/R E P E A T -- Canopy Growth Corporation Reports Third Quarter Fiscal 2019 Financial Results: Gross Sales of $98M; Net Revenue hits record $83M/

. Management believes foundational investment is required to build the Company's significant and diversified production platform, flexible distribution capability, world-leading brands, retail capabilities, medical and recreational sales and customer support capabilities. Canopy Growth also requires robust information technology infrastructure, international business development and operations. These investments directly impacted profitability in the quarter but represent prudent long term investments to strengthen the Company's global leadership position. Both sales and marketing and general and administrative expenses were up significantly relative to the same period last year.  Management expects these expenses to level off in the near term in its Canadian operations." data-reactid="55">Businesses built on top quality product and customer service require upfront investment. Management believes foundational investment is required to build the Company's significant and diversified production platform, flexible distribution capability, world-leading brands, retail capabilities, medical and recreational sales and customer support capabilities. Canopy Growth also requires robust information technology infrastructure, international business development and operations. These investments directly impacted profitability in the quarter but represent prudent long term investments to strengthen the Company's global leadership position. Both sales and marketing and general and administrative expenses were up significantly relative to the same period last year.  Management expects these expenses to level off in the near term in its Canadian operations.

The Company's Applied Science team is researching a variety of intellectual property opportunities including those relating to growth patterns under different environmental scenarios and the genetics of various strains, the development of patent pending technology related to equipment that the Company has engineered specifically for the cannabis industry to be incorporated in Canopy Growth's operations and ongoing R&D work being performed in the Company's Dealers License Area that is expected to lead to the development of new cannabis-based product form factors that will enter the market when permitted. With the acquisition of Canopy Health Innovations, the additional scope of R&D being undertaken and additional resourcing necessary, R&D expenses were up significantly over the same period last year. Applied Science expenses will continue to increase as the Company aggressively pursues IP. Advancing scientific understanding through plant science, technological applications, and clinical trials is the fastest path to developing sustainable high margin products. 

Acquisition-related expenses in the third quarter period ended December 31, 2018 were primarily related to the acquisitions of the assets of ebbu Inc. and Storz & Bickel and the financing of POS Holdings. In addition, costs were incurred due to the ongoing evaluation of potential acquisitions performed during the period and increased legal, accounting and strategic business consulting services required to complete or evaluate the transactions.  The Company is likely to acquire additional strategic assets in the future as it pursues its business strategy.

In respect of the recorded stock compensation expense, in practice, all employees of the Company receive stock options as part of their compensation package. Acquisition-related milestone payments based on future performance and related criteria have been treated as stock compensation expense instead of being allocated to the purchase price.

Third Quarter Fiscal 2019 Adjusted EBITDA Summary (Non-GAAP measure)²

Adjusted EBITDA in the third quarter fiscal 2019 amounted to a loss of $75.1 million compared to a loss of $5.7 million in the same period last year.

Year-to-date, Adjusted EBITDA amounted to a loss of $69.0 million compared to a loss of $14.4 million in the same period last year.

The Adjusted EBITDA is reconciled and explained in the Management's Discussion & Analysis under "Adjusted EBITDA (Non-GAAP Measure)" a copy of which will be filed on SEDAR and EDGAR after financial markets close today. The Adjusted EBITDA is reconciled in a table elsewhere in this press release.  

Third Quarter Fiscal Year 2019 Other Income and Net Earnings Summary

Other income of $235.2 million for the three months ended December 31, 2018 was primarily made up of fair value changes on financial assets and financial liabilities. The amount includes a fair value gain of $185.8 million arising from the decrease in the fair value of the senior convertible notes from the end of the second quarter to the end of the third quarter and a fair value gain of $36.4 million on financial assets, principally the TerrAscend and Slang warrants. 

The Company also had interest income of $18.6 million  on cash and marketable securities. This income was partly offset by a loss of $6.3 million as a result of the TerrAscend restructuring which resulted in the exchange of the TerrAscend shares and warrants for the non-voting, non-participating exchangeable shares.

The Company recorded an income tax expense of $1.0 million  for the three months ended December 31, 2018.  In the comparative period last year, the Company recorded income tax expense of $7.6 million.

Net income for the three months ended December 31, 2018 was $74.9 million compared to a net income of $11.0 million in the comparative period last year.

Other income of $63.5 million for the nine months ended December 31, 2018 is primarily made up of fair value changes on financial assets and financial liabilities, and a gain on the acquisition of the Company's unowned interest in CHI.

The Company recorded an income tax recovery of $1.4 million for the nine months ended December 31, 2018. In the comparative period last year, the Company recorded income tax expense of $9.6 million.

Net loss for the nine months ended December 31, 2018 was $346.7 million compared to net income of $227 thousand in the comparative period last year.

Update on Intellectual Property Development

During the third quarter, Canopy Animal Health ("CAH") completed certain pre-clinical studies  related to the treatment of anxiety in companion animals using CBD. In addition, CAH completed certain cannabis consumption safety trials which produced data critical to validating the safety of cannabis-based therapeutic products for animals.

