Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

This Management’s Discussion and Analysis of our financial condition and results of operations (“MD&A”), which should be read in conjunction with our consolidated financial statements and the notes thereto included in Item 8 of this Comprehensive Form 10-K (the “Financial Statements”), provides additional information on our business, current developments, financial condition, cash flows and results of operations. The discussion in this section has been impacted by the restatement described in the Explanatory Note at the beginning of this Comprehensive Form 10-K and in Note 2 and Note 35 of the consolidated financial statements of this Comprehensive Form 10-K. Certain of the financial and other information provided in this MD&A has been updated to reflect the restatement adjustments.

Our MD&A is organized as follows:

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

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Part 2 - Results of Operations. This section provides an analysis of our results of operations for (1) fiscal 2026 in comparison to fiscal 2025; (2) fiscal 2025 in comparison to fiscal 2024; (3) the quarterly period ended September 30, 2023 in comparison to September 30, 2022; (4) the quarterly period ended December 31, 2023 in comparison to December 31, 2022; (5) the quarterly period ended June 30, 2024 in comparison to June 30, 2023; (6) the quarterly period ended September 30, 2024 in comparison to September 30, 2023; (7) the quarterly period ended December 31, 2024 in comparison to December 31, 2023; (8) the quarterly period ended June 30, 2025 in comparison to June 30, 2024; (9) the quarterly period ended September 30, 2025 in comparison to September 30, 2024; and (10) the quarterly period ended December 31, 2025 in comparison to December 31, 2024.

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Part 3 - Financial Liquidity and Capital Resources. This section provides an analysis of our cash flows and outstanding debt and commitments for fiscal 2026. Included in this analysis is a discussion of the amount of financial capacity available to fund our ongoing operations and future commitments.

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Part 4 - Critical Accounting Policies and Estimates. This section identifies those accounting policies that are considered important to our results of operations and financial condition, require significant judgment and involve significant management estimates. Our significant accounting policies, including those considered to be critical accounting policies, are summarized in Note 3 of the Financial Statements.

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

In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed in Part 1, Item 1A, “Risk Factors” in this Comprehensive Form 10-K.

Part 1 - Business Overview

We are here to better lives through cannabis.

We believe in the power of a plant – not as a trend or commodity, but as a catalyst for elevating human potential. For the patient seeking to function more fully in their everyday lives, the veteran finding relief, and the individual rediscovering balance, clarity, and purpose. We believe that, with responsible enjoyment, cannabis can enrich experiences, deepen connection, and enhance well-being.

Cannabis is a global economic force in the making. We believe it will stand alongside – and eventually rival – the largest consumer packaged goods industries in the world. The companies that lead will not be those who move fastest, but those who are principled, disciplined, and focused on the consumer.

Guided by these beliefs, we choose to lead the industry. We are making decisions for the long term, creating standards others will follow, and earning trust every day – with every product, interaction, and every commitment kept.

We are building a global, consumer-centric company with a clear and uncompromising ambition: to lead the world in bettering lives through cannabis. A company with brands and category-defining products that can scale globally, grounded in superior flower cultivation, driven by innovation across formats and technologies, and consistently delighting consumers. A company driven by

focused and disciplined operators, relentless in execution, strategic prioritization, and financial performance. Our foundation is built on four enduring values:

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Leadership. We courageously set the standard for what this industry can and should be.

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Excellence. We pursue uncompromising quality in everything we do – from cultivation to consumer experience.

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Trust. We earn it through consistency, transparency, and integrity.

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Innovation. We challenge assumptions and seek to unlock the full potential of cannabis as a plant and category.

Together, these values shape how we operate and create value, and how we better the lives of our people, and everyone we serve.

The full potential of cannabis is just beginning to be unlocked – and we intend to lead that future.

Our cannabis products are principally sold for adult-use and medical purposes under a portfolio of distinct brands. Our core operations are in Canada, Europe and Australia and we hold a significant non-controlling, non-voting interest in an entity that participates in the sale of cannabis and hemp derived products in the United States.

Today, we are a leader in the medical as well as adult use cannabis market in Canada where we offer a broad portfolio of brands and products and continue to expand our portfolio to include new innovative cannabis products and formats. We produce, distribute, and sell a diverse range of cannabis and cannabis-related products for adult-use and medical purposes under a portfolio of distinct brands in Canada pursuant to the Cannabis Act, SC 2018, c 16 (the “Cannabis Act”), and globally pursuant to applicable legislation, regulations, and permits. Our curated cannabis product formats include dried flower, pre-rolled joints (“PRJ”), oil, softgel capsules, edibles including gummies, vapes and beverages, as well as a wide range of cannabis accessories including our premier herbal vaporizer devices Storz & Bickel® (collectively with Storz & Bickel GmbH, “Storz & Bickel”).

Segment Reporting

Prior to the three months ended June 30, 2025, we had the following four reportable segments: (i) Canada cannabis, (ii) International markets cannabis, (iii) Storz & Bickel, and (iv) This Works (divested December 18, 2023). Following a change in our CODM (as defined below) and internal reorganizations initiated by us in the three months ended March 31, 2025, we changed the structure of our internal management reporting. Accordingly, as of the three months ended June 30, 2025, we began reporting our financial results for the following two reportable segments:

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Cannabis- includes the global production, distribution and sale of a diverse range of cannabis and cannabis-related products. Sales in Canada are pursuant to the Cannabis Act, while international sales are pursuant to applicable international legislation, regulations and permits; and

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Storz & Bickel - includes the production, distribution and sale of vaporizers and accessories.

These segments reflect how our operations are managed, how our Chief Executive Officer, who is the Chief Operating Decision Maker (“CODM”), allocates resources and evaluates performance, and how our internal management financial reporting is structured. Our CODM evaluates the performance of these segments, with a focus on (i) segment net revenue, and (ii) segment gross margin as the measure of segment profit or loss. Accordingly, information regarding segment net revenue and segment gross margin for the comparative periods have been restated to reflect the aforementioned change in reportable segments.

Factors Impacting our Business

To achieve our vision, our strategy consists of six pillars:

We are and expect to continue to be Canada’s #1 medical cannabis provider by revenue - We are committed to the high-quality production of medical cannabis products and are equally committed to helping medical professionals confidently prescribe and patients to responsibly use our products. As the leaders in providers of medical cannabis to patients in Canada, our award winning network of clinics allows us to serve patients nationwide across the Apollo, Canada House and Abba Medix banners. We provide services that ensure the patient comes first by providing quick access to medical care to start their cannabis journey or helping medical cannabis patients seek reimbursement for their medicines. We are strong advocates for our patients and consistently seek to deliver products that are responsive to their needs.

Leadership of global vaporization through Storz &Bickel - Vaporization is a consumption method that aligns with the desires of many of our medical cannabis patients and adult-use consumers. With an already extensive product portfolio, our focus is to continue to push for more impactful product innovations that allow for the expansion of new product formats. Like our cannabis, these devices are crafted with the same attention to quality, performance and safety and undergo rigorous manufacturing procedures and certification. While already internationally established, Storz & Bickel is focused on addressing consumer needs in the North American market and intends to continue to deliver its award-winning products to a broader audience.

Focused growth in international medical cannabis market - Our unwavering commitment to the safety and effectiveness of our products is a critical strategic imperative which also helps differentiate us in the growing cannabis market. We deliver medical

cannabis to patients in Germany, Poland, and Australia and expect to do so in the United Kingdom over the coming fiscal year. To remain successful, we consistently strive to make significant investments in our operations within Canada and Europe and we are well-positioned to pursue international growth opportunities with our strong medical cannabis brands and distribution networks. We intend to fuel the continued demand for our European Union Good Manufacturing Practices (“EU-GMP”) certified medical grade cannabis internationally with supply from within Europe and from our Canadian EU-GMP certified facility in Kincardine, Ontario. In addition, we will continue to maximize our existing routes to market to further our execution on our international growth plans, while leveraging our cannabis expertise and well-established medical brands.

Focusing on profitable scale in adult-use cannabis through our powerhouse brands backed by exceptional product quality - The heart of our business is in North America with our roots in Canada and investments in the U.S. Our brand portfolio includes Tweed, ClaybourneTM, HiWay, 7ACRES, Twd., Wana, DOJA, DeeLish, MTL Cannabis, LowKey, R’belle, and Deep Space in our Canadian adult-use market. As markets continue to evolve, we believe the role of brands will become more prominent in consumers’ desire for trustworthy products that deliver quality and consistency of experience. We are investing in our brands to further our position of leadership in the market and to continually strengthen their relationship with consumers. We understand that the success of our products and brands is only achievable with the support and buy-in of customers. As consumer needs and trends evolve, we are continuing to focus our efforts on product categories with the highest and most tangible profit opportunities that also align to customer needs and consumer desires. At the same time, we are significantly optimizing our wholesale capabilities to ensure that our products have the broadest distribution in our highest profit geographies.

Leveraging our disciplined “asset-right” model to build world class cultivation and to power our growth - As the cannabis market continues to rapidly evolve, we remain focused on driving efficiency for the greatest return on asset investments. With our acquisition of MTL completed in fiscal 2026, we have access to world leading genetics and talent that will shape our cultivation practices. Our objective is to excel at our own internal manufacturing capabilities by making selective investments in assets that will accelerate returns and secure long-term sustainable profitability. This means we will invest where necessary and continue to leverage local and/or regional suppliers for raw materials to complement our owned operations. We continually and consistently seek to optimize our operating footprint in order to achieve profitability and foster growth while retaining a steadfast commitment to the quality of our products and the integrity of our global supply chain.

Unparalleled exposure to the expanding U.S. cannabis market - Unlike other cannabis businesses, our investment in Canopy USA provides a unique opportunity to maximize the value of our previously-held conditional U.S. THC investments. We have an unconsolidated and non-controlling interest in Canopy USA which is, and is expected to continue to be, accounted for as an equity method (fair value) investment until such time as both the NASDAQ Stock Market and The New York Stock Exchange permit the listing of companies that consolidate the financial statements of entities that cultivate, distribute or possess marijuana (as defined in 21 U.S.C 802) in the United States for non-medicinal purposes (the “Stock Exchange Permissibility Date”). Canopy USA continues to explore brand opportunities to continue building a foundation for us to participate indirectly in the world’s largest and fastest growing cannabis market and to offer our shareholders unique exposure to this market’s growth. See “Risk Factors – Our expansion plans into the United States rely upon the continued operations and success of Canopy USA and its subsidiaries and the anticipated benefits of the strategy involving Canopy USA is uncertain and may not be realized; and the fair value of our equity method investment in Canopy USA is volatile” under Item 1A of this Comprehensive Form 10-K.

Recent Developments

August 2025 ATM Program

On August 29, 2025, we established a new at-the-market equity program (the “August 2025 ATM Program”) that allows us to issue and sell up to US$200 million of Canopy Shares to the public from time to time at our discretion in concurrent public offerings in the United States (the “U.S. Offering”) and Canada; provided, however; that (i) sales of Canopy Shares in the August 2025 ATM Program in Canada is limited to aggregate gross sales proceeds to us of up to US$50 million (or its Canadian dollar equivalent) (the “Canadian Offering”); and (ii) in no event will the combined gross sales proceeds of the August 2025 ATM Program in the United States and Canada exceed US$200 million. The Company established the August 2025 ATM Program pursuant to an equity distribution agreement (the “August 2025 Equity Distribution Agreement”) entered into among us and BMO Nesbitt Burns Inc., as Canadian agent, and BMO Capital Markets Corp., as U.S. agent (together, the “Agents”).

