Good morning. My name is Sylvie, and I will be your conference operator today. I would like to welcome you to Canopy Growth's Second Quarter Fiscal Year 2022 Financial Results Conference Call. [Operator Instructions] I would like to turn the call over to Judy Hong, Vice President, Investor Relations. Judy, you may begin the conference call.

Thank you. Good morning, everyone. Thank you all for joining us. On our call today, we have Canopy's CEO, David Klein; and CFO, Mike Lee. Before financial markets open today, Canopy issued a news release announcing our financial results for second quarter fiscal year ended September 30, 2021. This news release is available on our website under the Investors tab and will be filed on our EDGAR and SEDAR profile. We have also posted our supplemental earnings presentation on our website. Before we begin, I would like to remind you that our discussion during this call will include forward-looking statements that are based on management's current views and assumptions, and that this discussion is qualified in its entirety by the cautionary note regarding forward-looking statements included at the end of this morning's news release. Please review today's earnings release and Canopy's reports filed with the SEC and SEDAR for various factors that could cause actual results to differ materially from projections. In addition, reconciliations between any non-GAAP measures to their closest reported GAAP measures are included in our earnings release. Please note that all financial information is provided in Canadian dollars, unless otherwise noted. Following prepared remarks by David and Mike, we will conduct a question-and-answer session. To ensure that we get to as many questions as possible, we ask analysts to limit themselves to one question. With that, I will turn the call over to David. David, Please go ahead.

