Good morning, and welcome to Canopy Growth Third Quarter Fiscal 2019 Financial Results Conference Call. Early today, Canopy Growth issued after financial markets closed on February 14, 2019 a news release announcing its financial results for the third quarter ended December 31, 2018. This news release is available on Canopy Growth's website and will be filed on SEDAR. On the call this morning, we have Bruce Linton, Canopy Growth's Founder, Chairman and Co-Chief Executive Officer, and Tim Saunders, Canopy Growth's Chief Financial Officer. At this time, all participants are in a listen-only mode. Certain matters discussed in today's conference call or answers that may be given to questions could constitute forward-looking statements. Actual results could differ materially from those anticipated. Risk factors that could affect results are detailed in the company's annual information form and other public filings that are made available on SEDAR. During this conference call, Canopy Growth will refer to supplemental non-GAAP measurement, adjusted EBITDA. These measures do not have any standardized meaning prescribed by IFRS. Adjusted EBITDA is defined in the press release issued yesterday, as well as period's Management's Discussion and Analysis document that will be filed on SEDAR. Please note that all financial information is provided in Canadian dollars unless otherwise specified. Following the prepared remarks by Mr. Linton and Mr. Saunders, the company will conduct a question-and-answer session during which questions will be taken from analysts. [Operator Instructions] I would now like to turn the meeting over to Bruce Linton. Mr. Linton, please go ahead.

Great. Thank you. Welcome all. I truly enjoy our quarter ends and that's in part because I'm not in the finance department, but it's mainly because in our world the sector we're in and the company that we've created taking time to reflect on what actually has occurred in a prior period only occurs when we do the preparation for this call because we're kind of busy thinking about the next seven quarters. So when I think about this last quarter, it's almost possible to forget that the first sale happened and that the company with the first sale of the first legally sold gram of cannabis was us or to almost look over the fact that we went live at the beginning of the quarter on our next generation ERP system, which you know maps out the next several quarters of how that becomes a global platform and how we have done a number of acquisitions and maybe that all the meaningful investments we've made in this quarter, and I think in the next six, seven, eight quarters keep showing really good yield on those investments. It's almost easy to forget that in October we moved more units, more containers, about more maybe give or take a couple than we did in the history of the company up to that point in time. And so all the activities running automation and creating that and then we had cannabis coast-to-coast and that you know we did a number of acquisitions that really the reason we do these things is we look at and work with companies and keep an eye on them and get involved with them for years and then understand them. And you know, when we make an acquisition whether it's you know, Storz & Bickel and ebbu these things have a long time horizon, they add to our intellectual property. So when I think about having 32 issued patents and over 140 patent applications it's because of the combinations of investments and acquisitions. And so Tim is going to do a great job of walking through the puts and takes for the quarter. But I'd like to everybody on the call to also think of kind of how we do, which use a five to seven quarter horizon and that what we're doing and where we're going and the investments we're making are on things like science, having an actual focus group called Applied Science and developing intellectual property, running clinical trials to create what will be phenomenal products for both rec and medical that will have the ability to be branded globally, but they start with science, outcomes and IP. And so when you picture this building that we began in, we have another 240,000 square feet over two floors which is got Phase 1 of it waiting for licensing, targeting to be in March most [human] [ph] it is. That is all about GMP manufacturing processes, so that the science can turn into products, the product can turn into brands and consumers can buy outcomes that are consistent and the same all the time. But that platform is multiple years in the creation and we'll have multiple years of benefit. The rules and regs which we're now five days away from the inputs closing February 20th, the government will then say we've had all the input, we want to come to the next generation of recreational products. It has contemplated category called beverages. We have a building that's a little bit more than 150,000 square feet which is being put up right now through the winter. The decision to do that building was made before there was actually the regs. But in contemplation what was likely and that building is expected to be complete May 1, which means that we can then begin to put all of the equipment inside so that we can then begin to make the beverages, which will use the science that we've been creating for four years to go into brand extensions of Tweed and a bunch that are behind the curtain, that I think people on the call will like and that customers and consumers will love and they become the first of a kind and they become something that they reference [file] [ph] for the world and then the 16 countries we’re in whenever they choose to have anything additional to medical that's federally permissible, we have the product set. So you can see where that goes. In the next four quarters in Canada, we're seeing, I think a really well now stabilized thoughtful program where the provinces have had a chance to get information and get organized even more and accelerate. And so we're seeing stores open on a model that we think makes a ton of sense in many of the provinces, which goes from - I saw on wholesale to a box controlled by the government or a virtual warehouse to private sector retail. And that has been what we thought would work because people want to go to stores, they want to have discussions, conversations and they want to do transactions in a place that they feel is part of the experience. Our sales in this last quarter the first quarter rec proved our model out that, that works and that what we're seeing is that is turning up from Alberta getting faster to Ontario now nailing it and the rest of the provinces turning them up. We're operating stores in several provinces. They include retail, face to face, as well as in some circumstances e-commerce. And so the dataset we're getting and the platform we're building and the experience we're having is all looping back, so that by the time we get to Q4 this calendar year you're going to have a lot more stores and a lot more products and a lot more people want to go to them. I expect by that quarter we're having clinical trials and Phase 2b that if we're correct starts to allow us to make claims on medical products. So spectrum is this global products brand which starts to have specific and unique outcomes which starts to make claims and that whole platform is now well understood and being educated in multiple languages. We are in a situation where I would say that the opportunity to export to certain European countries is probably what you could almost call a backlog that's formed a little bit because of the demand growing in those jurisdictions and the need to have GMP production assets, so that we meet the standard. So those investments are turning up in that way. As we walk through this, one of the things I was thinking about this morning is, we probably could and should highlight the cash per share. So when you're actually buying our stock there's quite [indiscernible] embedded value called cash and that cash is aimed at all of the things I've touched on, accelerating through our 140 patent applications, so that we get enough data to move it, making sure that with assets that we've acquired like Storz & Bickel we should probably be contemplating, expanding it because this is an you know, an automated internationally certified ISO 1345 factory that [indiscernible] is going to have we expect more demand through the channel and they're already in 50 markets. So you can - you know, as you'd make those investments you can look out over time horizon and contemplate that there's at least a company in this emerging sector that's investment grade, long-term thinking and we hope and expect continues to attract more and more institutional shareholders, so that we can actually continue to see the migration up into those hands long only. And on that basis, I'm very happy with what we've seen over the last year in terms of the names, quality and total volume of institutional purchases we've attracted. I'm going to hand over to Tim shortly. But there was a note in there about the fact that Tim, as we looked at for our next three to five years because everything in our world need three to five year commits, that what the right thing was for Tim and for the company was to take that view and begin looking at an org chart that adds more senior and competent finance team members, because we have a really amazing, but not really huge, not really actually sufficiently large, finance team. And so we're - you're going to see investments in that area so that we can not only do a great job in Canada, prepare ourselves for the U.S. Hemp and other businesses and global, but also we have a function called Treasury now because we have capital. So Tim was thoughtful in where he was in life and career. But he's also clear that his objective is to be continuing and assisting and accelerating what we do with the Board by Tim helping to prepare that and what we do on our ongoing M&A because he is a very trusted and competent resource. So you may not hear him on the phone by the time we get to Q3 or 4, but he is in the building and that I do greatly appreciate how Tim has conducted himself and how we've worked through this. And I would like to hand it over to Tim to walk through the details. Tim?

