Canopy Growth (CGC) Q2 2027 Earnings Call Transcript

DATE

Friday, Nov. 6, 2026

CALL PARTICIPANTS

• Chief Executive Officer - Luc Mongeau
• Chief Financial Officer - Thomas Carlton Stewart

TAKEAWAYS

• Consolidated Net Revenue -- $81.4 million, representing 22% growth driven by significant gains in the international cannabis segment and the acquisition of MTL Cannabis.
• Cannabis Segment Revenue -- $66.2 million, increasing 30% due to higher production and supply levels of flower for Canadian and European markets.
• International Cannabis Revenue -- $12.3 million, growing 141% behind strong medical cannabis sales in Germany and Poland.
• Canada Medical Cannabis Revenue -- $25.8 million, an 18% increase resulting from higher patient counts and the integration of the MTL Medical business.
• Canada Adult-Use Cannabis Revenue -- $28.1 million, increasing 17% primarily through higher flower sales following the MTL Cannabis acquisition.
• Storz & Bickel Revenue -- $15.1 million, a 4% decrease attributed to lower consumer spending in specific geographic regions.
• Adjusted Gross Margin -- 31%, declining from 33% primarily due to the reduction in the Veterans Affairs Canada reimbursement rate.
• Adjusted EBITDA Loss -- $2.9 million, improving 6% through revenue growth and ongoing cost-saving initiatives.
• Free Cash Outflow -- $15.5 million, an improvement from $19.2 million in the prior year despite higher investments in cultivation facilities.
• Total Cash and Short-term Investments -- $320 million, providing the liquidity necessary to fund organic growth and potential acquisitions.
• Kincardine Facility Yield Potential -- 25% to 30%, representing the expected increase in flower production within the same physical footprint through improved cultivation practices.
• MTL Integration Synergies -- $10 million, representing the target annualized run rate expected within 18 months of the March 2026 closing.
• Net Loss -- $40.7 million, widening from $5.0 million due to $35.8 million in fair value charges related to Canopy USA assets.
• SG&A Expenses -- $39.7 million, a 9% increase reflecting the inclusion of MTL Cannabis operations, partially offset by reduced headcount.
• Inventory Step-up Charges -- $2.1 million, related to the accounting for the MTL Cannabis acquisition.
• Capital Expenditures -- $3.0 million, increasing from $1.2 million as the company invests in cultivation consistency and output.
• Kincardine Room Transition Progress -- 10 of 24 rooms, representing the current status of rooms transitioned to new cultivation methods and strains.
• Canada Adult-Use Revenue Adjustments -- $189,000 negative impact, reflecting pricing adjustments and returns during the quarter.
• Finance Lease Payments -- $6.3 million, decreasing from $10.3 million in the prior-year period.
• Warrant Derivative Liability -- $22.8 million, a decrease from $27.5 million as of March 31, 2026.

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RISKS

• Stewart stated, "The decrease is primarily due to the reduction in the Veteran Affairs Canada reimbursement rate, which has had a major impact on our Cannabis segment gross margins compared to the prior year," identifying a critical headwind for the medical segment.

SUMMARY

Canopy Growth Corporation (NASDAQ:CGC) reported significant top-line expansion driven by a triple-digit increase in international medical cannabis revenue and the integration of the MTL Cannabis acquisition. Management stated that the company is moving toward adjusted EBITDA positivity in the second half of fiscal 2027 by focusing on cultivation excellence and cost discipline. The company reported a strengthened European supply chain following new certifications, while also addressing margin headwinds in the Canadian medical market. Management indicated that the focus remains on high-quality flower production to satisfy demand in core markets across Canada, Germany, and Poland.

• The Smiths Falls facility received EU GMP certification, making it the only site in Canada to combine softgel manufacturing with the primary packaging of oral liquids and dried flower.
• CEO Mongeau stated, "We see international markets as a key driver of growth and we are very excited about our prospects," noting the recent entry into the United Kingdom medical market.
• Management is implementing a dedicated internal sales force in Canada to drive brand growth and improve market rankings in the adult-use segment.
• The company renewed the EU GMP certification at the Kincardine facility, which serves as the anchor asset for the European flower supply chain.
• CFO Stewart noted that the company has not sold shares under its ATM program since Dec. 2025, maintaining the program only for strategic opportunities like accretive M&A.
• Shareholders recently authorized the Board to complete a share consolidation, which management stated would only be executed if necessary to maintain the NASDAQ listing.

