Canopy Growth Corporation — FY2024 Form 10-K
Reporting period: Fiscal year ended March 31, 2024. Amounts are Canadian dollars unless noted. This is an annual report, not a filing for calendar 2023 Q4.
Business context
Canopy Growth sells cannabis products in Canada and international medical markets, and operates Storz and Bickel vaporizer products. Its strategy emphasizes branded products, an asset-light operating model, cost reduction and a U.S. strategy through Canopy USA. BioSteel was deconsolidated during the year and is reported as discontinued operations; This Works was sold in December 2023.
Key financial metrics
| Metric | FY2024 | FY2023 |
|---|---|---|
| Net revenue | $297.1 million | $333.3 million |
| Gross margin | $80.9 million; 27% | $(63.5) million; (19%) |
| Operating loss from continuing operations | $(228.7) million | $(2.63) billion |
| Net loss from continuing operations | $(483.7) million | $(3.08) billion |
| Total net loss, including discontinued operations | $(675.8) million | $(3.31) billion |
| Adjusted EBITDA loss (non-GAAP) | $(58.9) million | $(208.6) million |
| Cash used in operating activities | $(282.0) million | $(557.5) million |
| Free cash flow (non-GAAP; continuing operations) | $(231.9) million | $(403.5) million |
Revenue fell 11%. Gross margin improved substantially, reflecting cost savings, fewer inventory write-downs and lower restructuring charges. Medical cannabis revenue in Canada rose 10%; Storz and Bickel revenue rose 9%, while Canada cannabis revenue fell 18%. Management attributes the revenue decline chiefly to divestitures and lower Canadian business-to-business sales. The reported net-loss improvement mainly reflects much lower impairments and other expenses, not profitability: the company remained loss-making and cash-flow negative.
At March 31, 2024, cash and cash equivalents were $170.3 million and short-term investments were $33.2 million, or $203.5 million combined before restricted investments. Total debt carrying value was $597.2 million; principal outstanding was $622.0 million. Total assets were $1.30 billion, total liabilities $799.8 million and shareholders’ equity $500.5 million. Debt principal repayments during FY2024 were $509.8 million. The secured credit facility matures March 18, 2026, with interest at prime plus 7.50% or adjusted term SOFR plus 8.50%, subject to floors.
Material changes and unusual items
- Cost of goods sold declined 45%, and selling, general and administrative expenses declined 33%. The company reported $80.9 million of gross profit, versus a gross loss the prior year.
- FY2024 included $65.0 million of net restructuring and impairment costs, including a $42.1 million goodwill impairment and a $9.0 million Storz and Bickel brand impairment. A gain on sale of a production facility partly offset charges. FY2023 included $2.28 billion of restructuring and impairment costs, including approximately $1.73 billion of goodwill impairment.
- BioSteel’s operating results are presented as discontinued operations, including a $192.1 million FY2024 net loss. Canopy Growth ceased controlling BioSteel entities through court-supervised CCAA proceedings and sold substantially all BioSteel assets.
- The company completed a 1-for-10 share consolidation in December 2023 and raised gross proceeds of US$25 million in September 2023 and US$35 million in January 2024 through unit offerings with warrants.
- After year-end, CBI exchanged its common shares for non-voting exchangeable shares; the associated $100 million promissory note was cancelled through an exchange. In May 2024, the company issued a $96.4 million senior unsecured convertible debenture, bearing 7.5% interest, in a transaction that also brought in approximately US$50 million and exchanged approximately $27.5 million of Supreme debt.
Outlook, risks and contingencies
Management says the cost, restructuring and financing actions alleviated the substantial doubt about the company’s ability to continue as a going concern raised in its December 2023 interim statements. It expects available cash to fund operating and capital needs for more than one year from the report date and says there is no material debt obligation due until March 2026, while also pursuing further cost savings and financing. The filing provides no clear quantified revenue, earnings or cash-flow guidance for FY2025.
Canopy USA’s U.S. cannabis interests are structured as non-voting, non-participating interests at Canopy Growth, and Canopy Growth says it cannot direct Canopy USA. Canopy USA exercised options to acquire Wana and Jetty on May 6, 2024; closings remain subject to customary conditions, including regulatory approvals. Acreage transactions also remain conditional. Acreage reported going-concern doubt and a debt default notice; Canopy Growth is evaluating a notice that could put its $38.0 million option premium at risk. Canopy USA was consolidated at March 31, 2024; Canopy Growth says it deconsolidated Canopy USA effective April 30, 2024 and will account for it as an equity-method investment, subject to accounting and regulatory considerations.
Other significant risks include ongoing U.S. federal cannabis prohibition and uncertain regulation, Canadian price competition and oversupply, refinancing and liquidity needs, potential dilution from equity and convertible securities, and the possibility of further asset impairments. The company is subject to an SEC investigation related to the BioSteel accounting review and shareholder litigation arising from prior financial-statement restatements. It also disclosed an arbitration claim seeking US$32.7 million; Canopy Growth disputes the allegations and cannot estimate a loss. Management reports that previously identified material weaknesses in internal controls were remediated as of March 31, 2024; management and the auditor concluded internal control over financial reporting was effective, and the auditor issued an unqualified opinion on FY2024 financial statements.
Most important facts for investors to verify
- Cash burn, unrestricted liquidity and financing needs after March 31, 2024; reconcile reported year-end cash with subsequent financing, debt exchanges and obligations.
- Debt principal, maturities, interest costs and covenant terms, including the effect of the May 2024 convertible debenture and potential dilution.
- Whether Canopy Growth’s Canopy USA accounting and deconsolidation treatment is accepted, and whether Wana, Jetty and Acreage transactions close and deliver the expected value.
- Developments in the BioSteel SEC investigation, related lawsuits and the US$32.7 million arbitration claim.
- Acreage’s ability to meet debt obligations, the status of default notices and whether Canopy Growth recovers or loses the option premium.
- Whether margin improvements and expense reductions persist as revenue declines and the company continues to report operating and free-cash-flow losses.