On Friday, Canopy Gwth (TSX:WEED) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Canopy Growth reported a 13% increase in net revenue to $81.2 million for Q1 fiscal 2027, with significant growth in the cannabis segment and Storz & Bickel.

The company's Canadian medical business saw a 22% increase in net revenue, driven by a growing patient count and strengthened by the acquisition of MTL Cannabis.

International cannabis net revenue rose 10%, with strong sales in Poland and plans to expand into the UK, supported by their EU GMP-certified supply chain.

Storz & Bickel showed a 6% net revenue increase and a substantial gross margin improvement to 48%, highlighting the success of their new leadership team.

Canopy Growth focuses on enhancing cultivation capabilities, supply chain optimization, and international expansion, expecting continued margin improvement and positive adjusted EBITDA during fiscal 2027.

The company maintains a strong cash position with $337 million, supporting strategic growth opportunities while managing costs through synergies from the MTL integration.

Full Transcript

Joanna, Operator

Good morning, my name is Joanna and I will be your conference operator today. I would like to welcome you to Canopy Gwth's first quarter fiscal 2027 financial results conference call. Currently, all participants are in a listen-only mode. I will now turn the call over to John Vincik, Investor Relations. John, you may begin the conference call.

John Vincik, Investor Relations

Thank you, operator, and good morning, and thank you to everyone for joining us on our call. Today we have Canopy Gwth's Chief Executive Officer, Luc Mongeau, and Chief Financial Officer, Thomas Stewart. Prior to the opening of financial markets today, Canopy Gwth issued a news release announcing the financial results for its first quarter ended June 30, 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 Canadian 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.

Luc Mongeau, Chief Executive Officer

Thank you. Good morning everyone and thank you for joining us today. Fiscal 2027 is off to a strong start and it's built on real momentum from fiscal 2026. I'm confident to say that our first quarter results have us well positioned to build on that momentum all year long. Fiscal 2026 was all about sharpening our focus, tightening execution and positioning us for growth, including the strategic acquisition of MTL Cannabis. That work is truly paying off.

Since I joined as Canopy's CEO in January of 2025, this is the first quarter we've reported year-over-year growth in every single business. Fiscal 2027 is about growth and moving our focus to cultivation to improve yields and accelerate growth, especially in Europe. And it's as well about increasing our manufacturing efforts to improve margin and accelerate our journey to positive adjusted EBITDA. In the quarter, net revenue was 81.2 million, an increase of 13% from Q1 of last year with our cannabis segment growing at 14% and Storz & Bickel growing at 6%, and importantly, adjusted gross margin was up 600 basis points over last year reflecting the effort we've made across our supply chain to reduce our cost structure and improve execution. This gives us confidence our strategy is working. Our growth was led by our Canadian medical business which reported net revenue of 25.8 million, up 22% from Q1 2026. Strong year-over-year growth in medical was driven by a steady increase in patient count over the past year. Our medical business was recently strengthened by the addition of MTL Cannabis with its Canada House Clinics and Abba Medix online distribution platform.

As a combined company, we continue to add patients and increase the number of orders we filled during the first quarter, helping to cement our position as the number one Canadian medical cannabis provider. Our Apollo Cannabis Clinics were recently voted best medical cannabis clinic in the Toronto Star Readers' Choice Award. This recognition reflects our commitment to positive patient outcomes and to making medical cannabis care accessible. We are trusted by patients and will strive to continue to earn that trust.

Even with these successes, even our significant focus on veteran care, we have felt the impact of the reduced reimbursement rates for our products on Veterans Affairs Canada. We have done our utmost mitigating the impacts of these changes on our patients and veterans and continue to work to broaden our patient base to build on our leadership position. Despite this headwind, we remain strongly committed to our medical patients in Canada. We continue to offer the best product assortment, consistent availability and a best-in-class service experience for veterans and all patients alike.

