Canopy Growth Corp

TSX:WEED

Earnings Call Analysis

Canopy's Strategic Success and Profitability Outlook

Canopy Growth's Q3 fiscal performance reflects a resilient strategic focus with consolidated net revenue reaching $79 million, marking a 6% increase from the previous year, excluding retail divestitures. The revenue boost was propelled by a 10% growth in Canadian cannabis sales and an impressive 81% surge in Rest-of-World sales, with the launch of Venty contributing to Storz and Bickel's 50% revenue growth from the last quarter. Gross margins significantly improved to 36%, driven by cost-cutting measures in the Canadian sector, and adjusted EBITDA losses shrank by 82% from the previous year to $9 million. Focused on achieving positive adjusted EBITDA across all business units by fiscal year-end '24, the company eyes profitability with optimism, underpinned by solid foundation, gross margin improvements, and sustained strong business growth.

Canopy Growth's Cannabis-Focused Strategy Spurs Growth and Optimism

Canopy Growth has entered a transformational phase, focusing 100% on the cannabis market. This strategic move follows the divestiture of their non-aligned enterprises, strengthening their path towards sustainable profits. The company's third-quarter performance highlighted growth across all business units and a shift toward higher gross margins, consistently in the mid-30s. Their Canadian cannabis business delivered its fourth consecutive quarter of revenue growth, increasing 10% year-over-year, excluding retail divestitures. High demand for premium strains and expanded distribution drive this promising trend.

Robust Product Offerings and International Expansion

Canopy is not only growing domestically but also eyeing significant growth opportunities internationally. With a consistent flower supply and new distribution partnerships, Canopy's international medical cannabis business continues to thrive. Notably, the Storz & Bickel segment reported strong sales, particularly for its Venty portable vaporizer, even without discounts. An exceptional Black Friday event marked 55% growth in devices sold from the previous year, signaling robust consumer demand and market traction.

Canopy USA Poised for Market Leadership Amid Regulatory Progress

The ongoing development of Canopy USA is integral to the company's strategy. The shareholder vote in April could pave the way for acquisitions of Jetty, Wana, and Acreage, creating a formidable U.S. cannabis presence. Regulatory changes have the potential to substantially strengthen Canopy's U.S. operations, including financial benefits from tax reductions and improved cash flows. Canopy USA aims to capture value and fortify its position in the lucrative U.S. market while growth is already being demonstrated.

Fiscal Health Strengthened by Improved Profitability and Cash Management

Canopy's financial health is on the rise, with substantial improvements in profitability and a reduction in cash burn. Net revenue for Q3 is up 6% year-over-year, with notable contributors to growth being Canadian cannabis, Rest-of-World cannabis sales, up by 81%, and Storz & Bickel's over 50% revenue growth quarter-over-quarter. Adjusted EBITDA shows an 82% improvement versus last year, and free cash flow outflow posted a considerable improvement. The company expects continued year-over-year improvement in cash operations, setting up a more stable financial future.

Future Outlook: Strong Margins and Sustainable Profitability

Despite a previous mixture of performance in gross margins, Canopy Growth's third-quarter results presented a clearer picture, showing improved margins in the Rest-of-World business, especially in Australia, driven by the flourishing flower and Storz & Bickel businesses. Executive discussions highlighted continued efforts to enhance profitability, including finalizing cost-reduction programs, leveraging profitable growth from core businesses, and further streamlining corporate costs to ensure the company is well-positioned to achieve its target of positive adjusted EBITDA profitability for all business units by the end of fiscal '24.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning. My name is Joanna, and I will be your conference operator today. I would like to welcome you to Canopy Growth's Third Quarter Fiscal Year 2024 Financial Results Conference Call. [Operator Instructions]

I will now turn the call over to Sarah Paré, Vice President, Investor Relations. Sarah, you may begin the conference call.

[Sarah Paré, executive]

Thank you, Joanna. Good morning, and thank you for joining us. On our call today, we have Canopy Growth's Chief Executive Officer, David Klein; and Chief Financial Officer, Judy Hong.

Before financial markets open today, Canopy Growth issued a news release announcing the financial results for our third quarter ended December 31, 2023. The news release and financial statements have been filed on EDGAR, SEDAR and will be available on our website under the Investors tab. Before we begin, I would like to remind you that our discussion during this call will include forward-looking statements that are based on management's current views and assumptions, and that this discussion is qualified in its entirety by the cautionary note regarding forward-looking statements included at the end of the news release issued today.

