Canopy Growth Corporation (WEED) Q4 FY2026 Earnings Call Transcript & Summary

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 Fiscal 2026 Financial Results Conference Call. [Operator Instructions] I will now turn the call over to [ John Vinsek ], Investor Relations. John, 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, Luc Mongeau; and Chief Financial Officer, Tom Stewart. Prior to the opening of financial markets today, Canopy Growth issued a news release announcing the financial results for its fourth quarter and fiscal year ended March 31, 2026. The news release and financial statements have been filed on EDGAR and SEDAR and will be available on the website under the Investors tab. Before we begin, I would like to remind you that our discussion during the 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 penny and dollars, unless otherwise stated. Following remarks by Luc and Tom, we will conduct a question-and-answer session where we will take questions from analysts. And with that, I would like to turn the call over to Luc.

Thank you. Good morning, everyone, and thank you for joining us today. Fiscal 2026 was a defining year for Canopy Growth. We made the hard calls early, streamlining the business, sharpening our focus and reallocating resources to where we see the greatest long-term opportunity. We also invested in people needed to execute at a higher level. These actions are now beginning to show up in the business. On that, I want to take this opportunity to thank our teams and say how proud I am of how they responded throughout the year. The focus, collaboration and execution across the organization was critical to the progress we achieved. Our full year performance reflected continued momentum with net revenue increasing 20% in Canada adult-use cannabis and 18% in Canada medical, alongside operational execution across the platform. Over the past year, we also optimized our structure and [ restructured ] the cost base to a more sustainable level, removing significant expenses from the business. These changes drove stronger financial performance in fiscal 2026, and we expect the benefits to be even more meaningful in the current year. In parallel, we recapitalized the business to strengthen our balance sheet, stabilize our cash balance and extend debt maturities to 2031. This improved financial position expands our strategic flexibility while reducing risk and uncertainty. The defining milestone of the year was the acquisition of MTL Cannabis, establishing Canopy as the leading Canadian medical cannabis business by revenue. With increased scale, broader capabilities and greater market reach, we are now operating from a significantly stronger position. While MTL has only been part of Canopy for 2 months, integration efforts have advanced quickly. We are already executing on $6 million of our targeted $10 million of annualized cost synergies. And the benefits extend way beyond cost savings. We are leveraging Canopy's robust distribution platform to extend the reach of the MTL products, including the recently announced launch of MTL strains in Germany. Just as importantly, the MTL team brought a strong track record of producing best-in-class products and executing high operational standards. These capabilities are now being embedded more broadly across the organization with team actively sharing best practices to improve productivity and execution across our cultivation network. As integration continues, we're also building more disciplined and repeatable processes across the organization, strengthening our framework for producing high-quality cannabis consistently and at scale. We have recently seen the results of these efforts in Europe where we have delivered strong sequential growth in the past 2 quarters. We believe strengthened capabilities will become increasingly important as industry continues to evolve globally, particularly in the European market. With that, let me turn to our financial results for the year. Net revenue increased 6% to $285 million, driven by growth in our Canadian medical and adult-use businesses. Canadian medical delivered the most consistent performance with an 18% increase in net revenue for the full year and positive year-over-year growth in all 4 quarters. These impressive results were driven by a larger product assortment and increased order size as we expand our base of insured customers. What is even more encouraging, as I mentioned earlier, is that we entered fiscal 2027 in an even stronger position after joining forces with MTL Cannabis to become the market leader in Canada. Our Canada adult-use business returned to growth in the year, with net revenue increasing by 20%. That represents a significant turnaround in a category where Canopy been stagnating. The growth was driven by product innovation focused on the fastest-growing adult-use categories, including infused pre-rolls, vape and ITHC flower. We believe there is room for Canopy to significantly increase our share of the recreational market in Canada on the strength of our leading brands. The most recent market share data from May 2026 shows that Canopy has improved from the #8 overall ranking to #6. We have taken a consumer-led approach across our medical and adult-use portfolios, focusing our efforts behind the brands, products and category where we believe we can build enduring market leadership. In the international business, we have reset our European operations to better unlock the flower supply chain. That involves streamlining processes, strengthening execution and making sure we got the right product into the market. These efforts have helped us overcome challenges we experienced early in the year. As a result, the international business had a very strong finish to the year, delivering 68% year-over-year net revenue growth in the fourth quarter. That momentum has continued into the first quarter of fiscal 2027, driven by a broader portfolio of products. Europe will remain an important area of focus for us this year. Storz & Bickel net revenue was down in the year due to challenges in its 2 largest markets, in U.S. and Germany. The successful launch of the VEAZY vaporizer during the year helped boost sales in a new category focus on affordability and portability. Post quarter-end, S&B team, inspired by new leadership, has been focused on cost optimization and a reset of our commercial approach in the U.S. Overall, we exit fiscal 2026 as a stronger, better positioned organization with improved scale, stronger financial flexibility, and the team that knows how to execute. I believe these changes make us stronger and demonstrate how Canopy is becoming a different company. We're energized, we're encouraged, we're confident and we're just getting started. Without a doubt, there is much work still to be done, and I'm very confident in the strategy we have in place to deliver meaningful growth. More on this in a few minutes. First, I will ask Tom to review our fourth quarter results.

