cgc-6k_20181231.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 or 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of February, 2019.

Commission File Number 001-38496

CANOPY GROWTH CORPORATION

(Translation of registrant’s name into English)

1 Hershey Drive

Smiths Falls, Ontario

K7A 0A8

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F

Form 20-F

☐

Form 40-F

☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Canopy Growth Corporation

Date: February 15, 2019

__/s/ Bruce Linton__________

Bruce Linton

Chief Executive Officer

-2-

INDEX TO EXHIBITS


99.1	Consolidated Interim Financial Statements for the three and nine months ended December 31, 2018 and 2017
99.2	Management’s Discussion and Analysis of the Financial Condition and Results of Operations for the three and nine months ended December 31, 2018
99.3	Certification of Chief Executive Officer
99.4	Certification of Chief Financial Officer

-3-

cgc-ex991_8.htm

Exhibit 99.1

canopy growth corporation

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(uNAUDITED)

for the THREE and NINE MONTHS ended December 31, 2018 and 2017

(in Canadian dollars)

canopy growth corporation

Table of Contents

Condensed interim consolidated statements of financial position	1

Condensed interim consolidated statements of operations	2

Condensed interim consolidated statements of comprehensive income and loss	4

Condensed interim consolidated statements of changes in shareholders’ equity	5-6

Condensed interim consolidated statements of cash flows	7

Notes to the consolidated financial statements	8-43

CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED			December 31,			March 31,
(Expressed in CDN $000's)	Notes		2018			2018

Assets
Current assets
Cash and cash equivalents		23	$	4,115,870		$	322,560
Marketable securities		5		799,418			-
Amounts receivable		6		95,476			21,425
Biological assets		7		31,013			16,348
Inventory		8		184,961			101,607
Prepaid expenses and other assets	9(a)			50,439			19,837
				5,277,177			481,777

Property, plant and equipment		10		960,158			303,682
Other long-term assets	9(b)			32,919			8,340
Investments in associates and joint ventures		15		103,773			63,106
Other financial assets		16		281,928			163,463
Intangible assets		12		168,536			101,526
Goodwill		12		1,815,624			314,923

			$	8,640,115		$	1,436,817

Liabilities
Current liabilities
Accounts payable and accrued liabilities		17	$	215,612		$	89,571
Deferred revenue				263			900
Current portion of long-term debt	18(a)			18,447			1,557
Other current liabilities	18(b)			61,357			-
				295,679			92,028

Long-term debt	18(a)			773,049			6,865
Deferred tax liability				25,703			33,536
Other long-term liabilities	18(b)			122,006			61,150

				1,216,437			193,579

Commitments and contingencies		22

Shareholders' equity
Share capital		19		5,947,715			1,076,838
Other reserves		19		1,645,441			127,418
Accumulated other comprehensive income				76,584			46,166
Deficit				(441,480	)		(91,649	)

Equity attributable to Canopy Growth Corporation				7,228,260			1,158,773

Non-controlling interests		14		195,418			84,465

Total equity				7,423,678			1,243,238

			$	8,640,115		$	1,436,817

Page 1

CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2018 AND 2017
UNAUDITED			Three months ended						Nine months ended
			December 31,			December 31,			December 31,			December 31
(Expressed in CDN $000's except share amounts)	Notes		2018			2017			2018			2017
						(As Restated -						(As Restated -
						see note 3)						see note 3)
Revenue	3(b),4		$	97,703		$	21,700		$	146,946		$	55,142
Excise taxes				14,655			-			14,655			-

Net revenue				83,048			21,700			132,291			55,142

Inventory production costs expensed to cost of sales				64,758			9,811			96,349			25,073

Gross margin before the undernoted				18,290			11,889			35,942			30,069

Fair value changes in biological assets included in inventory sold and other charges		8		28,105			24,204			105,989			47,836
Unrealized gain on changes in fair value of biological assets		7		(22,267	)		(28,845	)		(90,500	)		(79,221	)

Gross margin				12,452			16,530			20,453			61,454

Sales and marketing				44,895			9,409			101,208			23,452
Research and development				5,264			287			7,964			914
General and administration				46,088			11,050			102,777			26,936
Acquisition-related costs				4,520			790			9,606			2,491
Share-based compensation expense	19(b)			40,062			8,965			108,159			17,708
Share-based compensation expense related to acquisition milestones	19(c)			23,849			8,914			81,674			11,228
Depreciation and amortization				5,015			3,147			11,640			9,974

Operating expenses				169,693			42,562			423,028			92,703

Loss from operations				(157,241	)		(26,032	)		(402,575	)		(31,249	)

Share of loss on equity investments		15		(2,089	)		-			(9,021	)		(170	)
Other income		20		235,231			44,641			63,466			41,281
Other income				233,142			44,641			54,445			41,111

Income (loss) before income taxes				75,901			18,609			(348,130	)		9,862

Income tax (expense) recovery				(1,041	)		(7,595	)		1,398			(9,635	)

Net income (loss)			$	74,860		$	11,014		$	(346,732	)	$	227

Net income (loss) attributable to:
Canopy Growth Corporation			$	67,582		$	1,583		$	(349,831	)	$	(8,809	)
Non-controlling interests				7,278			9,431			3,099			9,036
			$	74,860		$	11,014		$	(346,732	)	$	227

Earnings (loss) per share, basic
Net income (loss) per share, basic:		21	$	0.22		$	0.01		$	(1.45	)	$	(0.05	)
Weighted average number of outstanding common shares, basic:				303,281,549			182,029,481			241,806,351			171,075,324

Page 2

Earnings (loss) per share, diluted

Net income (loss) per share, diluted:

(0.38

)

0.01

(1.45

)

(0.05

)

Weighted average number of

outstanding common shares, diluted:

315,974,639

194,739,044

242,044,821

171,075,324

Page 3

CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2018 AND 2017
UNAUDITED			Three months ended						Nine months ended
			December 31,			December 31,			December 31,			December 31,
(Expressed in CDN $000's)	Notes		2018			2017			2018			2017


Net income (loss)			$	74,860		$	11,014		$	(346,732	)	$	227

Fair value changes on equity instruments at FVOCI		16		(38,473	)		9,130			(30,743	)		651
Fair value changes of own credit risk of financial liabilities designated at FVTPL	18(a)			12,510			-			(62,520	)		-
Exchange differences on translating foreign operations				114,153			168			109,447			533
Income tax recovery (expense)				4,316			(1,210	)		3,367			(86	)
				92,506			8,088			19,551			1,098

Comprehensive income (loss)			$	167,366		$	19,102		$	(327,181	)	$	1,325

Comprehensive income (loss) attributable to:
Canopy Growth Corporation			$	178,908		$	9,671		$	(319,413	)	$	(7,711	)
Non-controlling interests				(11,542	)		9,431			(7,768	)		9,036
			$	167,366		$	19,102		$	(327,181	)	$	1,325

Page 4

CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31 2017
UNAUDITED						Other reserves							Accumulated other comprehensive income
(Expressed in CDN $000's except share amounts)	Number of shares		Share capital			Share-based reserve			Warrants		Ownership changes		Exchange differences		Fair value changes, net of tax		Deficit			Non-controlling interests			Shareholders' equity

Balance at March 31, 2017		162,187,262	$	621,541		$	23,415		$	-	$	-	$	198	$	15,900	$	(21,296	)	$	(32	)	$	639,726
Equity financings and private placements		21,982,491		198,667			-			70,265		-		-		-		-			-			268,932
Issuance of shares from acquisitions		3,548,408		29,413			689			1,303		-		-		-		-			-			31,405
Exercise of warrants		183,816		681			-			-		-		-		-		-			-			681
Exercise of ESOP stock options		2,879,160		12,801			(5,191	)		-		-		-		-		-			-			7,610
Other share issuances		177,243		1,647			(644	)		-		-		-		-		-			-			1,003
Other share issue costs		-		(197	)		-			-		-		-		-		-			-			(197	)
Tax benefit associated with share issue costs		-		1,997			-			-		-		-		-		-			-			1,997
Share-based compensation		-		-			27,876			-		-		-		-		-			-			27,876
NCI arising from Canopy Rivers financing - net of share issue costs of $1,425		-		-			-			-		120		-		-		-			35,135			35,255
NCI arising from Canopy Rivers		-		-			-			-		-		-		-		-			(143	)		(143	)
Additional non-controlling interest relating to share-based payment		-		-			-			-		-		-		-		-			2,374			2,374
NCI arising from acquisitions and ownership changes		-		-			-			-		-		-		-		-			2,014			2,014
Net income		-		-			-			-		-		-		-		(8,809	)		9,036			227
Other comprehensive income		-		-			-			-		-		533		565		-			-			1,098
Balance at December 31, 2017		190,958,380	$	866,550		$	46,145		$	71,568	$	120	$	731	$	16,465	$	(30,105	)	$	48,384		$	1,019,858

