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Canopy Growth Corporation (NYSE:CGC)
Q1 2019 Earnings Conference Call
Aug. 15, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Canopy Growth's First Quarter Fiscal 2019 Financial Results Conference Call. After markets closed yesterday, August 14, 2018, Canopy Growth issued a news release announcing its financial results for the first quarter, ended June 30, 2018. This news release will be available on Canopy Growth's website and 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. In addition, Mr. Rob Sands, the CEO of Constellation Brands is joining the call today. 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 measure, adjusted EBITDA. These measures do not have any standardized meaning prescribed by IFRS. Adjusted EBITDA is defined in the press release issued earlier today, as well as in this period's Management's Discussions and Analysis document that are filed on SEDAR. Please note that all financial information is provided in Canadian dollars, unless otherwise specified.

Following the prepared remarks by Mr. Linton, Mr. Sands, 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.

Bruce Linton -- Founder, Chairman and Co-CEO

Good, thank you. So for everyone on the call, the flow will be, I'm going to say some remarks, Rob will [ph], and then we'll move to the quarter and will cover that off, and then we'll go to questions, after that we'll cover both the -- what I would say is a pretty significant and interesting transaction where Constellation is acquiring about another 25% of Canopy for approximately 5 billion Canadian dollars.

So I'd like to say good morning, and welcome to Rob, and it's been great -- people on this call will recall in October 2017, Constellation and Canopy announced that we were having this investment come in and a relationship was going to begin, and we're going to focus on beverages and brands. And with that announcement, everyone got excited and sort of we -- and then we went off to work, and there hasn't been a week go by that people from my company aren't interacting and building and thinking with people from Rob's company, and we've established, I think, an unbelievably confident, comfortable level of appreciation for how they run as entrepreneurs and how we do. So this is a relationship that has been built, and so, when the capital comes in, we each know what are getting and we're looking forward to going faster.

So this is really rocket fuel, it does add quite a lot. As we look around the world, we're going be expanding production, we're going to be doing more research, we're going to develop more intellectual property, we're going to create more leading brands, we're going to have more products, and we're going to be way more global.

If you're thinking about this, it does establish that Canopy is the cannabis platform for Constellation, and that's a great deal of focus and trust, and we took it seriously as a management team. Everybody on my team was unbelievably excited to take this next step to the place where we could actually go global and do it with and for Constellation. So their international experience, their brand building, their finance, their M&A, they're quite unbelievably capable in those areas, and we get to draw on that with much more focus.

The investment in our Canadian capacity has been made. So I want to be clear, Canopy has the production platform we need to deliver what we want in Canada. We are not going to be acquiring cultivation assets in this country; that is the absolute, clear and current plan. And that I want to make clear, because this is about an international thing, this is about growth around the globe.

The board structure will continue to see me as Chairman, and a couple of my current board members who are independents on. Constellation is bringing a couple of independents and two key people from their staff. So anyone who has covered and worked with Constellation would know Bill and Dave as the President and CFO. They have been core to how we've created this arrangement and how we've worked together. So I welcome them to the board.

The hometown, Smiths Falls, continues to be headquarters, and this is more rocket fuel for that town to see the growth in construction we've been doing. The opportunities we see before us, I don't think it's appreciated yet, how quickly things are opening up in Europe, Latin America, and even likely the U.S. And so, we're focused on medicinal, as that's the first and biggest platform. Obviously, as medicinal comes to play, some geographies will and are expected to open up and create a bigger platform for consumer products. We're driving all that right now.

So it was our view the time to invest isn't having a 2021 or 2022 plan, it's now. And I would suggest this marks the end of the warm-up in our sector where everybody has been sort of getting prepared, it is fully go-time and this is a piece of capital structure that I think gives us a huge advantage. So together, I as a shareholder, strongly support this and I think that our shareholders will, as we go out to the vote at the end of September and they recognize, now, we've built this leading company and we've been recognized that now it's time to accelerate. So this is a big term for us, the whole made-in-Canada thing now becomes made in Canada for the globe.

And I'd like to ask Rob if he would provide a few comments before we move through the quarter. Thanks. Here you go Rob.

Rob Sands -- Chief Executive Officer

Well, thanks a lot, Bruce, and good morning everyone. This is an extremely exciting time to be part of what could potentially be one of the most significant global growth opportunities for the next decade. We've worked closely with Canopy throughout the last year to better understand the cannabis market, this unbelievable opportunity it presents and Canopy's market-leading capabilities in the space .

Constellation's incremental CA$5 billion, $4 billion investment in Canopy Growth is the largest investment to-date in the cannabis space. The most strategic aspect is that Constellation will be exclusively working with Canopy for the global cannabis opportunity that we believe is opening up much more rapidly than appreciated, as Bruce said. We believe that having a single platform to address our markets and formats globally is essential to winning in this space. This investment and alignment represents the next step in the evolution of our business as we solidify our strategic partnership with Canopy.

I'd like to take a few minutes to walk you through the strategic rationale and highlights of the Constellation investment, and why we believe that Canopy is the best partner to align with in this cannabis space. Canopy plans to use the proceeds to bolster their global leadership position in the cannabis industry by building or acquiring key assets needed to establish global scale. Strategic priorities beyond Canada include the U.S. and the nearly 30 countries currently pursuing a federally permissible medical cannabis program, intellectual property development across medical and recreational opportunities, while also preparing and creating brands and products for the new legal recreational cannabis markets.

This transaction supersedes our initial agreement with Canopy to produce a non-alcoholic cannabis-based beverage. Now, going forward, Constellation will support Canopy's full suite of products that are currently available and as they develop new offerings across various product formats and through all new and existing channels. This partnership is a powerful combination of Constellation's expert capabilities in M&A, marketing, brand building, and large-scale production and Canopy's entrepreneurial approach and best-in-class knowledge and expertise within the emerging cannabis market.

So as the leader in the total beverage alcohol space, we look forward to reaping the benefits of our cannabis investment, which we see as being incremental to our core beer, wine, and spirits portfolio. Bruce and the Canopy team has built a phenomenal business, and I'm very excited about the excellent prospects for this business as the global cannabis space emerges.

So with that said, I'd like to now turn the call back over to Bruce, so that Bruce can proceed with a view of Canopy's quarterly results. Thank you everybody. Bruce?

Bruce Linton -- Founder, Chairman and Co-CEO

Great, thanks Rob. I suspect we'll get a chance to answer a few questions on that. So let's move to the quarter. It was a good quarter. We continue to lead the medical cannabis market in Canada and around the world. We got about CA$25 million in revenue, that's about 63% up year-on-year. Price per gram moved up, and that reflects increased sales to Germany and change of format. So Germany was about CA$3 million in revenue this quarter. We don't count the German patients in our patient count. That 85,000 patients, I think, Canada only. We were busy, we got the Spectrum soft gels. And this will be important, the mode of educating doctors is going to be very much about how you move them along, so that they're educated on the application of which strengths and types of cannabis are suitable. The soft gels became color-coded, so that if we do our sleep trial, which we announced the Phase IIb sleep trial, if we find that the combination of delivery mechanisms and, say, Spectrum Blue gets positive response on sleep, as we migrate people through that they're going to find that their sleep tool is Spectrum Blue. That doesn't talk about cannabis, it talks about a product. And if you are going to start to make claims about a product, the format of the product can shift from a gel cap to an inhalation device to whatever, and people, we think, will become very comfortable with the name, the brand, and the Spectrum positioning and it doesn't then link back to any specific restraint.