Thank you, Bruce. And good morning, everybody. I'll now proceed with the review of the third quarter ended December 31, 2018. Gross revenue for the third quarter including $14.7 million and excise taxes was $97.7 million. Net revenue for the third quarter ended December 31st was $83 million. Net revenues in the quarter represent a 282 % increase over the quarter ended December 31, 2017. Recreation accounted for approximately $59 million or 71% of total net revenue. Medical was approximately $16.5 million or 20% and the remainder related to devices, merchandise and clinic revenues of $7.5 million. The company also reported net income of $74.9 million or $0.22 per basic share, as compared to $11 million or $0.01 per basic share and fully diluted share a year ago. The Q3 fiscal 2019 fully diluted EPS was a net loss per share of $0.38 and that's due to the dilutive impact of assuming the convertible debt was converted at the beginning of the quarter. I'll comment on earnings in a few minutes. The adjusted EBITDA loss however was $75.1 million, as compared to $57.7 million in Q2 and $5.7 million loss in the same quarter last year. I'll also comment on adjusted EBITDA shortly. In the three months ended December 31st, 2018 and 2017, oils, including soft gel capsules accounted for 33% and 23% of product revenue respectively. In the third quarter approximately 30% of recreational and 42% of medical sales were comprised of oils, including soft gel capsules. The total quantity of cannabis sold during the three months ended December 31st was 10,102 kilograms and kilogram equivalents, up from 2,330 kilograms, kilogram equivalents in the same period last year. Cannabis shipped on a wholesale basis to a [indiscernible] partners which is called B2B accounted for 7,831 kilograms. Sales on retail channels - stores in Newfoundland [ph] and Manitoba under the Tweed and Tokyo Smoke brands and through e-commerce totaled 906 kilograms, kilogram equivalents. The remainder was sold through our traditional medical channel. The increase in kilograms and kilogram equivalent sold in the third quarter was clearly due to the launch of the Canadian recreation market in the third quarter, offset by lower medical revenue due largely to the initial adjustment to the available legal recreational market and additionally the migration to a more relative medical product range, impacts that we are - we feel are short term. We remain bullish on the medical market in the coming quarters, particular as more CBD oils are clear for sale and become available online. The average price per gram of cannabis sold in the recreation channel was $6.96 and during the third quarter of fiscal 2019 the average price per gram of medical sales in Canada was $9.77 representing an increase of 19% over the prior year and the average price per gram with International which is really Germany at this point for medical sales was $13.28, up from $12.61 in the prior years quarter. Overall during the third quarter fiscal 2019 the weighted average sales price was $7.33 per gram, representing declined of 12% from the same period last year. As it indicated just a minute ago, the average selling price declined in the third period - third quarter relative to prior quarters due to the B2B pricing to the provincial crown corpse in the recreation market. In the third quarter fiscal 2019 the company harvested 7,506 kilograms, down slightly from last year due to timing of harvest which are occurring in the current fourth quarter and with the larger greenhouses undergoing set ups and early pilot – early pilot private harvest in Mirabel during the prior – or just the third quarter - just concluded. As well as we had eight grow rooms in the Smiths Falls facility devoted to fulfillment activities to meet the recreation launch in October. With close to 2 million square feet of greenhouses in B.C., Quebec [ph] and Ontario license recently, including 1.1 million square feet license in early October giving a total license platforms to 4.2 million square feet, we expect the amount of cannabis harvest to increase in the coming quarters and reach product - productive utilization. Now turning my attention to gross margin. The cost of sales including the impacts of operating costs of cannabis cultivation subsidiary is not yet fully operational, including a Delta greenhouse and a number of zones at the Aldergrove greenhouse facility both going through fit-ups [ph] as well as [indiscernible] and our greenhouse in [indiscernible] market also in their final inspection phases. Mirabel was also in its first pilot growth cycle last quarter which combines the other non-producing assets to result in higher temporary underutilized overheads or carry costs. We expect to see Denmark beginning to supply European markets this coming September and also to contribute to the margin. Cost of sales also include a cost associated with developing and testing edible beverage products for which markets will be available in calendar 2019 - later into calendar 2018. Excluding the costs associated with these not yet fully cultivating facilities totaling approximately $13.1 and medical excise taxes absorbed by the company of $2.1 million the gross margin before the fair value impacts and cost of sales and other inventory charges would have been $33.5 million or 40% of net revenue instead of the reported $18.3 million. On the medical excise tax impact, management decided to absorb the excise tax in order to ease the burden imposed on our patients. The company believes gross margins will improve in the coming quarters when all of this cultivation facilities reach full utilization and cycled through the initial pilot harvest to be high performing assets. In addition margins are expected to benefit when