Canopy Growth (CGC) Q4 2023 Earnings Call Transcript

Canopy Growth (CGC 2.41%)
Q4 2023 Earnings Call
Jun 22, 2023, 5:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. My name is Michelle, and I will be your conference operator today. I would like to welcome everyone to Canopy Growth's fourth quarter and fiscal year 2023 financial results conference call. [Operator instructions] I would now like to turn the call over to Tyler Burns, director, investor relations.

Tyler, you may begin the conference.

Tyler Burns -- Director, Investor Relations

Thank you, Michelle. Good afternoon, and I thank all of you for joining us today. On our call, we have Canopy Growth's chief executive officer, David Klein; and chief financial officer, Judy Hong. After financial markets closed today, Canopy Growth issued a news release announcing the financial results for our fourth quarter and fiscal year ended March 31, 2023.

In addition, we filed our comprehensive annual report on Form 10-K for the fiscal years ended March 31, 2023 and 2022, which contains our audited financial statements for the fiscal year ended March 31, 2023, as well as restatements of the following previously filed periods: audited consolidated financial statements for the fiscal year ended March 31, 2022, originally included in our annual report on Form 10-K for the fiscal year ended March 31, 2022; and audited consolidated financial -- unaudited consolidated financial statements for the quarterly periods ended June 30, 2022, September 30, 2022, and December 31, 2022, originally included on our quarterly reports on Form 10-Q for such quarterly periods. The news release and financial statements are available on our website and under the investor tab and have been filed on EDGAR and SEDAR. Before we begin, I would like to remind you that our discussion during the 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 the news release issued today. Please review today's earnings release and Canopy's reports filed with the SEC and on 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 stated. Following prepared remarks by David and Judy, we will conduct a question-and-answer session, where we will take questions from analysts. 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 Klein -- Chief Executive Officer

Thanks, Tyler. Good afternoon and thank you for joining us. I'd like to acknowledge that today's call is taking place later than originally planned, and I'm appreciative of the collective patience and flexibility of all the attendees on this call this afternoon. During the call today, I'll cover four key topics: first, the progress of our transformation plan and the performance of our Canadian cannabis business in fiscal '23; second, addressing the BioSteel review and our strategy to accelerate the BioSteel business; third, an update on Canopy USA and the progress on entering the U.S.

cannabis market; and finally, the path forward for fiscal '24. Following my remarks, Judy will provide a brief review of our fourth quarter and fiscal '23 results and share an update on our path to profitability. She'll also discuss our balance sheet and the actions we are taking to strengthen our financial position and improve liquidity. Fiscal '23 was a challenging yet transformative year, marked by substantive change.

The Canadian cannabis industry continued to be challenged by systemic regulatory issues, our continued battle with the illicit market, and delays in government action on both sides of the border. And internally, at Canopy, we faced executional challenges as we transitioned our genetic strategy and cultivation practices, which led to delays in achieving commercial scale. I'm proud to say that we're now delivering consistent quality, as evidenced by consumer demand for the iconic Tweed brand. And we've taken the necessary actions to simplify our business by undertaking a complete transformation through the following initiatives: the full divestiture of our national retail operations; exiting cultivation in Mirabel and Smiths Falls; moving post-harvest manufacturing to our former beverage building in Smiths Falls; adopting a flexible third-party sourcing model for cannabis beverages, edibles, vapes, and extracts; and reducing headcount across the business, with approximately 1,200 positions eliminated.

Our team has worked diligently over the past fiscal year to complete the majority of these initiatives on or ahead of schedule. A transformation of this magnitude takes time to demonstrate its full results, but we're already seeing effects of our actions with SG&A expenses and COGS already delivering a combined $125 million through the end of fiscal '23. We expect to reduce overall costs by $240 million to $310 million in total by the end of fiscal '24. Through continued discipline and stable commercial performance in Canada, along with further simplification of our business, we're on a path to realizing profitability.

I'll now address the BioSteel review. As we disclosed earlier this spring, during the preparation of our financial statements for our 2023 Form 10-K, we identified certain trends in the booking of our sales for our BioSteel business unit. With the oversight from the audit committee, we launched an internal review together with independent external counsel and forensic accountants. Based on the results of the review, we'll be implementing several remedial actions to strengthen our controls for the BioSteel business, which are outlined in the 10-K.

We felt it was important to act swiftly to provide stability to the business at this pivotal time. To this effect, we have exited several members of the BioSteel leadership team and are considering all legal remedies available to us, including litigation to recover damages and costs associated with and resulting from the findings of the BioSteel review. Despite this, we have great confidence in the BioSteel brand, which saw a 101% revenue increase in fiscal '23. According to Nielsen, BioSteel's share of isotonic beverage sales in the Canadian national convenience and gas channel reached 11% in the fourth quarter of fiscal '23, up from 3% in the year prior.