So those are kind of migratory path items, but they are important and they've been laid down. We've been busy in Canada and Europe. We've got Spectrum Cannabis operations now in 11 countries, five continents. We got the acquisition in Columbia, Lesotho, and Czech Republic. We got medical research roll back up, Canopy Health is now a wholly owned subsidiary. In that subsequent event, we talked about and announced our first Canadian approved veterinarian trial, which is looking at anxiety in mammals and how we could possibly relieve or remedy that with cannabis. This is going to be another big category and we think we're quite well positioned and ahead on that.

Globally, when we look at the access patients are having, in January if I did this call and I tried to tell you that there is a probability that the UK would be talking about cannabis and the possible normalization in governance of it that looks a bit more like their colony Canada and a little bit less like North Korea, you would have just thought I maybe was bonkers. Here we are today, and cannabis and the regulatory structure for it is on the agenda in the UK. We're seeing it everywhere. So this is kind of a big change.

CBD is what we're focused on with animals. But CBD everyday is moving through a progression, where it's going to become part of the normal course available ingredient set, which means that it's going to become really productized and I'll call it either proven by test or proven by brand, and it's not going to be the ingredient that matters, it's going to be how you put that ingredient on the shelf or to the patient. And I think we're doing a very good job of getting in front of that.

We have 39 provisional patents, they range from areas from insomnia to fibromyalgia, pain, companion animals. We think we're doing a very good and rigorous and active job on intellectual property definition and SBO-IV [ph] protection. With what we've got in Canada, it gives us the patients and the platform, so we can actually do the medical tests. And whether or not it's looking at anything from how does it reflect on your sleep condition, to what's the bioavailability of a format of delivery, those are the sorts of things that we can prove out in Canada and take globally.

And so, with the investment we covered a bit earlier, you can start to see where it doesn't take too long to contemplate globally. Maybe there is a number of pieces we could pick up, so you have a bucket that could be called M&A. The expected production and delivery in most of the countries is being set out in the reg. So you can see where you could build out in a few countries. And in this quarter, I think, Tim will cover it off, but we have about CA$1.4 billion of tangible assets, real things on our balance sheet, net of cash, and that's for Canada and a little bit started elsewhere. So you can see where construction could use that up and the yield that comes off those assets. We're just going to start seeing as we enter into the latter part of this year.

So just over two months away from opening up for rec. I think you'll be happy to see where we are with inventory biological assets and we are quite happy with where we've landed with all the provinces that have announced the supply agreements. You haven't seen yet an announcement from Ontario, but you have seen an announcement that we think is very positive, which means we could expect to have stores in the province. So it will go from the seed to the store front that we'll be able to educate and bring patients on board, or customers on board, so we can actually make sure that their loyalty to that brand relates to the quality of experience of the purchase, which includes how the people are trained and selected. And so, we're pretty excited about Ontario. I know that if your objective is to hold the stock for a day that may have been a bump-in-the-road announcement. But if you're looking at this over the next 6, 12 and 24 months, I think that model is going to work way better for the province of Ontario and for Canopy specifically.

I will let Tim get into some of the details on the numbers, but I did like how the inventory levels moved up, patient levels moved up. We have not been pushing to have the patient levels move up. They are selecting, because we do a great job and we will support those patients as we go forward. So our base number is 85,000 patients, as we turn the corner into adult access, and we've committed to those 85,000 patients. They will get supply and support before anyone else. So I think from a business level, it's a nice piece of steady business. And our supply agreements, on top of that, are about 67,000 kilograms across seven provinces and one territory and highlight that we are the only one selected across that platform. And if you work it backwards, I think if you take the total amounts that have been announced that's somewhere north of 35% of the total announced inventory that will be brought into the different provinces. So I think that should reflect quite well in our shelf space and our possibility of creating the first dominant national brand that goes to rec.

And we shipped approximately 8,700 kilograms last year. We expect the round we did of a convertible debenture was quite a meaningful transaction, and that was in June. And here we are in August with this one. Our stores in construction should be on schedule, so we are looking at construction on sites in Newfoundland, Manitoba, and Saskatchewan. We're still waiting what the bill that will look like in Alberta, but I can confirm we have, I think, a very competent structure, where really all of the mill works are done off-site and the installation process goes rapidly. So we feel comfortable for the stores that we've been awarded on October 17 that they'll look great, be open, and be pretty busy.

I think we've done a good job in terms of our technologies. We've been rolling out an upgrade on our ERP. We have our direct sales force across the country and they have both been educated and have the necessary tools in their hands to actually make sure that we have the best sales force and that will be key for the stores that we don't own.

And in the acquisition category, there was an announcement of Hiku Brands. Hiku is both a location brands and I think a great team. So that transaction is set to go to vote at the end of this month and we like what they can bring to our crew.

And then finally, we've been quite busy on spending. So you'll see the spend line that Tim talks about has been about finishing up everything from greenhouses, to extractors, to warehouses that are secure platforms that can ship in excess of CA$1 billion through that kind of a platform on an automated labeling and packing system. So we've made the investments to be ready. We're looking forward to the 17th and we're starting to feel the provinces coming through with the orders. So we expect to have quite a busy time starting in late August or September as far as shipments go.

So with that, I'll hand it over to Tim to get into the details of the quarter. Tim?

Tim Saunders -- Executive Vice President and Chief Financial Officer

Thank you, Bruce, and also thank you, Rob. And good morning everybody. I'll proceed now with the review of the first quarter, ended June 30.

Revenue for the first quarter was CA$25.9 million, representing a sequential quarter-over-quarter increase of 14% and a 63% increase over the quarter -- same quarter last year. Included in revenue, as Bruce mentioned, revenues in Germany totaled CA$3.4 million through our German subsidiary, Spektrum Cannabis GmbH. Oils, including soft gel capsules, accounted for CA$5.2 million and CA$1.1 million, respectively, for this quarter and the same quarter last year, or 26% and 19% of product revenue respectively.

The total quantity of cannabis sold during the quarter was 2,695 kilograms and kilogram equivalents at an average price of CA$8.94 per gram, up from 1,830 kilograms and kilogram equivalents at an average price of CA$7.96 in the same quarter last year. The higher average price, as Bruce mentioned, was principally due to increasing sales in Germany and as well as the product mix, with oils and gel capsules accounting for an increasing proportion. The average sale price per gram sold in Germany was CA$13.62 per gram.

As Bruce just mentioned, today we just stand over two months away from the opening of the rec market, an event that we've all been preparing for and investing in for the last two years. We've invested and continue to invest significant effort, capital and resources in activities and programs to ready the company to participate in and lead the Canadian recreational cannabis market. These investments continue to cover the company's entire business operations, including production, fulfillment, marketing, sales and G&A.

