Canopy Growth Corporation (TSX:WEED)

Investor Day 2020

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Jun 22, 2020

Good morning. My name is Amy, and I will be your conference operator today. I would like to welcome you to the Canopy Growth Virtual Investor Meeting. At this time, all participants are in a listen only mode. I will now turn the call over to Judy Hong, Vice President, Investor Relations. Judy, you may begin the meeting. Great. Thank you, Amy, and hello, everyone. Welcome to Canopy Growth's 1st virtual investor meeting. On behalf of the Canopy Growth management team and the entire IR team, I want to thank all of you for joining us this morning. I'll cover a few housekeeping items before we get started. First, we will have a slide presentation up shortly on our website under the Investor Events section, and we'll also be showing the slide presentation on our webcast. 2nd, we'll be conducting our Q and A session at the end, during which analysts and investors will have the opportunity to ask questions. Now for those listening to our meeting on the webcast, you can also submit questions via the question entry box that is located at the bottom of the conference website interface. We plan to finish the meeting no later than 12 p. M. Also, please note that we are all dialing in from different locations, so please be patient with us if we face any technology related issues. And finally, I'll remind you that our remarks this morning will include forward looking statements that are based on management's current views and assumptions, and these slides list factors that could cause our actual results to be different than those estimates. And with that, it's my pleasure to turn the call over to David Klein, our CEO, who'll kick us off this morning. David? Thank you, Judy, and let me also extend my welcome to all of you who are joining us today. Today, you'll hear from me and a few members of our leadership team, who will further discuss our updated strategy, which we unveiled during our Q4 earnings call a few weeks ago. We structured this meeting as a fireside discussion to really hit on many of the key questions we've been getting over the past few weeks. And we also plan to leave ample time for Q and A at the end to answer any questions you may have. So let's get underway. If we take a step back, to me, we at Canopy Growth are on a journey with a clear destination. We're thinking bigger than competing with other licensed producers and eventually the U. S. MSOs. We're positioning Canopy as a leading CPG company with brands that are household names. We want our brands to lead the lists of most loved brands. Our vision is to apply our talent, our physical assets, our intellectual property and our financial resources such that Canopy and our core brands are the consumer preferred choice for cannabis products in the U. S, Canada and Germany. While we intend to be laser focused on capturing a leading share position in each category, while we deliver on our commitment to profitability. Our strategy is to leverage the building blocks we already have, putting the consumer at the center of everything we do and focusing our resources against the biggest and most profitable opportunities we see. We're building a world class insights organization. The best company in almost every category you can think of in CPG, the absolute undisputed leader in each space invariably has the best understanding of what motivates the consumers to purchase their products, the needs that their products are addressing for those consumers and how to best get their products into the consumers' purchase basket. And so if you can see why this is important to established industries, you have to understand the outsized importance this capability takes in a newly forming industry, an industry made up of consumers who are just understanding the choices available to them. Even more important, there are tens of millions of consumers in North America alone who intend to use cannabis, but haven't in the past 12 months. We need to tease out the best way to bring those consumers into the category through our brands. We'll take those insights, connect them with our best in industry science and innovation capabilities, which we'll continue to enhance in order to create products, brands and experiences that build loyal consumers. As I said earlier, we're focusing on 3 core markets, Canada, the U. S. And Germany. And we'll continue to set the industry standard and authentically deliver in a fashion which is true to Canopy's roots in medical cannabis on our social, financial and environmental commitments to our employees, our communities, our consumers and our shareholders. Now while we're refocusing our company, we're not starting from scratch. We believe we have the foundation to create a disruptive world class consumer goods company, which will create significant shareholder value along the way. I'm excited to be part of this journey along with the entire Canopy Growth team. I firmly believe that in business, talent matters. Ask PE firms or VC firms about their investment criteria. In every case in which I've asked leaders of these organizations about how they choose companies in which they'll invest, I hear some variant on assess the market opportunity, understand the company's positioning, diligence their economic model, and then invest only if they have great talent. If they don't walk away. I've also heard invest in great management team with a good plan over a good management team with a great plan. This leadership team has been in place for only a few weeks. We've assembled a strong set of people whose experience and capabilities will allow us to deliver on our ambitions. We have a good mix of cannabis experts along with CPG experts and everyone has a track record of success. I'm looking forward to you getting to know this group and a few others on our team at Canopy over the next few hours and subsequent months. I believe we have a great management team and a great plan. With that, I'll turn the mic over to Rade, our Chief Product Officer. Thanks, David, and good morning, everyone. I've been in this industry for well over a decade now and with Kampe for the past 5 years. I co founded the Association of Canadian Medical Cannabis Retailers in 2010, as well as the Cannabis Council of Canada in 2013. This background of understanding the market, consumers and products coupled with the data driven best in class innovation and consumer insights teams we've assembled, set us up to be able to execute on our renewed vision. As we've reset our strategy, I have 3 clear priorities in my role of Chief Product Officer. 1st, to create products that are clearly differentiated with features and benefits based on consumer needs. 2nd, taking those products and building strong brands around clearly segmenting our consumers and building brands that they love. And third, leveraging that foundation to implement a strong new product development pipeline based on targeting the largest profit pools where we have a right to win. I look forward to reviewing the strategy with you over the course of this session. And with that, I'll now turn the call over to Chris, our Chief Insights Officer. Chris? Thanks, Ronny. Good morning, everyone. I'm Chris Edwards, the new Chief Insights Officer at Canopy Growth. I oversee our strategy, consumer and commercial insights, business intelligence and revenue management groups. My team will work with Rade's product organization and our commercial route to market teams to identify new consumer driven product opportunities and the best way to bring them to market. You've heard from David already about the importance of having world class insights. Later on, I'll give you a sense of what my priorities are in the near term. Before Canopy, I spent 10 years at Constellation in several finance and strategy roles. Most recently, I was the SVP of Strategy. Mike Keith led the initial work for Constellation analyzing the cannabis opportunity, which ultimately led to the investment in Canopy. We recognized the consumer macro trend of mood management, giving consumers more refined ways to enhance or change their moods and believe that Canopy was the best positioned company to take advantage of that trend. I feel so strongly that this is the case that I welcome the opportunity to come over and work with the Canopy team. Before Constellation, I worked for the Boston Consulting Group in the consumer goods and retail practice for 8 years, advising clients on topics such as growth strategy, pricing and innovation. Now I'll turn it over to Julian, our Chief Innovation Officer. Thanks, Chris. Good morning, everyone. I'm Julian Cohen. I'm the new Chief Innovation Officer here at Canopy Growth. And I and my teams, we're going to be working closely with Rade's product org and Chris' insights team really to bring our consumer driven new products ideas to life. I have over 25 years of experience in consumer insights and innovation, primarily in the beverage alcohol category. I was at Constellation Brands and before that Beam Suntory. And prior to that, I spent over a decade in advertising at DDB and Leo Burnett working clients and brands across multiple consumer goods like Gatorade, Philip Morris, General Mills, Dell and General Motors. At Constellation, I led the Business Intelligence Group where I worked closely with Chris and his team on assessing cannabis opportunities for us, which as he said led to our investment in Canopy. And then I went on to head up the Green Star Canada division, which was the original partnership between Constellation and Canopy, and we were tasked with creating cannabis infused beverage brands for the Canadian market, 2 of which are launching this year, that's Deep Space and Quattro. For the past year, I've worked in the U. S. Cannabis and CBD space as an advisor to several companies and investors. And I'm really excited to be joining Canopy right now, not only because I think this company is best positioned to win, but because of this team. I mean, I worked with David, Chris and Mike at Constellation and with Rade and Phil at Greenstar. So I'm really looking forward to working with this team again and to deploying our best in class innovation capabilities in order to bring the next generation of cannabis products to our consumers. And I'll now turn it over to Mike. Thanks, Julian. Good morning, everyone. As most of you know, I've been with Canopy for a year and a half now, but my experience includes companies like E and J Gallo Winery, PepsiCo and most recently Constellation Brands with 20 plus years of beverage and beverage alcohol experience throughout my career. I'd like to use a few minutes to provide you with an update on the COVID-nineteen impact of our businesses, following our Q4 earnings call where we discussed how COVID-nineteen is impacting our Q1 performance. In Canada, we had indicated that quarter to date through late May, our B2B business was seeing about a 15% reduction versus a rolling 13 week average during the 6 months ended March of 2020. And our B2C business was seeing a 50% reduction during that same time period. Our Canada rec performance has improved modestly in recent weeks as physical stores have started to open up again. In Canada Medical, our business continues to be relatively stable. And our strategic businesses are seeing some declines, though a bit better than quarter to date trend of 20% to 40% reduction through late May versus the average sales that we've seen that 6 months ended of March of 2020. I'd also like to remind everybody that we continue to expect gross margin pressure in the coming quarters given that 50% of our production costs are fixed. And while we work through COVID-nineteen, we are experiencing some lost economies of scale as a result. So we expect our gross margins to be below 30% during this period of pandemic. But as I mentioned in our last earnings call, we continue to take measures to limit our spending and flex down our staffing and defer any or cancel altogether any non binding commitments where we can. But it's also important to note that as sales begin to recover, we expect gross margins to normalize and continue to target that 40% gross margin number, and we believe that there's runway ahead of that over time. So with that, let me turn the call back over to Judy. Thank you. Great. Thank you, everyone, for the introduction. And for those of you joining the webcast, I do apologize for any webcast related issues that we incurred this morning. Glad you can join us. So now we're going to move to the fireside discussion with our leadership team. And as David mentioned earlier, we really wanted to use today's meeting to really focus on some of the key areas of our strategy that many of you are interested in digging deeper. So I'm going to be channeling my former sell side analyst career and moderate So let's kick off with the first topic of the discussion. And the first topic is on the total addressable market. So David, you commented during our Q4 earnings call that you believe the TAM is even bigger than you initially thought and that Canopy can continue to grow its sales at an annual rate of 76% for the foreseeable future. So the question is, can