Thank you, Judy. Good morning, everyone, and welcome to our second quarter call. Let me begin today's call with some perspectives on the current state of Canopy's business, a follow-up with key highlights for Q2 and offer some comments on our priorities. Mike will then discuss our quarterly performance in more detail and provide perspectives on our outlook. While there are encouraging elements in this quarter's earnings, there remained a number of factors that impacted our Q2 performance, and overall, we're not satisfied with where we are today. However, I'm confident that we've built a focused strategy with a foundation for growth at Canopy. And management, along with the Board, continue to believe we're on the right path for long-term prosperity and shareholder returns. And make no mistake like any new industry where potential is immense, progress is rarely seen in a straight line. The legalized cannabis industry is still in its infancy. And we firmly believe that our strong portfolio of brands, routes to market and CPG=modeled supply chain will provide Canopy with a competitive advantage. Let me remind you of the reasons why I believe Canopy is well positioned for long-term success. First, our U.S. strategy is well-established with the burgeoning ecosystem. Our MSO partners, Acreage and TerrAscend, are performing well, capitalizing on strong market growth in their respective states and building their footprints. They're also ideally positioned to realize the untapped opportunity presented by newly legal cannabis markets in the highly populated Northeast United States. In addition, we further enhanced our U.S. ecosystem with a plan to acquire Wana Brands, the #1 North American edibles brand upon U.S. permissibility of THC. Wana's asset-light licensing model provides outstanding coverage across the United States. We're continuing to build our U.S. CBD and CPG businesses, which, taken together with our MSO and Wana relationships ensure we'll have the relationships, organizational capabilities and routes to market for winning in legal U.S. THC markets post permissibility. As we know, the U.S. is by far the world's largest cannabis market. And over the long term, we believe the creation of significant shareholder value will be driven by our ability to capture a significant portion of the U.S. profit pool. Finally, we have the backing of Constellation Brands who directly contribute to the strength of our U.S. ecosystem. The relationship continues to pay dividends with distribution for our CBD brands and BioSteel. The second point is that we have strong assets and capabilities across our North American business. Our priority brands are healthy with significant distribution runway as we scale them further. We're seeing strong consumer interest across many of our recent new product launches on both sides of the border, including several innovative products that take advantage of our insights driven R&D platform. The Canadian market continues to find its footing. While consumer preferences are evolving and competition remains strong, we continue to see strong demand for legal cannabis products. Further, brands are becoming increasingly important in certain categories and consumers and customers are becoming more selective in which suppliers they partner with. There will be bumps in volatility. However, we continue to sharpen our focus and work on improving execution in the Canadian market. Let me now offer a review of key highlights of Q2. In the Canadian recreational cannabis market, we maintained market share leadership in the premium flower category and grew our market share in vapes and edibles. We launched several new products across the flower, pre-rolled joint, beverage and edible categories in Canada and in the U.S. CBD and CPG categories. And in our Consumer Products business, we continue to expand distribution of BioSteel ready-to-drink beverages in the U.S. We did however face some challenges in the second quarter. Competition in the Canadian recreational cannabis market remains strong with consumer preference continuing to shift. By way of examples, consumers are increasingly looking for higher THC offerings in the flower category, and we did not shift our growth strategy fast enough to capitalize on this during the quarter. The distribution ramp-up in our U.S. business is taking longer than expected as chain authorizations and shelf resets are happening later than planned for both BioSteel and our U.S. CBD portfolio. As a result of the above, our gross margins have suffered from lower-than-planned volume, continued price compression in value and inventory write-downs resulting from our under-performance in the Canadian market. The delayed revenue ramp is causing us to push out our target of achieving positive adjusted EBITDA by the end of the current fiscal year. Improving our Canadian profitability remains our #1 focus area, which Mike will discuss in more detail. Now, I'll take a few minutes to discuss our performance in key categories and provide a glimpse into our innovation pipeline, which we feel is truly best-in-class. Starting with flower and pre-rolls. In the highly competitive Canadian recreational flower market, we've maintained our market leadership position in the premium flower category with a 13.2% market share in tracked provinces during Q2. And despite continued fragmentation of the premium flower category, our market share is more than double that over the next closest competitor. We launched several new premium flower products with new flower supply starting to build towards the end of Q2. Our DOJA brand is gaining traction, aided by several new DOJA and DOJA Craft SKUs. Our pre-roll sales increased 75% in Q2 compared to last year, benefiting from the launch of small format pre-rolled joints, Tweed Quickies and Ace Valley Pinners. Finally, our flower team is excited about the new flower and pre-rolled products coming to market in the next few months, including new strains across all product categories, including the launch of DOJA 91K, Tweed Powder Donuts and TWD Garlic Jelly flower that have been launched in the current quarter. In edibles, we're gaining market share with the help of some Q2 product launches, including Ace Valley Dream CBN and Super CBD gummies. Building upon deep space success in the beverages category, in the current quarter, we introduced the first ever gumming products from the Deep Space brand called Deep Space XPRESS. In keeping with the Deep Space brand, the Deep Space XPRESS gummies marked our first single 10-milligram THC infused gummies in the Canadian market, directly leading a consumer desire for higher THC products. These gummies are available in the original Deep Space flavor and New Limon Splashdown. Turning to beverages. Building on the success of our existing beverage portfolio, we're focused on producing new formulas that offer higher THC potency in taste great. Following our Q1 launch of Tweed Iced Tea Beverages, we launched Tweed Fizz beverages in Q2. These are analogous to seltzers in beverage alcohol and all contain 5 milligrams of THC. We also expanded our popular Deep Space brand with the launch of Deep Space Limon Splashdown. With additional beverage innovations expected to hit the market over the coming months, we're on pace to more than double our assortment of beverages in fiscal 2022. And in vapes and concentrates, we grew market share of vapes in Q2, driven by the launch of 1 ml 510 cartridges that began in Q1. We continue to focus on premiumizing our vape portfolio in Canada and bringing additional products to market, including launching premium live-resin base as well as live-resin dab friendly concentrates and hash products before the end of fiscal '22. Now, turning to our U.S. CPG and CBD brands. BioSteel remains focused on building national chain distribution, supporting the constellation brand's gold network and leveraging local marketing activities to build brand awareness and generate trial. Distribution continues to ramp with ACV climbing to 6.5% for the 13 weeks ended October 3 in IRI. We're seeing key wins in major chain authorizations with over 2,000 doors won in recent months, and active discussions are underway with a number of national and regional chains as we speak. Velocity continues to increase, particularly in key markets such as Phoenix and Chicago. Brand awareness continues its rapid ascent through prestigious sponsorship, becoming the official sports drink of the Los Angeles Lakers and the Miami HEAT. Storz & Bickel continues to cement itself as the gold standard in the vaporizer category and recently released several new vaporizers, including the VOLCANO ONYX and the MIGHTY+ vaporizer, which improves charging or with improved charging in a quicker heat up time. Our new Whisl CBD vape launched in Q2. Whisl is a nicotine-free CBD vaporizer with 3 interchangeable pods, offering uniquely formulated options to help consumers dial into their desired effect, whether that be focus, calm or winding down. Whisl has been available on shopcanopy.com since mid-September and is available in over 3,500 Circle K stores throughout the United States. While it's still early into our launch, it's encouraging to note that Whisl has already achieved the #3 position in the CBD-vape category according to IRI in the 4 weeks ended October 3, 2021. Martha Stewart CBD remains one of the fastest-growing CBD brands across all formats. Martha Stewart is now the #3 CBD supplement brand in the food, drug and c-store channels. In this quarter, we launched a number of new confectionery products aimed at capturing holiday shoppers, including the Snowflake Winter CBD Gummy Gift Box and Martha Stewart CBD Peppermint Ribbons. And even though we're pleased with the performance of our new products in the U.S. CBD market, our primary challenge is growing our distribution to expand our business. A potential unlock for distribution for our CBD products is the recent signing of Bill AB 45 in California. This legislation establishes the regulatory framework for CBD Ingestible products that's necessary to encourage broader retail participation in the CBD market in California. I'd now like to take a minute to speak about our path to profitability and our commitment to achieve breakeven by the end of fiscal year '22. Recognizing our challenges in the Canadian market, coupled with the slower-than-expected ramp-up of our U.S. business, we're postponing our timeline for achieving positive adjusted EBITDA. And while our top priority continues to be achieving profitability, we must place our focus on the following: number one, stabilizing our Canadian business by taking steps to improve our mix of supply to better meet consumer preferences for higher THC offerings. This will take time. But we're starting to see some benefits and expect that our new supply will be fully realigned by the beginning of next fiscal year. In the meantime, we're focused on accelerating new product launches across vapes, edibles and beverages. Number two, continue to build distribution of our U.S. CBD portfolio, leveraging both our distribution and retail partners, including seizing the opportunities presented by a newly unlocked market in California. And number three, on BioSteel. We remain confident in our growth opportunity. And we'll continue to invest in building brand awareness in generating trial, while partnering with the gold network to drive distribution and build a national chain presence. In summary, the combination of volume growth, improved portfolio mix and the previously announced cost savings should allow us to turn profitable in our Canadian operation, while we continue to scale our U.S. business. And with that, I'll turn it over to Mike.