In the first quarter ended June 30, the company harvested 9,685 kilograms, with over 2.4 million square feet of area in BC Tweed greenhouses, licensed and planted early in the first quarter of fiscal 2019. And with over 1.5 million square feet of greenhouses, along with Mirabel in Quebec, and Niagara-on-the-Lake, we're expecting to be licensed shortly, we're expecting the amount of cannabis harvested to increase significantly in the coming quarters.

The cost of sales, including the impact of cash operating costs of subsidiaries not yet fully cultivating or selling cannabis, including partially licensed greenhouses operated by BC Tweed and Vert Mirabel, and higher overheads incurred while preparing operations for the expected legalization. Excluding these costs associated with the non-cultivating assets, these additional overheads totaled CA$5.4 million. The gross margin, therefore, before the fair value impacts on cost of sales in the first quarter would have been CA$16.5 million or 64% of sales. The first quarter gross margin, including the cost of operating these non-cultivating subsidiaries and such, but before the fair value effects of the IFRS accounting for biological assets in inventory, was CA$11.1 million or 43% of sales, as compared to CA$8.7 million or 55% of sales in the same quarter last year.

Now, turning for a moment to operating expenses in this quarter, as been highlighted, the company continues to make significant investments across all areas of our business to strengthen the company's leadership position in the Canadian and the global medical cannabis markets, as well as in preparation to lead the rec cannabis market that is set to open on October 17. As a result, these investments have significantly increased operating expenses over prior periods, essentially spending for the rec market to come in a quarter, while it's still medical.

Sales and marketing expenses include increasing staffing levels and marketing and sales functions, including retail, needed to service the coming regulated recreational international markets, costs associated with the development of branding, marketing and education campaigns, the development of new permitted product SKUs, the development of recreational product packaging, the development of cannabis retail and education programs, as well as costs associated with the company's medical outreach program, and the growing customer care center, which interfaces directly with those customers.

Sales and marking expenses for the quarter ended was CA$17.3 million or 67% of revenue. In comparison, sales and marketing expenses for the quarter last year was CA$6.4 million or 40% of revenue. G&A expenses for the quarter were CA$19.6 million or 76% of revenue compared to CA$7.5 million or 47% of sales in comparison to last year. Similar to the reasons for investments made in sales and marketing, G&A has also grown to scale our infrastructure, governance and capabilities with expectations to support domestic and international growth.

Now turning my attention to other expenses and net income. Included in other expenses, this is below the loss from operations, you will note, we had a CA$60.4 million expense for the quarter ended June 30, and that was comprised of a non-cash fair value loss of CA$19.3 million, principally related to the change in fair value of the TerrAscend warrants and a non-cash fair value loss on the AusCann options. Both the warrants and options were initially recognized at fair value and are subsequently remeasured to their fair value at the end of each reporting period.

Other expenses also include CA$16 million related to the convertible debt issue costs, which arose at the end of the quarter. In addition, fair value changes on the BC Tweed and Vert Mirabel put liabilities, combined to a loss of CA$18.1 million. Of note, due to the full acquisition of BC Tweed in July, the BC Tweed put liability, which had a fair value of CA$72.6 million on the balance sheet at the end of June will be extinguished in this quarter and will result in a gain in the second quarter coming. All told, the CA$60.4 million in other expenses described here, really accounted for CA$0.30 of the reported CA$0.40 loss per basic and diluted share in the quarter, and that compares to CA$9.2 million or CA$0.06 per basic share and diluted quarter in the same period last year.

Net loss in the quarter, after taxes and other expenses that I just described, drove a reported net loss of CA$90.8 million or CA$0.40 per share, as I just said. Adjusted EBITDA, as defined in the press release and MD&A, in the first quarter amounted to a loss of CA$22.5 million, which is about CA$0.11 per share impact, and that compares to an adjusted EBITDA loss of CA$3.9 million last year.

We believe our deliberate and ongoing investment in building the company's production platform, brands, International reach, partnerships and operations, which directly impacted our adjusted EBITDA during the period is really necessary to strengthen the company's global leadership position heading into next year, while at the same time competing in the medical market that will exist through this quarter as well.

Now turning our attention to the balance sheet and cash flows. At June 30, the company's cash comprised of cash and cash equivalents, totaled CA$657.9 million, up from CA$322.6 million at the end of March 31. The increase in the end of fiscal year was mainly due to the net proceeds from the issuance of long-term debt, or there is the convertible debt of approximately CA$584 million, mostly offset by the investments in the facility expansion that we've described in this call, which totaled of CA$153.7 million since last year, and other cash applied to funding operations and infrastructure.

Investments in facility enhancements were primarily improvements at facilities in both locations, in the lower mainland of BC or BC Tweed, as well as Niagara-on-the-Lake, expanding the footprint there, and also the transformation in Smiths Falls, Ontario. At the same time, doing build-outs in Fredericton, New Brunswick and also Mirabel, Quebec. Investments also include information technology upgrades, as Bruce described, and introducing new systems as we scale up.

Also, as Bruce talked about, inventory at June 30, amounted to CA$118.2 million, up from CA$101 million at the end of March. But the end of June, biological assets had grown to CA$52.8 million, up from CA$16.3 million at the end of March. Together, inventory and biological assets totaled CA$171 million, up from CA$118 million at the end of March.

Inventories are continuing to be scaled to meet our expectation of market demands, including the legalized rec market, as the provinces begin to stock up for the October 17 launch. At June 30, inventory quantities amounted to 19,721 kilograms of dry cannabis. Of this amount, 2,594 kilograms finished goods available for sale, 6,576 kilograms of product that was in process of testing and awaiting release for sale, and there was 10,551 kilograms of cannabis held for conversion to oils and capsules. In comparison, at March, we had 15,726 kilograms of dry cannabis, which was in inventory, and was comprised of 2,182 kilograms of finished goods, 3,480 kilograms of product awaiting approvals, and 9,264 kilograms of cannabis being held for conversion. Also, June 30, we had a total of 14,895 litres of cannabis oil, ranging from concentrated resins or refined oil to oil in its finished state and available for sale. That's up from 6,969 litres at the end of March, also having the same composition.

We also had 1,055 kilograms of capsules on hand at June 30, and that's up from 256 kilograms of capsules that we had on hand at March. Management continues to believe that significant demand will develop for cannabis oil and in particular, soft gels in this rec market. As such, the company continues to increase inventories of extract-grade dry cannabis held for conversion and will increase the quantity of cannabis oil and soft gel capsules we have on hand.

So that concludes my review of the financials for the first quarter. And I'll turn the call back to Bruce.

Bruce Linton -- Founder, Chairman and Co-CEO

Great. Good job on the quarter, Tim and his team. All that coupled with New York Stock Exchange has made for an active quarter for finance team and appreciate the work. So with that, I'll open it up to questions please.

Questions and Answers:

Operator

(Operator Instructions)

Bruce Linton -- Founder, Chairman and Co-CEO

And I should clarify that I and Tim will be taking questions. Rob has already provided his input, and so I thank him for that.

Operator

And your first question today comes from the line of Tamy Chen with BMO Capital Markets. Please go ahead.

Tamy Chen -- BMO Capital Markets -- Analyst

Thanks. Hi, Bruce and Tim. I had a couple of questions on the Constellation announcement. Firstly is, you're getting a big inflow of capital of about -- the CA$5 billion, which is quite substantial. So could you discuss a bit more about how you're thinking about where and how you intend to deploy that?

