Canopy Growth Corporation · TSX:WEED
Canopy Growth — Investor Day (June 2020)
51 slides from Canopy Growth's investor day presentation, Jun 22, 2020
Slide 1: Canopy Growth Virtual Investor Meeting
CANOPY GROWTH VIRTUAL INVESTOR MEETING June 22nd, 2020
Slide 2: Disclaimers and Cautionary Statements
DISCLAIMERS AND CAUTIONARY STATEMENTS This presentation contains “forward-looking statements” and “forward-looking information” within the meaning of applicable U.S. and Canadian securities laws (collectively, “forward-looking statements”), which involve certain known and unknown risks and uncertain
Slide 3: Non-GAAP Measures
NON-GAAP MEASURES Adjusted EBITDA is a non-U.S. GAAP measure used by management that is not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. Adjusted EBITDA is calculated as the reported net loss, adjusted to exclude income tax recovery (expense), othe
Slide 4: Agenda
AGENDA • Introduction and Strategy Update o David Klein, CEO • Remarks from Canopy Growth Leadership Team o Rade Kovacevic – Chief Product Officer o Chris Edwards – Chief Insights Officer o Julian Cohen – Chief Innovation Officer o Mike Lee – Chief Financial Officer • Fireside Discussion with Canopy
Slide 5: Introduction and Strategy Update
INTRODUCTION AND STRATEGY UPDATE David Klein CEO 5
Slide 6: Clear Destination
CLEAR DESTINATION UNLEASHING THE FULL POTENTIAL INSIGHTS AND FOCUS OF CANNABIS INNOVATION MARKETS SIZEABLE SHARE IN FOCUS CONSUMER CATEGORIES AND MARKETS QUALITY INDUSTRY EXECUTE PATH EXECUTION STANDARD TO PROFITABILITY 6
Slide 7: Focused Strategy
FOCUSED STRATEGY INSIGHTS AND INNOVATION FOCUS MARKETS • Prioritize three core markets-Canada, US, • Know everything about the consumer Germany • Already best-in-industry science • Asset-light models in APAC or LatAm • Focus and re-deploy against commercial • Medical focus on wellness and OTC opport
Slide 8: Reasons to Believe
REASONS TO BELIEVE ü Global leader in high growth industry ü Strong foundation ü Focused strategy ü Passionate and talented team ü Renewed culture aligning for profitable growth 8
Slide 9: Remarks by Chief Product Officer
REMARKS BY CHIEF PRODUCT OFFICER Rade Kovacevic Chief Product Officer 9
Slide 10: Remarks by Chief Insights Officer
REMARKS BY CHIEF INSIGHTS OFFICER Chris Edwards Chief Insights Officer 10
Slide 11: Remarks by Chief Innovation Officer
REMARKS BY CHIEF INNOVATION OFFICER Julian Cohen Chief Innovation Officer 11
Slide 12: Remarks by Chief Financial Officer
REMARKS BY CHIEF FINANCIAL OFFICER Mike Lee EVP & CFO 12
Slide 13: Fireside Discussion
FIRESIDE DISCUSSION David Klein Rade Kovacevic Mike Lee CEO Chief Product EVP & CFO Officer Chris Edwards Julian Cohen Chief Insights Officer Chief Innovation Officer 13
Slide 14: Topic 1. Total Addressable Market Opportunity
TOPIC 1. TOTAL ADDRESSABLE MARKET OPPORTUNITY What is the Total Addressable Market opportunity for Canopy over the next few years? 14
Slide 15: Global Cannabis TAM Opportunity Is Immense
GLOBAL CANNABIS TAM OPPORTUNITY IS IMMENSE 100% 90% 80% Cannabis TAM, By Country 70% Focus Market Global TAM for cannabis 60% expected to approach $70BN in 50% retail sales by CY2023 40% 30% • 20% US, Canada, and Germany to 10% account for ~90% of global TAM 0% UK CBD US CBD Italy Med Canada Med Spa
Slide 16: CGC's Core Markets to Reach $22BN Sales by 2023
