Canopy Growth Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 9, 2024

Key Takeaways

  • Canopy Growth is now 100% cannabis-focused after divesting This Works, achieving mid-30% gross margins for two consecutive quarters and significantly reducing its adjusted EBITDA loss.
  • The Canadian cannabis business posted its fourth straight quarter of revenue growth—up 10% year-over-year ex-retail divestiture—driven by high-quality flower sales and an additional 900 retail distribution points.
  • International medical cannabis sales doubled year-over-year, led by Australia’s 12th consecutive record quarter and growing shipments of Canadian strains in markets like Poland and the Czech Republic.
  • Storz & Bickel delivered a 54% sequential sales increase on the back of its new Venti portable vaporizer launch and the most successful Black Friday in its 20-year history.
  • Canopy USA is advancing its special shareholder vote on April 12 to create a U.S.-focused operating structure, positioning the company for potential acquisitions and upside from a Schedule III rescheduling.
AI Generated. May Contain Errors.
Earnings Conference Call
Canopy Growth Q3 2024
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good morning. My name is Joanna, and I will be your conference operator today. I would like to welcome you to Canopy Growth's 3rd Quarter Fiscal 2014 Financial Results Conference Call. To Sarah Perre, Vice President, Investor Relations. Sarah, you may begin the conference call.

Speaker 1

Thank you, Joanna. Good morning and thank you for joining us. On our call today, we have Canopy Growth's Chief Executive Officer, David Klein and Chief Financial Officer, Judy Hong. Before financial markets opened today, Canopy Growth issued a news release announcing the financial results for our Q3 ended December 31, 2023. The news release and financial statements have been filed on EDGAR, SEDAR and will be available on our website under the Investors tab.

Speaker 1

Before we begin, I would like to remind you that our discussion during this 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 the Canadian securities regulators 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 David and Judy, we will conduct a question and answer session where we will take questions from analysts.

Speaker 1

And with that, I will turn the call over to David.

Speaker 2

Good morning, everyone, and thank you for joining us to review Canopy Growth's Q3 fiscal 2024 results. The completion of our Q3 marks the dawn of a new era for Canopy. We're immensely proud of where we are today and feel strongly that Canopy is positioned for lasting leadership. We're 100% cannabis focused. We're demonstrating consistent growth across each of our business units and we have a definitive meeting date scheduled for our shareholders to consider an amendment to our to create a new class of non voting, non participating exchangeable shares, which we expect to advance the Canopy USA structure.

Speaker 2

Let's now review our rightsized cannabis focused business. With the divestiture of This Works in December 2023, Our last non aligned enterprise, Canopy Canopy is now 100% cannabis focused and purpose built for the markets of greatest opportunity. By focusing exclusively on cannabis and rightsizing our footprint, We've strengthened our path to delivering sustainable operating profit and ensure we are well positioned to capitalize on what we feel is the greatest consumer trend of our lifetime. And while we're looking to the future with optimism, let's first review the dramatic and measurable improvements in the performance of our business that these actions produced. To summarize, we've cut Canopy to size and are now delivering on improved gross margins, enhanced commercial execution and are focused on demonstrating growth across all of our business units.

Speaker 2

This has enabled us to significantly improve our overall gross margins with Q3 marking the 2nd quarter in a row of margins in the mid-30s at the total company level. From this strengthened base, we're generating growth backed by enhanced execution and consistent high quality products. In Q3, our Canadian cannabis business delivered its 4th straight quarter of revenue growth and is up 10% year over year when excluding the divestiture of our retail business. There are several contributors to this growth, but at the core we're continuing to deliver great flower that is being very well received by Provincial Cannabis Boards, retailers and most importantly consumers, not to mention our staff. This is further validated by growth in our distribution with an incremental 900 points added nationally during the Q3, thanks to the quality of our flower offerings.

Speaker 2

I really can't overstate how proud we are of our flower and demand for our high quality strains such as Tweeds, Cushman's and Tiger Cake remained at an all time high and has us selling every gram we can produce. When it comes to flower, we feel that our platform is now dialed in And then we've got a pipeline of high quality cultivars in market and soon to come from both Tweed and 7 Acres. And to meet the ongoing high demand for our flower, we're also working on ways to further increase yield from our production platform. We've also developed a robust new product introduction cycle to win market share across priority categories including pre rolls, vapes and softgels. In pre rolls, we're going to continue our record of success by launching new large packs, infused pre rolls and burners over the coming In addition, we have an exciting lineup of Tweed and 7 Acres vape products coming to market with differentiated flavor profiles And we expect to truly delight consumers as we step firmly back into the vape category.

