Good morning. My name is Joanna, and I will be your conference operator today. I would like to welcome you to Canopy Growth's Fourth Quarter and Fiscal Year 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. I will now turn the call over to Tyler Burns, Director, Investor Relations. Tyler, you may begin the conference call.

Good morning, and thank you for joining us. On our call today, we have Canopy Growth's Chief Executive Officer, David Klein and Chief Financial Officer, Judy Hong. Before financial markets opened today, Canopy Growth issued a news release announcing the financial results for our fourth quarter and fiscal year ended March 31, 2024. The news release and financial statements have been filed on EDGAR and SEDAR and will be available on our Web site under the investors tab. Before we begin, I would like to remind you that our discussion during this call will include forward-looking statements that are based on management's current views and assumptions and that this discussion is qualified in its entirety by the cautionary note regarding forward-looking statements included at the end of the news release issued today. Please review today's earnings release and Canopy's reports filed with the SEC and SEDAR for various factors that could cause actual results to differ materially from projections. In addition, reconciliations between any non-GAAP measures to their closest reported GAAP measures are included in our earnings release. Please note that all financial information is provided in Canadian dollars unless otherwise stated. Following remarks by David and Judy, we will conduct a question-and-answer session where we will take questions from analysts. With that, I will turn the call over to David.

Good morning, everyone. And thank you for joining us today to review Canopy Growth's fourth quarter and fiscal year '24 financial results. During the call, I'll share key highlights and achievements from the past fiscal year, demonstrating how Canopy is a stronger, fully cannabis focused business that is poised for profitable growth in the year ahead across all of the most exciting global cannabis markets. First, let's touch on the transformative year that fiscal '24 was for Canopy. During the year, we took decisive actions to streamline our business by implementing an asset light model. This has enabled us to focus on our core strengths while leveraging third parties to add scale and capacity when and where we need it without the requirement to maintain extensive infrastructure or invest ahead of growth. This has improved our margins and accelerated our time to market as we focus on growth across all of our priority categories. In parallel, we took bold action to drive greater focus and reduce our cash burn by divesting Canopy's non-cannabis businesses as we go all in on what we believe is one of the most exciting consumer trends of our lifetime. These changes weren't easy and I'm very proud of the work that the entire Canopy team undertook to execute the strategic evolution and to ensure its success, all while enhancing our commercial execution, strengthening our financial position and establishing a platform for Canopy's future growth. As a result, Canopy is entering fiscal '25 with a strong foundation. We have a focused business. We're well positioned in the geographies and categories of greatest potential. And we've built a business that can deliver profitable growth. Looking to our performance in fiscal 2024. I'm pleased to report that our results in the year already demonstrate the positive impact of…

Thank you very much, David. And good morning, everyone. I'll start by reviewing our fourth quarter and full year fiscal 2024 results, including the significant progress we've made across our P&L this year. I'll then discuss additional actions that we've taken to improve our balance sheet and cash flow followed by our priorities and outlook for the fiscal 2025. Let's begin with our fourth quarter results. Q4 FY24 capped a transformative year for Canopy by showcasing organic revenue growth of 16% compared to Q4 of FY23 and a year-over-year improvement in gross margins, adjusted EBITDA and free cash flow. Canopy delivered consolidated net revenue of $73 million in Q4 with all three business units delivering growth year-over-year led by Storz & Bickel, which increases revenue by 43% compared to a year ago. Consolidated gross margin in Q4 was 21%, again a significant improvement compared to 11% last year. Q4 gross margin was negatively impacted by temporary factors in Canada that I'll address later in the call. Full year gross margin was 27% and cash gross margin adding back noncash depreciation expenses and costs was 35%. Q4 adjusted EBITDA was a loss of $15 million, an improvement of 63% versus last year. Free cash flow was an outflow of $23 million, an improvement of $75 million compared to Q4 of last year and nearly a 50% improvement over the last quarter. I'd like to now review the results of our key businesses in more detail including progress against our path to profitability. Starting with Canada. Q4 net revenue was $37 million, up 4% compared to a year ago. Canada medical sales continued to grow strongly increasing 16% compared to last year benefiting from customer mix towards a greater number of insured patients and larger product assortments in the Spectrum online store.…

[Operator Instructions] First question comes from Aaron Grey at Alliance Global.

Regarding your comments on the gross margin, thanks for the color in terms of how it's transitory in nature somewhat. Just if you could provide some commentary in terms of the cadence of the improvements from the greater utilization and some of the other initiatives you have by the lighting and extended grow rooms. How should we think about the timing of that improvement? You had seen gross margins 30% or more within the Canadian cannabis segment. So how do we think about the ramping of that and then the impacts of the overall profitability of the company from the Canadian gross margins going forward?