you walk us through how you see the TAM opportunity and the key drivers of Canopy's top line growth going forward? Yes, sure. So when you look at the global cannabis market and I'm really only focused on legal channel here. It's already a sizable market and with very high expected growth rates over the next several years. Today, we think the total addressable market or TAM is already close to $10,000,000,000 I'm using Canadian dollars here. And we expect total TAM to approach $70,000,000,000 by calendar 2023. Interestingly, while there are many markets today that have a legal cannabis framework in some form, the U. S, Canada and Germany account for about 90% of that total addressable market. So that's the reason why we focused on those three markets. And so when you look at the 3 core markets that we're focused on in the near to medium term, we see these markets growing to be over $22,000,000,000 in retail sales by 2023. All three markets are expected to grow significantly. So Canada is expected to be about 4 times the size that it was in 2019. U. S. CBD 6x and Germany about 10x. These are all again by the time we get to 2023. These markets incrementally will reach $60,000,000,000 when we can access the U. S. THC market upon federal permissibility. And recall that we have a pathway to access that market through our relationships with Acreage and Terasend. Our goal is to hold a leading share position in each of these markets. So how do we get there? First, we can convert existing sales that are happening in the illegal market to the legal channel. In Canada, less than 40% of Canadian consumers say they buy cannabis in legal dispensaries. And if you look at total retail sales, legal sales are currently a quarter of the total market. A key driver of this shift will be opening up more stores in provinces like Ontario, so consumers can have easy access to the products in legal channels. We continue to see the total number of licensed stores reaching around 1200 by the end of this year. But look, opening more stores isn't enough. We plan to adjust our product offerings in order to compete more effectively against the illegal market, not just through lowering prices, but through offering superior consumer experiences in terms of safety, access and performance. The second key driver is related to getting new consumers into the category. Based on our research, 17% of Canadian adults who currently don't consume cannabis say they intend to use recreational cannabis. We believe that many of these people are not interested in smokeable products. So we see a significant opportunity to recruit these intended consumers through products like our drinks. As more consumers are looking for alternatives to alcoholic beverages, to functional beverages like sports drinks or energy drinks and alternatives for issues with pain, sleep and anxiety. The total alcoholic beverage market in Canada is $24,000,000,000 and functional beverages account for another 2. So getting a 5% of the combined categories represent $1,300,000,000 retail sales opportunity for cannabis infused beverages in Canada across all suppliers. Great. So it sounds like a pretty sizable TAM opportunity that we're really excited about. So now that we understand the TAM opportunity, the next topic that we really want to delve into is our market share aspiration. And given some of the challenges that we faced in our Canada recreational business in the Q4, we have gotten a lot of questions from analysts and investors around the Canadian recreational market in general, as well as our market share performance. So really this question, I'll throw it to Rade. What is the outlook for the Canadian recreational business? And how does Canopy intend to drive leading market share position in an increasingly competitive marketplace? Wade? Thanks, Judy. So to set the table, we track all provinces based on a variety of data points. However, we use Ontario, Nova Scotia and PI for in-depth detail as they are the 3 provinces with the most transparent SKU level data provided by the provinces. Clearly, winning in Ontario, Quebec, Alberta and British Columbia are key to winning in Canada. So first of all, we've been a leading market share player since the legalization of recreational cannabis in Canada. We believe we still hold top 3 market share position in most of the provinces and territories. And while we have seen softening of market share performance in recent months, particularly in places like Ontario and Alberta, we're taking positive active steps to address those challenges. As we have indicated during our earnings call, we are focused on 4 key areas in the near term to drive improved market share performance. 1st, a more focused product portfolio approach 2nd, improving our share in the value segment 3rd, a strong focus on winning in 2.0 products and lastly, improving quality across all of our products. So let me quickly go through the first three points and we'll speak to item 4 later in the presentation. One of the key areas of focus is reducing complexity in our portfolio so that we can better meet demand of high velocity products. Roughly 30% of our SKUs have accounted for 80% of our Canada recreational shipments. Simply put, we had too many low velocity SKUs that were creating complexity throughout our supply chain and taking away resources from executing on the supply of high velocity SKUs. We've missed opportunities to capture $20,000,000 in sales in Q4 alone due to product availability issues. We have already conducted the initial SKU rationalization that was completed in March of this year, which will reduce our SKU count by approximately 30%, focusing on our high velocity SKUs. This will enable us to focus supply on faster moving SKUs, increasing our ability to meet demand while also reducing our cost and complexity of operations. Additional SKU reductions are likely as we continue to look at opportunities to further optimize our product portfolio as the market matures. Another key focus area is improving our share within the value segment. Over the past few quarters, the value segment has grown significantly and now accounts for nearly 25% of the total market. Competition has intensified and the recent entries of lower priced offerings have caused significant market share shifts within the value segments. Our value brand, TWD, as a result, has seen its share within the value segment decline in the last quarter. In the short term, we are improving competitiveness of TWDs through 3 key areas: making price adjustments on a market by market basis increasing focus on larger pack sizes as we've seen this change occur during the COVID era, And increasing and tightening the THC ranges, focusing on moving to 20% -plus THC for our TWD, indica and sativa flower products. We began to roll out the program in PI in Quebec at the end of May and we expect to be completed nationally by early July. Initial market results so far have been very promising. TWD sales velocity at retail is showing significant acceleration and shipments are also increasing in the early entry provinces. That said, we believe that the value segment will remain competitive and we expect additional deep value competitive brands to enter the market, which we plan to also participate through another brand we will be launching later in Q2. At the same time, we are working to develop a comprehensive long term value strategy. We see value playing a key role in driving a shift from the illicit to the legal channel, but we also recognize there's more to value than just price or THC level. So we'll leverage our consumer insights and design to value to strengthen our value brands positioning on a sustainable basis go forward. And finally, we are focused on winning in the 2.0 product segments. Since the opening of the rec market for 2.0 products late last year, we have seen the 2.0 products grow in its share within the recreational cannabis market in Canada. In Ontario, 2.0 products account for 25% of total recreational sales in May. We are also seeing our 2.0 product contribution increasing with 12% of our B2B recreational sales core to date through week 11 generating from 2.0 products. Of note, we are seeing beverages grabbing a growing slice of the market, with beverage accounting for 28% of the combined edibles and beverage category sales in Ontario in May. We are the number one player in cannabis beverages with 35% value share and 54% volume share in May alone. We are excited about the consumer responses that our beverages have been generating thus far. In a recent survey we conducted amongst those who tried our Tweed houndstooth and soda beverage, the first we brought to market, 73% of consumers say they would purchase the beverage in the future, 75% of consumers would recommend it to their friends or family, 20% of consumers who are open to repurchasing claim it would replace an alcoholic beverage. Our other beverages in market, Baker Street and Ginger, Houseplant Grapefruit and Deep Space are generating equally positive responses so far, and we look forward to the consumer insights work we'll be continuing to do on those entries. In total, we've now shipped over 530,000 units to date and are doubling weekly production runs to ensure that we can meet demand. Our premium chocolates have also seen demand exceed our supply since the launch. We've doubled our production and as a result are now able to produce to demand. Within edibles, we are also looking at expanding our product portfolio to address other high demand and plan to launch our line of gummies by the end of fiscal 2021. In vapes, we have 2 platforms in market: our Tokyo Smoke Luma closed loop pod based system as well as our universal 510 thread cartridges. Since the Tokyo Smoke Luma battery launched in our corporate owned retail stores at the end of March, the performance has continued to build. Consumer feedback has been overwhelmingly positive with our focus on quality of both our formulations and hardware. For example, the UL 8,139 certification. And these investments on quality on both ends of the products are proving extremely valuable. Within our retail stores, LUMA is outperforming packs, primarily driven by the competitive price point of LUMA. Since the launch in January, the Juju Power battery has quickly become our top selling battery and accessory for that matter in our corporately owned retail stores. We will continue to roll out additional 510 vape cartridges in the months to come. And with that, back over to you, Judy. Great. Thank you, Rade, and I think this is a pretty comprehensive overview of the actions that we're taking to strengthen our market share performance and an increasingly dynamic marketplace in Canada, Vivek. So now let's shift our gears to the U. S. CBD market. U. S. Is obviously one of the 3 core focus markets for us. Many believe, however, that the market is developing perhaps slower than initially expected and it's also a very fragmented market with no real brand differentiation. So I'm going to ask David this question. How do you see the U. S. CBD market developing? And how does Canopy become a leader in this U. S. CBD market? David? Yes. Thanks, Judy. So just one thing I'll point out in case everyone on the phone isn't aware of it, which is, so we can't play in any plant touching cannabis plant touching activities in the U. S, right? So we're precluded from that sort of activity. But because of after the passage of the Farm Bill, we're able to participate in the market in the U. S. For CBD derived from hemp. And so we do have a team of people in the U. S. Working on that. And we're just generally excited about the U. S. CBD market opportunity. In a pretty short period of time, the U. S. CBD market has become a multi $1,000,000,000 market. Our estimates suggest it's currently a $3,000,000,000 industry growing at about 58% annually and their expectations are that it will reach $10,000,000,000 by 2023. And we believe product formats like soft gel or capsules, beverages, topicals and pet care are going to lead category growth over the next few years. From a consumer standpoint, the CBD market is cluttered and confusing. There are more than 2,700 CBD brands in the market, 86% of Americans have heard of CBD, but only 18% have tried it. Of those 86%, 2 thirds have no knowledge of any specific CBD brand. Many brands that grew quickly are now facing pressure to continue historical growth trajectories, primarily due to an increasingly crowded and highly varied competitive space. And the CBD category, therefore, is returning to a fragmented state with 94% of companies seeing sales below $1,000,000 We believe this presents an opportunity for us to capture significant market share and allows us to differentiate ourselves with science backed product focus and ultimately brand led approaches to this market. We have some of the best cannabinoid researchers on our team focused on clinical research and product development and believe our CBD products have quality and efficacy second to none. Our focus is on delivering the consistent experience that consumers demand. And we offer a portfolio of product across all of our brands to target a range of specific consumer needs states. We're also providing the