Speaker 2

Shifting to softgel is an area of historic expertise at Canopy, We see significant potential to win share through recently launched and soon to come Softgel products featuring larger pack sizes and unique cannabinoid ratios. In addition to being a high margin category, Softgels provide consumers the discrete, convenience convenient and affordable method of precisely dose cannabis consumption And we feel Canopy is well positioned to achieve category leadership. Finally, as the foundation of our edibles portfolio, we relaunched Wana in the 3rd quarter across Canada with very active retailer engagement. We also expect to drive additional growth through the introduction of new WANDA products that address specific gaps in the current Canadian edibles market. Shifting to our Canadian Medical business.

Speaker 2

This has an important margin enhancing pillar of our Canadian strategy. We're especially proud of our medical team as they continue to drive ongoing assortment expansion in the Spectrum store, including a wide range of exclusive products all backed by exceptional patient service. This strategy has led to record revenues on a daily, weekly, monthly and quarterly basis including in the Q3. And importantly, these record revenues were achieved while improving margins. Sticking with medical, but shifting to our rest of world cannabis business, we reported another strong quarter with revenues doubling year over year.

Speaker 2

Our Australian team delivered its 12th consecutive quarter of record revenue. Additionally, shipments of proven Canadian strains including Cushman's, Tiger Cake and OG Deluxe as well as increased educational training with medical practitioners contributed to growth in our Australian, Polish and Czech medical cannabis sales in Q3. Finally, we think there's a ton of growth possible across international markets where we're already active and expect consistency of our flower supply And the onboarding of new distribution partners will continue paying dividends across our International Medical Cannabis Business. I'm pleased to report that Storz and Bickel also delivered a strong 3rd quarter, driven by demand for the new Binti portable vaporizer, as well as the most successful Black Friday in the company's 20 year history, generating sales across Storz and Bickel's entire portfolio. In fact, the promotional week showcased a remarkable 55% increase in the number of devices sold versus last year, including driving strong Venti sales despite the device not being discounted.

Speaker 2

Speaking of the Venti, I really can't say enough about this device. It's the best portable vaporizer experience available. I continue to be amazed by how quickly it heats up, But even more, the vapor throughput, which at 20 liters a minute is the closest thing you're going to get to the legendary volcano experience in a portable option. Don't just take it from me, the reviews and consumer demand for this device has exceeded all our expectations And Aventi is rapidly claiming its hero status within the portfolio. In fact, after our initial production run, we've had to add a second shift to further increase capacity and ensure availability matches the consumer demand, which shows no sign of slowing.

Speaker 2

Much like the iconic volcano, we expect Aventi will be a central pillar of the Storz and Bickel portfolio in the long term. As with the rest of the S and B product lineup, it's important to reinforce that these products are truly premium and command a price point reflecting their quality. In some, our commercial businesses are demonstrating momentum and delivering impressive results. So let's talk about Canopy USA. Simply put, we're moving forward.

Speaker 2

We're pleased to report that we will be filing our definitive proxy statement on or around February 13, Setting up a special shareholder vote for April 12. Following a successful shareholder vote, Canopy USA will be able to proceed with its anticipated acquisition of Jetty, Buena and Acreage, finding synergies to accelerate growth through a unified multistate operating business. Looking further to the U. S. And the potential impact of regulatory reform on our strategy, As many of you know, in August, the Department of Health and Human Services communicated its recommendation that cannabis be rescheduled to Schedule 3.

Speaker 2

This was a welcome development and we are cautiously optimistic that the DEA will in the near term provide its recommendation and initiate this process. Moving cannabis to Schedule 3 would be a significant boost for the U. S. Assets held by Canopy USA and for Canopy Growth. Through the removal of Section 280E, we expect value appreciation across our U.