Thank you, David, and good morning, everyone. Let me dive right into the review of our second quarter fiscal '22 results. In the second quarter of fiscal '22, we generated net revenue of $131 million, representing a 3% decline over the prior year. Excluding acquisitions, our net revenue was down 13% versus the prior year. Our reported gross margin in the second quarter of fiscal '22 was a negative 54%, impacted by a material inventory write-down related to our excess Canadian cannabis inventory as a result of under-performance in sales relative to forecast as well as our updated expectations for near-term demand. Our adjusted EBITDA loss during the second quarter of fiscal '22 was a loss of $163 million, widened by 90% versus prior year and again was impacted by the inventory write-downs. Excluding these write downs, our adjusted EBITDA loss would have been $76 million. Free cash flow in the second quarter of fiscal '22 was an outflow of $101 million, representing a 47% improvement over the prior year. Let's now dive into Q2, starting with the global cannabis segment, which increased 1% year-over-year to $95 million or down 14% excluding acquisitions. Our total Canadian rec business declined 4% year-over-year to $59 million, driven by a 1% decline in our B2B channel and an 11% decline in our B2C channel. Our Canadian medical cannabis declined around 6% to $13 million as higher average order size was offset by a lower number of orders. Our international and other cannabis business increased 21% year-over-year to $24 million, driven primarily by the growth in our U.S. CBD business, partially offset by declines in C3 and our German flower business due to increased competition as well as negative FX impacts. Looking into our Canadian rec business in a bit more detail. B2B revenue declined 1% year-over-year, primarily due to insufficient supply of flower products with in demand product attributes as well as a continued price compression and the value flower category and was partially offset by contributions from Ace Valley and Supreme acquisitions. Excluding the impact of acquisitions, B2B sales would have been down 34% compared to the prior year. Our Rec B2C cannabis sales in the second quarter of fiscal '22 decreased 11% versus the prior year, largely driven by increased competition from the opening of additional third-party retail locations. Revenue from other consumer products declined 12% versus prior year to $36 million in net revenue. Storz & Bickel declined 34%, driven by supply and logistics challenges caused by global supply chain difficulties, a negative FX impact tied to the strong Canadian dollar as well as a tough overlap to prior year, driven by the strong demand experienced during the COVID related restrictions. This works grew 15% year-over-year due to continued strong Amazon and third-party e-commerce sales. BioSteel grew 47% year-on-year due primarily to the launch of BioSteel, ready-to-drink beverages in U.S. Let's now move on to an analysis of gross margin. Reported gross margin in the second quarter of fiscal '22 was negative 54%, impacted by several items. First, we recorded inventory write-downs of $87 million, primarily related to Canadian cannabis inventory resulting from under-performance relative to forecast as well as declines in expected near-term demand. Second, we booked charges totaling $3 million related to the flow-through of inventory step-up charges associated with the acquisition of Supreme Cannabis. And third, we continue to see pressure on gross margins from lower production output and price compression in the Canadian Rec business, notably in the value-priced flower category. In addition, we incurred higher third-party shipping, distribution and warehousing costs in North America. And these factors were partially offset by payroll subsidies in the amount of $7 million received from the Canadian government pursuant to a COVID-19 Relief Program. Excluding inventory write-downs, step up inventory charges and other one-off items, including the subsidy, Q2 gross margin would have been approximately 12%. Turning to our OpEx. Our overall SG&A in the second quarter fiscal '22 decreased 15% versus the prior year. G&A expenses declined 49% year-over-year, primarily due to reductions in staffing and professional fees and payroll subsidies. And excluding the subsidies, our G&A was down 34% versus prior year. R&D expenses declined 38% year-on-year, principally due to project timing. Sales and marketing expenses increased 49% year-over-year, primarily due to a return to more normal advertising and promotional spending compared to last year when we delayed or canceled various products and brand marketing programs tied to COVID-19. In addition, we incurred higher sponsorship costs associated with BioSteel's partnership deals as well as increased A&P spending to support the launch of new products. Through the end of the second quarter, we have generated approximately $70 million of savings across COGS and SG&A, including $32 million in the second quarter. With savings that we have recognized to date and our analysis of future savings, we are confident that we will recognize the $150 million to $200 million in savings by the end of Q1 of next fiscal year. Our net loss during the quarter was a loss of $16 million, inclusive of other income of $196 million, most of which is tied to non-cash fair value adjustments related to our various financial instruments, driven mainly by the decline in Canopy share price during the quarter. Our free cash flow in the second quarter of fiscal '22 was an outflow of $101 million, representing a 47% reduction over the prior year. CapEx declined to $15 million, down 46% versus prior year. As David mentioned, given some of the challenges we're facing in our Canadian B2B business and the slower-than-expected distribution ramp up on BioSteel and our U.S. CBD business, we expect revenue to fall short of our $250 million breakeven range. And therefore no longer expect to achieve positive adjusted EBITDA by the end of the current fiscal year. So let's spend some time detailing the actions that we're taking to improve our business. First, in our Canadian B2B business, we are focused on stabilizing our market share during the balance of the fiscal year. The key actions we're taking include the following: increasing supply of flower products with in demand attributes, accelerating our pace of new product innovation and optimizing our portfolio to ensure commercial and operational efficiency with a focus on premiumizing our portfolio. So let me dig into each of these items