Thank you, Luc, and good morning, everyone. We reported $71.2 million of net revenue in the fourth quarter of fiscal 2026, which was 10% higher than Q4 of the previous year. Growth in the quarter was driven by the cannabis segment, and in particular, Canada medical and international cannabis. Cannabis net revenue for the fourth quarter was $54.5 million, up 20% compared to a year ago. This growth was led by Canada medical cannabis with revenue increasing 27% to $25.3 million, marking another record quarter. Key drivers include continued expansion in insured patient registrations as well as our medical team's ongoing focus on providing a best-in-class service experience to our medical consumers. In addition and in response to changes to Veterans Affairs Canada reimbursement, we moved quickly in fiscal 2027 to implement targeted actions designed to mitigate the impact on both veterans and the business. These initiatives included strategic pricing actions, refinements to the product mix, and patient retention efforts focused on maintaining accessibility and long-term engagement with our medical platform. International cannabis net revenue was $8.6 million, up 68% compared to a year ago. The increase was largely driven by year-over-year growth in Poland and Germany as our focus on supply chain improvement [indiscernible] for the European business have delivered another quarter of growth for international cannabis. Cannabis gross margin in Q4 was $3.7 million or 7% of net revenue, which was below our typical gross margin range, primarily due to inventory-related charges of $10.7 million as a result of the MTL acquisition. As part of integrating our 2 businesses, we conducted a comprehensive review of the combined inventory and product portfolio with a focus on simplifying our combined offerings and prioritizing our highest-quality, best-performing products. As a result, we made deliberate decisions to reduce redundant and overlapping inventory to ensure our stock levels are well positioned for fiscal 2027. We also recognized costs associated with the flow-through of [indiscernible] accounting step-up on acquired inventory [indiscernible]. Importantly, excluding the impact of these acquisition-related charges, adjusted gross margin for the cannabis segment was 26% in Q4 fiscal 2026, as compared to 12% in Q4 fiscal 2025. We are moving through our transition period as these 2 organizations integrate operations, align teams, share best practices and optimize the product portfolio. As a result, we may see slower growth in the first half of fiscal 2027, including near-term pressure on our revenue as we continue to adjust our product offerings and make improvements at our cultivation facilities to position the business for long-term success. We would fully expect to see gross margin improvements in fiscal 2027 within the cannabis segment on integrating the MTL business. At the same time, the $6 million of MTL transaction synergies we are executing will increasingly take effect. To give more color on that figure, it includes items such as the elimination of MTL's public company costs, head count reductions and rationalization of redundant facilities. As part of our new footprint assessment, we made the decision to close our cultivation facility in Kelowna, BC given our focus on scaling our cultivation capacity at our GMP certified [ King Cardin ] facility and MTL facilities in Quebec. We expect to continue to execute against our projected cost synergies to reach our target of $10 million of run rate savings within 18 months of the MTL transaction closing. More broadly, the cost reductions we implemented at Canopy over the past year will become increasingly apparent in fiscal 2027. General and administrative operating expenses were down approximately $9.5 million in fiscal 2026, a 15% reduction, which was largely driven by the rationalization of approximately 130 positions across the organization prior to the acquisition of the MTL team. The adjusted EBITDA loss of $6 million in Q4 fiscal 2026 represented a $3 million year-over-year improvement, but was higher than the $3 million loss in Q3 fiscal 2026. Absent the inventory charges in Q4, we would have shown sequential improvement and [indiscernible] closer to our adjusted EBITDA breakeven. On that basis and with our expectation of continued revenue growth and decrease in costs, we remain confident in achieving our target of reaching positive adjusted EBITDA during fiscal 2027. Turning to our financial position. As Luc mentioned, we significantly strengthened our balance sheet in fiscal 2026, having completed a strategic recapitalization transaction at the start of the fourth quarter. We ended the year with $365 million of cash after completing the MTL acquisition. With total debt of $234 million, our net cash position was $131 million. As compared to the end of fiscal 2025, we have delivered an improvement of $304 million going from a net debt position of $173 million to a net cash position of our $131 million. Importantly, as we move towards an accelerated growth stage, we have much greater financial capacity to support our growth and, where appropriate, inorganic opportunities. I want to note that while we did not have any sales under the ATM program during the fourth quarter, we will continue to look to use the program opportunistically during fiscal 2027 to support strategic priorities and initiatives if and when they arise. In closing, I would like to acknowledge the continued positive momentum in the U.S. regulatory landscape. We are proud to see the framework we pioneer for Canopy USA to become increasingly relevant with our U.S. peers leveraging this structure to benefit from the positive momentum in the U.S. market. Luc will now close through a brief discussion of our priorities for the coming year.