We're continuing to drive momentum in the Canadian market by doubling down on the food, drug, and mass market channels, as well as club accounts, with prominent BioSteel displays at Costco this summer. In the U.S., IRI data shows BioSteel's ACV at 38% in the fourth quarter of fiscal '23, up from 19% in the prior year. Growth drivers include the BioSteel-NHL partnership, which delivered incredible visibility for the brand during the Stanley Cup playoffs. As we look ahead to the strategy to sustain brand growth, we'll be tightening the geographical focus in the U.S.

to prioritize key regional markets and place a sharper emphasis on the specialty retail channel such as gyms to build loyalty with athletically inspired consumers. At the same time, we also must address BioSteel's drag on our profitability, which Judy will speak to further in her remarks. As we focus on our core cannabis business, we'll continue to value -- evaluate all options for BioSteel. With a groundswell of momentum behind the brand in North America, we anticipate strong top-line growth, leading to profitability in the years ahead.

Next, I'd like to spend a few minutes discussing the performance of our Canadian cannabis business in fiscal '23. Overall, our adult-use cannabis B2B revenue in the fourth quarter of fiscal '23 ended slightly higher sequentially compared to the third quarter of fiscal '23. We view this as a positive given the challenging dynamics in the Canadian market and the scale of internal change that our team managed during the quarter. One of the most important achievements driving this performance was the strong resurgence of the iconic Tweed brand in the flower and pre-rolled categories, which continue to dominate the Canadian adult-use market.

The primary driver of this comeback has been a marked improvement in flower quality, fueling strong consumer demand, propelling Tweed's rise to the No. 9 brand spot in the Canadian adult-use market in the fourth quarter of fiscal '23, up from No. 16 in the year prior. As we look to the year ahead, we're excited to have taken another significant step forward to unify our North American house of brands.

In late May, we announced that Canopy now controls all distribution, marketing, and sales of Wana-branded products in Canada. Our sales team is eager to represent Wana, which has held the top spot for edibles in Canada for the past three years. We've planned an ambitious brand growth strategy in Canada and are working with Wana -- the Wana team to deliver industry-leading innovation like the passionfruit pineapple CBG gummies. With the addition of Wana, we expect incremental gains to our adjusted EBITDA as we cement Canopy as Canada's leading edibles company.

Now, I'd like to speak briefly to our progress on our entry into the U.S. cannabis market through Canopy USA, which I firmly believe is the best approach to gain exposure to the rapidly growing U.S. market. To advance this strategy, we filed a revised proxy statement with the SEC in the current quarter, which outlines revisions to the structure of our interest in Canopy USA in order to ensure continued compliance with Nasdaq's listing rules.

Following regulatory review, we plan to subsequently file a definitive proxy statement that will pave the way for a special meeting, during which shareholders will be asked to approve the creation of a new class of nonvoting exchangeable shares. Upon receiving the required shareholder approval in the conversion of Constellation shares from common to exchangeable, Canopy USA is expected to exercise its rights to acquire Acreage, Wana, and Jetty. Our primary objective for Canopy USA is to optimize the value of our entire U.S. ecosystem by leveraging their brand portfolios, routes to market, and operations.

Overall, we continue to believe that Canopy USA platform positions us favorably for the continued evolution of the U.S. market. Finally, I'd like to outline our business priorities for fiscal '24. Our priorities are designed to deliver sustained revenue and adjusted EBITDA growth for all key business units.

For our Canadian cannabis business, that means prudently managing expenses to deliver a stable to growing top line. We see this being driven by continued gains across the Tweed brand, including flower and pre-rolled joints. We'll apply the same enhanced cultivation processes that have improved our flower quality across the Tweed brand to strengthen the competitive positioning of Doja and 7ACRES. On the medical side of our Canadian cannabis business, we expect that Canopy will continue our momentum by focusing on driving insured patient registrations.

For our international medical cannabis business, we're focused on the continued growth of our Australian and European sales by improving the consistency of supply of high-THC flower strains and the sales of new products, including the increased distribution of our medically certified Storz & Bickel vaporizers. And speaking of Storz & Bickel, we anticipate growth in the North American market, with dedicated sales resources in place in the U.S., along with new product innovation coming to market in fiscal '24. And for BioSteel, FY '24 is expected to mark a year of growth as the brand focuses on expanding its North American market position. These priorities, in addition to monitoring continued value creation through Canopy USA, will lay the foundation necessary for Canopy to achieve positive adjusted EBITDA and position us for long-term North American brand-driven leadership.

That is our primary objective. With that, I'll now turn it over to Judy.

Judy Hong -- Chief Financial Officer

Thank you very much, David, and good evening, everyone. I'll start by discussing our balance sheet. I'll then briefly recap our fourth quarter and full year 2023 results, including additional details around restatements related to BioSteel. I'll then review our fiscal 2024 priorities and outlook.

Let's start with the balance sheet. As of March 31, 2023, we had 783 million in cash and short-term investments and total debt of 1.3 billion, of which 557 million was classified as current portion of the long-term debt. Subsequent to March 31, 2023, we've taken a number of additional actions to strengthen our balance sheet. In April 2023, we paid down USD 93.75 million of our term loan at a 7% discount as part of the second paydown related to the October 2022 agreement.

