Canopy Growth Corp - Quarter Report: 2022 June (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38496

Canopy Growth Corporation

(Exact name of registrant as specified in its charter)

Canada	N/A
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1 Hershey Drive Smiths Falls, Ontario	K7A 0A8
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (855) 558-9333

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common shares, no par value

CGC

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 5, 2022, there were 479,978,742 common shares of the registrant issued and outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Interim Consolidated Balance Sheets	1
	Condensed Interim Consolidated Statements of Operations and Comprehensive (Loss) Income	2
	Condensed Interim Consolidated Statements of Shareholders’ Equity	3
	Condensed Interim Consolidated Statements of Cash Flows	5
	Notes to Condensed Interim Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	50
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	51
Signatures		53

Unless otherwise noted or the context indicates otherwise, references in this Quarterly Report on Form 10-Q (“Quarterly Report”) to the “Company”, “Canopy Growth”, “we”, “us” and “our” refer to Canopy Growth Corporation, its direct and indirect wholly-owned subsidiaries and, if applicable, its joint ventures and investments accounted for by the equity method; the term “cannabis” means the plant of any species or subspecies of genus Cannabis and any part of that plant, including all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers; and the term “U.S. hemp” has the meaning given to the term “hemp” in the U.S. Agricultural Improvement Act of 2018 (the “2018 Farm Bill”), including hemp-derived cannabidiol (“CBD”).

This Quarterly Report contains references to our trademarks and trade names and to trademarks and trade names belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trademarks or trade names to imply a relationship with, or endorsement or sponsorship of us or our business by, any other companies.

All currency amounts in this Quarterly Report are stated in Canadian dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “CDN$” are to Canadian dollars and all references to “US$” are to U.S. dollars.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS

(in thousands of Canadian dollars, except number of shares and per share data, unaudited)

	June 30, 2022			March 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	769,495		$	776,005
Short-term investments		447,620			595,651
Restricted short-term investments		12,177			12,216
Amounts receivable, net		96,626			96,443
Inventory		205,513			204,387
Prepaid expenses and other assets		62,141			52,700
Total current assets		1,593,572			1,737,402
Other financial assets		602,229			800,328
Property, plant and equipment		926,369			942,780
Intangible assets		242,479			252,695
Goodwill		138,419			1,866,503
Other assets		14,459			15,342
Total assets	$	3,517,527		$	5,615,050

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	64,647		$	64,270
Other accrued expenses and liabilities		59,913			75,278
Current portion of long-term debt		193,072			9,296
Other liabilities		86,776			64,054
Total current liabilities		404,408			212,898
Long-term debt		1,264,645			1,491,695
Deferred income tax liabilities		14,658			15,991
Liability arising from Acreage Arrangement		-			47,000
Warrant derivative liability		1,555			26,920
Other liabilities		149,341			190,049
Total liabilities		1,834,607			1,984,553
Commitments and contingencies
Redeemable noncontrolling interest		37,150			36,200
Canopy Growth Corporation shareholders' equity:
Common shares - $nil par value; Authorized - unlimited number of shares; Issued - 417,217,611 shares and 394,422,604 shares, respectively		7,601,570			7,482,809
Additional paid-in capital		2,515,453			2,519,766
Accumulated other comprehensive loss		(21,554	)		(42,282	)
Deficit		(8,454,214	)		(6,370,337	)
Total Canopy Growth Corporation shareholders' equity		1,641,255			3,589,956
Noncontrolling interests		4,515			4,341
Total shareholders' equity		1,645,770			3,594,297
Total liabilities and shareholders' equity	$	3,517,527		$	5,615,050

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF

OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(in thousands of Canadian dollars, except number of shares and per share data, unaudited)

	Three months ended June 30,
	2022			2021
Revenue	$	122,862		$	155,423
Excise taxes		12,747			19,214
Net revenue		110,115			136,209
Cost of goods sold		111,507			108,971
Gross margin		(1,392	)		27,238
Operating expenses
Selling, general and administrative expenses		103,413			112,574
Share-based compensation		5,439			13,126
Asset impairment and restructuring costs		1,727,985			89,249
Total operating expenses		1,836,837			214,949
Operating loss		(1,838,229	)		(187,711	)
Loss from equity method investments		-			(100	)
Other income (expense), net		(245,578	)		580,666
(Loss) income before income taxes		(2,083,807	)		392,855
Income tax expense		(3,749	)		(2,900	)
Net (loss) income		(2,087,556	)		389,955
Net loss attributable to noncontrolling interests and redeemable noncontrolling interest		(4,408	)		(2,463	)
Net (loss) income attributable to Canopy Growth Corporation	$	(2,083,148	)	$	392,418

Basic (loss) earnings per share	$	(5.23	)	$	1.02
Basic weighted average common shares outstanding		398,467,568			384,055,133

Diluted (loss) earnings per share	$	(5.23	)	$	0.84
Diluted weighted average common shares outstanding		398,467,568			404,546,243

Comprehensive (loss) income:
Net (loss) income	$	(2,087,556	)	$	389,955
Other comprehensive income (loss), net of income tax effect
Fair value changes of own credit risk of financial liabilities		27,060			660
Foreign currency translation		758			(27,938	)
Total other comprehensive income (loss), net of income tax effect		27,818			(27,278	)
Comprehensive (loss) income		(2,059,738	)		362,677
Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interest		(4,408	)		(2,463	)
Comprehensive (loss) income attributable to Canopy Growth Corporation	$	(2,055,330	)	$	365,140

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands of Canadian dollars, unaudited)

			Additional paid-in capital											Accumulated
	Common shares		Share-based reserve			Warrants		Ownership changes			Redeemable noncontrolling interest			other comprehensive income (loss)			Deficit			Noncontrolling interests			Total
Balance at March 31, 2022	$	7,482,809	$	492,041		$	2,581,788	$	(509,723	)	$	(44,340	)	$	(42,282	)	$	(6,370,337	)	$	4,341		$	3,594,297
Cumulative effect from adoption of ASU 2020-06		-		4,452			-		-			-			-			(729	)		-			3,723
Other issuances of common shares and warrants		59,013		-			-		-			-			-			-			-			59,013
Exercise of Omnibus Plan stock options		1,282		(1,072	)		-		-			-			-			-			-			210
Share-based compensation		-		5,265			-		-			-			-			-			-			5,265
Issuance and vesting of restricted share units		7,600		(7,600	)		-		-			-			-			-			-			-
Changes in redeemable noncontrolling interest		-		-			-		-			(5,358	)		-			-			4,408			(950	)
Ownership changes relating to noncontrolling interests		-		-			-		-			-			-			-			174			174
Settlement of convertible senior notes		50,866		-			-		-			-			(7,090	)		-			-			43,776
Comprehensive income (loss)		-		-			-		-			-			27,818			(2,083,148	)		(4,408	)		(2,059,738	)
Balance at June 30, 2022	$	7,601,570	$	493,086		$	2,581,788	$	(509,723	)	$	(49,698	)	$	(21,554	)	$	(8,454,214	)	$	4,515		$	1,645,770

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands of Canadian dollars, unaudited)

			Additional paid-in capital											Accumulated
	Common shares		Share-based reserve			Warrants		Ownership changes			Redeemable noncontrolling interest			other comprehensive income (loss)			Deficit			Noncontrolling interests			Total
Balance at March 31, 2021	$	7,168,557	$	480,786		$	2,568,438	$	(512,340	)	$	(121,234	)	$	(34,240	)	$	(6,068,156	)	$	4,709		$	3,486,520
Other issuances of common shares and warrants		285,915		(25,692	)		-		-			-			-			-			-			260,223
Replacement equity instruments from the acquisition of Supreme Cannabis		-		5,566			13,350		-			-			-			-			-			18,916
Exercise of Omnibus Plan stock options		5,522		(1,930	)		-		-			-			-			-			-			3,592
Share-based compensation		-		12,861			-		-			-			-			-			-			12,861
Issuance and vesting of restricted share units		3,563		(3,563	)		-		-			-			-			-			-			-
Changes in redeemable noncontrolling interest		-		-			-		-			(2,463	)		-			-			2,463			-
Ownership changes relating to noncontrolling interests		-		-			-		-			-			-			-			265			265
Comprehensive (loss) income		-		-			-		-			-			(27,278	)		392,418			(2,463	)		362,677
Balance at June 30, 2021	$	7,463,557	$	468,028		$	2,581,788	$	(512,340	)	$	(123,697	)	$	(61,518	)	$	(5,675,738	)	$	4,974		$	4,145,054

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of Canadian dollars, unaudited)

	Three months ended June 30,
	2022			2021
Cash flows from operating activities:
Net (loss) income	$	(2,087,556	)	$	389,955
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant and equipment		15,129			17,116
Amortization of intangible assets		6,722			8,016
Share of loss on equity method investments		-			100
Share-based compensation		5,439			13,126
Asset impairment and restructuring costs		1,726,877			81,709
Income tax expense		3,749			2,900
Non-cash fair value adjustments and charges related to settlement of convertible senior notes		213,610			(600,922	)
Change in operating assets and liabilities, net of effects from purchases of businesses:
Amounts receivable		(183	)		(4,946	)
Inventory		(1,126	)		(18,158	)
Prepaid expenses and other assets		(9,555	)		(8,804	)
Accounts payable and accrued liabilities		(15,549	)		(9,644	)
Other, including non-cash foreign currency		1,928			(36,228	)
Net cash used in operating activities		(140,515	)		(165,780	)
Cash flows from investing activities:
Purchases of and deposits on property, plant and equipment		(2,293	)		(20,279	)
Purchases of intangible assets		(606	)		(833	)
Redemption (purchases) of short-term investments		153,996			(346,603	)
Net cash proceeds (outflows) on sale of subsidiaries		(475	)		10,324
Sale of (investments in) equity method investments		-			56
Investment in other financial assets		(29,205	)		-
Net cash outflow on acquisition of subsidiaries		-			(8,857	)
Other investing activities		-			(8,367	)
Net cash provided by (used in) investing activities		121,417			(374,559	)
Cash flows from financing activities:
Proceeds from exercise of stock options		210			3,592
Repayment of long-term debt		(211	)		(48,116	)
Other financing activities		(1,043	)		(444	)
Net cash (used in) provided by financing activities		(1,044	)		(44,968	)
Effect of exchange rate changes on cash and cash equivalents		13,632			(9,506	)
Net decrease in cash and cash equivalents		(6,510	)		(594,813	)
Cash and cash equivalents, beginning of period		776,005			1,154,653
Cash and cash equivalents, end of period	$	769,495		$	559,840

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

CANOPY GROWTH CORPORATION

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of Canadian dollars, unaudited)

	Three months ended June 30,
	2022		2021
Supplemental disclosure of cash flow information
Cash received during the period:
Income taxes	$	202	$	33
Interest	$	3,950	$	2,647
Cash paid during the period:
Income taxes	$	429	$	330
Interest	$	25,747	$	23,666
Noncash investing and financing activities
Additions to property, plant and equipment	$	933	$	4,776

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

CANOPY GROWTH CORPORATION

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of Canadian dollars, unaudited)

1. DESCRIPTION OF BUSINESS

Canopy Growth Corporation is a publicly traded corporation, incorporated in Canada, with its head office located at 1 Hershey Drive, Smiths Falls, Ontario. References herein to “Canopy Growth” or “the Company” refer to Canopy Growth Corporation and its subsidiaries.

The principal activities of the Company are the production, distribution and sale of a diverse range of cannabis and cannabinoid-based products for both adult recreational and medical purposes under a portfolio of distinct brands in Canada pursuant to the Cannabis Act, which came into effect on October 17, 2018 and regulates both the medical and recreational cannabis markets in Canada. The Company has also expanded to jurisdictions outside of Canada where cannabis and/or hemp is federally lawful, permissible and regulated, and the Company, through its subsidiaries, operates in the United States, Germany, and certain other global markets. Additionally, the Company produces, distributes and sells a range of other consumer products globally, including vaporizers; beauty, skincare, wellness and sleep products; and sports nutrition beverages.

2. BASIS OF PRESENTATION

These condensed interim consolidated financial statements have been presented in Canadian dollars and are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Canopy Growth has determined that the Canadian dollar is the most relevant and appropriate reporting currency as, despite continuing shifts in the relative size of our operations across multiple geographies, the majority of our operations are conducted in Canadian dollars and our financial results are prepared and reviewed internally by management in Canadian dollars. Our condensed interim consolidated financial statements, and the financial information contained herein, are reported in thousands of Canadian dollars, except share and per share amounts or as otherwise stated.

Certain information and footnote disclosures normally included in the audited annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted or condensed. These condensed interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2022 (the “Annual Report”) and have been prepared on a basis consistent with the accounting policies as described in the Annual Report.

These condensed interim consolidated financial statements are unaudited and reflect adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods in accordance with U.S. GAAP.

The results reported in these condensed interim consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for an entire fiscal year. The policies set out below are consistently applied to all periods presented, unless otherwise noted.

Principles of consolidation

The accompanying condensed interim consolidated financial statements include the accounts of the Company and all entities in which the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. All intercompany accounts and transactions have been eliminated on consolidation. Information on the Company’s subsidiaries with noncontrolling interests is included in Note 20.

Use of estimates

The preparation of these condensed interim consolidated financial statements and accompanying notes in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates.

New accounting policies

Recently Adopted Accounting Pronouncements

Convertible Instruments and Contracts in an Entity’s Own Equity

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for convertible instruments by removing the separation

models for convertible debt instruments and convertible preferred stock with (1) cash conversion features, and (2) beneficial conversion features. In addition, ASU 2020-06 enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share guidance and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.

The Company adopted the guidance on April 1, 2022, using the modified retrospective approach with the cumulative effect recognized as an adjustment to the opening deficit balance, and, accordingly, prior period balances and disclosures have not been restated. Upon adoption of ASU 2020-06, the Supreme Debentures (as defined below) will be accounted for under the separation model for a substantial premium instead of a beneficial conversion feature resulting in an increased debt discount to be amortized over the life of the instrument. The adoption of this guidance resulted in increased additional paid-in capital by $4,452, decreased long-term debt by $3,723, and decreased accumulated deficit by $729 for non-cash accretion expense prior to April 1, 2022.

3. ASSET IMPAIRMENT AND RESTRUCTURING COSTS

In the three months ended June 30, 2022, the Company performed a quantitative goodwill impairment assessment for the cannabis operations reporting unit in the global cannabis segment, and recognized impairment losses totaling $1,725,368. Refer to Note 12 for further details.

Additionally, in the three months ended June 30, 2022, the Company recognized incremental costs primarily associated with the restructuring actions completed in the year ended March 31, 2022, including the closure of certain of its Canadian production facilities, and other operational changes initiated in the three months ended March 31, 2022 to (i) implement cultivation-related efficiencies and improvements in the Canadian recreational cannabis business, and (ii) implement a flexible manufacturing platform, including contract manufacturing for certain product formats.

As a result, in the three months ended June 30, 2022, the Company recognized asset impairment and restructuring costs of $1,727,985 (three months ended June 30, 2021 – $89,249).

4. CASH AND CASH EQUIVALENTS

The components of cash and cash equivalents are as follows:

	June 30,		March 31,
	2022		2022
Cash	$	444,776	$	470,682
Cash equivalents		324,719		305,323
	$	769,495	$	776,005

5. SHORT-TERM INVESTMENTS

The components of short-term investments are as follows:

	June 30,		March 31,
	2022		2022
Term deposits	$	261,293	$	319,092
Asset-backed securities		18,637		22,253
Government securities		12,544		21,905
Commercial paper and other		155,146		232,401
	$	447,620	$	595,651

The amortized cost of short-term investments at June 30, 2022 is $447,689 (March 31, 2022 – $599,862).

6. AMOUNTS RECEIVABLE, NET

The components of amounts receivable, net are as follows:

	June 30,		March 31,
	2022		2022
Accounts receivable, net	$	79,106	$	78,059
Indirect taxes receivable		8,403		7,524
Interest receivable		4,175		4,406
Other receivables		4,942		6,454
	$	96,626	$	96,443

Included in the accounts receivable, net balance at June 30, 2022 is an allowance for doubtful accounts of $3,121 (March 31, 2022 – $4,764).

7. INVENTORY

The components of inventory are as follows:

	June 30,		March 31,
	2022		2022
Raw materials, packaging supplies and consumables	$	31,615	$	26,821
Work in progress		61,541		65,245
Finished goods		112,357		112,321
	$	205,513	$	204,387

In the three months ended June 30, 2022, the Company recorded write-downs related to inventory in cost of goods sold of $12,181 (three months ended June 30, 2021 – $6,014).

8. PREPAID EXPENSES AND OTHER ASSETS

The components of prepaid expenses and other assets are as follows:

	June 30,		March 31,
	2022		2022
Prepaid expenses	$	32,974	$	23,041
Deposits		9,861		10,145
Prepaid inventory		435		449
Other assets		18,871		19,065
	$	62,141	$	52,700

9. OTHER FINANCIAL ASSETS

The following table outlines changes in other financial assets. Additional details on how the fair value of significant investments is calculated are included in Note 21.