So if you take a step back, we did deliver a significant improvement on a year-over-year basis in our Canadian business with full year gross margin of 16% and cash gross margin of 31%. And I think on a full year basis, that's within our expectation of achieving close to mid 30% cash gross margin post all the restructuring actions that we've taken in Q1. I think if you think about the Q4 margin, as I said on the call, really a few transient factors that negatively impacted margins. I estimate those margins -- those factors would have impacted the gross margins by the magnitude of several million dollars. So if you adjust for those, I think we're kind of back to low to mid 30% gross margin in Canada. If you look at Q1 and beyond, so just really looking at the rest of fiscal '25, we see further improvement, I said on the call, with all of the improved actions that we're taking in Kincardine. Some of that is going to be a bit more back half loaded. So the increased capacity on the flower side from expanded grow rooms will come in a little bit earlier. But I think the Kincardine, the lighting, the LED installation that's happening as we -- in the coming months and that will really help the winter months as we go into the back half of the year. So all in all, we think the Canada cash gross margin should be in the mid to high 30% for the full year basis, probably stronger in the back half versus first half, but we're pleased to really show continued progress on the Canada front. And I do think that this will be a positive driver in achieving positive adjusted EBITDA at the consolidated level, particularly as you think about the back half of the year.

Next question comes from John Zamparo from CIBC.

My question is on the balance sheet, and I'm trying to better understand the comments about being able to invest for growth. And I wonder how we should interpret that given the level of debt remaining, and what is the plan to repay that debt?

So as I said on the call, I think the big change in terms of our financial position is that we don't have any near term debt maturity of any substantial amount. The really the next tranche of the debt maturity is in March of 2026. We think that our underlying businesses are also showing improvement that we're reducing cash burn in a significant way and we've been able to also reduce our interest expenses in a meaningful way as we've reduced our debt. So really the investing for growth is just given our cash position that we have today as well as the ability to really deal with the maturity of debt in a prolonged time frame. I think it really gives us the flexibility to look for opportunities to invest in the greatest potential markets that we operate in as we speak, that doesn't mean that we are going to be investing in asset heavyweight. I think we've really transitioned to really being asset light and opportunistic in finding partners. But I think it just gives us a lot more flexibility to look for those opportunities with the improved balance sheet position.

[Operator Instructions] Next question comes from Yewon Kang at Canaccord Genuity.

This is Yewon Kang on behalf of Matt Bottomley. My question is just on the international segment. Obviously, you guys saw a [100%] growth quarter-over-quarter on the top line on the segment. And you guys called out continued strength in Germany and Poland alongside some nonrecurring US CBD business opportunity there that overall helped the top line sequential growth there. Can you provide more color behind this US CBD business opportunity? And if you have any plans to kind of expand on this going forward, because it seems like it also has kind of a positive impact on the margin under that segment as well?

I think, I can take that. I mean, I think if you look at our international markets, you really should think about our key priority markets, that’s Germany, Poland, Australia and Czech Republic. The US CBD business, as you may recall, have evolved within the Canopy organization. We've really been looking at very, very targeted approach with that business as the regulatory unlock frankly hasn't happened the way that we thought we would. We have also decided that the best place for the US CBD business to reside is actually Canopy USA. And so we are in the process of winding down the business, at least from a Canopy perspective, and then transitioning that business over to Canopy USA that we expect to happen sometime in Q2 of our fiscal 2025.

Next question comes from Pablo Zuanic at Zuanic & Associates.

David, just regarding Canopy USA. Can you remind us about what's left or has everything been done in terms of shareholder approvals and also approval in terms of Acreage and Wana? And related to that, if you can remind us, assuming that rescheduling doesn't meet your standard of federal permissibility, what actually changes for those US assets, right? I'm thinking Acreage, they need to fund the expansion in Ohio. But if you don't have federal permissibility yet, how can you help them? And how has the Canopy USA structure, if in any way, help them to achieve that type of funding and potential to fund growth?

So Pablo, in terms of approvals, we don't need any shareholder approval or anything of that nature. We do need to go through the approval process in each state where we have a license. And so what we've done is we've exercised our option -- exercised their option to purchase Wana and Jetty, that's going through the regulatory approval process. Right now, we don't expect there to be any problems with those approvals. Canopy has the obligation to exercise its right to purchase Acreage and then move it into Canopy USA, that hasn't happened yet, but we expect that'll happen in the near term. We don't see any major regulatory hurdles. But as you know, it'll take some time to get through each individual state's process. In terms of the ability like what will happen with the businesses and how they improve their capital situation across CUSA. I really think it is a function of putting those CUSA businesses together. Not included in our cash balance is a significant cash balance sitting at Wana and Jetty, which the CUSA assets would all have access to. And so we expect actually that Acreage's challenges related to capital structure will be able to be resolved through kind of amalgamation with CUSA. And also keep in mind, when we put those businesses together, there will be top line synergies available to all of the CUSA entities but there will also be some significant bottom line synergies available as well when you eliminate the public company costs that are currently associated with Acreage.

Thank you. This concludes the conference call. I will turn the call back over to Mr. Klein for final remarks.

Great. Thank you for attending today's call. To wrap up, as we started, we're singularly focused on cannabis. Our businesses are growing and have delivered healthy improvements in gross margins. Our business is approaching positive adjusted EBITDA on a consolidated basis, and Canopy USA is moving forward rapidly. We're excited about where our business is going. And I firmly believe that Canopy offers a unique option for exposure to growth across the world's most exciting cannabis markets. Thanks again for joining us. And I encourage you to try some of our outstanding products as you enjoy the summer ahead. Our Investor Relations team will be available to answer additional questions. Have a great day, and thank you, everyone.

This concludes Canopy Growth's fourth quarter and fiscal year 2024 financial results conference call. A replay of this conference call will be available until August 28, 2024, and can be accessed following the instructions provided in the company's press release issued earlier today. Thank you everyone for attending today's call.