We strongly believe staying true to our core values will enable us to continue to add new patients and ensure the ongoing expansion of the business. Our Canadian adult-use net revenue of 29.7 million was up 10% from Q1 of last year, building on the impressive 20% growth rate we delivered in fiscal 2026. Our recreational business has benefited from ongoing strengthening of our product portfolio including the addition of the popular MTL cannabis brand.

We plan to leverage Canopy's distribution capabilities to further expand the reach of the MTL brands across the country. The most recent market share data shows that Canopy is now ranked at number six overall, up from number eight. We also moved into the top two position in premium flower and infused pre-rolls, and number one in softgels. We are confident this growth will continue with the other progress we are making in cultivation and the additional flower we plan to bring to market as well as planned innovation around the Claiborne and Tweed brands.

In international, cannabis net revenue rose 10% year over year as we reset our operations and continue to lay out the end-to-end supply chain to grow in the European market. Europe remains a major catalyst for our growth, driven by particularly robust sales performance in Poland during Q1 where we are now a top three supplier. This was our third consecutive quarter of sequential growth in international driven by solid execution, in particular our ability to consistently supply high-quality flower.

We also plan to begin shipments of flower to the UK imminently with revenue contributions expected to start in the second half of the fiscal year. We're energized by the tremendous opportunities in Europe and by our strengthening ability to supply the market with quality products that meet growing needs of European cannabis patients. Storz & Bickel returned to year-over-year growth in Q1, reporting a 6% net revenue increase to 16.1 million as well as a very strong gross margin of 48% compared to 29% in Q1 of 2026.

Q1 was Storz & Bickel's first full quarter under the new leadership team which has been implementing a focused go-to-market strategy. We're pleased to see increased sales in markets outside the traditional strongholds of the US and Germany, clearly demonstrating that Storz & Bickel is diversifying its revenue stream and building on its position as the number one global provider of medical vaporizers. While these results are encouraging, our strategy remains anchored on building upon our capabilities in three key areas: world-class cultivation, optimizing our supply chain network and fueling international supply.

Elevating our cultivation capabilities is now a company-wide priority. It has contributed to our recent success and more importantly establishes a foundation for accelerated long-term growth. The addition of the MTL Cannabis team kicks off a sharing of best practices and expertise across the organization. We're implementing a wide range of improvements ranging from growing techniques to lighting upgrades and environmental controls. The early results are positive with promising improvements to yield, THC levels and cost per gram.

We have begun growing partly MTL strain at Kind Garden under the leadership of the MTL master growers as well as cultivating new strains to enhance our genetic portfolio. These initiatives promise to increase our supply of high-quality flower. Our business has already benefited from more consistent supply and I'm excited to see there is significant room for further gains as throughput increases throughout the year. We expect to see a direct positive impact on revenue.

Post quarter-end we kicked off a comprehensive end-to-end supply chain initiative to streamline our processes, right-size our distribution footprint and optimize labor as we grow revenue. We're targeting significant improvement in gross margin beyond what we have already seen. Turning to international supply, Canopy has a complete EU GMP flower supply chain starting with our EU GMP certified Kind Garden facility and extending to our distribution facility in Germany.

We have also already completed our EU GMP inspection for finished products and cannabis 2.0 products manufacturing in our Smiths Falls facility for which we expect to receive certification during this fiscal year. That certification will make Canopy one of the only domestic companies with end-to-end EU GMP cultivation, manufacturing and finished product processing and packaging of products intended for the international market. This capability will be a core differentiator for Canopy and we see it as a competitive edge that can spur growth as yields and manufacturing capacity increase throughout the year.

We expect to see improved gross margin and we will be better positioned to compete and win in the competitive Canadian medical and recreational space as well as winning in global markets. This is what truly excites me most about the future of our company. I will now ask Tom to provide more details on our first quarter financial results.

Thomas Stewart, Chief Financial Officer

Thank you, Luke, and good morning, everyone. Canopy Gwth reported a solid first quarter, showing good progress on both the top line and key profitability measures. We recorded $81.2 million of net revenue in Q1 fiscal 2027, up 13% from the same period last year. Net revenue increased in our Cannabis segment with growth across all channels as well as in the Storz & Bickel segment. Despite the Veterans Affairs reimbursement changes, Canada Medical Cannabis reported strong growth with net revenue increasing 22% year over year to $25.8 million.