Please review today's earnings release and Canopy's reports filed with the SEC and the Canadian securities regulators for various factors that could cause actual results to differ materially from projections. In addition, reconciliations between any non-GAAP measures to their closest reported GAAP measures are included in our earnings release. Please note that all financial information is provided in Canadian dollars unless otherwise stated. Following remarks by David and Judy, we will conduct a question-and-answer session where we will take questions from analysts.

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

[David Klein, executive]

Good morning, everyone, and thank you for joining us to review Canopy Growth's Third Quarter fiscal '24 results. The completion of our Q3 marks the dawn of a new era for Canopy. We're immensely proud of where we are today and feel strongly that Canopy is positioned for lasting leadership. We're 100% cannabis-focused. We're demonstrating consistent growth across each of our business units, and we have a definitive meeting date scheduled for our shareholders to consider an amendment to our articles to create a new class of nonvoting non-participating exchangeable shares, which we expect to advance the Canopy USA structure.

Let's now review our rightsized cannabis-focused business. With the divestiture of this works in December 2023, our last nonaligned enterprise, Canopy is now 100% cannabis focused and purpose built for the markets of greatest opportunity. By focusing exclusively on cannabis and rightsizing our footprint, we've strengthened our path to delivering sustainable operating profit and ensure we are well positioned to capitalize on what we feel is the greatest consumer trend of our lifetime.

And while we're looking to the future with optimism, let's first review the dramatic and measurable improvements in the performance of our business that these actions have produced. To summarize, we've cut Canopy to size and are now delivering on improved gross margins, enhanced commercial execution and are focused on demonstrating growth across all of our business units. This has enabled us to significantly improve our overall gross margins with Q3 marking the second quarter in a row of margins in the mid-30s at the total company level. From this strengthened base, we're generating growth backed by enhanced execution and consistent high-quality products.

In Q3, our Canadian cannabis business delivered its fourth straight quarter of revenue growth, and is up 10% year-over-year when excluding the divestiture of our retail business. There are several contributors to this growth. But at the core, we are continuing to deliver great flower that is being very well received by provincial cannabis boards, retailers, and most importantly, consumers, not to mention our staff. This is further validated by growth in our distribution with an incremental 900 points added nationally during the third quarter, thanks to the quality of our flower offerings. I really can't overstate how proud we are of our flower and demand for our high-quality strains, such as Tweeds, Cushman's and Tiger Cake, remain at an all-time high and has us selling every gram we can produce.

When it comes to flower, we feel that our platform has now dialed in and that we've got a pipeline of high-quality cultivars in market and soon to come from both Tweed and 7Acres. And to meet the ongoing high demand for our flower, we're also working on ways to further increase yield from our production platform. We've also developed a robust new product introduction cycle to win market share across priority categories, including pre-rolls, vapes and softgels. In pre-rolls, we're going to continue our record of success by launching new large packs, infused pre-rolls and burners over the coming months.

In addition, we have an exciting lineup of Tweed and 7Acres make products coming to market with differentiated flavor profiles, and we expect to truly delight consumers as we step firmly back into the vape category. Shifting to softgels, an area of historic expertise at Canopy, we see significant potential to win share through recently launched and soon-to-come softgel products featuring larger pack sizes and unique cannabinoid ratios.

In addition to being a high-margin category, softgels provide consumers a discrete convenience -- convenient and affordable method of precisely dosed cannabis consumption, and we feel Canopy is well positioned to achieve category leadership. Finally, as the foundation of our edibles portfolio, we relaunched Wana in the third quarter across Canada with very active retailer engagement. We also expect to drive additional growth through the introduction of new Wana products that address specific gaps in the current Canadian edibles market.

Shifting to our Canadian Medical business. This has an important margin-enhancing pillar of our Canadian strategy. We're especially proud of our medical team as they continue to drive ongoing assortment expansion in the Spectrum store, including a wide range of exclusive products, all backed by exceptional patient service. This strategy has led to record revenues on a daily, weekly, monthly and quarterly basis, including in the third quarter. And importantly, these record revenues were achieved while improving margins.