Speaker 2

S. Assets, which would see a significant financial boost through reduced corporate income taxes, improved cash flows and strengthened balance sheets. We also believe cannabis being moved to Schedule 3 would build momentum behind other efforts to reform cannabis regulations in the U. S. And while we continue to advocate for these high potential catalysts, We remain focused on operating our business and demonstrating growth today.

Speaker 2

We are a company with a resolute focus on cannabis, attractive gross margins, lower operating expenses, a growing top line and a significantly stronger balance sheet. Canopy USA is moving forward and we look forward to a successful shareholder vote on April 12. In summary, We believe Canopy offers shareholders a unique opportunity to gain exposure to arguably the most exciting consumer product trend of our time into the fastest growing cannabis markets in the world. With that, Judy will speak to further details of our financial results.

Speaker 3

Thank you very much, David, and good morning, everyone. I will start by reviewing our Q3 fiscal 2024 results, including the significant year over year progress we've continued to make across our P and L this year. I'll then discuss additional actions we've taken improve our balance sheet and cash flow, followed by our priorities and outlook for the balance of fiscal 2024. Let's begin with our Q3 results. Q3, like Q2 before, demonstrated the substantial improvement in profitability and cash burn reduction that our right sized cannabis focused business can deliver.

Speaker 3

Canopy delivered Consolidated net revenue of $79,000,000 in Q3, which is up 6% compared to Q3 of last year when excluding Canada retail divestiture. Main drivers of revenue excluding retail divestitures were Canadian cannabis revenue increased 10% compared to a year ago and were up sequentially from Q2. Rest of World Canada sales grew by 81% year over year in Q3 and Storz and Bickel grew its revenue by over 50% compared to the last quarter driven by the launch of Venti. Consolidated gross margins in Q3 was 36%, a significant improvement compared to 6% last year. The biggest driver of improvement was the business transformation initiatives executed in Canada, which have meaningfully reduced Canada operational costs.

Speaker 3

Q3 adjusted EBITDA was a loss of $9,000,000 an improvement of 82% versus last year and a 25% improvement over the $12,000,000 adjusted EBITDA loss in Q2 of fiscal 2024. And free cash flow was an outflow of $34,000,000 an improvement of $44,000,000 compared to Q3 of last year nearly a 50% improvement versus the last quarter. I'd like to now review the results by our key businesses in more detail, including progress against our path to profitability. 1st, Canada. Q3 net revenue was $40,000,000 The 3rd quarter in a row of sequential quarterly revenue growth.

Speaker 3

Canadian medical sales continued to grow strongly, increased in 11% compared to last year, driven by increased assortment of high quality products, including the introduction of Wanna brands that began in August. Our adult use B2B business was up 9% compared to last year With the revenue growth during the quarter driven mostly by the growth of large pack flower offerings from Tweed as well as addition of Wanna Edibles. Canada gross margin in Q3 was 28% and cash gross margin adding back non cash depreciation cost and cost was 40%. Similar to the last quarter, the biggest driver of year over year improvement is the cost reduction from the Canadian Business transformation initiatives. Our efforts drove reduction in flower costs, direct manufacturing costs and overhead expenses And we continue to see material reduction in excess and obsolete inventory expenses as we have aggressively right sized our inventory.

Speaker 3

We're also pleased to see our Canadian business on track to achieve mid-thirty percent cash gross margin performance in fiscal 2024. Rest of the world cannabis sales increased 81% year over year. Australia had its 12th consecutive record revenue quarter growing over 32% year over year, Poland grew revenue by over 60% and Germany also returned to double digit growth year over year aided in part by improved flower shipments. Rest of world gross margin was 40%, driven by year over year improvement in margin performance in our Australian business due to product mix as well as lapping negative impact in non core markets during the prior year period. Store and Mickel revenue of $18,000,000 in Q3 was up 54% sequentially, were down 9% year over year.

Speaker 3

Sales during the quarter benefited sequentially from strong consumer demand for new venti portable vaporizer that was launched in Q3. Initial demand for venti exceeded production, though sales were constrained early in the quarter And we added a second production shift to better align production with demand. Black Friday period sales for stores of Bickel brand were very strong, resulting in the brand's most successful Black Friday sales campaign ever in its history. Sales on a year over year basis were impacted by reduced shipments to the U. S.