INDUSTRY GLOSSARY

• Adjusted EBITDA: A non-GAAP financial measure that excludes non-cash items and one-time costs to assess core operating performance.
• ATM Program: An "at-the-market" equity program allowing a company to sell shares into the public market at current prices.
• EU GMP: European Union Good Manufacturing Practice, a certification required for medical products to be sold within the European Union.
• MTL Cannabis: A Canadian cannabis company acquired by Canopy Growth to enhance its flower quality and cultivation expertise.
• S&B: Storz & Bickel, Canopy Growth's subsidiary specializing in the design and manufacture of flower vaporizers.
• VAC: Veterans Affairs Canada, the government agency responsible for providing medical benefits to Canadian veterans.

Full Conference Call Transcript

Operator: Good morning. My name is Joanna, and I will be your conference operator today. I would like to welcome you to Canopy's Second Quarter 27 Financial Results Conference Call. Currently, all participants are in a listen-only mode. I will now turn the call over to Jonathan, you may begin your conference call. Thank you, Joanna, and good morning, and thank you, everyone, for joining us. On our call today, we have Canopy Growth's Chief Executive Officer, Luc Mongeau, and Chief Financial Officer, Thomas Carlton Stewart. Prior to the opening of financial markets today, Canopy Growth issued a news release announcing the financial results for its second quarter ended September 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 penny and dollars unless otherwise stated. Following the remarks by Luc and Thomas Carlton Stewart, 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: Thank you, Jonathan. Good morning, everyone. And thank you for joining us today. Our second quarter of fiscal 27 results show continued momentum with another quarter of strong year-over-year top-line growth across most of the business. Consolidated net revenue increased 22% year over year to $81.4 million Cannabis revenue increased by 30% to $66.2 million reflecting our ability to produce and supply high quality flower to meet the demand of the Canadian and European markets.

The biggest driver of growth was our international business, where net revenue increased by a tremendous 141% over Q2 of last year, and by 28% sequentially from the first quarter to $12.3 million International growth was enabled by strong availability of flower and a strengthened route-to-market that increased our reach to patients in our core European markets. Canada Medical net revenue grew by 18% year over year to $25.8 million Similar to last quarter, we benefited from ongoing increases in patient counts, including through the addition of the MTL Medical business.

Our team is building from this new baseline following the VAC reimbursement cap implemented at the beginning of April continuing to add patients, and providing best in class service experience for our patients. We believe our position as the number 1 medical cannabis provider with Canadian owned and Canadian grown supply will remain an important differentiator. Canada Adult Use net revenue increased 17% to $21.8 million We are seeing the benefits of a strengthened product portfolio as well as the addition of the MTL brands, which perform well in Quebec and are building momentum in the rest of Canada.

We are confident in our ability to continue to grow in this market and recently made the decision to build out an internal sales force fully dedicated to growing our brands in Canada. Our growth in cannabis revenue has been made possible by our ability to provide a more consistent supply of the right flower to consumers. Elevating cultivation has been a core focus for Canopy. With efforts accelerating since we acquired MTL cannabis at the end of 26. We are applying the expertise of MTL's master growers to improve cultivation practices and drive increased yield and flower quality at our EU GMP facility in Kincardine. Our team has been busy implementing new growth methods and adding new strengths.

Early results are encouraging. We are taking steps to further increase yield and continue building on these results. We expect to see a noticeable increase in yield and flower quality as we exit the third quarter of fiscal 27 with the full impact being felt in the start of fiscal 28. We believe there is the potential to increase flower production at Kincardine by at least 25% to 30%. Within the same physical footprint. We expect increased yield and quality to drive both revenue growth and per unit cost improvements. Improved cultivation is a key foundation foundational element of our global supply chain.

In addition, we are also focusing our efforts on strengthening our global distribution and manufacturing network and improving our access to patients across Europe. On that subject, we recently received EU GMP certification at our Smiths Falls facility. As well as a renewal of the EU GMP certification at Kincardine. This makes Canopy only Canadian company with end to end EU GMP certification covering its entire supply chain, from cultivation to the manufacturing and primary packaging of sublingual oils, and dry cannabis flower. Our European sales have historically been limited to flour. The Smiths Falls certification creates a path to expand into additional categories of high quality patient ready products broadening our addressable market, and creating new growth opportunities.

Our team is actively working with existing and new channels to prioritize these avenues for growth and we expect to provide updates on this in future quarters. These capabilities are increasingly important to European customers and regulators. They enable us to maintain the highest quality standards with fewer third parties handling our products. It is clearly part of our promise of product integrity in action. Other steps we have taken to strengthen our international capabilities include relaunching the Tweed brand in Germany with MTL Cannabis Genetics. Strengthening our commercial and operational leadership team in Germany to accelerate growth, broadening our product offering in Australia, and entering the U.K. medical cannabis market.