Sticking with medical, but shifting to our Rest-of-World cannabis business, we reported another strong quarter with revenues doubling year-over-year. Our Australian team delivered its 12th consecutive quarter of record revenue. Additionally, shipments of proven Canadian strains, including Cushman's, Tiger Cake and OG Deluxe as well as increased educational training with medical practitioners contributed to growth in our Australian, Polish and Czech medical cannabis sales in Q3.

Finally, we think there's a ton of growth possible across international markets where we're already active, and expect consistency of our flower supply and the onboarding of new distribution partners will continue paying dividends across our international medical cannabis business. I'm pleased to report that Storz and Bickel also delivered a strong third quarter, driven by demand for the new Venty portable vaporizer as well as the most successful Black Friday in the company's 20-year history, generating sales across Storz and Bickel's entire portfolio. In fact, the promotional week showcased a remarkable 55% increase in the number of devices sold versus the last year, including driving strong Venty sales despite the device not being discounted.

Speaking of Venty, I really can't say enough about this device. It's the best portable vaporizer experience available. I continue to be amazed by how quickly it heats up, but even more the vapor throughput -- which at 20 liters a minute is the closest thing you're going to get to the legendary volcano experience in a portable option. But don't just take it from me, the reviews and consumer demand for this device has exceeded all our expectations and the Venty is rapidly claiming its hero status within the portfolio.

In fact, after our initial production run, we've had to add a second shift to further increase capacity and ensure availability matches the consumer demand, which shows no sign of slowing. Much like the iconic Volcano, we expect the Venty will be a central pillar of the Storz and Bickel portfolio in the long term. As with the rest of the SMB product lineup, it's important to reinforce that these products are truly premium and command a price point reflecting their quality. In sum, our commercial businesses are demonstrating momentum and delivering impressive results.

So let's talk about Canopy USA. Simply put, we're moving forward. We're pleased to report that we will be filing our definitive proxy statement on or around February 13, setting up a special shareholder vote for April 12. Following a successful shareholder vote, Canopy USA will be able to proceed with its anticipated acquisition of Jetty, Wana and Acreage, finding synergies to accelerate growth through a unified multistate operating business.

Looking further to the U.S. and the potential impact of regulatory reform on our strategy, as many of you know, in August, the Department of Health and Human Services communicated its recommendation that cannabis be rescheduled to Schedule III. This was a welcome development, and we are cautiously optimistic that the DEA will, in the near term, provide its recommendation and initiate this process. Moving cannabis to Schedule III would be a significant boost for the U.S. assets held by Canopy USA, and for Canopy Growth.

Through the removal of Section 280E, we expect value appreciation across our U.S. assets, which would see a significant financial boost through reduced corporate income taxes, improved cash flows and strengthen balance sheets. We also believe cannabis being moved to Schedule III would build momentum behind other efforts to reform cannabis regulations in the U.S. And while we continue to advocate for these high potential catalysts, we remain focused on operating our business and demonstrating growth today.

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

With that, Judy will speak to further details of our financial results.

[Judy Hong, executive]

Thank you very much, David, and good morning, everyone. I will start by reviewing our third quarter fiscal '24 results, including the significant year-over-year progress we've continued to make across our P&L this year. I'll then discuss additional actions we've taken to improve our balance sheet and cash flow, followed by our priorities and outlook for the balance of fiscal '24. Let's begin with our third quarter results. Q3 by Q2 before demonstrated a substantial improvement in profitability and cash burn reduction that our rightsized cannabis-focused business can deliver.

Canopy delivered consolidated net revenue of $79 million in Q3, which is up 6% compared to Q3 of last year when excluding Canada retail divestitures. Main drivers of revenue, excluding retail divestitures were Canadian cannabis revenue increased 10% compared to a year ago and were up sequentially from Q2. Rest-of-World cannabis sales grew by 81% year-over-year in Q3. And Storz and Bickel grew its revenue by over 50% compared to the last quarter, driven by the launch of Venty.

Consolidated gross margins in Q3 was 36%, a significant improvement compared to 6% last year. The biggest driver of improvement was the business transformation initiatives executed in Canada, which have meaningfully reduced Canada operational costs. Q3 adjusted EBITDA was a loss of $9 million, an improvement of 82% versus last year, and a 25% improvement over the $12 million adjusted EBITDA loss in Q2 of fiscal '24. And free cash flow was an outflow of $34 million, an improvement of $44 million compared to Q3 of last year and nearly a 50% improvement versus the last quarter. I'd like to now review the results by our key businesses in more detail, including progress against our path to profitability.