CGC’S CORE MARKETS TO REACH $22BN SALES BY 2023 15,000 CGC Focus Market TAM Growth 6X Total TAM retail sales for Canada, 10,000 US CBD, and Germany: $22B by 2023 • 5,000 4X Over $60BN in TAM upon US federal permissibility 10X 0 Canada US (CBD only) Germany 2019 2020 2023 Source: CGC Internal Estimat
Slide 17: Drivers of TAM Growth
DRIVERS OF TAM GROWTH Convert to Legal from Illicit: Less than 40% of Canadian consumer say they buy cannabis in legal dispensaries Legal market could become 85% of total Cannabis Growth in store count a key driver of legal market growth Recreational sales in Canada by 2023 100% 2,000 90% 1,800 Lega
Slide 18: Drivers of TAM Growth
DRIVERS OF TAM GROWTH Recruit new consumers through 2.0 products: Cannabis Beverages, $1,300 17% of Canadian adults say they Functional intend to use recreational Beverages (Non- cannabis Alcoholic), $2,000 • 5% of total alcoholic beverages Alcoholic and functional beverages equate Beverages, to a $
Slide 19: Topic 2. Market Share Aspiration-Canada
TOPIC 2. MARKET SHARE ASPIRATION-CANADA What is the outlook for the Canadian recreational business and how does Canopy intend to drive leading market position in an increasingly competitive market? 19
Slide 20: We Are a Leading Share Player in Canada Rec
WE ARE A LEADING SHARE PLAYER IN CANADA REC Estimated CGC Market Share Rank (Sept 2019 - April 2020) YTD1 CY20 % Total Provinces Sales Sept Oct Nov Dec Jan Feb Mar April ON 25% NS 4% PE 1% Top 3 in Market Share Outside of Top 3 in Market Share Source: Provincial Sales Reports sourced from ON, PEI, a
Slide 21: Near-Term Focus to Drive Market-Share Growth
NEAR-TERM FOCUS TO DRIVE MARKET-SHARE GROWTH KEY OPPORTUNITIES KEY ACTION PLAN A more focused portfolio of • SKU rationalization products • Refine pricing and packaging strategy for Twd. Improve our share in the growing value segment • Increase production capacity for edible and beverages Win in 2.0
Slide 22: A More Focused Product Portfolio
A MORE FOCUSED PRODUCT PORTFOLIO Kg Shipped and % of total KG Shipped by SKU1 ~30% of SKUs have accounted for 80% of Canada Recreational shipments to date • Initial SKU rationalization reduced count by 30% • Further reductions likely 1. October 17, 2018 to February 7, 2020, does not include new 2.0
Slide 23: Intensifying Competition Within Value Segment
INTENSIFYING COMPETITION WITHIN VALUE SEGMENT Value flower segment has grown significantly Competition in the value flower segment since Q3 CY19 has over past three quarters caused significant market shifts Quarterly Flower Performance by Price Tier Quarterly Brand Market Share within Value Segment
Slide 24: Improve Our Share in the Growing Value Segment
IMPROVE OUR SHARE IN THE GROWING VALUE SEGMENT • Short-term action plan: improve competitiveness of Twd. o Market-specific pricing adjustments o Twd. pack sizes-increased focus on 7g, 15g, and 28g in select markets o Higher and tighter THC ranges o Nationwide rollout began late May, expect to be com
Slide 25: Win in 2.0 Product Segments
WIN IN 2.0 PRODUCT SEGMENTS 2.0 products now account for 25% of total Rec sales in Ontario Our 2.0 product sales mix is also increasing 30% Edibles Beverages Vape 25% Q4 FY20 THROUGH W11 FY21 20% 15% 10% 5% 0% Jan-20 Feb-20 Mar-20 Apr-20 May-20 Beverages are garnering increasing share of edibles sin
Slide 26: Win in 2.0 Product Segments–Beverages
WIN IN 2.0 PRODUCT SEGMENTS–BEVERAGES Rec 2.0 Edibles-Our cannabis beverages have generated very positive response, demand exceeding supply1 + 530k units “This is definitely a nice alternative to alcoholic drinks, definitely a nice Houndstooth & Soda Consumer Survey2 shipped to date high” “Its reall