edibles and beverages are introduced later in calendar 2019 with lower costs of active ingredients per serving, all combining to drive more margins north of 50% in the coming quarters. Next turning for a moment to operating expenses in the fourth quarter fiscal year, sales and marketing expenses for the three months ended December 31 were $4.9 nine million, up by a little over $5 million in the second quarter this year. The company made a strong push such as the high pop up and billboard campaigns in the lead up to October 17th when the Cannabis Act went into effect and then placed further restrictions on advertising promotion. As has been highlighted previously, the company continues to make significant investments across all areas of our business to strengthen company’s leadership position in the Canadian global medical - cannabis markets, as well as for the recently launched recreational cannabis market here in Canada. Sales and marketing expenses include costs associated with the development branding, marketing education campaigns, the development of new permitted product skews such as pre-roles, the development recreational product packaging, the development of cannabis retail, as well as education programs and cost associated companies medical outreach program. These expenditures represent the company's view that strong brand recognition is overtime essential to the company's successful market share acquisition strategy, particularly in the new recreational market here in Canada. These costs represent a strategic upfront investment which management believes will have a long-term benefit in customer acquisition and attention. Further the company is making these investments to aggressively seek new domestic and international business opportunities to build for the future. GN&A expenses for the three months ended December 31 were $46.1 million. Management believes the foundational investments that Canopy is making across are corporate bench, as well as in operations, I.T., supply chain, finance, legal and the aforementioned sales and marketing area represent a prudent long-term investment to strengthen our leadership position. Both sales and marketing and GN&A expenses were up significantly over the prior years third quarter and the most recent second quarter, that management expects these expenses to level off in the near term, particularly in our Canadian operations. R&D expenses for the three months ended December 31 were $5.1 million or 6% of net revenue. In comparison R&D expenses in the same quarter last year is just $300,000, 1% of net revenue. The company's R&D team is researching a variety of intellectual property opportunities, including those related to growth patterns under different environmental scenarios and the genetics of various strains. The development of patent pending technology related to equipment that the company's engineer specifically for the cannabis industry and ongoing R&D work being performed in the company's deal and license area that is expected to lead to the development of new cannabis based product form factors that will enter the market when permitted. With the acquisition Canopy Health Innovations, the additional scope of R&D being undertaken and additional resources necessary, R&D expenses were up significantly over the same period last year and are expected to increase in absolute amounts over the coming quarters. Acquisition related expenses for the three month period ended December 31 was $4.5 million and these expenses primarily related to the acquisitions of ebbu or the assets of ebbu and Storz & Bickel. In addition to acquisition related costs were incurred due to ongoing evaluation of potential acquisitions performed during the period and increased legal accounting and strategic business consulting services related - required to evaluate, negotiate and complete these transactions. As we previously discussed, we expect to acquire additional strategic assets in the future as we pursue our business strategy. The non-cash share based compensation expense with options granted to employees and consultant with the company and to acquisition related milestones combined for the quarter, the total $63.9 [ph] million. In practice all employees of the company received stock options as part of their compensation package and I note that we had 2700 employees at the end of the third quarter as compared to 700 a year ago and even 2000 at the end of September. Acquisition related milestone payments based on future performance and related criteria have been treated as stock compensation expense instead of being allocated to the purchase price. In comparison, the non-cash stock based compensation related options grant to employees and consults the company into acquisition related milestones and this combined in the same period last year was $17.9 million, again in the year 2000 US [ph] employees a year ago. Now I'll turn my attention to other expenses in net income, other income as $235.2 million for the three months ended December 31, and is primarily made up of fair value changes on financial assets and financial liabilities. The amount includes a fair value gain of $186 million arising from the decrease in the fair value of the senior convertible notes by the end of the second quarter to the end of the third quarter and a fair value gain of $36.4 million on financial assets, principally the TerrAscend and Slang warrants. The Company also had interest income of $18.6 million on cash and marketable securities. This income was partly offset by a loss of $6.3 million as a result of the TerrAscend restructuring which resulted in the exchange of the TerrAscend shares for the non-voting, non-participating exchangeable shares under plan of arrangement. Third