Thank you very much, Tom. We enter fiscal 2027 with confidence. Since becoming CEO, we have prioritized capital allocation toward higher return opportunities, robust cost management and executing with excellence. This disciplined approach positions us well to achieve profitability and create long-term shareholder value. Markets outside of Canada, including the U.S., present both immediate and long-term growth opportunities. In Europe, our strengthened cannabis platform and expanded portfolio of products have helped us build momentum. Our operations in Germany provide important advantages in supplying European markets efficiently and reliably, and we are targeting expansion into the U.K. during this fiscal year. In Canada medical, we plan to leverage Canopy's leadership position and nationwide network of clinics to continue supporting patient growth. We remain committed to supporting our veteran community by delivering compelling value relative to other medical cannabis providers while continuing to uphold the quality, consistency and reliability patients expect from our portfolio. For the Canada adult-use market, improved quality of our flower combined with continuing product innovation will be the levers that enable us to grow our brands and our business. Early fiscal 2027 trends remain encouraging, including continued market share momentum across key product categories. As of 5 weeks into fiscal 2027, we hold top 3 market positions across a number of key categories on a trailing 13-week basis, including #2 in premium flower, #2 in infused pre-rolls, up from #4 on a trailing 13-week basis and #3 in [ oils and sub-channels ]. Storz & Bickel is executing on refreshed strategy, strategic plan focused on strengthening sales and marketing efforts in the U.S. and improving operational efficiency throughout the supply chain. To conclude, we strengthened our platform, improved execution, expanded our scale and positioned the business for its next phase of growth. We enter fiscal 2027 with momentum and a clear focus on accelerating our growth. I'm energized by the momentum building across Canopy. Operator, we will now take questions.

[Operator Instructions] First question comes from Kenric Tyghe with Canaccord Genuity.

Tom, I heard your comments with respect to mitigating the impact on your medical business and on veterans from the change in reimbursable. But I wonder whether you could help us just better handicap the potential impact or trajectory of your Canadian business given how material that headwind is in year and some recent competitive commentary with respect to that headwind?

