerrAscend Exchangeable Shares and other securities in the capital of TerrAscend. If CBI does not convert its Canopy Growth common shares into Exchangeable Shares, Canopy Growth is also contractually required to cause Canopy USA to exercise its repurchase right to acquire the Canopy USA Common Shares held by the third party investors.
Refinancing of $100.0 Million of Canopy Notes Due in July 2023
On April 13, 2023, we entered into an exchange agreement (the “April 2023 Exchange Agreement”) with Greenstar in order to acquire and cancel $100.0 million aggregate principal amount of our outstanding Canopy Notes. Pursuant to the April 2023 Exchange Agreement, we agreed to acquire and cancel $100.0 million aggregate principal amount of the Canopy Notes held by Greenstar in exchange for: (i) a cash payment to Greenstar in the amount of the unpaid and accrued interest owing under the Canopy Notes held by Greenstar; and (ii) a promissory note of $100.0 million maturing December 31, 2024 bearing interest at a rate of 4.25% per annum, payable in cash on maturity (the “CBI Note”). As a result, Greenstar no longer holds any Canopy Notes.
Agreements with Indiva
On May 30, 2023, we entered into a license assignment and assumption agreement with Indiva Limited ("Indiva") and its subsidiary, Indiva Inc. (the "Indiva License Agreement"), allowing us to assume the exclusive rights and interests to manufacture, distribute, and sell Wana branded products in Canada. Simultaneously, we and Indiva also entered into a contract manufacturing agreement, under which we will grant Indiva the exclusive right to manufacture and supply Wana branded products in Canada for five years, with the ability to renew for an additional five-year term upon mutual agreement of the parties.
We also subscribed for 37.2 million common shares of Indiva for an aggregate purchase price of $2.2 million. In addition, we paid Indiva $0.5 million in cash on May 30, 2023, and agreed to pay Indiva an additional $1.3 million on May 30, 2024 provided that the parties are complying with the terms of the Indiva License Agreement (collectively, the "Indiva Investment").
Equitization of $12.5 Million of Canopy Notes Due in July 2023
On June 29, 2023, we entered into privately negotiated exchange agreements (the "June 2023 Exchange Agreements") with certain holders (the "Noteholders") of the Canopy Notes to acquire and cancel $12.5 million aggregate principal amount of the Canopy Notes from the Noteholders in exchange for cash, including accrued and unpaid interest owing under the Canopy Notes, and the issuance of approximately 2.43 million Canopy Growth common shares (the "June 2023 Exchange Transaction").
48
Conversion of US$100.0 Million Convertible Debentures
On February 21, 2023, we entered into a subscription agreement (the “Convertible Debenture Agreement”) with an institutional investor (the “Institutional Investor”) pursuant to which the Institutional Investor agreed to purchase up to US$150.0 million aggregate principal amount of senior unsecured convertible debentures (“Convertible Debentures”) in a registered direct offering. The Convertible Debentures were issued under the indenture dated February 21, 2023 between us and Computershare Trust Company of Canada, in its capacity as trustee. Pursuant to the Convertible Debenture Agreement, an initial $135.2 million (US$100.0 million) aggregate principal amount of the Convertible Debentures were sold to the Institutional Investor on February 21, 2023. The conditions with respect to the remaining US$50 million aggregate principal amount of the Convertible Debentures were neither satisfied nor waived. The Convertible Debentures were convertible into our common shares at the option of the Institutional Investor at any time or times prior to the maturity date of February 28, 2028, at a conversion price equal to 92.5% of the volume-weighted average price of our common shares during the three consecutive trading days ending on the business day immediately prior to the date of conversion. No cash payment or any other property of Canopy Growth was made by us to the Institutional Investor in connection with, or as a result of, the issuance, conversion or repayment of the Convertible Debentures.
As of June 30, 2023, all conversions pursuant to the Convertible Debentures were completed and the amount outstanding under the Convertible Debentures was $nil.
Maturity of Canopy Notes Due in July 2023
On July 13, 2023, we entered into privately negotiated redemption agreements (collectively, the “Redemption Agreements”) with certain Noteholders of our Canopy Notes, pursuant to which approximately $193 million aggregate principal amount of the outstanding Canopy Notes held by such Noteholders were redeemed (the "Redemption") on the applicable closing date for: (i) an aggregate cash payment of approximately $101 million; (ii) the issuance of 9.04 million Canopy Growth common shares; and (iii) the issuance of approximately $40.4 million aggregate principal amount of newly issued unsecured non-interest bearing convertible debentures (the "Debentures"). Following the Redemption, we settled the remaining aggregate principal amount owing under the outstanding Canopy Notes and, as of the maturity date, there were no Canopy Notes outstanding.
The Debentures were issued pursuant to a debenture indenture dated July 14, 2023 between us and Odyssey Trust Company, in its capacity as trustee. The Debentures were convertible into Canopy Growth common shares (the “Debenture Shares”) at the option of the holder at any time or times following approval from our shareholders for the issuance of all the Debenture Shares in excess of the Nasdaq threshold of 19.99% and the TSX requirements of 25% of the issued and outstanding Canopy Growth common shares in accordance with the applicable rules and regulations of Nasdaq and the TSX (the "Shareholder Approval") until the maturity date of January 15, 2024, at a conversion price equal to $5.50, subject to adjustment in certain events.
We obtained Shareholder Approval, at our Annual General and Special Meeting of shareholders held on September 25, 2023. As of September 30, 2023, all conversions pursuant to the Debentures have been completed and the amount outstanding under the Debentures was $nil.
Balance Sheet Deleveraging Initiatives
On October 24, 2022, we entered into agreements with certain of our lenders under the term loan credit agreement dated March 18, 2021 (the “Credit Agreement”) pursuant to which we agreed to purchase in the aggregate US$187.5 million of the principal indebtedness outstanding under the Credit Facility at a discounted price of US$930 per US$1,000 or US$174.4 million in the aggregate. The first payment, which was oversubscribed, in the amount of $117.5 million (US$87.9 million) was made on November 10, 2022 to reduce the principal indebtedness under the Credit Facility by approximately $126.3 million (US$94.4 million). The second payment of $116.8 million (US$87.2 million) was made on April 17, 2023 to reduce principal indebtedness under the Credit Facility by $125.6 million (US$93.8 million). Additionally, on October 24, 2022 we and certain of our lenders agreed to make certain amendments to the Credit Agreement which, among other things, resulted in: (i) a reduction to the minimum liquidity covenant to no less than US$100.0 million following completion of the second principal repurchase on April 17, 2023; (ii) certain changes to the application of net proceeds from asset sales; (iii) the establishment of a new committed delayed draw term credit facility in an aggregate principal amount of US$100.0 million; and (iv) the elimination of the additional US$500.0 million incremental term loan facility.
On July 13, 2023, we entered into agreements with certain of our lenders under the Credit Agreement pursuant to which certain additional amendments were made to the Credit Agreement (collectively, the Credit Agreement, as amended as of July 13, 2023, is referred to herein as the “Amended Credit Agreement”). The Amended Credit Agreement required us to prepay or repurchase principal indebtedness under the Credit Facility in an amount equal to the US dollar equivalent of $93.0 million at a discounted price of US$930 per US$1,000 (the “July 2023 Paydown”). In addition, the Amended Credit Agreement requires us to apply certain net
49
proceeds from asset sales to prepay or repurchase principal indebtedness under the Credit Facility and receive principal reductions at, in certain circumstances, a discounted price of US$950 per US$1,000. The Amended Credit Agreement also includes, among other things, amendments to the minimum liquidity covenant such that the US$100.0 million minimum ceased to apply concurrently with the July 2023 Paydown. The July 2023 Paydown was made on July 21, 2023.
On each of August 11, 2023 and September 14, 2023, pursuant to the terms of the Amended Credit Agreement, we repurchased additional outstanding principal amounts under the Credit Facility using certain net proceeds from completed asset sales (the “Second Quarter 2024 Paydowns”). The Second Quarter 2024 Paydowns resulted in an aggregate principal reduction of $73.3 million (US$54.5 million) for a cash payment of $69.6 million (US$51.8 million).
On each of November 28, 2023 and December 27, 2023, pursuant to the terms of the Amended Credit Agreement, we repurchased and repaid, as applicable, additional outstanding principal amounts under the Credit Facility using certain net proceeds from completed asset sales (the "Third Quarter 2024 Paydowns"). The Third Quarter 2024 Paydowns resulted in an aggregate principal reduction of $65.4 million (US$48.5 million) for a cash payment of $63.2 million (US$46.9 million).
September 2023 Private Placement – Unit Offering
On September 18, 2023, we entered into subscription agreements (the “Subscription Agreements”) with certain institutional investors (the “Investors”). Pursuant to the terms of the Subscription Agreements, we issued 2,292,947 units of the Company (the “Units”) to the Investors at a price per Unit of US$10.90 for aggregate gross proceeds of approximately $33.7 million (US$25.0 million) (the “Unit Offering”). Each Unit is comprised of one Canopy Growth common share and one common share purchase warrant (a “Warrant”). Each Warrant entitles the holder to acquire one Canopy Growth common share at a price per share equal to US$13.50 for a period of five years from the date of issuance. The Unit Offering closed on September 19, 2023.The Investors also held an over-allotment option to acquire up to an additional 2,292,947 Units at a price per Unit of US$10.90 for aggregate gross proceeds of approximately US$25.0 million at the discretion of the Investors at any time on or before November 2, 2023 (the “Over-Allotment Option”). The Over-Allotment Option was not exercised by the Investors and expired on November 2, 2023.
January 2024 Private Placement – Unit Offering
On January 18, 2024, we entered into subscription agreements (the "January 2024 Subscription Agreements") with certain institutional investors (the "January 2024 Investors"). Pursuant to the terms of the January 2024 Subscription Agreements, we issued 8,158,510 units of the Company (the "January 2024 Units") to the January 2024 Investors at a price per January 2024 Unit of US$4.29 for aggregate gross proceeds of approximately $47.1 million (US$35.0 million) (the "January 2024 Unit Offering"). Each January 2024 Unit is comprised of (a) one Canopy Growth common share and (b)(i) one Series A common share purchase warrant (a "Series A Warrant") or (ii) one Series B common share purchase warrant (a "Series B Warrant" and, together with the Series A Warrants, the "January 2024 Warrants"). Each January 2024 Warrant entitles the holder to acquire one Canopy Growth common share from the Company at a price per share equal to US$4.83. The Series A Warrants are currently exercisable and will remain exercisable until January 19, 2029, and the Series B Warrants will be exercisable for a period commencing on July 19, 2024 until July 19, 2029. The January 2024 Unit Offering closed on January 19, 2024.
Share Consolidation
On December 13, 2023, the Company announced that the Board had approved the consolidation of the Company’s issued and outstanding common shares on the basis of one post-consolidation common share for every 10 pre-consolidation common shares (the “Share Consolidation”). The Share Consolidation was implemented to ensure that the Company continues to comply with the listing requirements of the Nasdaq Global Select Market.
The Share Consolidation was approved by the Company’s shareholders at the annual general and special meeting of shareholders held on September 25, 2023. The Share Consolidation became effective on December 15, 2023. No fractional common shares were issued in connection with the Share Consolidation. Any fractional common shares arising from the Share Consolidation were deemed to have been tendered by its registered owner to the Company for cancellation for no consideration. In addition, the exercise or conversion price and/or the number of common shares issuable under any of the Company’s outstanding convertible securities, were proportionately adjusted in connection with the Share Consolidation.
All issued and outstanding common shares, per share amounts, and outstanding equity instruments and awards exercisable into common shares, as well as the exchange ratios for the Fixed Shares and the Floating Shares under the Acreage Amending Agreement and the Floating Share Arrangement Agreement, respectively, contained in the condensed interim consolidated financial statements of the Company and notes thereto have been retroactively adjusted to reflect the Share Consolidation for all prior periods presented.
50
Divestiture of This Works
On December 18, 2023, the Company entered into an agreement to divest all of its interest in This Works to a London-based investment firm (the “This Works Divestiture”). The Company completed the This Works Divestiture on December 18, 2023, pursuant to which the Company received a cash payment of $2,249 (£1,333) and a loan note of $5,240 (£3,106) with a maturity date of December 18, 2027. The Company will also be entitled to an earnout payment of up to $5,905 (£3,500), subject to certain financial targets.
Part 2 - Results of Operations
The results of operations presented below reports the financial performance of the continuing operations of Canopy Growth in the three and nine month periods ending December 31, 2023. Further to Note 4 in the Company’s accompanying financial statements, the BioSteel segment results for all periods prior to the September 14, 2023 and November 16, 2023, being the effective dates of deconsolidation as a result of the CCAA Proceedings, are classified as discontinued operations and therefore are excluded from continuing operations.
