John Zamparo: Thank you. Good morning. My question is on the profitability goals, and even at the high end of the combined savings plan that doesn’t get you particularly close to break even on EBITDA at least compared to the current quarter. So how do you square that with the outlook for F2024 being positive? And presumably you’re spending on BioSteel? Isn’t that material? So is it that you’re including results from your US businesses, even though those won’t be consolidated? There’s also the comment about revenue not needing revenue growth. So just trying to better understand the profitability you’ve got? Thank you.
Judy Hong: Sure, I’ll start and, David, you can add, as well. So just in terms of the overall profitability goal and how that ties to the cost reduction? Look, again, I do think when you combine the announcement we made in April, and will were announced today, it is a pretty sizable cost reduction that we currently are underway. So there are some remaining cost savings as part of the April program. And then we obviously have additional cost savings that we announced. I would say the investments we’re making in BioSteel are not insignificant. And I think that’s a decision that we made, particularly in the current fiscal year as we really were standing up the investments behind the NHL sponsorship, really with the anticipation that that will drive strong velocity and strong distribution across both the Canadian market and the US market.
And as you see in the retail data, we’re very pleased with the performance of BioSteel, you see that at least in the retail data, despite some of the lumpiness that you see on a quarter-over-quarter basis. So we do think that that investments that we’re making, will pay off in the coming quarters? So again, I think as I said to Tamy, if you think about the cost actions that we announced in Canada, and the other businesses that are you know, approved already profitable that we think we can get to a profitable business for Total Canopy with the exception of the investments and BioSteel. And I think the adjusted EBITDA losses as it relates to BioSteel really depends on how quickly the sales scale up in the coming quarters.
Operator: Your next question comes from Nadine Sarwat of Bernstein. Please go ahead.
Nadine Sarwat : taking for question for me. So the first, many of your initiatives focus on improving profitability that you announced today, which is really great to hear. However, the weaker top line growth for Canopy and to be honest, more broadly for Canadian cannabis industry remains a fundamental challenge. So, could you just walk us through what you’re planning as part of your initiatives that in particular address improving top line given the challenges you’ve got highlighted at the start of the call? And then my second part of the question is, many investors have expressed concern that Canopy USA is adding to your costs or taking management’s attention away from the core business without contributing positive cash flows until federal legalization occurs, which appears increasingly unlikely for the moment. So what would you say to those investors who are concerned about that? Thank you.
David Klein : So, I’ll take a shot at these, Judy and then you can fill in the blanks. But in terms of top line as Judy pointed out. We aren’t anticipating or we don’t require a top line to meet the profitability objectives that Judy outlined, as a result of these changes that we’ve announced today. What gives us confidence in being able to sustain the current level of performance in Canada is really the continuous improvement we’ve made over the last several quarters in terms of the offerings that we have in the marketplace, the general consumer acceptance and appreciation of those offerings and the strength of our commercial team on the ground in Canada, which we believe is second to none. And so we think that those have us in a good position to at least retain the current level of revenue that we’re generating in the business.
And so we’ve sized our business accordingly, which yields the profit objectives we talked about. As it relates to Canopy USA, look, the purpose of Canopy USA is to create value by putting Jetty, Wana and Acreage together in a way that they can work together in a collaborative fashion to extract value. And that is something that those businesses need to do by working together. And it’s really less about resources being assigned from Canopy Growth. And so we don’t see it as a major distraction from running the rest of our business, which includes Canada, includes Storz & Bickel, and includes BioSteel as well as of our international businesses.
Judy Hong : And I would just add, from a revenue standpoint, Nadine, so when you look at our Canadian total cannabis revenue over the last few quarters, it’s been stabilizing in the range of CAD35 million to CAD40 million. And that is, there is some declines in the adult-use cannabis side, but we’ve actually seen medical revenue growth, as we pointed out on the call. So importantly, when you think about our profitability target for Canada, we’re not expecting any changes to our current run rate. So we think that we’ve got an opportunity to continue to grow our medical business, and we’ve got increased product offerings, and that’s driving some of that improvement, we expect that to continue. And really, from an adult-use cannabis business standpoint, we’re not expecting an improvement to the current run rate.
And I think that is still enough for us to get to profitability in Canada. And then from a Canopy USA standpoint, look, I think once we get Canada to be profitable, we think the cash flow generation or the contribution from Canopy USA is really not something that’s required to support the Canopy Growth, cash needs. And so from that perspective, it’s really about optimizing the value of Canopy USA through advancing the USP fee strategy. And then for Canada to be profitable and for the rest of the business to continue to be profitable.
David Klein : I want to actually come back to a point as it relates to the top line as well. So we made a decision a year and a half ago or so to not chase the value segment. And it doesn’t mean we won’t participate in parts of the value segment when we have products that we can waterfall down into that segment. But we deliberately chose not to chase the value segment, which has had a dampening effect on our top line, because of the growth of that segment, which we’ve not participated in. We did that because we didn’t believe that we could build a profitable sustainable business at the value level in the Canadian market. And so we focused on mainstream and premium offerings in the marketplace. However, our footprint was too large to support that segment of the market that we really want to go after and so the actions today are all about getting our footprint right to address the market that we want to address within Canada.
And as Judy said, that’s been running in that CAD35 million to CAD40 million range quarter. We think that we can stabilize at that and then begin to build from that as a base.
Operator: Your next question comes from Andrew Carter of Stifel. Please go ahead.
Andrew Carter : Morning. Thank you. So within results there’s a big revenue miss mostly on BioSteel and your commentary in November was a modest sequential climb. I’m not sure if you had visibility into that the distribution issues. Today’s commentary outlines steps you can take if NASDAQ objects to the consolidation, which I don’t know correct me if I’m wrong, you could I could have been hit head on in the release last call back in October. My biggest question is like what’s going to change from here? Given the cash needs, I think viability requires successfully navigating the capital markets, which requires properly setting expectations and credibility. And back to the cash needs, I guess in this business with the assets in hand, including Canopy USA and the changes you’ve made today. achieve positive free cash flow with the full run rate of interest expense on the remaining term debt? Thanks.
Judy Hong: I’ll start from a from a cash needs standpoint, Andrew, and then David can add additional comments. So from a cash needs standpoint, as I outlined on my prepared comments, we think we already have a strong balance sheet with just under CAD800 million that we have on our cash, as well as several options that we have available to us to increase liquidity and reduce debt. You’ve already seen our actions that we’ve taken to reduce our debt, including equitizing the portion of the converts last year, we’ve obviously also paid off some of the term loans, and that is going to drive the interest savings and reduce our cash burn going forward. We’ve also talked about the remaining convert notes with Constellation interchange the 100 million into exchangeable shares, we also have very constructive relationship with the debt holders, and we’re in communications to address our desire to pay off some of the debt in a very accreted manner.
So we are looking at all those options. We have availability of $2 billion of cash available to us through the base shelf that we file. So we actually think we’ve got several options. We’ve already also are in active discussions with monetizing several assets that we have, and you’ll hear more about those as we go forward. But from a liquidity needs standpoint, I think we’ve got a really a several options that’s available to us. But to answer your point, the entire point of what we’re doing today, and what we’ve announced this morning needs to generate a sustainable business that will have positive cash flow over time, we get that. And so all the actions that we’re taking to significantly reduce our operating free cash flow in our Canadian business, as well as interest savings that we would get from our debt reduction plan, and all the things that we’re doing to monetize the assets, we think we’ve got a very laser-focused and strong plan in place to get to that place as quickly as possible.