Page 5

CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 2018
UNAUDITED							Other reserves									Accumulated other comprehensive income
(Expressed in CDN $000's except share amounts)	Note	Number of shares		Share capital			Share-based reserve			Warrants			Ownership changes			Exchange differences		Fair value changes, net of tax			Deficit			Non-controlling interests			Shareholders' equity
Balance at March 31, 2018			199,320,981	$	1,076,838		$	57,982		$	70,455		$	(1,019	)	$	608	$	45,558		$	(91,649	)	$	84,465		$	1,243,238
Constellation investment - net of share issue costs $12,100	19(a)(i)		104,500,000		3,558,640			-			1,501,760			-			-		-			-			-			5,060,400
Issuance of shares from acquisitions	19(a)(ii)		18,293,872		947,470			30,574			-			-			-		-			-			-			978,044
Exercise of warrants	19(a)(iv)		454,378		31,493			-			(12,809	)		-			-		-			-			-			18,684
Exercise of ESOP stock options	19(b)		4,278,671		63,012			(34,282	)		-			-			-		-			-			-			28,730
Issuance of shares on vesting of restricted share units	19(b)		52,871		2,191			(2,191	)		-			-			-		-			-			-			-
Acquisition of BC Tweed NCI - net of share issue costs $250	11(b)		5,091,523		201,883			265,253			-			(422,786	)		-		-			-			-			44,350
Acquisition of other NCI			60,844		3,730			-			-			(3,730	)		-		-			-			-			-
Other share issuances	19(a)(iii)		2,599,288		63,422			(45,555	)		-			-			-		-			-			-			17,867
Other share issue costs			-		(964	)		-			-			-			-		-			-			-			(964	)
Share-based compensation	19(b)		-		-			178,941			-			-			-		-			-			-			178,941
Issuance of restricted share units			-		-			2,247			-			-			-		-			-			-			2,247
Replacement options for Hiku and CHI			-		-			21,737			-			-			-		-			-			-			21,737
Replacement warrants for Hiku			-		-			-			30,611			-			-		-			-			-			30,611
Equity component of Hiku convertible debt			-		-			949			-			-			-		-			-			-			949
Ownership change arising from Spectrum Cannabis Chile purchase of NCI	14		-		-			-			-			(1,327	)		-		-			-			331			(996	)
NCI arising from Canopy Rivers financing - net of share issue costs $3,371	13, 14		-		-			-			-			9,138			-		-			-			77,916			87,054
Rivers warrants reclassed from Liability to Equity	15(i)		-		-			-			-			-			-		-			-			28,512			28,512
Additional non-controlling interest related to share based payments	14		-		-			-			-			(5	)		-		-			-			10,934			10,929
Ownership change arising from changes in non-controlling interest	14		-		-			-			-			(502	)		-		-			-			1,028			526
Net income (loss)			-		-			-			-			-			-		-			(349,831	)		3,099			(346,732	)
Other comprehensive income (loss)			-		-			-			-			-			109,447		(79,029	)		-			(10,867	)		19,551
Balance at December 31, 2018			334,652,428	$	5,947,715		$	475,655		$	1,590,017		$	(420,231	)	$	110,055	$	(33,471	)	$	(441,480	)	$	195,418		$	7,423,678

Page 6

CANOPY GROWTH CORPORATION
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2018 AND 2017
UNAUDITED			December 31,			December 31
(Expressed in CDN $000's)	Notes		2018			2017
						(Restated - see note 3)
Net inflow (outflow) of cash related to the following activities:

Operating
Net income (loss)			$	(346,732	)	$	227
Adjustments for:
Depreciation of property, plant and equipment				15,703			6,360
Amortization of intangible assets				7,869			9,175
Share of loss on equity investments				9,021			170
Fair value changes in biological assets included in inventory sold and other charges				105,989			47,836
Unrealized gain on changes in fair value of biological assets				(90,500	)		(79,221	)
Share-based compensation		19		194,686			30,249
Loss on disposal of property, plant and equipment and intangible assets				1,443			553
Other assets		9		(16,908	)		(1,932	)
Other income and expense		20		(45,919	)		(40,972	)
Income tax (recovery) expense				(1,398	)		9,635
Non-cash interest and FX impact on assets				1,394			-
Changes in non-cash operating working capital items		23		(129,547	)		(26,675	)

Net cash used in operating activities				(294,899	)		(44,595	)

Investing
Purchases and deposits of property, plant and equipment and assets in process				(495,236	)		(86,107	)
Purchases of intangible assets and intangibles in process				(40,140	)		(1,033	)
Proceeds on disposals of property and equipment				-			75
Purchases of marketable securities				(802,247	)		(118	)
Proceeds on assets classified as held for sale				-			7,000
Investments in associates				(27,201	)		(18,824	)
Investments in other financial assets				(74,071	)		(27,732	)
Net cash outflow on acquisition of BC Tweed NCI	11(b)			(1,000	)		-
Net cash outflow on acquisition of Spectrum Chile NCI				(996	)		-
Net cash inflow (outflow) on acquisition of subsidiaries	11(a)			(344,472	)		(3,600	)

Net cash used in investing activities				(1,785,363	)		(130,339	)

Financing
Payment of share issue costs				(18,617	)		(1,345	)
Proceeds from issuance of common shares and warrants				5,072,500			269,990
Proceeds from issuance of shares by Canopy Rivers				91,218			35,113
Proceeds from exercise of stock options				28,730			7,544
Proceeds from exercise of warrants				18,684			681
Issuance of long-term debt	18(a)			600,000			-
Payment of long-term debt issue costs				(16,380	)		-
Repayment of finance lease obligations				(2,728	)		-
Repayment of long-term debt				(3,499	)		(1,141	)
Net cash provided by financing activities				5,769,908			310,842

Effect of exchange rate changes on cash and cash equivalents				103,664			-

Net cash inflow				3,793,310			135,908
Cash and cash equivalents, beginning of period				322,560			101,800

Cash and cash equivalents, end of period			$	4,115,870		$	237,708

Refer to Note 23 for supplementary cash flow information

Page 7

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and nine Months ended December 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

1.	Description of business

Canopy Growth Corporation (“Canopy Growth”) is a publicly traded corporation, incorporated in Canada, with its head office located at 1 Hershey Drive, Smiths Falls, Ontario with its common shares listed on the TSX, under the trading symbol “WEED” and as of May 24, 2018 on the NYSE, under the trading symbol “CGC”.

The condensed interim consolidated financial statements (“interim financial statements”) as at and for the three and nine months ended December 31, 2018, and 2017, include Canopy Growth and its subsidiaries (together referred to as “the Company”) and the Company’s interest in other entities.

The principal activities of the Company are the production, distribution and sale of cannabis as regulated by the Access to Cannabis for Medical Purposes Regulations (“ACMPR”) in Canada, up to and including October 16, 2018. On October 17, 2018, the ACMPR was superseded by The Cannabis Act which regulates the production, distribution, and possession of cannabis for both medical and adult recreational access in Canada. The Company is also expanding to jurisdictions outside of Canada where federally lawful and regulated including subsidiaries which operate in Europe, Latin America and the Caribbean. Through its partially owned subsidiary Canopy Rivers Corporation (“Canopy Rivers”), the Company also provides growth capital and a strategic support platform that pursues investment opportunities in the global cannabis sector, where federally lawful.

2.	Basis of presentation

Statement of compliance

The interim financial statements have been prepared in compliance with International Accounting Standard 34 - Interim Financial Reporting, except as described in Note 3 to the interim financial statements, the Company followed the same accounting policies and methods of application as those disclosed in the annual audited consolidated financial statements for the year ended March 31, 2018. The interim financial statements should be read in conjunction with the annual financial statements of the Company for the year ended March 31, 2018, which have been prepared in accordance with International Financial Reporting Standards ("IFRS").

These interim financial statements were approved by the Board of Directors and authorized for issue by the Board of Directors on February 14, 2019.

Basis of measurement

These interim financial statements have been prepared in Canadian dollars on a historical cost basis except for biological assets and certain financial assets and liabilities which are measured at fair value.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether the price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

Fair value measurements are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and

Level 3 - valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value hierarchy requires the use of observable market inputs whenever such inputs exist.

Further information on fair value measurements is available in Notes 7 and 24.

Classification of expenses

The expenses within the condensed interim consolidated statements of operations (“statements of operations”) and comprehensive loss (“statements of comprehensive loss”) are presented by function.

Page 8

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

3.	CHANGES IN Accounting policies and new ACCOUNTING STANDARDS AND INTERPRETATIONS

(a) Change in accounting policies

Effective April 1, 2018, the Company has changed its accounting policy with respect to production and fulfillment related depreciation. Prior to this change the Company expensed all depreciation and amortization costs as operating expenses. The Company now capitalizes production related depreciation and amortization to biological assets and inventory and expenses this depreciation to costs of goods sold as inventory is sold. In addition, depreciation and amortization associated with shipping and fulfillment will be recorded to cost of goods sold as incurred. Previously this depreciation and amortization was grouped with other depreciation and amortization on the statements of operations. The Company believes that the revised policy and presentation provides more relevant financial information to users of the financial statements.

The Company’s amended policy is as follows:

Biological assets

The Company’s biological assets consist of cannabis plants. The Company capitalizes all the direct and indirect costs as incurred related to the biological transformation of the biological assets between the point of initial recognition and the point of harvest including labour related costs, grow consumables, materials, utilities, facilities costs, quality and testing costs, and production related depreciation. The Company then measures the biological assets at fair value less cost to sell up to the point of harvest, which becomes the basis for the cost of finished goods inventories after harvest. Cost to sell includes post-harvest production, shipping and fulfillment costs. The net unrealized gains or losses arising from changes in fair value less cost to sell during the period are included in the results of operations of the related period. Seeds are measured at fair value.