Slide 27: Win in 2.0 Product Segments–Edibles
WIN IN 2.0 PRODUCT SEGMENTS–EDIBLES Premium chocolate production increasing to help Expanding portfolio to address other high demand meet demand product categories PRODUCTION DOUBLED SINCE LAUNCH BY END OF FY21 27
Slide 28: Win in 2.0 Product Segments–Vapes
WIN IN 2.0 PRODUCT SEGMENTS–VAPES Rec 2.0 rollout gaining momentum - vapes Tokyo Smoke Luma - UL 8139 certified vape JUJU Power™ 510 Rechargeable Battery system with rechargeable batteries feature Vape Pen w/ buttonless activation, UL 8139 precise ceramic heating technology and certified 510 Cartrid
Slide 29: Topic 2. Market Share Aspiration-US
TOPIC 2. MARKET SHARE ASPIRATION-US What is the outlook for the US CBD market and how does Canopy intend to become a market share leader in the US CBD market? 29
Slide 30: US CBD Market Is Growing Quickly
US CBD MARKET IS GROWING QUICKLY US CBD Retail Sales by Products CBD Product CAGR (2020-2025) 12,000 Beverages 10,000 Topicals & Skincare 8,000 Edibles 6,000 Softgel / Pill 4,000 Pet 2,000 Vape / Inhalable 0 Oil / Tincture 2019 2020E 2021E 2022E 2023E Pet Topicals & Skincare Oil / Tincture Edibles S
Slide 31: US CBD Market Is Highly Fragmented
US CBD MARKET IS HIGHLY FRAGMENTED There is a need for a stable category leader as the category returns to a fragmented state Total hemp-derived CBD isolate market: Top 20 brands All others • 0.3% of companies were in the top tier (with sales of $40+ million) • 2.5% of companies were in the mid-high
Slide 32: Our Differentiated Approach
OUR DIFFERENTIATED APPROACH • Lead with science = quality and efficacy second to none • Deliver consistent experience that consumers seek and demand • Portfolio of product pillars to target a range of consumer need states for cannabinoid • Be the voice for our industry on Capitol Hill • Strong colla
Slide 33: Our US CBD Roadmap FY21
OUR US CBD ROADMAP FY21… Already in the US Market 40+ SKUs by end of CY 2020 • Expanding distribution footprint • Martha Stewart launch this fall! Building a world-class sales organization 33
Slide 34: Our US CBD Roadmap By FY23
OUR US CBD ROADMAP …By FY23 • US$10 billion market opportunity in US CBD 10% Share of • FDA clarifies CBD regulations, opening the door to broad US CBD = distribution/product formats US$500MM • Become a leading CBD supplier to NET REVENUE large-format retailers OPPORTUNITY • Build towards top-three
Slide 35: Topic 3. Opex Management
TOPIC 3. OPEX MANAGEMENT How is Canopy balancing investing for growth while also managing costs to improve margins? 35
Slide 36: Opex Quarterly Trend in FY 2020
OPEX QUARTERLY TREND IN FY 2020 100,000 • Sales and Marketing increase 90,000 driven by 2.0 products and CBD 80,000 investment 70,000 60,000 • G&A expenses show more 50,000 volatility 40,000 30,000 • Share-based comp has declined 20,000 significantly 10,000 0 • D&A increase in Q4 driven mainly Sales
Slide 37: Investing for the Long Term
INVESTING FOR THE LONG TERM SG&A EXPENSE BREAKDOWN (FY20) • US CBD investment to support sizable revenue opportunity SB 7% RoW • Canada absorbing much of the central 16% overhead costs US Canada • Marketing & Promotions expenses less 8% Wholesale than 40% of total Sales & Marketing 63% expenses in F
Slide 38: Targeting SG&A Ratio to Approach Premier CPG