First, Canada. Q3 net revenue was $40 million, the third quarter in a row of sequential quarterly revenue growth. Canadian medical sales continued to grow strongly, increasing 11% compared to last year, driven by increased assortment of high-quality products, including the introduction of Wana brand that began in August. Our adult use B2B business was up 9% compared to last year, with the revenue growth during the quarter, driven mostly by the growth of large pack flower offerings from Tweed, as well as addition of Wana Edibles.

Canada gross margin in Q3 was 28%, and cash gross margin adding back noncash depreciation cost and [ cost ] was 40%. Similar to the last quarter, the biggest driver of year-over-year improvement is the cost reduction from the Canadian business transformation initiatives. Our efforts drove reduction in flower costs, direct manufacturing costs and overhead expenses, and we continue to see material reduction in excess and obsolete inventory expenses as we have aggressively rightsized our inventory.

We're also pleased to see our Canadian business on track to achieve mid-30% cash gross margin performance in fiscal 2024. Rest-of-the-World cannabis sales increased 81% year-over-year. Australia had its 12th consecutive record revenue quarter, growing over 32% year-over-year. Poland grew revenue by over 60%, and Germany also returned to double-digit growth year-over-year, aided in part by improved flower shipments. Rest-of-World gross margin was 40%, driven by year-over-year improvement in margin performance in our Australian business due to product mix, as well as slapping negative impacts in noncore markets during the prior year period.

Storz and Bickel revenue of $18 million in Q3 was up 54% sequentially, but down 9% year-over-year. Sales during the quarter benefited sequentially from strong consumer demand for new Venty portable vaporizer that was launched in Q3. Initial demand for Venty exceeded production, those sales were constrained early in the quarter, and we added a second production shift to better align production with demand. By Friday period sales for Storz and Bickel brands were very strong, resulting in the brand's most successful Black Friday sales campaign ever in its history.

Sales on a year-over-year basis were impacted by reduced shipments to the U.S. due to continued financial challenges faced by distributors. Storz and Bickel gross margin was 51% compared to 45% last year, in part due to lower input costs and a positive mix shift with Venty carry higher gross margins than the rest of the portfolio. With the divestiture of This Works in December 18, '23, we included revenue for This Works sales between October 1, 2023 and December 17, 2023.

As a result, we reported This Works revenue of $8 million in Q3, essentially flat compared to the prior year, which included the full quarter of revenue. Q3 fiscal '24 adjusted EBITDA loss was a negative $9 million, an improvement of $42 million, compared to a loss of $50 million a year ago. I would note that this is our best adjusted EBITDA quarter since fiscal 2017. The improvement is driven primarily by additional cost reduction of $36 million realized during Q3 as well as focused execution, driving profitable growth across our businesses.

Now looking at our SG&A expenses more closely, selling and marketing, G&A and R&D expenses declined by a combined $26 million, or 38% compared, to a year ago as a result of our cost reduction program. Through the strategic transformation initiatives announced in April '22 and February 2023, Canopy has now realized $262 million of cumulative cost reductions, well on our way to achieve our targeted cost savings of $270 million to $300 million. Our cost discipline, along with the expectation for continued growth in our businesses give us confidence in our target of achieving positive adjusted EBITDA in all of our business units exiting fiscal '24.

I'd like to now review our cash flow and balance sheet. Free cash flow was an outflow of $34 million in Q3, which includes $21 million in cash interest payment and $1 million in CapEx. During Q3, we further delever the balance sheet, reducing an aggregate principal amount by $65 million for a cash payment of $63 million with the proceeds from the asset sales, including the proceeds from the BioSteel assets completed during Q3. In January, we also completed a USD 35 million private placement, majority of which we expect to use towards additional debt reduction.

Now turning to the balance sheet. As of December 31, 2023, we had $186 million in cash and short-term investments and total debt of $612 million, resulting in net debt balance of $426 million. Following the series of balance sheet actions we've completed over the past year, we have significantly strengthened our financial position. First, while the short-term

[Audio Gap]

this mostly relates to the promissory note with Constellation Brands. We expect this note to be settled in equity, thus preserving cash on our balance sheet.

Within our long-term debt balance, our senior secured term loan now stands at USD 383 million, and is due in March of 2026. This is a reduction of USD 367 million from the original loan amount -- being focused on executing additional activities to further delever -- further deliver on our commitment to improve our financial position over the coming months. And reflecting these factors, we expect our total debt to be around $520 million at the end of fiscal '24, with minimal short-term obligation.