Discussion of Third Quarter of Fiscal 2024 Results of Operations
|
|
Three months ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands of Canadian dollars, except share amounts and |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Selected consolidated financial information: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
78,505 |
|
|
$ |
84,850 |
|
|
$ |
(6,345 |
) |
|
|
(7 |
%) |
Gross margin percentage |
|
|
36 |
% |
|
|
6 |
% |
|
|
- |
|
|
3,000 bps |
|
|
Net loss from continuing operations |
|
$ |
(230,276 |
) |
|
$ |
(226,844 |
) |
|
$ |
(3,432 |
) |
|
|
(2 |
%) |
Net loss from continuing operations |
|
$ |
(230,276 |
) |
|
$ |
(226,302 |
) |
|
$ |
(3,974 |
) |
|
|
(2 |
%) |
Basic and diluted loss per share from |
|
$ |
(2.78 |
) |
|
$ |
(4.66 |
) |
|
$ |
1.88 |
|
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
1 For the three months ended December 31, 2023, the weighted average number of outstanding common shares, basic and diluted, totaled 82,919,190 (three months ended December 31, 2022 - 48,611,260). |
|
|||||||||||||||
2 Prior year share and per share amounts have been retrospectively adjusted to reflect the Share Consolidation, which became effective on December 15, 2023. |
|
|||||||||||||||
Revenue
We report net revenue in four segments: (i) Canada cannabis; (ii) rest-of-world cannabis; (iii) Storz & Bickel; and (iv) This Works. Revenue derived from the remainder of our operations are included within "other". The following table presents segmented net revenue for the three months ended December 31, 2023 and 2022:
Net Revenue |
|
Three months ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands of Canadian dollars) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Canada cannabis |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Canadian adult-use cannabis |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Business-to-business1 |
|
$ |
23,386 |
|
|
$ |
21,522 |
|
|
$ |
1,864 |
|
|
|
9 |
% |
Business-to-consumer |
|
|
- |
|
|
|
11,036 |
|
|
|
(11,036 |
) |
|
|
(100 |
%) |
|
|
|
23,386 |
|
|
|
32,558 |
|
|
|
(9,172 |
) |
|
|
(28 |
%) |
Canadian medical cannabis2 |
|
|
15,642 |
|
|
|
14,059 |
|
|
|
1,583 |
|
|
|
11 |
% |
|
|
$ |
39,028 |
|
|
$ |
46,617 |
|
|
$ |
(7,589 |
) |
|
|
(16 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rest-of-world cannabis3 |
|
$ |
10,527 |
|
|
$ |
5,846 |
|
|
$ |
4,681 |
|
|
|
80 |
% |
Storz & Bickel |
|
$ |
18,453 |
|
|
$ |
20,214 |
|
|
$ |
(1,761 |
) |
|
|
(9 |
%) |
This Works |
|
$ |
8,165 |
|
|
$ |
8,289 |
|
|
$ |
(124 |
) |
|
|
(1 |
%) |
Other |
|
|
2,332 |
|
|
|
3,884 |
|
|
|
(1,552 |
) |
|
|
(40 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
78,505 |
|
|
$ |
84,850 |
|
|
$ |
(6,345 |
) |
|
|
(7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
1 Reflects excise taxes of $9,741 and other revenue adjustments, representing our determination of returns and pricing adjustments, of $1,113 for the three months ended December 31, 2023 (three months ended December 31, 2022 - excise taxes of $10,797 and other revenue adjustments of $2,000). |
|
|||||||||||||||
2 Reflects excise taxes of $1,815 for the three months ended December 31, 2023 (three months ended December 31, 2022 - $1,339). |
|
|||||||||||||||
3 Reflects other revenue adjustments of $317 for the three months ended December 31, 2023 (three months ended December 31, 2022 - $3,684). |
|
|||||||||||||||
51
Net revenue was $78.5 million in the third quarter of fiscal 2024, a decrease of $6.3 million as compared to $84.9 million in the third quarter of fiscal 2023.
Canada cannabis
Net revenue from our Canada cannabis segment was $39.0 million in the third quarter of fiscal 2024, as compared to $46.6 million in the third quarter of fiscal 2023.
Canadian adult-use cannabis net revenue was $23.4 million in the third quarter of fiscal 2024, as compared to $32.6 million in the third quarter of fiscal 2023.
Canadian medical cannabis net revenue was $15.6 million in the third quarter of fiscal 2024, as compared to $14.1 million in the third quarter of fiscal 2023. The year-over-year increase is primarily attributable to an increase in the average size of medical orders placed by our customers due largely to a shift in our customer mix, and a larger assortment of cannabis product choices offered to our customers.
Rest-of-world cannabis
Rest-of-world cannabis revenue was $10.5 million in the third quarter of fiscal 2024, as compared to $5.8 million in the third quarter of fiscal 2023. The year-over-year increase is attributable to growth in Germany, Poland and Czech Republic driven by increased shipments of high quality flower products as well as continued strong growth in our Australian medical business.
Storz & Bickel
Revenue from Storz & Bickel was $18.5 million in the third quarter of fiscal 2024, as compared to $20.2 million in the third quarter of fiscal 2023. The year-over-year decrease is primarily attributable to production constraints and ramp-up of newly launched portable vaporizer in the second quarter of fiscal 2024.
This Works
Revenue from This Works was $8.2 million in the third quarter of fiscal 2024, as compared to $8.3 million in the third quarter of fiscal 2023. The year-over-year revenue is slightly lower due to the completion of the This Works Divestiture on December 18, 2023.
Cost of Goods Sold and Gross Margin
The following table presents cost of goods sold, gross margin and gross margin percentage on a consolidated basis for the three months ended December 31, 2023 and 2022:
|
|
Three months ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands of Canadian dollars except where indicated) |
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|||||
Net revenue |
|
$ |
78,505 |
|
|
$ |
84,850 |
|
|
$ |
(6,345 |
) |
|
|
(7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of goods sold |
|
$ |
50,279 |
|
|
$ |
79,622 |
|
|
$ |
(29,343 |
) |
|
|
(37 |
%) |
Gross margin |
|
|
28,226 |
|
|
|
5,228 |
|
|
|
22,998 |
|
|
|
440 |
% |
Gross margin percentage |
|
|
36 |
% |
|
|
6 |
% |
|
|
- |
|
|
3,000 bps |
|
|
Cost of goods sold was $50.3 million in the third quarter of fiscal 2024, as compared to $79.6 million in the third quarter of fiscal 2023. Our gross margin was $28.2 million in the third quarter of fiscal 2024, or 36% of net revenue, as compared to a gross margin of $5.2 million and gross margin percentage of 6% of net revenue in the third quarter of fiscal 2023. The year-over-year increase in the gross margin percentage is primarily attributable to:
52
We report gross margin and gross margin percentage in four segments: (i) Canada cannabis; (ii) rest-of-world cannabis; (iii) Storz & Bickel; and (iv) This Works. Cost of sales associated with the remainder of our operations are included within "other". The following table presents segmented gross margin and gross margin percentage for the three months ended December 31, 2023 and 2022:
|
|
Three months ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands of Canadian dollars except where indicated) |
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|||||
Canada cannabis segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
39,028 |
|
|
$ |
46,617 |
|
|
$ |
(7,589 |
) |
|
|
(16 |
%) |
Cost of goods sold |
|
|
27,915 |
|
|
|
51,898 |
|
|
|
(23,983 |
) |
|
|
(46 |
%) |
Gross margin |
|
|
11,113 |
|
|
|
(5,281 |
) |
|
|
16,394 |
|
|
|
310 |
% |
Gross margin percentage |
|
|
28 |
% |
|
|
(11 |
%) |
|
|
|
|
3,900 bps |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rest-of-world cannabis segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
10,527 |
|
|
$ |
5,846 |
|
|
$ |
4,681 |
|
|
|
80 |
% |
Cost of goods sold |
|
|
6,335 |
|
|
|
8,030 |
|
|
|
(1,695 |
) |
|
|
(21 |
%) |
Gross margin |
|
|
4,192 |
|
|
|
(2,184 |
) |
|
|
6,376 |
|
|
|
292 |
% |
Gross margin percentage |
|
|
40 |
% |
|
|
(37 |
%) |
|
|
|
|
7,700 bps |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Storz & Bickel segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
18,453 |
|
|
$ |
20,214 |
|
|
$ |
(1,761 |
) |
|
|
(9 |
%) |
Cost of goods sold |
|
|
9,004 |
|
|
|
11,028 |
|
|
|
(2,024 |
) |
|
|
(18 |
%) |
Gross margin |
|
|
9,449 |
|
|
|
9,186 |
|
|
|
263 |
|
|
|
3 |
% |
Gross margin percentage |
|
|
51 |
% |
|
|
45 |
% |
|
|
|
|
600 bps |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
This Works segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
8,165 |
|
|
$ |
8,289 |
|
|
$ |
(124 |
) |
|
|
(1 |
%) |
Cost of goods sold |
|
|
3,912 |
|
|
|
4,257 |
|
|
|
(345 |
) |
|
|
(8 |
%) |
Gross margin |
|
|
4,253 |
|
|
|
4,032 |
|
|
|
221 |
|
|
|
5 |
% |
Gross margin percentage |
|
|
52 |
% |
|
|
49 |
% |
|
|
|
|
300 bps |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
2,332 |
|
|
$ |
3,884 |
|
|
$ |
(1,552 |
) |
|
|
(40 |
%) |
Cost of goods sold |
|
|
3,113 |
|
|
|
4,409 |
|
|
|
(1,296 |
) |
|
|
(29 |
%) |
Gross margin |
|
|
(781 |
) |
|
|
(525 |
) |
|
|
(256 |
) |
|
|
(49 |
%) |
Gross margin percentage |
|
|
(33 |
%) |
|
|
(14 |
%) |
|
|
|
|
(1,900) bps |
|
||
Canada cannabis
Gross margin for our Canada cannabis segment was $11.1 million in the third quarter of fiscal 2024, or 28% of net revenue, as compared to $(5.3) million in the third quarter of fiscal 2023, or (11%) of net revenue. The year-over-year increase in the gross margin percentage was primarily attributable to: (i) the realized benefit of our cost savings program and strategic changes to our business that
53
were initiated in the fourth quarter of fiscal 2022 and the fourth quarter of fiscal 2023; (ii) a year-over-year decrease in write-downs of excess inventory; and (iii) opportunistic utilization of lower cost inputs;
Rest-of-world cannabis
Gross margin for our rest-of-world cannabis segment was $4.2 million in the third quarter of fiscal 2024, or 40% of net revenue, as compared to $(2.2) million in the third quarter of fiscal 2023, or (37%) of net revenue. The year-over-year increase in the gross margin percentage is primarily attributable to additional variable consideration recognized in respect of our U.S. CBD business and a downward adjustment related to a customer in an exited international market in the third quarter of fiscal 2023. Both items did not recur in the third quarter of fiscal 2024.
Storz & Bickel
Gross margin for our Storz & Bickel segment was $9.4 million in the third quarter of fiscal 2024, or 51% of net revenue, as compared to $9.2 million in the third quarter of fiscal 2023, or 45% of net revenue. The year-over-year increase in the gross margin percentage is driven primarily by lower input costs and a positive shift in product mix to higher-margin newly launched products.
This Works
Gross margin for our This Works segment was $4.3 million in the third quarter of fiscal 2024, or 52% of net revenue, as compared to $4.0 million in the third quarter of fiscal 2023, or 49% of net revenue. The year-over-year increase in the gross margin percentage is primarily due to lower excess and obsolete inventory charges in the third quarter of fiscal 2024.
Operating Expenses
The following table presents operating expenses for the three months ended December 31, 2023 and 2022:
|
|
Three months ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands of Canadian dollars) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
$ |
22,735 |
|
|
$ |
31,314 |
|
|
$ |
(8,579 |
) |
|
|
(27 |
%) |
Sales and marketing |
|
|
18,326 |
|
|
|
32,410 |
|
|
|
(14,084 |
) |
|
|
(43 |
%) |
Research and development |
|
|
1,311 |
|
|
|
4,907 |
|
|
|
(3,596 |
) |
|
|
(73 |
%) |
Acquisition, divestiture, and other costs |
|
|
4,981 |
|
|
|
13,347 |
|
|
|
(8,366 |
) |
|
|
(63 |
%) |
Depreciation and amortization |
|
|
7,083 |
|
|
|
7,626 |
|
|
|
(543 |
) |
|
|
(7 |
%) |
Selling, general and administrative expenses |
|
|
54,436 |
|
|
|
89,604 |
|
|
|
(35,168 |
) |
|
|
(39 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share-based compensation expense |
|
|
3,693 |
|
|
|
6,055 |
|
|
|
(2,362 |
) |
|
|
(39 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss on asset impairment and restructuring |
|
|
30,413 |
|
|
|
22,259 |
|
|
|
8,154 |
|
|
|
37 |
% |
Total operating expenses |
|
$ |
88,542 |
|
|
$ |
117,918 |
|
|
$ |
(29,376 |
) |
|
|
(25 |
%) |
Selling, general and administrative expenses
Selling, general and administrative expenses were $54.4 million in the third quarter of fiscal 2024, as compared to $89.6 million in the third quarter of fiscal 2023.