Subsequent to the end of the quarter, Canopy Health Innovations began Phase IIb "in‑human" clinical trials to evaluate the use of medical cannabis in the treatment of insomnia. The trials are being conducted in collaboration with a leading Canadian research institution.  

During the quarter, the Company acquired the assets, including over 40 cannabis-related patent applications filed representing over 1,500 invenctions, of Colorado-based hemp researcher, ebbu.  Intellectual property and R&D advancements achieved by ebbu's team apply directly to Canopy Growth's hemp and THC-rich cannabis genetic breeding program. The Company believes applying ebbu's IP has the potential to reduce the cost of CBD production. In addition, ebbu's IP portfolio will contribute to the clinical formulations program being executed by Canopy Health Innovations.

The Company's Intellectual Property portfolio includes 32 issued patents and over 140 patent applications covering hardware, product formulation, genetics, production innovation and medical treatments.

Update on Branding and Market Activities

The Company adheres to a disciplined approach to portfolio expansion as it continues to identify new market opportunities by identifying the needs that brands could satisfy for adults in the legalized cannabis market and assessing both the economic appeal of meeting these needs and their fit with the positioning of existing brands.  Canopy Growth has built a portfolio of belief-led and purpose-driven brands, with authentic origin stories and distinct points of view on the world, spanning both local and global provenance.

The Company brought Tweed, the Company's core brand, to the recreational market.  As part of the national launch strategy, Tweed has had a strong focus on building awareness through exclusive media partnerships, experiential activations, and proprietary responsibility programs like the "Don't Drive High" program undertaken in collaboration with Uber & MADD Canada. The focus to engage and educate consumers across the country both pre and post-launch, along with Tweed's retail store network has resulted in Tweed securing aided awareness of 20% amongst cannabis consumers and intenders.  In addition to its core consumer brand, Tweed, Canadian adults also saw the successful recreational launch of Tokyo Smoke and DOJA, as well as partner brands LBS and DNA Genetics.

During the quarter, Canopy Growth also launched new and improved product offerings like oral cannabis sprays and pre-rolled joints made by our custom-built, proprietary automated cannabis joint rolling machines right in the heart of our Smiths Falls headquarters. The Company also unveiled its one-of-a-kind custom packaging - a unique and proprietary child-resistant, air-tight tin. Canopy Growth's strategic approach to supply and distribution allowed the Company to provide Canadian adults from coast-to-coast with a diverse offering of high-quality cannabis products.

The Company is also developing product line extensions and format-specific brands for value-added product categories including vape, beverage and other products that are expected to be permitted for sale in the fourth quarter of calendar 2019.

Investing to Capitalize on Hemp and CBD Product Opportunities

The Company has built on decades of experience of its world-class hemp team to develop proprietary and patent-pending technological solutions to optimize the speed and efficiency of harvest, post-harvest, and storage processes required to run field-scale hemp operations.  In the third quarter, Canopy Growth's hemp division harvested thousands of acres of CBD-rich hemp genetics in Saskatchewan. Once extracted, the Company expects a yield of thousands of kilograms of hemp-derived CBD.

In the United States, the Agricultural and Nutrition Act, H.R. 2  (the "Farm Bill") passed on December 20, 2018.  The passage of the Farm Bill,which included the language of the Hemp Farming Act of 2018, expands opportunities related to the cultivation and processing of Hemp to produce CBD-based products in the United States.  On January 14, 2019, Canopy Growth announced that it had been granted a hemp processing and production license by New York State and its commitment to invest in the state of New York to establish a Hemp Industrial Park.  The Hemp Industrial Park will be home to large-scale production capabilities focused on hemp extraction and product manufacturing to serve the New York state market as well as markets around the United States as permitted by regulations. Canopy Growth intends to invest between $100 million USD and $150 million USD in its New York operations.  Canopy Growth is developing a broad portfolio of CBD product offerings, to be broadly distributed across multiple channels, with a view to establishing category leadership in each CBD vertical market.   The Company will look to leverage strategic acquisitions and partners to accelerate growth in the CBD consumer product market in the United States.

CFO Transition

Canopy Growth's EVP & Chief Financial Officer Tim Saunders has informed the Company and its Board of Directors of his decision to retire as CFO in mid to late calendar 2019. Tim will continue to serve as CFO until his successor has transitioned into the role. The search for Tim's replacement is already in process, with candidates identified, and the Company expects to announce his successor in the next few months. Following the transition, Tim will continue to serve the executive team and Board of Directors of Canopy Growth as a strategic advisor in areas of mergers and acquisitions, corporate financing, and business transformation. The Board of Directors, co-CEOs Bruce Linton and Mark Zekulin, along with the whole Canopy family, thank Tim for his dedication and leadership. Having championed the financial health of the Company through an aggressive phase of M&A growth, multiple financing rounds, and historic listings on the TSX and NYSE, both firsts for cannabis companies, Tim's mark on Canopy Growth is permanent and sincerely appreciated.