									Foreign
		Balance at							currency					Balance at
		March 31,				Fair value			translation					June 30,
Entity	Instrument	2022		Additions		changes			adjustments		Other			2022
Acreage¹	Option	$	-	$	-	$	60,000		$	-	$	-		$	60,000
TerrAscend Exchangeable Shares	Exchangeable shares		229,000		-		(138,000	)		-		-			91,000
TerrAscend Canada - October 2019	Term loan / debenture		10,280		-		(550	)		-		-			9,730
TerrAscend Canada - March 2020	Term loan / debenture		49,890		-		(6,060	)		-		-			43,830
Arise Bioscience	Term loan / debenture		13,343		-		(1,957	)		393		-			11,779
TerrAscend - October 2019	Warrants		3,730		-		(3,210	)		-		-			520
TerrAscend - March 2020	Warrants		60,740		-		(47,660	)		-		-			13,080
TerrAscend - December 2020	Warrants		3,460		-		(2,540	)		-		-			920
TerrAscend	Option		6,300		-		(3,800	)		-		-			2,500
Wana	Option		372,343		-		(153,955	)		10,957		-			229,345
Jetty	Options		-		90,120		-			274		-			90,394
Acreage Hempco¹	Debenture		28,824		-		(2,253	)		848		-			27,419
Other - at fair value through net income (loss)	Various		10,396		-		(869	)		184		-			9,711
Other - classified as held for investment	Loan receivable		12,022		-		-			-		(21	)		12,001
		$	800,328	$	90,120	$	(300,854	)	$	12,656	$	(21	)	$	602,229

¹ See Note 26 for information regarding the Acreage Arrangement and Acreage Hempco.

Jetty

On May 17, 2022, the Company and Lemurian, Inc. (“Jetty”) entered into definitive agreements (the “Jetty Agreements”) providing the Company with the right to acquire up to 100% of the outstanding equity interests in Jetty (i) upon the occurrence of changes in U.S. federal law to permit the general cultivation, distribution, and possession of marijuana, or to remove the regulation of such activities from the federal laws of the United States; or (ii) an earlier date at the Company’s sole discretion (the “Jetty Triggering Event”). Jetty is a California-based producer of high-quality cannabis extracts and pioneer of clean vape technology.

The Jetty Agreements are structured as two separate option agreements whereby the Company has the right to acquire up to 100% of the equity interests in Jetty. As consideration for entering into the Jetty Agreements, the Company (i) made an upfront cash payment in the amount of $29,226 (US$22,911), and (ii) issued 8,426,539 common shares with a fair value on closing of $59,123 (US$45,928), for total consideration of $88,349 (collectively, the “Upfront Payment”).

The first option agreement is exercisable in two tranches, with the first tranche providing the Company with the option to acquire 52.78% of Jetty’s equity interests, exercisable following the occurrence of the Jetty Triggering Event. The second tranche provides the Company with the option to acquire 25% of Jetty’s equity interests for their fair market value, subject to certain adjustments. Additionally, the Company expects to make deferred payments (the “Deferred Payments”) computed based on a pre-determined contractual formula. The second option agreement provides the Company with the option to acquire 22.22% of Jetty’s equity interests, exercisable following the occurrence of the Jetty Triggering Event.

Until such time as the Company elects to exercise its rights to acquire Jetty, the Company will have no direct or indirect economic or voting interests in Jetty, the Company will not directly or indirectly control Jetty, and the Company and Jetty will continue to operate independently of one another.

Upon initial recognition, the Company estimated the fair value of the Jetty financial instrument to be $90,120, consisting of (i) the Upfront Payment as noted above; and (ii) the present value of the estimated Deferred Payments, totaling $1,771 (see Note 15).

Any subsequent changes in estimated fair value will be recognized in other income (expense), net. See Note 21 for additional details on how the fair value of the Jetty financial instrument is calculated on a recurring basis.

10. PROPERTY, PLANT AND EQUIPMENT

The components of property, plant and equipment are as follows:

	June 30,			March 31,
	2022			2022
Buildings and greenhouses	$	766,853		$	766,931
Production and warehouse equipment		160,294			159,314
Leasehold improvements		69,400			69,304
Office and lab equipment		29,863			29,879
Computer equipment		22,319			22,293
Land		18,964			18,917
Right-of-use-assets
Buildings and greenhouses		89,056			89,228
Production and warehouse equipment		27			55
Assets in process		19,505			19,771
		1,176,281			1,175,692
Less: Accumulated depreciation		(249,912	)		(232,912	)
	$	926,369		$	942,780

Depreciation expense included in cost of goods sold for the three months ended June 30, 2022 is $11,074 (three months ended June 30, 2021 – $10,462). Depreciation expense included in selling, general and administrative expenses for the three months ended June 30, 2022 is $4,055 (three months ended June 30, 2021 – $6,654).

11. INTANGIBLE ASSETS

The components of intangible assets are as follows:

	June 30, 2022				March 31, 2022
	Gross		Net		Gross		Net
	Carrying		Carrying		Carrying		Carrying
	Amount		Amount		Amount		Amount
Finite lived intangible assets
Intellectual property	$	135,115	$	92,307	$	138,170	$	97,638
Distribution channel		72,066		23,508		72,642		24,834
Operating licenses		24,400		21,294		24,400		22,052
Software and domain names		33,260		15,800		29,822		14,206
Brands		5,366		3,387		5,547		3,680
Amortizable intangibles in process		2,747		2,747		5,476		5,476
Total	$	272,954	$	159,043	$	276,057	$	167,886

Indefinite lived intangible assets
Acquired brands			$	73,436			$	74,809
Operating licenses				10,000				10,000
Total intangible assets			$	242,479			$	252,695

Amortization expense included in cost of goods sold for the three months ended June 30, 2022 is $14 (three months ended June 30, 2021 – $18). Amortization expense included in selling, general and administrative expenses for the three months ended June 30, 2022 is $6,708 (three months ended June 30, 2021 – $7,998).

12. GOODWILL

The changes in the carrying amount of goodwill are as follows:

Balance, March 31, 2021	$	1,889,354
Purchase accounting allocations		105,323
Disposal of consolidated entities		(58,786	)
Impairment losses		(40,748	)
Foreign currency translation adjustments		(28,640	)
Balance, March 31, 2022	$	1,866,503
Disposal of consolidated entities		(227	)
Impairment losses		(1,725,368	)
Foreign currency translation adjustments		(2,489	)
Balance, June 30, 2022	$	138,419

As a result of the continued decline in the price of the Company’s common shares in the three months ended June 30, 2022, the Company determined there to be an indicator of impairment for the cannabis operations reporting unit in the global cannabis segment. As a result, the Company performed a quantitative interim goodwill impairment assessment for the cannabis operations reporting unit as of June 30, 2022. The Company concluded that the carrying value of the cannabis operations reporting unit was higher than its estimated fair value, and a goodwill impairment loss totaling $1,725,368 was recognized in the three months ended June 30, 2022, representing the entirety of the goodwill assigned to the cannabis operations reporting unit.

The estimated fair value of the cannabis operations reporting unit was determined using the market valuation method, which is consistent with the methodology used by the Company for its annual impairment test conducted at March 31, 2022. The most significant assumptions used in applying this method were (i) the price of the Company’s common shares; and (ii) the estimated control premium associated with ownership of the Company’s common shares.

For the remaining reporting units, the Company does not believe that an event occurred or circumstances changed during the three months ended June 30, 2022 that would, more likely than not, reduce the fair value of these reporting units below their carrying value. Therefore, the Company concluded that the quantitative goodwill impairment assessment was not required. The carrying value of goodwill associated with all other reporting units was $138,419 at June 30, 2022.

The Company is required to perform its next annual goodwill impairment analysis on March 31, 2023, or earlier should there be an event that occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

13. OTHER ACCRUED EXPENSES AND LIABILITIES

The components of other accrued expenses and liabilities are as follows:

	June 30,		March 31,
	2022		2022
Employee compensation	$	19,062	$	24,873
Inventory		553		10,096
Professional fees		6,074		7,640
Taxes and government fees		8,963		7,144
Other		25,261		25,525
	$	59,913	$	75,278

14. DEBT

The components of debt are as follows:

		June 30,			March 31,
	Maturity Date	2022			2022
Convertible senior notes at 4.25% interest with semi-annual interest payments	July 15, 2023
Principal amount		$	536,902		$	600,000
Accrued interest			10,776			5,958
Non-credit risk fair value adjustment			22,938			7,140
Credit risk fair value adjustment			(76,200	)		(49,140	)
			494,416			563,958
Convertible debentures	September 10, 2025		30,647			32,858
Accretion debentures	September 10, 2025		7,971			7,720
Credit facility	March 18, 2026		922,150			893,647
Other revolving debt facility, loan, and financings			2,533			2,808
			1,457,717			1,500,991
Less: current portion			(193,072	)		(9,296	)
Long-term portion		$	1,264,645		$	1,491,695

Credit Facility

On March 18, 2021, the Company entered into a credit agreement (the “Credit Agreement”) providing for a five-year, first lien senior secured term loan facility in an aggregate principal amount of US$750,000 (the “Credit Facility”). The Company also has the ability to obtain up to an additional US$500,000 of incremental senior secured debt pursuant to the Credit Agreement.

The Credit Facility has no principal payments, matures on March 18, 2026, has a coupon of LIBOR plus 8.50% and is subject to a LIBOR floor of 1.00%. In the event that LIBOR can no longer be adequately ascertained or is no longer available, an alternative rate as permitted under the Credit Agreement will be used. The Company’s obligations under the Credit Facility are guaranteed by material wholly-owned Canadian and U.S. subsidiaries of the Company. The Credit Facility is secured by substantially all of these assets, including material real property, of the borrowers and each of the guarantors. The Credit Agreement contains representations and warranties, and affirmative and negative covenants, including a financial covenant requiring minimum liquidity of US$200,000 at the end of each fiscal quarter.

The proceeds from the Credit Facility were $893,160, and the carrying amount is reflected net of financing costs.

Notes

On June 20, 2018, the Company issued convertible senior notes (the “Notes”) with an aggregate principal amount of $600,000. The Notes bear interest at a rate of 4.25% per annum, payable semi-annually on January 15th and July 15th of each year commencing from January 15, 2019. The Notes will mature on July 15, 2023. The Notes are subordinated in right of payment to any existing and

future senior indebtedness. The Notes will rank senior in right of payment to any future subordinated borrowings. The Notes are effectively junior to any secured indebtedness and the Notes are structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries.

On June 29, 2022 and June 30, 2022, the Company entered into privately negotiated exchange agreements (the “Exchange Agreements”) with a limited number of holders of the Notes including Greenstar Canada Investment Limited Partnership (“GCILP”), a wholly-owned subsidiary of Constellation Brands, Inc. (“CBI”) (collectively, the “Noteholders”). Pursuant to the Exchange Agreements, the Company agreed to acquire and cancel approximately $262,620 of aggregate principal amount of the Notes from the Noteholders (the “Exchange Transaction”) for an aggregate purchase price (excluding $5,383 paid to the Noteholders in cash for accrued and unpaid interest) of $259,994 (the “Purchase Price”), which was payable in the Company’s common shares.

On initial closings, 35,662,420 common shares were to be issued to the Noteholders, other than GCILP, based on a price equal to US$3.50 per common share, which was the closing price of the common shares on the Nasdaq Global Select Market (“Nasdaq”) on June 29, 2022. The Company satisfied the Purchase Price as follows:

•

On June 30, 2022, 14,069,353 common shares were issued to Noteholders, representing the Company’s acquisition and cancellation of an aggregate principal amount of Notes of $63,098 which were recorded at a fair value of $50,866.

•

In July 2022, 21,593,067 common shares were issued to Noteholders, representing an aggregate principal amount of Notes of $99,522 which were recorded at a fair value of $80,231 at June 30, 2022.

•

In addition, on the final closing on July 18, 2022 (the “Final Closing”), 11,896,536 common shares were issued to Noteholders other than GCILP, based on the volume-weighted average trading price of the common shares on the Nasdaq for the 10 consecutive trading days beginning on, and including, June 30, 2022, being US$2.6245 (the “Averaging Price”).

•

In addition, on the Final Closing on July 18, 2022, 29,245,456 common shares were issued to GCILP based on a price per common share equal to the Averaging Price. Pursuant to the Exchange Transaction, the Company agreed to acquire and cancel $100,000 in aggregate principal amount, which were recorded at a fair value of $98,925 at June 30, 2022. Prior to the Exchange Transaction, GCILP held $200,000 in aggregate principal amount of the Notes.

The Notes were issued pursuant to an indenture dated June 20, 2018, as supplemented on April 30, 2019 and June 29, 2022 (collectively, the “Indenture”). As a result of a supplement to the Indenture dated June 29, 2022 (the “Second Supplemental Indenture”), the Company irrevocably surrendered its right to settle the conversion of any Note with its common shares. As a result, all conversions of Notes following the execution of the Second Supplemental Indenture will be settled entirely in cash.

The Noteholders may convert the Notes at their option at any time from January 15, 2023 to the maturity date. In addition, the holder has the right to redeem the Notes from September 30, 2018 to January 15, 2023, if (i) the market price of the Company’s common shares for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day, (ii) during the 5 business day period after any consecutive 5 trading day period (the “Measurement Period”) in which the trading price per $1 principal amount of the Notes for each trading day in the Measurement Period was less than 98% of the product of the last reported sales price of the Company’s common shares and the conversion rate on each such trading day, (iii) the Notes are called for redemption or (iv) upon occurrence of certain corporate events (a “Fundamental Change”). A Fundamental Change occurred upon completion of the investment by the CBI Group in the Company in November 2018, and no holders of Notes surrendered any portion of their Notes in connection therewith.

Under the terms of the Indenture, if a Fundamental Change occurs and a holder elects to redeem its Notes from and including on the date of the Fundamental Change up to, and including, the business day immediately prior to the Fundamental Change repurchase date, the Company, upon conversion by the holder, will settle in cash, subject to certain circumstances.

Prior to July 20, 2021, the Company could not redeem the Notes except in the event of certain changes in Canadian tax law. On or after July 20, 2021, the Company can redeem for cash, subject to certain conditions, any or all of the Notes, at its option, if the last reported sales price of the Company’s common shares for at least 20 trading days during any 30 consecutive trading day period ending within 5 trading days immediately preceding the date on which the Company provides notice of redemption exceeds 130% of the initial conversion price on each applicable trading day. The Company may also redeem the Notes, if certain tax laws related to Canadian withholding tax change subject to certain further conditions. The redemption of Notes in either case shall be at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

The Notes were initially recognized at fair value on the balance sheet and continue to be recorded at fair value. All subsequent changes in fair value, excluding the impact of the change in fair value related to the Company’s own credit risk are recorded in other income (expense), net. The changes in fair value related to the Company’s own credit risk are recorded through other comprehensive income (loss). During the three months ended June 30, 2022, the Company acquired and cancelled an aggregate principal amount of Notes of $63,098 which resulted in a release of accumulated other comprehensive income into other income (expense), net of $7,090. Refer to Note 19.

The overall change in fair value of the Notes during the three months ended June 30, 2022, was a decrease of $69,542 (three months ended June 30, 2021, a decrease of $51,372), which included contractual interest of $6,047 (three months ended June 30, 2021 – $6,378) and principal redemption of $63,098. Upon redemption, the principal redeemed had a fair value of $50,866. Refer to Note 21 for additional details on how the fair value of the Notes is calculated.

In connection with the Exchange Transaction, in the three months ended June 30, 2022, the Company recognized a derivative liability of $26,594 in connection with the incremental common shares that were potentially issuable to Noteholders, other than GCILP, as at June 30, 2022 at the Averaging Price on the Final Closing. The derivative liability was recorded through other income (expense), net in the three months ended June 30, 2022. Refer to Note 15.

Supreme Cannabis Convertible Debentures and Accretion Debentures

On October 19, 2018, The Supreme Cannabis Company, Inc. (“Supreme Cannabis”) entered into an indenture with Computershare Trust Company of Canada (the “Trustee”) pursuant to which Supreme Cannabis issued 6.0% senior unsecured convertible debentures (the “Supreme Debentures”) for gross proceeds of $100,000. On September 9, 2020, Supreme Cannabis and the Trustee entered into a supplemental indenture to effect certain amendments to the Supreme Debentures, which included among other things: (i) the cancellation of $63,500 of principal amount of the Supreme Debentures; (ii) an increase in the interest rate to 8% per annum; (iii) the extension of the maturity date to September 10, 2025; and (iv) a reduction in the conversion price to $0.285.

In addition, on September 9, 2020, Supreme Cannabis issued new senior unsecured non-convertible debentures (the “Accretion Debentures”). The principal amount began at $nil and accretes at a rate of 11.06% per annum based on the remaining principal amount of the Supreme Debentures of $36,500 to a maximum of $13,500, compounding on a semi-annual basis commencing on September 9, 2020, and ending on September 9, 2023. The Accretion Debentures are payable in cash, but do not bear cash interest and are not convertible into the common shares of Supreme Cannabis (the “Supreme Shares”). The principal amount of the Accretion Debentures will amortize, or be paid, at 1.0% per month over the 24 months prior to maturity.

As a result of the completion of an arrangement, on June 22, 2021, by the Company and Supreme Cannabis, pursuant to which the Company acquired 100% of the issued and outstanding Supreme Shares (the “Supreme Arrangement”), the Supreme Debentures remain outstanding as securities of Supreme Cannabis, which, upon conversion will entitle the holder thereof to receive, in lieu of the number of Supreme Shares to which such holder was theretofore entitled, the consideration payable under the Supreme Arrangement that such holder would have been entitled to be issued and receive if, immediately prior to the effective time of the Supreme Arrangement, such holder had been the registered holder of the number of Supreme Shares to which such holder was theretofore entitled.

In connection with the Supreme Arrangement, the Company, Supreme Cannabis and the Trustee entered into a supplemental indenture whereby the Company agreed to issue common shares upon conversion of any Supreme Debenture. In addition, the Company may force conversion of the Supreme Debentures outstanding with 30 days’ notice if the daily volume weighted average trading price of the Company’s common shares is greater than $38.59 for any 10 consecutive trading days. The Company, Supreme Cannabis and the Trustee entered into a further supplemental indenture whereby the Company agreed to guarantee the obligations of Supreme Cannabis pursuant to the Supreme Debentures and the Accretion Debentures.

Prior to September 9, 2023, the Supreme Debentures are not redeemable. Beginning on and after September 9, 2023, Supreme Cannabis may from time to time, upon providing 60 days prior written notice to the Trustee, redeem the Convertible Debentures outstanding, provided that the Accretion Debentures have already been redeemed in full.