in more detail. First, we have undertaken steps to increase supply of new high THC flower. Our acquisition of Supreme Cannabis increased our capacity to produce high quality, high-THC flower and our efforts to improve cultivation and post-harvest processes across Canopy are underway, including expanding our hang drying programs at our Smiths Falls facility. We're taking additional actions to increase our internal flower supply with higher THC levels and improvements to other attributes such as terpene profiles and aroma, with a target of internally harvesting 100% of our premium and mainstream flower requirements by Q1 of fiscal '23. Additionally, our new genetics and sourcing strategy will leverage our internal R&D capability as well as third-party partners, including craft growers, to quickly scale up production in support of evolving consumer preferences. And our goal is to reduce the cycle time of new stream development from 12 months to 3 months, which will dramatically improve our response time to the ever-changing consumer preferences. We're encouraged that the flower products with in-demand attributes have begun to enter the market, and supply is expected to build throughout the remainder of fiscal '22 and into fiscal '23. Second, the acceleration of our pace of new product development is critical to our success. And as David mentioned, several new products have entered the market with more to come in future months. Meanwhile, we are focused on reducing our cycle time for new product development to improve our flexibility and nimbleness as an organization while increasing our overall capacity for new product development. Lastly, we recently optimized our portfolio, so that we can better concentrate our resources against the SKUs with the highest potential, which ensures that we're getting the best ROI on new distribution, while also reducing supply chain complexity and improving inventory management. Now before leading Canada and in light of the inventory charges recorded in our Q2 results, I would like to briefly cover some of the changes that we're making in our Canadian operations and supply chain that will help to improve our inventory management. Recognizing that a portion of our inventory charges are a result of poor demand signals, we are implementing a new demand planning process that will improve our back-end processes that lead to production and inventory planning. We recently implemented a new inventory management process that will increase our visibility on finished and semifinished finished goods inventory in a more real-time basis. And we're in the midst of a full business transformation that will result in a full deployment of SAP across Canada, which will further improve our end-to-end process flows, our access to timely information and improve our ability to manage risks proactively. Each of these initiatives is underway. And we are receiving the highest levels of support from our executive team. Let me now spend a couple of minutes on BioSteel and our U.S. CBD businesses, where the focus is really about accelerating distribution. Chain optimizations for BioSteel are happening more slowly than expected, resulting in lower-than-expected sales for the fiscal year. Despite being 4 to 6 months behind where we expected to be, the sales discussions that we're having with the national and regional chains have been productive. And as a reminder, we're heavily supported by Constellation's gold network to activate these new points of distribution as they materialize. And our goal is to achieve a 20% ACV for RTD distributions in the U.S. by the end of this fiscal year. And the good news is that brand awareness continues to increase, customer interest remains strong and the velocity levels from where we are in market is in line with our expectations. When you look at our U.S. CBD business, despite strong brand propositions, bricks-and-mortar distribution continues to lag expectations. And we're focused on accelerating Martha Stewart and Quatreau CBD distribution, working closely with Southern Glazer's Wine Spirits, focusing on new states as they open up for CBD products and further developing distribution with partners in certain channels and markets outside of Southern's coverage. Whisl is off to a good start, and it's expected to continue to build momentum with Circle K, and we are currently working to further build distribution across the U.S. market. Let me now provide some perspective on the near-term outlook. From a top-line perspective, in our Canadian Rec business, we're focused on stabilizing our market share with improved supply of new strain and high-THC flower expected to build over the course of the balance of this fiscal and into fiscal '23. We expect our European medical sales including C3 to be down on a year-over-year basis due to increased competition for C3 and German flower business. Our U.S. CBD business in Q3 is expected to be down versus prior quarter due to a Whisl load in during Q2. BioSteel momentum is building, and shipments to our distributors will largely depend on the timing of chain authorizations and the associated shelf resets. Storz & Bickel is off to a good start in Q3, which is typically a seasonally strong quarter. However, we are facing parts shortages due to global supply chain difficulties, which could temper growth for the balance of the fiscal year. From a margin perspective, we expect increased volume throughput and positive mix shift in Canada to contribute to a gradual gross margin improvement. Additionally, headwinds from start-up costs of U.S. should abate as we scale up our CBD and CPG businesses, though we continue to invest for brand activation, given the sizable growth opportunity that we see for brands like BioSteel. We're on track to achieve our cost savings target, including $45 million to $50 million reduction in SG&A expenses this fiscal year compared to last year. And we are taking steps to reduce or delay discretionary spending to further tighten our G&A expenses. Finally, we intend to mitigate impact to free cash flow by further reducing our CapEx, with CapEx now expected to be in the range of $100 million to $150 million, down from $200 million. In conclusion, we recognized we are behind our plans for the year. But we believe we're taking the necessary actions with a sense of urgency to drive market share in Canada, accelerate distribution in the U.S., accelerate our new product development and ultimately improve profitability. This concludes my prepared comments. Operator, David and I would be happy to take questions from the analysts.