Bruce Linton -- Founder, Chairman and Co-CEO

Sure. So, we're not putting out hard guidelines on it. But when we look at our current target acquisition list, it exceeds CA$1 billion for international and, I'll call it non-cultivation assets . We know that that list will grow, we're getting ready for other markets to open up. So we want to have a little cash on the balance sheet for things like America, if it comes around. We also know that based on what's happening in Germany and in a number of the other places, the RFPs are coming back out, and the build programs are substantial. And I mentioned earlier, if you look at our assets in Canada, it's about CA$1.4 billion of real assets to serve this country. We see what we have to put together from Germany to Chile, Australia to some of the activities we're supporting in other European areas, we'll use quite a lot of that up. And then we'll have a much bigger asset base to have a much larger yield on. So I think you'll like what you see as far as our targets that we hit, as far as acquisitions over the next 6 and 12 months. Assuming a close on some of those, I think, to say that, that makes quite a lot of sense.

Tamy Chen -- BMO Capital Markets -- Analyst

Okay. Got it, thanks. The second question is, has Constellation secured any rights to participate in future equity financings of yours, so that they can stay above the 50% on a fully diluted basis state?

Bruce Linton -- Founder, Chairman and Co-CEO

Right. So assuming they exercise the current warrants, which will get them to about 16.4%, this transaction takes them up over 38%. And the way it's structured is that there is an additional two pieces of an instrument. There's a second warrant that would move them to approximately 50% and that's priced in the press release. And then there's a final, I'll call it, a VWAP future unstated price, additional 5%. Through the process we've built a mechanism, so that as we make further acquisitions there is an opportunity for quarterly top-up, so that they can retain their then current percentage. And it is, I would call it, almost sort of a normal course right to maintain and not be diluted and they can excel [ph] in there.

Tamy Chen -- BMO Capital Markets -- Analyst

Okay, got it. And lastly, if cannabis is completely legalized at all levels of the US government, could you talk a little bit about how you would approach that market, both the medical and the recreational side?

Bruce Linton -- Founder, Chairman and Co-CEO

Sure. So there is a bunch of scenarios under which that might happen. It could be -- as you described, it could be state by state. What's going to happen, I think, however, is that if you have intellectual property in clinical trials and results that show medical efficacy, you're going to be able to take those through, especially if the intellectual property protection does as we do, which is it starts with the US first filing, then you'll have a suite of products that need production assets and the whole supply chain. What we've learned in Canada is how to do scale. And so, I think what you'd find is, if California became a federally permissible place, you kind of need essentially one Canopy asset group from everything we've got dropped into there, to produce all the products that we would want to take to market. There will be some markets where there are brands that we would perhaps buy, but there really aren't scale production assets, so we will create those and I think we have an accelerating advantage in the event that occurred. And that will then take us into everything that's a strength of ours and Constellation, which is if you have legal, medical and legal rec, part of the chain is the product, but part of it is the delivery system, the support infrastructure, the sales reps, and all of the things that make you successful in a CPG.

And then the second part is, we think that our medical approach, and we've expanded our team to include internationally capable and recognized pharma leaders who are joining us, that team, I believe is going to do a very good job in creating everything from NHP products, natural health products, right through to finished Rx trials, and those are going to be designed and delivered, so that they aren't just for Canada or just for Germany. And I think it will give us a material advantage into that segment. So we feel good about the cash coming in, because there's a lot more work right now than we had capital and capacity, this accelerates it. We also get to draw down on resources at Constellation. So part of the structure of this deal is that anything that they have that we need, we have a services arrangement, where we will try to orderly access and use, so that we can accelerate with them as a part of our team. And so, that is, I think, going to be quite a good bit of leverage.

Tamy Chen -- BMO Capital Markets -- Analyst

Got it. Thanks. That's very helpful. Those are all my questions.

Operator

Your next question comes from the line of Martin Landry with GMP Securities. Please go ahead.

Martin Landry -- GMP Securities -- Analyst

Hi, good morning and congratulations on that investment.

Bruce Linton -- Founder, Chairman and Co-CEO

Thanks, Martin.

Martin Landry -- GMP Securities -- Analyst

Just wondering, to follow up a little bit on the capital deployment. It was helpful to give us a little bit your acquisition pipeline. But wondering how long do you think it could take you to deploy that CA$5 billion of cash inflow and maybe if we look at the next 12 months, and under your ideal scenario, how much capital would you have deployed?

Bruce Linton -- Founder, Chairman and Co-CEO

So we're not benchmarking against it, but I'll put a few more buckets out there, if I can. Ontario, how many stores might we get, how many we build out. As we stack our medical trials and we start rolling those out, and I think that once you've stabilized ingredients, the ability to deliver and design many more trials accelerates. So we've got both animal, first one out, and human, first one out. I don't think it will be a big gap to have multiple others that could line up behind it. So we're not pacing it out, but I suspect, as eyes watch us each quarter, you will see strategic investments that often acquisitions or build-out, we'll use cash now, not dilutive shares. And on our quarterly calls, we'll check against what did we get done. And I think you'll find that that list moves very quickly.

We have been on the M&A and build-out review, looking at assets around the globe for about a year. And with Constellation's team to assist us in executing some of these M&A transactions, because Rob and his team have been clear, this is where they are placed and they are not now looking at any other M&A even in their sector for some time. So that team comes to us. So I don't want to give you, it will be this much by Tuesday, but I suspect we will move quite quickly and we've done to-date -- Tim might be able to remember the exact number -- but I think we're on acquisition number nine inside of Canopy already. So we're pretty confident of that.

Martin Landry -- GMP Securities -- Analyst

Okay. And is the ultimate goal for Constellation to take control of Canopy in time?

Bruce Linton -- Founder, Chairman and Co-CEO

I can't speak to their ultimate goal, but I suspect if we do what we are going to do, which is build a global platform that generates massive amounts of EBITDA over the next few years, that is a pretty amazing company that everybody would think is a good one to own.

Martin Landry -- GMP Securities -- Analyst

And then just to switch back on the Canadian market and what's coming up with the recreational --

Bruce Linton -- Founder, Chairman and Co-CEO

And, sorry, Martin, I should be clear. The way we've structured this, right, they're buying about 25% for about CA$5 billion right now. And I, as a shareholder, like the race ahead, because to your earlier question, what this is about now is about how much can we build, how great can it be and what does that do to the value of the company, because the alignment we have with Constellation is on winning and that should work pretty well for the small shareholders, including me, in terms of what this looks like for the next tranches.

Martin Landry -- GMP Securities -- Analyst

Okay. And just to switch to the Canadian market, the domestic recreational market, I think you've won supply agreements for up to 67 tonnes over the next year and that excludes Ontario, if I understand correctly. And right now I think you have around 20 tonnes of dry cannabis in place. Do you have enough inventory to fulfill the first shipments from the provinces, or are you going to need to bridge some of that?