Also in April, we refinanced 100 million of the 4.25% unsecured July 2023 notes held by a subsidiary of Constellation, which we intend to negotiate converting into shares. In addition, the USD 100 million related to the February 2023 convertible debentures has now mostly been settled through equity. Adjusting for the payments made in April, the Constellation notes, and the February 2023 convertible debentures, our cash and short-term investments would be 666 million and current portion of the long-term debt would be 237 million due in July '23, plus accrued interest. With that in mind, I'd like to address the going concern disclosure in our 10-K.

We ended fiscal '23 with 783 million in cash and short-term investments, and we believe that we have a number of options that are executable over the next several months that will ensure we have sufficient capital to fund our ongoing operations and meet our financial covenants. For one, we've already taken meaningful action to reduce the operating cash burn in the businesses. These include the business transformation program announced during FY '23, which is expected to reduce total operating expenses by 240 million to 310 million by the end of fiscal 2024, inclusive of the 125 million realized during fiscal 2023. Cost-reduction initiatives underway at BioSteel that are expected to further reduce our overall cash burn.

Additionally, we're also working on other options to improve our liquidity. These include facility dispositions, several of which have already closed and additional agreements have been signed that are expected to generate up to 150 million in proceeds by the end of September 2023. So far, during Q1 of fiscal '24, we received proceeds of 56 million. We're also exploring additional options to monetize our noncore assets and businesses.

And we're also in discussions with our lenders on various options to reduce their debt in an accretive manner. I'll now review our fourth quarter and full year fiscal '23 financial results. In Q4, we generated consolidated net revenue of $87.5 million and full year fiscal 2023 revenue of 403 million. Full year revenue declined 21% over the restated prior-year period.

When adjusting for the impact of divestitures of C3 and the Canadian retail business, revenues declined 11% and the declines moderated in the second half of the year. Reported gross margins during Q4 were negatively impacted by restructuring charges and sizable inventory write-offs, most of which relate to our strategic shifts in Canada and BioSteel. Adjusted gross margins of negative 18% were impacted by additional inventory write-offs at BioSteel. Adjusted gross margins, excluding BioSteel, was 11% in Q4.

Adjusted EBITDA loss of 96 million during Q4 FY 2023 included approximately 12 million of inventory write-off at BioSteel and 1.5 million of bad debt expense in rest of the world cannabis. Excluding increased investments at BioSteel, adjusted EBITDA improved relative to Q3 FY '23, demonstrating progress against their business transformation plan. On a full year basis, our adjusted EBITDA loss was 350 million, driven by negative gross margins in Canada and BioSteel, as well as significant investments at BioSteel. Included in the full year adjusted EBITDA losses are approximately 50 million of costs that are one-time in nature or not expected to recur given the significant changes that we have made to our businesses in fiscal 2023.

SG&A expenses, excluding acquisition costs and depreciation and amortization expenses, saw a decline of 3% on a full year basis, inclusive of the significant increase in this year's marketing investments at BioSteel. Excluding BioSteel and adjusting for the Canadian wage program benefit received last year, as well as the impact of dispositions, SG&A expenses would have declined by 21% or approximately 94 million year over year. Free cash flow of a negative 143 million was a 13% increase in outflow compared to Q4 of fiscal 2022, driven by increased investments at BioSteel and costs related to the formation of Canopy USA. Now, let's take a look at the results from each area of our business for Q4.

Canada cannabis revenues declined 8%, excluding the retail business we divested during Q3 of fiscal '23. Importantly, our adult-use B2B sales increased slightly compared to Q3 and medical sales increased 8% compared to a year-ago period and was stable relative to Q3. Canada cannabis adjusted gross margins was negative 1%, but adjusted cash gross margins improved to 33% when normalizing for the impact of depreciation and inventory writedowns. Canada cannabis gross margins have now improved for four consecutive quarters, and we expect additional improvements in fiscal '24 as we execute on our cost-reduction program.

Rest of the world cannabis segment, excluding C3 divestiture, was down 19% year over year. We saw another record quarter of revenue in Australia, which was offset by the impact of shipments to Israel in Q4 FY 2022 and a decline in our U.S. CBD business on a year-over-year basis. Within our consumer products businesses, Storz & Bickel revenue declined by 28% in Q4 fiscal '23 versus Q4 fiscal '22, with last year's Q4 benefiting from sales of new products.

We did see sales improve during the second half of the fiscal 2023 versus the first half, and full year gross margins in this business remained resilient at 40%. This Works revenues decreased 10% in the current period compared to the prior year due to continued challenging U.K. retail dynamics. We are seeing signs of stabilization in this business, and adjusted gross margins improved to 44% from 40% in the prior-year period.

