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.
Large 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 August 8, 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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5 |
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Notes to the Condensed Interim Consolidated Financial Statements |
7 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
32 |
Item 3. |
53 |
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Item 4. |
54 |
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PART II. |
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Item 1. |
55 |
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Item 1A. |
56 |
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Item 2. |
57 |
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Item 3. |
57 |
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Item 4. |
57 |
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Item 5. |
57 |
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Item 6. |
57 |
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60 |
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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 and investments accounted for by the equity method; 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 “hemp” has the meaning given to such term in the U.S. Agricultural Improvement Act of 2018, 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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June 30, |
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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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- |
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Prepaid expenses and other assets |
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Total current assets |
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Equity method investments |
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- |
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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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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 |
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Other liabilities |
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Total current liabilities |
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Long-term debt |
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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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Share capital |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Deficit |
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( |
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( |
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Total Canopy Growth Corporation shareholders' equity |
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Noncontrolling interests |
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- |
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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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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 June 30, |
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2024 |
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2023 |
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Revenue |
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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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( |
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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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Income tax expense |
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( |
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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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Net loss |
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( |
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( |
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Discontinued operations attributable to noncontrolling interests |
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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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Basic and diluted loss per share1 |
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Continuing operations |
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$ |
( |
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$ |
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Discontinued operations |
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Basic and diluted loss per share |
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$ |
( |
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$ |
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Basic and diluted weighted average common shares outstanding1 |
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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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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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- |
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Foreign currency translation |
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( |
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( |
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Total other comprehensive income (loss), net of income tax |
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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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Comprehensive income (loss) from discontinued operations |
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( |
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Comprehensive loss |
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( |
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( |
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Comprehensive loss from discontinued operations attributable to |
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- |
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( |
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Comprehensive loss attributable to Canopy Growth Corporation |
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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
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands of Canadian dollars, unaudited)
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Three months ended June 30, 2024 |
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Additional paid-in capital |
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Accumulated |
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Share capital |
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Share-based reserve |
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Warrants |
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Ownership changes |
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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, 2024 |
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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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Common shares issued from |
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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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Exercise of warrants |
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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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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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Extinguishment of promissory |
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- |
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- |
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( |
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- |
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- |
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Canopy USA Transaction |
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- |
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- |
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- |
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- |
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( |
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Supreme debt conversion |
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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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( |
) |
Balance at June 30, 2024 |
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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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Three months ended June 30, 2023 |
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Additional paid-in capital |
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Accumulated |
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Share capital |
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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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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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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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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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( |
) |
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( |
) |
Comprehensive income (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 June 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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The accompanying notes are an integral part of these condensed interim consolidated financial statements.
4
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars, unaudited)
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Three months ended June 30, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Gain (loss) from discontinued operations, net of income tax |
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( |
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Net loss from continuing operations |
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( |
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( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation of property, plant and equipment |
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Amortization of intangible assets |
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Share-based compensation |
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Loss on asset impairment and restructuring |
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Income tax expense |
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Non-cash fair value adjustments and charges related to |
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( |
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Change in operating assets and liabilities, net of effects from |
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Amounts receivable |
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( |
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Inventory |
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( |
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Prepaid expenses and other assets |
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( |
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Accounts payable and accrued liabilities |
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( |
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( |
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Other, including non-cash foreign currency |
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( |
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( |
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Net cash used in operating activities - continuing operations |
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( |
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( |
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Net cash used in operating activities - discontinued operations |
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- |
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( |
) |
Net cash used in operating activities |
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( |
) |
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( |
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Cash flows from investing activities: |
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Purchases of and deposits on property, plant and equipment |
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( |
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( |
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Purchases of intangible assets |
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( |
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( |
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Proceeds on sale of property, plant and equipment |
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Redemption of short-term investments |
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Net cash outflow on sale or deconsolidation of subsidiaries |
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( |
) |
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- |
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Net cash inflow on loan receivable |
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Investment in other financial assets |
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( |
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( |
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Other investing activities |
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- |
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( |
) |
Net cash (used in) provided by investing activities - continuing operations |
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( |
) |
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Net cash provided by investing activities - discontinued operations |
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Net cash (used in) provided by investing activities |
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( |
) |
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Cash flows from financing activities: |
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Proceeds from issuance of common shares and warrants |
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- |
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Issuance of long-term debt and convertible debentures |
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- |
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Repayment of long-term debt |
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( |
) |
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( |
) |
Other financing activities |
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( |
) |
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( |
) |
Net cash provided by (used in) financing activities |
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( |
) |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
) |
|
Net increase (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.