We are also taking steps to further mitigate the impact of the Veterans Affairs changes on margins and EBITDA. These include saving costs by integrating functions like customer care with the MTL organization, renegotiating pricing with third‑party suppliers and partners to share the impact, and adding more large product formats which delivered greater value to patients by allowing them to buy more product up front while reducing costs for the company.

We have consistently demonstrated our ability to grow patients and gain traction in Canada Medical despite broader market pressures. As we navigate the impact of the Veterans Affairs reimbursement changes, we remain focused on executing the same proven strategy that has driven our success to date: growing our patient base, increasing engagement with our patients, and operating the business to deliver a best‑in‑class customer service experience. Overall, our Q1 results are on track with the commentary we provided on our most recent investor call in June. At that time we said we expect to report year‑over‑year revenue growth throughout fiscal 2027. We also described a transition period in the first half of the year as we integrate the MTL cannabis operations and focus on our key priorities. On that basis, we continue to expect to report consistent improvement in our operations throughout the fiscal year.

Consolidated gross margin was 31% in Q1 2027 on an adjusted basis, up from 25% a year ago and outpacing our full‑year adjusted gross margin performance in fiscal 2026. We delivered adjusted gross margin of 26% in the Cannabis segment in Q1 2027, demonstrating meaningful year‑over‑year margin expansion and continued progress against our profitability objectives. Reported gross margin was 22%, reflecting a $2.6 million non‑cash inventory flow‑through charge from the MTL acquisition.

We expect Cannabis margins to continue strengthening as we capture the benefits of the MTL integration and execute on our key priorities. Increased production from our existing cultivation facilities combined with ongoing efficiency gains should further reduce our cost per unit and support meaningful margin expansion over time. Storz & Bickel delivered an exceptional gross margin of 48% in Q1, up from 29% a year ago, demonstrating the significant progress the business has made in improving profitability.

The improvement was driven primarily by operational and cost efficiency initiatives executed over the past year, with an additional benefit from tariff refunds recognized during the quarter. Even excluding the tariff impact, margins were substantially ahead of the prior year. This performance demonstrates the success of the new Storz & Bickel leadership team in optimizing their business. We would expect to see continued improvements across the remainder of fiscal 2027.

Turning to operating expenses, SG&A increased by $2.1 million as compared to Q1 fiscal 2026, despite operating a significantly larger business following the MTL acquisition. Absorbing those operations while keeping costs highly controlled is a direct result of our ongoing cost reduction efforts and the immediate synergies we are capturing from the MTL integration. As a reminder, our stated target is to reach a run rate of $10 million of synergies within 18 months of the March closing of the MTL transaction.

We are now actively executing against $8 million of those synergies, up from the $6 million we reported last quarter. On that basis, we believe there is upside potential to our initial target both in terms of timing as well as in the total dollar amount. Improved margins and discipline on OPEX led to an adjusted EBITDA loss of $3.2 million in Q1 2027, representing a 59% improvement from the prior year. With the additional revenue growth opportunities Luke described and further integration efficiencies still to be realized, we remain on track to report positive adjusted EBITDA during fiscal 2027.

Turning to our financial position, we had $337 million of cash at June 30, 2026. I will note that the $25 million of cash used in operating activities in the first quarter is higher than the run rate we expect to see over the course of fiscal 2027, as an increase in working capital is expected to balance out during the remainder of the year, and we would expect one‑time transaction and restructuring costs to decline throughout the year. We remain confident in the strength of our balance sheet following the recapitalization completed during fiscal 2026.

Our strong cash position underpins our financial capacity to support strategic growth opportunities that may arise. Before handing the call back to Luke, I will remind shareholders we are holding our annual general and special meeting on September 25. We are filing proxy materials today with information on how to vote, and we urge all shareholders to cast a vote. I will now turn the call back to Luke for closing remarks.