leadership this category sorely needs, both a resource for consumer education and a voice for our industry on Capitol Hill. So let me spend a little bit of time on this topic. We've been working closely with the FDA to share our research around CBD safety and efficacy at different dosages and to work with them to establish a recommended daily dose for CBD. We've formally submitted public comments actually in early October regarding safety data on CBD and have since been requested by the FDA to share our science, which we are providing on a rolling basis. The FDA initiated a process to potentially redefine the definition of CBD. They've held hearings and opened and closed public comment period, which we believe will ultimately lead to legal definition of CBD. We're also continuing ongoing discussions with leaders on Capitol Hill to provide a legislative solution for CBD through the classification as a dietary supplement. In fact, there's a current bill that's been introduced by the House Ag Committee Chairman, Colin Peterson, which would amend the Food, Drug and Cosmetics Act to reclassify CBD as a dietary supplement. We entered the U. S. CBD market just in late 2019 with the launch of our 1st in free hemp based CBD brands and the rollout of BioSteel CBD for Sport, which went into 500 plus Vitamin Shoppe locations. We think that's just the beginning of the robust and varied portfolio of CBD products we have in store for the U. S. Market. This works has launched a line of CBD booster skincare, which is currently available through direct to consumer channels in the U. S. We also plan to launch our Martha Stewart branded offerings in the coming months, focused first on human consumables and then broadening to include pet focused offerings. By the end of this calendar year, we're planning to launch 40 plus CBD based SKUs in the U. S. As we expand our offerings across the category with tinctures, gummies, inhalable options and beverages. So our aspiration in the U. S. CBD market is based upon our expectation that by FY2023, the U. S. CBD market would be a $10,000,000,000 market at retail. The FDA would have clarified CBD regulations opening a pathway to broader distribution and product formats and would be on the way to becoming a leading CBD supplier to large format retailers and of course building toward that top three market share position. So I think Judy, it's a very attractive market. We think that between our science and our brands and the route to market capabilities we're building in the U. S, we'll be well positioned to take advantage of that. Great. Thanks, David. I'm certainly taking advantage of using our first and free product here in the U. S. And I really look forward to trying the Martha product when it launches later this year. So let's shift gears and ask a financial question. So this one is going to be for you, Mike. So many on the street were supplies that our SG and A expenses increased in the Q4 and they're also hoping to see a greater effort made by us to cut SG and A expenses. So how is Canopy really balancing investing for growth while also reducing costs so that we can improve margins? Yes. Thanks, Judy. Well, let's first take a look at each of the areas of spending within our OpEx for fiscal year 2020. Sales and marketing expenses have been have seen modest increases in the second half of the fiscal year, driven really by the launch of our 2.0 products and our CBD investments that David spoke about a few minutes ago. And G and A, as you can see, shows a little more volatility quarter to quarter just given the timing of certain expenses, certain projects that we're working on. And when you look at share based compensation, you can see that we've made tremendous progress, and really reining in some of the costs as we've revamped our total rewards compensation program and really ended the year with what would be a good run rate going forward for share based compensation as we move through FY 2021. And then D and A costs, depreciation and amortization costs, there was a bit of a true up in Q4, but the run rates that you saw in Q1, Q2, Q3 are pretty good run rates going forward. So with that, I think it's also important to keep in mind that SG and A expenses reflect investments to support our long term growth as well as our day to day operations on the business. So when you look at total SG and A, the U. S. Accounted for 8% of our FY 2020 SG and A as we're building out our U. S. Infrastructure ahead of our CBD launch. So it's really spend that we're incurring ahead of revenues. So when you think about SG and A loads, that's an important thing to keep in mind that we are investing for growth. And when you look at Canada, I think it's also important to note that we own our own corporate retail stores that carry its own operating costs as well that lands in our SG and A number too. And while we have centralized sales and marketing costs within Canada, our rec B2B portion accounted for less than half of our total sales and marketing expenses in Canada for FY 2020. But that being said, we are focused on rightsizing our cost structure and we know that our current SG and A load isn't nearly where we'd like it to be over time. And in the near term, you should expect to see a few areas of opportunities. So first, the headcount reductions that we made in April May will begin to flow through SG and A starting in Q1 of fiscal '21. And there's roughly $20,000,000 of savings on an annualized basis that will start to flow through. Secondly, we are still going through org changes. And as these actions take place, we are expected to see further SG and A reductions in coming quarters. And then finally, our R and D efforts are going to be more focused on near term high return projects. And I think that will also help to improve our SG and A load. Then when you take a step back and say over the medium term, what can you expect? And 1st and foremost, I would say all of the leaders on this call today as well as some of the leaders not on this call will be personally responsible for achieving certain SG and A targets over the next couple of years. It's an important part of our incentive structure and we are working through developing those targets as we speak. And I can assure you we're making tremendous progress in a very short period of time. But when you step back and think about those SG and A loads over the medium term, we expect sales and marketing expenses to be in the mid teens as a percentage of sales by FY2023. And we expect our G and A to be in the high single digits, but really conservatively low double digits as a percentage of sales. And then R and D expenses should be in that mid single digit range. And that's what we're using for our internal modeling for profitability, and I think that's good guidance going forward. So Judy, hopefully that's helpful. Yes. No, I think that's a great target, and I think that will help people to understand that that will that means that our operating margin should improve as those ratios really come into fruition. So the next topic that we're going to focus on is really about quality. And I know we've talked a lot about how we're really focusing on improving quality, both on the product side as well as on the operations side. So really the question is around our plan to improve quality of both the products and operations, so that we can deliver the right product at the right time, at the right price from the right facility. So, Julien, maybe you can start with talking about the product quality improvement efforts that you're involved in. And then Mike, if you can talk about the operational improvement projects that we have under review. So Julian, I'll turn it over to you. All right. Great. Thanks, Judy. We have a number of initiatives underway to improve our product quality. Given the nature of cannabis products, we see significant opportunities to leverage our strong agricultural science work and our capabilities there, our best in class resources and really our best in class team. So we're taking steps to integrate our agricultural science teams and our product operations teams. That's the first thing we're doing. And we're addressing critical consumer feedback that we believe will improve the quality of our flower. So a couple of examples to highlight here. We've implemented higher moisture level standards in our drying processes and we're assessing adjustments that we can make to better preserve our terpene profile. And again, there'll be more coming out of this group, but these are two things that I think are quick wins here. Mike? Yes. So I'd say another key project, I briefly spoke about this during our Q4 earnings call, but we recently began a full end to end supply chain diagnostic with the help of a top tier outside firm. And this diagnostic really aims to take our supply chain and really make it a competitive advantage for Canopy. And it's really going to be through better aligning our commercial strategy with our supply chain. And we believe that that's going to unlock tremendous value over the next 3 to 5 years as we really look to operate truly on an end to end fashion to make us more nimble as a supply chain to allow us to shift to varying consumer needs. And we think that there's just tremendous value to leverage on what really is a best in class set of facilities across Canada. So look, stay tuned in the Q and A session. We certainly can talk more about this. But I'd also say that a big part of our consumer first strategy is design to value. And this is a really big opportunity for Canopy as well because we need to be more focused on understanding the various features and benefits that exist in our products and using our research to really understand what consumers think about each of these attributes. And we'll be asking ourselves, what attributes do they care about most, which are unimportant. And as you segment this understanding, it really allows you to understand where to invest in your product in a way that maximizes consumer value. And in areas where consumers just don't care, you value engineer those products so that you drive your efficiencies and really help to achieve your cost targets and your margin profile. So in the end, design to value is really about delivering a product on all the features and benefits where it matters, while also allowing you to achieve all of your margin goals. And this is a capability that you'll see at many leading consumer product companies. This is a capability that will provide many short term benefits, but this is really about building a long term sustainable capability that integrates with the way we operate from a consumer product package assortment perspective and integrating it with the supply chain. So we believe this is an opportunity to really create a competitive advantage for Canopy. Great. Thank you both and sounds like a lot of comprehensive projects that we'll be able to share more as we go forward on the quality improvement area. So we'll shift to insights and innovation. And Chris and Julian, you 2 are the newest members of our executive team and both of you are really responsible for an incredibly important part of our strategy, insights and innovation. So can you can each of you speak to the key areas of focus for your efforts in the nearest to medium term? And what do you see as the biggest opportunity for Canopy when you think about consumer insights as well as innovation? So Chris, why don't we start with you? Great. Thanks, Judy. Canopy has done a lot of work already to understand our current and potential consumers. But in the near term, our focus from an insight standpoint is really to optimize our current and future product portfolio. So Mike just talked about our design to value initiatives. In order to do that really effectively, we need to know what product characteristics consumers and gatekeepers such as bud tenders really value. And one of the exciting things about this category is how dynamic it is. For example, in Canada over the last 12 months, only a quarter of our potential audience consumed cannabis. And within that group, 37% bought from legal channels, a quarter bought from the black market and 31% had it given to them from a friend or family member. Another group we call intenders make up about 17% of the population. Three quarters of them used cannabis in the past, but aren't using it today. And about a quarter have never tried cannabis, but are open to it now. Finally, 58% of the population today say that they won't buy cannabis, but of that group, 38% say that they would buy it if they had a medical condition. From the research that we've done on these groups to date, there are different barriers that need to be overcome in order to get them to consume our products. For current consumers of cannabis, roughly a third aren't actually purchasing products. We can win by encouraging them to purchase legally and educating them that there are occasions beyond social occasions. From the roughly 25% purchasing from the black market, we can bring them over to the legal market through product innovation, quality and convenience. In tenders are concerned about smoking and the smell of cannabis, the lapsed in tenders those who used in the past believe that