15. OTHER LIABILITIES

The components of other liabilities are as follows:

	As at June 30, 2022						As at March 31, 2022
	Current		Long-term		Total		Current		Long-term		Total
Lease liabilities	$	37,895	$	97,934	$	135,829	$	38,035	$	101,125	$	139,160
Derivative liability related to settlement of convertible senior notes		26,594		-		26,594		-		-		-
Acquisition consideration and other investment related liabilities		871		42,086		42,957		4,020		77,834		81,854
Refund liability		2,788		-		2,788		3,437		-		3,437
Settlement liabilities and other		18,628		9,321		27,949		18,562		11,090		29,652
	$	86,776	$	149,341	$	236,117	$	64,054	$	190,049	$	254,103

On May 17, 2022, upon entering into the Jetty Agreements, the Company recognized the estimated Deferred Payments associated with the Jetty financial instrument within acquisition consideration and other investment related liabilities, in the amount of $1,771 (see Note 9).

The estimated deferred payments associated with the Wana financial instrument within acquisition consideration and other investment related liabilities at June 30, 2022 is $30,522 (March 31, 2022 – $70,066).

16. REDEEMABLE NONCONTROLLING INTEREST

The net changes in the redeemable noncontrolling interests are as follows:

	Vert Mirabel			BioSteel			Total
As at March 31, 2022	$	1,000		$	35,200		$	36,200
Net income (loss) attributable to redeemable noncontrolling interest		495			(4,903	)		(4,408	)
Adjustments to redemption amount		(495	)		5,853			5,358
As at June 30, 2022	$	1,000		$	36,150		$	37,150

	Vert Mirabel			BioSteel			Total
As at March 31, 2021	$	11,500		$	123,800		$	135,300
Net income (loss) attributable to redeemable noncontrolling interest		1,293			(3,756	)		(2,463	)
Adjustments to redemption amount		(1,293	)		3,756			2,463
As at June 30, 2021	$	11,500		$	123,800		$	135,300

17. SHARE CAPITAL

CANOPY GROWTH

Authorized

An unlimited number of common shares.

(i) Equity financings

There were no equity financings during the three months ended June 30, 2022 (three months ended June 30, 2021 - none).

(ii) Other issuances of common shares

During the three months ended June 30, 2022, the Company issued the following common shares, net of share issuance costs, as a result of business combinations, milestones being met, and other equity-settled transactions:

Number of common shares

capital

based

reserve

Jetty Agreements

8,426,539

59,013

Total

8,426,539

59,013

During the three months ended June 30, 2021, the Company issued the following common shares, net of share issuance costs, as a result of business combinations, milestones being met, and other equity-settled transactions:

	Number of common shares		Share capital		Share based reserve
Acquisition of Supreme Cannabis		9,013,400	$	260,668	$	-
Completion of acquisition milestones		875,401		25,247		(25,692	)
Total		9,888,801	$	285,915	$	(25,692	)

(iii) Warrants

	Number of whole warrants		Average exercise price		Warrant value
Balance outstanding at March 31, 2022¹		128,193,047	$	58.04	$	2,581,788
Expiry of warrants		-		-		-
Balance outstanding at June 30, 2022¹		128,193,047	$	58.04	$	2,581,788

¹ This balance excludes the Tranche C Warrants (as defined below), which represent a derivative liability and have nominal value. See Note 26.

	Number of whole warrants			Average exercise price		Warrant value
Balance outstanding at March 31, 2021¹		127,073,136		$	58.33	$	2,568,438
Supreme Cannabis warrants		1,265,742			25.61		13,350
Expiry of warrants		(145,831	)		32.61		-
Balance outstanding at June 30, 2021¹		128,193,047		$	58.04	$	2,581,788

¹ This balance excludes the Tranche C Warrants (as defined below), which represent a derivative liability and have nominal value. See Note 26.

18. SHARE-BASED COMPENSATION

CANOPY GROWTH CORPORATION SHARE-BASED COMPENSATION PLAN

Canopy Growth's eligible employees participate in a share-based compensation plan as noted below.

On September 21, 2020, the Company’s shareholders approved amendments to the Company’s Amended and Restated Omnibus Incentive Plan (as amended and restated, the “Omnibus Plan”) pursuant to which the Company can issue share-based long-term incentives. The Omnibus Plan approved by the shareholders extended the maximum term of each Option (as defined below) to be granted by the Company to ten years from the date of grant rather than six years from the date of grant. On May 27, 2021, the Board of Directors of the Company approved certain amendments to the Omnibus Plan in order to reduce the maximum number of shares available for issuance under the Omnibus Plan from 15% of the issued and outstanding shares to 10% of the issued and outstanding shares from time to time less the number of shares issuable pursuant to other security-based compensation arrangements of the Company. All directors, officers, employees and independent contractors of the Company are eligible to receive awards of common share purchase options (“Options”), restricted share units (“RSUs”), performance share units (“PSUs”), deferred share units, stock appreciation rights, performance awards, or other shares-based awards (collectively, the “Awards”) under the Omnibus Plan.

The maximum number of common shares reserved for Awards is 41,721,761 at June 30, 2022. As of June 30, 2022, the only Awards issued have been Options, RSUs and PSUs under the Omnibus Plan.

The Omnibus Plan is administered by the Corporate Governance, Compensation and Nominating Committee of the Board of Directors of the Company (the “CGC&N Committee”) which establishes exercise prices, at not less than the market price at the date of grant, and expiry dates. Awards under the Omnibus Plan generally vest in increments with 1/3 vesting on each of the first, second and third anniversaries from the date of grant, with expiry dates set at ten years from issuance, subject to the discretion of the CGC&N Committee pursuant to the Omnibus Plan to provide for an alternative expiry date or vesting period in an award agreement for the grant of Awards, subject to limits contained in the Omnibus Plan.

Under the Company’s Employee Share Purchase Plan (the “Purchase Plan”) the aggregate number of common shares that may be issued is 600,000, and the maximum number of common shares which may be issued in any one fiscal year shall not exceed 300,000. For the three months ended June 30, 2022, no common shares were issued under the Purchase Plan (three months ended June 30, 2021 – nil).

The following is a summary of the changes in the Options outstanding during the three months ended June 30, 2022:

	Options issued			Weighted average exercise price
Balance outstanding at March 31, 2022		16,782,962		$	33.89
Options granted		3,091,018			4.84
Options exercised		(54,570	)		3.81
Options forfeited		(1,354,827	)		29.27
Balance outstanding at June 30, 2022		18,464,583		$	29.46

The following is a summary of the Options outstanding as at June 30, 2022:

	Options Outstanding				Options Exercisable
			Weighted Average				Weighted Average
			Remaining				Remaining
	Outstanding at		Contractual Life		Exercisable at		Contractual Life
Range of Exercise Prices	June 30, 2022		(years)		June 30, 2022		(years)
$0.06 - $24.62		6,167,572		4.85		1,226,214		1.96
$24.63 - $33.53		3,839,051		2.99		2,314,928		2.55
$33.54 - $36.80		2,787,753		1.92		2,787,753		1.92
$36.81 - $42.84		2,472,721		2.61		2,340,799		2.39
$42.85 - $67.64		3,197,486		2.63		2,942,623		2.59
		18,464,583		3.34		11,612,317		2.32

At June 30, 2022, the weighted average exercise price of Options outstanding and Options exercisable was $29.46 and $38.42, respectively (March 31, 2022 – $33.89 and $38.33, respectively).

The Company recorded $377 in share-based compensation expense related to Options and Purchase Plan shares issued to employees and contractors for the three months ended June 30, 2022 (three months ended June 30, 2021 – $8,044). The share-based compensation expense for the three months ended June 30, 2022 includes an amount related to 1,173,866 Options being provided in exchange for services which are subject to performance conditions (for the three months ended June 30, 2021 – 1,559,413).

During the three months ended June 30, 2021, the Company issued replacement options to employees in relation to the acquisition of Supreme Cannabis and recorded share-based compensation expense of $823.

The Company uses the Black-Scholes option pricing model to establish the fair value of Options granted during the three months ended June 30, 2022 and 2021, on their measurement date by applying the following assumptions:

	June 30,	June 30,
	2022	2021
Risk-free interest rate	3.48%	0.67%
Expected life of options (years)	3 - 5	3 - 5
Expected volatility	75%	76%
Expected forfeiture rate	19%	18%
Expected dividend yield	nil	nil
Black-Scholes value of each option	$2.80	$17.25

Volatility was estimated by using the historical volatility of the Company. The expected life in years represents the period of time that Options granted are expected to be outstanding. The risk-free rate was based on zero coupon Canada government bonds with a remaining term equal to the expected life of the Options.

During the three months ended June 30, 2022, 54,570 Options were exercised ranging in price from $2.68 to $8.18 for gross proceeds of $210 (for the three months ended June 30, 2021 – 205,335 Options were exercised ranging in price from $2.68 to $36.34 for gross proceeds of $3,592).

For the three months ended June 30, 2022, the Company recorded $4,888 in share-based compensation expense related to RSUs and PSUs (for the three months ended June 30, 2021 – $2,295).

The following is a summary of the changes in the Company’s RSUs and PSUs during the three months ended June 30, 2022:

	Number of RSUs and PSUs
Balance outstanding at March 31, 2022		3,477,292
RSUs and PSUs granted		2,901,562
RSUs and PSUs released		(244,545	)
RSUs and PSUs cancelled and forfeited		(869,594	)
Balance outstanding at June 30, 2022		5,264,715

During the three months ended June 30, 2022, the Company recorded $nil in share-based compensation expense related to acquisition milestones (for the three months ended June 30, 2021 – $1,699).

During the three months ended June 30, 2022, no common shares were released on completion of acquisition milestones (during the three months ended June 30, 2021 – 9,888,801). At June 30, 2022, there were up to 349,572 common shares to be issued on the completion of acquisition and asset purchase milestones. In certain cases, the number of common shares to be issued is based on the volume weighted average share price at the time the milestones are met. The number of common shares has been estimated assuming the milestones were met at June 30, 2022.

BioSteel share-based payments

On October 1, 2019, the Company purchased 72% of the outstanding shares of BioSteel Sports Nutrition Inc. (“BioSteel”). BioSteel has a stock option plan under which non-transferable options to purchase common shares of BioSteel may be granted to directors, officers, employees, or independent contractors of the BioSteel. As at June 30, 2022, BioSteel had 1,565,300 (March 31, 2022 – 1,565,300) options outstanding which vest in equal tranches over a 5-year period. In determining the amount of share-based compensation related to these options, BioSteel used the Black-Scholes option pricing model to establish the fair value of options on their measurement date. The Company recorded $174 of share-based compensation expense related to the BioSteel options during the three months ended June 30, 2022 with a corresponding increase in noncontrolling interest (three months ended June 30, 2021 – $265).

19. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income includes the following components:

	Foreign currency translation adjustments			Changes of own credit risk of financial liabilities			Accumulated other comprehensive income (loss)
As at March 31, 2022	$	(57,468	)	$	15,186		$	(42,282	)
Settlement of convertible senior notes		-			(7,090	)		(7,090	)
Other comprehensive income		758			27,060			27,818
As at June 30, 2022	$	(56,710	)	$	35,156		$	(21,554	)

	Foreign currency translation adjustments			Changes of own credit risk of financial liabilities			Accumulated other comprehensive income (loss)
As at March 31, 2021	$	(28,246	)	$	(5,994	)	$	(34,240	)
Other comprehensive (loss) income		(27,938	)		660			(27,278	)
As at June 30, 2021	$	(56,184	)	$	(5,334	)	$	(61,518	)

20. NONCONTROLLING INTERESTS

The net change in the noncontrolling interests is as follows:

	Vert Mirabel			BioSteel			Other		Total
As at March 31, 2022		-			2,497			1,844		4,341
Comprehensive income (loss)		495			(4,903	)		-		(4,408	)
Net (income) loss attributable to redeemable noncontrolling interest		(495	)		4,903			-		4,408
Share-based compensation		-			174			-		174
As at June 30, 2022	$	-		$	2,671		$	1,844	$	4,515

	Vert Mirabel			BioSteel			Other non- material interests		Total
As at March 31, 2021	$	-		$	1,658		$	3,051	$	4,709
Comprehensive income (loss)		1,293			(3,756	)		-		(2,463	)
Net (income) loss attributable to redeemable noncontrolling interest		(1,293	)		3,756			-		2,463
Share-based compensation		-			265			-		265
As at June 30, 2021	$	-		$	1,923		$	3,051	$	4,974

21. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value measurements are made using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value:

•

Level 1 – defined as observable inputs such as quoted prices in active markets;

•

Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

•

Level 3 – defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The fair value measurement is categorized in its entirety by reference to its lowest level of significant input.

The Company records cash, accounts receivable, interest receivable and accounts payable, and other accrued expenses and liabilities at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.

Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis may include items such as property, plant and equipment, goodwill and other intangible assets, equity and other investments and other assets. We determine the fair value of these items using Level 3 inputs, as described in the related sections below.

The following table represents our financial assets and liabilities measured at estimated fair value on a recurring basis:

	Fair value measurement using
	Quoted prices		Significant
	prices in		other		Significant
	active		observable		unobservable
	markets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)		Total
June 30, 2022
Assets:
Short-term investments	$	447,620	$	-	$	-	$	447,620
Restricted short-term investments		12,177		-		-		12,177
Other financial assets		277		-		589,951		590,228
Liabilities:
Convertible senior notes		-		494,416		-		494,416
Warrant derivative liability		-		-		1,555		1,555
Other liabilities		-		-		58,887		58,887

March 31, 2022
Assets:
Short-term investments	$	595,651	$	-	$	-	$	595,651
Restricted short-term investments		12,216		-		-		12,216
Other financial assets		490		-		787,816		788,306
Liabilities:
Convertible senior notes		-		563,958		-		563,958
Liability arising from Acreage Arrangement		-		-		47,000		47,000
Warrant derivative liability		-		-		26,920		26,920
Other liabilities		-		-		70,066		70,066

The following table summarizes the valuation techniques and significant unobservable inputs in the fair value measurement of significant level 2 financial instruments:

	Financial asset / financial liability		Valuation techniques		Key inputs
	Convertible senior notes		Convertible note pricing model		Quoted prices in over-the-counter broker market

The following table summarizes the valuation techniques and significant unobservable inputs in the fair value measurement of significant level 3 financial instruments:

Financial asset / financial liability	Valuation techniques	Significant unobservable inputs	Relationship of unobservable inputs to fair value
Acreage financial instrument	Probability weighted expected return model	Probability of each scenario	Change in probability of occurrence in each scenario will result in a change in fair value
		Number of common shares to be issued	Increase or decrease in value and number of common shares will result in a decrease or increase in fair value
		Probability and timing of US legalization	Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
		Estimated premium on US legalization	Increase or decrease in estimated premium on US legalization will result in an increase or decrease in fair value
		Control premium	Increase or decrease in estimated control premium will result in an increase or decrease in fair value
		Market access premium	Increase or decrease in estimated market access premium will result in an increase or decrease in fair value
TerrAscend Exchangeable Shares, TerrAscend Option	Put option pricing model	Probability and timing of US legalization	Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
Hempco Debenture	Discounted cash flow	Discount rate	Increase or decrease in discount rate will result in a decrease or increase in fair value
TerrAscend warrants - October 2019, March 2020	Black-Sholes option pricing model	Probability and timing of US legalization	Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
TerrAscend warrants - December 2020	Monte Carlo simulation model	Probability and timing of US legalization	Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
Arise Bioscience term loan, TerrAscend Canada term loan -	Discounted cash flow	Probability and timing of US legalization	Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
October 2019, March 2020		Discount rate	Increase or decrease in discount rate will result in a decrease or increase in fair value
Wana financial instrument - Call	Discounted cash flow	Expected future Wana cash flows	Increase or decrease in expected future Wana cash flows will result in an increase or decrease in fair value
Option		Discount rate	Increase or decrease in discount rate will result in a decrease or increase in fair value
Wana financial instrument - Deferred Payments	Monte Carlo simulation model	Probability and timing of US legalization	Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
		Volatility of Wana equity	Increase or decrease in volatility will result in an increase or decrease in fair value
Jetty financial instrument -	Discounted cash flow	Expected future Jetty cash flows	Increase or decrease in expected future Jetty cash flows will result in an increase or decrease in fair value
Call Option		Discount rate	Increase or decrease in discount rate will result in a decrease or increase in fair value
Jetty financial instrument - Deferred	Monte Carlo simulation model	Probability and timing of US legalization	Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
Payments		Volatility of Jetty equity and revenue	Increase or decrease in volatility will result in an increase or decrease in fair value
Warrant derivative liability	Monte Carlo simulation model	Volatility of Canopy Growth share price	Increase or decrease in volatility will result in an increase or decrease in fair value
BioSteel redeemable noncontrolling interest	Discounted cash flow	Discount rate	Increase or decrease in discount rate will result in a decrease or increase in fair value
		Expected future BioSteel cash flows	Increase or decrease in expected future BioSteel cash flows will result in an increase or decrease in fair value

	Vert Mirabel redeemable		Discounted cash flow		Discount rate		Increase or decrease in discount rate will result in a decrease or increase in fair value
	noncontrolling interest				Future wholesale price and production levels		Increase or decrease in future wholesale price and production levels will result in an increase or decrease in fair value

22. REVENUE

Revenue is dissaggregated as follows:

	Three months ended
	June 30,		June 30,
	2022		2021
Canadian recreational cannabis net revenue
Business-to-business¹	$	26,540	$	42,693
Business-to-consumer		12,435		17,344
		38,975		60,037
Canadian medical cannabis net revenue²		13,440		13,492
		52,415		73,529
International and other revenue
C³		-		11,443
Other		13,781		7,967
		13,781		19,410
Global cannabis net revenue		66,196		92,939

Other consumer products
Storz & Bickel		15,643		24,070
This Works		5,520		6,551
BioSteel		17,888		6,661
Other		4,868		5,988
Other consumer products revenue		43,919		43,270

Net revenue	$	110,115	$	136,209

¹Canadian recreational business-to-business net revenue during the three months ended June 30, 2022 reflects excise taxes of $11,591 (three months ended June 30, 2021 – $17,834).