General and administrative expense was $22.7 million in the third quarter of fiscal 2024, as compared to $31.3 million in the third quarter of fiscal 2023. The year-over-year decrease is primarily attributable to the impact of the restructuring actions and cost savings programs initiated in the fourth quarters of both fiscal 2022 and fiscal 2023. We realized reductions relative to the third quarter of fiscal 2023 primarily in relation to: (i) compensation costs for finance, information technology, legal and other administrative functions; and (ii) a reduction in facilities and insurance costs.
Sales and marketing expense was $18.3 million in the third quarter of fiscal 2024, as compared to $32.4 million in the third quarter of fiscal 2023. The year-over-year decrease is primarily attributable to: (i) the divestiture of our retail business in Canada in the third quarter of fiscal 2023; (ii) cost reductions related to the previously-noted restructuring actions and cost savings programs, which resulted in a rationalization of our sales and marketing spending in certain areas of our business, particularly for our Canadian cannabis and U.S. CBD businesses, and a reduction in compensation costs.
54
Research and development expense was $1.3 million in the third quarter of fiscal 2024, as compared to $4.9 million in the third quarter of fiscal 2023. The year-over-year decrease is primarily attributable to cost reductions associated with the previously-noted restructuring actions and cost savings programs, as we: (i) continued to realize reductions in compensation costs and curtail research and development projects; and (ii) shifted to outsourced contract model for certain research and development projects.
Acquisition, divestiture, and other costs were $5.0 million in the third quarter of fiscal 2024, as compared to $13.3 million in the third quarter of fiscal 2023. In the third quarter of fiscal 2024, costs were incurred primarily in relation to:
Comparatively, in the third quarter of fiscal 2023, costs were incurred primarily in relation to the Reorganization, the divestiture of certain of our corporate-owned retail stores in Canada, and evaluating other potential acquisition opportunities.
Depreciation and amortization expense was $7.1 million in the third quarter of fiscal 2024, as compared to $7.6 million in the third quarter of fiscal 2023. The year-over-year decrease is primarily attributable to: (i) the previously-noted restructuring actions and cost savings programs, including the closure of certain of our Canadian facilities and other operational changes to implement cultivation-related efficiencies and improvements in the Canadian adult-use cannabis business; and (ii) the divestiture of our retail business in Canada in the third quarter of fiscal 2023.
Share-based compensation expense
Share-based compensation expense was $3.7 million in the third quarter of fiscal 2024, as compared to $6.1 million in the third quarter of fiscal 2023. The year-over-year decrease is primarily attributable to the impact of our previously-noted restructuring actions, which resulted in forfeitures of stock options, restricted share units and performance units and results in lower relative expenses in future periods. While 2.4 million stock options were granted in the first quarter of fiscal 2024 and 1.5 million restricted share units were granted in the second quarter of fiscal 2024, the associated expense relating to both items partially offset the decrease noted.
Loss on asset impairment and restructuring
Loss on asset impairment and restructuring recorded in operating expenses were $30.4 million in the third quarter of fiscal 2024, as compared to $22.3 million in the third quarter of fiscal 2023.
Loss on asset impairment and restructuring recorded in the third quarter of fiscal 2024 were primarily related to the charges associated with the completion of the This Works Divestiture, as $28.1 million of write-downs occurred due to the sale. In addition, there were various incremental impairment losses and other costs associated with the restructuring of our Canadian cannabis operations that were initiated in the three months ended March 31, 2023.
Comparatively, in the third quarter of fiscal 2023, the loss on asset impairment and restructuring were primarily related to:
55
Other
The following table presents other income (expense), net, and income tax expense for the three months ended December 31, 2023 and 2022:
|
|
Three months ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands of Canadian dollars) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Other income (expense), net |
|
|
(171,037 |
) |
|
|
(115,490 |
) |
|
|
(55,547 |
) |
|
|
(48 |
%) |
Income tax recovery |
|
|
1,077 |
|
|
|
1,336 |
|
|
|
(259 |
) |
|
|
(19 |
%) |
Other income (expense), net
Other income (expense), net was an expense amount of $171.0 million in the third quarter of fiscal 2024, as compared to an expense amount of $115.5 million in the third quarter of fiscal 2023. The year-over-year change of $55.5 million is primarily attributable to:
These fair value decreases were partially offset by fair value increases related to our investments in:
Comparatively, the expense amount in the third quarter of fiscal 2023 was primarily attributable to fair value decreases relating to our investments in: (i) the TerrAscend Exchangeable Shares ($31.5 million); (ii) the New Warrants ($17.5 million); (iii) the Acreage call option ($35.0 million); (iv) the Wana financial instrument ($16.2 million); and (v) the Jetty financial instrument ($10.2 million). The fair value decreases were partially offset by fair value increases associated with the secured debentures issued by TerrAscend Canada and Arise Bioscience and the associated Prior Warrants, up to the closing of the transactions contemplated in connection with the Debt Settlement Agreement (totaling $9.9 million).
56
Income tax recovery
Income tax recovery in the third quarter of fiscal 2024 was $1.1 million, compared to income tax recovery of $1.3 million in the third quarter of fiscal 2023. In the third quarter of fiscal 2024, income tax recovery consisted of deferred income tax recovery of $0.6 million (compared to a recovery of $1.8 million in the third quarter of fiscal 2023) and current income tax recovery of $0.5 million (compared to an expense of $0.5 million in the third quarter of fiscal 2023).
The decrease of $1.2 million in the deferred income tax recovery is primarily a result of change in deferred tax liabilities that arose in connection with the required revaluation of the accounting carrying value, but not the tax basis, of property, plant and equipment, intangible assets, and other financial assets, net of deferred tax assets recognized in the quarter where the accounting criteria for recognition of an asset has been satisfied.
The increase of $1.0 million in current income tax recovery arose primarily as a result of the reduction in the number of legal entities that generated income for tax purposes.
Net Loss from Continuing Operations
The net loss from continuing operations in the third quarter of fiscal 2024 was $230.3 million, as compared to a net loss of $226.8 million in the third quarter of fiscal 2023. The year-over-year increase in the net loss is primarily attributable to: (i) the year-over-year increase in loss on asset impairment and restructuring; (ii) the year-over-year change in other income (expense), net, of $55.5 million; and (iii) offset by the decrease in selling, general and administrative expenses. These variances are described above.
Adjusted EBITDA (Non-GAAP Measure)
Our “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. Management calculates Adjusted EBITDA as the reported net income (loss), adjusted to exclude income tax recovery (expense); other income (expense), net; loss on equity method investments; share-based compensation expense; depreciation and amortization expense; (gain)/loss on asset impairment and restructuring; restructuring costs 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, divestiture, and other costs. Asset impairments related to periodic changes to our supply chain processes are not excluded from Adjusted EBITDA given their occurrence through the normal course of core operational activities. Accordingly, management believes that Adjusted EBITDA provides meaningful and useful financial information, as this measure demonstrates the operating performance of businesses.
57
The following table presents Adjusted EBITDA for the three months ended December 31, 2023 and 2022:
|
|
Three months ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands of Canadian dollars) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Net loss from continuing operations |
|
$ |
(230,276 |
) |
|
$ |
(226,844 |
) |
|
$ |
(3,432 |
) |
|
|
(2 |
%) |
Income tax recovery |
|
|
(1,077 |
) |
|
|
(1,336 |
) |
|
|
259 |
|
|
|
19 |
% |
Other (income) expense, net |
|
|
171,037 |
|
|
|
115,490 |
|
|
|
55,547 |
|
|
|
48 |
% |
Share-based compensation |
|
|
3,693 |
|
|
|
6,055 |
|
|
|
(2,362 |
) |
|
|
(39 |
%) |
Acquisition, divestiture, and other costs |
|
|
4,981 |
|
|
|
13,347 |
|
|
|
(8,366 |
) |
|
|
(63 |
%) |
Depreciation and amortization1 |
|
|
12,240 |
|
|
|
19,308 |
|
|
|
(7,068 |
) |
|
|
(37 |
%) |
Loss on asset impairment and restructuring |
|
|
30,413 |
|
|
|
22,259 |
|
|
|
8,154 |
|
|
|
37 |
% |
Restructuring costs recorded in cost of goods sold |
|
|
- |
|
|
|
2,007 |
|
|
|
(2,007 |
) |
|
|
(100 |
%) |
Adjusted EBITDA |
|
$ |
(8,989 |
) |
|
$ |
(49,714 |
) |
|
$ |
40,725 |
|
|
|
82 |
% |
1 From Consolidated Statements of Cash Flows. |
|
|||||||||||||||
The Adjusted EBITDA loss in the third quarter of fiscal 2024 was $9.0 million, as compared to an Adjusted EBITDA loss of $49.7 million in the third quarter of fiscal 2023. The year-over-year decrease in Adjusted EBITDA loss is primarily attributable to the year-over-year increase in our gross margin and the year-over-year decrease in our selling, general and administrative expenses.
Discussion of Results of Operation for the Nine Months Ended December 31, 2023
|
|
Nine months ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands of Canadian dollars, except share amounts and |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Selected consolidated financial information: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
224,358 |
|
|
$ |
265,018 |
|
|
$ |
(40,660 |
) |
|
|
(15 |
%) |
Gross margin percentage |
|
|
29 |
% |
|
|
0 |
% |
|
|
- |
|
|
2,900 bps |
|
|
Net loss from continuing operations |
|
$ |
(389,007 |
) |
|
$ |
(2,492,445 |
) |
|
$ |
2,103,438 |
|
|
|
84 |
% |
Net loss from continuing operations |
|
$ |
(389,007 |
) |
|
$ |
(2,491,109 |
) |
|
$ |
2,102,102 |
|
|
|
84 |
% |
Basic and diluted loss per share from |
|
$ |
(5.56 |
) |
|
$ |
(54.96 |
) |
|
$ |
49.40 |
|
|
|
90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
1 For the nine months ended December 31, 2023, the weighted average number of outstanding common shares, basic and diluted, totaled 69,918,744 (nine months ended December 31, 2022 - 45,323,788). |
|
|||||||||||||||
2 Prior year share and per share amounts have been retrospectively adjusted to reflect the Share Consolidation, which became effective on December 15, 2023. |
|
|||||||||||||||
58
Revenue
We report net revenue in four segments: (i) Canada cannabis; (ii) rest-of-world cannabis; (iii) Storz & Bickel; and (iv) This Works. Revenue derived from the remainder of our operations are included within "other". The following table presents segmented net revenue for the nine months ended December 31, 2023 and 2022:
Net Revenue |
|
Nine months ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands of Canadian dollars) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Canada cannabis |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Canadian adult-use cannabis |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Business-to-business1 |
|
$ |
71,591 |
|
|
$ |
73,379 |
|
|
$ |
(1,788 |
) |
|
|
(2 |
%) |
Business-to-consumer |
|
|
- |
|
|
|
36,243 |
|
|
|
(36,243 |
) |
|
|
(100 |
%) |
|
|
|
71,591 |
|
|
|
109,622 |
|
|
|
(38,031 |
) |
|
|
(35 |
%) |
Canadian medical cannabis2 |
|
|
45,043 |
|
|
|
41,714 |
|
|
|
3,329 |
|
|
|
8 |
% |
|
|
$ |
116,634 |
|
|
$ |
151,336 |
|
|
$ |
(34,702 |
) |
|
|
(23 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rest-of-world cannabis3 |
|
$ |
29,666 |
|
|
$ |
30,179 |
|
|
$ |
(513 |
) |
|
|
(2 |
%) |
Storz & Bickel |
|
$ |
48,517 |
|
|
$ |
49,351 |
|
|
$ |
(834 |
) |
|
|
(2 |
%) |
This Works |
|
$ |
21,256 |
|
|
$ |
20,677 |
|
|
$ |
579 |
|
|
|
3 |
% |
Other |
|
|
8,285 |
|
|
|
13,475 |
|
|
|
(5,190 |
) |
|
|
(39 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
224,358 |
|
|
$ |
265,018 |
|
|
$ |
(40,660 |
) |
|
|
(15 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
1Reflects excise taxes of $31,596 and other revenue adjustments, representing our determination of returns and pricing adjustments, of $2,483 for the nine months ended December 31, 2023 (nine months ended December 31, 2022 - excise taxes of $33,754 and other revenue adjustments of $2,903). |
|
|||||||||||||||
2 Reflects excise taxes of $4,827 for the nine months ended December 31, 2023 (nine months ended December 31, 2022 - $3,625). |
|
|||||||||||||||
3 Reflects other revenue adjustments of $454 for the nine months ended December 31, 2023 (nine months ended December 31, 2022 - $4,885). |
|
|||||||||||||||
Net revenue was $224.4 million in the nine months ended December 31, 2023, a decrease of $40.7 million as compared to $265.0 million in the nine months ended December 31, 2022.