The August 2025 ATM Program will be effective until the earlier of (A) June 5, 2027; (B) the issuance and sale of Canopy Shares having an aggregate offering price of US$200 million on the terms and subject to the conditions set forth in the August 2025 Equity Distribution Agreement; (C) the date on which the Company’s registration statement, as amended (the “Registration Statement”), filed with the Securities and Exchange Commission (the “SEC”) has ceased to be useable for sales of Shelf Securities (as defined in the August 2025 Equity Distribution Agreement) pursuant to General Instruction I.B.1 of Form S-3; (D) the date on which the Company receives notice from the SEC that the Registration Statement has ceased to be effective; and (E) the date on which the August 2025 Equity Distribution Agreement is terminated by the parties. Notwithstanding the foregoing, the Canadian Offering will automatically terminate on the earlier of (i) July 5, 2026; (ii) the date on which the issuance and sale of common shares in the Canadian Offering equals US$50 million (or its Canadian dollar equivalent); (iii) the date on which the Company receives notice from the Ontario Securities Commission that the Company’s Canadian short form base shelf prospectus dated June 5, 2024 has ceased to be

effective; or (iv) the date on which the August 2025 Equity Distribution Agreement is terminated pursuant to clauses (A) through (E) above; provided, however, that a termination of the Canadian Offering as contemplated by clauses (i), (ii) and (iii) above will in no case affect the U.S. Offering and the August 2025 Equity Distribution Agreement will continue in full force and effect with respect to the U.S. Offering. The August 2025 Equity Distribution Agreement replaced the equity distribution agreement dated February 28, 2025, as amended, among us and the Agents that established our prior at-the-market equity program (the “February 2025 ATM Program”).

During the fiscal year ended March 31, 2026, we sold 56,206,101 Canopy Shares for gross proceeds of approximately $135.8 million (US$98.0 million) under the August 2025 ATM Program.

Credit Facility Prepayments

On July 29, 2025, we entered into an agreement (the “Third Paydown Agreement”) with certain lenders under the Credit Facility (as defined below). Pursuant to the Third Paydown Agreement, we were required to make the following prepayments: (i) US$25 million at par on or prior to July 31, 2025; (ii) US$10 million at par on or prior to December 31, 2025; and (iii) US$15 million at par on or prior to March 31, 2026. On July 31, 2025, we made the first of the three prepayments required under the Third Paydown Agreement, which resulted in an aggregate principal reduction of US$25 million under our Credit Facility (the “First Prepayment”). On September 12, 2025, we made an early prepayment of US$25 million at par (the “Early Prepayment”) to reduce the outstanding principal balance of the Credit Facility. The Early Prepayment satisfies the remainder of our prepayment obligations associated with the Third Paydown Agreement.

In connection with the Loan Transaction (as defined below), a portion of the net proceeds from the Loans (as defined below) was used to repay all outstanding amounts owing under the Credit Facility.

Loan Agreement

On January 8, 2026, we entered into a loan and guaranty agreement (the “Loan Agreement”), by and among us, as a borrower, certain subsidiaries of the Company party thereto, as borrowers and/or guarantors, the parties identified therein as lenders (the “Lenders”), and JGB Collateral LLC, as administrative and collateral agent (“JGB”), pursuant to which, among other things, the Lenders advanced US$150 million in cash pursuant to a senior secured term loan in the aggregate principal amount of approximately US$162.1 million (collectively, the “Loans” and such transaction, the “Loan Transaction”). The Loans were funded on January 8, 2026 (the “Loan Closing Date”) with an original issue discount of approximately US$12.1 million. The Loans mature on the earlier of (i) January 31, 2031, and (ii) the date that is 120 days prior to the maturity date of the January 2026 Convertible Debentures (as defined below).

The outstanding principal amount of the Loans bear interest at an annual rate equal to the applicable Term SOFR rate (subject to a minimum floor of 3.25%) plus 6.25%. Interest on the Loans will be paid monthly in arrears in cash. Following the first anniversary of the first interest payment date, each Lender will have the option to require the borrowers to repay such Lender its pro rata share of up to US$3 million of principal per calendar month on each payment date thereafter. Prepayment and repayment of the Loans will be subject to (i) an interest make-whole equal to 12 monthly interest payments less any payments made by the borrowers on account of interest prior to the date of such prepayment for any prepayments or repayments made during the first year of the Loans and (ii) an exit fee equal to approximately US$6.5 million, provided that, with respect to any partial prepayment or repayment of the Loans, only the pro rata portion of such exit fee will be payable at the time of each such partial payment. The Loans and obligations under the Loan Agreement and other related loan documents are secured by substantially all of the assets of the Company and each of its material subsidiaries.

The Loan Agreement also includes certain prepayment fees, a minimum unrestricted cash requirement of the lesser of US$90 million or the outstanding principal amount of the Loans, and various other representations, warranties, covenants and events of default customary for a financing of this nature.

In connection with the Loan Agreement, on the Loan Closing Date, we issued 18,705,578 common share purchase warrants of the Company (the “Loan Warrants”) to the Lenders in accordance with each Lender’s pro rata share of the Loans. Each Loan Warrant entitles the holder thereof to acquire one Canopy Share at an exercise price equal to US$1.30 per Canopy Share for a period of five years from the Loan Closing Date.

A portion of the net proceeds from the Loans was used to repay all outstanding amounts owing under the Credit Facility.

On June 15, 2026, the Company amended the Loan Agreement pursuant to a first amendment to loan and guaranty agreement (the “Amendment”), by and among the Company, as a borrower, certain subsidiaries of the Company party thereto, as borrowers and/or guarantors, certain lenders party thereto, and JGB. Pursuant to the Amendment, the Lenders have, among other things, restricted (the “Exchange Restriction”) the Company’s and certain of its subsidiaries’ ability to exchange any non-voting and non-participating shares in the capital of Canopy USA, LLC (“Canopy USA”) into Class B shares of Canopy USA at any time prior to the Stock Exchange Permissibility Date.

2026 Exchange Agreement

On January 7, 2026, we entered into an exchange agreement (the “Exchange Agreement”) with the May 2024 Investor (as defined below) pursuant to which, among other things, on January 8, 2026 (the “Exchange Closing Date”), the May 2024 Investor delivered to us the May 2024 Convertible Debenture (as defined below) held by the May 2024 Investor in exchange for (A) the Company issuing to the May 2024 Investor (i) new senior unsecured convertible debentures of the Company with an aggregate principal amount of $55.0 million maturing on July 8, 2031 (the “January 2026 Convertible Debentures”), (ii) 12,731,481 common share purchase warrants of the Company (the “January 2026 Investor Warrants”), and (iii) 9,493,670 Canopy Shares (the “Exchange Shares”) and (B) a $10.5 million cash payment from the Company (collectively, the “Exchange Transaction”).

Each January 2026 Investor Warrant entitles the holder to acquire one Canopy Share at an exercise price equal to $2.16 per Canopy Share until January 8, 2031. The January 2026 Convertible Debentures bear interest at a rate of 7.50% per annum, payable in semi-annual payments in cash, and are convertible, at the option of the May 2024 Investor, into Canopy Shares at a conversion price equal to $1.83 per Canopy Share.

The January 2026 Convertible Debentures are subject to a forced conversion feature upon notice from the Company in the event that the average closing trading price of the Canopy Shares on the TSX exceeds $2.75 for a period of 10 consecutive trading days.

Acquisition of MTL

On December 14, 2025, we entered into an arrangement agreement, as amended on January 6, 2026 with MTL, pursuant to which, among other things, we agreed to acquire all of the issued and outstanding common shares (the “MTL Shares”) in the capital of MTL Cannabis Corp. (“MTL”) in accordance with a plan of arrangement under the Canada Business Corporations Act (the “MTL Arrangement”). Pursuant to the terms of the MTL Arrangement, shareholders of MTL received 0.32 of a Canopy Share and $0.144 in cash (the “Cash Consideration”) for each MTL Share held immediately prior to the closing of the MTL Arrangement.

In connection with the MTL Arrangement:

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each outstanding warrant to purchase MTL Shares that was out-of-the-money (each, a “MTL Warrant”) was exchanged for a replacement warrant (a “Replacement Warrant”) to acquire from Canopy Growth the number of Canopy Shares as is equal to (a) the number of MTL Shares issuable on the exercise of such MTL Warrant immediately prior to the effective time of the MTL Arrangement (the “Effective Time”), multiplied by (b) 0.32. The exercise price per Canopy Share subject to any such Replacement Warrants is equal to the price per Canopy Share that was otherwise payable to acquire a MTL Share pursuant to the MTL Warrant it replaced less an amount equal to the Cash Consideration;

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each outstanding option to purchase MTL Shares that was out-of-the-money (each, a “MTL Option”) was exchanged for a replacement option (a “Replacement Option”) to acquire from Canopy Growth the number of Canopy Shares as is equal to (a) the number of MTL Shares issuable on exercise of such MTL Option immediately prior to the Effective Time, multiplied by (b) 0.32. The exercise price per Canopy Share subject to any such Replacement Option is equal to the price per Canopy Share that was otherwise payable to acquire a MTL Share pursuant to the MTL Option it replaced less an amount equal to the Cash Consideration; and

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each outstanding compensation option (collectively, “MTL Compensation Options”) to purchase units of MTL (the “MTL Units”) was exchanged for a compensation option (a “Replacement Compensation Option”) to acquire from Canopy Growth the number of units (the “Canopy Units”) as is equal to (a) the number of MTL Units that were issuable on exercise of such MTL Compensation Option immediately prior to the Effective Time, multiplied by (b) 0.32. The exercise price per Canopy Unit subject to any such Replacement Compensation Option is equal to the price per Canopy Unit that was otherwise payable to acquire a MTL Unit pursuant to the MTL Compensation Option it replaced less an amount equal to the Cash Consideration. Each Canopy Unit is comprised of one Canopy Share and one half of one Canopy Growth warrant (each whole warrant, a “Canopy Unit Warrant”), with each Canopy Unit Warrant exercisable to acquire one Canopy Share until September 19, 2028 at an exercise price of C$2.61 per Canopy Share, subject to adjustment in accordance with its terms.

On March 16, 2026, we completed the acquisition of MTL and now own 100% of the issued and outstanding MTL Shares.

In aggregate, upon closing of the transaction, we issued 41,232,337 Canopy Shares and made a cash payment of $18.5 million pursuant to the MTL Arrangement as consideration to the shareholders of MTL for the MTL Shares. In addition, 2,956,391 Canopy Shares were issued under the MTL Arrangement to certain former shareholders (the “MC Shareholders”) of Montreal Cannabis Medical, Inc. (“MC”) in exchange for a release of all prior obligations owing to the former MC Shareholders in connection with MTL’s prior acquisition of MC. The Canopy Shares issued to the MC Shareholders are subject to an 18-month restriction on transfer. The Company also issued 7,446,919 Replacement Warrants, 160,000 Replacement Options and 70,515 Replacement Compensation Options.