²Canadian medical cannabis net revenue for the three months ended June 30, 2022 reflects excise taxes of $1,156 (three months ended June 30, 2021 – $1,380).

The Company recognizes variable consideration related to estimated future product returns and price adjustments as a reduction of the transaction price at the time revenue for the corresponding product sale is recognized. Net revenue reflects actual returns and variable consideration related to estimated returns and price adjustments in the amount of $2,898 for the three months ended June 30, 2022 (three months ended June 30, 2021 – $5,314). As of June 30, 2022, the liability for estimated returns and price adjustments was $2,788 (March 31, 2022 – $3,437).

23. OTHER INCOME (EXPENSE), NET

Other income (expense), net is dissaggregated as follows:

	Three months ended
	June 30,			June 30,
	2022			2021
Fair value changes on other financial assets	$	(300,854	)	$	84,152
Fair value changes on liability arising from Acreage Arrangement		47,000			150,000
Fair value changes on convertible senior notes		(9,612	)		50,712
Fair value changes on warrant derivative liability		25,365			316,257
Fair value changes on acquisition related contingent consideration and other		40,425			(199	)
Charges related to settlement of convertible senior notes		(19,168	)		-
Interest income		3,950			2,647
Interest expense		(26,901	)		(24,564	)
Foreign currency gain (loss)		(4,935	)		1,030
Gain (loss) on disposal/acquisition of consolidated entity		379			(2,339	)
Other income (expense), net		(1,227	)		2,970
	$	(245,578	)	$	580,666

24. INCOME TAXES

There have been no material changes to income tax matters in connection with normal course operations during the three months ended June 30, 2022.

The Company is subject to income tax in numerous jurisdictions with varying income tax rates. During the most recent period ended and the fiscal year to date, there were no material changes to the statutory income tax rates in the taxing jurisdictions where the majority of the Company’s income for tax purposes was earned, or where its temporary differences or losses are expected to be realized or settled. Although statutory income tax rates remain stable, the Company’s effective income tax rate may fluctuate, arising as a result of the Company’s evolving footprint, discrete transactions and other factors that, to the extent material, are disclosed in these financial statements.

The Company continues to believe that the amount of unrealized tax benefits appropriately reflects the uncertainty of items that are or may in the future be under discussion, audit, dispute or appeal with a tax authority or which otherwise result in uncertainty in the determination of income for tax purposes. If appropriate, an unrealized tax benefit will be realized in the reporting period in which the Company determines that realization is not in doubt. Where the final determined outcome is different from the Company’s estimate, such difference will impact the Company’s income taxes in the reporting period during which such determination is made.

25. EARNINGS (LOSS) PER SHARE

Basic and diluted earnings (loss) per share are calculated using the following numerators and denominators:

	Three months ended
	June 30,			June 30,
	2022			2021
Basic (loss) earnings per share computation
Net (loss) income attributable to common shareholders of Canopy Growth	$	(2,083,148	)	$	392,418
Weighted average number of common shares outstanding		398,467,568			384,055,133
Basic (loss) earnings per share	$	(5.23	)	$	1.02

Diluted (loss) earnings per share computation
Net (loss) income used in the computation of basic (loss) earnings per share	$	(2,083,148	)	$	392,418
Numerator adjustments for diluted (loss) earnings per share:
Adjustment to net loss attributable to noncontrolling interests and redeemable noncontrolling interest		-			(2,463	)
Removal of fair value changes on convertible senior notes		-			(50,712	)
Net (loss) income used in the computation of diluted (loss) earnings per share	$	(2,083,148	)	$	339,243

Weighted average number of common shares outstanding used in the computation of basic (loss) earnings per share		398,467,568			384,055,133
Denominator adjustments for diluted (loss) earnings per share:
Dilutive impact of assumed exercise or conversion of:
Convertible senior notes		-			13,214,767
Redeemable noncontrolling interest		-			4,289,296
Stock options		-			1,190,278
Other securities		-			1,796,769
Weighted average number of common shares for computation of diluted (loss) earnings per share		398,467,568			404,546,243
Diluted (loss) earnings per share¹	$	(5.23	)	$	0.84

¹ In computing diluted earnings per share, incremental common shares are not considered in periods in which a net loss is reported, as the inclusion of the common share equivalents would be anti-dilutive.

26. ACREAGE ARRANGEMENT AND AMENDMENTS TO CBI INVESTOR RIGHTS AGREEMENT AND WARRANTS

Acreage Arrangement

On September 23, 2020, the Company and Acreage Holdings, Inc. (“Acreage”) entered into a second amendment (the “Acreage Amending Agreement”) to the arrangement agreement (the “Acreage Arrangement Agreement”) and plan of arrangement (the “Original Acreage Arrangement”) between the Company and Acreage dated April 18, 2019, as amended on May 15, 2019. In connection with the Acreage Amending Agreement, the Company and Acreage implemented an amended and restated plan of arrangement (the “Acreage Amended Arrangement”) on September 23, 2020. Pursuant to the terms of the Original Acreage Arrangement, shareholders of Acreage and holders of certain securities convertible into the existing Acreage subordinated voting shares as of June 26, 2019, received an immediate aggregate total payment of US$300,000 ($395,190) in exchange for granting Canopy Growth both the right and the obligation to acquire all of the issued and outstanding shares of Acreage following the occurrence or waiver of changes in U.S. federal law to permit the general cultivation, distribution, and possession of marijuana or to remove the regulation of such activities from the federal laws of the United States (the “Triggering Event”) and subject to the satisfaction or waiver of the conditions set out in the Acreage Arrangement Agreement.

The Acreage Amended Arrangement provides for, among other things, the following:

•

Following the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event and subject to the satisfaction or waiver of the conditions set out in the Acreage Arrangement Agreement (as modified in connection with the Acreage Amending Agreement), Canopy Growth will acquire all of the issued and outstanding Class E subordinated voting shares (the “Fixed Shares”) based on an amended exchange ratio equal to 0.3048 of a common share to be received for each Fixed Share held. The foregoing exchange ratio for the Fixed Shares is subject to adjustment in accordance with the Acreage Amended Arrangement if, among other things, Acreage issues greater than the permitted number of Fixed Shares;

•

Upon the occurrence or waiver (at the discretion of Canopy Growth) of the Triggering Event, Canopy Growth will have the right exercisable for a period of 30 days, to acquire all of the issued and outstanding Class D subordinated voting shares (the “Floating Shares”) for cash or common shares or a combination thereof, in Canopy Growth’s sole discretion at a price equal to the 30-day volume weighted average trading price of the Floating Shares on the Canadian Securities Exchange, subject to a minimum call price of US$6.41 per Floating Share. The foregoing exchange ratio for the Floating Shares is subject to adjustment in accordance with the Acreage Amended Arrangement if Acreage issues greater than the permitted number of Floating Shares. The acquisition of the Floating Shares, if acquired, will take place concurrently with the closing of the acquisition of the Fixed Shares;

•

Immediately prior to the acquisition of the Fixed Shares, each issued and outstanding Class F multiple voting share will automatically be exchanged for one Fixed Share and thereafter be acquired by Canopy Growth upon the same terms and conditions as the acquisition of the Fixed Shares;

•

If the occurrence or waiver of the Triggering Event does not occur by September 23, 2030, Canopy Growth’s rights to acquire both the Fixed Shares and the Floating Shares will terminate;

•

Upon implementation of the Acreage Amended Arrangement, Canopy Growth made a cash payment to the shareholders of Acreage and holders of certain convertible securities in the aggregate amount of US$37,500 ($49,849); and

•

Acreage is only permitted to issue an aggregate of up to 32,700,000 Fixed Shares and Floating Shares.

At June 30, 2022, the right and the obligation (the “Acreage financial instrument”) to acquire the Fixed Shares represents a financial asset of $60,000 (March 31, 2022 – $47,000 liability), as the estimated fair value of the Acreage business is more than the estimated fair value of the consideration to be provided upon the exercise of the Acreage financial instrument. Fair value changes on the Acreage financial instrument are recognized in other income (expense), net; see Note 23. The fair value determination includes a high degree of subjectivity and judgment, which results in significant estimation uncertainty. See Note 21 for additional details on how the fair value of the Acreage financial instrument is calculated on a recurring basis. From a measurement perspective, the Company has elected the fair value option under ASC 825.

In connection with the Acreage Amended Arrangement, on September 23, 2020, an affiliate of the Company advanced US$50,000 ($66,995) to Universal Hemp, LLC, a wholly owned subsidiary of Acreage (“Acreage Hempco”) pursuant to a secured debenture (“Hempco Debenture”). In accordance with the terms of the Hempco Debenture, the funds advanced to Acreage Hempco cannot be used, directly or indirectly, in connection with or for any cannabis or cannabis-related operations in the United States, unless and until such operations comply with all applicable laws of the United States. The Hempco Debenture bears interest at a rate of 6.1% per annum and matures on September 23, 2030, or such earlier date in accordance with the terms of the Hempco Debenture. All interest payments made pursuant to the Hempco Debenture are payable in cash by Acreage Hempco. The Hempco Debenture is not convertible and is not guaranteed by Acreage.

The amount advanced on September 23, 2020 pursuant to the Hempco Debenture has been recorded in other financial assets (see Note 9), and the Company has elected the fair value option under ASC 825 (see Note 21). At June 30, 2022, the estimated fair value of the Hempco Debenture issued to an affiliate of the Company by Acreage Hempco was $27,419 (March 31, 2022 – $28,824), measured using a discounted cash flow model (see Note 21). Refer to Note 9 for details on fair value changes, foreign currency translation adjustment, and interest received. An additional US$50,000 may be advanced pursuant to the Hempco Debenture subject to the satisfaction of certain conditions by Acreage Hempco.

Amendment to the CBI Investor Rights Agreement and warrants

On April 18, 2019, certain wholly-owned subsidiaries of CBI and Canopy Growth entered into a second amended and restated investor rights agreement and a consent agreement. In connection with these agreements, on June 27, 2019, Canopy Growth (i) extended the term of the first tranche of warrants, which allow CBI to acquire 88.5 million additional shares of Canopy Growth for a fixed price of $50.40 per share (the “Tranche A Warrants”), to November 1, 2023; and (ii) replaced the second tranche of warrants with two new tranches of warrants (the “Tranche B Warrants” and the “Tranche C Warrants”) as follows:

•

the Tranche B Warrants are exercisable to acquire 38.5 million common shares at a price of C$76.68 per common share; and

•

the Tranche C Warrants are exercisable to acquire 12.8 million common shares at a price equal to the 5-day volume-weighted average price of the common shares immediately prior to exercise.

In connection with the Tranche B Warrants and the Tranche C Warrants, Canopy Growth will provide CBI with a share repurchase credit of up to $1.583 billion on the aggregate exercise price of the Tranche B Warrants and Tranche C Warrants in the event that Canopy Growth does not purchase for cancellation the lesser of (i) 27,378,866 common shares; and (ii) common shares with a value of $1.583 billion, during the period commencing on April 18, 2019 and ending on the date that is 24 months after the date that CBI exercises all of the Tranche A Warrants. The share repurchase credit feature is accounted for as a derivative liability, with the fair value continuing to be $nil at June 30, 2022.

The modifications to the Tranche A Warrants resulted in them meeting the definition of a derivative instrument under ASC 815 - Derivatives and Hedging (“ASC 815”). They continue to be classified in equity as the number of shares and exercise price were both fixed at inception.

The Tranche B Warrants are accounted for as derivative instruments (the “warrant derivative liability”) measured at fair value in accordance with ASC 815. At June 30, 2022, the fair value of the warrant derivative liability was $1,555 (March 31, 2022 – $26,920), and fair value changes are recognized in other income (expense), net; see Note 23. See Note 21 for additional details on how the fair value of the warrant derivative liability is calculated on a recurring basis.

The Tranche C Warrants are accounted for as derivative instruments, with the fair value continuing to be $nil at June 30, 2022.

27. SEGMENT INFORMATION

Reportable segments

The Company is reporting its financial results for the following two operating segments, which are also its reportable segments: (i) global cannabis, and (ii) other consumer products. These segments reflect how the Company’s operations are managed, how the Company’s Chief Executive Officer, who is the chief operating decision maker (“CODM”), allocates resources and evaluates performance, and how the Company’s internal management financial reporting is structured.

The Company’s global cannabis segment encompasses the production, distribution and sale of a diverse range of cannabis and cannabinoid-based consumer products in Canada and internationally pursuant to applicable international and domestic legislation, regulations and permits. The Company’s other consumer products segment comprises the production, distribution and sale of consumer products, including (i) Storz & Bickel vaporizers; (ii) This Works beauty, skincare, wellness and sleep products; (iii) BioSteel sports nutrition beverages, mixes, protein, gum and mints; and (iv) other revenue sources. The Company’s CODM evaluates the performance of these two segments focusing on (i) segment net revenue, and (ii) segment gross margin and gross margin percentage as the measure of segment profit or loss.

	Three months ended
	June 30,			June 30,
	2022			2021
Segmented net revenue
Global cannabis	$	66,196		$	92,939
Other consumer products		43,919			43,270
	$	110,115		$	136,209
Segmented gross margin:
Global cannabis	$	(15,472	)	$	13,369
Other consumer products		14,080			13,869
		(1,392	)		27,238
Selling, general and administrative expenses		103,413			112,574
Share-based compensation		5,439			13,126
Asset impairment and restructuring costs		1,727,985			89,249
Operating loss		(1,838,229	)		(187,711	)
Loss from equity method investments		-			(100	)
Other income (expense), net		(245,578	)		580,666
(Loss) income before incomes taxes	$	(2,083,807	)	$	392,855

Asset information by segment is not provided to, or reviewed by, the Company’s CODM as it is not used to make strategic decisions, allocate resources, or assess performance.

Entity-wide disclosures

Disaggregation of net revenue by geographic area:

	Three months ended
	June 30,		June 30,
	2022		2021
Canada	$	74,449	$	82,612
Germany		12,364		26,106
United States		11,613		19,867
Other		11,689		7,624
	$	110,115	$	136,209

Disaggregation of property, plant and equipment by geographic area:

	June 30,		March 31,
	2022		2022
Canada	$	810,895	$	827,591
Other		115,474		115,189
	$	926,369	$	942,780

For the three months ended June 30, 2022, no customer represented more than 10% of the Company’s net revenue (three months ended June 30, 2021 – one).

28. SUBSEQUENT EVENTS

Completion of Exchange Transaction

On July 18, 2022, the Company completed the Exchange Transaction whereby 62,735,059 common shares were issued in July 2022 and aggregate principal amount of Notes of $199,522 were acquired and cancelled. In total, 76,804,412 common shares, including the 14,069,353 common shares issued on June 30, 2022, were issued and $262,620 of aggregate principal amount of the Notes under the Exchange Transaction were acquired and cancelled. Refer to Note 14.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

This Management’s Discussion and Analysis (“MD&A”) should be read together with other information, including our unaudited condensed interim consolidated financial statements and the related notes to those statements included in Part I, Item 1 of this Quarterly Report (the “Interim Financial Statements”), our consolidated financial statements appearing in our Annual Report on Form 10-K for the year ended March 31, 2022 (the “Annual Report”) and Part I, Item 1A, Risk Factors, of the Annual Report. This MD&A provides additional information on our business, recent developments, financial condition, cash flows and results of operations, and is organized as follows:

•

Part 1 - Business Overview. This section provides a general description of our business, which we believe is important in understanding the results of our operations, financial condition, and potential future trends.

•

Part 2 - Results of Operations. This section provides an analysis of our results of operations for the first quarter of fiscal 2023 in comparison to the first quarter of fiscal 2022.

•

Part 3 - Financial Liquidity and Capital Resources. This section provides an analysis of our cash flows and outstanding debt and commitments. Included in this analysis is a discussion of the amount of financial capacity available to fund our ongoing operations and future commitments.

We prepare and report our Interim Financial Statements in accordance with U.S. GAAP. Our Interim Financial Statements, and the financial information contained herein, are reported in thousands of Canadian dollars, except share and per share amounts or as otherwise stated. We have determined that the Canadian dollar is the most relevant and appropriate reporting currency as, despite continuing shifts in the relative size of our operations across multiple geographies, the majority of our operations are conducted in Canadian dollars and our financial results are prepared and reviewed internally by management in Canadian dollars.