it doesn't fit into their current lifestyle, while those who never used are concerned about how it might make them feel. For both groups of intenders, product innovation that doesn't require inhalation is a huge opportunity. There's an opportunity with lapsed in tenders to show them how new products and occasions can fit into their current lifestyle. For example, our beverage portfolio has products with rapid onset and no calories and sugar. Finally, rejectors need further education on the benefits of cannabis and normalization of occasions to feel comfortable. We need to focus on products that are similar to what they use today, such as beverages and OTC products to win them over. Based on research we've done historically and work we're kicking off now to continue to better understand consumer need states, we are designing new products and refining existing products to align to these different potential consumer segments. These opportunities differ across THC and CBD products and other cannabinoids and also differ by geography depending on the maturity and evolution of the markets. There's a lot of focus today and rightly so on how players in our industry are performing relative to each other, but these are still early innings in our category's evolution. There are still enormous opportunities to bring new consumers into the category through product innovation and superior R and D. And when I look at my own friends and family as they become more educated about products and the market, I see my friends and family even though who haven't used cannabis in the past trying our products. And with that, I'll turn it over to Julian to talk about our innovation capabilities. Thanks, Chris. Overall, I think Canopy has a tremendous opportunity to use all of our best in class science and our product development capabilities to meet the needs of current and future consumers. I've been working outside of the big business side of cannabis for the cannabis category for about a year and I can tell you that Canopy is viewed as being uniquely able to unleash the power of cannabis. And now that I'm inside, I can truly see the competitive advantage we have in terms of talent and technology. It's up to us now to use all of these capabilities to win. So across the innovation team, we have a strong team that has a proven track record. We have a world class group of agricultural scientists. So I mentioned earlier, they continue to find new ways to improve our cannabis flower quality. So their efforts in breeding, genomics, agronomy, crop protection and crop physiology are going to lead us to lower cost, high quality dried flower across all of our that's indoor, greenhouse and outdoor. And by putting the consumer first via the sensory panel work that we're doing in conjunction with Insights, we are growing products with optimal moisture levels, consistent THC levels and the aromatics and terpene and taste profile that we know consumers want. We have a formulations team and they position us to be the market leader in cannabis beverages, edibles, softgels and topicals. We've built unrivaled softgel encapsulation technology, proprietary continuous extraction and short path distillation techniques and groundbreaking beverage manufacturing practices. We're already seeing the results here. As David and Rade talked about, we have the leading softgel brands Canada and our new beverages like Houseplant, Tweed and Deep Space not only deliver optimal onset and duration, they taste great and some of them have 0 calories. And then our vape technology team is leading the way in user technologies in the cannabis and CBD space. So we have the 1st UL8139 certified cannabis vapes on the market. And our 510 vape battery launched late last year and is the best selling 510 vape battery in OCS. And we have TokioSmoke the Luma closed loop system of battery cartridges that we've launched in March. And there's we have a custom built fully automated filling and packaging line designed to scale our production as the vape business grows and as we invest new user technologies. And then we have a human effects team who continues to lead the charge on cannabis research across a variety of elements and applications to support structured function claims for our products where applicable and to advance the medicinal and wellness potential of cannabis. So given that, and that really gets us to our short term, as Chris mentioned, how do we win in the near term? I'm also enthusiastic about what's next. I mean, we have to win in beverages, edibles and vape because that's where the consumers are going, as Pradeep and Chris have noted, whether they are current category users looking for new experiences and tenders who are interested but haven't stepped into the category yet or these rejecters who need more approachable formats to give them the confidence to try cannabis. And because we have this expertise in beverages, edibles and vape in Canada, the U. S. And in Germany, we can bring these new occasions and new consumers into Canopy. And we have to win in flower because that's the fuel for our engine as well a significant part of the market. We're continuously improving our flower products and raw materials for extracts via the new Gro Technologies and improved seed genetics and the processes and integration with operations that I talked about earlier. And we're implementing consumer feedback into our product development through the value chain and across all product formats from our sensory panels to our multiple research projects on the human effects of cannabinoids. And so you put all this together, this increased collaboration across our ever improving R and D capabilities in conjunction with advanced consumer insights, and we're going to see true innovation. 1st and foremost, innovation within our existing categories of flower, vape, beverages, edibles, softgels and topicals and beyond this, I think there are other untapped and even undefined product formats out there, which I'm confident that this team with these technologies are going to find. Over to you, Judy. Great. Thank you, Chris and Julian. It sounds really great to just to hear about a lot of the efforts that's already underway. I think we've had a really strong foundation to begin with, but importantly now really using a collaborative approach to take our insights and innovation going forward. So we're really excited to see the efforts going forward in the future. So I think the last topic of the fireside discussion really is looking at our key milestones. And the question is for David and Mike. So we have indicated our plans to communicate new financial metrics in second half of fiscal twenty twenty one and financial milestones in the second half of fiscal 'twenty one. But I think a lot of investors are hoping to have a better clarity around path to profitability and some of the key milestones that they can track so that they can gauge how our work progressing against the new strategies and to really gauge whether the strategy is working or not. So I'm going to turn it over to David and Mike to just kind of help people understand from your perspective, what are the key metrics to really gauge our progress going forward. So David? Yes. So I'll start out then, Judy. So a couple of things. So for those of you that I've worked with in the past, you know that I think it is important to have those milestones out there. I also think it's important to set milestones and then over deliver over time, right? But it takes some time and I'm taking my time to make sure that I understand the milestones that we set from a financial standpoint before I want to commit to the delivery because again my expectation is once we put them out there we achieve them and of course, the COVID-nineteen issues haven't helped us kind of take that view as quickly as I'm sure many of you would like and certainly as quickly as I would like. So we fully understand the importance of showing progress against our strategy, however, which is different really a bit from the financial targets. And as Judy mentioned before, it's our intention to put those new financial targets out in the second half of our fiscal year. So in terms of key financial metrics that you can hold us accountable as you gauge our progress, I think it needs to tie back to our strategy. So the first thing that we need to be able to answer is, are we winning with the consumer? And we're going to measure this by our dollar share in our core markets and of course by net sales growth on a year over year basis. And the second question really is, are we improving our overall execution? And we're going to measure this with through increasing our customer order fill rates, reducing our out of stock at retail and also ensuring that we're meeting the quality objectives that we put out there for ourselves. And Mike, I'll let you take the other two areas. Sure. So, look, when it comes to path to profitability, the biggest metric that matters is what David just talked about, which is building scale. But gross margin is equally important and highlighting the supply chain project that we're working on, the design to value, but even some of the capabilities around revenue management are all going to be important levers in getting to and exceeding that 40% gross margin target. So that's obviously a metric that we're going to be laser focused on. I think the SG and A load is also important. And as you heard earlier, we now have programmed our FY2023 targets for SG and A load that every member of the leadership team is accountable to. And I would expect that as we proceed through FY 2021, you'll start to see quarter by quarter progress on that SG and A load. But it's also about cash. So we've added a free cash flow metric to all of our incentives for FY 2021 and we'll be looking at working capital improvements in the areas of inventory. That's an area that as the business has scaled, we just need to get tighter on how we manage inventory. And it's a balance between achieving fill rates, but also making sure that we're not overbuilding. So that's going to be a big area of emphasis. And then of course, capital spending as we're coming off of a 2, 2.5 year phase of build out of our Canada infrastructure, you'll see a pretty big pullback on capital in FY 2021. We're currently targeting capital spend of around $300,000,000 for the fiscal year. So those are, I think, 4 important metrics that we'll show progress on over the next 3, 4 or 5 quarters. Back to you, Judy. Great. Thank you, everyone. I think this was really an insightful discussion on really a lot of the topics that I think investors and analysts were really asking after our Q4 earnings. So we hope that this gave really good insights in the key questions that many of you have had. But at this point, I think we'll move on to actually a live Q and A session. And for this session, my colleague, Tyler Burns, will be working with the operator to manage the Q and A parts of the section. So I'm going to turn it over to you, Tyler. Thank you, Judy, and good morning, everyone. As a reminder, for those that are listening to our meeting over the phone, you can submit a question by pressing stars and the number 1 on your telephone keypad. For those listening to our meeting via the webcast, you can submit questions via the question entry box that is located at the bottom left of the webcast interface. To get to as many questions as possible, we ask that attendees limit themselves to one question and media are asked to refrain from asking questions during the session and are instead encouraged to follow-up with our media relations group. Operator, can we please have the first question from the phone? Your first question today comes from the line of Graeme Kreindler with 8 Capital. Your line is open. Hi, good morning and thank you for taking my questions here. I wanted to follow-up with respect to some of the comments you had on U. S. CBD. I'm in agreement in terms of the large opportunity there and all the things we have to look forward there. But you talked about a very fragmented landscape in terms of brands, some of the regulatory hurdles there. So I was wondering with respect to the goal of launching 40 plus SKUs in the near term, when you think about the routes to market and the channels there, my understanding is it's still very difficult to get big box retailers to take these products or if they do get in some of those repeat orders. So I guess between now and a potential regulatory catalyst, I wanted to get some more details in terms of what that rollout strategy looks like and I guess what happens between now and the point till the Holy Grail moment where you're on every big box store shelf possible, e commerce and firing on all cylinders there? Thanks. Yes. So I think you point out you make a good point as it relates to getting on the shelf. And we have access to several retailers that normal CPG companies would refer to as key accounts that we believe we can get on the shelf, even at least with some of our products waiting for final FDA resolution. But what we're doing with our route to market strategy is we're positioning ourselves to be able to quickly address the needs of those big players, whether it's in