Speaker 3

Due to continued financial challenges faced by distributors. Tourism vehicle gross margin was 51% compared to 45% last year, in part due to lower input costs and a positive mix shift with Venti carrying higher gross margins than the rest of the portfolio. With the divestiture of this work from December 18, 2023, we included revenue for this work sales between October 1, 2023 December 17, 2023. As a result, We reported Vifor's revenue of $8,000,000 in Q3, essentially flat compared to the prior year, which included the full quarter of revenue. Q3 fiscal 2024 adjusted EBITDA loss was a negative $9,000,000 an improvement of $42,000,000 compared to a loss of $50,000,000 a year ago.

Speaker 3

I would note that this is our best adjusted EBITDA quarter since fiscal 2017. The improvement is driven primarily by additional cost reduction of $36,000,000 realized during Q3 as well as focused execution driving profitable growth across our businesses. Now looking at our SG and A expenses more closely, Selling and marketing, G and A and R and D expenses declined by a combined $26,000,000 or 38% compared to a year ago as a result of our cost reduction program. Through the strategic transformation initiatives announced In April 22 February 2023, Canopy has now realized $262,000,000 of cumulative cost reductions Well on our way to achieve our targeted cost savings of $270,000,000 to $300,000,000 Our cost discipline along with the expectation for continued growth in our businesses give us confidence in our target of achieving positive adjusted EBITDA in all of our business units exiting fiscal 2024. I'd like to now review our cash flow and balance sheet.

Speaker 3

Free cash flow was an outflow of $34,000,000 in Q3, which includes $21,000,000 in cash interest payment and $1,000,000 in CapEx. During Q3, We further delevered the balance sheet, reducing an aggregate principal amount by CAD65 1,000,000 for a cash payment of CAD63 1,000,000 with the proceeds from the asset sale, including the proceeds from the Biosteel assets completed during Q3. In January, we also completed a USD 35,000,000 private placement, majority of which we expect to use towards additional debt reduction. Turning to the balance sheet. As of December 31, 2023, we had $186,000,000 in cash and short term investments and total debt of $612,000,000 resulting in net debt balance of $426,000,000 Following the series of balance sheet actions we've completed over the past year, we have significantly strengthened our financial position.

Speaker 3

1st, while the short term this mostly relates to the promissory note with Constellation Brands. We expect this note to be settled in equity, thus preserving cash on our balance sheet. Within our long term debt balance, Our senior secured term loan now stands at USD383,000,000 and is due in March of 2026. This is a reduction of USD367 million from the original loan amount. Remain focused on executing additional activities to further deliver on our commitment to improve our financial position over the coming months.

Speaker 3

And reflecting these factors, we expect our total debt to be around $520,000,000 at the end of fiscal 2024 with minimal short term obligation. I'd like to now provide our key priorities and outlook for the balance of fiscal 2024 and into fiscal 2025. In Canada Cannabis, we remain firmly on a path to achieving profitability and are focused on accelerating top line growth on the back of strengthened product portfolio as we close out fiscal 2024 and enter fiscal 2025. In Rest of World Cannabis, we expect to see growth in our key priority markets of Australia, Germany, Poland and Czech Republic And we remain focused in ensuring consistent supply of high quality products as well as launching new products into these markets in the near term. For Storz and Bickel, with production of the new Venti portable vaporizer having ramped up during Q3, We expect to see strong Venti demand to offset the seasonally softer sales that we typically experience in the Q4.

Speaker 3

SMB Australia sales could also see some impact from the upcoming regulation changes on Vapes. From a cash flow standpoint, We expect our cash from operations to continue to show year over year improvement driven by further reduction in adjusted EBITDA loss and lower interest expenses. In closing, we believe our Q3 results reinforce our confidence, but we now have a solid foundation in place to achieve profitability and drive profitable growth and enhance shareholder value over time. This concludes my prepared comments. We'll now take questions from analysts.

Operator

Thank you. Ladies and gentlemen, we will now begin the question First question comes from Michael Lavery from Piper Sandler. Please go ahead.

Speaker 4

Thank you. Good morning and Congrats on a lot of the progress you just laid out.

Speaker 3

Good morning, Michael.