We see international markets as a key driver of growth and we are very excited about our prospects. Turning to Storz & Bickel. We reported revenue of $50.1 million down 44% from the second quarter of last year. Storz & Bickel is managing through waves of variability consumer spending in the face of economic uncertainties in various markets, as well as evolving trends in this space. We continue to refine our product portfolio and go to market strategies to maintain our leadership position. Storz & Bickel is known for innovation, as demonstrated by their recent recognition by Safe Access Now for recent product advancements with the Venti Flower Vaporization Innovation Award.

Consistent with prior years, we expect a seasonally strong quarter in Q3 driven by the holiday season. Overall, our financial results are showing what a better execution across Canopy Growth can deliver. there is still a lot of work to be done, but we are still sustaining our momentum in the right direction. We continue to strengthen our foundation, our capabilities, which gives me increasing confidence in our ability to accelerate growth into profitability in the coming quarters. I will now ask Thomas Carlton Stewart to provide more details on our second quarter financial results.

Thomas Carlton Stewart: Thank you, Luke, and good morning, everyone. Canopy delivered strong second quarter performance driven by accelerated top line growth and disciplined bottom line execution. Consolidated net revenue climbed 22% year-over-year to $81.4 million, anchored by a 30% increase in our cannabis segment. Reflecting broad based momentum across every channel. While MTL continues to be an engine for our fiscal 27 performance, organic growth in international cannabis was equally important. Offsetting headwinds faced in Canada Medical. Sequentially, the business is demonstrating stronger underlying earnings, held consolidated gross margin firm at 31% for the quarter, despite not having the U.S. tariff refunds that supported Q1. At the same time, we drove meaningful reductions to SG&A and narrowed our adjusted EBITDA loss.

This strong execution reinforces our confidence as we remain on track to deliver positive adjusted EBITDA. In the second half of this fiscal year. Let me take a moment to elaborate on each of these points. A key growth driver for our business has been international cannabis. Which typically delivers favorable pricing on average relative to the domestic market in Canada. This makes continued growth in our international markets an increasingly important contributor to our overall performance and our strategy to drive improved shareholder returns. We expect the ongoing growth of the international business along with the improvements to our cultivation operations Luc described, to contribute to margin expansion going forward for the cannabis segment.

Adjusted gross margin was 31% in Q2 27 compared to 33% a year earlier. The decrease is primarily due to the reduction in the Veteran Affairs Canada reimbursement rate, which has had a major impact on our Cannabis segment gross margins compared to the prior year. The Storz & Bickel segment reported a modest increase in gross margin, from 38% in Q2 of last year to 39% this year, despite a decrease in revenue over the same time frame. This result was due to cost efficiencies realized under the new management team.

We are pleased that S&B margins in the first half of fiscal 27 have been well above the 33% we reported in that segment for the full fiscal 26 year. As previously mentioned, S&B benefited from a 1-time tariff refund in Q1, positively affecting our consolidated gross margin by approximately 2%. Turning to operating expenses. We continue to see progress. SG&A expense increased $3.4 million from Q2 26, even as we absorb the full MTL business, which typically incurred SG&A expense of approximately $6 million The combined company is operating more efficiently, reflecting not only a lower cost base and integration synergies, but also improved execution across the business.

We remain on track to reach our target run rate of $10 million of annualized synergies within 18 months of the March 2026 closing, of the MTL transaction. On a sequential basis, SG&A expense in Q2 was approximately $5 million lower than in Q1. Reflecting our ongoing financial discipline and cost saving actions taken to date. Adjusted EBITDA loss was $2.9 million in Q2 27. That represented an improvement of $400 thousand from Q1 27. Again, we achieved a sequential improvement despite the absence of the S&B tariff refund recorded in Q1. Turning to our financial position. We had $320 million of cash and short term investments as of 09/30/2026.

In addition, free cash outflow for Q2 improved by $3.7 million from Q2 26 to $15.6 million despite an increase in capital expenditures of $1.8 million to invest in our cultivation facility. Last month, we held a successful annual meeting where shareholders approved all resolutions including authorization for our Board to complete a share consolidation also known as the split. As a reminder, it continues to be our intention to only complete the consolidation if it is necessary to maintain our NASDAQ listing. In terms of our ATM program, we have not sold any shares since December 2025 given our strong cash position. We would look to the ATM selectively in support of strategic opportunities.