I'd like to now provide our key priorities and outlook for the balance of fiscal '24 and into fiscal '25. In Canada cannabis, we remain firmly on a path to achieving profitability and our focus on accelerating top line growth on the back of strengthened product portfolio as we close out fiscal '24 and end third fiscal '25. In Rest-of-World cannabis, we expect to see growth in our key priority markets of Australia, Germany, Poland, and Czech Republic, and remain focused in ensuring consistent supply of high-quality products as well as launching new products into these markets in the near term.

For Storz and Bickel with production of the new Venty portable vaporizer having ramped up during Q3, we expect to see strong Venty demand to offset the seasonally softer sales that we typically experience in the fourth quarter. SMB Australia sales should also see some impact from the upcoming regulation changes on vapes. From a cash flow standpoint, we expect our cash from operations to continue to show year-over-year improvement, driven by further reduction in adjusted EBITDA loss and lower interest expenses.

In closing, we believe our Q3 results reinforce our confidence, but we now have a solid foundation in place to achieve profitability and drive profitable growth and enhance shareholder value over time. This concludes my prepared comments. We'll now take questions from analysts.

[Operator]

[Operator Instructions] First question comes from Michael Lavery from Piper Sandler.

[Michael Lavery, analyst]

Congrats on a lot of the progress you just laid out. I would love to just get a little bit of better market color on the pricing environment in Canada and just some of the ways you're managing that and how that outlook looks.

[David Klein, executive]

Yes. So I think, Michael, there's still price compression in some of the categories. And the way we're really managing it, I think, is making sure that we're thinking about pricing almost from a tiered standpoint. So there are some areas where we need to be price competitive because the market is taking us there. And then there are some areas where we can't produce enough product to meet consumer demand. And so we've actually had some instances where we take price increases. So, it really is kind of managing the mix across the portfolio. But yes, there's -- it's still -- there's still some pressure in the marketplace.

[Judy Hong, executive]

I'd also say, despite the price compression - and obviously, we are also seeing that in our P&L to some extent - but we're definitely seeing gross margin improvement in part because we're shifting our mix. So product categories where it's more profitable, we're really leaning in there with better margins. And also, we're looking at ways of continuing to say find savings and our cost. So our cultivation costs are down year-over-year, but we're looking to even improve our cost more. So as we're seeing some of the price compression, we can more than offset that and see the variable margins improvement across our portfolio. And then, I think, lastly, our medical business, as you know, is a very high-margin business to begin with, and we're also actually seeing margin improvement in that part of the business with some of the product mix improvement that you're seeing in that platform as well.

[Michael Lavery, analyst]

That's helpful. And where you've been able to take price? Can you give a sense of the magnitude? I'd imagine it's relatively modest, but maybe I'm wrong…

[David Klein, executive]

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

[Operator]

The next question comes from Tamy Chen at BMO Capital Markets.

[Judy Hong, executive]

Tamy, are you on mute?

[Tamy Chen, analyst]

I'm sorry about that, I hit the wrong button. So, as we know, yesterday, one of your competitors acquired their Australia Medical business. And you pointed out in your prepared remarks that the Rest-of-the-World gross margin was really primarily driven by the Australian gross margin there. And we noted that in Q3 this quarter, the margin really jumped versus the previous 2 quarters, it was 30 -- 30-ish percent, and now this quarter was 40%. So we really want to dig into maybe the puts and takes in that gross margin number? And also, what are your plans, that you want to share with us, about Australia that could talk about the attractiveness of that market for you?

[Judy Hong, executive]

Sure. I'll start, Tamy. So if you look at our Rest-of-World business, I would point out a few things. One, historically, you're right that there was a lot of lumpiness in the gross margin performance in there, mostly driven by noncore markets, frankly. I think you know we include our U.S. CBD business in that line item, and we've really tightened our focus and when there was some strategic changes in our U.S. B2B business and the changes there have impacted the gross margins as well as the revenue in some of the quarters. We also had historically had bulk shipments to some of the markets outside North America, and that also created volatility in the gross margin performance as well.