Canada cannabis
Net revenue from our Canada cannabis segment was $116.6 million in the nine months ended December 31, 2023, as compared to $151.3 million in the nine months ended December 31, 2022.
Canadian adult-use cannabis net revenue was $71.6 million in the nine months ended December 31, 2023, as compared to $109.6 million in the nine months ended December 31, 2022.
Canadian medical cannabis net revenue was $45.0 million in the nine months ended December 31, 2023, as compared to $41.7 million in the nine months ended December 31, 2022. The year-over-year increase is primarily attributable to an increase in the average size of medical orders placed by our customers due largely to a shift in our customer mix, and a larger assortment of cannabis product choices offered to our customers.
59
Rest-of-world cannabis
Rest-of-world cannabis revenue was $29.7 million in the nine months ended December 31, 2023, as compared to $30.2 million in the nine months ended December 31, 2022. The year-over-year decrease is attributable to:
Storz & Bickel
Revenue from Storz & Bickel was $48.5 million in the nine months ended December 31, 2023, as compared to $49.4 million in the nine months ended December 31, 2022. The year-over-year decrease is primarily attributable to production constraints and ramp-up of newly launched portable vaporizer in the second quarter of fiscal 2024, offset by the expansion of our distribution and retail channels in the United States, helped by favorable foreign currency translation.
This Works
Revenue from This Works was $21.3 million in the nine months ended December 31, 2023, as compared to $20.7 million in the nine months ended December 31, 2022. The year-over-year increase is primarily attributable to an expanded product portfolio in our "Bodycare" line and continued success and strengthening sales velocity of our "In Transit" skincare product lineup, further supported by favorable foreign currency translations, slightly offset by the completion of the This Works Divestiture on December 18, 2023.
Cost of Goods Sold and Gross Margin
The following table presents cost of goods sold, gross margin and gross margin percentage on a consolidated basis for the nine months ended December 31, 2023 and 2022:
|
|
Nine months ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands of Canadian dollars except where indicated) |
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|||||
Net revenue |
|
$ |
224,358 |
|
|
$ |
265,018 |
|
|
$ |
(40,660 |
) |
|
|
(15 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of goods sold |
|
$ |
158,944 |
|
|
$ |
264,226 |
|
|
$ |
(105,282 |
) |
|
|
(40 |
%) |
Gross margin |
|
|
65,414 |
|
|
|
792 |
|
|
|
64,622 |
|
|
|
8,159 |
% |
Gross margin percentage |
|
|
29 |
% |
|
|
0 |
% |
|
|
- |
|
|
2,900 bps |
|
|
Cost of goods sold was $158.9 million in the nine months ended December 31, 2023, as compared to $264.2 million in the nine months ended December 31, 2022. Our gross margin was $65.4 million in the nine months ended December 31, 2023, or 29% of net revenue, as compared to a gross margin of $0.8 million and gross margin percentage of 0% of net revenue in the nine months ended December 31, 2022. The year-over-year increase in the gross margin percentage is primarily attributable to:
The factors above, resulting in a year-over-year increase in our gross margin percentage, were partially offset by a decrease in the amount of payroll subsidies received from the Canadian government pursuant to a COVID-19 relief program, from $1.6 million in the nine months ended December 31, 2022 to $nil in the nine months ended December 31, 2023.
60
We report gross margin and gross margin percentage in four segments: (i) Canada cannabis; (ii) rest-of-world cannabis; (iii) Storz & Bickel; and (iv) This Works. Cost of sales associated with the remainder of our operations are included within "other". The following table presents segmented gross margin and gross margin percentage for the nine months ended December 31, 2023 and 2022:
|
|
Nine months ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands of Canadian dollars except where indicated) |
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
|||||
Canada cannabis segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
116,634 |
|
|
$ |
151,336 |
|
|
$ |
(34,702 |
) |
|
|
(23 |
%) |
Cost of goods sold |
|
|
91,895 |
|
|
|
176,803 |
|
|
|
(84,908 |
) |
|
|
(48 |
%) |
Gross margin |
|
|
24,739 |
|
|
|
(25,467 |
) |
|
|
50,206 |
|
|
|
197 |
% |
Gross margin percentage |
|
|
21 |
% |
|
|
(17 |
%) |
|
|
|
|
3,800 bps |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rest-of-world cannabis segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
29,666 |
|
|
$ |
30,179 |
|
|
$ |
(513 |
) |
|
|
(2 |
%) |
Cost of goods sold |
|
|
19,302 |
|
|
|
33,855 |
|
|
|
(14,553 |
) |
|
|
(43 |
%) |
Gross margin |
|
|
10,364 |
|
|
|
(3,676 |
) |
|
|
14,040 |
|
|
|
382 |
% |
Gross margin percentage |
|
|
35 |
% |
|
|
(12 |
%) |
|
|
|
|
4,700 bps |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Storz & Bickel segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
48,517 |
|
|
$ |
49,351 |
|
|
$ |
(834 |
) |
|
|
(2 |
%) |
Cost of goods sold |
|
|
27,443 |
|
|
|
28,542 |
|
|
|
(1,099 |
) |
|
|
(4 |
%) |
Gross margin |
|
|
21,074 |
|
|
|
20,809 |
|
|
|
265 |
|
|
|
1 |
% |
Gross margin percentage |
|
|
43 |
% |
|
|
42 |
% |
|
|
|
|
100 bps |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
This Works segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
21,256 |
|
|
$ |
20,677 |
|
|
$ |
579 |
|
|
|
3 |
% |
Cost of goods sold |
|
|
10,722 |
|
|
|
11,695 |
|
|
|
(973 |
) |
|
|
(8 |
%) |
Gross margin |
|
|
10,534 |
|
|
|
8,982 |
|
|
|
1,552 |
|
|
|
17 |
% |
Gross margin percentage |
|
|
50 |
% |
|
|
43 |
% |
|
|
|
|
700 bps |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
8,285 |
|
|
$ |
13,475 |
|
|
$ |
(5,190 |
) |
|
|
(39 |
%) |
Cost of goods sold |
|
|
9,582 |
|
|
|
13,331 |
|
|
|
(3,749 |
) |
|
|
(28 |
%) |
Gross margin |
|
|
(1,297 |
) |
|
|
144 |
|
|
|
(1,441 |
) |
|
|
(1,001 |
%) |
Gross margin percentage |
|
|
(16 |
%) |
|
|
1 |
% |
|
|
|
|
(1,700) bps |
|
||
Canada cannabis
Gross margin for our Canada cannabis segment was $24.7 million in the nine months ended December 31, 2023, or 21% of net revenue, as compared to $(25.5) million in the nine months ended December 31, 2022, or (17%) of net revenue. The year-over-year increase in the gross margin percentage was primarily attributable to: (i) the realized benefit of our cost savings program and strategic changes to our business that were initiated in the fourth quarter of fiscal 2022 and the fourth quarter of fiscal 2023; (ii) a year-over-year decrease in write-downs of excess inventory; and (iii) capturing of value from previously identified excess inventory. These increases were partially offset by a decrease in the amount of payroll subsidies received from the Canadian government pursuant to a COVID-19 relief program, from $1.6 million in the nine months ended December 31, 2022 to $nil in the nine months ended December 31, 2023.
Rest-of-world cannabis
Gross margin for our rest-of-world cannabis segment was $10.4 million in the nine months ended December 31, 2023, or 35% of net revenue, as compared to $(3.7) million in the nine months ended December 31, 2022, or (12%) of net revenue. The year-over-year increase in the gross margin percentage is primarily attributable to an improvement in our U.S. CBD business, due primarily to the year-over-year decrease in restructuring charges, as we recorded charges of $7.3 million in the nine months ended December 31, 2022 relating to inventory write-downs resulting from strategic changes to our business. These charges decreased to $nil in the nine months ended December 31, 2023 and the realized benefit of our cost savings program and the strategic changes made to our business, including the shift to a contract manufacturing model for certain product formats and the re-focusing of our U.S. CBD product and
61
brand portfolio. Further supporting the improved gross margin was a shift in the business mix to increased sales in Australia, Poland and Czech Republic compared to the nine months ended December 31, 2022.
Storz & Bickel
Gross margin for our Storz & Bickel segment was $21.1 million in the nine months ended December 31, 2023, or 43% of net revenue, as compared to $20.8 million in the nine months ended December 31, 2022, or 42% of net revenue. Gross margins were broadly consistent on a year-over-year basis.
This Works
Gross margin for our This Works segment was $10.5 million in the nine months ended December 31, 2023, or 50% of net revenue, as compared to $9.0 million in the nine months ended December 31, 2022, or 43% of net revenue. The year-over-year increase in the gross margin percentage is primarily due to lower excess and obsolete inventory charges in the nine months ended December 31, 2023.
Operating Expenses
The following table presents operating expenses for the nine months ended December 31, 2023 and 2022:
|
|
Nine months ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands of Canadian dollars) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
$ |
65,899 |
|
|
$ |
89,869 |
|
|
$ |
(23,970 |
) |
|
|
(27 |
%) |
Sales and marketing |
|
|
58,678 |
|
|
|
106,133 |
|
|
|
(47,455 |
) |
|
|
(45 |
%) |
Research and development |
|
|
3,768 |
|
|
|
17,349 |
|
|
|
(13,581 |
) |
|
|
(78 |
%) |
Acquisition, divestiture, and other costs |
|
|
24,373 |
|
|
|
31,546 |
|
|
|
(7,173 |
) |
|
|
(23 |
%) |
Depreciation and amortization |
|
|
22,092 |
|
|
|
26,528 |
|
|
|
(4,436 |
) |
|
|
(17 |
%) |
Selling, general and administrative expenses |
|
|
174,810 |
|
|
|
271,425 |
|
|
|
(96,615 |
) |
|
|
(36 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share-based compensation expense |
|
|
10,127 |
|
|
|
20,893 |
|
|
|
(10,766 |
) |
|
|
(52 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss on asset impairment and restructuring |
|
|
2,452 |
|
|
|
1,794,212 |
|
|
|
(1,791,760 |
) |
|
|
(100 |
%) |
Total operating expenses |
|
$ |
187,389 |
|
|
$ |
2,086,530 |
|
|
$ |
(1,899,141 |
) |
|
|
(91 |
%) |
Selling, general and administrative expenses
Selling, general and administrative expenses were $174.8 million in the nine months ended December 31, 2023, as compared to $271.4 million in the nine months ended December 31, 2022.
General and administrative expense was $65.9 million in the nine months ended December 31, 2023, as compared to $89.9 million in the nine months ended December 31, 2022. The year-over-year decrease is primarily attributable to the impact of the restructuring actions and cost savings programs initiated in the fourth quarters of both fiscal 2022 and fiscal 2023. We realized reductions relative to the nine months ended December 31, 2023 primarily in relation to: (i) compensation costs for finance, information technology, legal and other administrative functions; and (ii) a reduction in facilities and insurance costs. The decrease noted above was partially offset by a year-over-year decrease in the amount of payroll subsidies received from the Canadian government pursuant to a COVID-19 relief program, from $2.9 million received in the nine months ended December 31, 2022 to $nil in the nine months ended December 31, 2023.
Sales and marketing expense was $58.7 million in the nine months ended December 31, 2023, as compared to $106.1 million in the nine months ended December 31, 2022. The year-over-year decrease is primarily attributable to: (i) the divestiture of our retail business in Canada in the third quarter of fiscal 2023; (ii) cost reductions related to the previously-noted restructuring actions and cost savings programs, which resulted in a rationalization of our sales and marketing spending in certain areas of our business, particularly for our Canadian cannabis and U.S. CBD businesses, and a reduction in compensation costs.
Research and development expense was $3.8 million in the nine months ended December 31, 2023, as compared to $17.3 million in the nine months ended December 31, 2022. The year-over-year decrease is primarily attributable to cost reductions associated with the previously-noted restructuring actions and cost savings programs, as we: (i) continued to realize reductions in
62
compensation costs and curtail research and development projects; and (ii) shifted to outsourced contract model for certain research and development projects.