Speaker 4

Would love to just get A little bit of better market color on the pricing environment in Canada and just some of the ways you're managing that and how that outlook looks?

Speaker 2

Yes. So I think, Michael, there's still price compression in some of the categories. And the way we're really managing it, I think is making sure that we're thinking about pricing almost from a tiered standpoint. So there are some areas where we need to be price competitive, because the market is taking us there. And then there are some areas where we can't produce enough product to meet consumer demand.

Speaker 2

And so, we've actually had some instances where we take price make price increases. So it really is kind of managing the mix across the portfolio. But yes, there's it's still There's still some pressure in the marketplace.

Speaker 3

I'd also say despite the price compression and obviously we are also seeing that in our P and L to some extent, but We're definitely seeing gross margin improvement in part because we're shifting our mix. So product categories where it's more profitable, we're really leaning in there with better margins. And also we're looking at ways of continuing to save find savings on our cost. So our cultivation costs are down year over year, but we're looking to even improve our cost more. So as we're seeing some of that price compression, we can more than offset that and see the variable margins improvement across our portfolio.

Speaker 3

And then I think lastly, our Medical business, as you know, is a very high business to begin with and we're also actually seeing margin improvement in that part of the business with some of the product mix improvement that we're seeing in that platform as well.

Speaker 5

That's helpful. And

Speaker 4

Where you've been able to take price, can you give a sense of the magnitude? I'd imagine it's relatively modest, But maybe I'm wrong there.

Speaker 2

Yes, it's really just Michael, it's aligning kind of the with the competitive set and with kind of consumer expectations. And so there I guess, It's so hard to come up with a specific example, but if you look at, say, our Wanna offerings, we're going to be very competitive with our classics from a pricing standpoint, but as we bring innovation to market like our quick formulation, we make sure that we're pricing that at a premium. So it really is It's almost on a SKU by SKU basis.

Speaker 4

Okay, great. Thanks. I'll pass it on.

Operator

Thank you. The next question comes from Tamy Chen at BMO Capital Markets. Please go ahead.

Speaker 6

I'm sorry about that. Hi. Good morning. This is Emily Tejas.

Speaker 1

Alright. Good morning.

Speaker 6

Yes, good morning. I've hit the wrong button. So, thanks for taking my questions. So, As we know yesterday, one of your competitors acquired their Australian medical business. And you pointed out in your prepared remarks that the rest of the world gross margin was really primarily driven by the Australian gross margin there.

Speaker 6

And we noted that in Q3 this quarter, the margin really jumped versus the previous 2 quarters, which was 30%, 30 ish percent and now this quarter is 40%. So we really want to dig into maybe the puts and takes in that gross margin number. And also what are your plans that you want to share with us about Australia that could talk about the attractiveness of that market for you? Thank you.

Speaker 3

Sure. I'll start, Tammy. So if you looked at our Rest of World business, I would point out a few things. 1, Historically, you're right that there was a lot of lumpiness in the gross margin performance in there, mostly driven by non core markets, Frankly, I think you know we include our U. S.

Speaker 3

CBD business in that line item and we've really tightened our focus and went through some strategic changes in our U. S. CBD business and the changes there have impacted the gross margins as well as the revenue in some of the quarters. We also historically had bulk shipments to some of the markets outside North America and That also created volatility in the gross margin performance as well. So I think when you look at Q3 performance, I'd say it's relatively a clean quarter in engaging our gross margin performance.

Speaker 3

We are looking at Australia on a year over year basis seeing improved margin performance as their product mix is improving. But even in Europe, we are also seeing the margin improvement there as well. The one thing to call us from an Australia business standpoint, in our Australian business, we also have sales that go through just from a reported segment standpoint to the Australia Sales is part of our Rest of the World sales and the stores and pickle business frankly has really grown strongly in Australia. So I think the combination of really strong growth in the flower business in Australia as well as growing business in stores of nickel, But now the improvement we're seeing in markets like Germany give us confidence that the margins that we're seeing today should be sustainable going forward.

Speaker 6

Great. Thanks so much.

Operator

Thank you. The next question comes from Aaron Grey at Alliance Global Partners. Please go ahead.