Bruce Linton -- Founder, Chairman and Co-CEO

So, Tim can talk about this more converting into inventory and what we have as a product mix. Really the question is going to come down to, I think we have enough, subject to, what do they order, right? So part of the reason we've kept a single shipping center is how to manage inventory and how to ship it out. But the pipeline is empty. What proportion of the product are they going to want in dry cannabis, containerized, rolled cannabis, gel caps or oils. And so, really it's going to be a continuous shifting of orders, inventory and matching it. And we're already starting to see some of the provinces putting up their first indication of what they want. I will tell you it's probably going to drain everything, but I think we'll be able to balance it. And then the real question is, when do they reorder and how much they reorder. But we're juggling that now. We only have two provinces that have sort of starting to give us a positive indication of when they want to order and what quantities and we're working through that.

Martin Landry -- GMP Securities -- Analyst

Okay. Thank you.

Operator

Your next question comes from the line of Graeme Kreindler with Eight Capital. Please go ahead.

Graeme Kreindler -- Eight Capital -- Analyst

Yea, hi, good morning gentlemen. Bruce, you gave a bit of an overview of sort of what the long-term vision is for the company and obviously focusing on the large opportunity in medical. Can you just give some more color around reconciling the medical opportunity in the international markets that Canopy has in front of it, versus Constellation being involved in beer, wine and spirits and having a number of established brands there. What's bridging the gap between that medical opportunity and more of the consumer focus in Constellation?

Bruce Linton -- Founder, Chairman and Co-CEO

Sure. So, the people -- and Graeme, we've been on it for a bit. The way the platform gets built is that it focuses on a patient. No country that I'm -- of a material nature is going to necessarily open up and say we don't have any medical program, but we're going to have a cannabis party. So I think what you have to look at is, the medical becomes the operational platform that creates the assets, they can create the ingredients to create medical outcomes. But then they can quickly increment to CPG. And CPG turns those ingredients into brands, formats, and outcomes that people want, so that they have better occasions. And so, I think what I like with Constellation is they've spent quite a lot of time with us and observed how Canada has evolved and probably you would place bets that a whole bunch of countries around the world, if you're in the dominant in the medical, you have all the production assets necessary to take it up to CPG. And so that I think is kind of where you could see the bridge.

And if you come into two of our facility, when you go to our Section 56 Exemption Lab, you have people taking ingredients from cannabis and creating a diversity of things that could be from -- what could be used for an animal product, to a human medical, to a beverage that looks amazing and sits on the shelf and stays in suspension for quite some time, maybe forever. And so those -- that's where you go from having a managed ingredient market, where people want to call it, is this going to become a commodity. No, it is going to become a regulated ingredient and it's how they vertically change over the different markets. And so I think there's good alignment with Constellation as we ramp out and build Canada, because if you get dominant and create great brands in Canada for the adult access, those brands and learning programs are going to, I think, carry quite a lot of weight as we go into other geographies.

Graeme Kreindler -- Eight Capital -- Analyst

Okay thanks. And just one other question. For those of us who are uninitiated on the specifics for Constellation brands, what's their plan on actually funding the CA$5 billion investment?

Bruce Linton -- Founder, Chairman and Co-CEO

I believe there's a note in the press release that points to the source of capital. Tim, I don't have it in front of me and I read 26 versions of it. So I can't remember if that ultimately stayed in, but is it referenced in there?

Tim Saunders -- Executive Vice President and Chief Financial Officer

It was. Bank of America Merrill Lynch is providing the financing for the transaction. So you'll find it in the third-last paragraph of the press release.

Graeme Kreindler -- Eight Capital -- Analyst

Okay, thank you very much gentlemen.

Bruce Linton -- Founder, Chairman and Co-CEO

Yes, please do read through that. Those are some interesting names to be associated with us in the cannabis space. I think that's quite remarkable.

Operator

Your next question comes from the line of Dara Mohsenian with Morgan Stanley. Please go ahead.

Dara Mohsenian -- Morgan Stanley -- Analyst

Hey, good morning guys. So, Bruce, the total addressable market opportunity, you mentioned in the slide deck of CA$200 billion by 2032, or I guess greater than CA$200 billion. That was very helpful. But I was hoping for a little more detail as you think about the size of the addressable market over the next 5 or 10 years. Said another way, how quickly do you think that addressable market ramps up toward that CA$200-plus billion goal in 2032 as you look out over the next 5 to 10 years here?

Bruce Linton -- Founder, Chairman and Co-CEO

Sure. So there's -- what is that market made up of? I think right now that number is a proxy for switching people from an illegal purchase program to a legal purchase program. But I'm not sure that that number is a very accurate proxy for the disruptive nature of what could be created in terms of the true finished products that are unique and different in medical and rec. So I think the number could, in fact, be quite a lot bigger than that. The rate of ramp, well, let's just use Germany. This quarter, if we look back four or five quarters ago, there was zero happening in Germany. This quarter we did what, Tim, about CA$3 million?

Tim Saunders -- Executive Vice President and Chief Financial Officer

Yes, CA$3.4 million, yes.

Bruce Linton -- Founder, Chairman and Co-CEO

CA$3.4 million. And this is where the government largely is the party paying for the cannabis as a medicinal ingredient. That rate of growth, as we get more formats and more responses and indication sort of claims, I think increasingly ramps up. And so, I would be surprised if the rate at which this is changing, three, almost four years ago, there were about four or three countries trying to figure out how to regulate this at a federal level. There's about 29 now. And so, if those countries continue on a path of growth -- if you look at Canada, we've gone from 30,000 patients in an old scheme, maybe 35,000, to maybe 350,000 or 400,000 medical patients in a period of about four years and we're about to add, you pick a number. We got 35 million Canadians. Are we going to have 5 million who are interested in rec? 2 million, 8 million, I'm not sure what the number is, but I think people are going to have to build models and the model should be driven on which countries are going to move to a medical, who will be the payee and when will Canopy have medical claim products that can file under pharma insurance. And then with those countries, which ones are likely to have an electoral event that allows them to move to managing a recreational market. And I believe it's a lot closer in a lot of countries than people think, because this is going to be pointed to at Canada. It's going to be a evolving success here. And so, I think the market rate of growth, you can probably bring that number way back very soon, but that's up to you to create a model, we just have an outside date of -- was it 2032? Pretty far off.

Dara Mohsenian -- Morgan Stanley -- Analyst

Right. That's very helpful. And then as you think about your positioning in the industry, obviously there's a lot of capital coming into the space and a lot of competition. Help give us a background on why this partnership is potentially the leading player in this space as we look out over the next 20 years or so and how you're sort of positioned versus that competitive set, and maybe what some of the unique capabilities are on your end?

Bruce Linton -- Founder, Chairman and Co-CEO

We're at this now. We will be on a call in a year, 18 months. And when you say the competitive set, it won't be any of the cannabis names that are started up in Canada. It will be big pharma. It will be other packaged beverage, it could be a day doesn't go by without somebody sending me an article that the Wrigley family are looking at this, everybody is looking at this. So I think when you talk about competitors and why we're doing this now, we have a great position and a great start. This is about accelerating and getting way further out there, before those other big names are in. Getting our products, taking our claims, having the leverage that we have now and moving up. So I bet the competitive set names you use are big known names and they have to get in the space, because this is the most disruptive, rapid growth opportunity for EBITDA than any of them are looking at. So it's going to get big and they're going to get good. We're going to be way ahead.