5
CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars, unaudited)
|
|
Three months ended June 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
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.
6
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 Australia, Germany, and certain other global markets. Additionally, the Company produces, distributes and sells vaporizers and similar cannabis accessories in various global markets, including the United States.
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, 2024 (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
These condensed interim consolidated financial statements have been prepared in accordance with U.S. GAAP on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
In the Company’s condensed interim consolidated financial statements for the period ended December 31, 2023, the Company raised substantial doubt about the Company’s ability to continue as a going concern for at least twelve months from the issuance of those condensed interim consolidated financial statements, due to certain material debt obligations coming due in the short-term, recurring losses from operations and additional required financing to fund its business and operations.
As of the filing of the Annual Report, the Company had been able to successfully mitigate the substantial doubt by completing several actions including: (i) the completion of a US$
During the three months ended June 30, 2024, the Company completed additional actions and established the ATM Program (as defined below), received additional proceeds from the BioSteel Canada asset sale, and paid down certain debt balances. The Company continues to evaluate different strategies and may pursue additional actions that are expected to further increase its liquidity position,
7
including, but not limited to, pursuing additional actions under its cost-savings plan and seeking additional financing from both the public and private markets through the issuance of equity and/or debt securities. As a result of management's plans above and the financial results of the Company at June 30, 2024, management concludes that the substantial doubt about the Company’s ability to continue as a going concern continues to be alleviated.
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.
Variable interest entities
A variable interest entity (“VIE”) is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to control the entity’s activities or do not substantially participate in the gains and losses of the entity. Upon inception of a contractual agreement, and thereafter, if a reconsideration event occurs, the Company performs an assessment to determine whether the arrangement contains a variable interest in an entity and whether that entity is a VIE. The primary beneficiary of a VIE is the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Under ASC 810 – Consolidations, where the Company concludes that it is the primary beneficiary of a VIE, the Company consolidates the accounts of that VIE.
Equity method investments
Investments accounted for using the equity method include those investments where the Company: (i) can exercise significant influence over the other entity and (ii) holds common stock and/or in-substance common stock of the other entity. Under the equity method, investments are carried at cost, and subsequently adjusted for the Company’s share of net income (loss), comprehensive income (loss) and distributions received from the investee. If the current fair value of an investment falls below its carrying amount, this may indicate that an impairment loss should be recorded. Any impairment losses recognized are not reversed in subsequent periods.
Use of estimates
The preparation of these condensed interim consolidated financial statements and accompanying 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. Financial statement areas that require significant judgements and estimates are as follows:
Allowance for credit losses - The assessment involves judgement and incorporates estimates of loss based on available information relevant to considering the collectability and includes consideration of economic and business conditions, default trends and other internal and external factors. The amount is subject to change based on experience and new information which could result in outcomes that require adjustment to the carrying amounts affecting future periods.
Inventory reserves - The Company records inventory reserves based on the Company’s estimated forecast of product demand, production requirements, market conditions and regulatory environment. Actual losses may differ from management’s estimates.
Estimated useful lives, impairment considerations, and amortization of property, plant and equipment and intangible assets - Amortization of capital and intangible assets is dependent upon estimates of useful lives based on management’s judgment.
Goodwill and indefinite lived intangible asset impairment testing requires management to make estimates in the impairment testing model. On at least an annual basis, the Company tests whether goodwill and indefinite lived intangible assets are impaired. The reporting unit's fair value is determined using a discounted future cash flow model, which incorporate assumptions regarding future events, specifically future cash flows, growth rates and discount rates.
Impairment of long-lived assets is influenced by judgment in defining an asset group and determining the indicators of impairment, and estimates used to measure impairment losses.
Legal proceedings - Judgement is used in determining the probability of incurring a loss in addition to determining the estimated amount. Amounts recorded are based on management’s judgement and actual amounts recorded may not be realized.
Fair value measurement of financial instruments - The use of various valuation approaches described in Note 23 may involve uncertainties and determinations based on the Company’s judgment and any value estimated from these techniques may not be realized or realizable.