Inventories

Inventories of harvested work-in-process and finished goods are valued at the lower of cost and net realizable value. Inventories of harvested cannabis are transferred from biological assets at their fair value less cost to sell up to the point of harvest, which becomes the initial deemed cost. All subsequent direct and indirect post-harvest costs are capitalized to inventory as incurred, including labour related costs, consumables, materials, packaging supplies, utilities, facilities costs, quality and testing costs, and production related depreciation. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Inventories for resale and supplies and consumables are valued at the lower of costs and net realizable value, with cost determined using the weighted average cost basis.

The line item “Inventory production costs expensed to cost of sales” in the statements of operations is comprised of the cost of inventories expensed in the period and the direct and indirect costs of shipping and fulfillment including labour related costs, materials, shipping costs, customs and duties, royalties, utilities, facilities costs, and shipping and fulfillment related depreciation.

The change in accounting policy has been applied retrospectively. The Company has restated the comparative figures in the statements of operations and the condensed interim consolidated statements of cash flows (“statements of cash flows”). The following tables summarize the effects of the change described above.

Page 9

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

Line item on the statements of operations:

	As previously						As
For the three months ended December 31, 2017	reported			Adjustment			restated
Revenue		21,700			-			21,700
Inventory production costs expensed to cost of sales		9,166			645			9,811
Gross margin before the undernoted		12,534			(645	)		11,889

Fair value changes in biological assets included in inventory sold and other inventory charges		23,692			512			24,204
Unrealized gain on changes in fair value of biological assets		(29,728	)		883			(28,845	)
Gross margin		18,570			(2,040	)		16,530

Depreciation and Amortization		5,187			(2,040	)		3,147

	As previously						As
For the nine months ended December 31, 2017	reported			Adjustment			restated
Revenue		55,142			-			55,142
Inventory production costs expensed to cost of sales		23,501			1,572			25,073
Gross margin before the undernoted		31,641			(1,572	)		30,069

Fair value changes in biological assets included in inventory sold and other inventory charges		46,339			1,497			47,836
Unrealized gain on changes in fair value of biological assets		(81,713	)		2,492			(79,221	)
Gross margin		67,015			(5,561	)		61,454

Depreciation and Amortization		15,535			(5,561	)		9,974

Line item on statements of cash flows:

	As previously						As
For the nine months ended December 31, 2017	reported			Adjustment			restated
Operating
Fair value changes in biological assets included in inventory sold and other inventory charges		46,339			1,497			47,836
Unrealized gain on changes in fair value of biological assets		(81,713	)		2,492			(79,221	)
Changes in non-cash operating working capital items		(22,686	)		(3,989	)		(26,675	)

(b) New or amended standards effective April 1, 2018

The Company has adopted the following new or amended IFRS standards for the interim and annual period beginning on April 1, 2018.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued by the IASB in May 2014 and specifies how and when revenue should be recognized based on a five-step model, which is applied to all contracts with customers. On April 12, 2016, the IASB published final clarifications to IFRS 15 with respect to identifying performance obligations, principal versus agent considerations, and licensing.

The Company has applied IFRS 15 retrospectively and determined that there is no change to the comparative periods or transitional adjustments required as a result of the adoption of this standard. The Company’s accounting policy for revenue recognition under IFRS 15 is as follows:

Page 10

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

To determine the amount and timing of revenue to be recognized, the Company follows a 5-step process:

Identifying the contract with a customer

Identifying the performance obligations

Determining the transaction price

Allocating the transaction price to the performance obligations

Recognizing revenue when/as performance obligation(s) are satisfied.

Revenue from the sale of cannabis to medical and recreational customers is recognized when the Company transfers control of the good to the customer. In some cases, judgement is required in determining whether the customer is a business or the end consumer. This evaluation was made on the basis of whether the business obtains control of the product before transferring to the end consumer. Control of the product transfers at a point in time either upon shipment to or receipt by the customer, depending on the contractual terms.

The Company recognizes revenue in an amount that reflects the consideration that the Company expects to receive taking into account any variation that may result from rights of return.

IFRS 9 Financial Instruments ("IFRS 9")

IFRS 9 was issued by the IASB on July 24, 2014 and replaced IAS 39. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Financial liabilities are classified in a similar manner as under IAS 39.

Under IFRS 9, financial assets are initially measured at fair value plus, in the case of a financial asset not at fair value through profit and loss [“FVTPL”], transaction costs. Financial assets are subsequently measured at:

FVTPL;

ii)

amortized cost;

iii)

debt measured at fair value through other comprehensive income [“FVOCI”];

iv)

equity investments designated at FVOCI; or

financial instruments designated at FVTPL.

The classification is based on whether the contractual cash flow characteristics represent “solely payment of principal and interest” [the “SPPI test”] as well as the business model under which the financial assets are managed. Financial assets are required to be reclassified only when the business model under which they are managed has changed. All reclassifications are to be applied prospectively from the reclassification date.

The Company has elected to measure investments in equity instruments of AusCann, JWC, HydRx, Good Leaf, Solo Growth, LiveWell and Headset which are included in Other financial assets on the Condensed Interim Consolidated Statements of Financial Position (“statements of financial position”), at FVOCI on transition or initial recognition as these investments are long-term and strategic in nature, and net changes in fair value are more suited to be presented in other comprehensive income.

Debt investments are recorded at amortized cost for financial assets that are held within a business model with the objective to hold the financial assets in order to collect contractual cash flows that meet the SPPI test.

The assessment of the Company’s business models for managing the financial assets was made as of the date of initial application of April 1, 2018 or on initial recognition. The assessment of whether contractual cash flows on debt instruments meet the SPPI test was made based on the facts and circumstances as at the initial recognition of the financial assets.

Consistent with IAS 39, all financial liabilities held by the Company under IFRS 9, other than convertible debentures, are initially measured at fair value and subsequently measured at amortized cost. The convertible debenture issued by the Company in June 2018 has been designated at FVTPL upon initial recognition as permitted by IFRS 9 as the debenture contains multiple embedded derivatives.

Page 11

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

The following table summarizes the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Company’s financial assets and financial liabilities:


	IAS 39 Classification	IFRS 9 Classification
Cash and cash equivalents	Loans and receivables	Amortized cost
Marketable securities	Not applicable	FVTPL
Accounts receivables	Loans and receivables	Amortized cost
Interest receivable	Loans and receivables	Amortized cost
Restricted investments	Loans and receivables	Amortized cost
Other financial assets	Available for sale, loans and receivables and FVTPL	FVOCI and FVTPL
Accounts payable and accrued liabilities	Other liabilities	Other liabilities
Long-term debt	Other liabilities	Other liabilities
Convertible debentures	Not applicable	FVTPL
Vert Mirabel put liability	FVTPL	FVTPL
Acquisition consideration related liabilities	FVTPL	FVTPL

The Company’s investments in James E. Wagner Cultivation Ltd (“JWC”) royalty interest, Agripharm Corporation (“Agripharm”) royalty interest and Radicle Medical Marijuana Inc. (“Radicle”) repayable debenture (Note 16) were classified as loans and receivables and measured at amortized cost under IAS 39. Under IFRS 9, these investments are classified and measured at FVTPL as these investments fail the SPPI test. The change in classification of these investments did not impact the carrying amounts of these investments on the transition date.

Impairment

Under IFRS 9, the Company is required to apply an expected credit loss [“ECL”] model to all debt financial assets not held at FVTPL, where credit losses that are expected to transpire in futures years are provided for, irrespective of whether a loss event has occurred or not as at the balance sheet date. For trade receivables, the Company has applied the simplified approach under IFRS 9 and has calculated ECLs based on lifetime expected credit losses taking into considerations historical credit loss experience and financial factors specific to the debtors and general economic conditions. The Company has assessed the impairment of its amounts receivable using the expected credit loss model, and no difference was noted. As a result, no incremental impairment loss has been recognized upon transition and at April 1, 2018.

IFRS 16 Leases (“IFRS 16”)

IFRS 16 was issued by the IASB in January 2016 and specifies the requirements to recognize, measure, present and disclose leases. IFRS 16 is effective for the Company for its annual period ending March 31, 2020 with early adoption permitted. The Company is continuing to assess the impact of this new standard on its financial position and financial performance.

Page 12

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

Revenue

Revenues are disaggregated as follows:

	Three months ended				Nine months ended
	December 31,		December 31,		December 31,		December 31,
	2018		2017		2018		2017
Recreational revenue
Business to business	$	60,141	$	-	$	60,141	$	-
Business to consumer		11,477		-		11,477		-
Medical revenue
Canadian		15,931		19,331		57,198		51,079
International		2,702		988		8,294		1,392
Other revenue		7,452		1,381		9,836		2,671
Gross revenue		97,703		21,700		146,946		55,142
Excise taxes		14,655		-		14,655		-
Net revenue	$	83,048	$	21,700	$	132,291	$	55,142

5.	MARKETABLE SECURITIES

Marketable securities represent short-term investments not qualifying as cash equivalents but having maturity dates of less than 1 year that are readily convertible to cash.