Special Note Regarding Forward-Looking Statements

This Quarterly Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and other applicable securities laws, which involve certain known and unknown risks and uncertainties. Forward-looking statements predict or describe our future operations, business plans, business and investment strategies and the performance of our investments. These forward-looking statements are generally identified by their use of such terms and phrases as “intend,” “goal,” “strategy,” “estimate,” “expect,” “project,” “projections,” “forecasts,” “plans,” “seeks,” “anticipates,” “potential,” “proposed,” “will,” “should,” “could,” “would,” “may,” “likely,” “designed to,” “foreseeable future,” “believe,” “scheduled” and other similar expressions. Our actual results or outcomes may differ materially from those anticipated. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

Forward-looking statements include, but are not limited to, statements with respect to:

•

the uncertainties associated with the COVID-19 pandemic, including our ability, and the ability of our suppliers and distributors, to effectively manage the restrictions, limitations and health issues presented by the COVID-19 pandemic, the ability to continue our production, distribution and sale of our products and the demand for and use of our products by consumers, disruptions to the global and local economies due to related stay-at-home orders, quarantine policies and restrictions on travel, trade and business operations and a reduction in discretionary consumer spending;

•

laws and regulations and any amendments thereto applicable to our business and the impact thereof, including uncertainty regarding the application of U.S. state and federal law to U.S. hemp (including CBD) products and the scope of any regulations by the U.S. Food and Drug Administration (the “FDA”), the U.S. Drug Enforcement Administration (the “DEA”), the U.S. Federal Trade Commission (the “FTC”), the U.S. Patent and Trademark Office (the “USPTO”), the U.S. Department of Agriculture (the “USDA”) and any state equivalent regulatory agencies over U.S. hemp (including CBD) products;

•

expectations regarding the amount or frequency of impairment losses, including as a result of the write-down of intangible assets, including goodwill;

•

expectations related to our announcement of certain restructuring actions (the “Restructuring Actions”) and any progress, challenges and effects related thereto as well as changes in strategy, metrics, investments, costs, operating expenses, employee turnover and other changes with respect thereto;

•

expectations regarding the laws and regulations and any amendments thereto relating to the U.S. hemp industry in the U.S., including the promulgation of regulations for the U.S. hemp industry by the USDA and relevant state regulatory authorities;

•

expectations regarding the potential success of, and the costs and benefits associated with, our acquisitions, joint ventures, strategic alliances, equity investments and dispositions;

•

the Acreage Amended Arrangement (as defined below), including the occurrence or waiver (at our discretion) of the Triggering Event (as defined below) and the satisfaction or waiver of the conditions to closing the acquisition of Acreage (as defined below);

•

the Wana Agreements (as defined below), including the occurrence or waiver (at our discretion) of the Triggering Event;

•

the grant, renewal and impact of any license or supplemental license to conduct activities with cannabis or any amendments thereof;

•

our international activities and joint venture interests, including required regulatory approvals and licensing, anticipated costs and timing, and expected impact;

•

our ability to successfully create and launch brands and further create, launch and scale cannabis-based products and U.S. hemp-derived consumer products in jurisdictions where such products are legal and that we currently operate in;

•

the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, including CBD and other cannabinoids;

•

the anticipated benefits and impact of the investments in us (the “CBI Group Investments”) from Constellation Brands, Inc. (“CBI”) and its affiliates (together, the “CBI Group”);

•

the potential exercise of the warrants held by the CBI Group, pre-emptive rights and/or top-up rights held by the CBI Group;

•

expectations regarding the use of proceeds of equity financings, including the proceeds from CBI;

•

the legalization of the use of cannabis for medical or recreational in jurisdictions outside of Canada, the related timing and impact thereof and our intentions to participate in such markets, if and when such use is legalized;

•

our ability to execute on our strategy and the anticipated benefits of such strategy;

•

the ongoing impact of the legalization of additional cannabis product types and forms for recreational use in Canada, including federal, provincial, territorial and municipal regulations pertaining thereto, the related timing and impact thereof and our intentions to participate in such markets;

•

the ongoing impact of developing provincial, territorial and municipal regulations pertaining to the sale and distribution of cannabis, the related timing and impact thereof, as well as the restrictions on federally regulated cannabis producers participating in certain retail markets and our intentions to participate in such markets to the extent permissible;

•

the timing and nature of legislative changes in the U.S. regarding the regulation of cannabis including tetrahydrocannabinol (“THC”);

•

the future performance of our business and operations;

•

our competitive advantages and business strategies;

•

the competitive conditions of the industry;

•

the expected growth in the number of customers using our products;

•

our ability or plans to identify, develop, commercialize or expand our technology and research and development initiatives in cannabinoids, or the success thereof;

•

expectations regarding revenues, expenses and anticipated cash needs;

•

expectations regarding cash flow, liquidity and sources of funding;

•

expectations regarding capital expenditures;

•

our ability to refinance debt as and when required on terms favorable to us and comply with covenants contained in our debt facilities and debt instruments;

•

the expansion of our production and manufacturing, the costs and timing associated therewith and the receipt of applicable production and sale licenses;

•

the expected growth in our growing, production and supply chain capacities;

•

expectations regarding the resolution of litigation and other legal and regulatory proceedings, reviews and investigations;

•

expectations with respect to future production costs;

•

expectations with respect to future sales and distribution channels and networks;

•

the expected methods to be used to distribute and sell our products;

•

our future product offerings;

•

the anticipated future gross margins of our operations;

•

accounting standards and estimates;

•

expectations regarding our distribution network;

•

expectations regarding the costs and benefits associated with our contracts and agreements with third parties, including under our third-party supply and manufacturing agreements; and

•

expectations on price changes in cannabis markets.

Certain of the forward-looking statements contained herein concerning the industries in which we conduct our business are based on estimates prepared by us using data from publicly available governmental sources, market research, industry analysis and on assumptions based on data and knowledge of these industries, which we believe to be reasonable. However, although generally

indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. The industries in which we conduct our business involve risks and uncertainties that are subject to change based on various factors, which are described further below.

The forward-looking statements contained herein are based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including: (i) management’s perceptions of historical trends, current conditions and expected future developments; (ii) our ability to generate cash flow from operations; (iii) general economic, financial market, regulatory and political conditions in which we operate; (iv) the production and manufacturing capabilities and output from our facilities and our joint ventures, strategic alliances and equity investments; (v) consumer interest in our products; (vi) competition; (vii) anticipated and unanticipated costs; (viii) government regulation of our activities and products including but not limited to the areas of taxation and environmental protection; (ix) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses; (x) our ability to obtain qualified staff, equipment and services in a timely and cost-efficient manner; (xi) our ability to conduct operations in a safe, efficient and effective manner; (xii) our ability to realize anticipated benefits, synergies or generate revenue, profits or value from our recent acquisitions into our existing operations; (xiii) our ability to continue to operate in light of the COVID-19 pandemic and the impact of the pandemic on demand for, and sales of, our products and our distribution channels; and (xiv) other considerations that management believes to be appropriate in the circumstances. While our management considers these assumptions to be reasonable based on information currently available to management, there is no assurance that such expectations will prove to be correct.

By their nature, forward-looking statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of factors, including known and unknown risks, many of which are beyond our control, could cause actual results to differ materially from the forward-looking statements in this Quarterly Report and other reports we file with, or furnish to, the Securities and Exchange Commission (the “SEC”) and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf. Such factors include, without limitation, our limited operating history; the risks that our Restructuring Actions will not result in the expected cost-savings, efficiencies and other benefits or will result in greater than anticipated turnover in personnel; risks that we may be required to write down intangible assets, including goodwill, due to impairment; changes in laws, regulations and guidelines and our compliance with such laws, regulations and guidelines; the risk that the COVID-19 pandemic may disrupt our operations and those of our suppliers and distribution channels and negatively impact the demand for and use of our products; consumer demand for cannabis and U.S. hemp products; inflation risks; the risks and uncertainty regarding future product development; our reliance on licenses issued by and contractual arrangements with various federal, state and provincial governmental authorities; the risk that cost savings and any other synergies from the CBI Group Investments may not be fully realized or may take longer to realize than expected; the implementation and effectiveness of key personnel changes; risks associated with jointly owned investments; risks relating to our current and future operations in emerging markets; risks relating to inventory write downs; future levels of revenues and the impact of increasing levels of competition; risks related to the protection and enforcement of our intellectual property rights; our ability to manage disruptions in credit markets or changes to our credit ratings; future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses; the success or timing of completion of ongoing or anticipated capital or maintenance projects; risks related to the integration of acquired businesses; the timing and manner of the legalization of cannabis in the United States; business strategies, growth opportunities and expected investment; the adequacy of our capital resources and liquidity, including but not limited to, availability of sufficient cash flow to execute our business plan (either within the expected timeframe or at all); counterparty risks and liquidity risks that may impact our ability to obtain loans and other credit facilities on favorable terms; the potential effects of judicial, regulatory or other proceedings, or threatened litigation or proceedings, on our business, financial condition, results of operations and cash flows; risks related to stock exchange restrictions; risks associated with divestment and restructuring; volatility in and/or degradation of general economic, market, industry or business conditions; our exposure to risks related to an agricultural business, including wholesale price volatility and variable product quality; third-party manufacturing risks; third-party transportation risks; compliance with applicable environmental, economic, health and safety, energy and other policies and regulations and in particular health concerns with respect to vaping and the use of cannabis and U.S. hemp products in vaping devices; the anticipated effects of actions of third parties such as competitors, activist investors or federal, state, provincial, territorial or local regulatory authorities, self-regulatory organizations, plaintiffs in litigation or persons threatening litigation; changes in regulatory requirements in relation to our business and products; and the factors discussed under the heading “Risk Factors” in the Annual Report. Readers are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements.

Forward-looking statements are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash flows as of and for periods ended on certain dates and to present information about management’s current expectations and plans relating to the future, and the reader is cautioned that the forward-looking statements may not be appropriate for any other purpose. While we believe that the assumptions and expectations reflected in the forward-looking statements are

reasonable based on information currently available to management, there is no assurance that such assumptions and expectations will prove to have been correct. Forward-looking statements are made as of the date they are made and are based on the beliefs, estimates, expectations and opinions of management on that date. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such forward-looking statements, except as required by law. The forward-looking statements contained in this Quarterly Report and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf are expressly qualified in their entirety by these cautionary statements.

Part 1 - Business Overview

We are a world-leading cannabis consumer packaged goods (“CPG”) company which produces, distributes, and sells a diverse range of cannabis, hemp, and CPG products. Cannabis products are principally sold for recreational and medical purposes under a portfolio of distinct brands in Canada pursuant to the Cannabis Act, and globally pursuant to applicable international and Canadian legislation, regulations, and permits. We are also active in the cannabis accessory, hemp-derived CBD, skin care and wellness, and sports performance beverage categories. Our core operations are in Canada, the United States, and Germany.

On October 17, 2018, the Cannabis Act came into effect in Canada, regulating both the medical and recreational cannabis markets in Canada and providing provincial, territorial and municipal governments the authority to prescribe regulations regarding the distribution and sale of recreational cannabis. On October 17, 2019, the second phase of recreational cannabis products was legalized pursuant to certain amendments to the regulations under the Cannabis Act. We currently offer product varieties in dried flower, oil, softgels, vape pen power sources, pod-based vape devices, vape cartridges, cannabis-infused beverages and cannabis-infused edibles, with product availability varying based on provincial and territorial regulations. Our recreational cannabis products are predominantly sold to provincial and territorial agencies under a “business-to-business” wholesale model, with those provincial and territorial agencies then being responsible for the distribution of our products to brick-and-mortar stores and for online retail sales. We also operate a network of Tweed and Tokyo Smoke retail stores across Canada, where permissible, to promote brand awareness and drive consumer demand under a “business-to-consumer” model. In the first quarter of fiscal 2022, we completed the acquisitions of (i) The Supreme Cannabis Company, Inc. (“Supreme Cannabis”), a producer of recreational, wholesale and medical cannabis products with a diversified portfolio of distinct cannabis products and brands; and (ii) AV Cannabis Inc. (“Ace Valley”), an Ontario-based cannabis brand focused on premium, ready-to-enjoy products including vapes, pre-roll joints and gummies.

Our Spectrum Therapeutics medical division is a global leader in medical cannabis. Spectrum Therapeutics produces and distributes a diverse portfolio of medical cannabis products to healthcare practitioners and medical customers in Canada, and in several other countries where it is federally permissible to do so.

Subsequent to the passage of the 2018 Farm Bill in December 2018, we began building our hemp supply chain in the United States through our investment in processing, extraction and finished goods manufacturing facilities. In the United States, we currently offer (i) a line of premium quality, hemp-derived wellness gummies, oils, softgels and topicals under the Martha Stewart CBD brand; (ii) a line of premium, ready-to-drink CBD-infused sparkling waters under the Quatreau brand; and (iii) whisl, a CBD vape.

In June 2019, we implemented a plan of arrangement pursuant to an arrangement agreement (the “Acreage Arrangement Agreement”) with Acreage Holdings, Inc. (“Acreage”), a U.S. multi-state cannabis operator. In September 2020, we entered into a second amendment to the Acreage Arrangement Agreement (the “Acreage Amending Agreement”) and implemented an amended and restated plan of arrangement (the “Acreage Amended Arrangement”). Pursuant to the Acreage Amended Arrangement, following the occurrence or waiver (at our discretion) of changes in U.S. federal law to permit the general cultivation, distribution, and possession of marijuana or to remove the regulation of such activities from the federal laws of the United States (the “Triggering Event”) and subject to the satisfaction or waiver of the conditions set out in the Acreage Arrangement Agreement (as modified by the Acreage Amending Agreement), we (i) agreed to acquire approximately 70% of the issued and outstanding shares of Acreage, and (ii) obtained the right to acquire the other approximately 30% of the issued and outstanding shares of Acreage. The acquisition of Acreage, if completed, will provide a pathway into cannabis markets in the United States; however, we and Acreage will continue to operate as independent companies until the acquisition of Acreage is completed.

On October 14, 2021, we entered into definitive agreements (the “Wana Agreements”) with Mountain High Products, LLC, Wana Wellness, LLC and The Cima Group, LLC (collectively, “Wana”) providing us with the right, upon the occurrence or waiver (at our discretion) of the Triggering Event, to acquire 100% of the outstanding membership interests of Wana. Wana manufactures and sells gummies in the state of Colorado and licenses its intellectual property to partners, who manufacture, distribute, and sell Wana-branded gummies across the United States, including in California, Arizona, Illinois, Michigan and Florida, and across Canada. Until such time as we exercise our right to acquire Wana, we will have no economic or voting interest in Wana, and we and Wana will continue to operate independently. Additionally, on May 17, 2022, we and Lemurian, Inc. (“Jetty”) entered into definitive agreements (the “Jetty Agreements”) providing us with the right to acquire up to 100% of the outstanding equity interests in Jetty, (i) upon the occurrence of changes in U.S. federal law to permit the general cultivation, distribution, and possession of marijuana, or to remove the regulation of such activities from the federal laws of the United States; or (ii) an earlier date at our sole discretion (the “Jetty Triggering Event”). Jetty is a California-based producer of high-quality cannabis extracts and pioneer of clean vape technology.

Our other product offerings, which are sold by our subsidiaries in jurisdictions where it is permissible to do so, include (i) Storz & Bickel vaporizers; (ii) This Works beauty, skincare, wellness and sleep products, some of which have been blended with hemp-derived CBD isolate; and (iii) BioSteel sports nutrition beverages, mixes, protein, gum and mints, some of which have been infused with hemp-derived CBD isolate.

Our products contain THC, CBD, or a combination of these two cannabinoids which are found in the cannabis sativa plant species. THC is the primary psychoactive or intoxicating cannabinoid found in cannabis. We also refer throughout this MD&A to “hemp”, which is a term used to classify varieties of the cannabis sativa plant that contain CBD and 0.3% or less THC content (by dry weight). Conversely, references to the term “marijuana” refers to varieties of the cannabis sativa plant with more than 0.3% THC content and moderate levels of CBD.

Our licensed operational capacity in Canada includes indoor and greenhouse cultivation space; post-harvest processing and cannabinoid extraction capability; advanced manufacturing capability for softgel encapsulation and pre-rolled joints; a beverage production facility; and confectionary manufacturing. These capabilities allow us to supply the recreational and medical markets with a complimentary balance of flower products and extracted cannabinoid input for our oil, CBD, ingestible cannabis, cannabis extracts and cannabis topical products.

We operate in two reportable segments:

•

Global cannabis, which encompasses the production, distribution and sale of a diverse range of cannabis and cannabinoid-based consumer products in Canada and internationally pursuant to applicable international and domestic legislation, regulations and permits; and

•

Other consumer products, which is comprised of the production, distribution and sale of consumer products by Storz & Bickel, This Works, and BioSteel, and other revenue sources.

Update on the COVID-19 Pandemic

Management has continued to closely monitor the impact of the COVID-19 global pandemic, with a focus on the health and safety of our employees, business continuity and supporting its communities. We established a COVID-19 Management Committee shortly after the declaration of COVID-19 as a global pandemic and implemented various measures to reduce the spread of the virus. We have continued to operate under preventative measures and have experienced minimal disruption to our production and supply chain. As of the date of this Quarterly Report, all 33 of our corporate-owned retail stores are open and offering click-and-collect and/or in-store shopping. Our Canadian medical business, which operates as an e-commerce channel, has continued largely unchanged. Our international medical business operates primarily as a pharmacy model, with pharmacies being deemed essential businesses in Germany and other European countries in which we conduct business. In addition, since our non-production workforce continues to effectively work remotely using various technology tools, we are able to maintain our full operations and internal controls over financial reporting and disclosures.

The COVID-19 pandemic, including government measures to limit the spread of COVID-19, did not have a material adverse impact on our results of operations in the first quarter of fiscal 2023. However, given the uncertainties associated with the COVID-19 pandemic, including those related to the distribution and acceptance of the vaccines and their effectiveness with respect to new variants of the virus, the use of our products by consumers, disruptions to the global and local economies due to related stay-at-home orders, quarantine policies and restrictions on travel, trade and business operations and a reduction in discretionary consumer spending we are unable to estimate the future impact of the COVID-19 pandemic on our business, financial condition, results of operations, and/or cash flows. Recently in the United States, there have been a number of supply chain challenges, such as container ships facing delays due to congestion in ports, impacting many industries, including the industries in which we operate. Although we have not yet seen a significant impact, we continue to monitor our supply chain closely. The uncertain nature of the impacts of the COVID-19 pandemic may affect our results of operations into the second quarter of fiscal 2023.

We believe we have sufficient liquidity available from cash and cash equivalents and short-term investments on hand of $769.5 million and $447.6 million, respectively, at June 30, 2022, to enable us to meet our working capital and other operating requirements, fund growth initiatives and capital expenditures, settle our liabilities, and repay scheduled principal and interest payments on debt for at least the next twelve months. Refer to “Part 3 – Financial Liquidity and Capital Resources” for further information.