So I think, when you look at Q3 performance, I'd say it's relatively a clean quarter in engaging our gross margin performance. We are looking at Australia on a year-over-year basis seeing improved margin performance as their product mix is improving. But even in Europe, we are also seeing the margin improvement there as well. The one thing to call out from an Australian business standpoint -- in our Australian business, we also have Storz and Bickel sales that go through just from a reported segment standpoint to the Australia sales as part of our Rest-of-the-World sales that -- and the Storz and Bickel business, frankly, has really growing strongly in Australia.

So I think the combination of really strong growth in the flower business in Australia as well as growing business in Storz and Bickel, but now the improvement we're seeing in markets like Germany give us confidence that the margins that we're seeing today should be sustainable going forward.

[Operator]

The next question comes from Aaron Grey at Alliance Global Partners.

[Aaron Grey, analyst]

First question for me, I can certainly appreciate the ongoing situation back and forth between the SEC and the exchanges regarding Canopy USA. So I just wanted to clarify just in terms of some of the disclosures in the MD&A, it seems like some of your combos with the OCA from the SEC that you expect with the new agreement that builds in agreed with the deconsolidation of Canopy USA, -- so first, can you just clarify that you believe with the filing in February, you'll be able to get more clarity on that before the vote in April?

And then second, could you provide any additional color in terms of the level of potential supplemental information you might be able to provide in terms of how the company would look with Canopy USA on a pro forma basis, even if it's not going to be consolidated?

[David Klein, executive]

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

I also want to make sure that whenever we talk about Canopy USA. that we're talking about the benefit of Canopy USA. So I know there's just a lot of interest in terms of how we will structure that business. But for me, the benefit is really having some really strong brands combined with capabilities in some really big markets to create a real focused brand-led sort of business in the U.S., which is an extremely attractive and profitable cannabis market.

[Judy Hong, executive]

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

[Aaron Grey, analyst]

Thanks for that color. I appreciate that, and I definitely look forward to talking more about the performance of the business versus the optics of that was disclosed on the financials. A quick second one for me, if I could. Just in terms of the guidance to reach EBITDA profitability as you exit the fiscal year. Just if you could help us maybe triangulate some of the drivers to reach an EBITDA profitability as you exit the year.

You divested the This Works business that had healthy gross margins, but not sure if it was a drag at the EBITDA level. And the other notable drivers talk about the cost savings. You've now had $262 million cumulative versus, I believe, $227 million last quarter. So just if you could help us put how you're reaching that in terms of potential gross margin or SG&A savings that will start to actually flow through the P&L and help us reach that? I think that would be very helpful there.

[Judy Hong, executive]

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

So I'd say that's the second driver is really the strong base business growth that we continue to expect to be sustained on a go-forward basis. And then lastly, we are looking at continued efficiencies across our [indiscernible] and particularly looking at some of the G&A on the corporate cost side. So we do think that there is opportunities to continue to streamline our corporate cost to make sure that we are looking at really a positive adjusted EBITDA on a go-forward basis for all of our business units. We're still finalizing our fiscal '25 plan. So we'll provide more details on the profitability outlook for fiscal '25 as we report our Q4 results in May.

[Operator]

The next question comes from John Zamparo from CIBC.

[John Zamparo, analyst]

I wanted to ask about Storz and Bickel and I appreciate the sequential improvement. It sounds like you're very excited about this business and new products that are coming out, but the revenue was down 8% year-over-year. Presumably, that's with some pricing embedded into it and that included a product launch. So I'm just wondering if you could add some color on that business and provide some framework on what you expect from it in calendar '24?

[David Klein, executive]

Yes. So John, I'd like to just kind of set the stage, I just want to point out that Storz and Bickel has doubled in the past 4 years, doubled at the top line level. So, we're seeing reasonably consistent growth across the business. I would say that our results in Q3 were held back a little bit by the late launch of Venty, which happened late in the quarter. And so there was a fair amount of production activity and programming activity around the Venty launch. And we exited the quarter with a substantial backlog of units, which we're working our way through right now, right? So over its history, we see growth coming from Storz and Bickel from new product launches like the Venty launch.

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

[Judy Hong, executive]

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

[John Zamparo, analyst]

All right. That's helpful. And then I wanted to follow up on Aaron's question about profitability plans and cost savings. And I guess you answered it, but just to clarify, it sounds like you expect both sales growth and additional cost cuts, but do you think you can get to positive EBITDA on a consolidated basis in the event you don't achieve the sales growth you want? Do you have confidence you can get to the high end of your cost savings plan? And would that require additional actions if that was the case? Or are those actions already taken and you're just waiting for these additional costs to flow through the P&L?