	December 31, 2018		March 31, 2018

U.S. agency bonds	$	150,798	$	-
U.S. agency discount notes		141,504		-
U.S. treasury bills		124,533		-
U.S. federal bonds		202,816		-
Canadian agency bonds		75,050		-
Canadian federal bonds		104,717		-

Total marketable securities	$	799,418	$	-

The Company has designated its marketable securities as fair value through profit or loss. Fair values have been determined based on quoted market prices. Accrued interest of $990 is included in interest receivable.

6.	amounts receivable

Amounts receivable was comprised of:

	December 31,		March 31,
	2018		2018

Accounts receivable	$	65,732	$	5,863
Indirect tax receivable		16,455		15,262
Interest receivable		7,294		300
Other receivables		5,995		-

Total amounts receivable	$	95,476	$	21,425

Page 13

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

7.	Biological assets

The Company’s biological assets consists of seeds and cannabis plants. The continuity of biological assets for the nine months ended December 31, 2018 and the year ended March 31, 2018 was as follows:

	December 31,			March 31,
	2018			2018

Balance, beginning of period	$	16,348		$	14,725
Purchases (use) of seeds		(7	)		271
Acquisition / (disposal) of biological assets due to acquisition / disposal of consolidated entity		184			(1,430	)
Unrealized gain on changes in fair value of biological assets		90,500			100,302
Increase in biological assets due to capitalized costs		66,577			17,309
Net write-off of biological assets		(20,272	)		-
Transferred to inventory upon harvest		(122,317	)		(114,829	)

Balance, end of period	$	31,013		$	16,348

Biological assets are valued in accordance with IAS 41 and are presented at their fair values less costs to sell up to the point of harvest. The Company’s biological assets are primarily cannabis plants, and because there is no actively traded commodity market for plants or dried product, the valuation of these biological assets is obtained using valuation techniques where the inputs are based upon unobservable market data (Level 3).

The valuation of biological assets is based on a market approach where fair value at the point of harvest is estimated based on future selling prices less the costs to sell at harvest. For in process biological assets, the fair value at point of harvest is adjusted based on the stage of growth. Stage of growth is determined by reference to costs incurred to date as a percentage of total expected costs from inception to harvest.

The significant unobservable inputs and their range of values are noted in the table below:

Unobservable Inputs	Range	Sensitivity
Estimated Yield per Plant – varies by strain and is obtained through historical growing results (trailing 6-months moving average) or grower estimate if historical results are not available.	12 grams/plant to 386 grams/plant	A slight increase in the estimated yield per plant would result in a significant increase in fair value, and vice versa.
Average Selling Price of Dry Cannabis – varies by strain and is obtained through average selling prices or estimated future selling prices if historical results are not available.	$5.26 to $9.15/gram	A slight increase in the estimated selling price per strain would result in a significant increase in fair value, and vice versa.

Inventory

Inventory was comprised of the following items:

	December 31,		March 31,
	2018		2018

Finished Goods	$	22,245	$	26,506
Work-in-process		120,912		71,883
Merchandise and devices		9,105		571
Supplies and consumables		32,699		2,647

	$	184,961	$	101,607

Page 14

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

Inventories expensed during the three and nine months ended December 31, 2018, was $67,130 and $157,220 respectively (three and nine months ended December 31, 2017 - $20,694 and $53,935, respectively). Included in other charges is a net realizable value adjustment for anticipated price changes and a net write-off of biological assets.

9.	PREPAID EXPENSES AND OTHER ASSETS AND OTHER LONG-TERM ASSETS

(a) Prepaid expenses and other assets

The Company’s prepaid expenses and other assets consists of the following:

	December 31,		March 31,
	2018		2018
Prepaid expenses	$	23,542	$	7,358
Deposits		18,210		842
Prepaid packaging and merchandise		4,660		8,774
Restricted short-term investments		3,493		664
Other		534		2,199

	$	50,439	$	19,837

(b) Other long-term assets

The Company’s other long-term assets consists of the following:

	December 31,		March 31,
	2018		2018
Property, plant, and equipment deposits	$	5,755	$	6,487
Purchase option and deposit on production facility		18,739		-
Prepaid royalty		7,408		-
Other		1,017		1,853

	$	32,919	$	8,340

On May 4, 2018, the Company entered into an agreement to lease a production facility in Newfoundland. The facility is currently under construction and the annual lease payments of $4,988 plus operating costs will commence after the completion of the building which is expected to be in August 2019. The Company also acquired an option to purchase the production facility from the lessor beginning five years after the commencement date of the lease. The Company paid $8,739 for this purchase option by way of the issuance of 332,009 shares on May 11, 2018. As part of the arrangement, the Company also provided an interest free construction loan of $10,000 to the lessor which is to be repaid the earlier of the lessor obtaining construction financing, the lessor selling the property to a third party, and the Company’s purchase of the production facility under the purchase option noted above. The Company expects that the loan will be outstanding until the Company exercises the purchase option and is in substance a further deposit on the purchase price.

On September 4, 2018, the Company entered into an exclusive supply arrangement with Centric Health Corporation (“CHC”). Under the arrangement, Canopy advanced $7,000 to CHC in exchange for reduced royalties and 850,000 warrants for common shares of CHC. The warrants have an exercise price of $0.25, vest on September 4, 2020 and expire on September 4, 2022. Management has estimated the fair value of the warrants at inception to be $92 and the difference of $6,908 has been recorded as a prepaid royalty.

Page 15

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

10.	Property, plant and equipment

A continuity of property, plant and equipment for the nine months ended December 31, 2018 is as follows:

COST
	Balance at				Additions		Transfers/			Balance at
	April 1,				from		disposals/			December 31,
	2018		Additions		acquisitions		exchange differences			2018
Computer equipment	$	6,241	$	8,643	$	219	$	2,159		$	17,262
Office/lab equipment		1,720		899		1,954		457			5,030
Furniture and fixtures		1,381		5,544		114		293			7,332
Production equipment		28,764		78,611		6,401		13,998			127,774
Leasehold improvements		22,482		21,988		1,114		1,927			47,511
Building and improvements¹		67,513		135,654		23,956		35,751			262,874
Greenhouse and improvements		4,095		6,837		-		21,412			32,344
Land and improvements		8,470		11,669		8,290		1,011			29,440
Warehouse equipment		167		11,582		-		121			11,870
Assets in process		176,998		336,159		14,035		(78,572	)		448,620
Total	$	317,831	$	617,586	$	56,083	$	(1,443	)	$	990,057
¹ Building and improvements includes $73M of assets under a finance lease, refer to note 18(a)

ACCUMULATED DEPRECIATION
	Balance at				Transfers/			Balance at
	April 1,				disposals/			December 31,
	2018		Depreciation		exchange differences			2018
Computer equipment	$	1,900	$	2,036	$	(65	)	$	3,871
Office/lab equipment		479		493		31			1,003
Furniture and fixtures		218		1,002		112			1,332
Production equipment		2,730		4,566		(96	)		7,200
Leasehold improvements		3,452		2,102		65			5,619
Building and improvements		4,821		4,567		-			9,388
Greenhouse and improvements		513		522		-			1,035
Land and improvements		30		39		-			69
Warehouse equipment		6		376		-			382
Total		14,149		15,703		47			29,899
Net book value	$	303,682						$	960,158

During the nine months ended December 31, 2018, the assets in process additions were $336,159 of which $153,416, $60,457, and $36,163 related to the expansion or growing operations at Smiths Falls Ontario, both BC locations, and Fredericton New Brunswick, respectively. The remaining $86,123 was for ongoing projects at the Company’s other subsidiaries.

On November 16, 2018 the Company acquired two facilities that it had been leasing in Toronto and Edmonton from a company controlled by a former director of Canopy Growth Corporation for $29,827 cash.