Management Cease Trade Order

On May 15, 2026, the Company filed a press release as well as a material change report with the Canadian securities regulators and a Current Report on Form 8-K with the SEC pursuant to which the Company announced that it identified that its (i) audited consolidated financial statements for the fiscal year ended March 31, 2024, included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2024 (the “2024 10-K”), (ii) audited consolidated financial statements for the fiscal year ended March 31, 2025, included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2025 (the “2025 10-K”); and (iii) unaudited consolidated financial statements for the quarterly periods ended September 30, 2023, December 31, 2023, June 30, 2024, September 30, 2024, December 31, 2024, June 30, 2025, September 30, 2025, and December 31, 2025, included in the Company’s Quarterly Reports on Form 10-Q for such quarterly periods (together with the 2024 10-K and the 2025 10-K, the “Prior Financial Statements”) should no longer be relied upon because of a technical non-cash accounting error relating to the classification of certain share-settled warrants of the Company with exercise prices denominated in U.S. dollars, first issued during the fiscal year ended March 31, 2024 (the “Identified Warrants”), contained in the Prior Financial Statements (the “Default”). Accordingly, the Company should have recorded these instruments as liabilities on its consolidated balance sheets and measured them at fair value at each reporting date, with changes in fair value recorded in the consolidated statements of operations and comprehensive loss. On May 28, 2026, the Ontario Securities Commission issued a management cease trade order against Luc Mongeau, the Company’s Chief Executive Officer and Thomas Stewart, the Company’s Chief Financial Officer as a result of the Default. The management cease trade order prohibits Mr. Mongeau and Mr. Stewart from trading in the securities of the Company until two full business days following the filing of this Comprehensive Form 10-K, following which the management cease trade order may be lifted.

Part 2 - Results of Operations

The results of operations presented below reports the financial performance of the continuing operations of Canopy Growth for the years ended March 31, 2026 and 2025 and for the quarterly periods ended September 30, 2023, December 31, 2023, June 30, 2024, September 30, 2024, December 31, 2024, June 30, 2025, September 30, 2025, and December 31, 2025.

Discussion of Fiscal 2026 Results of Operations

The following table presents selected consolidated financial information for the years ended March 31, 2026 and 2025:

Year ended March 31,

(As Restated)

Selected consolidated financial information:

Gross margin percentage 24 % 30 % - (600) bps

Net Revenue

We report net revenue in two segments: (i) Cannabis; and (ii) Storz & Bickel.The following table presents segmented net revenue for the years ended March 31, 2026 and 2025:

Net Revenue Year ended March 31,

(in thousands of Canadian dollars) 2026 2025 $ Change % Change

Cannabis

Net revenue was $284.6 million in fiscal 2026, as compared to $269.0 million in fiscal 2025.

Cannabis

Net revenue from our Cannabis segment was $213.9 million in fiscal 2026, as compared to $186.7 million in fiscal 2025.

Canadian adult-use cannabis net revenue was $94.5 million in fiscal 2026, as compared to $78.8 million in fiscal 2025. The year-over-year increase is primarily attributable to growth in infused PRJ offerings and new All-In-One vaporizers which launched in the first quarter of fiscal 2026, partially offset by declines in edibles and non-infused PRJs.

Canadian medical cannabis net revenue was $90.8 million in fiscal 2026, as compared to $77.0 million in fiscal 2025. The year-over-year increase is primarily attributable to an increase in the average size of medical orders placed by our customers due largely to an increase in the percentage of insured customers, and a larger assortment of cannabis product choices offered to our customers.

International markets cannabis revenue was $28.7 million in fiscal 2026, as compared to $30.9 million in fiscal 2025. The year-over-year decrease is primarily attributable to supply chain challenges in Europe in the first three quarters of the year, partially offset by strength in Europe during the last quarter of the fiscal year.

Storz & Bickel

Revenue from Storz & Bickel was $70.7 million in fiscal 2026, as compared to $82.3 million in fiscal 2025. The year-over-year decrease is primarily attributable to lapping strong sales in the prior year and continued consumer economic uncertainty, offset by our new product launch in September 2025.

Cost of Goods Sold and Gross Margin

The following table presents cost of goods sold, gross margin and gross margin percentage on a consolidated basis for the years ended March 31, 2026 and 2025:

Year ended March 31,

Gross margin percentage 24 % 30 % - (600) bps

Cost of goods sold was $214.9 million in fiscal 2026, as compared to $189.5 million in fiscal 2025. Our gross margin was $69.7 million in fiscal 2026, or 24% of net revenue, as compared to a gross margin of $79.5 million and gross margin percentage of 30% of net revenue in fiscal 2025.

We report gross margin and gross margin percentage in two segments: (i) Cannabis; and (ii) Storz & Bickel. The following table presents segmented gross margin and gross margin percentage for the years ended March 31, 2026 and 2025:

Year ended March 31,

Cannabis segment

Gross margin percentage 22 % 26 % (400) bps

Storz & Bickel segment

Gross margin percentage 33 % 37 % (400) bps

Cannabis

Gross margin for our Cannabis segment was $46.1 million in fiscal 2026, or 22% of net revenue, as compared to $49.0 million in fiscal 2025, or 26% of net revenue. The year-over-year decrease in the gross margin percentage was primarily attributable to lower sales relating to international markets, higher inventory provisions, costs related to new product launches and a shift in both product and geographical mix.

Further impacting our Cannabis gross margin in fiscal 2026 are inventory charges of $9.9 million relating primarily to our acquisition of MTL and $0.8 million in flow-through of inventory step-up relating to our acquisition of MTL. The inventory charges resulted from a review of the overall Cannabis segment inventory levels after the acquisition of MTL.

Storz & Bickel

Gross margin for our Storz & Bickel segment was $23.6 million in fiscal 2026, or 33% of net revenue, as compared to $30.5 million in fiscal 2025, or 37% of net revenue. The year-over-year decrease in the gross margin percentage is primarily attributable to lower sales, increased tariffs on imports to the United States and shifts in geographic mix, partially offset by the fact prior year gross margins were depressed due to discounts provided to clear out remaining stock of previously discounted product and no significant discounts were provided on sales in the current period.

Operating Expenses

The following table presents operating expenses for the years ended March 31, 2026 and 2025:

Year ended March 31,

(in thousands of Canadian dollars) 2026 2025 $ Change % Change

Operating expenses

Selling, general and administrative expenses

Selling, general and administrative expenses were $160.0 million in fiscal 2026, as compared to $169.6 million in fiscal 2025.

General and administrative expense was $55.6 million in fiscal 2026, as compared to $65.1 million in fiscal 2025. The year-over-year decrease is primarily attributable to: (i) continued reductions in headcount; and (ii) lower third party costs, including insurance, professional fees and IT costs.

Sales and marketing expense was $63.1 million in fiscal 2026, as compared to $60.9 million in fiscal 2025. The year-over-year increase is primarily attributable to increased costs associated with: (i) customer acquisition costs; and (ii) royalties and other variable marketing costs. The increased costs were partially offset by continued reductions in headcount.

Acquisition-related costs were $21.5 million in fiscal 2026, as compared to $19.5 million in fiscal 2025. In fiscal 2026, costs were incurred primarily in relation to:

•

continued legal costs arising from the restatement of our consolidated financial statements in connection with the review of the financial reporting matters related to the BioSteel business unit for the following previously filed periods: (i) audited consolidated financial statements for the fiscal year ended March 31, 2022, originally included in our Annual Report on Form 10-K for such fiscal year, and (ii) unaudited consolidated financial statements for the quarterly periods ended June 30, 2022, September 30, 2022 and December 31, 2022, originally included in our Quarterly Reports on Form 10-Q for such quarterly periods (collectively, the “Prior Periods”);

•

transaction costs associated with the acquisition of MTL;

•

other non-recurring acquisition, divestiture and litigation costs and recoveries.

Comparatively, in fiscal 2025, costs were incurred primarily in relation to:

•

the reorganization of Canopy USA;

•

costs associated with the acquisition of certain outstanding debt of Acreage Holdings, Inc. (“Acreage”) by a wholly-owned subsidiary of the Company (the “Debt Acquisition”); and

•

costs relating to the modification of the term loan credit agreement (the “Credit Agreement”) that occurred in August 2024.

Depreciation and amortization expense was $19.9 million in fiscal 2026, as compared to $24.2 million in fiscal 2025. The year-over-year decrease is primarily attributable to the reduction in new capital expenditures.

Share-based compensation

Share-based compensation was $4.3 million in fiscal 2026, as compared to $(4.2) million in fiscal 2025. The year-over-year increase is primarily attributable to the fact that the prior expense reversal was driven by the departure of our former CEO which resulted in a deemed modification of his existing share-based compensation and reversal of expensing associated with unvested tranches. Current year expensing increase was impacted by fiscal 2026 grants of 2.8 million options and 3.9 million restricted share units, offset by higher estimated forfeitures in the first and third quarters of fiscal 2026 due to departures of certain executives and lower expense due to reduced headcount.

Asset impairment and restructuring costs

Asset impairment and restructuring costs recorded in operating expenses were $67.1 million in fiscal 2026, as compared to $31.2 million in fiscal 2025.

Loss on asset impairment and restructuring recorded in fiscal 2026 is primarily related to the impairment of goodwill associated with the Storz & Bickel business and employee restructuring costs.

Comparatively, in fiscal 2025, the loss on asset impairment and restructuring was primarily related to the non-cash impairment of divestiture-related assets, employee restructuring costs, and ongoing holding costs to maintain previously restructured sites. These amounts were offset by a gain related to remeasurement of a lease liability upon execution of the exit agreement.

Other

The following table presents other income (expense), net, and income tax (expense) recovery for the years ended March 31, 2026 and 2025:

Year ended March 31,

(in thousands of Canadian dollars) 2026 2025 $ Change % Change

(As Restated)

Other income (expense), net

Other income (expense), net, was an expense amount of $101.2 million in fiscal 2026, as compared to an expense amount of $390.6 million in fiscal 2025. The year-over-year change of $289.4 million, decrease in expense, is primarily attributable to:

•

Decrease in non-cash expense of $333.2 million related to fair value changes on our Canopy USA related and other financial assets, from an expense amount of $400.2 million in fiscal 2025 to an expense amount of $67.0 million in fiscal 2026. The fiscal 2026 expense amount is primarily attributable to fair value decreases relating to our investments in:

•

the Canopy Elevate I LLC, Canopy Elevate II LLC and Canopy Elevate III LLC (collectively, “Elevate”) loan receivable, the amounts owing under the third amended and restated credit agreement dated as of July 29, 2025 among a wholly-owned subsidiary of the Company, an arm’s length third-party lender, Acreage and the other parties named therein (the “Acreage and Wana Debt” and together with the Elevate loan receivable, the “Canopy USA Loans Receivable”), in the amount of $76.1 million relating to fair value movements in consideration of the debtor’s net assets.