[Operator Instructions] And your first question will be from Pablo Zuanic at Cantor Fitzgerald.

David, just -- maybe it's a simplistic question. But can you try to characterize the competition out there? There used to be this view that it was because of overcapacity and smaller operators were just trying to raise cash and down production in the market. And we all thought, well, that's temporary. And the bigger guys will eventually benefit as these smaller players fall out of the market. But there's the other view that some people maybe are just better, right, at the village farms of the world at better farmers that the ogles of the world better in 2.0. And then, it's a different story then on the competition front. Can you just expand on that, characterize the competition and you've been very clear about what you're trying to do to fix the business?

Yes. So thanks, Pablo. So Canada is a large market and a growing market, and consumers and retailers are evolving quickly. And we think some of that -- some of that volatility from a consumer preference and a retailer preference standpoint will abate over time, right? So then, when you look at the competitive set, I think that the -- our ability to grow high-quality, premium, single strain, high-THC product is good as anyone out there, including the smaller players. They can bring -- they've shown the ability to bring product to market. I don't know of how quickly, but it seems to hit the market quickly. Mike talked about the initiatives we have going on, in which, we're going to dramatically shrink the time it takes us to bring our new genetics to market. And we're just building agility into our system, so that we can respond to changes in the market. And look, I don't also -- I want to make sure that I don't lose the point that there are a lot of players out there. But we still have the #1 position in premium in the market. So the brands like DOJA and 7Acres continue to do really well for our retailers, for our customers and ultimately for our consumers. And so, I think as we're working our way through the evolution of the market in Canada, we're continuing to adapt, so that we can be more nimble. But I don't see Canopy or the other larger players at a disadvantage when it comes to competing with smaller LPs.

Next question will be from Tamy Chen at BMO Capital Markets.