Page 16

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

11.	acquisitions

a) Acquisitions of Consolidated Entities

The following table summarizes the balance sheet impact on the acquisition date of the Company’s business combinations that occurred in the period ended December 31, 2018:

				Spectrum
	DCL			Colombia			CHI			Hiku			ebbu			POS			S&B			Other
	(i)			(ii)			(iii)			(iv)			(v)			(vi)			(vii)			(viii)
Cash and cash equivalents	$	496		$	3		$	8,369		$	4,089		$	-		$	2,908			998		$	(37	)
Amounts receivable		-			-			144			2,996			-			10,512			3,714			-
Subscription receivable		-			-			-			-			-			-			-			-
Inventory and Biological Assets		-			-			-			1,772			138			1,662			754			-
Prepaids and other assets		-			13			33			1,559			-			818			180			83
Property, plant and equipment		-			5,145			121			15,846			1,821			9,541			23,609			-
Investments					-			8,563			1,204			-			-			-			-
Intangible assets		-			-						974			1,556			328			276			-
Goodwill		25,973			46,269			152,639			578,162			363,326			108,138			217,574			1,538
Accounts payable and accrued liabilities		(573	)		(53	)		(954	)		(3,691	)		-			(1,804	)		(4,500	)		(16	)
Debt and other liabilities					(5,258	)					(1,954	)		(665	)		(3,145	)		(24,464	)
Net assets		25,896			46,119			168,915			600,957			366,176			128,958			218,141			1,568
Non-controlling interests		-			-			-			-			-			-			-			-
Net assets acquired	$	25,896		$	46,119		$	168,915		$	600,957		$	366,176		$	128,958		$	218,141		$	1,568

Consideration paid in cash	$	500		$	-		$	-		$	11,994		$	16,060		$	128,958		$	203,786		$	-
Consideration paid in shares		24,702			46,119			98,034			543,866			234,052			-			-			1,568
Gain on fair value of previously held equity interest		-			-			62,682			-			-			-			-			-
Replacement options		-			-			8,199			13,537			-			-			-			-
Replacement warrants		-			-			-			30,611			-			-			-			-
Other consideration		-			-			-			949			29,880			-			-			-
Contingent consideration		694			-			-			-			86,184			-			14,355			-
Total consideration	$	25,896		$	46,119		$	168,915		$	600,957		$	366,176		$	128,958		$	218,141		$	1,568

Consideration paid in cash	$	500		$	-		$	-		$	11,994		$	16,060		$	128,958		$	203,786		$	-
Less: Cash and cash equivalents acquired		(496	)		(3	)		(8,369	)		(4,089	)		-			(2,908	)		(998	)		37
Net cash outflow	$	4		$	(3	)	$	(8,369	)	$	7,905		$	16,060		$	126,050		$	202,788		$	37

Acquisition-related costs expensed	$	28		$	330		$	412		$	1,988		$	822		$	920		$	385		$	63

Goodwill arose in these acquisitions because the cost of acquisition included a control premium. In addition, the consideration paid for the combination reflected the benefit of expected revenue growth and future market development. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill arising on these acquisitions is expected to be deductible for tax purposes.

The accounting for these acquisitions has been provisionally determined at December 31, 2018. The fair value of net assets acquired and total consideration have been determined provisionally and subject to adjustment. Upon completion of a comprehensive valuation and finalization of the purchase price allocation, goodwill may be adjusted retrospectively to the acquisition date in future reporting periods

(i) DaddyCann Lesotho PTY Ltd.

On May 30, 2018, the Company purchased 100% of the issued and outstanding shares of DaddyCann Lesotho PTY Ltd. (“DCL”). Based in the Kingdom of Lesotho, DCL holds a license to cultivate, manufacture, supply, hold, import, export and transport cannabis and its resin.

On closing, 666,362 common shares were issued to former shareholders of DCL at a price of $37.07 for consideration of $24,702. An additional 33,318 common shares will be issued on the achievement of a

Page 17

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

licensing milestone. These shares have been accounted for as equity classified contingent consideration. Management assessed the probability and timing of achievement and then discounted to present value using a put option pricing model in order to derive a fair value of the contingent consideration of $694. There was also the effective settlement of a note receivable of $500, which was advanced in cash by the Company prior to closing, for total consideration of $25,896.

An additional 299,863 common shares will be issued to the former shareholders of DCL contingent on the achievement of certain operational milestones. These are being accounted for as share-based compensation expense. The fair value on the grant date of May 30, 2018 of $11,116 will be amortized over the expected vesting period.

(ii) Colombian Cannabis S.A.S.

On July 5, 2018 through Canopy LATAM Corporation (“Canopy LATAM”), the Company acquired Spectrum Cannabis Colombia S.A.S. (“Spectrum Colombia”), which previously operated as Colombian Cannabis S.A.S. The consideration for the transaction was 1,193,237 common shares with a fair value of $46,119 based on the Company’s share price on the closing date.

On July 5, 2018, in conjunction with the acquisition of Spectrum Colombia the Company acquired all the outstanding shares of Canindica Capital Ltd (“Canindica”) in exchange for 595,184 common shares. Canindica was controlled by the Canopy LATAM Regional Managing Director. Canindica does not meet the definition of a business and the fair value of the consideration paid of $23,004 has been recorded as compensation expense.

Upon the achievement of future cultivation and sales milestones, the Company will issue up to 2,098,304 additional common shares of the Company to the former shareholders of Spectrum Colombia and shares to a value of $42,623 to the former shareholders of Canindica. If Canindica fails to meet certain of these milestones, Canindica will pay USD $10,000 to the Company. This obligation is secured by a note receivable from Canindica. Additionally, if all of these milestones are met prior to July 4, 2023, the Company will issue, to the previous shareholders of Spectrum Colombia and Canindica, the number of Company shares equal to four percent and six percent, respectively, of the fair market value of Canopy LATAM. The milestone shares are being provided in exchange for services and are being accounted for as share-based compensation expense. Management has estimated the grant date fair value of all these milestone shares to be $106,377 which will be expensed rateably over the estimated vesting periods.

(iii) Canopy Health Innovations

Canopy Health Innovations Inc. (“CHI”) is a cannabis research innovator. On August 3, 2018, the Company acquired all of its unowned interest in CHI to increase its total ownership to 100% of CHI’s issued and outstanding shares. Immediately preceding the acquisition, CHI amalgamated with its wholly-owned subsidiary, Canopy Animal Health (“CAH”), creating one amalgamated corporation which continued as CHI. In addition, the vesting of certain CHI and CAH options was accelerated and certain options were exercised. Following this transaction, the Company will control CHI and CHI will be accounted for as a wholly-owned subsidiary. CHI shares and options were exchanged at a ratio of 0.379014 CHI shares to 1 Canopy Growth share or replacement option, resulting in 2,591,369 common shares, 568,008 replacement options and 485,572 common shares of which 217,859 are subject to certain trading restrictions (“Compensation Shares”) being issued. This consideration included 278,230 shares and 154,208 replacement options that were issued to key management personnel of the Company that were shareholders and option holders in CHI.

The fair value of the shares issued totaled $98,034 which is comprised of $87,717 calculated as the 2,591,369 common shares issued at the Company’s share price on the date of the transaction and $10,317 which reflects the fair value of the Compensation Shares issued, calculated using a Black-Scholes model.

The fair value of the replacement options was determined using a Black-Scholes model and the total fair value has been allocated to the consideration paid for CHI only to the extent that it related to pre-combination services. As a result, $8,199 of the total fair value has been included as consideration paid to acquire CHI as it related to pre-combination vesting service and $11,714 of the fair value will be recognized as share-based compensation expense rateably over the post-combination vesting period (see Note 18(b) for details on the share-based compensation expense).

Prior to this acquisition, the Company’s 43% participating share was accounted for using the equity method, as an investment in an associate. The acquisition of the 57% interest is accounted for as a business combination achieved in stages under IFRS 3 Business Combinations. The Company remeasured its 43% interest to fair value and recognized a gain of $62,682 which reflects the difference between the carrying value of NIL and the implied fair value $62,682. The fair value was estimated to be the transaction price less an estimated control premium of 5%.

Page 18

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

(iv) Hiku Brands Company Ltd

On September 5, 2018, the Company purchased 100% of the issued and outstanding shares of Hiku Brands Company Ltd (“Hiku”). Hiku is federally licensed to cultivate and sell cannabis through its wholly-owned subsidiary DOJA Cannabis Ltd. Hiku also operates a network of retail stores selling coffee, clothing and curated accessories, across British Columbia, Alberta and Ontario. Hiku shares, options and warrants were exchanged at a ratio of 0.046 Hiku shares to 1 Canopy Growth share, replacement option, or warrant.

On the acquisition date Hiku had convertible debentures outstanding with a principal amount of $618 which were convertible into 498,387 Hiku common shares. As a result of the acquisition the conversion feature was adjusted in accordance with the above exchange ratio. The fair value of these debentures on September 5, 2018 was estimated to be $1,570 which was allocated $949 to the conversion feature and $621 to the debt component. On November 5, 2018 in accordance with the terms of the debenture the Company completed the forced conversion of the debenture in exchange for 22,866 shares.

Prior to closing the Company advanced cash of $10,000 to Hiku pursuant to a promissory note. The funds were used to pay the termination fee owed by Hiku in connection with a previously announced transaction.

On closing the Company issued 7,943,123 common shares with a fair value of $543,866, based on the Company’s share price on the date of the transaction, cash consideration of $1,994, 920,452 replacement warrants and 291,629 replacement options. The fair value of the replacement warrants was estimated to be $30,611 using a Black-Scholes model. The replacement options’ fair value totaled $17,693, calculated using a Black-Scholes model, of which $13,537 has been included as consideration paid as it related to pre-combination services and the residual $4,156 fair value will be recognized as stock compensation expense rateably over the post-combination vesting period. Other consideration also includes $949 related to the convertible debenture and the effective settlement of the promissory note of $10,000.

(v) ebbu Inc.

On November 23, 2018 the Company, through its wholly owned subsidiary 11065220 Canada Inc., acquired substantially all the assets and intellectual property of ebbu Inc. (“ebbu”), a Colorado-based hemp research operation in exchange for $25,000 cash and 6,221,210 common shares of which $7462 cash and 899,424 shares were held back for a period of 12 to 18 months in respect of certain representations and warranties of the seller. Up to a further $100,000 will be paid subject to the achievement of certain scientific related milestones within a period of two years of closing. The Company will have the option of satisfying these milestone payments in cash, shares or a combination of cash and shares, subject to the restriction that each payment must be comprised of at least 10% cash but the cash portion cannot exceed 19.9% of the payment. If such payments are satisfied in shares, the number of shares will be calculated based on the volume weighted average price of the shares on the TSX for the 20 trading days immediately prior to the date of achievement of the milestone.