Acquisition, divestiture, and other costs were $24.4 million in the nine months ended December 31, 2023, as compared to $31.5 million in the nine months ended December 31, 2022. In the nine months ended December 31, 2023, costs were incurred primarily in relation to:
Comparatively, in the nine months ended December 31, 2022, costs were incurred primarily in relation to the Reorganization and the planned divestiture of certain of our corporate-owned retail stores, and evaluating other potential acquisition opportunities.
Depreciation and amortization expense was $22.1 million in the nine months ended December 31, 2023, as compared to $26.5 million in the nine months ended December 31, 2022. The year-over-year decrease is primarily attributable to: (i) the previously-noted restructuring actions and cost savings programs, including the closure of certain of our Canadian facilities and other operational changes to implement cultivation-related efficiencies and improvements in the Canadian adult-use cannabis business; and (ii) the divestiture of our retail business in Canada in the third quarter of fiscal 2023.
Share-based compensation expense
Share-based compensation expense was $10.1 million in the nine months ended December 31, 2023, as compared to $20.9 million in the nine months ended December 31, 2022. The year-over-year decrease is primarily attributable to the impact of our previously-noted restructuring actions, which resulted in forfeitures of stock options, restricted share units and performance units and results in lower relative expenses in future periods. While 2.4 million stock options were granted in the first quarter of fiscal 2024 and 1.5 million restricted share units were granted in the second quarter of fiscal 2024, the associated expense relating to both items partially offset the decrease noted. However, the impact was limited because the stock options and restricted share units were only issued part-way through the period.
Loss on asset impairment and restructuring
Loss on asset impairment and restructuring recorded in operating expenses were $2.5 million in the nine months ended December 31, 2023, as compared to $1.8 billion in the nine months ended December 31, 2022.
Loss on asset impairment and restructuring recorded in the nine months ended December 31, 2023 were primarily related to the charges associated with the completion of the This Works Divestiture, as $28.1 million of write-downs occurred due to the sale. In addition, there were various incremental impairment losses and other costs associated with the restructuring of our Canadian cannabis operations that were initiated in the three months ended March 31, 2023. These charges were offset by a gain on the sale of our production facility at 1 Hershey Drive in Smiths Falls, Ontario. The gain is due to the sale proceeds exceeding the carrying value that was previously impaired at March 31, 2023.
Comparatively, in the nine months ended December 31, 2022, the loss on asset impairment and restructuring were primarily related to:
63
Other
The following table presents other income (expense), net, and income tax expense for the nine months ended December 31, 2023 and 2022:
|
|
Nine months ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands of Canadian dollars) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Other income (expense), net |
|
|
(253,270 |
) |
|
|
(396,074 |
) |
|
|
142,804 |
|
|
|
36 |
% |
Income tax expense |
|
|
(13,762 |
) |
|
|
(10,633 |
) |
|
|
(3,129 |
) |
|
|
(29 |
%) |
Other income (expense), net
Other income (expense), net was an expense amount of $253.3 million in the nine months ended December 31, 2023, as compared to an expense amount of $396.1 million in the nine months ended December 31, 2022. The year-over-year change of $142.8 million is primarily attributable to:
These fair value decreases were partially offset by fair value increases primarily attributable to our investments in:
Comparatively, the expense amount in the nine months ended December 31, 2022 was primarily attributable to fair value decreases relating to our investments in: (i) the TerrAscend Exchangeable Shares ($207.0 million); (ii) the secured debentures issued by TerrAscend Canada and Arise Bioscience and associated Prior Warrants (totaling $58.7 million); (iii) the New Warrants issued by TerrAscend ($17.5 million) and (iv) the TerrAscend Option ($5.1 million), which were all driven largely by a decrease of approximately 78% in TerrAscend’s share price in the nine months ended December 31, 2022. Additionally, the fair value of our investment in the Wana and Jetty financial instruments decreased $135.4 million and $9.8 million, respectively, due primarily to changes in expectations of the future cash flows to be generated by Wana and an increase in discount rates used in the valuation of both the Wana and Jetty financial instruments. The fair value decreases were partially offset by a fair value increase related to the Acreage financial instrument in the amount of $37.0 million.
64
Income tax expense
Income tax expense in the nine months ended December 31, 2023 was $13.8 million, compared to income tax expense of $10.6 million in the nine months ended December 31, 2022. In the nine months ended December 31, 2023, income tax expense consisted of
65
deferred income tax expense of $13.4 million (compared to an expense of $7.0 million in the nine months ended December 31, 2022) and current income tax expense of $0.4 million (compared to an expense of $3.6 million in the nine months ended December 31, 2022).
The increase of $6.4 million in the deferred income tax expense is primarily a result of (i) an increase due to the settlements of the Canopy Notes; and (ii) decrease in the change in deferred tax liabilities that arose in connection with the required revaluation of the accounting carrying value, but not the tax basis, of property, plant and equipment, intangible assets, and other financial assets.
The decrease of $3.2 million in current income tax expense arose primarily as a result of the reduction in the number of legal entities that generated income for tax purposes.
Net Loss from Continuing Operations
The net loss in the nine months ended December 31, 2023 was $389.0 million, as compared to a net loss of $2.5 billion in the nine months ended December 31, 2022. The year-over-year decrease in the net loss is primarily attributable to: (i) the year-over-year change from a loss on asset impairment and restructuring with respect to goodwill impairment losses of $1.7 billion recorded in the nine months ended December 31, 2022 to a gain on asset impairment and restructuring; (ii) the year-over-year change in other income (expense), net, of $142.8 million; and (iii) the decrease in selling, general and administrative expenses. These variances are described above.
Adjusted EBITDA (Non-GAAP Measure)
Our “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. Management calculates Adjusted EBITDA as the reported net income (loss), adjusted to exclude income tax recovery (expense); other income (expense), net; loss on equity method investments; share-based compensation expense; depreciation and amortization expense; (gain)/loss on asset impairment and restructuring; restructuring costs 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, divestiture, and other costs. Asset impairments related to periodic changes to our supply chain processes are not excluded from Adjusted EBITDA given their occurrence through the normal course of core operational activities. Accordingly, management believes that Adjusted EBITDA provides meaningful and useful financial information, as this measure demonstrates the operating performance of businesses.
The following table presents Adjusted EBITDA for the nine months ended December 31, 2023 and 2022:
|
|
Nine months ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands of Canadian dollars) |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Net loss from continuing operations |
|
$ |
(389,007 |
) |
|
$ |
(2,492,445 |
) |
|
$ |
2,103,438 |
|
|
|
84 |
% |
Income tax expense |
|
|
13,762 |
|
|
|
10,633 |
|
|
|
3,129 |
|
|
|
29 |
% |
Other (income) expense, net |
|
|
253,270 |
|
|
|
396,074 |
|
|
|
(142,804 |
) |
|
|
(36 |
%) |
Share-based compensation |
|
|
10,127 |
|
|
|
20,893 |
|
|
|
(10,766 |
) |
|
|
(52 |
%) |
Acquisition, divestiture, and other costs |
|
|
24,373 |
|
|
|
31,546 |
|
|
|
(7,173 |
) |
|
|
(23 |
%) |
Depreciation and amortization1 |
|
|
41,881 |
|
|
|
60,732 |
|
|
|
(18,851 |
) |
|
|
(31 |
%) |
Loss on asset impairment and restructuring |
|
|
2,452 |
|
|
|
1,794,212 |
|
|
|
(1,791,760 |
) |
|
|
(100 |
%) |
Restructuring costs recorded in cost of goods sold |
|
|
(689 |
) |
|
|
10,129 |
|
|
|
(10,818 |
) |
|
|
(107 |
%) |
Adjusted EBITDA |
|
$ |
(43,831 |
) |
|
$ |
(168,226 |
) |
|
$ |
124,395 |
|
|
|
74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
1 From Statements of Cash Flows. |
|
|||||||||||||||
The Adjusted EBITDA loss in the nine months ended December 31, 2023 was $43.8 million, as compared to an Adjusted EBITDA loss of $168.2 million in the nine months ended December 31, 2022. The year-over-year decrease in the Adjusted EBITDA loss is primarily attributable to the year-over-year increase in our gross margin, and the year-over-year decrease in our selling, general and administrative expenses.
Part 3 – Financial Liquidity and Capital Resources
The Interim Financial Statements have been prepared in accordance with generally accepted accounting principles on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
66
As reflected in the Interim Financial Statements, we have suffered recurring losses from operations and require additional financing to fund our business and operations. If we are unable to raise additional capital, it is possible that we will be unable to meet certain of our financial obligations.
These matters, when considered in the aggregate, raise substantial doubt about our ability to continue as a going concern for at least twelve months from the issuance of the Interim Financial Statements.
In view of these matters, continuation as a going concern is dependent upon our continued operations, which in turn is dependent upon our ability to meet our financial requirements and to raise additional capital, and the success of our future operations. The Interim Financial Statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we not continue as a going concern.
Management plans to fund our operations and debt obligations through existing cash positions. We are also currently evaluating several different strategies and intend to pursue actions that are expected to increase our liquidity position, including, but not limited to, pursuing additional actions under our cost-savings plan, seeking additional financing from both the public and private markets through the issuance of equity and/or debt securities, and monetizing additional assets.
Our management cannot provide assurances that we will be successful in accomplishing any of our proposed financing plans. Our management also cannot provide any assurance as to unforeseen circumstances that could occur within the next 12 months or, if after we raise capital, thereafter, which could increase our need to raise additional capital on an immediate basis, which capital may not be available to us.
We have completed the following debt financings:
67
On September 18, 2023, we entered into subscription agreements (the “Subscription Agreements”) with certain institutional investors (the “Investors”). Pursuant to the terms of the Subscription Agreements, we issued 2.29 million units of the Company (the "Units") to the Investors at a price per Unit of US$10.90 for aggregate gross proceeds of $33.7 million (US$25.0 million) (the “Unit Offering”). Each Unit is comprised of one Canopy Growth common share and one common share purchase warrant (a “Warrant”). Each Warrant entitles the holder to acquire one Canopy Growth common share at a price per share equal to US$13.50 for a period of five years from the date of issuance. The Unit Offering closed on September 19, 2023. The Investors also held an over-allotment option to acquire up to an additional 2.29 million Units at a price per Unit of US$10.90 for aggregate gross proceeds of approximately US$25.0 million at the discretion of the Investors at any time on or before November 2, 2023 (the “Over-Allotment Option”). The Over-Allotment Option was not exercised by the Investors and expired on November 2, 2023.
On January 18, 2024, we entered into subscription agreements (the "January 2024 Subscription Agreements") with certain institutional investors (the "January 2024 Investors"). Pursuant to the terms of the January 2024 Subscription Agreements, we issued 8.16 million units of the Company (the "January 2024 Units") to the January 2024 Investors at a price per January 2024 Unit of US$4.29 for aggregate gross proceeds of approximately $47.1 million (US$35.0 million) (the "January 2024 Unit Offering"). Each January 2024 Unit is comprised of (a) one Canopy Growth common share and (b)(i) one Series A common share purchase warrant (a "Series A Warrant") or (ii) one Series B common share purchase warrant (a "Series B Warrant" and, together with the Series A Warrants, the "January 2024 Warrants"). Each January 2024 Warrant entitles the holder to acquire one Canopy Growth common share from the Company at a price per share equal to US$4.83. The Series A Warrants are currently exercisable and will remain exercisable until January 19, 2029, and the Series B Warrants will be exercisable for a period commencing on July 19, 2024 until July 19, 2029. The January 2024 Unit Offering closed on January 19, 2024.