big box retail or convenience, so that as soon as those markets open, we believe that we would have an inside track in order to be able to get that distribution that's so important to ultimately establishing the brand footprint. So I would say we're going to get our products in the market using the categories, the product types that we can. So of course, you can get topicals in the market today, a little less easy, I suppose, to get ingestibles in the market. So we can get topicals in the market at all levels of retailer. We can get the remainder of our portfolio into independents and some key accounts. But what we're really doing is we're getting our brands in the consumer's hands. We're proving that our products are in fact superior and we're positioning ourselves for explosive growth once we can actually access the big box retailers. Okay, great. I appreciate the color there. And as a follow-up to that, you discussed I think a lot of people would consider the CBD segment to fall somewhere in health and wellness. You talked a lot about the advancements in R and D and the amount of cannabinoid science you're doing, some of that you're sharing with the FDA. And then I think back to your comments from the last earnings call where, David, you marked definitively that Canopy is not going to be looking to compete in the pharmaceutical space. So I just wanted to get some detail on bridging the gap or how those two different areas stay separated in terms of what you're doing on the CBD side and the amount of research you're doing, where does that stop? Or where do you toe the line between that and more of a pharmaceutical area, keeping that within the context of the entire TAM that cannabis could potentially go to in the future? Yes, I'm actually glad you asked that question, because I don't think I was clear on the earnings call. What we're really doing is we're pivoting a bit away from pure pharma style research, which as many of you know, requires a lot of investment. It takes a long time and it's questionable to the extent that you could get drug identification numbers or DINs as it relates to cannabis. And so we still have a little bit of research that will continue in this area, but most of our efforts will be focused on, I guess, if you're looking at it on the U. S. Side of the border, what feels a lot more like over the counter medication. So being able to compete with over the counter sorts of products that help individuals with sleep, anxiety and pain, which is a massive addressable market, which isn't included in the numbers that we've laid out in this in the presentations today. So that remains an area of focus. It's just we're just saying we're going to tack away from pure pharma, pure pharmacy, pharmaceutical drug development just because it's we don't think that that's in our sweet spot. As I said, it also is quite costly and takes a long time and your likelihood of success, we think, is fairly low. That's great. Very helpful. One last question, if I could sneak it in here. Just with respect to in your opening remarks, you talked about competing and ultimately competing with some of the MSOs. And you have various strategies, whether it's through CBD, whether that's through acreage or Karasen. I'm wondering because the landscape shifts so quickly from a regulatory standpoint, or even from what becomes important for various operators at various points in time. How should we be thinking about your optionality in the U. S. Market? Is it a strategy where you're looking to nurture your current investments? Or are you still very active in pursuing or potentially looking at other opportunities and continuing to branch out the strategy and the optionality that comes with it? Thank you very much. Yes. So I like want to reset back to our overall strategy, which is we need to prove out our model in Canada. We need to develop great products using consumer insights that we pull from all of our markets, bring those products to market where we can, which is in Canada, get them to the market in other markets at the discretion of acreage, which has the rights to our IP in the U. S. And so that we begin to build that ecosystem across the markets where we're proving out the cannabis story, we're proving out our products, we're improving our products on an ongoing basis, so that when the U. S. Market opens, we can very aggressively accelerate deploying those sorts of products into the U. S. Market. So like that sort of activity is going on today as a result of the relationships that we have in place. And we expect to just accelerate that over time. Then the next phase would come upon federal permissibility, in which instance we have the obligation to acquire the acreage shares. And we have we also have a pathway to partial ownership of Terasend. And so we think that with that as our platform in the U. S. And this continued consumer insights and innovation cycle, we think we'll be well positioned to take advantage of the U. S. Market upon permissibility. We'll get a bit of a fast start. Beyond that, look, we'll continue to investigate brands and capabilities that we need in our portfolio for the continued growth of the Canadian market or to access the U. S. Market upon permissibility. But we're, for the most part going to stay focused on just executing our strategy. Okay. Appreciate that. Thank you very much. Your next question comes from the line of John Chu of Desjardins Capital. Your line is open. Hi, good morning. Just regarding your OpEx related targets for fiscal 2023, are you factoring in that you're more or less going to be growing into those numbers, those targets? Or is there going to be a decent portion of that being streamlining the cost and reducing those numbers going forward? And then the second part of that question would be, how much do you plan on attributing that to the U. S, given that you don't have nearly the same sales, marketing, promotional type restrictions that we have in Canada? Thank you. Yes. Sean, I'll take that. This is Mike. It's a little of both and it's really the work of the management team looking at all of our capabilities across the various functions within Canopy and looking at the pathway to those targets. And some of it's going to be driven by efficiencies and technology. Some of it's going to be driven by op model changes and putting shared service centers in place. Some of it's going to be purely driven by economies of scale, driven by the revenue growth. But we're taking a, I'd say, a very rational approach in making sure that we're not building SG and A targets that rely solely on revenue growth to make sure that we've got a balanced roadmap to achieve these targets. So it's really the work of the team at this point. And I'd say each of those levers are going to play an important role, whether it's technology, op model or growth. But our confidence level in getting these targets is pretty high. When it comes to the U. S, look, we're spending 8% of our SG and A on the U. S. Because we believe that the U. S. Really is the future for the company when it comes to the total addressable market. You've seen the math. It's a massive opportunity in CBD alone. But upon federal permissibility, it becomes the biggest market in the world. And we want to make sure that we're making investments today to enable us to capture that growth down the road. So we are spending it ahead of revenue in the U. S. We'll continue to spend ahead of revenue for probably the next couple of years, at which point we'll start to grow into that SG and A load and start to show better financial performance for the U. S. But we believe it's the right growth strategy at this point. David, we have a question from online. Are you working to make it easier for Canadians to purchase your cannabis beverages? Ravi here, I can take that one. So I think there's a few points on it. Firstly, accessibility of beverages is definitely key as we look to disrupt beverage alcohol and move in tenders or rejecters into the cannabis market. And really the solve for this is a mix of points of purchase and trial. So if I give you an example, like I walk around my neighborhood during this COVID time and talk to my neighbors in their driveways. The vast, vast majority of which don't consume cannabis or have not in 30 years, but they're curious now that's legal. And they're not smokers. So smoking joints or flower is not super appealing to them and vapes even they associate with nicotine. Edibles and beverages are the easiest point of entry. But then within that, everyone remembers someone from university who had a bad brownie experience, right? And so moving to edibles mentally causes some duress. So where beverages I've started seeing playing well is the idea that they are substitutable, right? So if a neighbor asks me, says, I like White Claw, I'm looking for a beverage with low calories, I can tell them just replace that White Claw with a tweet in soda. And they know from a consumer experience what to expect. And so what I see happening right now in Canada is trial is key. So one of my neighbors will go and they'll buy 1 and they like it and then they'll go and buy 5 more. And then they'll share a couple with their friends, right? And so through this trial, people realize that delivers on the effect that they're expecting, the duration is akin to alcohol. The flavors are great. And from that perspective, they'll then go and make purchase. With purchase, one of the key things we obviously need is more stores. So in Alberta, with over 400 stores in place, this is a non issue. In Ontario, with now coming close to 100 open, we need many more, but they're coming quick. And if I put in context right now where I live in Ottawa, I have to drive 20 minutes to a store. But I have one opening in 3 minutes from my house in the next 2 months. And so from that perspective, the gap of stores and points of purchase to where people live is closing very quickly. I think the other big change during the COVID pandemic is e commerce and same day delivery. So across Canada, provinces have changed the retail regulations to allow for retail stores to have same day delivery as a way of increasing their economic viability during the pandemic. What this has done is once someone's had that trial, it makes it very easy for them to go online, place a purchase and have it delivered to their home within a matter of hours. And so from that perspective, the ability to disrupt usual purchasing habits, which the pandemic has done for all CPG products, move people online and make cannabis beverages much more accessible, has worked quite well. The third point around both trial and purchase is a number of provinces have opened prior to pandemic formal on premise consultations. Looking at cannabis purchases and sales at on premise institutions, right? And so most provinces have rules around smoking and vaping indoors. And so this lends itself to beverages and edibles. And so similar if you look at beverage alcohol, because of the sessionability of cannabis beverages, they played back to the economic model for any entrepreneurs or businesses looking to enter an on premise space. And so that will give us a further point of distribution and sales in the future as well as trial to have consumers try our products. The other quick thing I just want to touch on is the equivalency factor, which often comes up with beverages. So currently Health Canada has a role around possession limits, which puts our consumers in a place where they can buy 5 cans of a tweet in soda or 14 cans of our deep space product based on the volume size. And so whether it's Health Canada or the provinces, I think everyone acknowledges that this approach hasn't made sense. And frankly, it was an oversight when the regulations were created because beverages are sort of new to the industry. And I would expect that, that will be solved sort of in the next months or year to come as Health Canada looks at the regulations, which will again make it easier for consumers to go in, buy a 12 pack and have Tweed and Soba sitting on their shelf at home. Operator, we'll have a question from the phone, please. Your next question comes from the line of Rupesh Parekh of Oppenheimer. Your line is open. Good morning. Thanks for taking my question. So I was curious from an M and A perspective in your key markets, U. S, Canada and Germany, how does M and A fit into your priorities going forward? Yes. So only so we're pretty happy with the portfolio set that we have today. And we think that we really need to continue to integrate the businesses that we have acquired like BioSteel, Storz and Bickel and this works. We think there's tremendous upside from really unleashing the sales potential of those organizations. And we really need to also get our ducks in the row in terms of executing in our core markets. So I wouldn't expect us to be super active in the M and A space. That said, we'll continue to look for white spaces that could offer something that would be that would create a differentiation for us going forward. So I wouldn't expect to see a lot in the way of M and A in the near term. My preference would be to keep our powder dry for a time when we get much closer to federal permissibility in the