Canopy Growth outlines path to improved margins and cash flow with Canadian cannabis momentum

Earnings Call Insights: Canopy Growth Corporation (WEED:CA) Q2 2026

MANAGEMENT VIEW

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CEO Luc Mongeau highlighted "continued momentum in our Canadian adult-use cannabis business, consistent growth in our Canadian medical cannabis business and a stronger and significantly healthier balance sheet." He reported a 30% year-over-year increase in Canadian adult-use cannabis net revenue and a 20% year-over-year distribution increase among Alberta independent retailers, attributing this to demand for Claybourne infused pre-rolls and Tweed and 7ACRES All-In-One vapes. Mongeau stated, "For the 6 months period ending September 30, 2025, revenue is up 37% compared to the same period last year."

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Mongeau also noted, "In our Canadian medical cannabis business, net revenue grew 17% year-over-year," with a 20% year-over-year increase in insured patient registrations. He described ongoing investments in quality and the exclusive use of their BC Georgia site for medical cultivation.

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Addressing international operations, Mongeau expressed disappointment over a $3 million net revenue decline in Europe due to supply constraints and internal process challenges. He emphasized, "We have already mobilized a dedicated effort to improve supply chain execution, which includes daily management oversight of logistics, product road maps and licensing."

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In the Storz & Bickel segment, Mongeau said, "the launch of the new VEAZY Vaporizer was received with great enthusiasm by consumers globally and generated early sales momentum," forecasting continued growth into Q3.

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Mongeau announced over $21 million in annualized SG&A savings, surpassing their $20 million target. He added, "We're also taking further steps to meaningfully lower our cost of goods sold through streamlining processes, smart investment to deliver improved yield and quality as well as tighter supplier management."

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CFO Thomas Stewart stated, "Our adjusted EBITDA loss narrowed significantly year-over-year, driven by growth in the Canadian cannabis business, along with lower SG&A expenses and efficiency gains." Stewart reported, "We had $298 million of cash and cash equivalents as of September 30, 2025, which exceeded debt balances by $70 million." He also noted, "During Q2, we prepaid USD 50 million on our senior secured term loan, capturing roughly USD 6.5 million in annualized interest savings."

OUTLOOK

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Stewart outlined that in the Canadian adult-use channel, "we expect improved performance... over the remainder of fiscal '26, driven by a robust innovation pipeline of focused product formats and tight alignment with cannabis boards and retailers."

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For Canadian medical cannabis, Stewart said, "excluding any impact of these potential changes" to government reimbursement, "we would expect Canada medical cannabis top line to continue to grow in the back half of fiscal '26."

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For international markets, Stewart projected, "we expect revenue in the region to remain generally consistent with the second quarter levels with growth expected as we exit the fiscal year."

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Storz & Bickel is expected to see "stronger performance over the remainder of fiscal '26, driven by the successful launch of the VEAZY at the end of our second quarter as well as strength coming from the holiday selling season."

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Stewart also stated, "we expect sequential improvement in cannabis gross margins over the remainder of fiscal '26, driven by top line growth and additional production efficiencies and cost savings."

FINANCIAL RESULTS

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Stewart reported Q2 cannabis net revenue of $51 million, "up 12% compared to a year ago." The Canadian adult-use business was up 30% year-over-year. Canadian medical was up 17% from the prior year. International cannabis sales decreased 39% from the prior year.

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Cannabis gross margin in Q2 was 31%, up from 24% in Q1. Storz & Bickel net revenue in Q2 was $16 million, up 5% sequentially, with gross margin at 38% in Q2 compared to 32% in the prior year period.

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SG&A expenses in Q2 declined 13% year-over-year. Adjusted EBITDA loss for Q2 was $3 million, improved from a $6 million loss a year ago.

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Free cash flow was an outflow of $19 million, down from $56 million in the same period last year.