Luc Mongeau, Chief Executive Officer

Thank you very much, Tom. Starting fiscal 2027 with broad‑based growth across all our business line and improved margins sets a strong tone for the year. We're confident, we're energized, and everyone is pulling in the same direction with pace and with common purpose to build a global cannabis company. Don't get me wrong, while first quarter results are definitely a step in the right direction, we're not satisfied yet. We're taking tangible action towards increasing yield in cultivation, accelerating supply chain efficiencies, and strengthening our global supply chain to drive growth and improve margins for quarters to come.

We're becoming focused and disciplined operators, relationship and execution, strategic prioritization and financial performance. Today we unveiled a new corporate visual identity to match our growing ambition and reinvigorated organization. This identity reflects who we are and what we're building: a company that believes in the power of cannabis as a catalyst for elevating human potential. We believe cannabis is a global economic force, one that will rival the largest consumer categories in the world, and we intend to be among the companies that lead it, building a global consumer‑centric company with a clear, non‑compromising ambition: lead the world in bettering lives through cannabis. That's the company behind the results we've just shared with you. It is the company you'll see reflected in our new identity. None of the progress outlined on today's call happens without our people. Thank you to our entire team for their relentless hard work and passion. We're just getting started. Operator, we will now take questions.

Joanna, Operator

Thank you, ladies and gentlemen. We will now begin the question‑and‑answer session. Should you have a question, please press the star followed by the one on your touch‑tone telephone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. We do ask that you limit yourself to one question.

If you have additional questions, you may hit star one again. First question comes from Erin Gray with Alliance Global Partners. Please go ahead.

Erin Gray, Analyst at Alliance Global Partners

Hi, thank you very much for the questions here. Just want to talk a bit about international and some of your initiatives with added GMP certifications. Can you talk about the broader landscape of international? We're hearing about countries getting tighter in terms of companies needing to adhere to GMP compliance. How does this potentially set up you to be in a more advanced position that you referred to in your prepared remarks? And do you feel like you'll now have enough cultivation as well as processing through the GMP supply chain to ramp up those international sales through the rest of fiscal year 27 and beyond?

Thank you.

Luc Mongeau, Chief Executive Officer

Thank you for your question. Good morning. Listen, we're taking all the right actions to really set up an extremely robust end‑to‑end supply chain to win for quarters to come in Europe. One thing I can say about Canopy Gwth is that we take cannabis extremely seriously. We've got internal capabilities to really build integrity, reliability, and trust in the supply chain. We've been working for quarters in really building the supply chain that meets and qualifies for EU‑GMP.

So as I said in my remarks, we're now end to end when it comes to flower: growing and importing and distributing in Germany and across Europe. We took an additional step to make sure that our Smiths Falls facility qualifies as well, and we should receive qualification approval during this fiscal year, which will allow us to have a complete range of product end to end to meet the market. So we're really building something that meets all the demands.

And if there was even more stringent—lack of a better word—enforcement of the EU‑GMP, we're extremely well positioned to meet this, and that's what gives us confidence that we will continue to grow this business for quarters to come.

Erin Gray, Analyst at Alliance Global Partners

Thank you very much. I'll turn back in the queue.

Joanna, Operator

Kenric Tyghe with Canaccord Genuity, please go ahead.

Kenric Tyghe, Analyst at Canaccord Genuity

Thank you. Good morning, Tom. One of the key themes throughout the prepared remarks was the discussion around margin and margin expansion—I think specifically material expected margin expansion on some of the initiatives. Could you speak to what is the baseline you're working from? Obviously we saw some 230‑odd bps year on year in this quarter. When you speak to and are thinking about your margin profile going forward, are we talking something bracketing that 30%, 30%‑plus level?

Anything you could provide there to help us triangulate would be appreciated. Yeah.