I just wanted to ask, first, just a quick housekeeping. Did I hear correctly that your B2B business was down 34% year-over-year, excluding Ace Valley and Supreme? And then, after that clarification question, I wanted to take a step back and thinking about what you've said, what you're working on to stabilize share in Canada. It's pretty consistent with what you said in past quarters after you've done that whole analysis of your business plan and the go-forward strategy. So I'm just wondering, these last few quarters of challenges, like is it just that your plan is just taking longer to execute or are things that you had in your original turnaround plan like or they -- or some things just not working out and you've got to kind of go back to the drawing board here, whether it's the premium flower supply or that demand planning system that you're talking about?

Yes. Thanks, Tamy. Look, the -- just to answer your first housekeeping question, yes, down 34% on an organic basis. So stepping back and thinking about the Canadian market, our challenge has been that in this market, consumer preferences continue to shift rapidly. And Canopy has not kept up in responding fast enough. And when you think about the components to our growth strategy, it really is focused on and reducing our cycle time for introducing new strains to the market, which will make us more nimble. It really is about focusing our business on premium and mainstream and participating in value to the extent that we have waterfall products from our premium and mainstream growth, but really that focus on premium business. And to take a consumer-led approach through all of this. So we believe that nimbleness is going to be key. And our goal is to get the ability to introduce new strains into the market down to 90 days, which gives us the ability to bring new news to the market, to follow trends more quickly. But then also through our sourcing strategy, it's the ability to identify and introduce new strains ahead of the market. Because at the end of the day, in Canada, 70% of the market continues to be flower and pre-roll. And we've got to be superior in providing the right products to the right consumers at the right time. And if we miss it, it's tough to recover. David, anything you want to add?

Yes. So the thing that I would say Tamy is there hasn't been like wholesale changes. It does take time when we have a 4 to 6-month cycle from cutting to beating in the consumer's hands. It just takes a while to respond, which is why we have been talking about some of these things for a little bit. It just takes a while to get through our system and into the market, which is why we said we expect to be functioning with the right production mix by the end of this fiscal, beginning of next fiscal year.

Next question will be from Andrew Carter at Stifel. W. Andrew Carter: So you pushed off the first milestone in the medium-term target. So maybe you could highlight the revised timeline for achieving positive EBITDA, also provide us a sense of what overall revenue growth for FY '21 is and how that's -- and how that affects the 40% to 50% growth FY '21 through '24? And finally, could you update us on where the operating cash flow and free cash flow targets are today, previously, FY '23-'24? And do you have a projection for cash burn necessary to get to free cash flow?

Thanks, Andrew. So let me start with maybe some building blocks to profitability because I think that's the most near term, most relevant topic. And as we said previously that our P&L starts to make sense of $250 million in revenue. When you look at our cost structure, and you look at our operating expenses, you look at our gross margin profile. And we continue to focus on $250 million is that main catalyst that gets us to that breakeven territory. So further breaking that down, looking at our Canadian business, we expect the Canadian market to grow approximately 40% this year. We're expecting the market to grow around 20% to 25% next year. And our goal is to get a 20% share in the Canadian Rec market. Now, recognizing we're not there yet, ties back to the growth strategy that we talked about, the innovation that we talked about. And we think we can get to a 20 share over the medium term. And at a 20 share, the economies of scale associated with our Canadian Infrastructure starts to kick in, and then we start to get line of sight to a 30% gross margin. So that's our Canadian business. And mind you that we're continuing to deliver on our cost savings initiatives as well, and we believe that we're on track. So then you pivot to the rest of the building blocks across our business. BioSteel, our goal is to achieve 20% ACV by fiscal year-end, which is about 3x the ACV that we're at today. This will essentially triple our run-rate on U.S. revenue for BioSteel. And in FY '23, we're targeting to further double our ACV as we continue to build out distribution. And at that point, BioSteel becomes a fairly significant contributor to that $250 million quarterly revenue goal. On our U.S. CBD business, we're about a 60 index to where we hope to be, when it comes to distribution, right around 6,000 accounts today. And we're working to really accelerate the build-out of our pods. And that's going to be -- it's going to be a fill through the rest of this fiscal year. But again, we're really confident in the brands that we have. Whisl off to a good start, but it really is leveraging the muscle of southern to help us build distribution across the U.S. But we think we've got the right brands to do that. And we do see the U.S. CBD portfolio starting to be a healthy contributor to that $250 million run-rate. Then, we move in internationally, Storz & Bickel, lots of good news in terms of a new product innovation from the last couple of months. We are facing some short-term supply chain challenges. We're going to work through that. That's a near-term problem, not a long term problem. And about 50% of SMB's business now is in the U.S., and we see lots of growth in the near-term on Storz & Bickel. So we see that being a very large contributor to the $250 million at very strong margins in that 45% to 50% level. And then, you have the rest of our businesses with continued growth in this works, continued growth from our European cannabis business also contributing to that. So for us, getting to that $250 million quarterly run-rate is absolutely critical. And then, when you think about our burn rate, we are focused on cash preservation from a CapEx perspective. We largely have a asset-light model in the U.S. most of the infrastructure build in Canada is complete. We're really in just capital maintenance mode. And in terms of our medium term revenue, we still are holding guidance on positive operating cash flow by FY '23 and getting to positive free cash flow by FY '24. And we know we've got work to do to get there, and we'll keep you updated as we progress, but we're holding on to that medium-term guidance for now.