Consolidation of variable interest entities - The determination of whether the Company is the primary beneficiary of a variable interest entity requires significant judgement. The assessment requires a qualitative analysis of power and benefits of the variable interest entity.
8
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 Amended Arrangement (as defined below) and the Floating Share Arrangement (as defined below), respectively, contained in these 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
Accounting Guidance Not Yet Adopted
Segment Reporting
In November 2023, the Financial Accounting Standards Board (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 its 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 its fiscal year ending March 31, 2026.
3. CANOPY USA
Canopy USA
On October 24, 2022, Canopy Growth completed a number of strategic transactions (the “Reorganization”) in connection with the creation of Canopy USA, LLC (“Canopy USA”), a U.S.-domiciled holding company wherein, as of October 24, 2022, Canopy USA, holds certain U.S. cannabis investments previously held by Canopy Growth.
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, the Company 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 the Company’s financial statements. These changes included, among other things, modifying the terms of the Protection Agreement (as defined below) between the Company, its 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, 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
9
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 (as defined below) or the Jetty Options (as defined below), 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 (as defined below) and the terms of the option agreements to acquire Wana (as defined below) and Jetty (as defined below), 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.
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 Holdings, Inc. (“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 connection with the Additional Reorganization Amendments, Canopy USA and its members entered into a second amended and restated limited liability company agreement (the “Second A&R LLC Agreement”). In accordance with the Second A&R LLC Agreement, the terms of the Non-Voting Shares have been amended such that the Non-Voting Shares are only 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 “Stock Exchange Permissibility 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.
Following the Reorganization, Reorganization Amendments and Additional Reorganization Amendments, on May 6, 2024, Canopy USA exercised the options (the “Wana Options”) to acquire Mountain High Products, LLC, Wana Wellness, LLC and The Cima Group, LLC (collectively, “Wana”) leading cannabis edibles brand in North America and subsequently closed the transactions to acquire Wana Wellness, LLC and The Cima Group, LLC. In addition, Canopy USA exercised the options (the “Jetty Options”) to acquire Lemurian, Inc. (“Jetty”) a California-based producer of high-quality cannabis extracts and pioneer of clean vape technology and subsequently completed the first tranche closing to acquire Jetty. On June 4, 2024,the option to acquire the issued and outstanding Class E subordinate voting shares (the “Fixed Shares”) of Acreage (the “Acreage Option”) was exercised. Canopy USA also holds 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.
10
Canopy USA holds an ownership interest in the following assets, among others:
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 and the Additional Reorganization Amendments, 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 up to April 30, 2024.
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, which was exercised on June 4, 2024. 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 such conversion shall only be permitted following the Stock Exchange Permissibility 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”).
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 and on April 30, 2024, 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 were reduced to US$
As of August 8, 2024, the Trust holds
Canopy Growth and Canopy USA are also party to 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
11
are converted in accordance with their terms, provided that, such conversion shall only be permitted following the Stock Exchange Permissibility 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 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 Stock Exchange Permissibility 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 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$
In addition to shareholder and court approvals, the Floating Share Arrangement is subject to applicable regulatory approvals including, but not limited to, Toronto Stock Exchange (“TSX”) approval and the satisfaction of certain other closing conditions, including the conditions set forth in the Acreage Amended Arrangement. 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.
On June 4, 2024, the Acreage Option was exercised 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”). 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. Accordingly, Canopy Growth will not hold any Fixed Shares or Floating Shares. Completion of the acquisition of the Fixed Shares 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
On June 3, 2024, the Company exercised its option to acquire certain outstanding debt of Acreage (the “Debt Acquisition”) in connection with the option agreement dated November 15, 2022 (the “Option Agreement”) among a wholly-owned subsidiary of Canopy Growth (the “Optionor”) and the lenders (the “Lenders”) party to Acreage’s credit agreement dated as of December 16, 2021, as amended by the first amendment to credit agreement dated as of on October 24, 2022 and the second amendment to credit agreement dated as of April 28, 2023.
The Optionor entered into various agreements in connection with the Debt Acquisition in order to acquire approximately $
12
The Optionor subsequently transferred approximately $
The Optionor, the Rolling Lender and Acreage also entered into an amended and restated credit agreement in respect of the Acquired Debt, which provides for, among other things, certain interest payments to be paid-in-kind, revisions to certain financial covenants and, following certain events, a maturity date extension.