U. S. Okay, great. And then one follow-up question. So on cannabis 2.0, so your commentary during the presentation is very upbeat on the beverage side. It looks like you guys have a leading position there. As you look at base, edibles and some of your efforts there, how do you characterize your position right now versus some of the other players out there? I'll let Rodde take this one. Yes. So I think there's 2 parts. I think in full transparency, we were late to the shift culturally at Canopy from 1st to best. And so our share is lower than we would like and in the slides I presented earlier showing we went from a 2% to 12%, but 2.0 products are now north of 20% of the market. That said, we are very happy with the quality of our products. And so I'll give you the examples of well, across page, chocolates and beverages, I guess, all work well. So on beverages, we have a clear moat via our intellectual property around our beverages. And so focusing on a product that has a great consumer experience, which then allows us to build great brands around it. And you see the extensions of houseplantweed into beverages of known brands with consumer awareness, but now the building of deep space and as Julia mentioned, Quattro coming later this year, really giving us an opportunity there. On vapes, we put a lot of effort into safety as well as consumer experience. So unlike many others, we did inhalation studies to know exactly what's coming off of our vape. So that we're able to be comfortable and say we have scientific data that says there is oneone thousandth of the off gassing that comes from a joint. And so they are drastically safer smoking a prebuilt joint, which is consumed by the vast majority of consumers in the industry. I think the other part is the focus on the formulation. So ensuring that the formulations within that vape hardware is designed so that, 1, it focuses on the safety of our consumers, but then 2, that it also focuses on the consumer experience everywhere from the initial taste to the feeling in one's throat and the potency of the distillates. And from that perspective, I think we have a large opportunity there, but frankly, we're only about 4 weeks into the market on scale with our vapes. And then the third I'd say is look at our chocolate, right? So we chose not to play in the value segment for chocolate. Chocolate will not be as large as gummies and vapes where we will play in the value segment for 2.0. And so what we chose with chocolates was to go after the premium segment with a clearly differentiated product. We take chocolate beans, we roast them in house, turn them into craft quality chocolate bars that we're then able to bring to market. And so what we felt was good there is we went after clear consumer needs based on our consumer insights work to ensure that we have products that would be able to hold market share with longevity rather than opening a race to bottom on value chocolate right from the outset. And so I think across all three, there is much room for us to grow and there is no doubt that our targets are to increase from where we are. But I think that decision to come out with very strong product offerings focused on consumer needs was the right one rather than racing to market last December. Okay, great. Thank you. Your next question comes from the line of Aaron Grey with Alliance Global Partners. Your line is open. Hi, and thanks for the questions. First question for me is on the value segment where you plan to roll out additional quantity formats for the Sweet brand as well as launch another discount brand. I'm just curious to your take on the longevity or how long we're going to see this down trading that we've been experiencing. Some of your competitors have continued to come out with new offerings of their own as they try to offload inventory and it seems like it's only accelerated with COVID. So just curious to see where you see these price categories shaking out over the long term and whether or not you believe this trend to value is not more of a current trend and how long you believe it is until it kind of levels out and we see some stabilization there? Thank you. Yes. So I can take that one and others can jump in with additional insights. I think you're right in terms of the value of flower segments. It's a lot of companies looking for how they can get cash into the business because they have weak balance sheets. And I think for Canopy, that's a strong advantage we have on our end. That said, as we look at our market share goals, it's important that we play in that place. And frankly, we make it more difficult for others to bring that cash back into their business. So through TWD as well as another brand, we'll be launching later this quarter in Q2. We will play actively in that space. That said, I think the larger picture is it goes back to the design to value work that Mike spoke to earlier. And the need for us to take a step back, leverage our consumer insights, leverage the agricultural science work that Julian spoke to earlier and pull those together to have a winning proposition for the long term in the value segment achieving the gross margin pool that we're looking for. And so I think it's pairing those two strategies together. So competing at the price points with the brands we have now against our competitors in that space to maintain our market share, while taking a thoughtful look over the next 1 to 2 years on that design to value process to ensure that we have the right brands with the right SKUs at the right price point in the market for the future. Would just would just be on the market of Germany. You certainly gave a lot of detail on Canada and the U. S, which are certainly great opportunity on an absolute dollar basis. But in Germany, on the side, you look for it to grow 10x from 2019 to 2023. So just curious to some of your underlying assumptions there in terms of the change in the supply demand landscape, regulatory structure in that market and other catalysts I think will be key to achieving that goal of that level of growth? Thanks. This is Chris. Yes. Great question. So first, let me just tell you quickly how we come up with our total addressable market estimates. We use a combination of external research reports, analyst reports and our own internal view on what's going to happen to those markets over time. As I said earlier, our markets our industry is very dynamic. So we keep those estimates live and we'll change them as regulatory things change or other things change within the market. That said, for Germany, there's only a couple of $100,000,000 in sales today. We believe that by FY2023, it could be close to $2,000,000,000 as just more patients come online within the German market. I'll also say that if we look at where we think that market's going to be when it's fully mature, it's well north of a couple of $1,000,000,000 So we're still we're very bullish on the German market long term. All right, great. Thank you. Your next question comes from the line of Pablo Zyanik of Cantor Fitzgerald. Your line is open. Thank you. David, just regarding Acreage Holdings, that company recently had capital raise paying interest rates of about 60% per annum. The discount to the conversion, if you were to buy them right now, it's over 70%. I'm just wondering, how do you protect your opportunity there? Do you start lending them money? Or if they raise capital on their own, do you get diluted? Or you just look for other opportunities? I mean, the company seems to have serious cash flow issues, at least based on what they are publishing. Thanks. Yes. Thanks, Pablo. So I just want to, again, reset the thinking about the overall strategy. So what acreage gives us is a pathway to enter the U. S. Upon permissibility. What acreage gets from us is the ability to bring our intellectual property into the U. S. As they see fit. We really don't have a way for us to influence their operations on a day in and day out basis. We have to operate at arm's length. And so we do know that they've implemented some changes, which will actually get them to cash flowing. And we remain pretty confident that acreage is going to be successful over the long run. And but no doubt, they have a near term issue that they're working through. But again, we feel pretty good about where they're going to get to over time. Okay. One last one. Just I understand it's early innings, so we shouldn't make too much of market share changes quarter to quarter. But in the March quarter, your sales seemed like well down 28%. The market was up high teens. Several of the larger LPs north of 20% growth. And now based on the numbers you've given us for the June quarter today, it seems that you're still losing share, right? So I'm just wondering, I'm sure it's there is room for repair, but our relationships with the retailers or the Board strained, have the brands in any way been damaged or it's just too early to talk about that? It's just something temporary that can easily be fixed given your skill? Thanks. I can take this one, David. So I would say there's 2 key macro factors that impact us in Q4. So one was, while we come out with TWD as our value compares came out with much lower price discounts and value offerings at Q4, and we didn't respond till this And so from that perspective, both a mix of the value segment in flower overall growing as well as losing share due to price discrepancies between us and our competitors that caused a loss in share. The second one is around us having other stocks across some of our quick moving SKUs, as I talked to before, about leaving $20,000,000 of orders on the table. So examples of that would be DNA, Genetics, Chocolate Fondue or LBS Sunset, where we have strong customer loyalty at this point, but we simply ran out of inventory of these products. So I think that is one where through the SKU rationalization, we have a very concrete means by which we're addressing and both are now in stock. And then we went over during the presentation the value area. So it's not something that we don't have the ability to address. I think it's we are quickly addressing it now and trying to pair that with the long term work to make sure we're positioned for long term success, not just looking at quarter to quarter changes. Okay. Can I squeeze just one last one? Regarding Germany, just give us a quick sense in terms of your advantage versus peers there. You answered the prior question about scale the TAM, the growth opportunity. But why should we think that you are better positioned than some of your peers there in terms of what you have? You can just remind us all that. Yes. So, I can take this one and then I would actually ask Rade to embellish a little bit since that part of the organization reported to him in his previous role. So we're already functioning in Germany on the ground. We have we're in that market. We're building the relationships with healthcare providers. We're starting to see that patient count growing pretty significantly there. So we have a bit of a head start, I would say, in that marketplace. We also have some critical mass in terms of other capabilities in Germany through our synthetic cannabis operation there as well as our stores in Bickel vape devices, which are produced in Germany. Yes. And what I can add to that is, we acquired C3 last year, right? And through that acquisition, what we've been able to do is merge our C3 medical science liaison team with our Spectrum Therapeutics team. So what gives us the strength of is one team conducting outreach to physicians that has both dronabinol in their bag as well as medical cannabis flower. And so I think that is a proposition that no one else in the industry has when they're talking to physicians in terms of a breadth of offering. And we're working hard, as everyone knows, on getting softgels and oils to market in Europe as well. And what you see in Europe is we've been able to grow to about a onethree market share in the flower industry. So the strategy has been working well, and I think it's through leveraging it as we drive forward and really look at Germany as a core market that we can continue to drive those sales. And once oils and softgels enter, it allows us to start gaining share in those segments, which will be able to position us for growth as we go forward. Right. Thank you. We have a question from online. In the Canadian rec value market, is there a risk that consumers will expect value offerings in 2.0 products? Yes. So, and that was yes, I can take it. That's what PS. Yes. So I think there's definitely going to be value segments. And I think the important part of the work I've been doing along with Chris and Julian is to make sure we focus on the right products with the right segments that we're going to play in value. So for example, in vape, we have our TWD 0.5 ton cartridge offering in market already. And the thinking behind it was what we can leverage is the scale of our manufacturing along with the R and D and innovation work we've done to win in the value segment. And so when we looked at the profit pools, the 510 cartridges represent about 80% of vape sales in the U. S. And so from a place to play, that made a lot of sense where we have a right to win. And then when we look to edibles, for chocolates, it's a much smaller portion of edibles and beverages than gummies. And so in terms of that category, we decided we'll focus on entering gummies with both premium and value offerings, but that the profit pool is large enough for that to make sense. Whereas in the product with beverages, they have such a strong moat because of their IP, there isn't a need to enter the value segments in the short term. I think and one thing that I might add to this and Mike you can chime in as well. Like the market is likely to bifurcate in a way that we've seen across CPG for the past 7 to 10 years with a high end in a value segment. When and if we choose to play the value segment across cannabis, we're going to do so applying that design to value approach so that we can that we get the sorts of economic returns that are required to meet our business model objectives. Okay, thanks. Another online question. How differentiated are your beverage products from the competition both in terms of your formulation as well as processing? Yes, this is Julian. I'll take that. Really, I see 4 points I want to make here on how differentiated we are. The first is that we have a production scale that no one else has in the category right now. So we have the ability to produce the volumes that Canadians want. The second most important thing I think is that we are we have it's in terms of our formulation, the science behind this, right? It's the emulsifications. It's the understanding of onset and delivery times and how consumers want, how to deliver that and really how to make a more bioavailable product. So we have beverages that behave more like beverage alcohol in terms of quick onset and short duration. 