Thomas Stewart, Chief Financial Officer

Good morning, Kenneth. I mean, obviously long term we're trying to get that margin up close to some of our competitive set, like closer to the 50% margin. We know that's going to be a long way in the future. I would say for kind of baseline, we're looking at this quarter—on an adjusted basis we were 31%. So I would say kind of in the near term we're targeting to get up to the mid‑30s and hopefully on the higher end as we're exiting this year. But as Luke laid out, a lot of the initiatives—we're talking about improving the amount of output that we have from a yield standpoint, improving quality. All of that will fuel our margin improvement as well as the integration activities of MTL as we really become one organization with one set of assets that we're leveraging for the full portfolio. So definitely, you know, I would say in the near term we're targeting mid‑30s, hopefully exiting at a bit higher rate as we go into this year.

Luke, anything?

Luc Mongeau, Chief Executive Officer

Yeah, for me, listen, those are not pie‑in‑the‑sky dreams, as you can imagine. We spent a lot of time last year really working on fixing the foundations of the business. We took an approach where we want to measure twice and cut once. So we spent a lot of time last year really ensuring that what we were aiming for, we have the plans for. And as I said in my remarks, post quarter‑end, we pressed a button—the work has started. And as I said, the teams are working in one direction with pace, which gives us really a high level of confidence that we will see that margin continue to inch upwards for quarters to come.

Kenric Tyghe, Analyst at Canaccord Genuity

Great, thank you. I'll get back in queue.

Joanna, Operator

Frederico Gomes with ATB Capital Markets, please go ahead.

Frederico Gomes, Analyst at ATB Capital Markets

Thank you. Good morning.

UNKNOWN Analyst

I want to ask about cultivation. Seems like cultivation efficiency is a big part of your plan to expand margins and with MTL integration as well. So how far along are you in that journey of getting cultivation where it needs to be? I imagine that's going to take some time to trickle through financials, but how much of that margin expansion just comes from cultivation efficiency and how far along are you in that? Thank you.

Luc Mongeau, Chief Executive Officer

Yes, thank you for your question. Listen, we're passionate about flower and we have intentions to be a trusted global leader. So for us it starts with flower. It started with the acquisition of MTL. We've been very vocal about that. We brought in the expertise, the passion, the know-how to grow great flower to achieve great level of THC yield and decent costs per gram. As you can imagine, that was one of the priorities as soon as we started integrating the business.

As I said earlier, we've been measuring twice and hoping to cut. So the last few quarters have really been spent working with the master growers of MTL to ensure that we understand our strain, we understand the capabilities of our facilities. We've been working on defining the capex program, making sure the new processes are really well defined. As you can understand, with cultivation it takes an amount of time while you put seed into the ground and you can harvest.

We should really start seeing impact at the end of Q2, beginning of Q3 when we start gradually realizing the benefits of improved yield and improved quality.

UNKNOWN Analyst

Thank you very much.

Joanna, Operator

So Kirk with Wealth Capital, please go ahead.

Kirk, Analyst at Wealth Capital

Hey, good morning everyone. So my question is on capital spending. You know your capital spending amounts are below some of your peers and so are those areas where you're trying to make some progress on gross margin and international growth. So I guess my question is do you need to increase capital spending in any meaningful way to improve those yields that unlock gross margin or need to increase capital spend to develop those international assets to unlock more growth there?

Thomas Stewart, Chief Financial Officer

Great question. So I think from our standpoint there will be some modest capex. Right now we do think the operational assets we have in place are sufficient. So we're not talking greenfield type facility build, but in terms of investing in the facilities that is something we will be doing. But I would preface it with just a modest amount of capital. But yeah, we are probably underspending historically on the capex side and this is an area where we see kind of the investment and that kind of the near-term return there as we get improved kind of cultivation and really helping with the yield.

But overall I think we have the right assets in place now. It's using those assets to their potential. That might include a little bit of capex to get it going.

Kirk, Analyst at Wealth Capital

Okay. And if I could sneak a housekeeping in on the Canadian medical, I didn't see it in the queue but maybe I missed it. What was the MTL contribution to that segment in the quarter? And I'm basically asking to try to get a sense for how large the reimbursement change headwind was in the period.