quarter net income after taxes was $74.9 million or $0.22 per basic share, and as I mentioned earlier due to the calculations involving the assumption of the convertible debt at the beginning the quarter it resulted in loss of $0.38 per fully diluted share. That compares to net income of $11 million or $0.01 per basic and fully diluted share in the same quarter last year. Next I'd like to review our supplemental non-cash measure, adjusted EBITDA. Adjusted EBITDA is defined as earnings from operations as reported before interest tax and adjusted for removing other non-cash items, including stock based comp, depreciation and accounting for biological assets and inventories and then further adjusted to move the acquisition related costs. We reported adjusted EBITDA believing it is a useful financial metric that will help investors assess the operating performance of our business before the impact of investment, acquisitions, income taxes and non-cash fair value measurements. Adjusted EBITDA in the third quarter amounted to a loss of $75.1 million compared to an adjusted EBITDA loss of $5.7 million in the same quarter last year. The higher adjusted EBITDA loss is due to matters I described earlier - earlier with respect to the non-producing facilities which are temporary and absorption of the medical excise tax which was a conscious decision that we made to support our customers. And along with the investments committed in sales and marketing and corporate infrastructure to develop global opportunities as I also just described. We believe our deliberate and ongoing investment building the company's production platform, brand's, international reach, partnerships and operations which directly impacted our adjusted EBITDA during the period is necessary to strengthen the global – the company's global leadership position. Now quickly turning your attention to the balance sheet and cash flows. As of December 31 the company had cash, cash equivalents and marketable securities available of approximately $4,915 billion, up from approximately $320 million at tend of fiscal 2018. The increase in the end of last fiscal year was due obviously to the investment of approximately $5 billion by Constellation Brands in November, June's issuance of convertible senior notes with an aggregate principal amount of $600 million offset by cash used to fund operations, as well as investments and facility enhancements that totals $568 million year-to-date. The company's excess cash resources are invested in government backed liquid treasury bills and bonds and a common interest [indiscernible] are investing through most every major Canadian bank, five of them, as well as six major U.S. banks. I should also observe that the fundamental change notice issued in September on the convertible notes expired in early December without any holders exchanging the shares so that the nickel provision expired and the notes remain outstanding at December 31. Inventory at December 31 amounted $185 million, up from $102 million at the end of March and at the end of the quarter biological assets amounted to $31 million, up from $16.3 million at the end of last fiscal year. Together inventory of biological assets totaled $260 million at December 31, up from a $180 million at the end of last year. Inventories are continuing to be scaled to meet management expectation of market demands, including demands we legalize recreational market and sufficient choice for our medical customers. Management continues to be the soft - significant demand we develop for Canada's oil and particularly soft gels in the recreational market. As such the company continues to increase inventories and extract grade dry cannabis now for conversion and increase the quantity of cannabis oil and soft gel capsule we have on hand. And now, I'll just take a brief moment to acknowledge the CFO transition that was in yesterday's press release. And after much consideration over the past several months, I've made the decision to retire from the CFO role at Canopy later this calendar year. And I informed Bruce, Mark and the board in December. After being in this role for four exciting and very busy years, helping the company through an aggressive phase of growth with some 30 M&A transactions and I will say so far, multiple financings raising $6.5 billion in historic stock market listings, including the first cannabis company on both the Toronto and New York Stock Exchanges. I really believe now is an appropriate time to hand the things over to a new financial executive to shape and drive financial capabilities over the next three to five years as the country prepares for its next phase of growth. I have to say a loathing [ph] CFO of Canopy growth. Working with Bruce and Mark and the Canopy team, but with the personal commitment I gave there is a toll on the family and its important for me to make my family a higher priority. The company has already initiated a search for my successor with candidates identified and we expect that person will be named in the coming months. I wish to stress that following the transition to a successor I very much look forward to continuing to serve the management team and the board of directors in strategic advisor role to help drive Canopy’s future growth. Experience I've had working this dynamic team, helping build this company in this new sector has been a once in a lifetime experience. I've often said I feel like I joined Stevens in 1933. It's just been a fantastic opportunity. For the next phase will continue to see me go hard for Canopy Growth [indiscernible] and as we say here we will get shit [ph] done. So this concludes my review of the financials for the third quarter and I'll turn it back to Bruce for some closing remarks. Bruce?