I'd like to now spend a few minutes discussing BioSteel's performance. After a thorough review that David alluded to, we have restated the historical financials with the overall correction of the revenue misstatement, resulting in a decrease of approximately 10 million in net revenue for fiscal year ended March 2022, or 2% of consolidated net revenue, and 14 million in net revenue for nine months ended December 2022, or 4% of consolidated net revenue. A majority of the restatements relate to international sales, which we have exited already. Our consolidated adjusted EBITDA has also been restated by a similar amount for fiscal 2022 and nine months through fiscal 2023.

The restated financials for fiscal '22, as well as quarterly financials for Q1 through Q3 of fiscal '23, are included in our 10-K. During Q4 of fiscal 2023, BioSteel generated net revenue of 19.3 million and full year fiscal 2023 revenue of 69.6 million. Q4 gross margins were significantly impacted by lower-than-forecasted sales during fiscal '23, as well as our decisions to exit international businesses and refine our U.S. commercial strategy.

We also faced increases in sales and marketing costs related to endorsements, sampling, and trade marketing programs. With BioSteel being a significant drag to our overall profitability, addressing its cost structure is an important part of Canopy's overall profitability plan. We've already undertaken additional cost-reduction initiatives at BioSteel that is incremental to our companywide restructuring actions initiated in fiscal 2023. First, we have a number of gross margin improvement initiatives that are well underway, including exiting unprofitable customer programs and reducing the depth and frequency of certain promotions, transitioning to a new warehouse model that will eliminate significant fixed-cost obligations and reduce shipping costs, reduction in inventory to our -- to lower our storage costs, and new contracts with more favorable product costs across our powder and ready-to-drink products.

These initiatives are expected to generate significant year-over-year improvement in gross margins in fiscal 2024 and put the business on a firm path to achieve gross margins comparable to other premium beverage businesses over time. Second, following stepped-up investments in sales and marketing during fiscal 2023, work is well underway to significantly rightsize our marketing spend. We have already exited or have not renewed a number of third-party marketing contracts. We're reviewing our endorsements to ensure we have a focused approach.

And we're reducing costly sampling programs that don't generate returns. And we're exploring additional options available to us to ensure that we can further minimize cash burn at BioSteel. I'd like to now discuss our fiscal 2024 priorities and outlook and our actions to achieve profitability across our businesses. In Canada cannabis, we believe we have rightsized our operations to achieve positive adjusted EBITDA at current run rate revenue of 35 million to 40 million per quarter.

Our cost-reduction program is well underway, with majority of the savings expected to be driven by reduced headcount, which we've already implemented, and elimination of the facility costs that we've closed. In rest of the world cannabis, we expect continued growth in Australia and Poland, as well as improved performance in Germany, driven by new supply of high-THC flower. We also expect improvement in profitability as we further streamline the business by shifting to a distributor model in the U.K. And we do not anticipate bad debt expense of over 3 million to recur during fiscal 2024.

Storz & Bickel is focused on returning to growth in fiscal 2024, driven by new product launch later this year and renewed focus in the U.S., with additional resources expected to drive enhanced presence in that important market. We expect Storz & Bickel to maintain healthy margins in fiscal 2024. For BioSteel, the focus in fiscal '24 is further building on its strong momentum in Canada, refining its U.S. strategy, and improving gross margins while rightsizing its marketing spend.

This Works is expected to stabilize top line while improving profitability in fiscal '24. So, taken together, we expect to approach positive adjusted EBITDA across all of our businesses, except for BioSteel, as we exit fiscal 2024. We also expect BioSteel to show meaningful reduction in its adjusted EBITDA losses in fiscal 2024 as we execute on our growth plan and cost-reduction initiatives. Liquidity preservation and strengthening our financial position is also a key priority in fiscal '24.

To this end, we're focused on executing against announced cost-savings program, mitigating operating cash burn at BioSteel, maximizing proceeds from asset divestitures, and reducing our debt and interest expenses in an accretive manner. We believe the combination of these actions, along with our existing cash balance and expected proceeds from facility divestitures, should provide us with flexibility to drive our businesses forward while meeting all of our debt obligations. In conclusion, with significant transformation underway, we believe we now have elements in place to achieve profitability in Canada and significantly reduce our cash burn for the total company while we work toward strengthening our balance sheet and driving continued focus on our core cannabis business. This concludes my prepared comments.

We will now take questions. Operator, David and I are now happy to take questions from the analysts.

Questions & Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session for analysts. [Operator instructions] Your first question will come from Tamy Chen at BMO Capital Markets. Please go ahead.

Tamy Chen -- BMO Capital Markets -- Analyst

Hi. Thanks for the question. I wanted to go to your target for EBITDA by the end of fiscal '24. I mean, you don't break out the EBITDA by segment, so it's a bit hard to assess your path to achieve the targets you've set out here today.

So, I'm just wondering, is there anything more you can share with us about how the cannabis segment, at least maybe the Canadian business, P&L starts to look now that you've complete your asset-light transition? For example, like I'm not sure what the margin can look like now that you've outsourced a lot of your manufacturing for extract products and closing the challenging growth facilities you have. As well, it's hard to kind of assess what your S&GA is, how much of that is the Canadian business and all the asset-heavy infrastructure that was there before. So, anything additional you can share about how the P&L of that business starts to look going forward would be helpful. Thank you.