Yes. So a couple of points, Kenric, and thanks for the question. Part of our mitigation plan includes ongoing optimization [indiscernible] reimbursement practices to ensure that we're really [indiscernible] for the cost of serving kind of the high-quality service that we provide to our veterans. Ultimately, when you think about our medical portfolio in and of itself, it's skewed more towards 2.0 products such as oil, soft gels, more so than flower. So I think you're not going to see the straight -- while there would be a top line effect, it's not going to be as drastic as you might see in our competitive set. My kind of actions are also looking to mitigate the impact on adjusted EBITDA, not just net revenue. So while we would expect to see net revenue come down versus sequentially, we're doing everything we can to mitigate the impact on EBITDA and gross margin. So looking to kind of optimize cost structures where we can and really make sure we're priced competitively without interrupting the high quality of service that we provide to the veteran customers.

Great. And if I could just [indiscernible] into international markets briefly. Obviously, international increasing in focus, specifically Germany. We're also aware though that's an increasingly competitive market. So when you look to and when we think about your marketing spend in the year to support growth and market share gains, I saw you -- I think fiscal '26 you had a mid-single-digit increase in sales and marketing. How should we think of the evolution of that line item? I realize there are offsets on the G&A side. But just trying to handicap the potential spend to drive share and growth in Germany through '27.

Yes. I would say on the sales and marketing piece of the SG&A, Kenric, a lot of the spend, it's tied more to Canada than in Germany. I think where we see the biggest unlock in Germany would be in getting some of the MTL flower. And Luc, I don't know if you want to...

Yes, absolutely. We still see tremendous growth potential in Europe. Our challenge in fiscal 2026 were driven by supply chain issues where we weren't able to consistently supply flower. And we're in a much better place now as demonstrated in the last 2 quarters where we've seen sequential growth. And you have to remember that the market -- the European market as a whole still have a lot of potential for growth penetration, is still extremely low, and we're very encouraged by our progress in the last 2 quarters.

The next question comes from Aaron Grey with Alliance Global Partners.

So first one for me, just on the MTL acquisition, you gave hard numbers in terms of cost synergies, $6 million, expected to be $10 million when complete. But maybe on some top line synergies, you alluded to maybe some sharing best practices, [indiscernible]. So maybe can you go into more detail in terms of some of the benefits that maybe might have been better than you expected in terms of central top line synergies from the MTL, and then how we can think about that flowing through to the P&L for Canopy Growth as you start to get some of those best practices that you're learning?

It's a bit early to tell there. But what we're seeing, one of the key reasons on the acquisition of MTL was the greater ability to grow great flowers consistently and at scale. The work has started a couple of months ago where we're really bringing the teams together to unlock full potential of our growth facilities. What we're seeing behind the scene is extremely encouraging right now. And you can imagine that this great flower will really accelerate our growth in both the Canadian market and, as importantly, across the European markets. So we're really confident. We're pleased with the results that have been done behind the scenes so far. And we will start seeing the benefits of this in the quarters to come.

Okay. Great. Second question for me, so I can understand Canada and international seems to be a priority today, but a lot of things are starting to move now here. In the U.S., you had Phase I rescheduling with FDA and state medical anticipation for a Phase II whole plant rescheduling to come potentially later this summer. So as we think about Canopy Growth, historically, you've been one of the more aggressive in terms of looking to capitalize on those U.S. opportunities. So now in 2026, FY 2027, how do we think about your view in terms of what it will take you to want to reengage in terms of getting aggressive in the U.S. market, if there's any type of key things such as being able to maintain uplifting and consolidated adult-use or otherwise? And then what do you think are the best opportunities in the U.S. market today having historically done both MSOs and brands?

Yes. We've been pretty consistent there. Our near term focus and priorities or Canada, international, where we can realize value creation like instantly. So our focus there is not changing. That being said, we're very encouraged by the regulatory changes that are happening across the U.S. So we know what's happened recently is focus on medical cannabis. Our investment in U.S. have been more in mixed use, call it recreational. So we're not seeing any immediate benefits there. But that being said, the strategy, the Canopy strategy has been to lay out investment across the U.S. to ensure that as the market -- the regulatory changes happen in the market, that we will benefit from there. So we're very happy with our investment in the [ Jenny ] brand in California, our affiliation with the Claybourne infused pre-roll brand. We've got a sizable investment in Terrascend. So we're well positioned to take advantage of the market as regulatory changes [indiscernible].