Including M&A, where we see a compelling path to shareholder value creation. In summary, Canopy has the liquidity, the discipline, and the strategic runway to fund both organic growth and potential M&A opportunities. With $320 million in cash and investments, we have the flexibility to pursue accretive, high impact growth opportunities in a disciplined manner. The track record we established with MTL demonstrates that we have the capability to integrate acquisitions efficiently and realize meaningful synergies. We enter the second half of fiscal 27 with strong momentum stringent cost controls and line of sight to positive adjusted EBITDA. I will now turn the call back to Luc for his closing remarks.

Luc Mongeau: Thank you very much, Tom. The results we reported today represent another important step forward in canopy's growth journey to build a profitable leading global cannabis company. Financial momentum such as that accelerating growth of our international business, is certainly a big part of that and is reflecting in our top line results. Perhaps even more importantly, our teams and our employees understand the power, the strength that we are establishing as a company. Our international business now has a unique competitive advantage through our end to end EU GMP supply chain for both flower and manufactured products. Canada Adult Use has clear sight lines to improve market rankings on the strength of our best brands.

Canada Medical is solidifying its leadership position, and becoming a much stronger business as they work to overcome significant external challenges. Cultivation yields at Kincardine are still improving, and the end result is within our grasp. Storz & Bickel continues to innovate and sharpen its focus on improved competitiveness. As I look across the business, I see that all cylinders are starting to fire in unison. This is turning our foundational discipline into sustained and compounding velocity. It is the driving force uniting the entire team around a shared strategic purpose. And it is beginning to deliver tangible results. I would like to thank our team for their continued hard work and commitment to achieving our goals.

Operator, we will now take questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, 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 2. If you are using a speakerphone, please lift the headset before pressing any keys. We ask that you please limit yourself to 1 question. You may press star 1 again should you have any follow-up. First question from Aaron Grey with Alliance Global Partners. Please go ahead.

Aaron Grey: Hi. Thank you very much for the question here. Just want to dive a bit more into, path to profitability, Luc. And Thomas Carlton Stewart, obviously, we have been big focus since you guys came into your respective seats. So firstly, you talked about it being within reach. We have got some seasonally strong quarters coming in. Some of those cost savings, you know, are starting to flow through as well. So just more color in terms of the timing of EBITDA profitability and then maybe bigger picture. You know, what type of profitability or margin profile we could start looking at, you know, come FY 2028 and beyond? Thank you.

Thomas Carlton Stewart: Thanks, Aaron. Good morning. So for our profit. Our path to profitability, a lot of that, as you are saying, we do expect to have a stronger back half of the year, some of that driven by seasonality in the S&B business, which does carry favorable margins relative to our Canadian or our cannabis segment. I would say for us, a lot of the cultivation enhancements that we are talking about on the call that we have mentioned, we have yet to see those kind of benefit the P&L. The changes are being made. Like, we are seeing positive kind of indications early on.

But it likely will not materialize in the P&L until the as we are exiting FY 2027. So I think, you know, we still see a pathway to get to positive adjusted EBITDA in the back half of the year. But a lot of the cost savings, synergies, and whatnot, that work is ongoing in the cultivation aspect. You would not see yet in the P&L. I do not know, Luc, anything? Yeah.

Luc Mongeau: For me, listen, we have been attacking the PNL since we started. And so we started with addressing the SG&A. We over-delivered on our targets there. Second, we, you know, we said we would address cultivation. We did the acquisition of MTL. We did the integration as swiftly as possible. Brought in the MTL master growers. We are proceeding with the transformation of our main cultivation facility, Kincardine. Think about it. We have got 24 rooms there. We transition 1 room at a time to new cultivation practices. And new strains. We are 10 rooms in of 24. We do 1 a week.

So by the end of, you know, middle of Q4, we will probably be fully transitioned, takes 12 weeks to harvest a new, a new batch of flowers. So these things take time, and, you know, you will start seeing the full impact at the beginning of fiscal 2020 as well. And we did not really talk a lot about this on the call, we are starting as well the streamlining of our manufacturing and distribution efforts squarely around our Smiths Falls facility. We just kicked off the project. We have line of sights.

We have a series of initiatives that are going to be implemented in the back half of fiscal 27, and these will reap benefits on the margin lines, and we will start seeing these happening in the later part of this fiscal with full benefits in fiscal 28. So there is quite a bit of fuel in the tank. here ahead of us. And we have line of sights on all these initiatives, and they are well managed, and, you know, we are building confidence.

Operator: Thank you. Next question from William Joseph Kirk with Roth Capital Partners. Please go ahead.