The fair value decrease was partially offset by a fair value increase related to our investment in:

•

the Canopy USA LPs (as defined below) equity method investment in the amount of $9.1 million.

Comparatively, the fiscal 2025 expense amount is primarily attributable to fair value decreases relating to our investments in:

•

the Canopy USA and certain entities controlled by Canopy USA (the “Canopy USA LPs”) equity method investments in the aggregate amount of $246.7 million;

•

the Canopy USA Loans Receivable, in the amount of $147.4 million relating to fair value movements in consideration of the debtor's net assets;

•

the Acreage financial instrument, in the amount of $31.8 million. On a quarterly basis, we determine the fair value of the Acreage financial instrument using a probability-weighted expected return model, incorporating several potential scenarios and outcomes associated with the Acreage Amended Arrangement (as defined below). The fair value decrease in fiscal 2025 is primarily attributable to an increase of approximately 75% in our share price up to the Deconsolidation Date (as defined below), relative to an increase of approximately 46% in Acreage’s share price during that same period. As a result, the model at the Deconsolidation Date reflects both a higher estimated value of the Canopy Shares that were expected to be issued upon the acquisition of all of the issued and outstanding Class E subordinate voting shares (the “Fixed Shares”) and Class D subordinate voting shares of Acreage (the “Acreage Acquisition”), and a higher estimated value of the Acreage shares that were expected to be acquired at that time. In the period up to the Deconsolidation Date, the relative share price movements resulted in a decrease in the value of the Acreage financial instrument; and

•

Indiva Limited (“Indiva”) shares, in the amount of $2.8 million due to a decrease in the price per Indiva share as a result of Indiva’s CCAA (as defined below) proceedings.

These fair value decreases were partially offset by a fair value increases related to our investments in:

•

The exchangeable shares (the “TerrAscend Exchangeable Shares”) in the capital of TerrAscend Corp. (“TerrAscend”), in the amount of $17.3 million, which was primarily attributable to an increase of approximately 16% in TerrAscend’s share price up to April 30, 2024, being the date that Canopy Growth deconsolidated the financial results of Canopy USA (the “Deconsolidation Date”);

•

the 22,474,130 TerrAscend common share purchase warrants with a weighted average exercise price of $6.07 per TerrAscend common share and expiring on December 31, 2032 (the “TerrAscend Warrants”), in the amount of $7.9 million, which was primarily attributable to an increase of approximately 16% in TerrAscend’s share price up to the Deconsolidation Date; and

•

the option premium asset associated with an option premium prepayment (the “Option Premium”), in the amount of $3.1 million related to closing of the Acreage Debt Acquisition and release of the amount that was previously held in escrow pursuant to the option agreement dated November 15, 2022 (the “Option Agreement”) among a wholly owned subsidiary of Canopy Growth and the lenders party to Acreage’s credit agreement.

•

Change of $80.5 million related to fair value changes on warrant derivative liability, from a gain of $89.2 in fiscal 2025 to a gain of $8.7 in fiscal 2026. The decrease in fair value gain is driven by a change in the decrease of our share price, we experienced a larger decrease in our share price in fiscal 2025 compared to fiscal 2026.

•

Change of $35.5 million related to fair value changes on acquisition related contingent consideration and other, from an expense of $35.5 million in fiscal 2025 to $nil in fiscal 2026. There were no fair value changes for any acquisition related contingent consideration in fiscal 2026, whereas the fair value changes in fiscal 2025 related to various acquisition related contingent consideration.

•

Change of $36.9 million related to charges associated with the settlement of our debt, from a gain of $22.3 million in fiscal 2025 to a loss of $14.6 million in fiscal 2026. For fiscal 2026, we recognized a loss of $14.6 million, related to the settlement of the May 2024 Convertible Debenture and the settlement of the Credit Facility. Comparatively, in fiscal 2025, we recognized a gain of $22.3 million, primarily in connection with the exchange of the $100 million principal amount promissory note issued to Greenstar Canada Investment Limited Partnership (the “CBI Note”).

•

Increase in interest income of $1.2 million, from $8.8 million in fiscal 2025 to $10.0 million in fiscal 2026. The year-over-year increase is attributable to higher cash balances.

•

Decrease in interest expense of $36.4 million, from $74.6 million in fiscal 2025 to $38.2 million in fiscal 2026. The year-over-year decrease is primarily attributable to the reduction of our debt balances.

Income tax expense

Income tax expense in fiscal 2026 was $0.02 million, as compared to an income tax expense of $7.1 million in fiscal 2025. In fiscal 2026, the income tax expense consisted of a deferred income tax expense of $0.04 million (compared to an expense of $6.8 million in fiscal 2025) and current income tax recovery of $0.01 million (compared to an expense of $0.3 million in fiscal 2025).

The decrease of $6.8 million in the deferred income tax expense is primarily a result of the settlements of the CBI Note in fiscal 2025 that did not recur in fiscal 2026.

The decrease of $0.3 million in the current income tax expense relates primarily to a prior period return to provision recovery of $0.3 million in a German subsidiary of the Company. Otherwise, the current tax expense remained consistent period over period and arose primarily in connection with tax on income for tax purposes that could not be reduced by the group’s tax attributes in the current taxation year.

Restructuring, Asset Impairments and Related Costs

Fiscal 2026

Total restructuring, asset impairments and related costs of $77.0 million were recognized in fiscal 2026. The fiscal 2026 expense amount is primarily related to the non-cash impairment of the Storz & Bickel goodwill, Storz & Bickel brand and inventory-related charges. Employee-related restructuring costs further contributed to the total charges in fiscal 2026.

A summary of the pre-tax charges recognized in fiscal 2026 in connection with our restructuring actions described above is as follows:

Costs recorded in cost of goods sold:

Inventory write-downs and other charges $ 9,878

Costs recorded in operating expenses:

Impairment of property, plant and equipment, net 1,715

Impairment of intangible assets 8,028

Impairment of goodwill 47,491

Employee-related, other asset impairment and other restructuring costs 9,845

Asset impairment and restructuring costs 67,079

Total restructuring, asset impairments and related costs $ 76,957

Fiscal 2025

Total restructuring, asset impairments and related costs of $33.2 million were recognized in fiscal 2025. The fiscal 2025 expense amount is primarily attributable to the non-cash impairment of divestiture-related assets, employee restructuring costs and other costs associated with previous restructuring actions. This was partially offset by a gain related to the renegotiation of the terms of a long

term facility lease, resulting in a short-term to long-term reclassification of its lease liabilities in December 2024 (the “Lease Renegotiation”) and reversal of a previous restructuring charge.

A summary of the pre-tax charges recognized in fiscal 2025 in connection with our restructuring actions described above is as follows:

Costs recorded in cost of goods sold:

Inventory write-downs and other charges $ 1,991

Costs recorded in operating expenses:

Impairment of property, plant and equipment, net 13,523

Contractual and other settlement obligations (1,942 )

Employee-related, other asset impairment and other restructuring costs 19,652

Asset impairment and restructuring costs 31,233

Total restructuring, asset impairments and related costs $ 33,224

Net Loss

The net loss from continuing operations in fiscal 2026 was $262.9 million, as compared to a net loss from continuing operations of $514.9 million in fiscal 2025. The year-over-year decrease in the net loss from continuing operations is primarily attributable to the year-over-year decrease in expense relating to other income (expense), net, of $289.4 million, which was primarily driven by lower fair value losses on Canopy USA related assets and lower interest expense. The lower expense was partially offset by an increase in operating loss relating to impairment restructuring charges relating primarily to the impairment of goodwill. These variances are described above.

Adjusted EBITDA (Non-GAAP Measure)

Our “Adjusted EBITDA” is a non-GAAP measure used by management that is not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. Management calculates Adjusted EBITDA as the reported net income (loss), adjusted to exclude income tax recovery (expense); other income (expense), net; loss on equity method investments; share-based compensation expense; depreciation and amortization expense; asset impairment and restructuring costs; acquisition related restructuring and other inventory write-downs; and charges related to the flow-through of inventory step-up on business combinations, and further adjusted to remove acquisition, divestiture, and other costs. Asset impairments related to periodic changes to our supply chain processes are not excluded from Adjusted EBITDA given their occurrence through the normal course of core operational activities. Accordingly, management believes that Adjusted EBITDA provides meaningful and useful financial information as this measure demonstrates the operating performance of businesses.

The following table presents Adjusted EBITDA for the years ended March 31, 2026 and 2025:

Year ended March 31,

(in thousands of Canadian dollars) 2026 2025 $ Change % Change

(As Restated)

The Adjusted EBITDA loss in fiscal 2026 was $20.2 million, as compared to an Adjusted EBITDA loss of $23.5 million in fiscal 2025. The year-over-year decrease in the Adjusted EBITDA loss is primarily attributable to the year-over-year reduction in our total selling, general and administrative expense. These variances are described above.

Discussion of Fiscal 2025 Results of Operations

The following table presents selected consolidated financial information for the years ended March 31, 2025 and 2024:

Years ended March 31,

(As Restated) (As Restated)

Selected consolidated financial information:

Gross margin percentage 30 % 27 % - 300 bps

Net Revenue

We report net revenue in two segments: (i) Cannabis; and (ii) Storz & Bickel. This Works was divested on December 18, 2023 and revenue derived from the remainder of our operations were included within “Other”. The following table presents segmented net revenue for the years ended March 31, 2025 and 2024:

Net Revenue Years ended March 31,

(in thousands of Canadian dollars) 2025 2024 $ Change % Change

Cannabis

Net revenue was $269.0 million in fiscal 2025, as compared to $297.1 million in fiscal 2024. The year-over-year decrease is primarily attributable to: (i) the This Works Divestiture (as defined below) on December 18, 2023; (ii) a decrease in Canada adult-use cannabis; and (iii) a decline in our U.S. CBD business. These decreases were partially offset by: (i) growth in Canada medical; and (ii) growth in Storz & Bickel.

Cannabis

Net revenue from our Cannabis segment was $186.7 million in fiscal 2025, as compared to $191.7 million in fiscal 2024.

Canadian adult-use cannabis net revenue was $78.8 million in fiscal 2025, as compared to $92.8 million in fiscal 2024. The year-over-year decrease is primarily attributable to lower sales volumes and sales velocity on our core flower and PRJ offerings due to continued increase in price competition, partially offset by a shift towards infused PRJs and opportunistic bulk sales.

Canadian medical cannabis net revenue was $77.0 million in fiscal 2025, as compared to $66.4 million in fiscal 2024. The year-over-year increase is primarily attributable to an increase in the average size of medical orders placed by our customers due largely to an increase in the percentage of insured customers, and a larger assortment of cannabis product choices offered to our customers.

International markets cannabis revenue was $30.9 million in fiscal 2025, as compared to $32.5 million in fiscal 2024. The year-over-year decrease is primarily attributable to: (i) a decline in our Australian medical cannabis business and (ii) a decline in our U.S. CBD business resulting from a transition of our U.S. CBD business to Canopy USA which was deconsolidated on April 30, 2024, offset by increased shipments of flower products in Europe, driven by Poland and Germany.