TARGETING SG&A RATIO TO APPROACH PREMIER CPG 180% Near-term Opportunities: 160% • Headcount reduction in April/May to begin to flow 140% through SG&A starting in Q1 FY20 120% • Completion of organizational changes expected to 100% lower G&A 80% • R&D to be focused against high-return projects 60% Me
Slide 39: Topic 4. Quality Focus
TOPIC 4. QUALITY FOCUS How does Canopy plan to improve quality of products and operations? 39
Slide 40: Consumer Quality Focused Initiatives
CONSUMER QUALITY FOCUSED INITIATIVES Integrated agriculture science with production operations - Best-in-class capabilities Near-term flower quality improvement initiatives - Focus on post-harvest drying Implemented higher moisture level Assessing process adjustments to content standards better pres
Slide 41: Initiating End-to-End Supply Chain Diagnostics
INITIATING “END-TO-END” SUPPLY CHAIN DIAGNOSTICS • Align on the components of Canopy’s commercial strategy that will inform supply chain requirements to win in the future • Identify the primary gaps in the current supply chain through an end-to-end perspective • Estimate the value that supply chain
Slide 42: Design-to-Value to Unlock Value
DESIGN-TO-VALUE TO UNLOCK VALUE Design-to-Value: Designing in quality and unlocking value in multiple ways Consumer Insights Into Product Features It unlocks value in multiple ways (Demand Spaces) 1 Product improvement where it counts DtV Aligns Increases customer satisfaction, loyalty, advocacy and
Slide 43: Topic 5. Insights and Innovation
TOPIC 5. INSIGHTS AND INNOVATION What are the key areas of focus for insights and innovation efforts in the near-to-medium-term? 43
Slide 44: Growth Through Consumers, Intenders, and Rejecters
GROWTH IN BOTH THC AND CBD WILL COME THROUGH THREE UNIQUE GROUPS: CONSUMERS, INTENDERS, AND REJECTERS CONSUMERS INTENDERS REJECTERS GET GET GET Current THC or CBD consumers THC or CBD intenders THC or CBD rejecters TO TO TO Increase legal purchase frequency Make their first THC or CBD purchase in Un
Slide 45: Each Group Presents Unique Barriers to Growth
EACH GROUP PRESENTS UNIQUE BARRIERS THAT NEED TO BE ADDRESSED TO ACHIEVE GROWTH CONSUMERS INTENDERS REJECTERS BARRIERS BARRIERS BARRIERS TO LEGAL CANNABIS CANNABIS Smoking/smell Smoking/smell LEGAL Never bought before Not aware of new products Fear of unknown, loss of control, Price and quality perc
Slide 46: Insights Team Focused on Identifying Opportunities and Actions
OUR INSIGHTS TEAM IS FOCUSED ON IDENTIFYING OPPORTUNITIES AND ACTIONS FOR GROWTH BY ADDRESSING BOTH NEEDS AND BARRIERS CONSUMERS INTENDERS REJECTERS CGC OPPORTUNITY CGC OPPORTUNITY CGC OPPORTUNITY Develop products that address Out-deliver versus legal and illegal cannabis Deliver on existing needs b
Slide 47: Creating the Future at Canopy: Innovation
CREATING THE FUTURE AT CANOPY INNOVATION Agricultural Science Formulation Vape Technology Human Effects 47
Slide 48: Topic 6. Key Metrics
TOPIC 6. KEY METRICS What are the key metrics to track Canopy’s progress as the company rolls out its revised strategy? 48
Slide 49: Key Metrics to Assess Our Progress
KEY METRICS TO ASSESS OUR PROGRESS Are we winning with the consumer? Are we improving our execution? Key Metrics: Key Metrics: ü #1 or #2 dollar share in core markets ü Increase customer order fill rates ü Net sales growth year over year ü Reduce out of stock at retail Are we progressing towards pro
Slide 50: Q&A
Q&A David Klein Rade Kovacevic Mike Lee CEO Chief Product EVP & CFO Officer Chris Edwards Julian Cohen Chief Insights Officer Chief Innovation Officer 50
Slide 51: Thank You!
THANK YOU! 51