The unaudited Consolidated Financial Statements and Management's Discussion and Analysis documents for the three and six months ended December 31, 2018 will be filed on SEDAR after financial markets close today, February 14, 2018, and will be available at www.sedar.com. The basis of financial reporting in the Unaudited Condensed Interim Consolidated Financial Statements and Management's Discussion and Analysis documents is in thousands of Canadian dollars, unless otherwise indicated.

Note 1: The Gross margin before the fair value effects of the IFRS accounting for biological assets and inventory is a key operational metric that does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies.  The definition of this term can be found in the Management's Discussion & Analysis under GROSS MARGIN, a copy of which will be filed on SEDAR after financial markets close today.

Note 2: The Adjusted EBITDA is a non-GAAP financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. The Adjusted EBITDA is reconciled and explained in the Management's Discussion & Analysis under "Adjusted EBITDA (Non-GAAP Measure)", a copy of which will filed on SEDAR after financial markets close today.

Webcast and Conference Call Information

The Company will host a conference call and audio webcast with Bruce Linton, Chairman & Co-CEO and Tim Saunders, CFO at 8:30 AM Eastern Time on February 15, 2019.

Webcast Information
A live audio webcast will be available at:
https://event.on24.com/wcc/r/1913031/9F3A6AC5FFF944BE38A01DF2D130074D

Calling Information
Toll Free Dial-In Number: 1-888-231-8191
International Dial-In Number: (647) 427-7450
Conference ID: 4179499

Replay Information
A replay of the call will be accessible by telephone until 11:59 PM ET on May 14, 2019.
Toll Free Dial-in Number: 1-855-859-2056
Replay Password: 4179499

About Canopy Growth Corporation
Canopy Growth is a world-leading diversified cannabis and hemp company, offering distinct brands and curated cannabis varieties in dried, oil and Softgel capsule forms. Canopy Growth offers medically approved vaporizers through the Company's subsidiary, Storz & Bickel GMbH & Co. KG. From product and process innovation to market execution, Canopy Growth is driven by a passion for leadership and a commitment to building a world-class cannabis company one product, site and country at a time. The Company has operations in over a dozen countries across five continents.

The Company is proudly dedicated to educating healthcare practitioners, conducting robust clinical research, and furthering the public's understanding of cannabis, and through its wholly owned subsidiary, Canopy Health Innovations ("Canopy Health"), has devoted millions of dollars toward cutting edge, commercializable research and IP development. Canopy Growth works with the Beckley Foundation and has launched Beckley Canopy Therapeutics to research and develop clinically validated cannabis-based medicines, with a strong focus on intellectual property protection. Canopy Growth acquired assets of leading hemp research company, ebbu, Inc. ("ebbu"). Intellectual Property ("IP") and R&D advancements achieved by ebbu's team apply directly to Canopy Growth's hemp and THC-rich cannabis genetic breeding program and its cannabis-infused beverage capabilities. Through partly owned subsidiary Canopy Rivers Corporation, the Company is providing resources and investment to new market entrants and building a portfolio of stable investments in the sector.

From our historic public listing on the Toronto Stock Exchange and New York Stock Exchange to our continued international expansion, pride in advancing shareholder value through leadership is engrained in all we do at Canopy Growth. Canopy Growth has established partnerships with leading sector names including cannabis icon Snoop Dogg, breeding legends DNA Genetics and Green House seeds, Battelle, the world's largest nonprofit research and development organization, and Fortune 500 alcohol leader Constellation Brands, to name but a few. Canopy Growth operates ten licensed cannabis production sites with over 4.3 million square feet of production capacity, including over 500,000 square feet of GMP certified production space. The Company operates Tweed retail stores in Newfoundland and Manitoba and has entered into supply agreements with every Canadian province and territory. For more information visit www.canopygrowth.com

Notice Regarding Forward Looking Statements
This news release contains forward-looking information. Often, but not always, forward-looking information can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "estimates", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Canopy Growth or its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information contained in this news release. Examples of such statements include statements with respect to the future market share achieved in recreational markets, product development, clinical trial work, and planned acquisition activities related to BC Tweed, and Canopy Health Innovations.  Risks, uncertainties and other factors involved with forward-looking information could cause actual events, results, performance, prospects and opportunities to differ materially from those expressed or implied by such forward-looking information, including risks associated with entering a new market dynamic in Canada or internationally, and such risks contained in the Company's annual information form dated June 28, 2017 and filed with Canadian securities regulators available on the Company's issuer profile on SEDAR at www.sedar.com. Although the Company believes that the assumptions and factors used in preparing the forward-looking information in this news release are reasonable, undue reliance should not be placed on such information and no assurance can be given that such events will occur in the disclosed time frames or at all. The forward-looking information included in this news release are made as of the date of this news release and the Company does not undertake an obligation to publicly update such forward-looking information to reflect new information, subsequent events or otherwise unless required by applicable securities legislation.