Storz & Bickel

Revenue from Storz & Bickel was $82.3 million in fiscal 2025, as compared to $79.5 million in fiscal 2024. The year-over-year increase is primarily attributable to strong growth in Germany and the United Kingdom, sales of our Mighty vaporizer and sales of Venty, our newest portable vaporizer.

This Works

Revenue from This Works was $nil in fiscal 2025, as compared to $21.3 million in fiscal 2024. The year-over-year decrease is due to the completion of the This Works Divestiture on December 18, 2023.

Cost of Goods Sold and Gross Margin

The following table presents cost of goods sold, gross margin and gross margin percentage on a consolidated basis for the years ended March 31, 2025 and 2024:

Years ended March 31,

Gross margin percentage 30 % 27 % - 300 bps

Cost of goods sold was $189.5 million in fiscal 2025, as compared to $216.3 million in fiscal 2024. Our gross margin was $79.5 million in fiscal 2025, or 30% of net revenue, as compared to a gross margin of $80.9 million and gross margin percentage of 27% of net revenue in fiscal 2024. The year-over-year increase in the gross margin percentage was primarily attributable to improvement in our Canada cannabis segment resulting from (i) the realized benefit of our cost savings program and strategic changes to our business that were initiated in the fourth quarter of fiscal 2023; and (ii) a shift in channel mix to higher margin medical sales, partially offset by costs related to new product launches, increased price competition and higher indirect costs.

The following table presents segmented gross margin and gross margin percentage for the years ended March 31, 2025 and 2024:

Years ended March 31,

Canada cannabis segment

Gross margin percentage 26 % 21 % 500 bps

Storz & Bickel segment

Gross margin percentage 37 % 41 % (400) bps

This Works segment

Gross margin percentage - % 50 % N/A

Other

Gross margin percentage - % (44 %) N/A

1 A reclassification of $nil and $5,449 of ancillary cannabis revenues from Other to Canada cannabis occurred for the year ended March 31, 2025 and March 31, 2024, respectively.

2 A reclassification of $nil and $4,705 of ancillary cannabis cost of goods sold from Other to Canada cannabis occurred for the year ended March 31, 2025 and March 31, 2024, respectively.

Cannabis

Gross margin for our Cannabis segment was $49.0 million in fiscal 2025, or 26% of net revenue, as compared to $39.8 million in fiscal 2024, or 21% of net revenue. The year-over-year increase in the gross margin percentage was primarily attributable to: (i) the realized benefit of our cost savings program and strategic changes to our business that were initiated in the fourth quarter of fiscal 2023; and (ii) a shift in channel mix to higher margin medical sales. The increase was partially offset by: (i) recent pricing pressures in Poland; (ii) lower selling prices in Germany; (iii) lower sales in our Australian medical cannabis business; and (iv) the decline in U.S. CBD sales.

Storz & Bickel

Gross margin for our Storz & Bickel segment was $30.5 million in fiscal 2025, or 37% of net revenue, as compared to $32.7 million in fiscal 2024, or 41% of net revenue. The year-over-year decrease in the gross margin percentage is driven primarily by a shift in product mix as additional rebates were provided to clear out remaining stock of a previously planned discontinued product and increases in indirect costs.

This Works

Gross margin for our This Works segment was $nil in fiscal 2025, or 0% of net revenue, as compared to $10.5 million in fiscal 2024, or 50% of net revenue. The year-over-year decrease in the gross margin percentage is due to the completion of the This Works Divestiture on December 18, 2023.

Operating Expenses

The following table presents operating expenses for the years ended March 31, 2025 and 2024:

Years ended March 31,

(in thousands of Canadian dollars) 2025 2024 $ Change % Change

Operating expenses

Selling, general and administrative expenses

Selling, general and administrative expenses were $169.6 million in fiscal 2025, as compared to $229.4 million in fiscal 2024.

General and administrative expense was $65.1 million in fiscal 2025, as compared to $90.3 million in fiscal 2024. The year-over-year decrease is primarily attributable to: (i) the impact of the restructuring actions and cost savings program initiated in the fourth quarter of fiscal 2023; (ii) continued decrease in people costs and professional service costs; and (iii) the This Works Divestiture on December 18, 2023.

Sales and marketing expense was $60.9 million infiscal 2025, as compared to $76.1 million in fiscal 2024. The year-over-year decrease is primarily attributable to: (i) the This Works Divestiture on December 18, 2023; (ii) the impact of the restructuring actions and cost savings program initiated in the fourth quarter of fiscal 2023; and (iii) continued decrease in people costs and professional service costs.

Acquisition-related costs were $19.5 million in fiscal 2025, as compared to $34.8 million in fiscal 2024. In fiscal 2025, costs were incurred primarily in relation to:

•

the reorganization of Canopy USA;

•

costs associated with the Debt Acquisition of Acreage; and

•

costs relating to the modification of the Credit Agreement that occurred in August 2024;

Comparatively, in fiscal 2024, costs were incurred primarily in relation to:

•

approximately $8.3 million of costs relating to the modification of the Credit Agreement that occurred in July 2023;

•

approximately $10.7 million of legal and audit costs related to the restatement of our consolidated financial statements for the Prior Periods in connection with the correction of material misstatement arising from an internal review of financial reporting matters related to sales in the BioSteel business unit that were accounted for incorrectly, and the filing of our Annual Report on Form 10-K for the fiscal years ended March 31, 2023 and 2022 in June 2023;

•

the reorganization of Canopy USA; and

•

evaluating other potential opportunities.

Depreciation and amortization expense was$24.2 million in fiscal 2025, as compared to $28.3 million in fiscal 2024. The year-over-year decrease is primarily attributable to the previously-noted restructuring actions and cost savings programs, including the closure of certain of our Canadian facilities and other operational changes to implement cultivation-related efficiencies and improvements in the Canadian adult-use cannabis business.

Share-based compensation

Share-based compensation was $(4.2) million in fiscal 2025, as compared to $14.2 million in fiscal 2024. The year-over-year change from an expense to an expense reversal is driven by the departure of our former CEO which resulted in a deemed modification of his existing share-based compensation and reversal of expensing associated with unvested tranches. The expense reversal is partially offset by (i) the first quarter of fiscal 2025 grant of 0.8 million options and 0.7 million restricted share units and (ii) higher forfeitures in fiscal 2024 due to previously-noted restructuring actions.

Asset impairment and restructuring costs

Asset impairment and restructuring costs recorded in operating expenses were $31.2 million in fiscal 2025, as compared to $66.0 million in fiscal 2024.

Loss on asset impairment and restructuring recorded in fiscal 2025 is primarily related to the non-cash impairment of divestiture-related assets, employee restructuring costs, and ongoing holding costs to maintain previously restructured sites. These amounts were offset by a gain related to remeasurement of a lease liability upon execution of the exit agreement.

Comparatively, in fiscal 2024, the loss on asset impairment and restructuring was primarily related to: (i) the Storz & Bickel goodwill and intangible asset impairment resulting from our annual impairment testing; (ii) the charges associated with the completion of the divestiture of the Company’s interest in This Works on December 18, 2023 (the “This Works Divestiture”); and (iii) incremental impairment losses and other costs associated with the restructuring of our Canadian cannabis operations that were initiated in the three months ended March 31, 2023. These charges were offset by a gain on the sale of our production facility at 1 Hershey Drive in Smiths Falls, Ontario. The gain is due to the sale proceeds exceeding the carrying value that was previously impaired at March 31, 2023.

Other

The following table presents other income (expense), net, and income tax (expense) recovery for the years ended March 31, 2025 and 2024:

Years ended March 31,

(in thousands of Canadian dollars) 2025 2024 $ Change % Change

(As Restated) (As Restated)

Other income (expense), net

Other income (expense), net was an expense amount of $390.6 million in fiscal 2025, as compared to an expense amount of $279.1 million in fiscal 2024. The year-over-year change of $111.6 million, increase in expense, was primarily attributable to:

•

Increase in non-cash expense of $275.4 million related to fair value changes on our Canopy USA related and other financial assets, from an expense amount of $124.8 million in fiscal 2024 to an expense amount of $400.2 million in fiscal 2025. The fiscal 2025 expense amount is primarily attributable to fair value decreases relating to our investments in:

•

the Canopy USA equity method investment in the amount of $98.6 million;

•

the Canopy USA LPs equity method investment in the amount of $148.1 million;

•

the Elevate loan receivable, in the amount of $7.3 million relating to fair value movements in consideration of the debtor’s net assets;

•

the Acreage and Wana Debt loan receivable, in the amount of $140.1 million, primarily attributable to changes in market conditions and assumptions;

•

the Acreage financial instrument, in the amount of $31.8 million. On a quarterly basis, we determine the fair value of the Acreage financial instrument using a probability-weighted expected return model, incorporating several potential scenarios and outcomes associated with the arrangement agreement between us and Acreage dated April 18, 2019, as amended on May 15, 2019, September 23, 2020 and November 17, 2020 and the restated plan of arrangement (the “Acreage Amended Arrangement”). The fair value decrease in fiscal 2025 is primarily attributable to an increase of approximately 75% in our share price up to the Deconsolidation Date, relative to an increase of approximately 46% in Acreage’s share price during that same period. As a result, the model at the Deconsolidation Date reflects both a higher estimated value of the Canopy Shares that were expected to be issued upon the Acreage Acquisition, and a higher estimated value of the common shares in the capital of Acreage that were expected to be acquired at that time. In the period up to the Deconsolidation Date, the relative share price movements resulted in a decrease in the value of the Acreage financial instrument; and

•

Indiva shares, in the amount of $2.8 million due to a decrease in the price per Indiva share as a result of Indiva’s CCAA proceedings.

These fair value decreases were partially offset by a fair value increase related to our investment in:

•

the TerrAscend Exchangeable Shares, in the amount of $17.3 million, which was primarily attributable to an increase of approximately 16% in TerrAscend’s share price up to the Deconsolidation Date;

•

the TerrAscend Warrants, in the amount of $7.9 million, which was primarily attributable to an increase of approximately 16% in TerrAscend’s share price up to the Deconsolidation Date; and

•

the option premium asset associated with an option premium payment, in the amount of $3.1 million related to closing of the Acreage Debt Acquisition and release of the amount that was previously held in escrow pursuant to the Option Agreement.

Comparatively, the fiscal 2024 expense amount is primarily attributable to fair value decreases relating to our investments in:

•

The Wana (as defined below) financial instrument, in the amount of $83.2 million, primarily attributable to changes in expectations of future cash flows to be generated by Mountain High Products, LLC, Wana Wellness, LLC and The Cima Group, LLC (collectively, “Wana”);

•

The Lemurian, Inc. (“Jetty”) financial instrument, in the amount of $15.1 million, primarily attributable to changes in expectations of future cash flows to be generated by Jetty;

•

The Acreage financial instrument, in the amount of $45.4 million. On a quarterly basis, we determine the fair value of the Acreage financial instrument using a probability-weighted expected return model, incorporating several potential scenarios and outcomes associated with the Acreage Amended Arrangement. The fair value decrease for fiscal 2024 is primarily attributable to a decrease of approximately 51% in our share price, relative to a decrease of approximately 49% in Acreage’s share price during the same period. As a result, the model at March 31, 2024 reflects both a lower estimated value of the Canopy Shares expected to be issued upon changes in U.S. federal law to permit the general cultivation, distribution, and possession of marijuana or to remove the regulation of such activities from the federal laws of the United States (the “Triggering Event”), and a lower estimated value of the Acreage shares expected to be acquired at that time. In fiscal 2024, the relative share price movements resulted in a decrease in the value of the Acreage financial instrument; and

•

The Hempco Debenture (as defined below), in the amount of $15.8 million, primarily attributable to changes in expectations of future cash flows to be received.