3rd thing from a beverage experience standpoint is the taste or the hedonics around it. We know how to make something that tastes great, that either has some cannabis taste or doesn't have any cannabis taste, that has the low calorie or some calories. So we know how to create the beverages that consumers want to taste, not just in terms of its function, but in terms of the hedonics. And I think the final thing is the potential here that working with consumer insights and with Rade's products teams, we can create beverages for any number of consumers. If people want a tea, if they want something which tastes more like a beer or a soda, we can do all of that. We can create the format and function that people want. And I think you take those four things and that's what gives us an advantage in the space. The ability to make anything people want to make it behave the way people want it to behave, to taste the way they want it to behave and to do this at scale. Your next question comes from the line of Adam Buckman with Scotiabank. Your line is open. Good morning and thanks for taking my question. So I've got a quick follow-up to Aaron's earlier questions around value products. So the team provided some great color on the value segment and the company's plans in the segment. I was wondering if you could provide a little more color around Canopy's economics on the cost side when it comes to launching higher THC lower priced flower, especially when it comes to the planned launch of ultra value products later this year, which I assume will be priced at or below the current market price or low market price for flower? Yes. So I'm happy to take this one. Yes. So I'd ask Mike and Rade to team up on this one. Yes, sure. So I think the biggest point to make here is that this is really at the core of our end to end supply chain strategy is making sure that we are building a supply chain that not only is competitive for today's market, but also for where the market is going. And we know in any mature CPG category that there's going to be a spectrum of offerings from value all the way up to premium. And we've got the facilities to be able to custom tailor each of our facilities against the consumer marketplace. So that's a big part of what we're doing is learning how to develop at scale at a $5 $6 per gram market while also meeting our margin requirements. So it comes back to design to value and making sure that we're growing the right strategy, that we're getting the right yields, leveraging our R and D technology when it comes to plant genomics to make sure that we're growing high yield cannabis strains for that market. And that work is underway as we speak. Rade, would you like to chime in? Yes. And a lot of the work we need to do on D2V over the next 12 months is really addressing what are the key attributes that consumers want. So Chris' team will take a lead on this. But in regards to what does a value consumer want? Like at the end of the day, we have a large toll addressable market and the big part of that is bringing the illicit consumers over, right? But not all illicit consumers are created the same. And so being able to identify, is it high THC? And then if it is, is it then density of the flower? Is it the color? Is the pink flower sell for more or is a lime green seen as a value product and so forth? And being able to really create those features and benefits to match with where the product is. And I think one of the misnomers is the assumption that high THC drives our cost of goods sold up, which it doesn't. And so I think that's where being able to work with Julian's team to make sure that once we have very clear viewpoints on the features and benefits of our value products in the flower category, we're then able to refine our genetics to make sure that we're able to drive our cost of goods sold down and really compete in a strong way, not just against other licensed producers, but truly against the illicit market. Julian, do you have anything to add to that? Yes, yes. Just to build yes, yes, Rodney, just to build on that. It's exactly how our plant science group is going to be positioned is going to be focused here. Once we've determined what consumers want, what those drivers of liking are, it's hard to plan the plant science group to figure out how to replicate that and to create the from a genomic standpoint, from the growth standpoint, to create that consistent product that consumers want in the value segment because our hypothesis is that there's really an element of consistency here, right? I want the same THC level, whether it's a high or a low level, I a consistent product and how do we make sure we're delivering them that at scale and at a cost that's reasonable, right? So this is where we can really drive that instead of having an inconsistency or potentially putting more expensive product in for people who aren't going to want to pay that. Again, that's part of the design to value that Mike has talked about. This is where we can really up our games and deliver that for our consumers. Great. Thanks. Your next question comes from the line of John Zamporo of CIBC. Your line is open. Thank you. Good morning. I appreciate all the color today. My question is on the insights and innovation strategy. And it sounds like a significant part of the growth strategy is to either convert infrequent consumers or non consumers, but those who are curious. And knowing that, it's maybe not an overly new problem. But how do you appeal to those people given the restrictions on marketing and advertising and particularly since the previous avenue where I think Canopy had an advantage was in age gated environments like bars or even movie theaters that clearly aren't as attractive today? And then lastly, if you do achieve that, how do you point them towards canopy products rather than just the overall category? So, yes, I'll start with this, but then maybe Chris can chime in on some thoughts. So, from the perspective of bringing in new consumers, I don't want to ignore the consumers we already have, right? So I first want to say, there's a we have to do a better job of from a product quality standpoint and a product attribute standpoint to bring in consumers who are current consumers and basically steal share from the competitive set. Then when we look at bringing in new consumers, I think that the effort is really around making it easy for people to try the products in a way that's not scary for them or difficult for them to do. And that's I'm still talking about in Canada. The U. S, it's going to be a different game because we believe that we will be able to speak to the consumers in the U. S. And so, yes, we have a big opportunity in front of us in Canada, but we also have that opportunity to create that exact story that resonates with consumers in the U. S. That we can then deploy upon permissibility. Chris, do you want to talk about kind of the add a little more color even around the consumer set? Yes, sure, David. And you're right, like vape and flower is still going to be an important part of our portfolio. We've got a lot of research in place that either that we've done or that's going in field today to better understand what consumers are looking for in those products, both from a short term perspective, but we're also building capabilities over the long term to be able to map our products, competitive products against what consumers are looking for to identify white space. And I mentioned it during my introduction earlier today, there's still a huge portion of the population that relies on word-of-mouth in this category. So there are opportunities to reach out to people through word-of-mouth, through influencers, things like that. I know Rade mentioned White Claw, some of the big products that have gained steam in Outbev and other industries, start off through word-of-mouth and then build over time. And we think there's still huge opportunity to do that in Canada and in the U. S. In the short and medium term. And I think just to build on that, it's also using those insights to create products that are more approachable and more accessible for that kind of curious consumer, right? It's the and you see that's what we're doing in beverages. We have some things which are higher THC content, but we also have some things coming out which are lower and more accessible that will give people that first good experience and bring them in and hopefully not only get high trial rates, but high repeat rates. I think we also just to add one last thought here. We pulled back on our spend in those age gated environments, I think in the late 2019 timeframe, calendar 2019. And Rade's team is now readdressing our strategy so that we can take advantage of access in those environments. Even though they look different today, there are still ways to make sure that our brand proposition is getting out there so that we can be in that consumer consciousness in Canada. Okay. Our next online question relates to the German markets. How do you justify your expectation that the German tan will grow by 10x by 2023? I'll leave that to Chris. I thought I addressed that earlier. I'm happy to weigh in again on it. Essentially, we think there's the market is relatively small today. And over the next by FY 'twenty three, we expect the medical market to go from a couple of 100,000,000 in sales to a couple of 1,000,000,000 in sales. And then longer term, as the market gets even more mature, we expect it to be north of a couple of $1,000,000,000 Your next question comes from the line of Andrew Carter with Stifel. Your line is open. Hey, thank you. Good morning. And you kind of addressed and I appreciate one of the comments you made about not leaving it out there just kind of for the competitors. But have you really taken a look about to your commitment to dried flower as a category? It's difficult to brand. It's kind of a race to the bottom and you could easily you've got stores, you've got medical, you could easily prioritize that. Is that something that you have to be in or is that something that you could take off the table and focus more on consumer products going forward? So I'll take a shot at this, but then everybody else chime in as you see fit. I think that we're very, very early in even flower as a consumer product. So I think there's a lot of work to be done around ag science and production capability and attribute definition that can allow us to create some differentiation in terms of how we go to market in flower. And so we think that there's pretty good upside opportunities to continue with that as a focus for the business. And clearly, the learnings that even come off of that are then easy to apply to the 2.0 sorts of product. So to me, I would say that it remains core to our strategy. Now Andrew, what doesn't remain, what isn't clear to me is how much, say, grow capacity we need to own over the long term, right? So everybody's decided that there's a competitive advantage. They need to own it in house, but you can look at a lot of other industries like the wine industry where there are some there's some amount of growth that you want to retain because that's where you're doing your experimentation or that's contributing to significant brand value at the right price points. But then you can rely on other people to kind of to do that ongoing grow work for the majority of your portfolio. So I think that's an open question for us in Canopy still. Sounds good. And then second question, I just want to