The next question comes from Bill Kirk with ROTH Capital Partners.

I'd like to keep going on Aaron's question there. When we think about the U.S., why isn't now the time to get more aggressive in the U.S.? Like I understand the Canadian and international opportunities might be more immediate, but what else would you need to see in the U.S. to start getting more aggressive? And then if you could, could you remind us maybe some of the run rate metrics for the assets you do have exposure to? In the past, I think you've given trailing 12-month revenue and a rough EBITDA kind of range for the U.S. assets. Could you update us on those?

Yes, Bill, this is Tom. So I guess, building on kind of what would change again, the Canopy USA business is not skewed as much as the medical side as kind of some of our -- some of the U.S. MSOs. So for us, until there's full kind of uplift in potential for fully plant-touching businesses, there's not as much in the way of benefits to us as you might see with peers. I would say in terms of the run rates, we do disclose in the 10-K, Bill, some of our financial information, so I would direct you to those disclosures. But again, that would be kind of a cumulative across all of our assets. So as we think through -- building on what Luc said, that includes retail operations, that would include kind of brand revenues for the Wana assets as well as in Jenny business in California and in certain states. So really the unlock for us -- yes.

Go ahead, the unlock?

No, I was going to say that really the unlock for us is until we're at a point where we can -- U.S. plant-touching businesses, irrespective of medical versus nonmedical can list and further regulations open up, we're really kind of in the same boat as we were before.

Okay. In the cash flow statement, there was like a cash outflow for, I think, it said deconsolidating or 2 subsidiaries. What was that in the period? What was that deconsolidating cash outflow?

That might have been related to prior year -- Bill, I have to go and go back and look at it. Certainly, we can follow up in a separate session if you'd like.

The next question comes from Brenna Cunnington with ATB Cormark.

Just looking at the balance sheet, we do have quite the cash balance here with $365 million exiting the quarter. From what I recall, some of this will be used with transitional costs related to the integration of MTL. And so I do understand that the cash reserves won't be at this level indefinitely. And I'm all for squireling away resources for a rainy day, but it does seem like we have a decent amount of excess cash on hand here above and beyond what's needed for near to medium-term operations. So could you just walk us through some of your strategic goals for putting this excess cash to work? You mentioned potentially expanding into the U.K., and we know maybe the U.S. is a potential for investment on the [indiscernible]. Could you just provide us more details and color on that? .

Yes, I'll start and I'll ask Tom to jump in. So our priority remains clear. It's to achieve positive EBITDA and generate positive cash flows. On this, we're focusing our efforts in accelerating growth in Canadian rec and across Europe as well. What's really good with all the hard work that we did during fiscal 2026, we're at a place where the balance sheet is way more solid than it was a year ago and we're positioned to better take advantage of strategic opportunities that will present themselves to us. Tom, anything to add?

No, I think that's right. You're right, Brenna, we're not looking to [ squirrel away ] cash indefinitely, but we want to be able to be well positioned to capitalize on opportunities if and when they arise.

Okay. Understood. And then just looking internationally, we have heard commentary from various peers regarding the standard for Germany flower getting stricter, specifically with respect to the flower that's moving through Portugal to be EU GMP-certified. Could you just provide us a little more color on like what you're seeing on this front? And is there potentially an opportunity to gain EU GMP certification at some point in the future?

Yes, we're seeing very similar things. I think we're extremely well positioned to function in that type of environment. We've been functioning on the EU GMP regulation code for many years. Now we have resources, capabilities in the ground in Germany to allow us to bring the right products to market. I was over in Europe last week and I come back very confident and energized by the quality of the work our teams are doing across Germany and Poland. Very bullish on these 2 markets and expanding, and newly opening market across Europe. So we look forward to improving our performance in fiscal 2027 across Europe.