Great. Thank you, Tim. Just a couple of additions as we look out. So Tim is isolated and highlighted on the investments we make and how those are coming onto yield. So in Canada we'll see that shortly. He touched on Denmark. We will begin over time as you've noticed our reporting to become more detailed and broken out. We're going to target giving you a picture over time meaning this year, which will give you a visibility of how Canada as an instance is operating and the appropriate allocations for that. That's one of our goals on a reporting for the investors. But I do want to highlight that the objective of creating platforms will have other jurisdictions which will use cash, which is why we have cash. As far as in the U.S. and I hope there are some questions on it. We have identified the site and locked up the site in the New York State area with a couple of other backup options. We've had very productive discussions with the regulators. Our license and the platform we're building out, as well as some incremental pieces that we think would fit together, so the U.S. action is moving quite quickly. Our Latin America activities haven't had as much visibility because we've been - I guess eligible to keep it a little quiet. But that group is now about 70 people operating across four countries with production assets are well underway in construction which will start to show up as real, I'll call it both assets and yields over the balance of this year. And I think now we could probably jump to some questions.

Okay. [Operator Instructions] Your first question will come from Tamy Chen from BMO Capital Markets. Your line is open.

Thanks. Hi, Bruce and Tim. I was just wondering on your average selling price for the Reg channels, almost $7 a gram. First could you confirm if that's gross or net of excise tax? And I also wondering if you could elaborate a bit more on just exactly where and how you're seeing this strong pricing in the wholesale channel?

All the average prices I have quoted are net of sales tax, so that's after the excise tax is taken out.

And we're seeing Tamy the most active selling points aren't correlated directly with the per capita number of people in the province. It's strongly connected with those places that have stores and we expect in circumstances like Ontario will have stores that that is a driver on people being informed. And so we've put quite a lot of time and money into our education platform. I think we've educated over 600 people who work in the canvas sector as salespeople with a self paced training program, which means that the customer walking in is much more informed and I expect the average price over time meaning by Q4 to actually increase because of the format and the stores will have much higher end products, including we expect beverages which - when you get into our vape products which we have been putting away oils for and building technologies for and our - whether or not we get to make edibles of some sorts, we've worked through a variety of platforms and the beverage is all of those we expect to drive to a higher margin per actual gram sold because of the other adjacent ingredients.

So my understanding was that for many of these provinces it was provincial crown corp that was the wholesale buy, and so I thought pricing was through more negotiated process and so it's just surprising that there is such a strong pricing that you're seeing. So are you seeing that in certain provinces is there like a [sales] [ph] directly to retail or?

No. So the provinces negotiate them and then the volume that goes through the province has connected to the point of sale the provinces have. So we've seen strong sales in provinces like Alberta with more retail and we expect the same to be increasingly true across the country as more stores will [not] [ph.] switch to wholesale. Then after that we have certain circumstances where we actually also then have a point of sale. Think of Newfoundland or Manitoba or Saskatchewan and coming up with Alberta. Now in that model what we sell wholesale has been originally it was bulk cannabis dried as the quarter ended that included gel caps. We've now launched our roll joints and I think our sales of those units are well through 50,000 units. But what we like about them is we now make them a one gram, half gram and they're made on extremely narrow tolerance platforms which we had to create and then file patents on. And so those produce upwards of you know, 10,000 call it units we could produce in an hour. So now we're looking at how do we use that equipment in a variety of other locations that might make sense if you could export the technology. So I think you're going to see the average margin go up as more and more these products hit. But the model is kind of to the provinces and then through the stores.

Okay. Got it. Thank you.

Your next question will come from Vivien Azer from Cowen. Your line is open.

Hi, good morning.

Good morning.

I want to focus on the top line Bruce, and so when we spoke last quarter, you know, you were confident reiterating your confidence in consensus for the back half of fiscal 2019. In some case it's come down, so the third quarter was in line, but your production in the third quarter declined potentially relative to 2Q. So how should we think about 4Q relative to 3Q? Thanks.

Okay. So we're not giving exact EBITDA or top line, but we do have inventory growth and we have harvest as [some call it] [ph] the timing of the harvest. So really we're comfortable we have the products that will get to the number. What we're always looking at is where is the - where's the demand, who's getting the stores up. What's the sell through like. But we think we do have in fact especially as oils are becoming presented as a more significant portion and what we think of is a bit of a backlog for exports to places like Germany we're not pushing down or up on what we're looking at for the balance of year.

Okay. Perfect. And then just a follow up on revenue. When you talk at the CAGNY lunch in New York in December you articulated that that you believe that you’d have the CBD product in the U.S. commercially available by the end of calendar 2019. Just wanted to see if that holds number one. And then number two, on the CBD in your revenue outlook, you recorded in a interview a week or two ago saying that you were open to investing as much as $500 million against the US CBD opportunity and just wanted to understand your thinking around that because it seems like an awfully big investment for a market that I believe only generated about $500 million or $600 million last year? Thanks.

Yes, so a couple of things. We have put our - where we're going to be in New York state and it's in large part because of the regulatory framework New York State's put in. People may have noticed a week or more ago where the regulators are starting to out of New York state level enforce the fact that CBD is something which needs to have proper claims, proper processes, source of access that's actually traceable. So I think New York State's going to be a strong market. Right now will we have it in Q4? I think we're still on a track that would expect to have products in the markets where they're permissible. So maybe New York State will be a terrific market. Perhaps California will be a tougher one and that's more about regulation. But we're on track with acquiring the building, having third party growers, having processing and whether or not it's Q4, Q1, you know it's a function of a few things having to go right but that's the timeline. As far as the total investment, we think there are going to be multiple states we have to operate - production and processing of hemp and that there'll be industrial park scale. That asset group and the channel we sell through will lend itself extremely well to cannabis if and when. And so we view these investments as creating a lawful channel to a large box and a corner store sale point of products that are disruptive to [source] [ph] recovery through cosmetics and certain medical fields. But the asset group has a lot more extension over time which could be activated very easily if states [erected a goal] [ph].

That’s helpful. Thank you so much.

Your next question comes from Michael Lavery from Piper Jaffray. Your line is open.

Thank you. Good morning.

Good morning.

As you talk about looking out five to seven quarters, how should we think about the margin and earnings piece of that and what sort of trajectory it would look like?