Recent Developments

Exchanges of Convertible Senior Notes

On June 29, 2022 and June 30, 2022, we entered into privately negotiated exchange agreements (the “Exchange Agreements”) with a limited number of holders, including Greenstar Canada Investment Limited Partnership (“GCILP”), a wholly-owned subsidiary of Constellation Brands, Inc. (collectively, the “Noteholders”), of our 4.25% unsecured senior notes due in 2023 (the “Notes”). Pursuant to the Exchange Agreements, we acquired and cancelled approximately $262.6 million of aggregate principal amount of the Notes from the Noteholders (the “Exchange Transaction”), for an aggregate purchase price (excluding $5.4 million paid in cash to the Noteholders for accrued and unpaid interest) of $260.0 million (the “Purchase Price”), which was payable in our common shares.

We satisfied the Purchase Price as follows:

•

On the initial closings, 35,662,420 common shares were issued to the Noteholders, other than GCILP, based on a price equal to US$3.50 per common share, which was the closing price of the common shares on the Nasdaq Global Select Market (“Nasdaq”) on June 29, 2022. Of this amount, 14,069,353 common shares were issued to Noteholders on June 30, 2022, representing our acquisition and cancellation of an aggregate principal amount of Notes of $63.1 million.

•

On the final closing on July 18, 2022 (the “Final Closing”), 11,896,536 common shares were issued to Noteholders, other than GCILP, based on the volume-weighted average trading price of the common shares on the Nasdaq for the 10 consecutive trading days beginning on, and including, June 30, 2022, being US$2.6245 (the “Averaging Price”).

•

In addition, on the Final Closing on July 18, 2022, 29,245,456 common shares were issued to GCILP based on a price per common share equal to the Averaging Price. Prior to the Exchange Transaction, GCILP held $200.0 million aggregate principal amount of Notes. Pursuant to the Exchange Transaction, we acquired and cancelled $100.0 million aggregate principal amount of such Notes held by GCILP.

The Notes were issued pursuant to an indenture dated June 20, 2018, as supplemented by supplement no. 1 to the indenture dated April 30, 2019 and supplement no. 2 to the indenture dated June 29, 2022 (collectively, the “Indenture”). As a result of supplement no. 2 to the Indenture dated June 29, 2022 (the “Second Supplemental Indenture”), we irrevocably surrendered our right to settle the conversion of any Note with our common shares. As a result, all conversions of Notes following the execution of the Second Supplemental Indenture will be settled entirely in cash.

Plan to Acquire Jetty

On May 17, 2022, we and Jetty entered into the Jetty Agreements, providing us with the right to acquire up to 100% of the outstanding equity interests in Jetty upon the occurrence of the Jetty Triggering Event.

The Jetty Agreements are structured as two separate option agreements whereby we have the right to acquire up to 100% of the equity interests in Jetty. As consideration for entering into the Jetty Agreements, we (i) made an upfront cash payment in the amount of $29.2 million (US$22.9 million), and (ii) issued 8,426,539 common shares with a fair value on closing of $59.1 million (US$45.9 million), for total consideration of $88.3 million.

The first option agreement is exercisable in two tranches, with the first tranche providing us with the option to acquire 52.78% of Jetty’s equity interests, exercisable following the occurrence of the Jetty Triggering Event. The second tranche provides us with the option to acquire 25% of Jetty’s equity interests for their fair market value, subject to certain adjustments. Additionally, we expect to make deferred payments computed based on a pre-determined contractual formula. The second option agreement provides us with an option to acquire 22.22% of Jetty’s equity interests, exercisable following the occurrence of the Jetty Triggering Event.

Until such time as we elect to exercise our rights to acquire Jetty, we will have no direct or indirect economic or voting interests in Jetty, we will not directly or indirectly control Jetty, and we and Jetty will continue to operate independently of one another. Refer to Note 9 of the Interim Financial Statements for further information regarding the plan to acquire Jetty.

BioSteel, and NHL and NHLPA Partnership

On July 7, 2022, BioSteel, the National Hockey League (“NHL”) and the National Hockey League Players’ Association (“NHLPA”) announced a new multi-year partnership naming BioSteel the Official Hydration Partner of the NHL and NHLPA. This new partnership will provide the BioSteel brand with League-wide rinkside marketing and product supply rights, retail activation rights, community engagement platforms, and player marketing and activation rights. Beginning in the 2022-2023 NHL regular season, fans will see NHL players hydrating with BioSteel during every NHL game in North America. BioSteel products will be featured on each bench, penalty box and goal net. Additionally, BioSteel will have a year-round platform to activate brand programming with NHL marks, logos, teams and players.

Part 2 - Results of Operations

Discussion of First Quarter of Fiscal 2023 Results of Operations

	Three months ended June 30,
(in thousands of Canadian dollars, except share amounts and where otherwise indicated)	2022			2021			$ Change			% Change
Selected consolidated financial information:
Net revenue	$	110,115		$	136,209		$	(26,094	)		(19	%)
Gross margin percentage		(1	%)		20	%		-		(2,100) bps
Net (loss) income	$	(2,087,556	)	$	389,955		$	(2,477,511	)		(635	%)
Net (loss) income attributable to Canopy Growth Corporation	$	(2,083,148	)	$	392,418		$	(2,475,566	)		(631	%)
Basic (loss) earnings per share¹	$	(5.23	)	$	1.02		$	(6.25	)		(613	%)
Diluted (loss) earnings per share¹	$	(5.23	)	$	0.84		$	(6.07	)		(723	%)

¹For the three months ended June 30, 2022, the weighted average number of outstanding common shares, basic and diluted, totaled 398,467,568. For the three months ended June 30, 2021, the weighted average number of outstanding common shares, basic and diluted, totaled 384,055,133 and 404,546,243, respectively.

Revenue

We report net revenue in two segments: (i) global cannabis; and (ii) other consumer products. The following tables present segmented net revenue, by channel and by form, for the three months ended June 30, 2022 and 2021:

Revenue by Channel	Three months ended June 30,
(in thousands of Canadian dollars)	2022		2021		$ Change			% Change
Canadian recreational cannabis net revenue
Business-to-business¹	$	26,540	$	42,693	$	(16,153	)		(38	%)
Business-to-consumer		12,435		17,344		(4,909	)		(28	%)
		38,975		60,037		(21,062	)		(35	%)
Canadian medical cannabis net revenue²		13,440		13,492		(52	)		-
		52,415		73,529		(21,114	)		(29	%)
International and other revenue
C³		-		11,443		(11,443	)		(100	%)
Other³		13,781		7,967		5,814			73	%
		13,781		19,410		(5,629	)		(29	%)
Global cannabis net revenue		66,196		92,939		(26,743	)		(29	%)

Other consumer products
Storz & Bickel		15,643		24,070		(8,427	)		(35	%)
This Works		5,520		6,551		(1,031	)		(16	%)
BioSteel⁴		17,888		6,661		11,227			169	%
Other		4,868		5,988		(1,120	)		(19	%)
Other consumer products revenue		43,919		43,270		649			1	%

Net revenue	$	110,115	$	136,209	$	(26,094	)		(19	%)

¹ Reflects excise taxes of $11,591 and other revenue adjustments, representing our determination of returns and pricing adjustments, of $550 for the three months ended June 30, 2022 (three months ended June 30, 2021 - excise taxes of $17,834 and other revenue adjustments of $3,000).
²Reflects excise taxes of $1,156 for the three months ended June 30, 2022 (three months ended June 30, 2021 - $1,380).
³Reflects other revenue adjustments of $666 for the three months ended June 30, 2022 (three months ended June 30, 2021 - $377)
⁴Reflects other revenue adjustments of $1,682 for the three months ended June 30, 2022 (three months ended June 30, 2021 - $1,937)

Revenue by Form	Three months ended June 30,
(in thousands of Canadian dollars)	2022			2021			$ Change			% Change
Canadian recreational cannabis
Dry bud¹	$	38,565		$	65,970		$	(27,405	)		(42	%)
Oils and softgels¹		5,152			5,741			(589	)		(10	%)
Beverages, edibles, topicals and vapes¹		7,399			9,160			(1,761	)		(19	%)
Other revenue adjustments		(550	)		(3,000	)		2,450			82	%
Excise taxes		(11,591	)		(17,834	)		6,243			35	%
		38,975			60,037			(21,062	)		(35	%)
Medical cannabis and other
Dry bud		14,239			9,611			4,628			48	%
Oils and softgels		9,172			20,516			(11,344	)		(55	%)
Beverages, edibles, topicals and vapes		4,966			4,155			811			20	%
Excise taxes		(1,156	)		(1,380	)		224			16	%
		27,221			32,902			(5,681	)		(17	%)
Global cannabis net revenue		66,196			92,939			(26,743	)		(29	%)

Other consumer products
Storz & Bickel		15,643			24,070			(8,427	)		(35	%)
This Works		5,520			6,551			(1,031	)		(16	%)
BioSteel²		17,888			6,661			11,227			169	%
Other		4,868			5,988			(1,120	)		(19	%)
Other consumer products revenue		43,919			43,270			649			1	%

Net revenue	$	110,115		$	136,209		$	(26,094	)		(19	%)

¹ Excludes the impact of other revenue adjustments.
² Includes the impact of other revenue adjustments.

Net revenue was $110.1 million in the first quarter of fiscal 2023, as compared to $136.2 million in the first quarter of fiscal 2022. The year-over-year decrease is attributable to a revenue decline of 29% in our global cannabis segment, which was primarily due to a decline in our organic Canadian recreational business and the divestiture of all of our interest in C³ Cannabinoid Compound Company GmbH (“C³”) in the fourth quarter of fiscal 2022. Revenue in our other consumer products segment grew 1% relative to the first quarter of fiscal 2022, as growth in our BioSteel business was largely offset by declines in our Storz & Bickel and This Works businesses.

Global cannabis

Net revenue from our global cannabis segment was $66.2 million in the first quarter of fiscal 2023, as compared to $92.9 million in the first quarter of fiscal 2022.

Canadian recreational cannabis net revenue was $39.0 million in the first quarter of fiscal 2023, as compared to $60.0 million in the first quarter of fiscal 2022.

•

Net revenue from the business-to-business channel was $26.5 million in the first quarter of fiscal 2023, as compared to $42.7 million in the first quarter of fiscal 2022. The year-over-year decrease is primarily attributable to (i) the continuing impacts of price compression resulting from increased competition; and (ii) lower sales in the value-priced dried flower category of the Canadian recreational market, as we have shifted towards premium and mainstream categories. These factors were partially offset by (i) a more favorable product mix due primarily to a decrease in the volume of value-priced dried product sold compared to the prior year; and (ii) a full quarter of net revenue contribution from Supreme Cannabis, which was acquired on June 22, 2021. Supreme Cannabis contributed net revenue of $5.3 million in the first quarter of fiscal 2023, as compared to $2.1 million in the first quarter of fiscal 2022.

•

Revenue from the business-to-consumer channel was $12.4 million in the first quarter of fiscal 2023, as compared to $17.3 million in the first quarter of fiscal 2022. The year-over-year decrease is primarily attributable to (i) the continuing rapid increase in the number of third-party owned retail stores across Canada, which has resulted in increased competition for traffic at our corporate-owned stores which we operate in certain provinces; and (ii) price compression resulting from the increased competition.

Canadian medical cannabis net revenue was $13.4 million in the first quarter of fiscal 2023, consistent with net revenue of $13.5 million in the first quarter of fiscal 2022.

International and other cannabis revenue was $13.8 million in the first quarter of fiscal 2023, as compared to $19.4 million in the first quarter of fiscal 2022.

•

The divestiture of C³ was completed on January 31, 2022, resulting in a decrease in revenue of $11.4 million as compared to the first quarter of fiscal 2022.

•

Other cannabis revenue was $13.8 million in the first quarter of fiscal 2023, a year-over-year increase of $5.8 million primarily attributable to (i) bulk cannabis sales, predominantly to Israel, in the amount of $3.6 million, which did not occur in the first quarter of fiscal 2022; (ii) growth in our global medical cannabis business, particularly in Australia; and (iii) growth in our U.S. CBD business associated with an opportunistic sale of bulk crude CBD resin.

Other consumer products

Revenue from our other consumer products segment was $43.9 million in the first quarter of fiscal 2023, as compared to $43.3 million in the first quarter of fiscal 2022.

•

Revenue from BioSteel was $17.9 million in the first quarter of fiscal 2023, a year-over-year increase of $11.2 million due primarily to (i) continued growth in our distribution channels and sales velocities across North America; and (ii) higher international sales of ready-to-drink products and beverage mixes.

•

Revenue from Storz & Bickel was $15.6 million in the first quarter of fiscal 2023, a year-over-year decrease of $8.4 million due primarily to the slowdown in consumer spending in North America and Europe, and temporary disruptions with certain distributors.

•

Revenue from This Works was $5.5 million in the first quarter of fiscal 2023, a year-over-year decrease of $1.0 million due primarily to (i) softer performance in certain of our product lines, which benefited during the period of COVID-19 restrictions in the first quarter of fiscal 2022; and (ii) the phasing of orders for certain of our products in Europe to the second quarter of fiscal 2023.

Cost of Goods Sold and Gross Margin

The following table presents cost of goods sold, gross margin and gross margin percentage on a consolidated basis for the three months ended June 30, 2022 and 2021:

	Three months ended June 30,
(in thousands of Canadian dollars except where indicated)	2022			2021			$ Change			% Change
Net revenue	$	110,115		$	136,209		$	(26,094	)		(19	%)

Cost of goods sold	$	111,507		$	108,971		$	2,536			2	%
Gross margin		(1,392	)		27,238			(28,630	)		(105	%)
Gross margin percentage		(1	%)		20	%		-		(2,100) bps

Cost of goods sold was $111.5 million in the first quarter of fiscal 2023, as compared to $109.0 million in the first quarter of fiscal 2022. Our gross margin was $(1.4) million in the first quarter of fiscal 2023, or (1%) of net revenue, as compared to a gross margin of $27.2 million and gross margin percentage of 20% of net revenue in the first quarter of fiscal 2022. The year-over-year decrease in the gross margin percentage was primarily attributable to:

•

In our Canadian recreational cannabis business, (i) the year-over-year decrease in net revenue; (ii) continued price compression; and (iii) the impact of the under-absorption of costs attributable to lower production volumes. These impacts were partially offset by the realized benefit of our cost savings program that we announced in April 2022;

•

A shift in the business mix relative to the first quarter of fiscal 2022 resulting from a (i) decrease in the proportionate revenue contribution from C³ relative to the first quarter of fiscal 2022, as a result of the completion of the divestiture of C³ on January 31, 2022; and (ii) a decrease in revenue from the higher-margin Storz & Bickel business;

•

Restructuring charges totaling $4.0 million relating to inventory write-downs resulting from the strategic changes to our business that were initiated in the fourth quarter of fiscal 2022, including the shift to a contract manufacturing model for certain product formats, and the closure of certain of our production facilities in fiscal 2022; and

•

A decrease in the amount of payroll subsidies received from the Canadian government, pursuant to a COVID-19 relief program, from $7.3 million in the first quarter of fiscal 2022 to $1.6 million in the first quarter of fiscal 2023.

Comparatively, our gross margin in the first quarter of fiscal 2022 was impacted by charges totaling $1.4 million relating to the flow-through of inventory step-up associated with the acquisition of Supreme Cannabis in the first quarter of fiscal 2022.

We report gross margin and gross margin percentage in two segments: (i) global cannabis; and (ii) other consumer products. The following table presents segmented gross margin and gross margin percentage for the three months ended June 30, 2022 and 2021:

	Three months ended June 30,
(in thousands of Canadian dollars except where indicated)	2022			2021			$ Change			% Change
Global cannabis segment
Cost of goods sold	$	81,668		$	79,570		$	2,098			3	%
Gross margin		(15,472	)		13,369			(28,841	)		(216	%)
Gross margin percentage		(23	%)		14	%				(3,700) bps

Other consumer products segment
Cost of goods sold	$	29,839		$	29,401		$	438			1	%
Gross margin		14,080			13,869			211			2	%
Gross margin percentage		32	%		32	%				- bps

Global cannabis

Gross margin for our global cannabis segment was $(15.5) million in the first quarter of fiscal 2023, or (23%) of net revenue, as compared to $13.4 million in the first quarter of fiscal 2022, or 14% of net revenue. The year-over-year decease in the gross margin percentage was primarily due to:

•

A shift in the business mix resulting from a decrease in the proportionate revenue contribution from C³ relative to the first quarter of fiscal 2022, as a result of the completion of the divestiture of C³ on January 31, 2022;

•

Restructuring charges totaling $4.0 million relating to inventory write-downs resulting from the previously-noted strategic changes to our business that were initiated in the fourth quarter of fiscal 2022; and

•

Other consumer products

Gross margin for our other consumer products segment was $14.1 million in the first quarter of fiscal 2023, or 32% of net revenue, relatively consistent with our gross margin and gross margin percentage of $13.9 million and 32% of net revenue, respectively, in the first quarter of fiscal 2022.

Operating Expenses

The following table presents operating expenses for the three months ended June 30, 2022 and 2021:

	Three months ended June 30,
(in thousands of Canadian dollars)	2022		2021		$ Change			% Change
Operating expenses
General and administrative	$	28,371	$	33,677	$	(5,306	)		(16	%)
Sales and marketing		53,182		50,532		2,650			5	%
Research and development		6,953		8,342		(1,389	)		(17	%)
Acquisition-related costs		4,193		5,780		(1,587	)		(27	%)
Depreciation and amortization		10,714		14,243		(3,529	)		(25	%)
Selling, general and administrative expenses		103,413		112,574		(9,161	)		(8	%)

Share-based compensation		5,439		11,427		(5,988	)		(52	%)
Share-based compensation related to acquisition milestones		-		1,699		(1,699	)		(100	%)
Share-based compensation expense		5,439		13,126		(7,687	)		(59	%)

Asset impairment and restructuring costs		1,727,985		89,249		1,638,736			1836	%
Total operating expenses	$	1,836,837	$	214,949	$	1,621,888			755	%

Selling, general and administrative expenses

Selling, general and administrative expenses were $103.4 million in the first quarter of fiscal 2023, as compared to $112.6 million in the first quarter of fiscal 2022.