These fair value decreases were partially offset by a fair value increase related to our investment in:

•

The TerrAscend Exchangeable Shares, in the amount of $26.9 million, primarily attributable to an increase of approximately 23% in TerrAscend’s share price during fiscal 2024; and

•

The 22,474,130 TerrAscend Warrants, in the amount of $6.6 million, primarily attributable to an increase of approximately 23% in TerrAscend’s share price during fiscal 2024.

•

Change of $121.2 million related to fair value changes on warrant derivative liability, from a loss of $32.0 in fiscal 2024 to a gain of $89.2 in fiscal 2025. The change from fair value loss to a fair value gain is driven by a change in our share price.

•

Decrease in expense of $35.8 million related to non-cash fair value changes on our debt, from $35.8 million in fiscal 2024 to $nil in fiscal 2025. The year-over-year change is driven primarily by the fair value change of the CBI Note in fiscal 2024. In fiscal 2025 there are no debt balances recorded at fair value.

•

Change of $47.8 million related to fair value changes on acquisition related contingent consideration and other, from an income of $12.3 million in fiscal 2024 to an expense of $35.5 million in fiscal 2025. The fair value change in fiscal 2025 relates primarily to various acquisition related contingent consideration. Comparatively, the fair value change in fiscal 2024 related primarily to the estimated deferred payments associated with our investment in Wana.

•

Change of $34.4 million related to charges associated with the settlement of our debt, from an expense amount of $12.1 million in fiscal 2024 to an income amount of $22.3 million in fiscal 2025. For fiscal 2025, we recognized a gain of $22.3 million, primarily in connection with the exchange of the CBI Note. Comparatively, in fiscal 2024, we recognized a charge of $12.1 million, which is primarily due to the settlement of our unsecured senior notes and principal repayments on the Credit Facility.

•

Decrease in interest income of $7.4 million, from $16.2 million in fiscal 2024 to $8.8 million in fiscal 2025. The year-over-year decrease is attributable to lower cash and cash equivalents and short-term investment balances.

•

Decrease in interest expense of $30.8 million, from $105.4 million in fiscal 2024 to $74.6 million in fiscal 2025. The year-over-year decrease is primarily attributable to the reduction of our debt balances.

Income tax expense

Income tax expense in fiscal 2025 was $7.1 million, as compared to an income tax expense of $12.3 million in fiscal 2024. In fiscal 2025, the income tax expense consisted of a deferred income tax expense of $6.8 million (compared to an expense of $12.0 million in fiscal 2024) and current income tax expense of $0.3 million (compared to an expense of $0.3 million in fiscal 2024).

The decrease of $5.2 million in the deferred income tax expense is primarily a result of: (i) a decrease due to the settlements of our senior notes due July 2023 pursuant to an indenture dated June 20, 2018 as supplemented on April 30, 2019 and June 29, 2022 in fiscal 2024 relative to the settlements of the CBI Note in fiscal 2025; and (ii) an increase due to the realization of deferred taxes for entities that historically did not meet the deferred tax asset recognition criteria.

The current income tax expense remained consistent year over year and arose primarily in connection with tax on income for tax purposes that could not be reduced by the group’s tax attributes in the current taxation year.

Restructuring, Asset Impairments and Related Costs

Fiscal 2025

A summary of the pre-tax charges recognized in fiscal 2025 in connection with our restructuring actions described above is as follows:

Costs recorded in cost of goods sold:

Inventory write-downs and other charges $ 1,991

Costs recorded in operating expenses:

Impairment of property, plant and equipment, net 13,523

Contractual and other settlement obligations (1,942 )

Employee-related, other asset impairment and other restructuring costs 19,652

Asset impairment and restructuring costs 31,233

Total restructuring, asset impairments and related costs $ 33,224

Fiscal 2024

Total restructuring, asset impairments and related costs of $65.0 million were recognized in fiscal 2024.

Restructuring and other charges totaling $(14.5) million were recognized in fiscal 2024 comprised of: (i) a gain on property, plant and equipment, (ii) reversal of inventory write-downs and other charges, (iii) reversal of contractual and other settlement costs, and (iv) employee-related costs and other restructuring costs. These charges relate to various incremental impairment losses and other costs associated with the restructuring of the Company’s Canadian cannabis operations that were initiated in the three months ended March 31, 2023, in addition to continued evaluation of the Company’s overall operations throughout fiscal 2024. The gain on property, plant and equipment was primarily driven by a gain on the sale of the Company’s production facility at 1 Hershey Drive in Smiths Falls, Ontario.

Impairment charges totaling $79.5 million were recognized in fiscal 2024, comprised of: (i) goodwill impairment losses of $42.1 million relating to the Storz & Bickel reporting unit, (ii) impairment charges of $9.0 million for the Storz & Bickel acquired brand intangible asset, (iii) impairment charges of $28.1 million relating to This Works Divestiture including $7.9 million for the acquired brand and $20.2 million for the excess of carrying amount over the fair value less costs to sell of This Works, and (iv) other intangible asset impairment charges of $0.3 million.

A summary of the pre-tax charges recognized in fiscal 2024 in connection with our restructuring actions described above is as follows:

Restructuring and other charges Other impairments Total

Costs recorded in cost of goods sold:

Reversal of inventory write-downs and other charges $ (986 ) $ - $ (986 )

Costs recorded in operating expenses:

(Gain) impairment of property, plant and equipment, net (40,578 ) - (40,578 )

Contractual and other settlement obligations (2,129 ) - (2,129 )

Net Loss

The net loss from continuing operations in fiscal 2025 was $514.9 million, as compared to a net loss from continuing operations of $520.1 million in fiscal 2024. The year-over-year decrease in the net loss from continuing operations is primarily attributable to the decrease in operating loss resulting from lower operating expenses. The decrease in operating loss was partially offset by an increase in expense relating to other income (expense), net, of $111.6 million, which was primarily driven by increased fair value losses on Canopy USA related assets, offset by fair value gains on the warrant derivative liability. These variances are described above.

Adjusted EBITDA (Non-GAAP Measure)

The following table presents Adjusted EBITDA for the years ended March 31, 2025 and 2024:

Years ended March 31,

(in thousands of Canadian dollars) 2025 2024 $ Change % Change

(As Restated) (As Restated)

Restructuring costs recorded in cost of goods sold 1,991 (986 ) 2,977 302 %

The Adjusted EBITDA loss in fiscal 2025 was $23.5 million, as compared to an Adjusted EBITDA loss of $58.9 million in fiscal 2024. The year-over-year decrease in the Adjusted EBITDA loss is primarily attributable to the year-over-year reduction in our total selling, general and administrative expense. These variances are described above.

Quarterly Discussion and Analysis

The Company has restated the unaudited consolidated financial statements for the quarterly periods ended September 30, 2023, December 31, 2023, June 30, 2024, September 30, 2024, December 31, 2024, June 30, 2025, September 30, 2025 and December 31, 2025, originally included in our Quarterly Reports on Form 10-Q for such quarterly periods. The restatements of such unaudited consolidated quarterly financial statements are provided in Note 35, “Restatement of Previously Issued Unaudited Interim Condensed Consolidated Financial Statements” of the consolidated financial statements of this Comprehensive Form 10-K. The following discussion should be read in conjunction with our accompanying restated unaudited condensed interim consolidated financial statements disclosed in Part II, Item 8. Financial Statements and Supplementary Data, Note 35, “Restatement of Previously Issued Unaudited Interim Condensed Consolidated Financial Statements” of this Comprehensive Form 10-K.

As described under “Segment Reporting” above, prior to the first quarter of fiscal 2026, we had the following four reportable segments: (i) Canada cannabis, (ii) International markets cannabis; (iii) Storz & Bickel, and (iv) This Works (divested December 18,

2023). For purposes of our quarterly discussion and analysis below, we are reporting our segment net revenue and segment gross margin for all periods prior to the first quarter of fiscal 2026, along with comparative periods, for the aforementioned four reportable segments. Beginning in the first quarter of fiscal 2026, we are reporting our segment net revenue and segment gross margin for the following two reportable segments: (i) Cannabis and (ii) Storz & Bickel and results for the comparative periods have been restated to reflect the change in segments.

Discussion of Results of Operations for the Three and Six Months Ended September 30, 2023

Discussion of Second Quarter of Fiscal 2024 Results of Operations

Three months ended September 30,

(As Restated)

Selected consolidated financial information:

Gross margin percentage 34 % (1 %) - 3,500 bps

Revenue

We report net revenue in four segments: (i) Canada cannabis; (ii) rest-of-world cannabis; (iii) Storz & Bickel; and (iv) This Works. Revenue derived from the remainder of our operations are included within "other". The following tables present segmented net revenue, by channel and by form, for the three months ended September 30, 2023 and 2022:

Net Revenue Three months ended September 30,

(in thousands of Canadian dollars) 2023 2022 $ Change % Change

Canada cannabis

Canadian adult-use cannabis

Net revenue was $69.6 million in the second quarter of fiscal 2024, a decrease of $18.3 million as compared to $87.9 million in the second quarter of fiscal 2023.

Canada cannabis

Net revenue from our Canada cannabis segment was $39.0 million in the second quarter of fiscal 2024, as compared to $52.3 million in the second quarter of fiscal 2023.

Canadian adult-use cannabis net revenue was $24.0 million in the second quarter of fiscal 2024, as compared to $38.1 million in the second quarter of fiscal 2023.

•

Net revenue from the business-to-business channel was $24.0 million in the second quarter of fiscal 2024, as compared to $25.3 million in the second quarter of fiscal 2023. The year-over-year decrease is primarily attributable to the decline in the 7ACRES brand offset by the growth in the Tweed flower and pre-roll products.

•

Revenue from the adult-use business-to-consumer channel was $nil in the second quarter of fiscal 2024, as compared to $12.8 million in the second quarter of fiscal 2023. The year-over-year decrease is attributable to the divestiture of our retail business in Canada in the third quarter of fiscal 2023.

Canadian medical cannabis net revenue was $15.0 million in the second quarter of fiscal 2024, as compared to $14.2 million in the second quarter of fiscal 2023. The year-over-year increase is primarily attributable to an increase in the average size of medical orders placed by our customers due largely to a shift in our customer mix, and a larger assortment of cannabis product choices offered to our customers. These factors were partially offset by a year-over-year decrease in the total number of medical orders, which we believe is attributable to a greater number of medical patients procuring product from the adult-use market.

Rest-of-world cannabis

Rest-of-world cannabis revenue was $9.0 million in the second quarter of fiscal 2024, as compared to $10.6 million in the second quarter of fiscal 2023. The year-over-year decrease is attributable to:

•

A decline in our U.S. CBD business, primarily due to the continuing impact of our strategy shift to re-focus and refine our portfolio of product and brand offerings on premium products; and

•

Softness in the German medical cannabis market, offset by increased sales of medical cannabis in Australia.