So as we've kind of touched a little bit, we're going to try to give you very good visibility on the earnings by country, by category, meaning medical rec and product type, so that we can actually help you, the analysts and investors, understand the yield potential on the invested assets in a country like Canada. And then what we wish to do is back out and normalize investments that we're making intended to be globalized. So Tim will speak to the margin opportunity on a country like Canada but you will see that’s [laid] [ph] down meaning investments and assets that are in geographies that are beginning medical programs at a federal level with a population sufficient to return in that country on the invested capital without exports. So Europe as a region we have a strategy of investment that covers four countries, South America, four countries, Australia and each of those will have a yield that goes out over anywhere from 1.5 to 3 years. Tim, I don't know if you want to speak to the margin that we are looking at, but it is a sequencing of a creation of a very good business in Canada to reflect all the other jurisdictions where we think it can go.

Yeah. So I commented that we had some non-productive assets in the last quarter. This is [intangible] [ph] in terms of what [indiscernible] facilities and like a year ago was really just going through its first rows which we would call the pilot [indiscernible]. So those are now well and planted and growing and harvest are planned this fourth quarter and I think you'll see that continue to improve the yields and utilization. So those margins will definitely move up as we get you know the almost 4.7 million square feet of greenhouses and later about a 1 million square feet of indoor [grown] [ph] being fully productive that's just in Canada of course. Then you've got as we mentioned earlier Denmark coming online later this year to getting full utilization and remove all of those costs are hitting the [indiscernible] today, at the same time you get the other form factors that we talked about, sorry the edibles and beverages and also I think you see the medical market while there's some cannibalization in the last quarter, we also believe that this [come back] [ph] strong and those will attract higher average selling prices. So all I have to say that we [indiscernible] [March] [ph] on those margins so that you get - in the mid 50 range or plus in the quarters that are coming.

So what was the last part you said the mid-50 range of…

Net revenue.

And just on the margin side as you look at your, call it, five to seven quarter planning horizon. Would you still imagine the total company picture to be investment mode and growth mode more than we should be thinking about any kind of positive earnings coming out?

You will see a model for Canada. That’s a function of otherwise and regulatory turn up. How fast does it happen in America would obviously affect how much we're putting in and how fast the transition is and we think it's happening quite quickly from what was called medical marijuana to what we think of as cannabinoid therapy. And so the opportunity if the IP results from our trials in Canada that some of them are expected to have the potential for claims as early as Q4 that does start to put quite a bit more potential for margin because you're no longer selling medical marijuana you're selling outcomes on a cannabinoid therapy. So the walk around that I guess would say it depends on what happens on a regulatory basis but we see a very good line of sight in Canada in Europe and America is the big unknown at this minute.

And is that calendar or fiscal Q4?

Calendar for the trials. Trials do have the ability to go slower or faster. But some of the work that we're doing on the phase IIb for human and some of the work on dogs the current schedule would look at a calendar Q4 for initial results and ability to make claims or not. And so these are not decades out kind of activities.

Thank you very much.

Your next question comes from Martin Landry from GMP Securities. Your line is open,

Good morning, Martin. I'm going to - if we want I'm going to assume Martin's question was about margin, but I don't want to take the next question.

Hi, sorry. I was in areas. My apologies. Good morning. It is on production costs and margins actually you're right. I just want to dig a little bit further into - when you see that we exclude your non-cash cultivating assets, your gross margins around 40%, your average selling price is 730. So that gives me a production cost of around 4 for 25 per gram. It looks a little high. And you know I'm surprised that it's not trending down. You know you have large facilities now in production. Can you explain to us a little bit better you know what is it embedded in that in cost and why it's at that level?

So I mean it's basically are between the Delta Alder Grove and Mirabelle. They're not being done - they're not producing a product that is actually being sold. There's the operating costs, still there's - there's still the encouraging the quarter and those flush right to the bottom line without the benefit of getting production out of it. So essentially you're denominator like there's no - there's no denominator or grams produced in those areas where you do fit. So it's just it's a bit of a artificial number that being created to come up with a cost per gram because it's not apples and apples. When those assets are fully producing those costs we've lost against production that should get a lower cost per gram. So it's just a quarter that we had to invest in and make those changes in the facility, so they could be up and running and producing high yield plants.

And Tim, maybe additional color to that, we're seeing at the end of this month and into next quarter those harvesters are actually coming off of a larger platform. So when you picture a greenhouse it's not 1.7 million square feet. I know you've been out there Montana for others on the call think of it as five to seven zones and what you can do is plant it all the first day and then harvest all the next nine weeks later so the rotation of getting all of the zones both retrofitted and then into production, so there is a continuous flow harvest and the good news is most of that investment is complete and the continuous flow harvest equipment has been thought through and some of the patent protected seeking and that the supply chain is near the top of the cycle to start producing out the two. The exception to that is our new plant facility is the furthest from completion but we're looking at something now that's in August, September, but otherwise New Brunswick, B.C. and Quebec are largely finished with the next thing being extractors not actual production assets but conversion assets.

Okay. And then maybe just switching gears you know you're realizing a very high selling price internationally. And I'm just wondering at this point what prevents you from shipping more products.

Excellent question. So last quarter there were a lot of changes and the regulators were pretty busy and so were we. So getting actual approvals through was not as fast or smooth as normal course, I believe are returning to normal course and in the interim there is quite a lot of demand in those geographies. So as we all know Q3 was pretty crazy and being a regulator and a producer both of the parties were, I would say full up but that has been a part of we've been focusing on since January with the regulator to increase the volume that we can ship will continue to fill all the channels in Canada.