[Judy Hong, executive]

Yes. Look, I mean, John, I say our businesses have now a strong foundation for profitability. I think there is evidence that -- from a gross margin standpoint, you're seeing improvement not just from a cost reduction perspective, but the growth and the mix improvement that's also driving profitability improvement. And that's not just in Canada, but you see that in Rest-of-World and Storz and Bickel businesses as well. I'd say one area is we are a public company cost.

So there are costs that are just related to being a public company cost, and we're actively -- and then we've already identified some of the opportunities and areas of cost of savings there, and that will be -- continue to be an area where we'll focus on as we really drive towards that profitability targets. But as we said in our prepared comments, we do believe that we will exit fiscal '24, with all of our business units being profitable. So we're really pleased with the performance so far.

[Operator]

[Operator Instructions] Question comes from Bill Kirk from ROTH MKM.

[William Kirk, analyst]

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

[Judy Hong, executive]

So Bill, we don't break out segment information at the adjusted EBITDA level. So all I can say is we -- obviously, our goal is to be profitable at the consolidated level. As I said, we feel that we are on track to achieve profitability at the business unit level exiting FY '24. Does that mean the full quarter is profitable? Does that mean the consolidated adjusted EBITDA is profitable?

There is still some areas that we just need to see how that plays out. I would also point out there is some lumpiness in some of the corporate costs that sometimes sits on a quarter-over-quarter basis. So those are all the things that we're really focused on mitigating. And I think I would just say that, in my view, the performance of the business are very encouraging in terms of the top and bottom line growth. And obviously, we're focused on generating positive adjusted EBITDA across all of our businesses as we exit fiscal '24.

[William Kirk, analyst]

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

[Judy Hong, executive]

Sorry. So Q2, I think our gross margin in Canadian business was in the mid-30s this quarter, reported growth at 28...

[William Kirk, analyst]

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

[Judy Hong, executive]

Yes. So in Canada the gross margin was 28%. The consolidated gross margin was in the mid-30%. I'd say Storz and Bickel margin probably did come in a bit better than we expected, partly driven by, obviously, the Venty and then some of the benefits from lower material costs as well. And I'd say even Canadian margin probably came in a bit better than we expected. I think I did call out last quarter where we said we had some benefits from opportunistic use of lower cost inputs. We had some of that lingering benefit in Q3. So that helped Q3 gross margin performance in the Canadian business a little bit better than we anticipated at that point in time as well.

[Operator]

The next question comes from Matt Bottomley from Canaccord.

[Matt Bottomley, analyst]

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

[David Klein, executive]

I think we believe that with the gross margins, we're now delivering -- our area of focus now is on how to drive growth, right? And so for us, I think it's just continuing to build on what we've done to date in terms of the strains we have in the market, in terms of some NPD that we have on the verge of bringing into the market.

In particular, as I said in my script, building on some of the momentum we've had in pre-rolls, leading into softgels a little bit and then coming back into the vape space more aggressively than we've been in the past. We also think that there's a lot of distribution opportunity for our brands across the marketplace. So I think that it's more around the lines of having good margin products that are resonating with consumers and executing in all aspects of our go-to-market strategy. That's how we see ourselves continuing to grow in Canada, in particular, addressing the adult sector.

[Judy Hong, executive]

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

[Matt Bottomley, analyst]

Got it. And then just one more for me, now switching just on to the international side of things. So there's been a lot of constructive commentary with respect to the outlook in certain markets in the EU. I know Australia has been mentioned and someone referenced the deal that was mentioned yesterday, even one of the U.S. MSOs has been pretty constructive on the international side of things. So just considering that on a trailing 12-month basis, there's been a lot of focus on sort of the balance sheet and there's been some asset dispositions. Do you think there's an ability or need to deploy any capital into some of these markets in advance of regulatory changes? Or do you think that the runway is long enough where that might not be a primary focus for Canopy in the near term?

[David Klein, executive]

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

[Operator]

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

[David Klein, executive]

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

[Operator]

This concludes Canopy Growth's Third Quarter Fiscal 2024 Financial Results Conference Call. A replay of this conference call will be available until May 9, 2024, and can be accessed following the instructions provided in the company's press release issued earlier today. Thank you for attending today's call.