In addition to the above, we continue to review and pursue selected external financing sources to ensure adequate financial resources. These potential sources include, but are not limited to: (i) obtaining financing from traditional or non-traditional investment capital organizations; (ii) obtaining funding from the sale of our common shares or other equity or debt instruments; and (iii) obtaining debt financing with lending terms that more closely match our business model and capital needs. We may from time to time seek to retire our outstanding debt through cash purchases and/or exchanges for equity securities, and open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
68
Cash Flows
The following table presents cash flows for the nine months ended December 31, 2023 and 2022:
|
|
Nine months ended December 31, |
|
|||||
(in thousands of Canadian dollars) |
|
2023 |
|
|
2022 |
|
||
Net cash (used in) provided by: |
|
|
|
|
|
|
||
Operating activities1 |
|
$ |
(259,891 |
) |
|
$ |
(417,809 |
) |
Investing activities2 |
|
$ |
202,106 |
|
|
|
342,125 |
|
Financing activities |
|
$ |
(473,524 |
) |
|
|
(145,921 |
) |
Effect of exchange rate changes on |
|
$ |
(2,953 |
) |
|
|
43,731 |
|
Net decrease in cash and cash equivalents |
|
$ |
(534,262 |
) |
|
|
(177,874 |
) |
Cash and cash equivalents, beginning of period3 |
|
$ |
677,007 |
|
|
|
776,005 |
|
Cash and cash equivalents, end of period4 |
|
$ |
142,745 |
|
|
$ |
598,131 |
|
1 Includes net cash used in operating activities from discontinued operations of $(53,930) and $(119,019) for the nine months ended December 31, 2023 and 2022, respectively. |
|
|||||||
2 Includes net cash used in investing activities from discontinued operations of $(2,600) and $(23,947) for the nine months ended December 31, 2023 and 2022 respectively. |
|
|||||||
3 Includes cash of our discontinued operations of $9,314 and $13,610 for March 31, 2023 and 2022, respectively. |
|
|||||||
4 Includes cash of our discontinued operations of $nil and $13,261 for December 31, 2023 and 2022, respectively. |
|
|||||||
Operating activities
Cash used in operating activities totaled $259.9 million in the nine months ended December 31, 2023, as compared to cash used of $417.8 million in the nine months ended December 31, 2022. The decrease in the cash used in operating activities is primarily due to: (i) the year-over-year decrease in our working capital spending, resulting from our previously-noted restructuring actions and cost savings programs, including the closure of certain of our Canadian facilities and other operational changes to implement cultivation-related efficiencies and improvements in the Canadian adult-use cannabis business; and (ii) a reduction in the cash interest paid resulting from a reduction in our debt balances.
Investing activities
The cash provided by investing activities totaled $202.1 million in the nine months ended December 31, 2023, as compared to cash provided of $342.1 million in the nine months ended December 31, 2022.
In the nine months ended December 31, 2023, purchases of property, plant and equipment were $3.2 million, primarily related to production equipment enhancements made at certain of our Canadian cultivation and production facilities, and at our Storz & Bickel facilities. Comparatively, in the nine months ended December 31, 2022, we invested $6.2 million in improvements at certain of our Canadian cultivation and production activities, and at our Storz & Bickel facilities.
In the nine months ended December 31, 2023, our strategic investments in other financial assets were $0.5 million and related primarily to the Indiva Investment, as described under "Recent Developments" above. Comparatively, in the nine months ended December 31, 2022, our strategic investments in other financial assets were $67.2 million and related primarily to: (i) the upfront payment made as consideration for entering the Jetty Agreements ($29.2 million); and (ii) the payment of the Option Premium in the amount of $38.0 million (US$28.5 million) in connection with Acreage Debt Optionholder's acquisition of an option to purchase the Acreage Debt from the Lenders, pursuant to the option agreement entered into with the Lenders in connection with the Reorganization.
Net redemptions of short-term investments in the nine months ended December 31, 2023 were $68.3 million, as compared to net redemptions of $415.3 million in the nine months ended December 31, 2022. The year-over-year decrease in the net redemptions reflects the continued redemption of our short-term investments, largely to fund operations and investing activities as described above. As at December 31, 2023, we had short-term investments remaining of $43.4 million.
Net cash flow on sale of subsidiaries in the nine months ended December 31, 2023 was an outflow of $3.7 million and related to the completion of the This Works Divestiture, refer to Note 27 of the financial statements for details. Comparatively, in the nine months ended December 31, 2022 an inflow of $12.4 million resulted from the sale of certain wholly-owned subsidiaries.
69
Additional cash inflows during the nine months ended December 31, 2023 include proceeds of $153.8 million from the sale of property, plant and equipment, primarily in relation to facilities that have been recently sold in connection with the restructuring actions associated with our Canadian cannabis operations and transition to an asset-light model.
Finally, other investing activities resulted in a cash outflow of $9.2 million in the nine months ended December 31, 2023, primarily related to completing the purchase of the remaining 45% of the common shares of Les Serres Vert Cannabis Inc., in connection with the restructuring actions related to our Canadian cannabis operations initiated in the fourth quarter of fiscal 2023.
Financing activities
The cash used in financing activities in the nine months ended December 31, 2023 was $473.5 million, as compared to cash used of $145.9 million in the nine months ended December 31, 2022. In the nine months ended December 31, 2023, we made repayments of long-term debt in the amount of $480.1 million. These repayments primarily related to the second payment made pursuant to the Paydown, the July 2023 Paydown, the Second Quarter 2024 Paydowns, the Third Quarter 2024 Paydowns and settlement of Canopy Notes.
Other financing activities resulted in a cash outflow of $27.2 million, which related to: (i) payments made in connection with terminating the finance lease for the cultivation facility in Mirabel, Quebec and (ii) share issuance, debt issuance and debt extinguishment costs.
The cash used in financing activities was partially offset by proceeds from the Unit Offering of $33.7 million.
Free Cash Flow (Non-GAAP Measure)
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. Management believes that free cash flow presents meaningful information regarding the amount of cash flow required to maintain and organically expand our business, and that the free cash flow measure provides meaningful information regarding our liquidity requirements.
The following table presents free cash flows for the three and nine months ended December 31, 2023, and 2022:
|
|
Three months ended December 31, |
|
|
Nine months ended December 31, |
|
||||||||||
(in thousands of Canadian dollars) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net cash used in operating activities - continuing |
|
$ |
(33,348 |
) |
|
$ |
(77,055 |
) |
|
$ |
(205,961 |
) |
|
$ |
(298,790 |
) |
Purchases of and deposits on property, |
|
|
(564 |
) |
|
|
(1,868 |
) |
|
|
(3,200 |
) |
|
|
(6,176 |
) |
Free cash flow1 - continuing operations |
|
$ |
(33,912 |
) |
|
$ |
(78,923 |
) |
|
$ |
(209,161 |
) |
|
$ |
(304,966 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
1Free cash flow is a non-GAAP measure, and is calculated as net cash provided by (used in) operating activities, less purchases of and deposits on property, plant and equipment. |
|
|||||||||||||||
Free cash flow in the three months ended December 31, 2023 was an outflow of $33.9 million, as compared to an outflow of $78.9 million in the three months ended December 31, 2022. The year-over-year decrease in the free cash outflow primarily reflects the decrease in cash used in operating activities, as described above.
Free cash flow for the nine months ended December 31, 2023 was an outflow of $209.2 million, as compared to an outflow of $305.0 million in the nine months ended December 31, 2022. The year-over-year decrease in the free cash outflow primarily reflects the decrease in cash used in operating activities, as described above.
Debt
Since our formation, we have financed our cash requirements primarily through the issuance of common shares of Canopy Growth, including the $5.1 billion investment by CBI in the third quarter of fiscal 2019, and debt. Total debt outstanding as of December 31, 2023 was $612.1 million, a decrease from $1.3 billion as of March 31, 2023. The total principal amount owing, which excludes fair value adjustments related to the CBI Note, was $626.6 million at December 31, 2023, a decrease from $1.3 billion at March 31, 2023, which excludes fair value adjustments related to the Canopy Notes. These decreases were due to: (i) the repayment of $125.6 million (US$93.8 million) of the principal amount outstanding under the Credit Agreement as part of the Paydown, as described under "Recent Developments" above; (ii) the conversion, into Canopy Growth common shares, of the remaining amount outstanding under the Convertible Debentures of $93.2 million; (iii) the June 2023 Exchange Transaction, which resulted in the
70
acquisition and cancellation of $12.5 million of aggregate principal amount of the Canopy Notes from the Noteholders, partially offset by the issuance of the CBI Note in connection with the CBI Transaction; (iv) the July 13, 2023 Redemption Agreements, pursuant to which $193 million aggregate principal amount was redeemed for a combination of cash, shares and the Debentures with an aggregate principal amount of approximately $40.4 million; (v) the maturity of the remaining Canopy Notes due in July 2023 where the remaining $31.9 million in aggregate principal was settled in cash; (vi) the Second Quarter 2024 Paydowns resulting in an aggregate principal reduction of $73.3 million; (vii) settlement of the $40.4 million of Debentures with Canopy Growth common shares; and (viii) the Third Quarter 2024 Paydowns resulting in an aggregate principal reduction of $65.4 million.
Credit Facility
The Credit Agreement provides for the Credit Facility in the aggregate principal amount of US$750.0 million.
The Company had the ability to obtain up to an additional US$500.0 million of incremental senior secured debt pursuant to the Credit Agreement. As described above under “Recent Developments”, pursuant to the balance sheet actions completed in connection with the Reorganization, on October 24, 2022, we entered into agreements with certain of our lenders under the Credit Agreement pursuant to which we agreed to purchase in the aggregate US$187.5 million of the principal amount outstanding under the Credit Facility at a discounted price of US$930 per US$1,000 or US$174.4 million in the aggregate. The first payment, which was oversubscribed, in the amount of approximately $117.5 million (US$87.9 million) was made on November 10, 2022 to reduce the principal indebtedness under the Credit Facility by approximately $126.3 million (US$94.4 million). The second payment of approximately $116.8 million (US$87.2 million) was made on April 17, 2023 to reduce principal indebtedness under the Credit Facility by approximately $125.6 million (US$93.8 million). Additionally, on October 24, 2022, we and certain of our lenders agreed to make certain amendments to the Credit Agreement which, among other things, resulted in: (i) a reduction to the minimum liquidity covenant to no less than US$100.0 million following completion of the second principal repurchase on April 17, 2023; (ii) certain changes to the application of net proceeds from asset sales; (iii) the establishment of a new committed delayed draw term credit facility in an aggregate principal amount of US$100.0 million; and (iv) the elimination of the additional US$500.0 million incremental term loan facility.
As described above under “Recent Developments”, on July 13, 2023, we entered into the Amended Credit Agreement. Pursuant to the Amended Credit Agreement we were required to make the July 2023 Paydown. In addition, pursuant to the Amended Credit Agreement we agreed to apply certain net proceeds from asset sales to prepay or repurchase principal indebtedness under the Credit Facility and receive principal reductions at, in certain circumstances, a discounted price of US$950 per US$1,000. The Amended Credit Agreement also includes, among other things, amendments to the minimum liquidity covenant such that the US$100,000 minimum ceased to apply concurrently with the July 2023 Paydown. The July 2023 Paydown was made on July 21, 2023.
As described above under “Recent Developments”, on each of August 11, 2023 and September 14, 2023, pursuant to the terms of the Amended Credit Agreement, we repurchased additional outstanding principal amounts under the Credit Facility using certain net proceeds from completed asset sales. The Second Quarter 2024 Paydowns resulted in an aggregate principal reduction of $73.3 million (US$54.5 million) for a cash payment of $69.6 million (US$51.8 million).
As described above under “Recent Developments”, on each of November 28, 2023 and December 27, 2023, pursuant to the terms of the Amended Credit Agreement, we repurchased and repaid, as applicable, additional outstanding principal amounts under the Credit Facility using certain net proceeds from completed asset sales (the "Third Quarter 2024 Paydowns"). The Third Quarter 2024 Paydowns resulted in an aggregate principal reduction of $65.4 million (US$48.5 million) for a cash payment of $63.2 million (US$46.9 million).
The Credit Facility matures on March 18, 2026. Borrowings under the Credit Facility are available by either prime rate advances or SOFR advances. Prime rate advances bear interest at the applicable prime rate plus 7.50% per annum and are subject to a prime rate floor of 2.00%. SOFR advances bear interest at the adjusted term SOFR rate plus 8.50% per annum and are subject to an adjusted term SOFR rate floor of 1.00%. Our obligations under the Credit Facility are guaranteed by our material wholly-owned Canadian and U.S. subsidiaries. The Credit Facility is secured by substantially all of our assets and our material wholly-owned Canadian and U.S. subsidiaries, including material real property. The Credit Agreement contains representations and warranties, and affirmative and negative covenants.
Unsecured Senior Notes (the Canopy Notes)
In June 2018, we issued the Canopy Notes with an aggregate principal amount of $600.0 million. The Canopy Notes bear interest at a rate of 4.25% per annum, payable semi-annually on January 15th and July 15th of each year commencing January 15, 2019. The Canopy Notes matured on July 15, 2023. In June 2022, in connection with the 2022 Exchange Transaction, we entered into the 2022 Exchange Agreements with the Noteholders and agreed to acquire and cancel approximately $262.6 million of aggregate
71
principal amount of the Canopy Notes from the Noteholders for an aggregate purchase price (excluding $5.4 million paid in cash to the Noteholders for accrued and unpaid interest) of $260.0 million which was paid in our common shares.
The Canopy Notes were issued pursuant to an indenture dated June 20, 2018, as supplemented on April 30, 2019 and June 29, 2022 (collectively, the “Canopy Notes Indenture”). As a result of a supplement to the Canopy Notes Indenture dated June 29, 2022 (the “Second Supplemental Indenture”), we irrevocably surrendered our right to settle the conversion of any Note with our common shares. As a result, all conversions of Canopy Notes following the execution of the Supplemental Indenture will be settled entirely in cash.