So it's not a case of production not being available. It's just more functioning people like.

Yeah. So each time you ship it has to be requested by the foreign jurisdiction and approved by the Canadian jurisdiction and then the product has to be available and go across. Principally it has been the paperwork not the product. And I think we're highly focused on the paperwork and the product being available this quarter and next.

Okay. Thank you.

Your next question comes from John Zamporo from CIBC. Your line is open.

Thanks good morning, guys.

Good morning.

I wan to follows a bit more on that U.S. CBD opportunity, expect to have these products in my Q4. I was hoping maybe you could share what some your most impactful products would be, what retail channels here are prioritizing and just generally. And just generally can you talk about your discussions with the FDA and regulators in the states outside of New York?

You know, those are all great questions and I would have to think that if I gave a really clear full answer that would be advantageous to parties we're not here to help. So when we look at who is interested in speaking with us, it goes from big box to corner store. What product producers. It goes from things that people are reselling into cosmetic to animal care. And we've announced our intent on trials in the dog area and there are we think capacity to create a range of products. We are going to be selling finished goods that are powered by and in many cases branded by divisions that what you would call health and wellness. And so the FDA file has been and being developed but the regulation is also a state level lead in a place like New York. And so this was about a great launch platform with very good regulators that lead to a medium term FDA file that we think will be quite helpful, but we don't have that and need it to start New York. And we have a very skilled and substantial team which included people we took from Green Star constellation and really key people in our organization and hires that are all U.S. focused and on this file. So it is a really live, really active file and lots of moving parts, but I think it will have a potentially serious impact before the year out.

Okay. That's useful, thanks. And I want to follow up on a comment you'd made the beginning of this call Bruce but moving to Phase IIb in the clinical trials for insomnia treatment. When might we see commercialization of this and it is the more likely result that you have new products to treat this. Or is it is the benefit that you have now, legitimate claims that your existing product can treat it.

So it's claims on dosage and uniqueness potential protectable on delivering mechanisms. And it becomes a platform by which you can then increment and enjoying what we have with perhaps other claim based inputs. And it allows people to go to a doctor and say, see I told you. In fact it does work. And I would now want to have access to I think it moves the needle on legitimizing. I think what many people understand is that from our observational connections with our client base the second most common reason they're acquiring cannabis is to fall asleep or stay asleep. And if we can turn that into a form factor delivery mechanism and then a science that you really do move the needle and then it's just the first effort with the drug master file and stabilized ingredients that can add a whole bunch of other trials on behind and you know we have a dozen plus that are mapped out and rolling up. So it's a lot of leverage for the patients and I think it gives us a really good platform product to go out with. And nobody really does love the current sleep options?

Okay. That’s great. Thank you very much.

Your next question is from Oliver Rowe from Scotiabank. Your line is open.

Good morning. It looks like you achieved a 30% market share in the recreational market this quarter. I think that's in line with your target and it's in line with mine. So my question is as other producers catch up in terms of bringing production on line is that the target you expect to be able to hold. And is it one that you think you can bring into the international markets as well?

Well I think within two calls we're going to hardly talk about production and we're going to talk about conversion and conversion into what and where we've made really significant and thoughtful investments has been to be in the conversion and creation of products that create customer demand and brand the wins. And so I would be kind of upset if we can't maintain or improve because we're far enough ahead and have been thinking that way and working on things for three to five years that I think are just going to be ready to take hold in the next three to seven quarters. So I hope someday people or anyone know about how to grow that because that's really a necessary step but it's not the core focus together. We should dominate and I will be extraordinarily disappointed if we don't do that through science and claims and products.

So as a follow on from the conversion angle you've recently inks deals with third party extractors. Could you discuss why you're moving a portion of that business out of house and if this is more of a temporary measure as you bring your own facilities on or is there a structural benefit to doing it?

It's really an accelerant to the opportunity at hand. Our platform that we're building is quite a lot larger and more scale and some of it's co-located with large production grow greenhouses. So we just thought these were very useful sources of conversion. I bet they'll still be business with them to fill gaps that overall model I think is a very thoughtful place for people to have created value, but it's certainly not a core move out. We really have put a lot of IP effort on how do we get to API level of extraction. And so this is a really smart way to get a little faster now.

Thank you.

Your next question comes from Graeme Kreindler from Eight Capital. Your line is open.

Hi, good morning, Bruce and Tim. Thanks for taking my questions here. I wanted to ask about the U.S. market you know, flipping through the MBA [ph] here and understanding that the company doesn't want to invest in any company or agency - invest operate in any country where it is not federally permissible to operate cannabis. The MBA [ph] mentions the states act as a framework that they think would allow cannabis to be federally permissible. My question is would something like a safe act that reconciles banking does that give you an accelerant towards potential investment or strategic partnership in the U.S.?

Yeah. So anything and there's many variance right now floating around some our bipartisan [ph] working through and our lobbyists who are watching it. Anything that would allow at a state level the activities that currently occur in the state not to be offside federally. And as a result enable parties like Nicey [ph] to see it such that our listing would be maintained immediately mean that we're in. And so there are a bunch of formulations that could result in us being able to immediately enact our plan in any of those states. And it's feeling much likely more likely that it's sooner than later. But it's politics so hopefully it helps.