Judy Hong -- Chief Financial Officer

Sure. Thanks, Tamy. I'll start with just a comment that I agree, just when you look at our P&L, it's very difficult to clearly understand what's happening with all the moving parts and us not being able to really provide clear details around the segment profitability. We are working at ways to address that going forward, and we'll hopefully be able to give you more clarity on that on a go-forward basis at some point in the future.

But to come back to your question about Canada, I think I would say a few things. Number one, what we have done from a business change standpoint is really rightsize all of our operations and SG&A cost structure to be able to be profitable at 35 million to 40 million per quarter revenue run rate. I think you've seen us now do that for a couple of quarters. And we think with the revenue of that level, we are now rightsized to really deliver the adjusted EBITDA that would be breakeven to positive on that basis.

And I think there are really few elements to that. Number one, obviously, we have taken significant costs out of our cost of goods sold. We had headcount reductions that we have implemented already. We've closed facilities both in a number of locations that saved us not just the costs like insurance and taxes and just the nonpeople costs that really are costly when you have a significant footprint, just from an operational standpoint.

So, a number of those closures that we've already made are going to start to flow through through our P&L. We are, I think, tracking actually a little bit earlier than expected in terms of exiting cultivation at Smiths Falls. So, once that happens, by the end of this quarter, we should also see additional cost savings flow through from a Canada standpoint. So, I think that's going to drive, really, a cash gross margin, in our view, closer to that high 30% that we've always talked about in the past.

And then from an SG&A standpoint, we've made a number of changes on the sales and marketing side and working -- and even on the G&A side to ensure that we are, again, profitable with the revenue at 35 million to 40 million on a quarterly basis.

Operator

Your next question comes from Vivien Azer at TD Cowen. Please go ahead.

Vivien Azer -- Cowen and Company -- Analyst

Hi. Thank you. I wanted to follow up on that question a little bit but with a focus on BioSteel. Recognizing that there's appetite to absorb continued losses in FY '24, you continue to grow the top line.

Certainly, it sounds like with some of the marketing realignment, the nonproductive sampling, revisiting some of the sponsorship agreements, that, certainly, you're at least looking to narrow the magnitude of those losses. So, Judy, I was wondering, one, if you could kind of dimensionalize that -- the path to profitability in BioSteel. And then two, as a follow-up, David, maybe you could just comment on the realignment in terms of the priority retail channels in the U.S. because it seems like the reorientation of the brand kind of moves away from the channels with which you're most familiar and have the deepest relationships.

So, just wondering whether that can create some dislocation in the top line that might impede some of the profit improvements that you guys have planned for FY '24 on BioSteel. Thanks.

Judy Hong -- Chief Financial Officer

So, I'll start, Vivien. Thanks for the question. So, to be clear, we are not accepting the level of operating losses that we are seeing at BioSteel today. We understand that BioSteel currently is a sizable drag to our overall profitability, and we are very focused on significantly reducing our cash burn in that business, as well as exploring other options to minimize cash burn that is impacting the overall cash at the Canopy level.

In terms of, you know, I think the year-over-year change as it relates to BioSteel profitability, there have been a few discrete items in fiscal '23 that did drag the profitability more than, I think, in normal years. We did have sizable inventory writedowns in FY '23, as well as certain contract manufacturing costs that are not expected to occur in FY '24, just given that we now own our manufacturing facility in Verona. And we think the rightsizing of the inventory and reducing the current inventory levels will also allow us not to see the level of inventory writedowns that we saw in FY '23. In addition, there's -- as I said earlier, we have a number of initiatives to really rightsize our marketing spend and make sure that we can generate a path to being a profitable business for this company because I think the brand is doing really well, it's just really making sure that we've got the right cost structure to support the brand in a way that is more focused and disciplined.

And I think that that will also go a long way from our overall profitability standpoint in getting to a significant reduction in our overall cash burn and adjusted EBITDA improvement, in addition to the business transformation that we have announced as it relates to Canada and the rest of the businesses.

David Klein -- Chief Executive Officer

Yeah. And, Vivien, in terms of channel strategy, I think, you know, when you look at BioSteel, first of all, the issues that we outlined related to the brand are really unfortunate because it's overshadowing the fact that the brand continues to be accepted by consumers and taken off the shelf, as evidenced by, you know, being up 101% year over year. We think, though, that the playbook in Canada is the right playbook to use ultimately in the U.S. And so, in Canada, it was a brand that started out in the -- on the soccer fields and in the hockey rinks and in the gyms, kind of building that kind of authentic affinity with its consumer base.