On April 13, 2023, we entered into the April 2023 Exchange Agreement with Greenstar in order to acquire and cancel $100.0 million aggregate principal amount of our outstanding Canopy Notes. Pursuant to the April 2023 Exchange Agreement, we agreed to acquire and cancel $100.0 million aggregate principal amount of the Canopy Notes held by Greenstar in exchange for: (i) a cash payment to Greenstar in the amount of the unpaid and accrued interest owing under the Canopy Notes held by Greenstar; and (ii) the CBI Note. As a result, Greenstar no longer holds any Canopy Notes.
On June 29, 2023, we entered into the June 2023 Exchange Agreements with certain Noteholders to acquire and cancel $12.5 million aggregate principal amount of the Canopy Notes from such Noteholders in exchange for cash, including accrued and unpaid interest owing under the Canopy Notes, and the issuance of approximately 2.43 million Canopy Growth common shares.
On July 13, 2023, we entered into the Redemption Agreements with certain Noteholders of our Canopy Notes, pursuant to which approximately $193 million aggregate principal amount of the Canopy Notes were redeemed on the applicable closing date for: (i) an aggregate cash payment of approximately $101 million; (ii) the issuance of approximately 9.04 million Canopy Growth common shares; and (iii) the issuance of approximately $40.4 million aggregate principal amount of Debentures. The Debentures were issued pursuant to a debenture indenture dated July 14, 2023 between us and Odyssey Trust Company, as trustee. The Debentures are convertible into Debenture Shares at the option of the holder at any time or times following the Shareholder Approval until the maturity date of January 15, 2024, at a conversion price equal to $5.50, subject to adjustment in certain events. Following the Redemption, we settled the remaining aggregate principal amount owing under the outstanding Canopy Notes and, as of the maturity date, there were no Canopy Notes outstanding.
As of September 30, 2023, all conversions pursuant to the Debentures have been completed and the amount outstanding under the Debentures was $nil.
Supreme Cannabis Convertible Debentures and Accretion Debentures
On October 19, 2018, Supreme Cannabis issued 6.0% senior unsecured convertible debentures (the “Supreme Debentures”) for gross proceeds of $100.0 million. On September 9, 2020, the Supreme Debentures were amended to effect, among other things: (i) the cancellation of $63.5 million of principal amount of the Supreme Debentures; (ii) an increase in the interest rate to 8% per annum; (iii) the extension of the maturity date to September 10, 2025; and (iv) a reduction in the conversion price to $2.85.
In addition, on September 9, 2020, Supreme Cannabis issued new senior unsecured non-convertible debentures (the “Accretion Debentures”). The principal amount began at $nil and accretes at a rate of 11.06% per annum based on the remaining principal amount of the Supreme Debentures of $36.5 million to a maximum of $13.5 million, compounding on a semi-annual basis commencing on September 9, 2020, and ending on September 9, 2023. As of September 9, 2023, the principal amount of the Accretion Debentures was finalized as $10.4 million. The Accretion Debentures are payable in cash, but do not bear cash interest and are not convertible into Supreme Shares. The principal amount of the Accretion Debentures will amortize, or be paid, at 1.0% per month over the 24 months prior to maturity.
As a result of the arrangement (the “Supreme Arrangement”) we completed with Supreme Cannabis on June 22, 2021 pursuant to which we acquired 100% of the issued and outstanding common shares of Supreme Cannabis (the “Supreme Shares”), the Supreme Debentures remain outstanding as securities of Supreme Cannabis, which, upon conversion will entitle the holder thereof to receive, in lieu of the number of Supreme Shares to which such holder was theretofore entitled, the consideration payable under the Supreme Arrangement that such holder would have been entitled to be issued and receive if, immediately prior to the effective time of the Supreme Arrangement, such holder had been the registered holder of the number of Supreme Shares to which such holder was theretofore entitled.
In connection with the Supreme Arrangement, we, Supreme Cannabis and Computershare Trust Company of Canada (the “Trustee”) entered into a supplemental indenture whereby we agreed to issue common shares upon conversion of any Supreme Debenture. In addition, we may force conversion of the Supreme Debentures outstanding with 30 days’ notice if the daily volume weighted average trading price of our common shares is greater than $385.90 for any 10 consecutive trading days. We, Supreme
72
Cannabis and the Trustee entered into a further supplemental indenture whereby we agreed to guarantee the obligations of Supreme Cannabis pursuant to the Supreme Debentures and the Accretion Debentures. During the three and nine months ended December 31, 2023 principal payments on Accretion Debentures totaled $1,500 and $2,000, respectively.
Prior to September 9, 2023, the Supreme Debentures were not redeemable. Beginning on and after September 9, 2023, Supreme Cannabis may from time to time, upon providing 60 days prior written notice to the Trustee, redeem the Convertible Debentures outstanding, provided that the Accretion Debentures have already been redeemed in full.
Convertible Debentures
On February 21, 2023, we entered into the Convertible Debenture Agreement with an Institutional Investor pursuant to which the Institutional Investor purchased $135.2 million (US$100.0 million) aggregate principal amount of Convertible Debentures in a registered direct offering. The Convertible Debentures were convertible into our common shares at the option of the Institutional Investor at any time or times prior to the maturity date of February 28, 2028, at a conversion price equal to 92.5% of the volume-weighted average price of our common shares during the three consecutive trading days ending on the business day immediately prior to the date of conversion. No cash payment or any other property of Canopy Growth was made by us to the Institutional Investor in connection with, or as a result of, the issuance, conversion or repayment of the Convertible Debentures.
In the first quarter of fiscal 2024, $93.2 million in aggregate principal amount of the Convertible Debentures was converted for approximately 8.45 million Canopy Growth common shares. As of June 30, 2023, all conversions pursuant to the Convertible Debentures were completed and the amount outstanding under the Convertible Debentures was $nil.
Contractual Obligations and Commitments
Other than changes to our Canopy Notes pursuant to the June 2023 Exchange Transactions, the July 13, 2023 Redemption Agreements, the Second Quarter 2024 Paydowns, the Third Quarter 2024 Paydowns, and certain agreements entered into in connection with the Reorganization and the Reorganization Amendments, as described above under “Recent Developments”, there have been no material changes to our contractual obligations and commitments from the information provided in the MD&A section in our Annual Report.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates from the information provided in the MD&A section in our Annual Report.
Impairment of goodwill
We do not believe that an event occurred or circumstances changed during the third quarter of fiscal 2024 that would, more likely than not, reduce the fair value of the Storz & Bickel reporting unit below its carrying value. Therefore, we concluded that the quantitative goodwill impairment assessment was not required for the Storz & Bickel reporting unit at December 31, 2023. The carrying value of goodwill associated with the Storz & Bickel reporting unit was $85,237 at December 31, 2023.
We are required to perform our next annual goodwill impairment analysis on March 31, 2024, or earlier should there be an event that occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the potential economic loss arising from adverse changes in market factors. As a result of our global operating, acquisition and financing activities, we are exposed to market risk associated with changes in foreign currency exchange rates, interest
73
rates and equity prices. To manage the volatility relating to these risks, we may periodically purchase derivative instruments including foreign currency forwards. We do not enter into derivative instruments for trading or speculative purposes.
Foreign currency risk
Our Interim Financial Statements are presented in Canadian dollars. We are exposed to foreign currency exchange rate risk as the functional currencies of certain subsidiaries, including those in the United States and Europe, are not in Canadian dollars. The translation of foreign currencies to Canadian dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date, and for revenues and expense using an average exchange rate for the period. Therefore, fluctuations in the value of the Canadian dollar affect the reported amounts of net revenue, expenses, assets and liabilities. The resulting translation adjustments are reported as a component of accumulated other comprehensive income or loss on the consolidated balance sheet.
A hypothetical 10% change in the U.S. dollar against the Canadian dollar compared to the exchange rate at December 31, 2023, would affect the carrying value of net assets by approximately $66.6 million, with a corresponding impact to the foreign currency translation account within accumulated other comprehensive income (loss). A hypothetical 10% change in the euro against the Canadian dollar compared to the exchange rate at December 31, 2023, would affect the carrying value of net assets by approximately $24.0 million, with a corresponding impact to the foreign currency translation account within accumulated other comprehensive income (loss).
We also have exposure to changes in foreign exchange rates associated with transactions which are undertaken by our subsidiaries in currencies other than their functional currency. As a result, we have been impacted by changes in exchange rates and may be impacted for the foreseeable future.
Foreign currency derivative instruments may be used to hedge existing foreign currency denominated assets and liabilities, forecasted foreign currency denominated sales/purchases to/from third parties as well as intercompany sales/purchases, intercompany principal and interest payments, and in connection with acquisitions, divestitures or investments outside of Canada. Historically, while we have purchased derivative instruments to mitigate the foreign exchange risks associated with certain transactions, the impact of these hedging transactions on our financial statements has been immaterial.
Interest rate risk
Our cash equivalents and short-term investments are held in both fixed-rate and adjustable-rate securities. Investments in fixed-rate instruments carry a degree of interest rate risk. The fair value of fixed-rate securities may be adversely impacted due to a rise in interest rates. Additionally, a falling-rate environment creates reinvestment risk because as securities mature, the proceeds are reinvested at a lower rate, generating less interest income. As at December 31, 2023, our cash and cash equivalents, and short-term investments consisted of $99 million in interest rate sensitive instruments (March 31, 2023 – $0.3 billion).
Our financial liabilities consist of long-term fixed rate debt and floating-rate debt. Fluctuations in interest rates could impact our cash flows, primarily with respect to the interest payable on floating-rate debt.
|
|
Aggregate Notional Value |
|
|
Fair Value |
|
|
Decrease in Fair Value - Hypothetical 1% Rate Increase |
|
|||||||||||||||
|
|
December 31, 2023 |
|
|
March 31, 2023 |
|
|
December 31, 2023 |
|
|
March 31, 2023 |
|
|
December 31, 2023 |
|
|
March 31, 2023 |
|
||||||
Unsecured senior notes |
|
$ |
- |
|
|
$ |
337,380 |
|
|
$ |
- |
|
|
$ |
331,250 |
|
|
$ |
- |
|
|
$ |
(1,552 |
) |
Promissory note |
|
|
100,000 |
|
|
|
- |
|
|
|
85,486 |
|
|
|
- |
|
|
|
(678 |
) |
|
|
- |
|
Fixed interest rate debt |
|
|
39,480 |
|
|
|
135,573 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
||||
Variable interest rate debt |
|
|
487,108 |
|
|
|
840,058 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
||||
Equity price risk
We hold other financial assets and liabilities in the form of investments in shares, warrants, options, put liabilities, and convertible debentures that are measured at fair value and recorded through either net income (loss) or other comprehensive income (loss). We are exposed to price risk on these financial assets, which is the risk of variability in fair value due to movements in equity or market prices.
Information regarding the fair value of financial instrument assets and liabilities that are measured at fair value on a recurring basis, and the relationship between the unobservable inputs used in the valuation of these financial assets and their fair value is presented in Note 23 of the Interim Financial Statements.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, and summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.
Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2023, our disclosure controls and procedures were not effective as of such date due to the material weakness in our internal control over financial reporting related to information technology ("IT") general controls that were disclosed in Item 9A of the Annual Report.
Previously Reported Material Weaknesses
As previously disclosed in Item 9A of the Annual Report, we previously identified material weaknesses in our internal control over financial reporting relating to:
Status of Remediation of Material Weaknesses in Internal Control over Financial Reporting
Management has developed a remediation plan to address the previously disclosed material weaknesses for which we implemented process and control improvements.
IT General Controls
Management continues to make progress in the remediation of all IT general control individual deficiencies that corresponded to the material weakness. The completed remediation actions include:
75
BioSteel business-to-business sales
Effective September 14, 2023, Canopy Growth no longer has a controlling interest in BioSteel Sports Nutrition Inc. ("BioSteel Canada"), and effective November 16, 2023, Canopy Growth no longer has a controlling interest in BioSteel Manufacturing, LLC ("BioSteel Manufacturing") and BioSteel Sports Nutrition USA LLC. Further, during November 2023, Canopy Growth completed the sale of substantially all of the assets of BioSteel Canada and BioSteel Manufacturing. As a result, the BioSteel segment is no longer considered part of management’s internal control over financial reporting and the material weakness previously identified in our internal controls is no longer applicable to Canopy Growth.
To remediate the existing material weakness on IT general controls, additional time is required to demonstrate the effectiveness of the remediation efforts. The material weakness cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We may also conclude that additional measures may be required to remediate the material weakness in our internal control over financial reporting, which may necessitate further action. Remediation actions are subject to ongoing senior management review as well as oversight by the Audit Committee of the Board.