Next question will be from Vivien Azer at Cowen.

I wanted to dive in on the BioSteel outlook and specifically the timing of the distribution gains. I appreciate that timing of shelf resets is a little bit more volatile or dynamic with COVID and all that. But given the deep institutional relationships, David, that you have with these distributors and retailers as well as your partners at Constellation brands. I'm a little bit surprised that this seems to have caught you off guard a little bit. We certainly talked about it extensively last time that we were together. So if you can offer just any more color on what changed and when? I think that would be very helpful.

Yes. So Vivien, we're working through the contracting cycle with many of the major national accounts. As you know, this is kind of the time of the year that happens. And we expected sooner cut ins and sooner loading for those resets. I will say, and I think Mike called this out in his script that we're seeing really good retailer response to BioSteel. And so, we remain as bullish as ever in aggregate on the BioSteel brands. It's kind of timing of cut ins that that's the risk that we're seeing. And so, I think we need to wait until we have the orders in hand at this point before we can say whether it's fourth quarter orders or first quarter orders when we start getting those initial cut ins. So it's really not -- with BioSteel, there hasn't been a change of view. The timing has slid a little bit really in terms of when we get into the market.

Next question will be from Aaron Grey at Alliance Global Partners.

So just turning back to the Canadian adult-use market. You guys talked about some of the initiatives you have to stabilize market share. Just curious, you mentioned a lot about organic initiatives that you have. I just want to get your take on potentially using acquisitions also as a lever and organic growth. You've obviously done that in the past with some recent acquisitions of Ace Valley as well as Supreme. So as you look at the growth of kind of the other category outside the top 5, do you feel like that might be part of the strategy in the near to medium term? And do you see some opportunities first some acquisitions, particularly with Wana, here in the U.S., also doing very well in Canada as well, where they're licensing it out to another operator. So just your take on maybe inorganic growth within Canada kind of to improve market share versus the organic initiatives that you mentioned?

Yes. So Aaron, I think that we'll focus most of our efforts in capital on building our U.S. THC infrastructure in the U.S. We are pretty excited about bringing Wana into the group. I think if you look at Wana and TerrAscend and Acreage, there, we have coverage now in 24 states across the U.S. in terms of THC and growing. Those businesses are all profitable and growing. And they clearly don't make their way into our financial statements at this point. So we're going to continue to build that platform, because we believe that that's where -- that's where we ultimately need to win. There is -- in Canada, for us, the game is getting the right throughput through our facilities, which is the ultimate issue around us getting to positive gross margin. But we feel, as Mike outlined, that from an organic standpoint, we can get the throughput that gets us the margins that we need out of Canada. We can solidify our position in Canada and turn Canada into a cash generator instead of a cash burner and then focus on continuing to build out the U.S. THC ecosystem supported by the CBD businesses that we walked through in the U.S. as well.

Your next question will be from Graeme Kreindler at Eight Capital.

I wanted to follow-up on the comments made about increasing the efficiencies of operations in the quest to get to positive adjusted EBITDA, specifically with the gross margin here. Does management believe that the 40% portfolio-wide target is still a realistic goal? I know Canopy has moved into a net buyer position, offset by trying to harvest more of the high potency streams internally. But given the competitive factors that you're seeing in the ongoing market trends, I'm wondering if that's something that's still held in mind or is that internal target has been adjusted.

So I'll take a quick shot at that and say that, Mike talked about a more concentrated optimized portfolio of SKUs. When we look at that particular set of SKUs, we're comfortable with the margins that we can get to that, in aggregate, get us to 40% margins. But there's -- we have to execute, as Mike also defined the initiatives that we're undertaking. But the question is, can you -- can Canopy function the kind of margins that we put out in our medium-term guidance, the answer is yes. If we look at it on a SKU-by-SKU basis, and now we need the throughput.

Your next question will be from Glenn Mattson at Ladenburg Thalmann.