And now, you can see BioSteel on the shelf with all of the major retailers in prominent positions and with more and more consumer takeaway. In the U.S., we think we need to deploy the same strategy, if you will, by starting to build the base of the brand maybe a little more slowly than we would have liked, allowing consumers to really connect with it because it's an authentic hydration product. And then ultimately, we end up in those big retailers, where we're already positioned today, using the distribution channels that we're all familiar with. But I think going direct into those retailers without working on building up the base and trying to do it maybe across the entirety of the U.S.

was a bit of an overreach for a company our size. And so, we just decided to retrench the business a little bit in the U.S.

Operator

Your next question comes from Aaron Grey at Alliance Global Partners. Please go ahead.

Aaron Grey -- Alliance Global Partners -- Analyst

Hi. Good evening and thank you for the question. So, for me, just want to touch on Canopy USA. You know, you disclosed the updated structure of it.

So, really, just want to talk about, you know, the ability to finance the U.S. operations once this closes. Obviously, you won't be consolidating so you can comply with Nasdaq. But just future funding, the ability to do that.

Will you be able to have any benefit from publicly listing on Nasdaq? Would you have to go to some other venture with just Canopy USA? Just any help in that. And then just also, I guess, plans overall in terms of further funding that Canopy USA business once this has closed. Thanks.

David Klein -- Chief Executive Officer

Yeah. So, a couple of things. The first is that I just want to reiterate that the businesses are already trying to do things together to elevate their individual brands and their individual operations and routes to market, right? So, a lot of that work is taking place, even while we wait approval to file our definitive proxy. In terms of funding, on the day that the business closes, the business will have more than sufficient cash on hand to fund its growth aspirations for the foreseeable future.

And then, really, the question then is if there is other like inorganic initiatives that we want to take on with the Canopy USA structure, we do have ways to fund that using the already developed Canopy USA structure. So, again, that's not what -- where I would expect we go right out of the gate, but we have the ability to that under the structure as it exists and the business will be well funded on day one.

Judy Hong -- Chief Financial Officer

And I would just add, Aaron, just the benefit of having a brand-led, asset-light model in the U.S. really does minimize the capital requirement to really build out the business in scale. So, you know, we're obviously deploying a similar strategy in Canada, and I think it's important for people to understand sort of the reasons why we took this strategy in Canada as well. It's really about ensuring that there's minimal capital requirement to build out a strong presence at scale.

David Klein -- Chief Executive Officer

And we've seen it work at Wana, where they've always been asset-light and continued to grow their brand and have a very attractive P&L as a result of that. We're seeing that same sort of mindset at Jetty. And then, you know, Acreage ends up being a little more capital-intensive. But, again, I think, over time, we would love to be as asset-light as possible in the U.S., just as we are in Canada as you call that.

Operator

Your next question comes from John Zamparo at CIBC Capital Markets. Please go ahead.

John Zamparo -- CIBC World Markets -- Analyst

Thanks. Good evening. I wanted to touch on the going concern language and just the solvency generally and given the state of the balance sheet and the magnitude of the gap to get to positive EBITDA. I wonder if you're considering selling any of the business units outright.

And then secondly, assuming you get the outcome you want on Canopy USA and you're then able to issue more equity, I wonder how you'd go about that. What's your willingness to do it? And just given the state of the cannabis space generally, what would be your plans on issuing more equity in the future? Thank you.

Judy Hong -- Chief Financial Officer

Yes, John. Thanks for the question. So, on the -- on our balance sheet, I think the starting point is that we do still have a strong cash position. We ended the quarter -- the year with 783 million, as I said earlier.

All of the facility dispositions that we have, either closed or currently working on, will bring in additional up to 150 million in proceeds by September of 2023. And we expect a significant reduction in operating expenses in fiscal '24 as we execute on our cost-saving program. So, we think those actions are actually sufficient to allow us to have flexibility in our balance sheet and continue to maintain the funding requirements for all of the businesses. Plus, we think that there are additional options that are available to us, including looking at all of our noncore assets and businesses.

I think we're really trying to position ourselves as a cannabis-focused company. And I think, historically, we had a number of businesses that were not core that we've divested, and we're continuing to explore options to simplify our businesses and generate some cash as we look for opportunities to divest some of these noncore assets and businesses. I also recognize -- we also recognize that we want to make sure that we reduce our debt over time in an accretive manner. We think that that will also help our cash flow, just given the interest cost reduction that would be expected.

And to be clear, some of the proceeds from the facility divestitures will go toward paying off our term loan. So, that would also help us with lower -- reducing our debt and also reducing our interest expenses over time.

Operator

Your next question comes from Michael Lavery at Piper Sandler. Please go ahead.

Michael Lavery -- Piper Sandler -- Analyst

Thank you. Good evening.

Judy Hong -- Chief Financial Officer

Hey, Mike.

Michael Lavery -- Piper Sandler -- Analyst

I was just wondering if you could elaborate a little bit on if you hit your plan as you have it now with the EBITDA positive or breakeven by the end of the year, what does that look like on a cash flow basis and what are some of your assumptions? You mentioned the divestitures that you're trying to make or the -- at the facility sales. Some of that's in hand. But can you give us a sense of how you're valuing those and what the certainty is of that coming through and how important is it in terms of just your liquidity management? And just paint a little bit of a picture for how you're thinking about how that -- the year unfolds that way.