General and administrative expense was $28.4 million in the first quarter of fiscal 2023, as compared to $33.7 million in the first quarter of fiscal 2022. The year-over-year decrease is due primarily to:

•

The restructuring actions initiated in the fourth quarter of fiscal 2022, which included operational changes designed to align general and administrative costs with business objectives, and further streamline the organization to drive process-related efficiencies. We realized reductions relative to the first quarter of fiscal 2022 primarily in relation to (i) compensation and third-party costs for finance, information technology, legal and other administrative functions; and (ii) facilities and insurance costs.

•

The above cost reductions were partially offset by a year-over-year decrease in the amount of payroll subsidies received from the Canadian government pursuant to a COVID-19 relief program. We received $2.8 million in the first quarter of fiscal 2023, as compared to $12.7 million received in the first quarter of fiscal 2022.

Sales and marketing expense was $53.2 million in the first quarter of fiscal 2023, as compared to $50.5 million in the first quarter of fiscal 2022. The year-over-year increase is primarily due to (i) higher sponsorship fees associated with BioSteel’s partnership deals, and increased advertising, trade activity and promotion expenses associated with new product launches for BioSteel; (ii) higher advertising and marketing communication costs related to our summer beverage campaign, associated with several of the premium brands in our Canadian recreational cannabis portfolio; and (iii) increased sales and marketing costs associated with our acquisition of Supreme Cannabis, which closed on June 22, 2021.

Research and development expense was $7.0 million in the first quarter of fiscal 2023, as compared to $8.3 million in the first quarter of fiscal 2022. The year-over-year decrease is primarily attributable to cost reductions attributable to the previously-noted restructuring actions that were initiated in the fourth quarter of fiscal 2022. We continued to realize reductions in compensation costs and concluded or curtailed certain research and development projects as we rationalized our initiatives to focus on opportunities outside of pharmaceutical drug development. We also realized a reduction in research and development costs associated with the completion of the divestiture of C³ on January 31, 2022, which resulted in no costs being recorded in relation to C³ in the first quarter of fiscal 2023.

Acquisition-related costs were $4.2 million in the first quarter of fiscal 2023, as compared to $5.8 million in the first quarter of fiscal 2022. In the first quarter of fiscal 2023, costs were incurred primarily in relation to the plan to acquire Jetty, as described in the “Recent Developments” section above, and evaluating other potential acquisition opportunities. Comparatively, in the first quarter of

fiscal 2022, costs were incurred primarily in relation to the acquisitions of Ace Valley and Supreme Cannabis, and evaluating other potential acquisition opportunities.

Depreciation and amortization expense was $10.7 million in the first quarter of fiscal 2023, as compared to $14.2 million in the first quarter of fiscal 2022. The year-over-year decrease is primarily attributable to (i) the previously-noted restructuring actions that were initiated in fiscal 2022; (ii) the decrease in amortization expense associated with the impairment of certain of our intellectual property intangible assets; and (iii) the completion of the divestiture of C³ on January 31, 2022, which resulted in no depreciation and amortization expense being recorded in relation to C³ in the first quarter of fiscal 2023. These decreases were partially offset by an increase in depreciation expense associated with our acquisition of Supreme Cannabis, which closed on June 22, 2021, and with the expansion of our Storz & Bickel facilities.

Share-based compensation expense

Share-based compensation expense was $5.4 million in the first quarter of fiscal 2023, as compared to $11.4 million in the first quarter of fiscal 2022. The year-over-year decrease is primarily attributable to the impact of our previously-noted restructuring actions, which resulted in 3.2 million stock option forfeitures in fiscal 2022 and 1.4 million stock option forfeitures in the first quarter of fiscal 2023. The decrease attributable to these forfeitures was partially offset by stock option grants totaling 3.1 million in mid-June 2022, which did not have a significant impact on share-based compensation expense in the first quarter of fiscal 2023.

Share-based compensation expense related to acquisition milestones was $nil in the first quarter of fiscal 2023, as compared to $1.7 million in the first quarter of fiscal 2022. The year-over-year decrease is primarily related to (i) the completion of vesting, in prior quarters, of the share-based compensation associated with certain of our acquisitions; and (ii) as a result of the restructuring actions completed in the fourth quarter of fiscal 2022, the acceleration of share-based compensation expense related to unvested milestones associated with acquisitions completed in prior fiscal years.

Asset impairment and restructuring costs

Asset impairment and restructuring costs recorded in operating expenses were $1.7 billion in the first quarter of fiscal 2023, as compared to $89.2 million in the first quarter of fiscal 2022.

Asset impairment and restructuring costs recorded in the first quarter of fiscal 2023 were primarily related to goodwill impairment losses of $1.7 billion, all of which was associated with our cannabis operations reporting unit in the global cannabis segment. Refer to “Impairment of Goodwill” in the “Critical Accounting Policies and Estimates” section below for further details of the goodwill impairment losses recognized in the first quarter of fiscal 2023. Additionally, we recognized incremental costs primarily associated with the restructuring actions completed in fiscal 2022, including the closure of certain of our Canadian production facilities, and operational changes initiated in the fourth quarter of fiscal 2022 to (i) implement cultivation-related efficiencies and improvements in the Canadian recreational cannabis business; and (ii) implement a flexible manufacturing platform, including contract manufacturing for certain product formats.

Comparatively, in the first quarter of fiscal 2022, we recognized asset impairment and restructuring costs in relation to (i) the strategic review of our business conducted as a result of acquisitions completed during that period, which resulted in the closure of our Niagara-on-the-Lake, Ontario and Langley, British Columbia facilities; and (ii) incremental costs associated with the closure of certain of our Canadian production facilities in December 2020. The charges recognized in the first quarter of fiscal 2022 primarily represented the difference between the net book value of the associated long-lived assets and their estimated fair value.

Other

The following table presents loss from equity method investments, other income (expense), net, and income tax expense for the three months ended June 30, 2022 and 2021:

	Three months ended June 30,
(in thousands of Canadian dollars)	2022			2021			$ Change			% Change
Loss from equity method investments	$	-		$	(100	)	$	100			100	%
Other income (expense), net		(245,578	)		580,666			(826,244	)		(142	%)
Income tax expense		(3,749	)		(2,900	)		(849	)		(29	%)

Loss from equity method investments

The loss from equity method investments was $nil in the first quarter of fiscal 2023, as compared to $0.1 million in the first quarter of fiscal 2022. The year-over-year decrease in the loss is primarily attributable to the impairment of our remaining investment in Agripharm Corp. (“Agripharm”) in the first quarter of fiscal 2022. As a result of this impairment, there were no remaining equity method investment balances at June 30, 2022.

Other income (expense), net

Other income (expense), net was an expense amount of $245.6 million in the first quarter of fiscal 2023, as compared to an income amount of $580.7 million in the first quarter of fiscal 2022. The year-over-year change of $826.2 million, from an income amount to an expense amount, is primarily attributable to:

•

Decrease in non-cash income of $290.9 million related to fair value changes on the warrant derivative liability associated with the Tranche B Warrants held by CBI (as defined in Note 26 of the Interim Financial Statements). The decrease of $25.4 million in the fair value of the warrant derivative liability (resulting in non-cash income) in the first quarter of fiscal 2023 is primarily attributable to a decrease of approximately 61% in our share price during the first quarter of fiscal 2023, further impacted by an increase in the risk-free interest rate and a shorter expected time to maturity of the Tranche B Warrants. Comparatively, the income amount recognized in the first quarter of fiscal 2022 of $316.3 million, associated with a decrease in the fair value of the warrant derivative liability, was primarily attributable to a decrease of approximately 26% in our share price during the first quarter of fiscal 2022, further impacted by a shorter expected time to maturity of the Tranche B Warrants.

•

Change of $385.0 million related to non-cash fair value changes on our other financial assets, from an income amount of $84.2 million in the first quarter of fiscal 2022 to an expense amount of $300.9 million in the first quarter of fiscal 2023. The expense amount in the first quarter of fiscal 2023 is primarily attributable to fair value decreases relating to our investments in (i) the exchangeable shares in the capital of TerrAscend Corp. (“TerrAscend”) ($138.0 million); (ii) the secured debentures issued by TerrAscend Canada Inc. (“TerrAscend Canada”) and Arise Bioscience, Inc. (“Arise Bioscience”) and associated warrants issued by TerrAscend (the “TerrAscend Warrants”) (totaling $62.0 million); and (iii) our option to acquire 1,072,450 common shares of TerrAscend (the “TerrAscend Option”) ($3.8 million), which were all driven largely by a decrease of approximately 59% in TerrAscend’s share price in the first quarter of fiscal 2023. Additionally, the fair value of our investment in the Wana financial instrument decreased $154.0 million, due primarily to changes in expectations of the future cash flows to be generated by Wana. These fair value decreases were partially offset by a fair value increase related to the Acreage call option in the amount of $60.0 million, as described below in our discussion of fair value changes on the liability arising from the Acreage Arrangement. Comparatively, in the first quarter of fiscal 2022 the income amount was primarily attributable to fair value increases relating to our investments in the TerrAscend exchangeable shares ($53.0 million), and the secured debentures issued by TerrAscend Canada and Arise Bioscience and associated TerrAscend Warrants (totaling $32.7 million), driven largely by (i) an increase of approximately 11% in TerrAscend’s share price in the first quarter of fiscal 2022; and (ii) re-assessments of the probability and timing of changes in federal laws in the United States regarding the permissibility of the cultivation, distribution or possession of marijuana.

•

Decrease in non-cash income of $103.0 million related to the non-cash fair value changes on the liability arising from the Acreage Arrangement, from an income amount of $150.0 million in the first quarter of fiscal 2022 to an income amount of $47.0 million in the first quarter of fiscal 2023. On a quarterly basis, we determine the fair value of the liability arising from the Acreage Arrangement using a probability-weighted expected return model, incorporating several potential scenarios and outcomes associated with the Acreage Amended Arrangement. The income amount recognized in the first quarter of fiscal 2023, associated with a decrease in the liability arising from the Acreage Arrangement to $nil, is primarily attributable to a decrease of approximately 61% in our share price during the first quarter of fiscal 2023, relative to a decrease of approximately 27% in Acreage’s share price during that same period. As a result, the model at June 30, 2022 reflects a lower estimated value of the Canopy Growth shares expected to be issued at the exchange ratio of 0.3048 upon a Triggering Event, relative to the estimated value of the Acreage shares expected to be acquired at that time (changes in our share price have a more significant impact on the model relative to changes in Acreage’s share price); in the first quarter of fiscal 2023, this resulted in a change from a liability amount to an asset amount of $60.0 million, with the asset recorded in other financial assets (see above). Comparatively, the income amount recognized in the first quarter of fiscal 2022, associated with a decrease in the liability arising from the Acreage Arrangement, was primarily attributable to a decrease of approximately 26% in our share price in the first quarter of fiscal 2022, relative to a decrease of approximately 27% in Acreage’s share price during that same period.

•

Change of $60.3 million related to the non-cash fair value changes on the Notes, from an income amount of $50.7 million in the first quarter of fiscal 2022 to an expense amount of $9.6 million in the first quarter of fiscal 2023. The year-over-year change is primarily due to the impact of the exchanges of our Notes in June 2022, as described above in “Recent

Developments”, including changes in credit spreads relative to the comparative fiscal period. Comparatively, the income amount recognized in the first quarter of fiscal 2022 was primarily due to the decline in our share price of approximately 26% during that period.

•

In the first quarter of fiscal 2023, we recognized charges in the amount of $19.2 million in connection with the Exchange Transaction described above in “Recent Developments”, in which we agreed to acquire and cancel approximately $262.6 million of aggregate principal amount of Notes from the Noteholders for an aggregate purchase price of $260.0 million, which was paid in our common shares. These charges primarily include (i) the recognition of a derivative liability in connection with the incremental common shares that were potentially issuable as at June 30, 2022 at the Averaging Price on the Final Closing, pursuant to the Exchange Agreements; partially offset by (ii) the release of amounts recorded in accumulated other comprehensive income in relation to the credit risk fair value adjustment associated with the portion of the Notes that were acquired and cancelled on June 30, 2022.

•

Change of $40.6 million related to non-cash fair value changes on acquisition related contingent consideration and other, from an expense amount of $0.2 million in the first quarter of fiscal 2022 to an income amount of $40.4 million in the first quarter of fiscal 2023. In the first quarter of fiscal 2023, we recorded fair value changes related to the estimated deferred payments associated with our investment in Wana. These fair value changes were primarily associated with changes in expectations of future cash flows to be generated by Wana.

Income tax expense

Income tax expense in the first quarter of fiscal 2023 was $3.7 million, compared to income tax expense of $2.9 million in the first quarter of fiscal 2022. In the first quarter of fiscal 2023, the income tax expense consisted of deferred income tax expense of $2.4 million (compared to a recovery of $0.6 million in the first quarter of fiscal 2022) and current income tax expense of $1.3 million (compared to an expense of $3.5 million in the first quarter of fiscal 2022).

The change of $3.0 million, from a deferred income tax recovery to deferred income tax expense is primarily a result of changes in the first quarter of fiscal 2023 in respect of the convertible senior notes and deferred tax liabilities that arose in connection with the required revaluation of the accounting carrying value, but not the tax basis, of property, plant and equipment, intangible assets, and other financial assets. In connection with certain deferred tax assets, mainly in respect to losses for tax purposes, where the accounting criteria for recognition of an asset has yet to be satisfied and it is not probable that they will be used, the deferred tax asset has not been recognized.

The decrease of $2.2 million in current income tax expense arose primarily in connection with divestitures, and legal entities that generated income for tax purposes that could not be reduced by the group’s tax attributes.

Net (Loss) Income

The net loss in the first quarter of fiscal 2023 was $2.1 billion, as compared to net income of $390.0 million in the first quarter of fiscal 2022. The year-over-year change from net income to a net loss is primarily attributable to (i) the year-over-year increase in asset impairment and restructuring costs, which was largely related to the goodwill impairment losses of $1.7 billion recorded in the first quarter of fiscal 2023; (ii) the year-over-year change in other income (expense), net, of $826.2 million, from an income amount to an expense amount; and (iii) the year-over-year decrease in our gross margin, which was only partially offset by the reduction in our total selling, general and administrative expense. These variances are described above.

Adjusted EBITDA (Non-GAAP Measure)

Our “Adjusted EBITDA” is a non-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. Management calculates Adjusted EBITDA as the reported net income (loss), adjusted to exclude income tax expense; other income (expense), net; loss on equity method investments; share-based compensation expense; depreciation and amortization expense; asset impairments and restructuring costs; restructuring costs recorded in cost of goods sold; and charges related to the flow-through of inventory step-up on business combinations, and further adjusted to remove acquisition-related costs. Asset impairments related to periodic changes to our supply chain processes are not excluded from Adjusted EBITDA given their occurrence through the normal course of core operational activities. Accordingly, management believes that Adjusted EBITDA provides meaningful and useful financial information as this measure demonstrates the operating performance of businesses.

The following table presents Adjusted EBITDA for the three months ended June 30, 2022 and 2021:

	Three months ended June 30,
(in thousands of Canadian dollars)	2022			2021			$ Change			% Change
Net (loss) income	$	(2,087,556	)	$	389,955		$	(2,477,511	)		(635	%)
Income tax expense		3,749			2,900			849			29	%
Other (income) expense, net		245,578			(580,666	)		826,244			142	%
Loss on equity method investments		-			100			(100	)		(100	%)
Share-based compensation¹		5,439			13,126			(7,687	)		(59	%)
Acquisition-related costs		4,193			5,780			(1,587	)		(27	%)
Depreciation and amortization¹		21,851			25,132			(3,281	)		(13	%)
Asset impairment and restructuring costs		1,727,985			78,618			1,649,367			2098	%
Restructuring costs recorded in cost of goods sold		3,961			-			3,961			100	%
Charges related to the flow-through of inventory step-up on business combinations		-			1,414			(1,414	)		(100	%)
Adjusted EBITDA	$	(74,800	)	$	(63,641	)	$	(11,159	)		(18	%)

¹From Statements of Cash Flows.

The Adjusted EBITDA loss in the first quarter of fiscal 2023 was $74.8 million, as compared to an Adjusted EBITDA loss of $63.6 million in the first quarter of fiscal 2022. The year-over-year increase in the Adjusted EBITDA loss is primarily attributable to the year-over-year decrease in our gross margin, partially offset by the reduction in our total selling, general and administrative expense. These variances are described above.

Part 3 – Financial Liquidity and Capital Resources

We manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. As of June 30, 2022, we had cash and cash equivalents of $769.5 million and short-term investments of $447.6 million, which are predominantly invested in liquid securities issued by the United States and Canadian governments. Additionally, we have capacity of up to an additional US$500.0 million available under the Credit Facility (as defined below). In evaluating our capital requirements, including the impact, if any, on our business from the COVID-19 pandemic, and our ability to fund the execution of our strategy, we believe we have adequate available liquidity to enable us to meet our working capital and other operating requirements, fund growth initiatives and capital expenditures, settle our liabilities, and repay scheduled principal and interest payments on debt for at least the next twelve months.