Just most of my questions have been asked, but just curious about -- you talked about being much less CapEx-intensive going forward that the Canadian footprint is built out, and that's an asset-light model in the United States. But just looking out further ahead, like when U.S. legalization happens and you moved bigger into this market, would you -- would you envision needing to make a lot of investment at that point in time or you feel like the investments that you've made or that they're doing the legwork for you now?

Yes. I think it's more -- your second point, it's the investments that we have today and look like we're not running those businesses today. But we have a lot of confidence in the management teams at Acreage. You see that their business is in growth and they're profitable, love the management team at Wana, led by Nancy Whiteman and TerrAscend, we've always said it's a well-run company. And so they're building out their footprints. We would see no reason to come in over the top. And I think everybody is going to have the question what your footprint looks like post permissibility depending upon the provisions of permissibility. And so, we're -- I would say, we would be reluctant to invest heavily in the U.S.-based upon our experiences in Canada with regards to fix assets on the ground. So we would intend to stay asset-light, even post permissibility.

Next question will be from Michael Lavery of Piper Sandler.

I just want to follow-up on some of the building blocks you laid out and this -- the target for the $250 million revenues. And I guess, really the question is, is that the right number? You've got the BioSteel target of 20% ACV that could potentially triple its size, but would still leave you at less than 10% of that quarterly target. It's close to double what you just reported. You're talking about 40% Canadian growth in cannabis that is, I think, a retail number, so it could even be haircut for what you get, even if you have your fair share. You're a long ways off of really doubling the size of your business and its entirety. What makes you so wedded to the $250 million as opposed to kind of maybe rightsize your expenses and fixed costs to closer to where you are now?

Yes. So I'll take a shot at that, Michael. So I think that when you look at the growth in our -- so point part by the components, I think the U.S. CBD business is attractive and is growing and has a lot of runway, especially as we start to get bricks-and-mortar placements in places like California. I think BioSteel is business that as we grow ACV, we're going to see a very hard ramp in the total revenue of BioSteel. And then, when you look at our Canadian business, we're really talking about being able to supply the right product attributes into the market, which we said a couple of months ago, we were struggling with during Q2. But we expect to have those problems behind us and return more or get inline more quickly with the share that we had captured in the past. So we think -- we think that the revenue number that we call out is, there's a really clear path to get there. Like on your other point, we continue to adjust the infrastructure of our business. We talked about the COGS improvement plan, and that's still underway. And we did -- we're not stopping there. We're continuing to do that work. And we continue to look at ways to lower our overall operating costs and optimize our business. That works just ongoing. We're just trying to lay out. As everything sits here today, the path to profitability does revolve around that mid-200s number. And we see a path to get there, but that doesn't suggest that we're not looking at other ways to get there as well.

Next question will be from John Zamparo at CIBC.

I wanted to ask about the cost-cutting program. And I'd like to get a sense of what the net savings on COGS and SG&A are going to be. I guess the $150 million to $200 million figure that's out there. But SG&A was up quarter-over-quarter, even tax stock-based comp. And now you're talking about an SAP implementation, higher sales and marketing as we kind of return to a normal environment. You're building some of your U.S. businesses. So I'd like to get a sense of what total SG&A will look like once you're through the cost cutting program?

Yes. Look, we continue on focusing SG&A savings in terms of SG&A load as a percentage of revenue. But we're also continuing to drive out hard costs quarter-on-quarter. A lot of it does come back to balancing the need for cost efficiency with still allowing for a foundation for growth. And we -- as I quoted in my script, we've taken a lot of SG&A costs out this year. And for the foreseeable future, our algorithm is to hold SG&A costs flattish year-on-year, as we scale the company. And all of those my EMC brethren have SG&A targets going out 2 to 3 years to make sure that we drive those economies of scale to our bottom line. So I'm confident that as we scale, our SG&A load is going to improve and that will manage to essentially flattish to slight inflationary type costs. So economies of scale are going to be key.

Thank you. And at this time, I would like to turn the call back over to Mr. Klein for final remarks.

Thank you, and thanks, everybody, for joining us today. As we now head towards the holiday season, I hope then we'll be able to enjoy some time with your family. And also, I hope that you have or will soon be able to try our fantastic cannabis products. Including the range of mood management options we now have in the market as well as our existing or exciting CPG brands. Look forward to updating you on the progress Canopy is making in the second half of the fiscal year. Our IR team will be available to answer any additional questions. Have a great day, everyone.

Thank you, sir. This concludes Canopy Growth's Second Quarter Fiscal 2022 Financial Results Conference Call. A replay of this conference call will be available until February 3, 2022, 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.