Speaker 7

Hi, thank you very much for the questions. First question for me, certainly appreciate the ongoing situation back and forth between SEC and the exchanges regarding Canopy USA. So just wanted to clarify, just in terms of some of

Speaker 8

the disclosures in MD

Speaker 7

and A, It seems like some of your combos with the OCA from the SEC that you expect with the new agreement that they'll then agree with the deconsolidation of Camp USA. So first, can you just clarify that you believe with the filing in February, you'll be able to get more clarity on that before the vote in April? And then second, could you provide any additional color in terms of the level of potential supplemental information you might be able to provide in terms of how the company would look with Canopy USA on a pro form a basis even if it's not going to be consolidated? Thank you.

Speaker 2

Yes. So, we as We indicated in our remarks, we'll be filing our definitive proxy this week and all of the information that you could want to know will be available in that. And we will be filing financial statements once we close for Canopy USA, even though as you said, it won't be consolidated into our financial results. So our investors will see the entire picture in those financial statements. I also want to make sure that whenever we talk about Canopy USA that we're talking about The benefit of Canopy USA.

Speaker 2

So I know there's just a lot of interest in terms of how we will structure that business. But For me, the benefit is really having some really strong brands combined with capabilities in some really big markets to create a real focused brand led sort of business in the U. S, which is an extremely attractive and profitable cannabis market.

Speaker 3

The only thing I would also just add is Even though Canopy Growth will not be consolidating the interest in Canopy USA, I think you know that Canopy Growth will own a significant financial interest in Canopy USA. So really the benefits of Canopy USA creating value By owning an operating platform, once they are able to exercise the options and trigger on Owning 1, Jettie and Acreage, the value accretion at Canopy USA, we think is really an attractive proposition for Canopy Growth shareholders as well.

Speaker 7

Thanks for that color. I appreciate that and definitely look

Speaker 2

forward to talking more about the performance of

Speaker 7

the business versus the optics of how it's disclose on the financials. Quick second one for me, if I could. Just in terms of the guidance to reach EBITDA profitability as you exit the fiscal year. Just if you could help us maybe triangulate some of the drivers to reach EBITDA profitability as you exit the year. You divested the This Works business that had held the gross margins, but not sure if it was a drag at the EBITDA level.

Speaker 7

And there's other notable drivers. You talked about the cost savings. You've now had $262,000,000 cumulative versus I believe $227,000,000 last quarter. So just if you could help us put how you're reaching that in terms of potential gross margin or SG and A savings that will start to actually flow through the P and L and help us reset, I think that'd be very helpful there. Thank you.

Speaker 3

Sure, sure, Aaron. So I'd say there are few levers. One is, I think we do have some remaining cost savings that are left in the program, we remain confident that we'll fully execute and generate those savings in the coming months. The second driver is, look, I think our businesses are now really delivering profitable growth. So as top line grows And gross margin improves even with our base businesses, even without some of the cost reduction that we've announced previously, We now have a right sized cost structure that those top line revenues should really drive a stronger EBITDA growth going forward.

Speaker 3

So I'd say that's the second driver is really the strong base business growth that we continue to expect to be sustained on a go forward basis. And then lastly, we are looking at continued efficiencies across our Austin, particularly looking at some of the G and A on the corporate cost side. So we do think that there is opportunities to continue to streamline our corporate costs to make sure that we are Looking at really a positive adjusted EBITDA on a go forward basis for all of our business units, We're still finalizing our fiscal 2025 plan, so we'll provide more details on the profitability outlook for fiscal 2025 as we report our Q4 results in May.

Speaker 7

Okay, great. Thanks for the detail. That's really helpful. I'll go ahead and jump back into the queue.

Operator

Thank you. The next question comes from John Samparo from CIBC. Please go ahead.

Speaker 9

Thank you. Good morning. I wanted to ask about Storz and Bickel and I appreciate the sequential improvements. It sounds like you're very excited about this business and new products that are coming out, but the revenue was down 8% year over year, presumably that's with some pricing embedded into it and that included a product launch. So I'm just wondering if you could add some color on that business and provide some framework on what you

Speaker 2

Yes. So John, I'd like to just kind of set the stage. I just want to point out that has doubled in the past 4 years, doubled at the top line level. So we're seeing reasonably consistent growth across the business. I would say that our results in Q3 were held back a little bit by the late launch Venti, which happened late in the quarter.

