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Press Release

Net Revenue. Net revenue of $101M declined 28% vs. Q3 FY2022. The decrease is primarily attributable to increased competition in the Canadian adult-use cannabis market, the divestiture of C³, a decline in U.S. CBD business, and softer performance from Storz & Bickel and This Works. When adjusting for both the impact of the divestiture of C3 and the Canadian retail business, revenues for the period decreased 23% vs. Q3 FY2022.

Gross Margin. (2%) vs. 7% in Q3 FY2022. Excluding non-cash restructuring costs recorded in COGS of $4M, adjusted gross margin was 1%. Gross margin was impacted primarily by a decrease in the amount of payroll subsidies received from the Canadian government pursuant to a COVID-19 relief program, the divestiture of C3 and lower gross margins in the BioSteel business segment primarily attributable to the write-down of aged inventory, and higher distribution and warehousing costs.

Operating Expenses. Total SG&A expenses in Q3 FY2023 increased by 5%, driven by Y/Y increases in acquisition-related expenses primarily relating to the Company's previously announced transaction with respect to the formation of CUSA and higher G&A expenses. The increase in G&A expenses was primarily due to a decrease in the amount of payroll subsidies received from the Canadian government pursuant to a COVID-19 relief program. The decrease in Sales and Marketing expenses is net of the impact of incremental investments in BioSteel, relating to the activation of the NHL partnership announced in July 2022. Excluding acquisition-related expenses, the impact of the disposition of C3 and the COVID-19 relief program, total SG&A expenses decreased 10% in Q3 FY2023 compared to the prior year period.

Adjusted EBITDA. Adjusted EBITDA loss was ($88M), a $21M increase in Adjusted EBITDA loss versus Q3 FY2022 primarily driven by a decrease in the amount of payroll subsidies received from the Canadian government pursuant to a COVID-19 relief program.

Net Loss. Net Loss was ($267K), which is a $151M increase in the net loss, driven primarily by non–cash fair value changes and an increase in asset impairment and restructuring costs.

Free Cash Flow. Free Cash Flow was an outflow of ($146M), a 13% decrease in outflow versus Q3 FY2022. Relative to Q3 FY2022, the decrease in outflow is due to the timing of certain payments in each period. YTD FCF in FY2023 is a 7% decrease in outflow versus the comparable period in FY2022, representing the impact of reduced capital expenditures and impacts of cost reduction actions, partially offset by investments in growth initiatives at BioSteel and costs related to the formation of CUSA.

Cash Position. ($417M) Net Debt. Cash and short-term investments of $789M at December 31, 2022, representing a decrease of $583M from $1,372M at March 31, 2022 reflecting the impact of cash used in operating activities, the first tranche of the term loan credit agreement repayment of $118M, as well as cash used for acquisitions and investments, including the acquisition of the Verona, Virginia manufacturing facility for BioSteel and a premium payment made to obtain an option to acquire Acreage outstanding debt as part of the October 2022 CUSA announcement. Gross debt amounted to $1,206M at December 31, 2022, representing a decline of $295 million from $1,501 million at March 31, 2022.

Headcount Reduction. As a result of the cost reduction initiatives undertaken in fiscal 2023, the Company intends to close its 1 Hershey Drive facility in Smiths Falls, Ontario, in addition to reducing headcount across the business by ~35%, including 800 positions impacted by the changes announced today, of which 40% are impacted immediately.

Jeremy Berke🍁🍃🌊 @jfberke

Canopy clarifies to me the correct number is 35% of headcount and 60% of its operational facilities. Initial reporting was incorrect:

reuters.comCanopy Growth sheds assets in Canada, plans more layoffsCanopy Growth Corp said on Thursday it would shed assets in Canada and cut 800 job positions as part of the pot producer’s efforts to reduce costs and turn profitable.

👋 Highly Objective is curated by Dai Truong, who leads Cannabis Investment Banking at Arlington Capital Advisors. Third-party information presented here and links to third-party content are for informational purposes only and are not intended as a recommendation, offer or solicitation for the purchase or sale of any financial instrument, security or investment. The information provided is not warranted as to completeness or accuracy and is subject to change without notice. Linking to third-party sites in no way implies an endorsement or affiliation of any kind between Arlington Capital Advisors, LLC, or its affiliates and any third party. The information in this blog constitutes my own opinions (and any opinions posted by guest bloggers from time to time) and it should not be regarded as a description of services provided by Arlington Capital Advisors, LLC or any affiliate.

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🧾Canopy Growth FY2023 Q3 Results