William Kirk: Good morning, everybody. Luke, I was hoping you could keep going on some of the new products, the new markets commentary of what you can do out of Smiths Falls. And in particular, maybe, like, what types of products you know, which. In which market, and what the timing is for some of that.

Luc Mongeau: Yeah, so the timing of those for new products will be felt more. The beginning of fiscal 2020. what is really important, our priority is right now where we can see the biggest impact on our sales and profits goes back to flower. We have been saying it. Elevating cultivation, is a priority in the business. It is what will drive the biggest transformation of our P&L and our profitability. And we are very I am delighted with the progress that is been done in recent quarters there.

And as we mentioned, we start feeling the benefit of this at the end toward the end of Q3 of this fiscal with full impact at the beginning of 28. what is important as well as we are you know, as we. In the quarter, we reentered the U.K. market. Which is the second largest market in Europe. We have as well done a series of investments in strengthening our access to patients in Germany. We are strengthening our sales team. They are now with capabilities to win with sales. So that is where you will see the bulk. of the growth. Coming from. Thank you.

Operator: Next question from Matt Bottomley with Canaccord Genuity. Please go ahead. Luke, perhaps following on your question, on your answer there, with respect to Germany, how well part 1 is the Tweed brand resonating?

Analyst: 2, how important, yeah, are the genetics that you are bringing to market I am asking that in the context of either helping to better moat your business in Germany and increase your confidence given how noisy and, you know, to some, over perhaps the German market is becoming. Thank you.

Luc Mongeau: I think a good question. The Tweed brand I mean, we are very confident in our ability to win in Germany. You know, in the past, every time we were in stock, we did really well. Poland, same thing with Poland. If you look at recent surveys we have done about brands our brands and our genetics resonate really well we are through the value chain in Germany and Poland. So not only with patients, but as well with doctors, pharmacists and players in the industry.

So for us, that is why we are focused our focus is really increasing the yield of our Kincardine EU-GMP facility because we know when we have the flower we bring it to Germany, Poland, and we are successful. So we have really built, you know, going back to what we talked about the unique ecosystem that Canopy has built. So EU GMP cultivation facility, EU GMP processing facility in Smiths Falls. We have our own ability to bring flour into, into Europe, and we are strengthening our sales team across Europe, our access to patient.

So we are building this end to end ecosystem where not only can we drive integrity of the products because we handle the products all the way, We maintain integrity of margins as well. So imagine this ecosystem with the brands, with the strengths that we are only going to make stronger with the MTL acquisition. And once we are able to significantly increase the amount of tonnage we put through this system, I mean, we will reap the benefits. Thank you.

Operator: The next question comes from Federico Gomez with ATB Cormark Securities. Please go ahead.

Frederico Gomes: Hi. Good morning. I want to ask about your investments in and, I guess, improving yields. When you look at the, I guess, the competitive landscape, where do you think you sit in terms of cost of cultivation and quality and you know, do you think that, you know, with those investments, you know, how soon can you sort of catch up to some of the maybe the leaders in the Canadian rec market? Thank you.

Thomas Carlton Stewart: Yeah. Thanks. Good morning, Frederico. Yeah. I think from a cost-to-grow standpoint, we are definitely not a best in class from a cost-to-grow. I think what we are focused on now with the capital investments that we are making at Kincardine specifically is really using a lot of the know how and the techniques that the MTL team has been successful at in terms of growing their business. And applying it to a much bigger asset to really better utilize the assets that we have.

We do think it will make us much more competitive across the globe, but more importantly, give us a higher amount of good quality flower at the right specs that can service our entire cannabis segment. So that is really, I would say, you know, we are looking-- we are not a greenhouse grower, we will likely not be a lowest cost-to-grow in Canada, but we have ambitions of being some of the highest quality flower in Canada. that is great. Thank you.

Operator: Next question comes from Pablo Ernesto Zuanic with Zuanic and Associates. Please go ahead.

Pablo Zuanic: Thank you, and good morning, everyone. Luke, do you want to make any comments on the proposed changes in the budget, of the government, relating to cannabis? We had seen some good news last night. Thank you.

Luc Mongeau: Yes. Good morning. Those are very encouraging news, and so we welcome these potential changes. It will make it much more commercially easier for Canadian LPs to really drive their business in a much, much simpler and streamlined manner. It will allow greater access for Canadians to good quality flower that is grown and distributed the right way. So we welcome those changes. Thank you.

Operator: This concludes Canopy's second quarter 27 financial results conference call. A replay of this conference call will be available until February 4, 2027, and can be accessed following the instructions provided in the company's press release issued earlier today. Canopy Growth's Investor Relations team will be available to answer additional questions. Thank you for attending today's call.

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