Speaker 2

And so there was a fair amount of production activity and programming activity around the Venti launch and we exited the quarter with a substantial backlog of units, which we're working our way through right now, right? So over its history, We see growth coming from Storz and Bickel from new product launches like the Venti launch. And we've also seen growth from Storz and Bickel as a result of distribution growth. And as you know, The U. S.

Speaker 2

China distribution tier, it has been under duress for the last couple of years, meaning the tier that takes products into vape shops across the United States and that's caused us some pain over time, but we think that we can get back into distribution growth in the U. S. In the near future. And then combined with the launch of and some potential future innovation, we think the prospects are very bright for that brand. I'd also point out that when we launch a brand like Venti, That is margin expanding, because we set up the new launches, so that it improves the overall mix.

Speaker 3

Yes. And to add to David's point just on margins, even though revenue was down year over year, gross profit dollars were actually up year over year. So I think that continues to show the evidence that we're really leaning in on profitable growth. And I think even towards the bank where you're seeing that profitable growth really come through with gross profit dollar up on a year over year basis.

Speaker 9

All right. That's helpful. Thanks. And then I wanted to follow-up on Aaron's question about profitability plans and cost savings. And I guess you answered it, but just to clarify, it sounds like you expect both sales growth and additional cost cuts, but do you think you can get to positive EBITDA on Consolidated basis, in the event you don't achieve the sales growth you want, do you have confidence you can get to the high end of your cost savings plan?

Speaker 9

And would that require additional actions if that was the case or are those actions already taken that you're just waiting for these additional costs to flow through the P and L?

Speaker 3

Look, I mean, John, I'd say our businesses have now a strong foundation for profitability. I think there is Evidence that from a gross margin standpoint, you're seeing improvement not just from a cost reduction perspective, but the growth And the mix improvement that's also driving profitability improvement. And that's not just in Canada, but you see that in Rest of World and stores and vehicle businesses as well. It's a one area is we are a public company cost. So there are costs that are just related to being a public company cost and We're actively and then we've already identified some of the opportunities in areas of cost savings there.

Speaker 3

And that will be continued to be an area where we'll focus on as we really drive towards that profitability targets. But as we said in our prepared comments, we do believe that we will exit fiscal 2024 with all of our business units being profitable. So we're really pleased with the performance so far.

Speaker 9

Okay, understood. Thanks very much. I'll pass it on.

Operator

Thank Question comes from Bill Quirk from Roth MKM. Please go ahead.

Speaker 8

Hey, thanks for the questions. I want to go back to something that you just said, Judy, just for clarification. So all business units adjusted EBITDA profitable. Does that mean consolidated profitable or are there unallocated expenses maybe at the corporate level that would make consolidated EBITDA negative even if all business units were EBITDA positive?

Speaker 3

So Bill, we don't break out segment information at the adjusted EBITDA level. So all I can say is we Obviously, our goal is to be profitable at the consolidated level. As I said, we feel that we are on track to achieve profitability at the business unit level exiting FY 2024. Does that mean the full quarter is profitable? Does that mean If the consolidated adjusted EBITDA is profitable, there is still some areas that we just need to see how that plays out.

Speaker 3

I would also point out there is some lumpiness in some of the corporate calls that sometimes sits on a quarter over quarter basis. So Those are all the things that they were really focused on mitigating. And I think I would just say, in my view, the performance of the business are very encouraging in terms of the top and bottom line growth. And obviously, we're focused on generating positive adjusted EBITDA across all of our businesses as we exit fiscal 2024.

Speaker 8

And I mean, I think to your point, that's the best adjusted gross margin since Canadian legalization, I think. And so I guess what was the big surprise when you did 3Q or when you talked a couple of months ago about 3Q, you said you expected gross margins to be adjusted gross margins to be in the mid-20s. So what was new from when you had that expectation? I mean, I imagine some of the cost saving stuff was knowable a few months ago about 3Q. So what's really new from mid-20s to 36?

Speaker 3

Sorry. So Q2, I think our gross Margin in Canadian Business was in the mid-30s. This quarter reported gross margin of 28%.

Speaker 8

Sorry, when you At 2Q, you guided 3Q gross margins to the mid-20s, if I remember correctly, right? So when you last reported, you said 3Q?