Deconsolidation of Canopy USA
As of April 30, 2024, as a result of the series of transactions related to the Additional Reorganization Amendments described above (the “Canopy USA Transactions”), Canopy Growth has deconsolidated the financial results of Canopy USA and has a non-controlling interest in Canopy USA as of such date. The deconsolidation of Canopy USA occurred after completion of the following structural amendments: (i) execution of the Second A&R LLC Agreement, (ii) execution of the Second A&R Protection Agreement and (iii) completion of the initial tranche closing of the Trust Transaction, which included the election of a third member to the Canopy USA Board such that the Canopy USA Board is comprised of an appointee of the Trust, Ms. Whiteman, and the Company.
Canopy Growth's deconsolidation of Canopy USA resulted in recognition of an equity method investment (see Note 11) and a loan receivable recorded at fair value (see Note 12).
Cash |
|
$ |
|
|
Other financial assets |
|
|
|
|
Other assets |
|
|
|
|
Other liabilities |
|
|
( |
) |
Cumulative translation adjustment |
|
|
|
|
Net assets disposed |
|
$ |
|
|
|
|
|
|
|
Derecognition of non-controlling interest in Canopy USA |
|
$ |
|
|
|
|
|
|
|
Equity method investment |
|
$ |
|
|
Elevate loan receivable |
|
|
|
|
Total retained non-controlling interest in the former subsidiaries |
|
$ |
|
|
|
|
|
|
|
Issuance of common shares |
|
$ |
( |
) |
|
|
|
|
|
Consideration received in cash |
|
$ |
- |
|
Total consideration |
|
$ |
- |
|
|
|
|
|
|
Gain on disposal of consolidated entity |
|
$ |
|
|
The gain on derecognition of Canopy USA is the differences between the carrying amounts of the derecognized assets, liabilities and non-controlling interest, value of common shares issued, and the fair value of the retained non-controlling interest in Canopy USA, being the equity method investment and the Canopy Elevate I LLC, Canopy Elevate II LLC and Canopy Elevate III LLC (collectively, “Elevate”) loan receivable. The gain on derecognition is reflected in other income (expense), net.
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.
13
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, were classified as discontinued operations.
As a result of the foregoing, Canopy Growth no longer has a controlling interest in BioSteel US and BioSteel Manufacturing and has deconsolidated both entities effective November 16, 2023. The deconsolidation of BioSteel US and BioSteel Manufacturing and related impairment charges were classified under losses from discontinued operations.
|
|
Three months ended |
|
|||||
|
|
June 30, |
|
|
June 30, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Net revenue |
|
$ |
- |
|
|
$ |
|
|
Cost of goods sold |
|
|
- |
|
|
|
|
|
Operating expenses |
|
|
- |
|
|
|
|
|
Operating loss |
|
|
- |
|
|
|
( |
) |
Other income (expense), net1 |
|
|
|
|
|
|
||
Income tax (expense) recovery |
|
|
- |
|
|
|
- |
|
Net income (loss) on , 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 $
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.
14
The remaining amounts legally receivable from the BioSteel Entities are measured at their expected recoverable amounts. As of June 30, 2024, the receivable balance from the BioSteel Entities is $
|
|
June 30, |
|
|
March 31, |
|
||
|
|
2024 |
|
|
2024 |
|
||
Receivable from BioSteel Entities |
|
$ |
- |
|
|
$ |
|
|
Total assets of discontinued operations |
|
$ |
- |
|
|
$ |
|
|
|
|
|
|
|
|
|
||
Total liabilities of discontinued operations |
|
$ |
- |
|
|
$ |
- |
|
5. LOSS ON ASSET IMPAIRMENT AND RESTRUCTURING
In the three months ended June 30, 2024, the Company recorded a loss on asset impairment and restructuring. The loss for the three months ended June 30, 2024 primarily relates to employee restructuring costs and other costs associated with previous restructuring actions. This is offset by a gain related to the remeasurement of a restructured lease facility upon execution of the related exit agreement.
As a result, in the three months ended June 30, 2024, 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:
|
|
June 30, |
|
|
March 31, |
|
||
|
|
2024 |
|
|
2024 |
|
||
Cash |
|
$ |
|
|
$ |
|
||
Cash equivalents |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
7. SHORT-TERM INVESTMENTS
The components of short-term investments are as follows:
|
|
June 30, |
|
|
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