The assets transferred constitute a business and the transaction will be accounted for as a business combination. The consideration for this transaction is estimated to be $366,176. This includes cash and shares transferred on closing with a value of $16,060 and $234,052 respectively and contingent consideration of $116,065. The contingent consideration includes $29,880 which is classified as equity and $86,184 which is classified as a liability. Management has estimated the fair value of the contingent consideration by assessing the probability of releasing the holdback amounts and probability and timing of achieving the milestones. The fair value of the equity classified contingent consideration is determined using a put option pricing model. The fair value of the liability classified contingent consideration is determined by discounting the expected cash outflows to present value.

Management has determined that a portion of the consideration transferred is being provided in exchange for services and will be accounted for as compensation expense. The grant date fair value of this compensation has been estimated to be $8,416 which will be expensed rateably over the estimated vesting periods.

(vi) POS Holdings Inc.

On November 23, 2018 the Company acquired effective control for accounting purposes over the operations of POS Holdings Inc. (“POS”), as a result of a debenture financing transaction which was entered into concurrent with the grant of an option to acquire POS. POS is a bio-processing facility located in Saskatchewan, Canada.

On July 1, 2018, the Company had entered into an agreement whereby the Company was granted an option to acquire all of the assets of POS in exchange for $6,000. The amount advanced for this option was to be

Page 19

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

applied against the purchase price of the assets of POS when the option was exercised and had been recorded as a deposit. In addition, the Company had entered into an agreement for processing services to be conducted by POS on behalf of the Company and had made advances of $13,864 under this agreement. Since processing under this agreement has not yet commenced, all the amounts advanced prior to November 23, 2018 had been recorded as a prepaid expense. The deposit and prepaid amounts form part of the consideration transferred. On November 23, 2018, the Company advanced a further $109,094 pursuant to a convertible debenture for total cash consideration of $128,958.

(vii) Storz & Bickel GmbH & Co. KG

On December 6, 2018 the Company acquired Storz & Bickel GmbH & Co. KG, related entities, and IP (collectively, “Storz & Bickel” or “S&B”) for $203,786 cash. Based in Tuttlingen, Germany Storz & Bickel are designers and manufacturers of medically approved vaporizers.

Up to a further €10,000 will be paid to the former shareholders subject to the achievement of certain market launch milestones. This represents liability classified contingent consideration. Management has estimated the fair value of this consideration to be $14,355 by assessing the probability and timing of achievement of the milestones and discounting the expected cash outflows to present value.

(viii) Other fiscal 2019 acquisitions

On April 16, 2018 the Company acquired 100% of Annabis Medical s.r.o. a company that imports and distributes cannabis products pursuant to federal Czech licenses. Under the terms of the agreement the Company issued 50,735 common shares on closing for total consideration of $1,568. An additional 34,758 common shares will be issued contingent on future services and the achievement of certain milestones. These shares are being accounted for as share based compensation and being amortized over the expected vesting period.

b) Acquisition of non-controlling shareholder’s interest in BC Tweed

During the second quarter of 2018, the Company revised its previous conclusion that BC Tweed Joint Venture Inc. (“BC Tweed”) was subject to joint control. The Company has concluded that based on the shareholders’ agreement and the contractual terms of the offtake agreement that the significant relevant activities are unilaterally controlled by the Company. Since the Company had previously recognized the assets, liabilities, revenues and expenses of BC Tweed based on its proportionate share of BC Tweed’s output, being 100%, the conclusion that BC Tweed should have been a consolidated subsidiary had no significant impact on the Company’s previously issued interim or annual financial statements.

On July 5, 2018, the Company acquired the non-controlling shareholder’s (the “Partner’s”) 33% interest in BC Tweed (the “Transaction”) for total consideration of $495,386. Consideration included $1,000 in cash and 13,293,969 shares of the Company of which 5,091,523 shares were released on closing and the remaining 8,202,446 shares were placed in escrow. The shares placed in escrow will be released over a period of up to three years, with the exact timing of release dependent on the occurrence of specified events. The 5,091,523 shares issued on close were recorded at an issue price of $39.70 per share for consideration of $202,133. The fair value of the shares held in escrow was estimated to be $265,253 using a put option pricing model discounted to reflect management’s best estimate of the expected dates of release. On closing of the Transaction, the call option held by BC Tweed on the limited partnership units of the limited partnerships which hold the greenhouses and related property was amended to effectively increase the call option price by $27,000. Management has determined that this increase in the call option price represents additional consideration for the Partner’s interest.

On closing of the Transaction, the Company also amended the terms of a share-based compensation arrangement with the Partner to accelerate the vesting of 155,158 shares previously issued to the Partner, and to cancel the remaining tranches of the compensation arrangement. As a result, the unamortized balance of the grant date fair value of the shared-based compensation of $954 was expensed in the quarter ended September 30, 2018.

Under the terms of the original BC Tweed Shareholders’ Agreement, the Partner had the option to sell its interest in BC Tweed, in whole or in part, to the Company. This put option was accounted for as a liability of the Company, measured at fair value. The excess of the consideration paid for the Partner’s 33% interest over the fair value of the put liability on the transaction date of $72,600 was recognized as a $422,786 charge to Equity.

In conjunction with the acquisition of the Partner’s interest the Company received an option to acquire the limited partnership units of another limited partnership currently owned by the Partner that holds greenhouse

Page 20

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

infrastructure in California (“California Option”). The option is exercisable for a purchase price that is the greater of USD $92,000 and the maximum of $190,000 plus the undepreciated book value of the net assets of the partnership on the closing date. The California Option is exercisable 90 days after the date of US Federal legalization of the growth, cultivation, production and sale of cannabis for medical purposes (the “California Trigger Date”) and the California Option expires on the earlier of 90 days after the California Trigger Date and July 5, 2023. The California Option is a derivative instrument that will be measured initially and subsequently at fair value. With the assistance of valuation specialists Management has estimated the fair value of the California Option at December 31, 2018 to be $2,500 using an income approach and giving consideration to the probability of US Federal Legalization occurring during the period over which the California Option can be exercised. At September 30, 2018 Management had estimated that the option had a nominal value.

12.	Intangible assets and goodwill

A continuity of the intangible assets for the nine months ended December 31, 2018 is as follows:

COST
	Balance at				Additions							Balance at
	April 1,				from		Disposals/			Exchange		December 31,
	2018		Additions		acquisitions		adjustments			differences		2018
Health Canada licenses	$	64,600	$	-	$	-	$	-		$	-	$	64,600
Distribution channel		38,900		-		-		-			-		38,900
Brand		6,042		-		499		392			-		6,933
Import license		841		8,328		26		(121	)		28		9,102
Software		1,455		1,240		246		16			8		2,965
Domain name		54		205		194		-			-		453
Product rights		-		107		1,802		(229	)		-		1,680
ERP		-		-		-		4,291			-		4,291
Licensed Brands		-		56,705		-		-			-		56,705
Intangibles in process		2,144		4,333		39		(3,770	)		-		2,746
Internally generated intangibles in process		326		601		328		(385	)		-		870
Total	$	114,362	$	71,519	$	3,134	$	194		$	36	$	189,245

ACCUMULATED AMORTIZATION
	Balance at									Balance at
	April 1,					Disposals/		Exchange		December 31,
	2018		Amortization			adjustments		differences		2018
Health Canada licenses	$	2,624	$	1,434		$	-	$	-	$	4,058
Distribution channel		9,077		5,835			-		-		14,912
Brand		-		106			-		-		106
Import license		219		153			-		3		375
Software		863		412			-		1		1,276
Domain name		53		(3	)		-		-		50
Product rights		-		(68	)		-		-		(68	)
Total		12,836		7,869			-		4		20,709
Net book value	$	101,526								$	168,536

A continuity of goodwill for the nine months ended December 31, 2018 is as follows:

As at April 1, 2018	$	314,923
Additions from acquisitions of subsidiaries		1,493,619
Exchange differences		7,082
As at December 31, 2018	$	1,815,624

The Company has entered into licensing agreements which provide the Company with the exclusive rights to sell branded products for the term of the agreement in exchange for upfront payments, in cash or shares, and future royalties from sale of these products. In certain cases, the contracts provide for annual minimum royalty payments. The Company has recorded these licensing rights as intangible assets with the cost equal to upfront payments and the present value of the minimum royalty payments. Amortization will commence separately for each individual licensing agreement on the date that the identified branded product(s) under the licensing agreement are available for sale.