Thomas Stewart, Chief Financial Officer

Yeah, so we don't disclose MTL Medical separately because we manage it all as one business, both across kind of the cannabis segment and then within our revenue channel. So that's not disclosed separately, but obviously the headline reimbursement reduction was 29% that we had. And I would say we weathered that storm better than probably some of our competitors in the quarter.

Luc Mongeau, Chief Executive Officer

If I can just add color. I mean, building on what Tom said, I think we weathered the storm with this change and we now have a new basis upon which we really need to grow. So even though these changes happened, you know, as in our remarks, we were able to continue to improve patient count and number of orders, which really are the main drivers of your revenues. And we were able, as well as Tom mentioned, to take the right action to mitigate the impact on our margins.

So for us, it is a business that we strongly believe in. We believe in providing the right care for patients and veterans, and we will continue to deploy efforts to expand this business going forward.

Kirk, Analyst at Wealth Capital

Thank you, Luc. Thank you, Tom.

Joanna, Operator

Ladies and gentlemen, as a reminder, if you have any questions, please press star 1. Pablo Zuanic, Zuanic & Associates. Please go ahead.

Pablo Zuanic, Analyst at Zuanic & Associates

Thank you. And good morning, everyone. Just following up on the domestic medical question. Look, I mean, the industry has done a great job in terms of increasing penetration with veterans. I think it was 4% back in 2021, 8% now. Where do you see that going? I mean, is the 15% penetration level, you know, three, four years down the road, reasonable? How do you think about that? And then related to that, any further commentary you can make about how these patients, the reimbursed patients, have any changes in consumer behavior, if we don't use that term here, or it's all been pretty much absorbed by the companies in terms of repricing?

Thank you.

Thomas Stewart, Chief Financial Officer

So I'll start, Pablo. And good morning. So in terms of penetration, I think 15% is probably fairly high. I mean, we do see continued growth in the Canadian cannabis market with veterans. We've demonstrated that we can grow in a declining market in the medical space as well over the past few years. In terms of buying patterns, I would say we are adding new patients. Obviously, order values are going down as a result of the reimbursement, but our focus is really new patient acquisition, new veteran acquisitions.

It's still one of the most profitable markets in the globe. So Canadian medical clearly is continuing to be a point of focus for us, but I think 15% is probably a bit high from a market penetration standpoint. But for us, it's really Q1, as Luc said, was a bit of a reset in terms of our baseline. And I would expect that we continue to have steady growth over the past, as we've demonstrated in prior years. On the medical side, I don't know, Luc.

Pablo Zuanic, Analyst at Zuanic & Associates

Thank you, Luc. I mean, can I ask just a follow up, and obviously congratulations on all the progress the company is making on domestic rec, domestic medical, international, the MTL deal. So final, not fair for U.S. analysts to ask you about the U.S., right, but there's so much focus on the U.S. from the investor side given all the changes that are taking place there. And historically we thought of Canopy Gwth as having the best beachhead, if I can use that term, with Acreage, Wana, and Jetty there.

But how should we think about that now going forward? Obviously it doesn't seem as big a priority as it was in the past for Canopy Gwth. Any color will help. Thank you.

Luc Mongeau, Chief Executive Officer

Yes, thank you for the question. Listen, we continue to monitor the situation of the market in the U.S. very, very closely. You heard me. We've been consistent about fixing the foundations, ensuring that we build a core Canopy Gwth organization, Canadian and internationally, that is positive, that provides positive. That's where we continue to focus the bulk of our efforts. And it is paying up. As I said, you know, we continue to monitor our position in the U.S. We're happy with the performance of Jetty in the U.S. We have a position with Acreage. You saw the release of results earlier this morning or yesterday. They're doing really well. But the focus remains on really accelerating our growth internationally and domestically in Canada.

Joanna, Operator

Thank you. This concludes Canopy Gwth's first quarter 2027 financial results conference call. A replay of this conference call will be available until November 5, 2026 and can be accessed following the instructions provided in the company's press release issued earlier today. Canopy Gwth's investor relations team will be available to answer additional questions. Thank you for attending today's call.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.