Speaker 3

Yes. So the Canada gross margin was 28%. The consolidated gross margin was in the mid-thirty percent. I'd say stores of mid Margin probably did come in a bit better than we expected, partly driven by obviously the VINCI and then some of the benefits from lower material cost as well. I'd say even Canadian margins probably came in a bit better than we expected.

Speaker 3

I think I did call out last quarter where we said we had some benefits Some opportunistic use of lower cost inputs. We had some of that lingering benefit in Q3, so that helped Q3 gross margin performance in the Canadian business a little bit better than we anticipated at that point in time as well.

Speaker 8

I appreciate that. Thank you.

Operator

Thank you. The next question comes from Matt Bottomley from Canaccord. Please go ahead.

Speaker 5

Good morning, everyone. I just wanted to get a little more commentary, if you can provide your overall outlook on sort of your Canadian Domestic operations, clearly, we've seen a bit of softness to end the year, at least at the retail cell level in Canada. And the overall medical opportunity seems to be flat to declining. So I know you saw some decent year over year growth this year for in the quarter. But I'm just curious if you can give a 12 month outlook as to how notable, if at all, the domestic operations will be as a growth driver for the company?

Speaker 2

I think we believe that with the gross margins we're now delivering, Our area of focus now is on how to drive growth, right? And so for us, think it's just continuing to build on what we've done to date in terms of the strains we have in the market, in terms of some NPD that we have on the virtue of bringing into the market, in particular, as I said in my script, building on Some of the momentum we've had in pre rolls, leading into soft gels a

Speaker 5

little bit

Speaker 2

and then coming back into the vape space more aggressively than we've been in the past. We also think that there's a lot of distribution opportunity for our brands across the marketplace. So I think that it's more around the lines of having good margin products that are resonating with consumers and executing in all aspects of our go to market strategy. That's how we see ourselves continuing to grow in Canada, in particular addressing the adult use sector.

Speaker 3

And on the medical side, I'd say the market has been declining, but we've been growing and gaining market share in the medical market. So from that respect, we think that there is continued opportunity to grow our medical business, a lot of the growth is actually coming from increased basket sizes. So we actually are seeing patients order more products on our platform and I think that's a function of an increased product assortment that we have now in our Spectrum store. And so we would continue to see that driving growth in our medical platform.

Speaker 5

Got it. Thanks. And then just one more for me, now switching just on to the international side of things. So there's been a lot of constructive commentary With respect to the outlook in certain markets in the EU, I know Australia has been mentioned and someone referenced the deal that was mentioned yesterday. One of the U.

Speaker 5

S. MSOs has been pretty constructive on the international side of things. So just considering that on a trailing 12 month basis, there's been a lot of focus on sort of the balance sheet and there's been dispositions, do you think there's an ability or need to deploy any capital into some of these markets in advance of regular changes? Or do you think that The runway is long enough where that might not be a primary focus for Canopy in the near term?

Speaker 2

Yes, I mean, I would say that given our experience of kind of being the first one into markets, I think We'll be very careful with any capital that would get deployed into international markets. What we will, however, do is really lean into the areas where we are operating and operating well like Australia, like Germany, like Poland, like Czech Republic by bringing really strong product offerings to market with a very focused team. But I think we We'll remain asset light most likely in the international markets and make sure we can grow in Canada and focus on the U. S.

Speaker 9

Okay. Thanks for that, guys.

Operator

Thank you. There are no further questions. I will now turn the call back to David Klein for closing comments.

Speaker 2

Thanks for attending today's conference call. Appreciate the questions. To wrap up as we started, we're singularly focused on cannabis. Our businesses are growing and demonstrating healthy margins and Canopy USA is moving forward. We're proud of where we are as well as where we're going and I feel confident that Canopy offers a real unique option for exposure to the growth of the world's cannabis markets.

Speaker 2

Our Investor Relations team will be available to answer additional questions. Have a fantastic day.

Operator

This concludes Canopy Growth's 3rd Quarter Fiscal 20 24 Financial Results Conference Call. A replay of this conference call will be available until May 9, 2020 and can be accessed following the instructions provided in the company's press release issued earlier today. Thank you for attending today's call.

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