Page 21

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

The product rights are contained in the licensing and distribution agreement (“Licensing Agreement”) between the former Bedrocan Canada Inc, now 1955625 Ontario Inc. (“Bedrocan Canada”), a wholly owned subsidiary of the Company and Bedrocan International BV (“Bedrocan International”). On July 14, 2017, Bedrocan Canada commenced arbitration proceedings against Bedrocan International seeking performance of Bedrocan International’s contractual obligations under the Licensing Agreement. During the fourth quarter of fiscal 2018 the Company initiated settlement negotiations with Bedrocan International which would include the orderly termination of the Licensing Agreement. As a result of these developments, management estimated that the recoverable amount for these product rights would be minimal, and an impairment loss of $28,000 was recognized in the year ended March 31, 2018. Following this impairment, the carrying amount of these product rights was nil.

On June 11, 2018 the Company announced that it had reached an agreement with Bedrocan International to bring the Licensing Agreement to a close. As part of this agreement, Bedrocan Canada and Bedrocan International will discontinue the previously announced arbitration proceedings and Bedrocan Canada will decrease and then end the production and sale of Bedrocan products within the calendar year. Canopy Growth will retain the licensed production facility, licensed sales facility, and all associated licenses owned and operated by Bedrocan Canada. Management will redeploy these facilities, free of the current royalty structure and fixed production practices. As a result of this agreement, in the first quarter of fiscal 2019 the Company derecognized these product rights.

13.	CANOPY RIVERS

On July 6, 2018, Canopy Rivers completed a private placement offering, pursuant to which Canopy Rivers issued an aggregate of 29,774,857 subscription receipts at a price of $3.50 per subscription receipt for gross proceeds of $104,212, including $15,050 invested by Canopy Growth. Canopy Rivers issued 28,792,000 subscription receipts pursuant to a brokered offering and 982,857 subscription receipts on a non-brokered basis. Funds from the private placement were placed in escrow pending the completion of the RTO. Share issue costs of $3,371 were incurred as part of this private placement offering, which have been deducted from the carrying value of the non-controlling interest.

On September 17, 2018 Canopy Rivers completed the RTO, the funds were released from escrow and Canopy Rivers began trading under the symbol RIV.V on the TSX Venture Exchange.

Since AIM2 does not have the inputs and processes capable of producing outputs that are necessary to meet the definition of a business as defined by IFRS 3–Business Combinations the RTO has been accounted for under IFRS2, Share-based Payments. Accordingly, the RTO has been accounted for at the fair value of the equity instruments granted by the shareholders of Canopy Rivers to the shareholders and option holders of AIM2. Consideration paid by the acquirer is measured at the fair value of the equity issued to the shareholders of AIM2, $1,353 (361,377 shares at $3.50 per share, 36,137 options with a fair value of $89 calculated using a Black-Scholes option pricing model and 18,821 broker warrants measured using the Black-Scholes option pricing model), with the excess amount above the fair value of the net assets acquired, treated as a listing expense in profit and loss.

Page 22

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

The assets acquired and liabilities assumed at their fair value on the acquisition date are as follows.

Amount

Consideration $ 1,353

Cash Acquired 583

Listing Expense 770

After the completion of the private placement and RTO, Canopy Growth holds 36,468,318 Class A shares and 8,973,938 Class B shares of Canopy Rivers. Through these shares, the Company’s ownership interest in Canopy Rivers is 27.2% and it holds 85.8% of the voting rights. The voting rights allow the Company to direct the relevant activities of Canopy Rivers such that the Company has control over Canopy Rivers and Canopy Rivers is consolidated in these financial statements. Prior to the transaction the Company’s ownership interest in Canopy Rivers was 30.07% and it held 88.5% of the voting rights. An amount of $9,138 has been recorded as an increase in equity attributable to the parent which represents the change in the carrying amount of the non-controlling interest as a result of the difference between the consideration paid and the net assets acquired and the dilution of Canopy Growth’s ownership interest.

Seed capital options

On the formation of Canopy Rivers in May 2017, 10,066,668 Class B common shares were paid for through share purchase loans, whereby funds were advanced to Canopy Rivers by Canopy Growth on behalf of certain employees of Canopy Growth and another individual. Under the share purchase loan, Canopy Growth’s recourse is limited to the shares purchased by the employees and the individual. Accordingly, it is accounted for as a grant of options to acquire shares of Canopy Rivers at $0.05 per Class B common share. The shares treated as options will be considered exercised on the repayment of the loan. The shares purchased by employees and the consultant have been placed in trust and vest in 3 equal tranches over 3 years if the employees remain as employees of Canopy Growth and the individual remains as a consultant and the loan is repaid. In certain cases, there are also additional performance targets.

The shares treated as options were measured at fair value on May 12, 2017 using a Black-Scholes model and will be expensed over their vesting period. Shares issued to non-employees will be remeasured until their performance is complete. Where there are performance conditions in addition to service requirements, Canopy Growth has estimated the number of shares it expects to vest and is amortizing the expense over the expected vesting period.

On May 8, 2018 share purchase loans in the amount of $288 were repaid, resulting in the release from escrow of 5,750,000 shares. The remaining unamortized expense relating to these shares of $1,459 was recorded in the period. For the three and nine months ended December 31, 2018, the Company recorded $405 and $3,046 in share-based compensation expense relating to the remaining unvested shares which were acquired by way of the share purchase loan (three and nine months ended December 31, 2017 - $827 and $2,100) with a corresponding increase to non-controlling interests.

Stock options

To December 31, 2018 Canopy Rivers has granted 6,475,000 options to purchase Class B common shares to employees of Canopy Growth and 5,440,000 options to purchase Class B common shares to consultants of Canopy Growth. The options have a weighted average exercise price of $2.72 per Class B common shares and are exercisable in increments, with one third being exercisable on each of the first, second and third anniversaries from the date of grant. The expiry date of the options ranges from December 4, 2022 to November 26, 2023. The options were measured at fair value at the date of issuance using a Black-Scholes model and will be expensed over their vesting period. Options issued to non-employees will be remeasured until their performance is complete. For the three and nine months ended December 31, 2018, the Company recorded $2,789 and $11,547 (three and nine months ended December 31, 2017 - $273) in share-based compensation expense related to these options with a corresponding increase to non-controlling interests.

Page 23

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

14.	Non-controlling Interests

The following table presents the summarized financial information about the Company’s subsidiaries that have non-controlling interests. This information represents amounts before intercompany eliminations.

As at December 31, 2018	Canopy Rivers			Tweed JA			Vert Mirabel
Cash and cash equivalents	$	46,929		$	16		$	764
Amounts receivable		1,678			-			1,832
Prepaid expenses and other assets		307			-			515
Inventory		-			-			945
Biological assets		-			-			308
Investments in associates		53,355			-			-
Other financial assets		145,880			-			-
Property, plant and equipment		2,700			3,302			28,745
Preferred shares		15,000			-			-
Goodwill		-			1,938			5,625
Intangible assets		-			21			-
Accounts payable and accrued liabilities		(557	)		(938	)		(2,100	)
Other current liabilities		(952	)		-			(351	)
Other long-term liabilities		-			-			(43,124	)
Deferred tax liability		(4,732	)		-			-
Non-controlling interests		(197,706	)		(1,284	)		3,572
Equity (deficit) attributable to Canopy Growth	$	61,902		$	3,055		$	(3,269	)

The net change in the non-controlling interests is as follows:

	Note	Canopy Rivers			Tweed JA			Vert Mirabel			Other non- material interests¹			Total
As at April 1, 2018		$	80,844		$	1,686		$	2,155		$	(220	)	$	84,465
Net Income (loss)			9,308			(365	)		(5,733	)		(111	)		3,099
Other comprehensive income (loss)			(10,830	)		(37	)		-			-			(10,867	)
Share-based compensation			10,934			-			-			-			10,934
Ownership changes			78,938			-			6			331			79,275
Warrant	15(i)		28,512			-			-			-			28,512
As at December 31, 2018		$	197,706		$	1,284		$	(3,572	)	$	-		$	195,418

¹ Includes the non-controlling interests in Groupe H.E.M.P. CA and Spectrum Chile S.A.

Page 24

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

15.	Investments In ASSOCIATES And Joint VEntures

The following table outlines changes in the investments in associates that are accounted for using the equity method. As permitted by IAS 28 Investments in Associates and Joint Ventures, in cases where the Company does not have the same reporting date as its associates the Company will account for its investment one quarter in arrears. Accordingly, the share of net income (loss) in the following table is based on values at September 30, 2018 with adjustments for any significant transactions.