Judy Hong -- Chief Financial Officer

Sure. I'll take that question. So, obviously, the -- you know, to your point, achieving our plan and reducing our cost to improve our adjusted EBITDA is kind of the starting point. In addition, we are obviously working to reduce our debt and save on interest expenses.

And even some of the actions that we've outlined already and have implemented already in reducing our costs, we should see, on a year-by-year basis, 20-plus million of lower interest expenses, even taking into consideration the rising rate environment that we're seeing across the board. We also expect to see working capital improvement in a significant manner, just given how we're managing our inventory and the reduced footprint, frankly, that we have across Canada. And obviously, BioSteel working on an initiative to make sure that they're rightsized from an inventory standpoint there as well. So, we think all those initiatives should allow us to get to significantly reducing our operating cash outflow.

I would expect to see close to a 50% reduction in our operating cash flow on a year-over-year basis. Our capex requirement is really just about executing on our cost savings. So, we think FY 2024, our capex should be somewhere in the 10 million to 15 million in terms of the cost. That's inclusive of the cash cost to really execute on our cost-savings program.

And then, as I said, we've got 150 million of the proceeds that we've already closed and are expected to close in the coming months. That will bring in additional cash. And then I think the other options on the table that we've outlined are these additional proceeds potentially. We are, you know, exploring various options.

So, we'll provide more details as we have more color. But those are all, I think, available to us as really liquidity options that we will consider.

Operator

Your next question comes from Matt Bottomley at Canaccord Genuity. Please go ahead.

Matt Bottomley -- Canaccord Genuity -- Analyst

Good evening, everyone. Thanks for taking all the questions. I just want to go back to BioSteel. And just given, you know, a lot of the commentary that's been given with, you know, some of the positive trends with respect to the uptake of the products, whether it's in the convenience stores, gas stations where kind of your market share is, just -- you know, that's sort of paired against the overall magnitude of some of the financial statement restatements.

It looks like about -- on a gross basis before restatement, about 20% of the revenues were reduced. So, I would imagine, you know, there are some big ticket items in there potentially. So, I'm just wondering if you could give a little more granularity on the nature of what the issues were with those restatements and if it has anything to do with, you know, products in the channel that ultimately couldn't sell or shelf life or anything like that. It's just something that I get a lot of questions on given the magnitude of what was reported today.

Judy Hong -- Chief Financial Officer

Sure. I'll start and David can add more color. But -- so what I said in the -- in my prepared comments, the majority of the restatements really came from international sales. So, when you look at all of the market share information in Canada, the U.S.

that we speak about, those are real, right? I mean, those are consumer takeaway numbers. They're all really sales that are -- have gone through distributors and retailers and are being sold to the consumer. So, we do think that that really demonstrates the strength of the brand in North America. When you look at the international sales, frankly, this was more of an opportunistic, I would say, outlet where BioSteel management team had decided to expand distribution in certain markets with some of the product that they had in inventory.

And, you know, I think it -- when you think about the practices or the sales recognition issues that we have seen, that's where really the misstatements -- or the financial misstatements came through. So, I do think that that is very distinct from what we're seeing in the marketplace, to your point, about all the market share improvement that we're seeing in that part of the business. We think it's just unfortunate that the -- sort of that positive momentum, it has been a bit masked by some of these unfortunate events that have occurred. But we still believe that's really a metric that people should be looking at in gauging the health of the brand.

We continue to be confident about the trajectory of that business.

David Klein -- Chief Executive Officer

Yeah. I think that that captures it, Judy. You know what I would say is it -- the restatements, for the most part, had nothing to do with product that was returned because it was bad or anything like that. It had everything to do with sales practices within the BioSteel team, which, as we called out in our remarks, have been rectified.

Operator

Your next question comes from Pablo Zuanic at Zuanic and Associates. Please go ahead.

Pablo Zuanic -- Zuanic and Associates -- Analyst

Thank you. David, I want to talk about Canopy USA. And here, maybe, you know, the simple question as would be remind us of the benefits of Canopy USA for the company. And the reason I asked that, if I wanted to play devil's advocate, right, I could say you were supposed to -- some of the benefits in terms of alignment between Jetty, Wana, and Acreage, in my opinion, that could have been done without this transaction, right? The benefits from investors giving you credit for these U.S.

assets are lost now because you cannot consolidate them, right? We don't know how you're going to disclose them in the future. On the other hand, you know, this has been somewhat of a distraction. I could make the argument, right? Your main competitor in Canada took control of Redecan, right? Maybe you've dropped the ball in Europe. I mean, correct me if I'm wrong.

And it's been disruptive, right? In the case of Acreage, the CEO and the CFO are gone. So, I'm just trying to -- I'm struggling to really get the benefits of Canopy USA after all is said and done. Thanks.