Dara Mohsenian -- Morgan Stanley -- Analyst

Great, thank you. Appreciate it.

Operator

Your next question comes from the line of Matt Bottomley with Canaccord Genuity. Please go ahead.

Matt Bottomley -- Canaccord Genuity -- Analyst

Good morning and congrats on the announcement. Don't want to beat a dead horse here, but just a couple of more questions on the potential deployment of capital here in the near term. So, Bruce, where do you see the -- maybe when you line up what Constellation brings versus what you've been able to achieve in the Canadian market, what are some of the holes, for lack of a better word, even Britain, with respect to those two parties that you might need to go and acquire assets to fill? Is it more on the medical technology side, is it more on boots on the ground, getting licenses in various countries, just any more color on where you think you need to go out and increase your exposure?

Bruce Linton -- Founder, Chairman and Co-CEO

Yes, so depending on the country and what you have for the vertical stack, it could be things as simple as, we're not interested in sharing our margin with a pharma play, we will probably find a little down-the-luck biotech company that could do a lot of that lifting for us. So that could be a nice fit. In certain geographies, it's starting with base real estate and moving up through the stack, but we move up through it a lot more quickly with what we'd have to put in. We have an expansion of technology. So, suppose we get through rec, October 17 happens, and suppose that the government decides they in fact are going to do what they said they'll do and have to do, which is increase our product set, so that we can actually compete more effectively with real estate market. I bet I need a bottling line if I want to have beverages in a great bottle. And so, you could see where you'd spend on that. Those things take off, and all of a sudden multiple geographies need the same set of products, which needs the same set of production growth assets, extraction assets, labs, lines, this is where it goes. And so, Canada, we're looking at bottling lines. In other countries, we're looking at greenhouses. And I think when you're currently in 11 countries and you can see the map going quickly up to more than those, you start to understand where the pieces would fit together, but it is a bit of a rinse and repeat. Once you got it right at scale, you can accelerate in every other country.

Matt Bottomley -- Canaccord Genuity -- Analyst

Okay, great, that's helpful. And maybe just more on the US market as well. Obviously, you guys have been clear that there is no plans to enter there until it's federally legal, but that's a very, very fast moving market as well, that's evolving day by day. So how much is Canopy, I guess, investing in terms of its time in following these markets and aligning itself, where if the opportunity arises, there could be a potential huge opportunity there as well?

Bruce Linton -- Founder, Chairman and Co-CEO

Yes. We have and have had a team. And now with Constellation, have a bigger team that has a very specific mandate to be ready, which can mean everything from having options on things to preparing with the right tech. And so, the US is the best market, for sure. But no one in there, right now, can go to scale. All of the conditions created by being federally legal mean that you have probably an inverted model where there are too many producers, too few proper processes, and very fractured product sets across multiple geographies. If and when it becomes permissible, scale will mean quite a few things change from the cost of production through the quality of the product, and that you really create universal brands that actually are the same when people go anywhere in any state. And I think that is exactly where we will play very well with Constellation, if and when we can.

Matt Bottomley -- Canaccord Genuity -- Analyst

Okay. And then just moving north of the boarder to Canada then. When it comes to -- I mean, it seemed clear in your press release that you guys are previously already fully funded for everything you wanted to do in Canada. But what's your view on the climate right now from an M&A standpoint? Is there anything that interests you on M&A, or do you think just the cash that you now have from Constellation can really fill in any holes that you might want to true up in Canada?

Bruce Linton -- Founder, Chairman and Co-CEO

We don't need any production assets for sure. And part of the reason is we've figured out that it's actually more efficient to take everything we've learned after 200-and-some-odd number of inspections from Health Canada and applied that to the design creation of our own assets, as you saw when we leased, then bought the assets in British Columbia with the greenhouses, that program began December 1 and about February 17, we had our first plants and licenses going. So there's nothing on a production basis. Obviously, real estate locations, vertical integration, that makes sense. But I think in Canada it's going to be more of accelerate our own build than it is acquire any incremental cannabis asset.

Matt Bottomley -- Canaccord Genuity -- Analyst

Okay, thanks. And just one last quick question, if you don't mind on -- moving away from this deal specifically. Just curious on your key takeaways from the Ontario's press conference the other night with respect to retail. I'm still trying to juggle in my mind, how much of this is going to be open to the LPs versus maybe more traditional retail like grocery stores or pharmacies, or even some of these illegal dispensaries if they stop doing -- if they stop immediately dispensing. Is it all up in the air right now, or do you have a more concrete view as to how much the Canopies of the world are going to get involved in retail in Ontario?

Bruce Linton -- Founder, Chairman and Co-CEO

Well, I think everyone is going to be wanting to be in, but that doesn't mean everybody gets in. So the reason we ended up being selected in three provinces already is, if you're going to be a retailer of cannabis, do you have an educational training platform? Yes, we do. In fact, ours has been used by other provinces to train their retail staff. Do you have the appropriate controls in age gating practices? Do you have security cleared people to manage and handle all of the processes around transit of cannabis et cetera? So I think we are the most well-qualified to win. We won't win all of them, but I would suspect that the model they're going to adopt is probably more similar to Alberta, Saskatchewan, Manitoba and Newfoundland than it will be BC. And I like the announcement, because what was going to be a problem in Ontario was that there were going to be very few stores, and there were going to be a very slow process to have more stores. And the province is very good at inventory management, warehousing and they can make their money there. And the effect will be that while there may be no stores October 17 this year, but if they wanted 400 stores by October 17 next year, that wouldn't be a particularly big push for the private sector to deliver that even much earlier. And so when all the stores roll out is when we will have the next wave of product rights, meaning vapes, probably ingestibles that can include a beverage, we would expect. And there'll be way more points of sale. And so, I was smiling when the announcement occurred, because what we're going to have is a great retail platform, us and others, to sell great products, which is what we're creating. And I think that that is going to be way more important than having 40 stores from the province. And so, it's a little bit of a short-term hit to launch things the way I'd like to see them.

Matt Bottomley -- Canaccord Genuity -- Analyst

Okay, great. Thanks, Bruce.

Bruce Linton -- Founder, Chairman and Co-CEO

And most provinces check if you're a criminal. Every province we've been awarded stores, we've had to give as much as three years back history on our personal incomes and spouses' and total assets. I suspect if you're currently breaking the law, the likelihood of meeting the criteria of getting a license is pretty low.

Operator

Your next question comes from the line of Andrea Teixeira with JP Morgan. Please go ahead.

Andrea Teixeira -- JP Morgan -- Analyst

Hi, good morning. So, Bruce, I have two questions please. One is to understand from your prepared remarks that 100% of the use of proceeds will be international, and also, as you mentioned, you don't need more production capacity. But you also mentioned California. So would you make acquisitions in the U.S., given it's still federally illegal? And I think that would be different from what Constellation had said before. And then --

Bruce Linton -- Founder, Chairman and Co-CEO

No. So I should be clear. We definitely do not participate in federally illegal markets. I use California as an example of scale. But until it's federally legal, we will not participate in a market. So I should have been more clear, if I wasn't, that is 100% in our platform and has been since day one.