Operator, for Bill Kirk's question. Bill, that related to the deconsolidation of Canopy USA in the prior fiscal year. So that was a onetime event which didn't recur this year.

The next question comes from Pablo Zuanic from Zuanic & Associates.

Luc, just to follow up on the medical side of things regarding the impact on veterans. We are now in the middle of June. Can you give some color in terms of how are veteran users of medical cannabis reacting? Are they cutting back on sales? Or are they absorbing the effect of the reduced quarter? Can you maybe expand also in terms of how much are you absorbing? It's not clear in the comments you made before. More color in that regard would help. And to be clear, you are guiding for full year sales growth in '27, but that's for international and rec. Domestic medical, you are guiding for the decline, right? So if you can just confirm that.

Yes. So a few different parts within that, Pablo. So for us, we're continuing to go after new veterans to sign up new customers. We still see that as a very attractive and profitable market for our business. I would say through the first few weeks of fiscal 2027, we are seeing positive momentum year-over-year, but we're likely not going to maintain the same level of growth that we saw throughout fiscal 2026. So we are doing everything we can to kind of maintain a flat medical business year-over-year in terms of EBITDA margin. But overall, it will be a headwind for us on the Canadian side. And the overall growth that we're talking about, you're right, it is including a bigger uplift from the international business as well as growth in Storz & Bickel that will drive us up. So again, we're -- the veteran changes presents quite a headwind to us as well as any other medical player in Canada. We're doing everything we can to limit the impact on EBITDA, but it is going to be challenging just to get back to, call it, flat year-over-year on the Canadian medical side.

If I may add to this. I mean this business, this Canadian medical business is the core of who Canopy is, and we're positioning a company based on trust, on excellence, a company that is focused on bettering life through cannabis. And so as a result, that medical business is really the core of who we are. We love it. We're putting tremendous effort to make sure that through these changes, the quality of the service, the products, the supplies we provide to veterans and other insured patients and noninsured patients remains at the highest integrity. Yes, we're seeing veterans adapting, adjusting how they purchase, but they're extremely loyal to the quality of service and products we've been providing. We provide some of the best service, fastest delivery, consistency of [indiscernible] products of any competitors in Canada. And you can see these consumers, these patients being extremely loyal to our platform. And we continue to strive to provide the best service in the industry.

And then just a follow-up in terms of rec sales in Canada. Obviously, you've done very well with IPRs. Now the [ high-fire ] data shows very good growth in vape. Can you talk about any gaps or rooms, areas where you're still under-indexed where you see room to expand the portfolio, whether it's flower or different segments within the other formats?

Yes, absolutely. And thank you for the congrats on the progress. So we're now -- latest data shows us as #6. I won't be shy to say that our long-term aspiration is to be a top 3 player. We believe we can get there. It's not going to be easy. It's going to take time. But think of the big categories out there, let's start products, we'll talk about [indiscernible] later. So the Canadian market where the growth is, where the volume is, it's flower, it's pre-rolled infused or not, and it's -- we have opportunities across these 3 large segments. In flower, we've been saying it, the acquisition of MTL was driven in one part -- in one large part by their talent, their ability to grow consistently great flower at scale and in an efficient manner. And now we're partnering, we're together with some really great growers. So look out in the quarters to come for the quality of our flower improving. As a result, we know share will follow. In [ PRGs ], we're doing really well. The Claybourne with infused pre-rolls is really driving our growth there. But we still have a lot of opportunities in regular pre-rolls driven by our brands, whether it's MTL brands. premium pre-rolls or it's Tweed with mainstream pre-rolls, we still have a lot of opportunities there. And finally, we launched all-in-one vape during fiscal '26. We're very encouraged by the results. But again there, we're only scratching the surface. We're almost absent of the 510 category, which is still very large. So as you can see, there's tons of runway -- there's significant runway for us to grow Canadian rec there. And we're confident that with our brands. combined with our capabilities and the reset of our supply chain, that we will be able to win in fiscal 2027 and for the years to come.

Thank you. [Operator Instructions] We have no further questions. This concludes Canopy Growth's Fourth Quarter Fiscal 2026 Financial Results.