Changes in Internal Control over Financial Reporting.
We are taking actions to remediate the material weakness relating to our internal control over financial reporting as described above. Except as discussed above, there were no changes in our “internal control over financial reporting” (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
76
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
Other than as disclosed below, we are not aware of: (a) any legal proceedings to which we are a party, or to which any of our properties is subject, which would be material to us or of any such proceedings being contemplated, (b) any penalties or sanctions imposed by a court relating to securities legislation, or other penalties or sanctions imposed by a court or regulatory body against us that would likely be considered important to a reasonable investor making an investment decision, and (c) any settlement agreements that we have entered into before a court relating to securities legislation or with a securities regulatory authority.
On May 23, 2023, an ostensible shareholder commenced a putative class action (Turpel v. Canopy Growth Corporation, et al., Case No. 1:23-cv-043022-PAE) against the Company and two of its officers in the U.S. District Court for the Southern District of New York on behalf of persons and entities that purchased or otherwise acquired the Company’s securities between May 31, 2022 and May 10, 2023, alleging violations of U.S. federal securities laws. Two similar cases were subsequently filed, captioned as Kantner v. Canopy Growth Corporation, et al., Case No. 1:23-cv-06266-PAE and Allen v. Canopy Growth Corporation, et al., Case No. 1:23-cv-05891-PAE. On November 30, 2023, the U.S. District Court for the Southern District of New York consolidated the Turpel, Kantner and Allen actions (captioned as “In re Canopy Growth Securities Litigation, No. 23-cv-04302”) and appointed Chen Li as lead plaintiff. On January 22, 2024, the lead plaintiff filed a first amended complaint against the Company and certain of its current and former officers, alleging claims on behalf of persons and entities that purchased or otherwise acquired the Company’s securities between November 5, 2021 and June 22, 2023. The first amended complaint alleges that the Company made false or misleading statements and omissions regarding BioSteel’s revenue, performance and operations, and the Company’s internal controls over accounting and financial reporting in violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The lead plaintiff seeks an unspecified amount of damages, attorneys’ fees and costs, and other relief. The Company anticipates filing a motion to dismiss the first amended complaint on or before March 7, 2024.
On January 18, 2024, a follow-on derivative shareholder lawsuit, captioned Press v. Schmeling et al., was filed in the Supreme Court of the State of New York by ostensible shareholder Denise Press on behalf of Canopy Growth Corporation against the Company’s directors and certain of its officers based on substantially the same allegations as those alleged in the In re Canopy Growth Securities Litigation described above. The complaint asserts claims for breach of fiduciary duties, gross mismanagement, waste of corporate assets, unjust enrichment, and insider trading, and seeks damages, attorneys’ fees and costs, and equitable relief.
On June 27, 2023, an ostensible shareholder commenced a putative class action (Dziedziejko v. Canopy Growth Corporation et al., Court File No. CV-23-00701769-00CP) in the Ontario Superior Court of Justice against the Company, two of its officers, and the Company’s auditor on behalf of a putative class of all persons or entities who acquired Canopy’s securities in the secondary market between June 1, 2021 to June 22, 2023 and held some or all of those securities until the close of trading on May 10, 2023 or June 22, 2023.
The plaintiff alleges that the Company’s disclosures contained misrepresentations within the meaning of the Securities Act (Ontario), that certain officers authorized, permitted, or acquiesced in the release of the impugned disclosures, that the Company and one of its officers acted in a manner that was oppressive or unfairly prejudicial to the proposed class members by failing to remedy alleged deficiencies in the Company’s internal controls, and that all of the defendants are liable for damages to the putative class. The action seeks an unspecified amount of damages, interest, legal fees, and the costs of administering a plan of distribution of the recovery. The Company was also named in two other putative class proceedings that were commenced between May 2023 and July 2023 in the Ontario Superior Court of Justice regarding that the Company’s disclosures contained misrepresentations. However, on November 10, 2023, the Ontario Superior Court of Justice decided a carriage motion staying those actions (Leonard v. Canopy Growth Corporation et al., Court File No. CV-23-00702281-00CP and Twidale v. Canopy Growth Corporation et al., Court File No. CV-23-00700135-00CP), and allowing Dziedziejko v. Canopy Growth Corporation et al., Court File No. CV-23-00701769-00CP to proceed to a class certification hearing.
On June 15, 2023, an ostensible shareholder commenced a putative class action (Asmaro v. Canopy Growth Corporation et al., Court File No. VLC-S-S-234351) against the Company and two of its officers in the Supreme Court of British Columbia on behalf of a putative class of all persons and entities who purchased or otherwise acquired securities of the Company between August 6, 2021 and May 10, 2023. The lawsuit alleges that the Company’s disclosures contained misrepresentations within the meaning of the Securities Act (British Columbia), that certain officers authorized, permitted, or acquiesced in the release of the impugned disclosures, and that all of the defendants are liable for damages to the putative class. The plaintiff seeks an unspecified amount of damages.
In May 2023, in connection with the Company’s internal review of the financial reporting matters related to BioSteel, as previously disclosed in the Annual Report (the “BioSteel Review”), the Company voluntarily self-reported to the SEC that the timing and amount of revenue recognition in the BioSteel segment were under review. As a result of self-reporting the BioSteel Review, the
77
Company is the subject of an ongoing investigation by the SEC. Although the Company is fully cooperating with the SEC and continues to voluntarily respond to requests in connection with this matter, it cannot predict when such matters will be completed or the outcome and potential impact. Any remedial measures, sanctions, fines or penalties, including, but not limited to, financial penalties and awards, injunctive relief and compliance conditions, imposed on the Company in connection with this matter could have a material adverse impact on our business, financial condition and results of operations. See “Risk Factors—Risks Relating to the Restatement of the Prior Financial Statements—As a result of self-reporting the BioSteel Review, the Company is the subject of an investigation by the SEC and an ongoing informal inquiry by regulatory authorities in Canada, and it cannot predict the timing of developments, and any adverse outcome of these continuing matters could have a material adverse effect on the Company” under Item 1A of the Annual Report.
On December 29, 2023, a Request for Arbitration was made identifying the Company, one of its subsidiaries, and another entity as respondents. The Claimant seeks damages in the amount of USD $32,666,667 against the respondents based on alleged breaches of a Share Purchase Agreement (“SPA”), including breaches of the duty of good faith and honest performance in relation to certain milestone payments in the SPA.
The Company denies any alleged misconduct and liability for each of the claims asserted in the above-noted Court and Arbitral Proceedings, believes that the defendants/respondents have meritorious defenses to the claims, and expects to vigorously defend the claims, although the Company cannot predict when or how they will be resolved or estimate what the potential loss or range of loss would be, if any.
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently a party to any other legal proceedings other than described above, the outcome of which, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition, results of operations or prospects. Please refer to “Risk Factors” under Item 1A of the Annual Report for further discussion.
Item 1A. Risk Factors.
For information regarding factors that could affect our results of operations, financial condition and liquidity, see the risk factors discussed in Part I, Item 1A in the Annual Report. Except as set forth below, there have been no material changes to the risk factors previously disclosed in Part I, Item 1A in our Annual Report.
There can be no certainty that all conditions to the Floating Share Arrangement and the Acreage Amending Agreement will be satisfied or waived, including, in the case of the Floating Share Arrangement, obtaining approval of the Amendment Proposal by the Exercise Outside Date, which may result in the acquisition of Acreage not being completed.
There can be no certainty, nor can the Company provide any assurance, that all conditions precedent contained in the Floating Share Arrangement Agreement and the Acreage Amending Agreement will be satisfied or waived, including that the current Exercise Outside Date of March 31, 2024 is extended or in the event of a default pursuant to the Acreage Debt. In addition, the Floating Share Arrangement is subject to certain conditions precedent which, among other things, includes the receipt of approval from the Company’s shareholders on the Amendment Proposal by the Exercise Outside Date. There can be no certainty, nor can the Company provide any assurance, that these conditions will be satisfied or, if satisfied, when they will be satisfied. If such conditions precedent are not satisfied, it may result in the acquisition of Acreage not being completed.
Acreage’s financial statements express doubt about its ability to continue as a going concern.
Acreage’s publicly available financial statements as of and for three and nine months ended September 30, 2023 filed with the SEC on November 14, 2023 (“Acreage’s September 30, 2023 Interim Financial Statements”) express doubt about Acreage’s ability to continue as a going concern. In particular, Acreage’s September 30, 2023 Interim Financial Statements state: “[Acreage] had an accumulated deficit as of September 30, 2023, as well as a net loss and negative cash flow from operating activities for the nine months ended September 30, 2023. Additionally, subsequent to quarter end [Acreage] was temporarily in default of the [Hempco Debenture, pursuant to which a subsidiary of Acreage owed approximately $46.8 million to a subsidiary of Canopy Growth as of September 30, 2023][. . .] These factors raise substantial doubt about [Acreage]’s ability to continue as a going concern for at least one year from the issuance of these financial statements.” In the event that Acreage is unable to continue as a going concern, the Acreage Amended Arrangement and the Floating Share Arrangement may not be completed. In the event that the Acreage Amended Arrangement and the Floating Share Arrangement are completed and Acreage is unable to continue as a going concern, this would have a negative impact on Canopy USA’s business, financial results and operations and have an adverse impact on the Company’s United States strategy, and, ultimately, the Company’s financial results and operations.
78
In view of the foregoing, Acreage’s continuation as a going concern is dependent upon its continued operations, which in turn is dependent upon, among other things, Acreage’s ability to meet its financial requirements. There is no assurance that Acreage will be successful in its plans to fund its operations and debt obligations as they become due and payable. Accordingly, in the event Acreage cannot satisfy its debt obligations as they become due, we may lose the Option Premium. In addition, Acreage may be required to terminate or significantly curtail its operations or enter into arrangements with third parties that may require Acreage to relinquish rights to certain aspects of its business and/or dispose of certain assets, which may ultimately result in Acreage not being able to satisfy the conditions in the Amended Acreage Arrangement and the Floating Share Arrangement and the acquisition of Acreage not being completed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Resignation of Robert Hanson
On February 6, 2024, Robert Hanson provided notice to the Company of his decision to resign from the Board of the Company, effective the same date. Mr. Hanson served as a member of the Corporate Governance, Compensation and Nominating Committee of the Board. Mr. Hanson’s resignation from the Board was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
Appointments of Luc Mongeau and Willy Kruh
On February 7, 2024, on the recommendation of the Corporate Governance, Compensation and Nominating Committee the Board voted to increase the size of the Board to eight members and appoint each of Mr. Luc Mongeau and Mr. Willy Kruh to the Board effective immediately. Each of Mr. Mongeau and Mr. Kruh shall serve as a director of the Company until the next annual general meeting of shareholders or until his earlier death, resignation, or removal. Mr. Kruh will serve as a member of the Audit Committee and Mr. Mongeau will serve as a member of the Corporate Governance, Compensation and Nominating Committee.
The Board has determined that each of Mr. Mongeau and Mr. Kruh is independent under applicable Nasdaq listing rules. There is no arrangement or understanding between either of Mr. Mongeau and Mr. Kruh and any other person pursuant to which he was appointed as a director of the Company. There are no family relationships between each of Mr. Mongeau and Mr. Kruh and any director or executive officer of the Company or its subsidiaries. Neither Mr. Mongeau nor Mr. Kruh have a direct or indirect material interest in any transaction that would require disclosure under Item 404(a) of Regulation S-K.
In accordance with the Company’s customary practice, the Company has entered into its standard form of indemnification agreement with each of Mr. Mongeau and Mr. Kruh, which requires the Company to indemnify each director against certain liabilities that may arise as result of his status or service as a director. The Company’s Form of Director and Officer Indemnity Agreement is filed as Exhibit 10.1 to its Form 10-K for the fiscal year ended March 31, 2022, which was filed with the SEC on May 31, 2022.
In connection with the appointments to the Board, each of Mr. Mongeau and Mr. Kruh will be compensated in accordance with the Company’s director compensation program as described in the Company’s filings with the SEC.
Rule 10b5-1 Trading Arrangements
During the three months ended December 31, 2023, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) informed us of the
79
Item 6. Exhibits.
Exhibit Number |
|
Description |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
3.3 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2* |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1** |
|
|
|
|
|
32.2** |
|
|
|
|
|
101.INS |
|
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
** This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act or the Exchange Act.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
80
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
CANOPY GROWTH CORPORATION |
|
|
|
|
|
Date: February 9, 2024 |
|
By: |
/s/ David Klein |
|
|
|
David Klein |
|
|
|
Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
Date: February 9, 2024 |
|
By: |
/s/ Judy Hong |
|
|
|
Judy Hong |
|
|
|
Chief Financial Officer (Principal Financial Officer) |
81