Our objective is to generate sufficient cash to fund our operating requirements and expansion plans. While we have incurred net losses on a U.S. GAAP basis and Adjusted EBITDA losses to date, and our cash and cash equivalents have decreased $6.5 million from March 31, 2022 (and, together with short-term investments, decreased $154.5 million from March 31, 2022), as discussed in the “Cash Flows” section below, management anticipates the success and eventual profitability of the business. We have also ensured that we have access to public capital markets through our U.S. and Canadian public stock exchange listings, and in March 2021, we entered into a credit agreement (the “Credit Agreement”) with the lenders and Wilmington Trust, National Association, as administrative agent and collateral agent for the lenders. The Credit Agreement provides for a credit facility (the “Credit Facility”) in the initial aggregate principal amount of US$750.0 million. We continue to review and pursue selected external financing sources to ensure adequate financial resources. These potential sources include, but are not limited to (i) obtaining financing from traditional or non-traditional investment capital organizations; (ii) obtaining funding from the sale of our common shares or other equity or debt instruments; and (iii) obtaining debt financing with lending terms that more closely match our business model and capital needs.

There can be no assurance that we will gain adequate market acceptance for our products or be able to generate sufficient positive cash flow to achieve our business plans. In the first quarter of fiscal 2023, our purchases of and deposits on property, plant and equipment totaled $2.3 million, which were funded out of available cash, cash equivalents and short-term investments. We expect to continue funding these purchases with our available cash, cash equivalents and short-term investments. Therefore, we are subject to risks including, but not limited to, our inability to raise additional funds through debt and/or equity financing to support our continued development, including capital expenditure requirements, operating requirements and to meet our liabilities and commitments as they come due.

Cash Flows

	Three months ended June 30,
(in thousands of Canadian dollars)	2022			2021
Net cash (used in) provided by:
Operating activities	$	(140,515	)	$	(165,780	)
Investing activities		121,417			(374,559	)
Financing activities		(1,044	)		(44,968	)
Effect of exchange rate changes on cash and cash equivalents		13,632			(9,506	)
Net decrease in cash and cash equivalents		(6,510	)		(594,813	)
Cash and cash equivalents, beginning of period		776,005			1,154,653
Cash and cash equivalents, end of period	$	769,495		$	559,840

Operating activities

Cash used in operating activities totaled $140.5 million in the first quarter of fiscal 2023, as compared to cash used of $165.8 million in the first quarter of fiscal 2022. The decrease in the cash used in operating activities is primarily due to the year-over-year improvement in our working capital spending, and a reduction in payments made in respect of other liabilities relative to the first quarter of fiscal 2022. These factors were partially offset by the year-over-year decrease in our gross margin. These variances are described above.

Investing activities

The cash provided by investing activities totaled $121.4 million in the first quarter of fiscal 2023, as compared to cash used of $374.6 million in the first quarter of fiscal 2022.

In the first quarter of fiscal 2023, purchases of property, plant and equipment were $2.3 million, primarily related to improvements made at certain of our Canadian cultivation and production facilities. Comparatively, in the first quarter of fiscal 2022, we invested $20.3 million in our production infrastructure in the United States and an expansion of our Storz & Bickel facilities. The year-over-year decrease is primarily due to (i) the substantial completion of the infrastructure projects that were in progress in fiscal 2022; and (ii) optimizing our capital expenditures as part of the previously-noted restructuring actions, particularly those actions that were initiated in the fourth quarter of fiscal 2022.

In the first quarter of fiscal 2023, our strategic investments in other financial assets were $29.2 million and related primarily to the upfront payment made as consideration for entering the Jetty Agreements, as described in “Recent Developments” above. Comparatively, in the first quarter of fiscal 2022, we completed the acquisitions of Ace Valley and Supreme Cannabis, with the net cash outflow totaling $8.9 million.

Net redemptions of short-term investments in the first quarter of fiscal 2023 were $154.0 million, as compared to net purchases of $346.6 million in the first quarter of fiscal 2022. The year-over-year change reflects the redemption of our short-term investments, largely to fund operations and for the investing activities described above.

Finally, in the first quarter of fiscal 2022, we received proceeds of $10.3 million from the sale of certain wholly-owned subsidiaries. Our other investing activities resulted in a cash outflow of $8.4 million, primarily related to the payment of acquisition-related liabilities, as we continued to draw-down on the amounts owing in relation to acquisitions completed in prior years.

Financing activities

The cash used in financing activities in the first quarter of fiscal 2023 was $1.0 million, as compared to cash used of $45.0 million in the first quarter of fiscal 2022. In the first quarter of fiscal 2022, we made repayments of long-term debt in the amount of $48.1 million, primarily related to the term loan assumed upon the completion of the acquisition of Supreme Cannabis on June 22, 2021.

Free Cash Flow (Non-GAAP Measure)

Free cash flow is a non-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. Management believes that free cash flow presents meaningful information regarding the amount of cash flow required to maintain and organically expand our business, and that the free cash flow measure provides meaningful information regarding our liquidity requirements.

	Three months ended June 30,
(in thousands of Canadian dollars)	2022			2021
Net cash used in operating activities	$	(140,515	)	$	(165,780	)
Purchases of and deposits on property, plant and equipment		(2,293	)		(20,279	)
Free cash flow¹	$	(142,808	)	$	(186,059	)

¹Free cash flow is a non-GAAP measure, and is calculated as net cash provided by (used in) operating activities, less purchases of and deposits on property, plant and equipment.

Free cash flow in the first quarter of fiscal 2023 was an outflow of $142.8 million, as compared to an outflow of $186.1 million in the first quarter of fiscal 2022. The year-over-year decrease in the outflow reflects the decrease in the cash used for operating activities, as described above, and the reduction in purchases of property, plant and equipment associated with (i) the substantial completion of the infrastructure projects that were in progress in fiscal 2022; and (ii) optimizing our capital expenditures as part of the previously-noted restructuring actions, particularly those actions that were initiated in the fourth quarter of fiscal 2022.

Debt

Since our formation, we have financed our cash requirements primarily through the issuance of common shares, including the $5.1 billion investment by CBI in the third quarter of fiscal 2019, and debt. Total debt outstanding as of June 30, 2022 was $1.5 billion, consistent with $1.5 billion as of March 31, 2022. The total principal amount owing, which excludes fair value adjustments related to the Notes, was $1.5 billion at June 30, 2022, consistent with $1.5 billion at March 31, 2022, as the acquisition and cancellation of $262.6 million of aggregate principal amount of the Notes from the Noteholders, as described above in “Recent Developments”, was largely offset by the impact of changes in the U.S. dollar against the Canadian dollar on amounts borrowed on the Credit Facility (see below).

Credit Facility

The Credit Agreement provides for the Credit Facility in the aggregate principal amount of US$750.0 million. We also have the ability to obtain up to an additional US$500.0 million of incremental senior secured debt pursuant to the Credit Agreement. The Credit Facility has no amortization payments, matures on March 18, 2026, has a coupon of LIBOR plus 8.50% and is subject to a LIBOR floor of 1.00%. Our obligations under the Credit Facility are guaranteed by material Canadian and U.S. subsidiaries of Canopy Growth. The Credit Facility is secured by substantially all of the assets, including material real property, of the borrowers and each of the guarantors thereunder. The Credit Agreement contains representations and warranties, and affirmative and negative covenants, including a financial covenant requiring minimum liquidity of US$200.0 million at the end of each fiscal quarter.

Notes

In June 2018, we issued the Notes with an aggregate principal amount of $600.0 million. The Notes bear interest at a rate of 4.25% per annum, payable semi-annually on January 15th and July 15th of each year commencing January 15, 2019. The Notes mature on July 15, 2023. As described above in “Recent Developments”, in June 2022 in connection with the Exchange Transaction, we entered into the Exchange Agreements with the Noteholders and agreed to acquire and cancel approximately $262.6 million of aggregate principal amount of the Notes from the Noteholders for an aggregate purchase price (excluding $5.4 million paid in cash to the Noteholders for accrued and unpaid interest) of $260.0 million which was paid in our common shares.

Convertible Debentures and Accretion Debentures

On October 19, 2018, Supreme Cannabis issued 6.0% senior unsecured convertible debentures (the “Supreme Debentures”) for gross proceeds of $100.0 million. On September 9, 2020, the Supreme Debentures were amended to effect, among other things: (i) the cancellation of $63.5 million of principal amount of the Supreme Debentures; (ii) an increase in the interest rate to 8% per annum; (iii) the extension of the maturity date to September 10, 2025; and (iv) a reduction in the conversion price to $0.285.

In addition, on September 9, 2020 Supreme Cannabis issued new senior unsecured non-convertible debentures (the “Accretion Debentures”). The principal amount began at $nil and accretes at a rate of 11.06% per annum based on the remaining principal amount of the Supreme Debentures of $36.5 million to a maximum of $13.5 million, compounding on a semi-annual basis commencing on September 9, 2020, and ending on September 9, 2023. The Accretion Debentures are payable in cash, but do not bear cash interest and are not convertible into Supreme Shares. The principal amount of the Accretion Debentures will amortize, or be paid, at 1.0% per month over the 24 months prior to maturity.

As a result of the arrangement (the “Supreme Arrangement”) we completed with Supreme Cannabis on June 22, 2021 pursuant to which we acquired 100% of the issued and outstanding common shares of Supreme Cannabis (the “Supreme Shares”), the Supreme Debentures remain outstanding as securities of Supreme Cannabis, which, upon conversion will entitle the holder thereof to receive, in lieu of the number of Supreme Shares to which such holder was theretofore entitled, the consideration payable under the Supreme Arrangement that such holder would have been entitled to be issued and receive if, immediately prior to the effective time of the Supreme Arrangement, such holder had been the registered holder of the number of Supreme Shares to which such holder was theretofore entitled.

In connection with the Supreme Arrangement, we, Supreme Cannabis and Computershare Trust Company of Canada (the “Trustee”) entered into a supplemental indenture whereby we agreed to issue common shares upon conversion of any Supreme Debenture. In addition, we may force conversion of the Supreme Debentures outstanding with 30 days’ notice if the daily volume weighted average trading price of our common shares is greater than $38.59 for any 10 consecutive trading days. We, Supreme Cannabis and the Trustee entered into a further supplemental indenture whereby we agreed to guarantee the obligations of Supreme Cannabis pursuant to the Supreme Debentures and the Accretion Debentures.

Contractual Obligations and Commitments

Other than the changes to our Notes pursuant to the Exchange Transactions, as described above in “Recent Developments”, there have been no material changes to our contractual obligations and commitments from the information provided in the MD&A section in our Annual Report.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in the MD&A section in our Annual Report.

Impairment of goodwill

As a result of the continued decline in the price of our common shares in the first quarter of fiscal 2023, we determined there to be an indicator of impairment for the cannabis operations reporting unit in the global cannabis segment. As a result, we performed a quantitative interim goodwill impairment assessment for the cannabis operations reporting unit as of June 30, 2022. We concluded that the carrying value of the cannabis operations reporting unit was higher than its estimated fair value, and a goodwill impairment loss totaling $1.7 billion was recognized in the first quarter of fiscal 2023, representing the entirety of the goodwill assigned to the cannabis operations reporting unit.

The estimated fair value of the cannabis operations reporting unit was determined using the market valuation method, which is consistent with the methodology used for our annual impairment test conducted at March 31, 2022. The most significant assumptions used in applying this method were (i) the price of our common shares; and (ii) the estimated control premium associated with ownership of our common shares.

For the remaining reporting units, we do not believe that an event occurred or circumstances changed during the first quarter of fiscal 2023 that would, more likely than not, reduce the fair value of these reporting units below their carrying value. Therefore, we concluded that the quantitative goodwill impairment assessment was not required. The carrying value of goodwill associated with all other reporting units was $138.4 million at June 30, 2022.

We are required to perform the next annual goodwill impairment analysis on March 31, 2023, or earlier should there be an event that occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk is the potential economic loss arising from adverse changes in market factors. As a result of our global operating, acquisition and financing activities, we are exposed to market risk associated with changes in foreign currency exchange rates, interest rates and equity prices. To manage the volatility relating to these risks, we may periodically purchase derivative instruments including foreign currency forwards. We do not enter into derivative instruments for trading or speculative purposes.

Foreign currency risk

Our Interim Financial Statements are presented in Canadian dollars. We are exposed to foreign currency exchange rate risk as the functional currencies of certain subsidiaries, including those in the United States and Europe, are not in Canadian dollars. The translation of foreign currencies to Canadian dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date, and for revenues and expense using an average exchange rate for the period. Therefore, fluctuations in the value of the Canadian dollar affect the reported amounts of net revenue, expenses, assets and liabilities. The resulting translation adjustments are reported as a component of accumulated other comprehensive income or loss on the consolidated balance sheet.

A hypothetical 10% change in the U.S. dollar against the Canadian dollar compared to the exchange rate at June 30, 2022, would affect the carrying value of net assets by approximately $1.6 million, with a corresponding impact to the foreign currency translation account within accumulated other comprehensive income (loss). A hypothetical 10% change in the euro against the Canadian dollar compared to the exchange rate at June 30, 2022, would affect the carrying value of net assets by approximately $24.2 million, with a corresponding impact to the foreign currency translation account within accumulated other comprehensive income (loss).

We also have exposure to changes in foreign exchange rates associated with transactions which are undertaken by our subsidiaries in currencies other than their functional currency. As a result, we have been impacted by changes in exchange rates and may be impacted for the foreseeable future.

Foreign currency derivative instruments may be used to hedge existing foreign currency denominated assets and liabilities, forecasted foreign currency denominated sales/purchases to/from third parties as well as intercompany sales/purchases, intercompany principal and interest payments, and in connection with acquisitions, divestitures or investments outside of Canada. Historically, while we have purchased derivative instruments to mitigate the foreign exchange risks associated with certain transactions, the impact of these hedging transactions on our financial statements has been immaterial.

Interest rate risk

Our cash equivalents and short-term investments are held in both fixed-rate and adjustable-rate securities. Investments in fixed-rate instruments carry a degree of interest rate risk. The fair value of fixed-rate securities may be adversely impacted due to a rise in interest rates. Additionally, a falling-rate environment creates reinvestment risk because as securities mature, the proceeds are reinvested at a lower rate, generating less interest income. As at June 30, 2022, our cash and cash equivalents, and short-term investments consisted of $0.8 billion, in interest rate sensitive instruments (March 31, 2022 – $0.9 billion).

Our financial liabilities consist of long-term fixed rate debt and floating-rate debt. Fluctuations in interest rates could impact our cash flows, primarily with respect to the interest payable on floating-rate debt.


	Aggregate Notional Value				Fair Value				Decrease in Fair Value - Hypothetical 1% Rate Increase
	June 30, 2022		March 31, 2022		June 30, 2022		March 31, 2022		June 30, 2022			March 31, 2022
Convertible senior notes	$	536,902	$	600,000	$	494,416	$	563,958	$	(4,510	)	$	(6,600	)
Fixed interest rate debt		41,151		43,386	N/A		N/A		N/A			N/A
Variable interest rate debt		922,150		893,647	N/A		N/A		N/A			N/A

Equity price risk

We hold other financial assets and liabilities in the form of investments in shares, warrants, options, put liabilities, and convertible debentures that are measured at fair value and recorded through either net income (loss) or other comprehensive income (loss). We are exposed to price risk on these financial assets, which is the risk of variability in fair value due to movements in equity or market prices.

For our Notes, a primary driver of its fair value is our share price. An increase in our share price typically results in a fair value increase of the liability.

Information regarding the fair value of financial instrument assets and liabilities that are measured at fair value on a recurring basis, and the relationship between the unobservable inputs used in the valuation of these financial assets and their fair value is presented in Note 21 of the Interim Financial Statements.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, and summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.

Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2022, our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting.

There have been no changes in our “internal control over financial reporting” (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

In November 2019, the Company and certain of its current and former executives were named as defendants in a purported class action lawsuit filed in the U.S. District Court for the District of New Jersey (the “Court") captioned Ortiz v. Canopy Growth Corporation et al., No. 2:19-cv-20543-KM-ESK. The plaintiffs alleged that the defendants made false and/or misleading statements and/or failed to disclose material adverse facts, regarding Canopy Growth’s receivables, business, operations and prospects relating to, among other things, the demand for its softgel and oil products. Pursuant to documents filed with the Court on February 4, 2022, the Company reached an agreement to settle the class action. The agreement does not constitute any admission of liability or wrongdoing by the Company or its executives. The agreement expressly provides that the Company denies any misconduct or wrongdoing. The agreement was subject to approval by the Court and other terms. On February 7, 2022, Judge McNulty granted an order preliminarily approving the settlement. The Court approved the plaintiff’s motion for final approval of the settlement on June 7, 2022.

Item 1A. Risk Factors.

For information regarding factors that could affect our results of operations, financial condition and liquidity, see the risk factors discussed in Part I, Item 1A in our Annual Report. There have been no material changes to the risk factors previously disclosed in Part I, Item 1A in our Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit Number		Description

3.1		Certificate of Incorporation and Articles of Amendment of Canopy Growth Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2020, filed with the SEC on June 1, 2020).

3.2		Bylaws of Canopy Growth Corporation (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, filed with the SEC on November 8, 2021).

4.1		Second Supplemental Indenture, dated as of June 29, 2022, by and among Canopy Growth Corporation, Computershare Trust Company, N.A., as U.S. trustee and Computershare Trust Company of Canada, as Canadian trustee (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 5, 2022).
10.1+		Amendment to Executive Employment Agreement of David Klein, dated June 14, 2022 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on June 17, 2022).
10.2+		Amendment to Service Delivery Agreement, by and among Canopy Growth USA LLC, Brand House Group, N.A. Corporation and Julious Grant, dated June 14, 2022 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on June 17, 2022).

31.1*		Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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+	This document has been identified as a management contract or compensatory plan or arrangement.

*	Filed herewith.

**	This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act or the Exchange Act.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CANOPY GROWTH CORPORATION

Date: August 9, 2022	By:	/s/ David Klein
		David Klein
		Chief Executive Officer (Principal Executive Officer)

Date: August 9, 2022	By:	/s/ Judy Hong
		Judy Hong
		Chief Financial Officer (Principal Financial Officer)