David Klein -- Chief Executive Officer

Yeah. Thanks, Pablo. So, a couple of points that I would make. You know, we believe that the U.S.

market is a market that we want to win in, which is why we've rightsized Canada so that we have a business where we can be profitable kind of at its current run rate. We do believe that the profit pool in the U.S. is the one that we want to attack, and we actually think that our brand-led approach is a strong approach in that market. Jetty, Wana, and Acreage are already beginning to work together, as you call out.

So, they didn't necessarily need the structure to do that. But it certainly makes it easier when that business is put together all by itself. So, those businesses are merged together. There are significant synergies to be extracted from an operating standpoint, from a public company standpoint that we think are important.

Now, we will be able to disclose what that business looks like. We won't be consolidating it through our results, but we will be in a position to talk about what our consolidated -- well, what our Canopy USA as its own consolidated entity will look like post the transaction, once those businesses have been merged. And then, you know, Pablo, again, it's like -- you know, the good thing about strategy is a good strategy usually is one that you could do the opposite of and still find it a fair strategy, right? So, we believe that focus on the U.S. is better than trying to expand into other markets or into other categories.

Judy mentioned how we want to simplify our business to be a very cannabis-focused business and very focused on North America. We think that's a good -- that provides a great path for us to create a lot of value in the medium term. And so, you know, that's the -- I guess that's the position that we've taken, and we think -- you know, we still believe that it's the right approach for us.

Operator

Your next question comes from Doug Miehm at RBC Capital Markets. Please go ahead.

Douglas Miehm -- RBC Capital Markets -- Analyst

Yeah. Good evening and thank you. My question really has to do with the checks and balances that the company might have in place as it relates to oversight functions given the material changes that we're seeing right now and really in place to ensure that you don't have any unforeseen potholes or bumping into sharp objects. David, maybe you could talk about what you're doing to implement those types of checks and balances to ensure that we don't run into other issues.

David Klein -- Chief Executive Officer

Yeah. That's a really good question, Doug, and what I would say is that we're -- so we have a complete remediation plan, which is called out in the K, for the issues we experienced with BioSteel. We did do additional testing around the rest of our business to make sure that the BioSteel issues weren't being replicated elsewhere. And that testing proved that it wasn't happening elsewhere.

Again, it was -- this was a very involved process that included forensic accountants, outside legal experts, our own finance team, the dedication of our audit committee, which includes two former public company CFOs. So we did a ton of work to make sure that we got completely to the bottom of the issues that required the restatement. And as I said, in the K, we called out our remediation plans. And our audit committee has asked for check-ins on a biweekly basis with our progress toward those remediation plans, which we will, in fact, do.

And I would say that -- then beyond that, several years ago, I think that the Canopy finance function was maybe in a difficult spot to take on the complexity of the business that we have. I would say that over the last few years, we've built what is generally a strong talented team that's clearly committed to ensuring that we have a robust control environment. And, you know, as a former public company CFO, I'm embarrassed that we had a -- you know, that we had to do a restatement. And, you know, we -- as I said, we've taken the actions to remediate that -- the items that caused that restatement, and I do not expect us to have that kind of issue in any area of our control environment going forward.

Operator

There are no further questions at this time, so I will turn the conference back to Mr. Klein for any final remarks.

David Klein -- Chief Executive Officer

Yes. Thank you, and thanks all for joining us today. So, to highlight the key takeaways from today's call, we've made substantial progress in transforming our Canadian cannabis business during fiscal '23 and we've entered fiscal '24 focused on strengthening the business moving forward. We've completed the BioSteel review and expect the fiscal '24 strategy to drive growth of the brand in North America while reducing our cash burn.

And in fiscal '23, we introduced our Canopy USA strategy to optimize the value of our entire U.S. ecosystem, and we look forward to successfully concluding the regulatory review and progressing to a shareholder vote in the coming months. And finally, we continue to believe Canopy has significant opportunity ahead, both in Canada and the United States. Investor relations will be available to answer additional questions.

Have a good evening.

Operator

Ladies and gentlemen, this concludes Canopy Growth's fourth quarter and fiscal 2023 financial results conference call. A replay of this conference call will be available until September 20, 2023 and can be accessed following the instructions provided in the company's press release issued earlier today. [Operator signoff]

Duration: 0 minutes

Call participants:

Tyler Burns -- Director, Investor Relations

David Klein -- Chief Executive Officer

Judy Hong -- Chief Financial Officer

Tamy Chen -- BMO Capital Markets -- Analyst

Vivien Azer -- Cowen and Company -- Analyst

Aaron Grey -- Alliance Global Partners -- Analyst

John Zamparo -- CIBC World Markets -- Analyst

Michael Lavery -- Piper Sandler -- Analyst

Matt Bottomley -- Canaccord Genuity -- Analyst

Pablo Zuanic -- Zuanic and Associates -- Analyst

Douglas Miehm -- RBC Capital Markets -- Analyst

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