switch gears just a little bit. Number 1, on the U. S, do you have other options besides like and when I say this, going into the U. S, you have the vape hardware that you've invested a lot of money in. And the vape hardware, whether it be your standalone device as well as potentially even disposables, you don't have to touch the plant to sell that to the consumer. Is there any thought process of taking that hardware into the U. S. In a non plant touching manner and kind of attacking the U. S. Opportunity that way? Absolutely. That's part of the work that we're going through now to really line up our business to be super focused. So when we talked about on our last earnings call about the Chief Commercial Officer aligned with Radha in his Chief Product Officer role, where we're looking at each geography in each category that we can play in. And so we intend to make a lot of noise in the U. S. Over the next couple of years with Storz and Bickel, with the rest of our vapes portfolio, along with This Works and BioSteel. So we're building the sales organization in the U. S. To handle everything in the Canopy portfolio. And right now, we're kind of doing the work to get that wiring right so that we can aggressively go to market. Thanks. I'll pass it on. Your next question comes from the line of Endri Leno of National Bank. Your line is open. Hi, good morning. A quick question for me and thank you for taking them. The first one is that in Ontario, legal tobacco consumption is about 62% of all consumption despite being a very little established market. So first, what gives you confidence that the legal cannabis market will have 85% market share by 2023? And within that legal market and specifically in the 2.0 products, some retailers in Canada have signaled that demand has been more on the base side rather than the beverages. So how do you plan to respond to this development? And how quickly can you shift your focus on your products? Thanks. Yes. So I think there's so two parts of the answer. I'll go in reverse order and then Chris maybe can chime in as well on the conversion of the market. But on the bakes and beverages, we have looked at the U. S. Data. We always knew bakes was going to be the larger profit pool compared to beverages in the early days. So I think as we just discussed, we put significant investments into creating a portfolio of universal 510 thread cartridges, closed loop Tokyo Smoke Luma and coming sort of by end of fiscal year disposable vape pen products to market. And so within that, I would not say it's a surprise at all, the size of the vape market. And I think similar to flower, the vape market has the opportunity to bring illicit users over to the legal market as well as to convert existing legal users of flower over to vapes for the myriad of features and benefits that they can bring. On the beverage side, when you look at the U. S, they have about 1% of the market is in beverages. But we view that largely due to lack of execution on consumer experience around the beverages, which we believe we've addressed and frankly believe the data coming out of Ontario is showing that we have addressed. And so from that perspective, I would say vape is the expected large profit pool. Beverages is the created products where we believe we can truly disrupt and grow that profit pool larger than has been exhibited in the U. S. Historically. And as I spoke to before, as trial becomes more and more of an option, really bring new intenders over into the market. In terms of comparisons to tobacco, I think part of it is around the safety standards associated with legal cannabis, right? So there is if you look at vapes and so forth, there's a desire among consumers to be able to know that their vape is safe, everything from what type of steel is used in the product, are there any epoxies, things of this nature as well as the formulation. And I think that heightened focus as a trend across consumer product categories lends itself to cannabis in a stronger way than it has in traditional nicotine products in terms of who the consumer is and what their sort of interests tend to be. And then I think the other part is through new products, right? There aren't beverages like ours available in the market currently. There are beverages, but not with the same sort of consumer benefits that ours come with. And so from that perspective, there's an ability to move consumers into the legal market. And once they're buying those products, more likely they will buy the other costs in our portfolio through legal means rather than goes to 2 points of distribution. Okay. That's it for me. Thank you very much. Appreciate it. Your next question comes from the line of Michael Lavery with Piper Sandler. Your line is open. Good morning. Thank you. You show how your beverage sales are accelerating pretty nicely, but obviously still very small even just as a share of the total category. Can you give us a sense of what some of your assumptions are behind the 5% estimate that beverages could be relative to beverage sales or alcohol sales? And what kind of timeframe that might take to get to? So, I'd like Chris to chime in on this. I guess the first stab that I would take at it would be, I think when much of the research around cannabis usage has been done historically, They start by asking basically people who are cannabis users, what if they would have interest, say, in a beverage. I think what we're really getting at here is that there's an entirely different set of users that I keep referring to as a group that loves cannabis, but don't know it yet. And that's the work that we're doing or that what we're trying to do, as I said, through the innovation activity at our company is to really get in front of those users who love cannabis, but simply don't know it yet. I can Chris is welcome to comment on some of the assumptions in the data. But I would say we have more work to do to define the exact numbers. But I think what we're saying is there's a massive market out there that hasn't really been captured in some of the previous surveys and research reports. Yes. And I touched upon this quickly earlier, but of people who are consuming in Canada over the last 12 months, only a quarter of them actually only a quarter of our potential population consumes cannabis. And of those, only less than 40% bought from legal channels. So there's a big opportunity to convert people from the illicit market and people who are getting things from their friend purchase beverages and beverages is a good entry point into the category. But then the other huge opportunity is the intenders and the rejecters, those people who are saying either I used to smoke cannabis back when I was in college, but now I'm a parent and I don't want to smoke anymore or even people who think that cannabis equates to flower and vape and think to them that's not something I'm interested in. The beverages, that's why we're so bullish on beverages, because we think there's just a big opportunity to shift those people into our category. And even Rade mentioned earlier, some of the stats we've seen from our first beverage that we launched. I guess one of the surprising things we found was that most of the people that were using the products today were still current users of cannabis. So we think there's just huge untapped potential through that to bring people into the category. They have similar effects to White Claw with no calories and no sugar and no hangover. So we think there's a big opportunity. Yes. And just 2 other quick points for like anecdotal framing. In the presentation, I reviewed how we'd shipped over 500,000 units of beverages, since launch, right? So that's over approximately the last 3 months. This week alone, we'll ship 150,000 units, right? So the percent of share within the category is based on supply constraints. And with our beverage production now significantly ramping up, we're going to have a much better opportunity to start meeting demand. And I think you'll see that shift in the share numbers for beverages within the other bowls and beverage category. And the other part when thinking of the framing of the profit pools is also keep in mind CBD beverages, right? So you take an example of our brand BioSteel, which in its non CBD version, if you go talk to a lot of the top athletes in Canada, United States, they'll say they use it as part of their professional workout routine. And so taking a brand like that, being able to leverage our beverage intellectual property and add CBD into it, backed by our human effect clinical gives us a huge opportunity in the United States, which is beyond that of psychoactive THC as a replacement. And so I think that's important when looking at the numbers to keep in the back of your mind. And when you talk about the intenders and this sort of beyond cannabis opportunity, when you survey consumers and the 20% who plan to repurchase, say it would replace an alcoholic beverage, how does that compare to what you would have expected and been modeling? Chris, do you want to take that? Sure. You want to take it? Yes. Yes, sure. I think that's the 20% number is honestly quite good for the 1st beverage that we've launched in the market. I think the stats that we saw for that product are kind of in line with well performing bev alc skews. And again, we still think there's a big opportunity from increased distribution, the ability to replace occasions over time that we still just haven't tapped yet. So we're still the 20% number right now is we would think, pretty high for something where there's still a lot of work to be done. Okay, that's helpful. And then just one last one on CBD, when you talk about wanting to be differentiated on some of the science and just product attributes, can you give a sense of how you communicate that to consumers and if you might pursue claims? And also maybe how that fits with a brand like Martha Stewart, for example? Yes. So I'll give some high level comments and then Julian, you can take over. Like, I think this is where our ecosystem comes in, in a strong way. We're able to create brands and leverage whether it's a biofuel or a Martha Stewart. But then we're able to take the intellectual property, which when you think of beverages, we may have created for THC, but the same bioavailability principles impact for CBD. And then take our human effects team and do the right amount of research so that we're able to make those claims in a cost efficient manner. And I think particularly that's where a lot of the safety work we've been doing and sharing the information with the FDA positions us well to find the right balance across that. I don't know, Julian, please, are there things you want to chime in on? Yes. I mean, I think, and David talked about this earlier, it's moving away from pharma grade claims to more structure and function claims, which is what our research will be designed to do. So we want to be able to demonstrate or at least support some efficacy claims. And also, I think as we're looking at it, it's looking at the bioavailability of CBD, CBD in conjunction with adaptogens, to be able to create different formulations that do different things for consumers. So this is all the things that we're looking at that we have in our testing and our product development pipeline right now. Okay. Thank you very much. This concludes the question and answer portion of our meeting. I would now like to turn the meeting over to David for any closing remarks. Yes. Thanks, Tyler. So I hope you find this meeting insightful. We clearly welcome any questions, any further questions that you may have as well as feedback that you may have as a result of what you heard today. I would encourage you all to enjoy I encourage all of you to try our amazing products. If you live in the U. S. And I encourage all of you to try our amazing products. If you live in the U. S, try 1st and Free. I've heard many people say they've used CBD before and they didn't feel the effects and then they tried CBD or they tried 1st and free CBD and they now understand the difference or why people would use CBD or go online and purchase one of our This Works products just so you can understand the level of quality that exists there or clearly try BioSteel either with or without CBD and you'll discover what may be one of the best kept secrets in sports nutrition in North America. And clearly, if you live in Canada and you're fortunate enough to be able to try our drinks on Canada Day, I really encourage you to do that or test out our vape products or some of our flower products. I think it's really important that our investors interact with our brands and our products so that you understand what we're doing and why we think that's going to make us successful. So thanks for joining us this morning and enjoy the rest of your day. This concludes Canopy Growth's virtual investor meeting. A replay of this conference call will be available until September 18, 2020, and can be accessed following the instructions provided in the Investors section of Canopy Growth's website at www.canopygrowth.com. Thank you for attending today's meeting and enjoy the rest of your day. Goodbye.

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