Storz & Bickel

Revenue from Storz & Bickel was $12.0 million in the second quarter of fiscal 2024, as compared to $13.5 million in the second quarter of fiscal 2023. The year-over-year decrease is primarily attributable to timing of sales to distributors, partially offset by favorable foreign currency translations.

This Works

Revenue from This Works was $7.1 million in the second quarter of fiscal 2024, as compared to $6.9 million in the second quarter of fiscal 2023. The year-over-year increase is primarily attributable to an expanded product portfolio in our “Bodycare” line and continued success and strengthening sales velocity of our "In Transit" skincare product lineup, further supported by favorable foreign currency translations.

Cost of Goods Sold and Gross Margin

The following table presents cost of goods sold, gross margin and gross margin percentage on a consolidated basis for the three months ended September 30, 2023 and 2022:

Three months ended September 30,

Gross margin percentage 34 % (1 %) - 3,500 bps

Cost of goods sold was $46.2 million in the second quarter of fiscal 2024, as compared to $88.6 million in the second quarter of fiscal 2023. Our gross margin was $23.4 million in the second quarter of fiscal 2024, or 34% of net revenue, as compared to a gross margin of $(0.6) million and gross margin percentage of (1%) of net revenue in the second quarter of fiscal 2023. The year-over-year increase in the gross margin percentage is primarily attributable to:

•

Improvement in our Canada cannabis segment, primarily attributable to: (i) the realized benefit of our cost savings program and strategic changes to our business that were initiated in the fourth quarter of fiscal 2022 and the fourth quarter of fiscal 2023; (ii) a year-over-year decrease in write-downs of excess inventory; and (iii) opportunistic utilization of lower cost inputs;

•

A year-over-year decrease in restructuring charges, from $4.8 million in the second quarter of fiscal 2023 to $nil in the second quarter of fiscal 2024. In the second quarter of fiscal 2023, restructuring charges related primarily to inventory write-downs resulting from: (i) the strategic changes to our business that were initiated in the fourth quarter of fiscal 2022, including the shift to a contract manufacturing model for certain product format; and (ii) amounts deemed excess based on current and projected demand; and

•

Improvement in our Rest-of-world cannabis and This Works segments, primarily due to lower excess and obsolete inventory charges in the second quarter of fiscal 2024.

We report gross margin and gross margin percentage in four segments: (i) Canada cannabis; (ii) rest-of-world cannabis; (iii) Storz & Bickel; and (iv) This Works. Cost of sales associated with the remainder of our operations are included within "other". The following table presents segmented gross margin and gross margin percentage for the three months ended September 30, 2023 and 2022:

Three months ended September 30,

Canada cannabis segment

Gross margin percentage 36 % (15 %) 5,100 bps

Rest-of-world cannabis segment

Gross margin percentage 30 % (13 %) 4,300 bps

Storz & Bickel segment

Gross margin percentage 33 % 44 % (1,100) bps

This Works segment

Gross margin percentage 48 % 34 % 1,400 bps

Other

Gross margin percentage (27 %) 1 % (2,800) bps

Canada cannabis

Gross margin for our Canada cannabis segment was $14.1 million in the second quarter of fiscal 2024, or 36% of net revenue, as compared to $(7.7) million in the second quarter of fiscal 2023, or (15%) of net revenue. The year-over-year increase in the gross margin percentage was primarily attributable to: (i) the realized benefit of our cost savings program and strategic changes to our business that were initiated in the fourth quarter of fiscal 2022 and the fourth quarter of fiscal 2023; (ii) a year-over-year decrease in write-downs of excess inventory; and (iii) opportunistic utilization of lower cost inputs.

Rest-of-world cannabis

Gross margin for our rest-of-world cannabis segment was $2.7 million in the second quarter of fiscal 2024, or 30% of net revenue, as compared to $(1.3) million in the second quarter of fiscal 2023, or (13%) of net revenue. The year-over-year increase in the gross margin percentage is primarily attributable to our U.S. CBD business, due primarily to the year-over-year decrease in

restructuring charges, as we recorded charges of $3.7 million in the second quarter of fiscal 2023 relating to inventory write-downs resulting from strategic changes to our business. These charges decreased to $nil in the second quarter of fiscal 2024.

Storz & Bickel

Gross margin for our Storz & Bickel segment was $3.9 million in the second quarter of fiscal 2024, or 33% of net revenue, as compared to $6.0 million in the second quarter of fiscal 2023, or 44% of net revenue. The year-over-year decrease in the gross margin percentage is driven primarily by lower revenues in the second quarter of fiscal 2024 as there is less variability in production costs for Storz & Bickel.

This Works

Gross margin for our This Works segment was $3.4 million in the second quarter of fiscal 2024, or 48% of net revenue, as compared to $2.3 million in the second quarter of fiscal 2023, or 34% of net revenue. The year-over-year increase in the gross margin percentage is primarily due to lower excess and obsolete inventory charges in the second quarter of fiscal 2024.

Operating Expenses

The following table presents operating expenses for the three months ended September 30, 2023 and 2022:

Three months ended September 30,

(in thousands of Canadian dollars) 2023 2022 $ Change % Change

Operating expenses

Selling, general and administrative expenses

Selling, general and administrative expenses were $57.6 million in the second quarter of fiscal 2024, as compared to $95.0 million in the second quarter of fiscal 2023.

General and administrative expense was $19.0 million in the second quarter of fiscal 2024, as compared to $30.8 million in the second quarter of fiscal 2023. The year-over-year decrease is primarily attributable to the impact of the restructuring actions and cost savings programs initiated in the fourth quarters of both fiscal 2022 and fiscal 2023. We realized reductions relative to the second quarter of fiscal 2023 primarily in relation to: (i) compensation costs for finance, information technology, legal and other administrative functions; and (ii) a reduction in facilities and insurance costs.

Sales and marketing expense was $19.6 million in the second quarter of fiscal 2024, as compared to $35.7 million in the second quarter of fiscal 2023. The year-over-year decrease is primarily attributable to: (i) the divestiture of our retail business in Canada in the third quarter of fiscal 2023; (ii) cost reductions related to the previously-noted restructuring actions and cost savings programs, which resulted in a rationalization of our sales and marketing spending in certain areas of our business, particularly for our Canadian cannabis and U.S. CBD businesses, and a reduction in compensation costs.

Research and development expense was $1.1 million in the second quarter of fiscal 2024, as compared to $5.5 million in the second quarter of fiscal 2023. The year-over-year decrease is primarily attributable to cost reductions associated with the previously-noted restructuring actions and cost savings programs, as we: (i) continued to realize reductions in compensation costs and curtail research and development projects; and (ii) shifted to outsourced contract model for certain research and development projects.

Acquisition, divestiture, and other costs were $10.5 million in the second quarter of fiscal 2024, as compared to $14.0 million in the second quarter of fiscal 2023. In the second quarter of fiscal 2024, costs were incurred primarily in relation to:

•

Approximately $6.5 million of costs relating to the modification of the Credit Agreement that occurred in July 2023.

•

Approximately $1.8 million of legal and audit costs related to the restatement of our consolidated financial statements for the previously filed Prior Periods, in connection with the correction of material misstatement arising from an internal review of financial reporting matters related to sales in the BioSteel business unit that were accounted for incorrectly, and the filing of our Annual Report on Form 10-K for the fiscal years ended March 31, 2023 and 2022 in June 2023; and

•

The reorganization, including the creation of Canopy USA.

Comparatively, in the second quarter of fiscal 2023, costs were incurred primarily in relation to the reorganization of Canopy USA, the planned divestiture of certain of our corporate-owned retail stores, and evaluating other potential acquisition opportunities.

Depreciation and amortization expense was $7.4 million in the second quarter of fiscal 2024, as compared to $9.0 million in the second quarter of fiscal 2023. The year-over-year decrease is primarily attributable to: (i) the previously-noted restructuring actions and cost savings programs, including the closure of certain of our Canadian facilities and other operational changes to implement cultivation-related efficiencies and improvements in the Canadian adult-use cannabis business; and (ii) the divestiture of our retail business in Canada in the third quarter of fiscal 2023.

Share-based compensation expense

Share-based compensation expense was $2.7 million in the second quarter of fiscal 2024, as compared to $9.6 million in the second quarter of fiscal 2023. The year-over-year decrease is primarily attributable to the impact of our previously-noted restructuring actions, which resulted in forfeitures of stock options, restricted share units and performance units and results in lower relative expenses in future periods. While 24.0 million stock options were granted in the first quarter of fiscal 2024 and 15.1 million restricted share units were granted in the second quarter of fiscal 2024, the associated expense relating to both items partially offset the decrease noted.

(Gain)/loss on asset impairment and restructuring

(Gain)/loss on asset impairment and restructuring recorded in operating expenses were $(29.9) million in the second quarter of fiscal 2024, as compared to $44.0 million in the second quarter of fiscal 2023.

Gain on asset impairment and restructuring recorded in the second quarter of fiscal 2024 were primarily related to a gain on the sale of our production facility at 1 Hershey Drive in Smiths Falls, Ontario. The gain is due to the sale proceeds exceeding the carrying value that was previously impaired at March 31, 2023. This reversal was partially offset by various incremental impairment losses and other costs associated with the restructuring of our Canadian cannabis operations that were initiated in the three months ended March 31, 2023.

Comparatively, in the second quarter of fiscal 2023, the loss on asset impairment and restructuring were primarily related to:

•

Impairment losses associated with the planned divestiture of our Canadian retail operations, as we recorded write-downs of property, plant and equipment, operating licenses and brand intangible assets, right-of-use assets, and certain other assets due to the excess of their carrying values over their estimated fair values;

•

Incremental costs primarily associated with the restructuring actions completed in fiscal 2022, including the closure of certain of our Canadian production facilities; and

•

Goodwill impairment losses of $2.3 million associated with our This Works reporting unit, respectively (refer to “Impairment of Goodwill” in “Critical Accounting Policies and Estimates” section below), and asset impairment charges relating to certain acquired brand intangible assets.

Other

The following table presents other income (expense), net, and income tax expense for the three months ended September 30, 2023 and 2022:

Three months ended September 30,

(in thousands of Canadian dollars) 2023 2022 $ Change % Change

(As Restated)

Other income (expense), net

Other income (expense), net was an expense amount of $119.7 million in the second quarter of fiscal 2024, as compared to an expense amount of $39.1 million in the second quarter of fiscal 2023. The year-over-year change of $80.6 million is primarily attributable to:

•

Change of $82.2 million related to non-cash fair value changes on our other financial assets, from an expense amount of $0.1 million in the second quarter of fiscal 2023 to an expense of $82.3 million in the second quarter of fiscal 2024. The expense amount recognized in the second quarter of fiscal 2024 is primarily attributable to fair value decreases relating to our investments in:

The Wana financial instrument, in the amount of $43.6 million, which was attributable primarily to changes in expectations of the future cash flows to be generated by Wana;

The Acreage financial instrument, in the amount of $23.4 million. On a quarterly basis, we determine the fair value of the Acreage financial instrument using a probability-weighted expected return model, incorporating several potential scenarios and outcomes associated with the Acreage Amended Arrangement. The fair value decrease in the second quarter of fiscal 2024 is primarily attributable to an increase of approximately 106% in our share price during the second quarter of fiscal 2024, relative to an increase of approximately 191% in Acreage’s share price during that same period. As a result, the model at September 30, 2023 reflects both a higher estimated value of the Canopy Growth common shares expected to be issued upon a Triggering Event, and a higher estimated value of the Acreage shares expected to be acquired at that time. In the second quarter of fiscal 2024, the relative share price movements resulted in a decrease in the value of the Acreage financial instrument;

The Hempco Debenture, in the amount of $19.5 million, which was attributable primarily to changes in expected future cash flows to be received; and

The Jetty financial instrument, in the amount of $17.3 million, which was attributable primarily to changes in the expectations of the future cash flows to be generated by Jetty.