Andrea Teixeira -- JP Morgan -- Analyst

Thank you. And then one more on housekeeping, and I'm sorry too, because it wasn't clear in the release. So I'm trying to calculate the fully diluted number of shares now, right, as you get into -- as you get the warrants that Constellation might have had, the 18 million shares they had. And when you do the math, and correct me if I'm wrong, I'm getting to about 324.7 million shares now without the new warrants. And then, is it fair to assume -- sorry just to -- the CA$5 billion divided by these number of shares, you have about -- you just got about CA$15 per share. Is that the way we should think?

Bruce Linton -- Founder, Chairman and Co-CEO

No.

Tim Saunders -- Executive Vice President and Chief Financial Officer

I mean they are incrementing their ownership position from just under 15% to -- by 25 percentage points.

Andrea Teixeira -- JP Morgan -- Analyst

Yes. So we're getting to the number of shares that you just like announced today, and you divide -- and you make an addition in the number of shares and the warrants that they converted. I just wanted to go back with the warrants that they converted before the infusion of the cash, because that's not additional money, I'm assuming, right. So that is the money that they are already committed before. And then in addition to that they're putting CA$5 billion, and then the new warrants will be an additional CA$4.5 billion. Is that the way to think about?

Bruce Linton -- Founder, Chairman and Co-CEO

So let me, while Tim digs up the share count. When I indicated our principal interest is international, what I'm not buying in Canada, and therefore it's not necessarily 100% of my money will not be used in Canada. What I'm not buying in Canada are production assets. It doesn't mean that I might not need specific real estate assets for retail or other things of that nature, so I want to clarify that. On the warrants, they have not yet been exercised. One half of them has an immediate right or access to them. So the CA$245 million was divided in two tranches, one which is eligible to be exercised this month, and one which is accessible in early 2019. So Tim, can go into the model, but those haven't yet converted. But obviously at CA$12.97 per unit, they're in the money and will convert.

Tim Saunders -- Executive Vice President and Chief Financial Officer

Yes, if you're looking at numbers at the end of June, there's other transactions that have happened since then with the acquisition of the remaining shares of BC Tweed and CHI and the like. And when you bake in all of the ESOPs, stock options and the like on a fully diluted basis before this on a pro forma basis, about 268 million fully diluted shares outstanding. So then you're incrementing that by the investment of 104.5 million shares from Constellation, which gets you -- that 104 million is the extra 25% that gets them up to about 38.1% at this investment to a little over CA$5 billion. And then the warrants, as you said, is incremental money that could be exercised over the next three years.

Bruce Linton -- Founder, Chairman and Co-CEO

And the purchase price on those shares is -- the new shares, the purchase price is in the release, but it was CA$48.60 per share.

Tim Saunders -- Executive Vice President and Chief Financial Officer

That's the new shares, correct.

Andrea Teixeira -- JP Morgan -- Analyst

Per share. So the way we can get the math, simply take the 104 million, divide it by 38%, and then we get into the fully diluted. That was just like as you're saying, there were so many transactions and I'm assuming that triggered a lot of different options exercises, as you correctly pointed out, that we don't know what's your -- it will be helpful to have a fully diluted number of shares in the next few months, so that we can kind of calculate money in, money out, how -- OK.

Bruce Linton -- Founder, Chairman and Co-CEO

Yes, that's good advice. We will -- because of the number of transactions we do in this transaction, as things get topped up, we'll be specific in our go-forward quarterlies where we are in terms of total share count and what contributed over the quarter.

Andrea Teixeira -- JP Morgan -- Analyst

Okay, wonderful. Thank you.

Operator

Your next question comes from the line of Alan Brochstein with New Cannabis Ventures. Please go ahead.

Alan Brochstein -- New Cannabis Ventures -- Analyst

Hi, guys, congratulations.

Bruce Linton -- Founder, Chairman and Co-CEO

Thanks, Alan.

Alan Brochstein -- New Cannabis Ventures -- Analyst

Just a couple of quick ones.

Bruce Linton -- Founder, Chairman and Co-CEO

Did we lose Alan?

Operator

Your next question comes from the line of Todd Duvick with Wells Fargo. Please go ahead.

Todd Duvick -- Wells Fargo -- Analyst

I'm not sure if your phone system is functioning well?

Operator

Mr. Duvick, your line is open.

Bruce Linton -- Founder, Chairman and Co-CEO

Hello?

Operator

And your next question comes from the line of Tim Ramey with Pivotal Research. Please go ahead.

Tim Ramey -- Pivotal Research -- Analyst

Good morning. Thanks. Can you hear me?

Bruce Linton -- Founder, Chairman and Co-CEO

I'm very happy to hear you.

Tim Ramey -- Pivotal Research -- Analyst

Okay , thanks. So I live in the state of Oregon, which is a legal state. And I think you spoke to this a minute ago, but I'd love to have you flesh it out a little bit more. It appears that there is some over-saturation of the market right now. And I guess your point of view would be that these players are not going to be the players, the competitive set that would exist in five years, that big pharma or yourselves or whoever comes in when it is a federally legal market, would supplant the existing. Can you just kind of talk about the idea that there has been some over-saturation in the early development in legal states?

Bruce Linton -- Founder, Chairman and Co-CEO

Yes. So there may be a place where the supply chain incorporates the producers as a -- really, when we talk about cannabis in Canada and when we report on it, we've changed how we report on it. We used to report how many grams and everything was about cost per gram and grams, grams, grams. The problem with that is, we actually think about milligrams, active ingredients. And so the producer of the active ingredients could be some of the cohort they currently produce. Where we make our value and what I think our specialization is going to be evolving to is, the ability to convert those milligrams into medical and non-medical recreational products that people prefer over anything that's on the market today. And it's because, if you run things through a true medical program and you can make claims, and you can create the consistent outcome, people want that. I don't know if they're calling it medical marijuana without having the appropriate level of diligence in creating truly medical outcomes is doing it a big favor. So I think that'll be disruptive. And the Constellation pact with us on making consistent quality products, whether they're beverages or vapes or others is going to be a big deal. So saturation, I think, is a problem if you don't have proper conversion. Proper conversion is a problem if you don't have a strong and big platform to do things I just described. But even at a saturated rate, what's the average price per gram in Oregon now? US retail, what would you pay CA$7, CA$8, CA$10?

Tim Ramey -- Pivotal Research -- Analyst

I have no idea.

Bruce Linton -- Founder, Chairman and Co-CEO

Yes. But when we hear saturated price rate in Canada, when we do a large platform of production, where we are last reporting in, you start to see cost per gram going well below CA$1 for production in a highly secured platform. And so I think the saturation thing is more about the ingredient than it is the finished good and we're actively moving way up from the ingredient.

Tim Ramey -- Pivotal Research -- Analyst

Okay. And then just relative to Canada, I think I heard you say you didn't need production assets, which sounds like grow greenhouse type assets. But I also heard you say you do need potentially bottling assets and things like that. So I just wanted to kind of parse that out. There will be incremental delivery methods that don't exist today, can we assume?