Q&A

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William Kirk, ROTH Capital Partners: Asked about supply chain improvements for Europe and potential cost implications. Mongeau responded, "We're retooling to a place where we will be able to satisfy European demand for the foreseeable future from our Canadian GMP facilities... I do not see any increases in the cost of the flower that we will be providing to Europe."

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Kirk also inquired about the use of the ATM. Stewart answered, "We're continuously evaluating our capital requirements and funding strategies... We have the program in place to the extent we need to draw on it, but we're active prudently with those proceeds."

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Aaron Grey, Alliance Global Partners: Asked about international supply chain reliance and profitability timeline. Mongeau explained, "We're really retooling the entire route to market with our own grown flower," and Stewart said, "it's too early to speculate at this point in terms of when [profitability] would be."

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Frederico Gomes, ATB Capital Markets: Questioned capacity investments and capital allocation. Mongeau assured, "We're confident with limited investment that we can meet the demand and meet the growth targets that we have." Stewart added, "$300 million of cash with no near-term debt obligations... provides further optionality for us when it comes to evaluating our capital structure and evaluating potential investment opportunities."

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Pablo Zuanic, Zuanic & Associates: Sought details on vape launches and U.S. business. Mongeau responded, "We're thrilled with the early results we're getting with our All-In-One... They're margin accretive for us." Stewart clarified, "There are no guarantees between Canopy Growth and Canopy USA... there's no funding new or otherwise with Canopy USA and Canopy Growth."

SENTIMENT ANALYSIS

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Analysts maintained a probing yet pragmatic tone, focusing on international supply chain, capital allocation, and profitability milestones. The mood was neutral, with persistent requests for more detail on execution and timing.

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Management's tone remained confident and solution-oriented during prepared remarks, emphasizing progress and operational discipline, but became more measured and occasionally defensive when pressed on international recovery and profitability timing. Mongeau used phrases such as "we're on it" and stressed close oversight for Europe, while Stewart avoided giving explicit profitability timelines.

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Compared to the prior quarter, management displayed greater confidence regarding Canadian operations and cost control, but acknowledged international setbacks more candidly. Analysts in both quarters focused on margin improvements and international execution, with similar levels of skepticism.

QUARTER-OVER-QUARTER COMPARISON

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The current quarter showed a shift to a stronger balance sheet and improved cash flow, with $298 million in cash and cash equivalents compared to $144 million in the previous quarter.

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Canadian adult-use and medical cannabis businesses both accelerated growth, while international revenues declined after prior growth, with management reporting specific supply chain setbacks in Europe this quarter.

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Gross margin in cannabis rose to 31% in Q2 from 24% in Q1, reflecting sequential improvement. SG&A savings surpassed targets in Q2, compared to progress toward the target in Q1.

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Management's confidence in Canadian operations increased, while their outlook for international recovery became more cautious.

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Analysts continued to focus on gross margin, international supply, and profitability, with little change in tone between quarters.

RISKS AND CONCERNS

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Mongeau highlighted uncertainty around "the Canadian federal government's recent proposal to reduce reimbursement for veterans who use prescribed medical cannabis," warning of potential impact on access and quality of care.

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Management acknowledged "supply constraint and internal process challenges" in Europe, which led to a $3 million net revenue decline. Plans are underway to improve supply chain execution.

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Stewart noted, "while U.S. tariffs have created pressure on Storz & Bickel's profitability, we remain focused on mitigating their impact."

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Analysts repeatedly questioned the pace of international recovery and the timeline for achieving positive adjusted EBITDA, signaling concerns over execution risk and external regulatory changes.

FINAL TAKEAWAY

Canopy Growth emphasized continued gains in Canadian adult-use and medical cannabis, stronger balance sheet health, and a clear focus on margin expansion and cost control. Management acknowledged setbacks in international markets but outlined active measures to restore supply and profitability. The company remains committed to disciplined execution and sees further improvement in cash flow and gross margin as priorities for the remainder of fiscal 2026, while keeping a close watch on potential regulatory impacts and international recovery.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/weed:ca/earnings/transcripts]

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