These fair value decreases were partially offset by a fair value increases related to our investments in:

The TerrAscend Exchangeable Shares, in the amount of $13.2 million, primarily attributable to an increase of approximately 17% in TerrAscend’s share price during the second quarter of fiscal 2024; and

The TerrAscend Warrants, in the amount of $7.2 million, primarily attributable to an increase of approximately 17% in TerrAscend’s share price during the second quarter of fiscal 2024.

Comparatively, the expense amount in the second quarter of fiscal 2023 was primarily attributable to fair value decreases relating to our investments in: (i) the TerrAscend Exchangeable Shares ($37.5 million); (ii) the secured debentures issued by TerrAscend Canada Inc. (TerrAscend Canada”) and Arise Bioscience, Inc. (“Arise Bioscience”) and associated 22,474,130 TerrAscend common share purchase warrants, being all of the previously issued TerrAscend warrants controlled by Canopy USA (the “Prior Warrants”) (totaling $6.6 million); and (iii) the option to purchase 1,072,450 TerrAscend Common Shares for an aggregate purchase price of $1.00 (the “TerrAscend Option”) ($1.1 million), which were all driven largely by a decrease of approximately 40% in TerrAscend’s share price in the second quarter of fiscal 2023. This was offset by the increase in the fair value of our investment in: the Wana financial instrument of $34.8 million, due primarily to changes in expectations of the future cash flows to be generated by Wana; and the Acreage financial instrument of $12.0 million, due primarily to the relative share prices of Acreage and Canopy Growth.

•

Decrease of $21.7 million related to charges associated with the settlement of our debt, from an income amount of $14.5 million in the second quarter of fiscal 2023 to an expense amount of $7.3 million in the second quarter of fiscal 2024. In the second quarter of fiscal 2024 we recognized charges of $7.3 million, primarily in connection with principal repayments on the Credit Facility. The second quarter 2023 paydowns resulted in a principal reduction of $73,313 (US$54,491) for a cash payment of $69,647 (US$51,766) and included write-offs of the related deferred financing costs. Comparatively, in the second quarter of fiscal 2023, we recognized charges in the amount of $14.5 million in connection with the acquisition and cancellation, by Canopy Growth, of approximately $262.6 million of aggregate principal amount of Canopy Notes (as defined below) from certain noteholders for an aggregate purchase price of $260.0 million, in exchange for Canopy Growth common shares (the “2022 Exchange Transaction”). These charges primarily include: (i) the recognition of a derivative liability in connection with the incremental Canopy Growth common shares that were potentially issuable as at June 30, 2022 at the volume-weighted average trading price of our common shares on the Nasdaq Global Select Market for the 10 consecutive trading days beginning on, and including, June 30, 2022, being US$2.6245, on the second tranche closing on July 18, 2022, pursuant to the exchange agreements entered into with the noteholders (the “2022 Exchange Agreements”); partially offset by (ii) the release of amounts recorded in accumulated other comprehensive income in relation to the credit risk fair value adjustment associated with the portion of the Canopy Notes that were acquired and cancelled on June 30, 2022.

•

Increase in expense of $13.3 million related to non-cash fair value changes on our debt, from $13.8 million in the second quarter of fiscal 2023 to $27.1 million in the second quarter of fiscal 2024. The year-over-year change is driven by the fair value change of the unsecured senior notes prior to redemption in July 2023, the fair value changes on the CBI Note, and the fair value changes on the unsecured non-interest bearing convertible debentures.

•

Decrease in non-cash income of $0.9 million related to fair value changes on the warrant derivative liability associated with the warrants held by a wholly-owned subsidiary of CBI to acquire 38,454,444 common shares of Canopy Growth at a price of $76.68 per common share (the “Tranche B Warrants”), from an income amount of $0.9 million in the second quarter of fiscal 2023 to a fair value change of $nil in the second quarter of fiscal 2024. The fair value change of $nil in the second quarter of fiscal 2024 is the result of the fair value of the warrant derivative liability decreasing to $nil in the fourth quarter of fiscal 2023, and remaining at $nil in the second quarter of fiscal 2024 as our share price declined approximately 106% in the period. Comparatively, the income amount recognized in the second quarter of fiscal 2023 of $0.9 million, associated with a decrease in the fair value of the warrant derivative liability, was primarily attributable to our share price increasing by approximately 2%

during the second quarter of fiscal 2023, further impacted by an increase in the risk-free interest rate and a shorter expected time to maturity of the Tranche B Warrants.

•

Increase in non-cash income of $20.0 million related to fair value changes on acquisition related contingent consideration and other, from an expense amount of $16.3 million in the second quarter of fiscal 2023 to an income amount of $3.7 million in the second quarter of fiscal 2024. These fair value changes relate primarily to the estimated deferred payments associated with our investment in Wana, with the fair value changes in both periods primarily associated with changes in expectations of future cash flows to be generated by Wana.

•

Increase in non-cash fair value gain of $10.6 million related to fair value changes on warrant derivative liability, from an amount of $nil in the second quarter of fiscal 2023 to a fair value gain of $10.6 million in the second quarter of fiscal 2024. The fair value change was driven by the decrease in our share price during the period.

Income tax expense

Income tax expense in the second quarter of fiscal 2024 was $12.8 million, compared to income tax expense of $8.2 million in the second quarter of fiscal 2023. In the second quarter of fiscal 2024, income tax expense consisted of deferred income tax expense of $12.5 million (compared to an expense of $6.4 million in the second quarter of fiscal 2023) and current income tax expense of $0.3 million (compared to an expense of $1.8 million in the second quarter of fiscal 2023).

The increase of $6.1 million in the deferred income tax expense is primarily a result of (i) increase in the amount of settlements of the Canopy Notes, and (ii) decrease in the change in deferred tax liabilities that arose in connection with the required revaluation of the accounting carrying value, but not the tax basis, of property, plant and equipment, intangible assets, and other financial assets.

The decrease of $1.5 million in current income tax expense arose primarily as a result of the reduction in the number of legal entities that generated income for tax purposes.

Net Loss from Continuing Operations

The net loss in the second quarter of fiscal 2024 was $139.5 million, as compared to a net loss of $196.5 million in the second quarter of fiscal 2023. The year-over-year decrease in the net loss is primarily attributable to: (i) the year-over-year change from a loss on asset impairment and restructuring to a gain on asset impairment and restructuring; (ii) the year-over-year change in other income (expense), net, of $80.6 million; and (iii) the decrease in selling, general and administrative expenses. These variances are described above.

Adjusted EBITDA (Non-GAAP Measure)

The following table presents Adjusted EBITDA for the three months ended September 30, 2023 and 2022:

Three months ended September 30,

(in thousands of Canadian dollars) 2023 2022 $ Change % Change

(As Restated)

Restructuring costs recorded in cost of goods sold (689 ) 4,822 (5,511 ) (114 %)

1 From Consolidated Statements of Cash Flows.

The Adjusted EBITDA loss in the second quarter of fiscal 2024 was $11.9 million, as compared to an Adjusted EBITDA loss of $56.4 million in the second quarter of fiscal 2023. The year-over-year decrease in Adjusted EBITDA loss is primarily attributable to the year-over-year increase in our gross margin, and the year-over-year decrease in our selling, general and administrative expenses.

Discussion of Results of Operation for the Six Months Ended September 30, 2023

Six months ended September 30,

(As Restated)

Selected consolidated financial information:

Gross margin percentage 25 % (2 %) - 2,700 bps

Revenue

Net Revenue Six months ended September 30,

(in thousands of Canadian dollars) 2023 2022 $ Change % Change

Canada cannabis

Canadian adult-use cannabis

Net revenue was $145.9 million in the six months ended September 30, 2023, a decrease of $34.3 million as compared to $180.2 million in the six months ended September 30, 2022.

Canada cannabis

Net revenue from our Canada cannabis segment was $77.6 million in the six months ended September 30, 2023, as compared to $104.7 million in the six months ended September 30, 2022.

Canadian adult-use cannabis net revenue was $48.2 million in the six months ended September 30, 2023, as compared to $77.1 million in the six months ended September 30, 2022.

•

Net revenue from the business-to-business channel was $48.2 million in the six months ended September 30, 2023, as compared to $51.9 million in the six months ended September 30, 2022.The year-over-year decrease is primarily attributable to lower sales volumes across our premium and value-priced categories which, for the value-priced category, is largely the result of a strategy shift. For the premium category, the decrease is primarily attributable to supply chain constraints and shortages of in-demand flower. This decrease was partially offset by increased sales of our mainstream brands, primarily resulting from improved product attributes and new products introduced under the Tweed brand.

•

Revenue from the adult-use business-to-consumer channel was $nil in the six months ended September 30, 2023, as compared to $25.2 million in the six months ended September 30, 2022. The year-over-year decrease is attributable to the divestiture of our retail business in Canada in the third quarter of fiscal 2023.

Canadian medical cannabis net revenue was $29.4 million in the six months ended September 30, 2023, as compared to $27.7 million in the six months ended September 30, 2022. The year-over-year increase is primarily attributable to an increase in the average size of medical orders placed by our customers due largely to a shift in our customer mix, and a larger assortment of cannabis product choices offered to our customers. These factors were partially offset by a year-over-year decrease in the total number of medical orders, which we believe is attributable to a greater number of medical patients procuring product from the adult-use market.

Rest-of-world cannabis

Rest-of-world cannabis revenue was $19.1 million in the six months ended September 30, 2023, as compared to $24.3 million in the six months ended September 30, 2022. The year-over-year decrease is attributable to:

•

A decline in our U.S. CBD business, primarily due to: (i) the opportunistic sale, in the first quarter of fiscal 2023, of bulk crude CBD resin which did not recur in the first quarter of fiscal 2024; and (ii) the continuing impact of our strategy shift to re-focus and refine our portfolio of product and brand offerings on premium products;

•

Bulk cannabis sales, predominantly to Israel, in the amount of $4.2 million recognized in the first six months of fiscal 2023, which did not recur in the first six months of fiscal 2024; and

•

Softness in the German medical cannabis market, offset by increased sales of medical cannabis in Australia.

Storz & Bickel

CGC US Equity

CGC · 10-K · period ended 2026-03-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CGC US Equity☆

CGC · 10-K · period ended 2026-03-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CGC US Equity