Bruce Linton -- Founder, Chairman and Co-CEO

Yes, so we have about 6 million square feet of planned or completed production assets, about 70% of that are greenhouses and about 30% are indoor -- think of large factories. The greenhouse platforms that get used in Canada are -- can be quite substantial. So we have a set in the West Coast that, one, grouping a greenhouse is about 1.7 million square feet. The other is about 1.3 million square feet. Our smallest greenhouse array is about 700,000 square feet. And so that's kind of the scale of that sort of production. What we're talking about are much smaller square footage assets that are in the business of converting the output of those large platforms or production into the finished goods that I described earlier. And those can be quite costly platforms, when they are GNP, PharmaOne type platforms. They are costly per square foot, but use far, far fewer square feet.

Tim Ramey -- Pivotal Research -- Analyst

Great. Thanks for your help.

Bruce Linton -- Founder, Chairman and Co-CEO

No problem.

Operator

And your next question comes from the line of Alan Brochstein with New Cannabis Ventures. Please go ahead.

Alan Brochstein -- New Cannabis Ventures -- Analyst

Sorry about that guys. (inaudible) so I thought I'd give it another try, and they put (Multiple Speakers). Thanks for taking my call. I don't even know if you heard the last one, I don't believe --

Bruce Linton -- Founder, Chairman and Co-CEO

We did not.

Alan Brochstein -- New Cannabis Ventures -- Analyst

Okay. So Bruce, you seem to be pessimistic about the timing of legalization in the United States, and I know this deal is about more than just the US, but that's obviously a key part of Constellation's interest. Have you changed your own views at all? I know things change quickly.

Bruce Linton -- Founder, Chairman and Co-CEO

My views are evolving and I think the more that we've interacted with different regulators, I could see state by state happening much sooner than later. I'm not sure that you're going to see a national platform. But I could see some state by state structures that would make it federally legal, if it was legal in the state. And so, best to be very prepared. So our laid down plan is have all of the working pieces together and be ready to go when it's legal and bring scale and bring products.

Alan Brochstein -- New Cannabis Ventures -- Analyst

Got it. And then I've gotten this question a lot, I don't think you guys have publicly addressed it, but shareholders just approved the potential stock split. And I was just wondering what that's all about?

Bruce Linton -- Founder, Chairman and Co-CEO

Optionality. So I was thinking at that time that we had the right to do a up-to-three times split, that has parked [ph]. But it was one of those things that I prefer to have the optionality, because it was a special shareholders meeting, which was also to enable us to increase the ESOP pool. So added that and we have in our pocket. Those things don't really (inaudible) for at least a year.

Alan Brochstein -- New Cannabis Ventures -- Analyst

Okay. And then the next one is just more about the near-term on the financials, Tim. Obviously -- and thanks for breaking out as you guys have been doing, some of the extra cost that go outside of Canada, as well as the always confusing biological asset stuff that going forward -- are the operating losses excluding those other factors outside of these two I mentioned, do you expect them to continue to trend higher, Tim?

Tim Saunders -- Executive Vice President and Chief Financial Officer

I think you're going to see, certainly domestically as we started to get the recreational orders in the provinces, and then the revenue number is going to go up and cover. So that'll reduce the losses. And actually we still expected, as we've indicated previously, that we will be EBITDA positive really very shortly in the near term. So like you said, those losses that you're seeing today that's as if we are spending for a rec market that's not there today, as against medical revenue. So, no, you should see that it will come down.

Alan Brochstein -- New Cannabis Ventures -- Analyst

Okay. That's all I have. Thanks a lot and congratulations again on the deal.

Bruce Linton -- Founder, Chairman and Co-CEO

Thanks very much, Alan. Why don't we take one more question, if there is one, and then we can all get onto our next activities.

Operator

And your final question comes from the line of Robert Ottenstein with Evercore ISI. Please go ahead.

Robert Ottenstein -- Evercore ISI -- Analyst

Great, thank you very much. You were very clear that you don't want to participate in any federally illegal markets. I get that. On the other hand, California is arguably the largest market right now, you want first-mover advantage. Heineken has found a way that they believe that they are comfortable in terms of participating in that market through Lagunitas. Can you tell us a little bit why you are uncomfortable finding some sort of legal or corporate mechanism to participate in California and why -- and how you're thinking about this?

Bruce Linton -- Founder, Chairman and Co-CEO

So we are not really keen to divulge exactly where we're going. But for sure we're going to do everything that is fully federally lawful to be available in a market. And we think there are mechanisms of action that we can take that we're working through. There will be nothing federally illegal in what we do. I'm not sure we've looked at all the actions of others. And I think some of them may have crossed the line, but I think that it may become federally legal sooner than people think and that we will be more ready than probably is understood at this time. So I know I'm being general, but part of the reason we do these calls is so that people who are in the sector can understand what we're doing and then they try to follow us, which has been a good practice in the past. We're going to be a little bit more coy on this one.

Robert Ottenstein -- Evercore ISI -- Analyst

Got it. And obviously you're looking at California very closely, you understand what's going on there. Do you think that the California regulatory framework is the one that's most likely to be adopted in other states and how would you assess how things have developed in California year-to-date?

Bruce Linton -- Founder, Chairman and Co-CEO

So I'm not an expert on California. But we do find it quite interesting when we observe things like when you really do apply a controlled system, what happens to the total number of distribution points, what happens to the quality of the product and the failure rate of testing of product it was permissible for. So I think you start to see a much more effective control system. We hope that the level of controls is high and gets higher everywhere, because the client is not going to be satisfied if the quality of the product is inconsistent, if it has pesticides or sprays, if it's failing. And I think you're seeing in California, or you have seen that there has become a shortage in the sense of product, because of active testing that says, this is not of the quality or standard that's permissible. I hope that standard is what they do across the US, and it wouldn't hurt if it was a little higher, because of the chain of custody on product is key to actually squeezing out the illicit market and there is a bit more that could be done, I think, in most states regulations on that.

Robert Ottenstein -- Evercore ISI -- Analyst

Great. Well, look, congratulations. You've got a terrific partner in Constellation and very eager to see how things develop. Thank you.

Bruce Linton -- Founder, Chairman and Co-CEO

Well, thank you. And you're right. I suspect after this call, we can get back to work with Constellation. And that is kind of why the cash came in, because we work very well together. So thanks to everyone for the call and look forward to you during the next quarter.

Operator

This concludes Canopy Growth's first quarter fiscal 2019 financial results conference call. A replay of this conference call will be available until November 13, 2018 and can be accessed by 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. Good bye.

Duration: 70 minutes

Call participants:

Bruce Linton -- Founder, Chairman and Co-CEO

Rob Sands -- Chief Executive Officer

Tim Saunders -- Executive Vice President and Chief Financial Officer

Tamy Chen -- BMO Capital Markets -- Analyst

Martin Landry -- GMP Securities -- Analyst

Graeme Kreindler -- Eight Capital -- Analyst

Dara Mohsenian -- Morgan Stanley -- Analyst

Matt Bottomley -- Canaccord Genuity -- Analyst

Andrea Teixeira -- JP Morgan -- Analyst

Alan Brochstein -- New Cannabis Ventures -- Analyst

Todd Duvick -- Wells Fargo -- Analyst

Tim Ramey -- Pivotal Research -- Analyst

Robert Ottenstein -- Evercore ISI -- Analyst

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