Okay, thanks. And then just another question here in terms of preparation for the edible digestible derivative market, you're looking at the inventory balance at the quarter end 65% of that balance was working process inventory. How is the preparation for the products in that market being handled while balancing also the allocation in the Canadian channels as well as internationally? And what's your demand forecast on Q4 of this year.

So we are we find the oils are an extremely likely stabilized ingredient to fit into everything from beverages to edibles to vapes [ph] So we're working on accumulating oils part of the prior question on why are you using these guys because you need to have it in the state where you can actually then opportunity convert to where you want. Tim I don't if you want to speak to allocation, but it is a continuous active juggling act for the first to get it as science, second as patient, third is export, fourth is rec and it's a constant - our Canadian COO has a full time function of allocation. Tim, you want to speak to you anymore.

Yeah no that's exactly it. You know the operations group constant looking at supply demand forecast and allocating what do we need the variety and formats and so they think about that - about it every day and making those allocation decisions .

Yeah and so like this is not a stockpiling exercise at all. And we're constantly looking at as the provinces are turning up more stores, we need to fill that warehouse. I think we're doing a solid job, but I would say that effort to continuously deal with allocation of the scarce resource is a top 3 priority in the company.

Okay. Thank you very much.

Your next question comes from Matt Bottomley from Canaccord Genuity. Your line is open. Matt Bottomley, your line is open. And we’ll move on to the next question from Mike Hickey with Benchmark Company. Your line is open.

Hey, Bruce and congrats on the great quarter, first quarter of adult use too, pretty awesome.

And I can confirm there was a new operating environment, a very unique operating environment.

That it was. Curious on sell through. Were you seeing in terms of consumer demand for an individual SKU that there's stand out and maybe in particular the demand that you're seeing on the adult side for soft gels? And then I'm not sure how much visibility you have on sort of the legal framework that's taking shape around edibles. But would you expect to have gummies or chocolates as possible product skews? Thanks.

That's a few questions. I would say on the data for what's selling through really we were getting into December and January 1 we're actually launching in all of the soft gels that we could across the country and pre rolls. So I think I'll be able to give you a much more accurate and crisp answer as we finish the fourth quarter because we've had pretty much one full quarter. Everything that we can make whether it's chocolate two drinks, we have been building on a platform so that people have been to our site have observed the internal chocolate factory that exists and the bottling plant that exists and we've been doing a lot of testing and working through various formats. It's all going to come down to regulation. And so the regulations right now it's still speculative as to I don't know how the cap must work on a bottle foreclosure versus whether or not the glass is colored. We will have every form that you can contemplate but what they, right now functionally driven by what the regs and the regs that coming to the final form, we have been waiting for the regs to get ready, but that will affect going to put in the market and if it's if it's legal we'll have it.

Thanks. Do you have a sense of the types of corn in the packaging is going to be on the edibles. I mean do you feel like maybe this could be a little bit the list of what you've done on all the flower side?

Yeah, you know just for a bit on the call the packaging from our perspective is okay. What we're more concerned about is the quantity and weight and the fact that you know from a recycling and consumer preference we wanted to launch with great packaging, we've done that, but we're really pushing on packaging enabling this to be something that has some appeal but for sure has some functional benefits overall it's currently there and you're seeing it right now. The debate over how does the closure work in a bottle versus a can. It's getting tighter. We got out of the gate, everything was okay too good and now it's just kind of it seems like it's going to keep getting better Keep your containment they may be collector items fairly soon. Why don't we take one more call if there is one and then I think everybody probably has a job related to the markets.

I have - from Andrew Card. Your line is open.

Good morning. So quick question for you on the medical side obviously was under a lot of pressure in the quarter. Can you give us any clarity of a lot of it's been obviously the transition out of Spectrum? Can you give us any clarity how Spectrum's kind of performed, how is it doing last year, how many - how many doctors adopting things like that?

So Spectrum has become our formal brand for all medical everywhere in the world where that transition in Canada started to really take shape in calendar Q2 like calendar Q2 last year where you know you start to be registered in part that was driven by provinces that didn't wish to have Tweed medical and tweeds rec. The Spectrum can be held education on that, current actual number of doctors writing that couldn’t give an exact number, total number of cannabis [ph] have written in our sector to appear to be about 20,000 with more referrals to upfront the docs. Our pace and count I don’t know if you have fingers but its in that sort of 80 to 100,000 patients, I think will be range…

So we’re just about 3400…

Yeah.

From wherever Q2 but I think it’s pretty mature to make a decision on that, that will continue.

So the medical platform will I think accelerate and other people going to have frank discussions with doctors not that rec is there and they don’t appear to be looking or party but [indiscernible] health, I think with the testing platform we’re putting like I am – I continue to believe that our medical opportunity on a global basis over the next three years potentially has about top line, bigger than the rec because we’re just going to be some many more people govern by it and the products are going to actually evolve to be Canopy therapy not medical marijuana. So it is a big focus on our basis of optimism for what’s next for us.

Thanks.

I have no further questions. Thank you. I turn the call back over to Mr. Linton for closing remarks.

No, that’s great. Thank you, everyone for your time and questions. Thank you, Tim you did a fantastic job and we’ll look forward to next quarter.

This concludes Canopy Growth third quarter fiscal 2019 financial results conference call. A replay of this conference call will be available until May 14, 2019 and can be accessed following the instructions provided in the company's press release issued earlier today. Thank you for attending today's call and enjoy the rest of your day. Goodbye.