				Balance at				Share of net									Balance at
			Participating	March 31,				income			Interest			Derecognition			December 31,
Entity	Instrument	Note	share	2018		Additions		(loss)			income			of investment			2018
PharmHouse	shares	15(i)	49.0%	$	-	$	39,032	$	(87	)	$	-		$	-		$	38,945
Agripharm	shares		40.0%		38,479		-		(1,430	)		-			-			37,049
BCT	shares	15(iii)	42.2%		-		12,549		(180	)		-			-			12,369
CanapaR	shares	15(v)	43.7%		-		8,750		(28	)		-			-			8,722
Radicle	shares		23.8%		4,754				(715	)		(157	)		-			3,882
Civilized	convertible debenture	15(ii)	25.5%		-		3,665		(1,403	)		(456	)		-			1,806
N49AROW	shares	15(iv)	25.0%		-		1,000		-			-			-			1,000
TerrAscend	shares		-		16,912		-		(2,217	)		-			(14,695	)		-
CHI	shares	15(iii)	-		2,961		-		(2,961	)		-			-			-
Bedrocan Brasil	shares		39.8%		-		-		-			-			-			-
Entourage	shares		40.0%		-		-		-			-			-			-
				$	63,106	$	64,996	$	(9,021	)	$	(613	)	$	(14,695	)	$	103,773

(i)

On May 7, 2018 Canopy Rivers and 2615975 Ontario Limited (the “Joint Venture Partner) entered into an agreement to form a new company, 10730076 Canada Inc. (“‘PharmHouse”) with the intent of PharmHouse becoming a licensed producer of cannabis in Ontario. In exchange for $1, a commitment to provide $9,800 in financing, and the issuance of 14,400,000 warrants of Canopy Rivers to the Joint Venture Partner, Canopy Rivers received a 49% interest in PharmHouse and a global non-competition agreement from the Joint Venture Partner. On July 19, 2018 Canopy Rivers advanced $9,800 to PharmHouse pursuant to the terms of this agreement.

The warrants are exercisable for a period of two years following the date that PharmHouse receives a license to sell cannabis and satisfies certain financing conditions related to the loan noted below, at an exercise price which is the lesser of $2.00 per share and the price of a defined liquidity event. The warrants were initially accounted for as a derivative liability as the exercise price was not fixed. The fair value of the warrants at inception and at June 30, 2018 was estimated to be $29,232. On September 17, 2018, Canopy Rivers closed a brokered and non-brokered private placement of subscription receipts in connection with its planned public listing at $3.50 per subscription receipt. As a result, the exercise price of the warrants was fixed at $2.00 per share, and the warrant liability was reclassified to equity. The Company recognized a gain of $720 from the warrant liability re-measurement and reclassified $28,512 to non-controlling interest.

Canopy Rivers has joint control over PharmHouse, which has been determined to be a joint venture, and therefore will be accounted for using the equity method.

As part of the arrangement, Canopy Rivers also entered into a services agreement with PharmHouse whereby, upon PharmHouse receiving its license to sell cannabis, Canopy Rivers is required to arrange for buyers to purchase 25% of the cannabis produced by PharmHouse at a fixed price until December 31, 2020. Additionally, Canopy Growth has agreed to purchase from PharmHouse 10% of the cannabis it produces for a fixed price until December 31, 2020. If either Canopy Rivers or Canopy Growth is unable to arrange for buyers to purchase the required cannabis or purchase the required cannabis from PharmHouse, respectively, then a penalty is due equal to the amount otherwise payable under the agreements.

Page 25

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

PharmHouse has also agreed to provide Canopy Rivers with a right of first offer of up to 50% to the cannabis produced by PharmHouse. The right of first offer percentage is reduced by the services and purchase agreements noted above.

On November 21, 2018, under the terms of the agreement, Canopy Rivers entered into a shareholder loan agreement with PharmHouse pursuant to which Canopy Rivers has committed to advance up to $40,000 of secured debt financing with a three-year term and an annual interest rate of 12%, calculated monthly and payable quarterly after the first full quarter after receipt of the sales license at PharmHouse’s initial production and processing facility. Proceeds are expected to be utilized to supplement personnel and logistics resources for domestic and international distribution, capital expenditures related to the ongoing upgrade and retrofit of PharmHouse’s nursery, processing and greenhouse infrastructure, working capital and other general corporate purposes. As part of the loan agreement, certain additional exercise conditions were placed on the PharmHouse warrants, as noted above. The amount available under the shareholder loan agreement was fully advanced as of December 31, 2018.

(ii)

During the quarter ended June 30, 2018 Canopy Rivers advanced $5,000 to Civilized Worldwide Inc. (“Civilized”) under a convertible debenture. The debenture bears interest at 14% and matures on the maturity date being the earliest of i) 2 years, ii) the date that Civilized lists on a recognized stock exchange. In addition, Canopy Rivers received a warrant to acquire additional Class A common shares for $3,500.

On the maturity date, the convertible debenture is convertible into 18.2% of the common shares and this interest, together with other rights provided under the agreements, such as the right to nominate 20% of Civilized’s directors, give Canopy Rivers significant influence over the investee and Canopy Rivers is accounting for the investment using the equity method.

The warrant is exercisable the later of May 7, 2021 and two years from when Civilized becomes a public company. The exercise price is the lower of the price of the subsequent round and the price per common share obtained by dividing $40,000 by the issued and outstanding shares at the date of exercise. The warrant was initially measured at its fair value of $1,335 using a Black-Scholes option pricing model and the residual amount of $3,665 represents the initial cost of its equity investment.

(iii)

As described in Note 11(a)(iii), the Company acquired a controlling interest in CHI on August 3, 2018, resulting in the consolidation of CHI and its equity accounted investment, Beckley Canopy Therapeutics (“BCT”). BCT operates as a cannabis research and development organization in the United Kingdom. On January 20, 2018, CHI and Beckley Research and Innovations Limited (the “Joint Venture Partner”) each invested $500 in exchange for a collaboration agreement whereby each party received a 50% ownership interest in Beckley. This arrangement provided CHI with joint control over Beckley, and the investment had been determined to be a joint venture, and therefore accounted for using the equity method. As at the date of the CHI acquisition, in accordance with IFRS 3 Business Combinations, the Company calculated the fair value of the equity investment in Beckley to be $8,563 (see Note 11(a)(iii)).

On September 28, 2018, BCT completed a private placement financing where the Company, indirectly through CHI, acquired an additional 2,508,333 common shares for $3,986. The Company’s participating share was diluted from 50% to 42.2%. The previously mentioned collaboration agreement remains in effect and management has concluded that CHI has maintained joint control over BCT and therefore, the BCT investment continues to be accounted for as a joint venture using the equity method.

(iv)

On September 26, 2018, the Company entered into a series of agreements to create a business venture which will allow the Company to gain access to rights to sell certain branded products. In exchange for cash consideration of $24,263 the Company acquired a 25% interest in a new company, N49AROW Global Ventures, ULC, (“N49AROW”), entered into a licensing agreement and received an option to acquire an interest in a potential future US based entity. Management has estimated that the fair value of any rights under the option are nominal and the consideration has been allocated $1,000 to the investment and $23,263 to the licensing rights.

This ownership interest together with other rights provided under the agreements gave the Company significant influence over N49AROW. The Company is accounting for its investment using the equity method and recorded the investment at its cost amount.

Page 26

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

(v)

On July 24, 2018, Canopy Rivers acquired a 35% ownership interest in CanapaR Corp. (“CanapaR”) for cash consideration of $750. This ownership interest and other rights give Canopy Rivers significant influence over the investee and Canopy Rivers is accounting for the investment using the equity method. CanapaR is the Canadian parent corporation of CanapaR SrL (“CanapaR Italy”), a Sicily-based company formed for the purposes of organic hemp cultivation and extraction in Italy. In December 2018 CanapaR Canopy Rivers invested a further $8,000 through a non-brokered private placement and increased its ownership position to 46%.

In connection with the investment, Canopy Rivers received an option to purchase all of CanapaR’s interest in its investees for consideration of the greater of: (i) eight times EBITDA; and (ii) $200,000, less the liabilities of the acquired investees, multiplied by the interest not owned by Canopy Rivers at the time of exercise. The option is exercisable for a period of five years following the transaction date. The option was initially estimated to have a nominal fair value. As at December 31, 2018, the fair value of the option was estimated to be $4,453 using a Black-Scholes option pricing model.

(vi)

On November 30, 2018 TerrAscend completed the restructuring of its share capital by way of a plan of arrangement (“Arrangement”). The restructuring is intended to accommodate TerrAscend’s strategic pursuits, while also maintaining strict compliance with industry regulations and the policies of the various securities exchanges. Pursuant to the Arrangement, the Company exercised its TerrAscend warrants for no cash consideration, resulting in the net issuance of 16,318,912 common shares based on the five day volume weighted average trading price of the common shares of TerrAscend on the Canadian Securities Exchange (the “CSE”) for the period ending October 5, 2018, the last trading day prior to the date of the Arrangement Agreement. All 38,890,570 common shares held by the Company were thereafter exchanged pursuant to the Arrangement for 38,890,570 new, conditionally exchangeable shares in the capital of TerrAscend (the “Exchangeable Shares”). The Exchangeable Shares would only become convertible into common shares following changes in U.S. federal laws regarding the cultivation, distribution or possession of cannabis, the compliance of TerrAscend with such laws and the approval of the various securities exchanges upon which the issuer’s securities are listed (the “TerrAscend Triggering Event”). The Exchangeable Shares are not transferrable or monetizable until exchanged into common shares. In the interim, the Company will not be entitled to voting rights, dividends or other rights upon dissolution of TerrAscend.

Management has estimated the fair value of the Exchangeable Shares at December 31, 2018 to be $120,000. The Exchangeable Shares represent a derivative financial instrument that will be initially measured at fair value in other financial assets and subsequently remeasured to its fair value at the end of each reporting period with changes in fair value recorded through profit or loss. The common shares of TerrAscend are freely tradeable, while the Exchangeable Shares are not tradeable and hold no economic rights other than the possible opportunity to exchange such shares for common shares in TerrAscend at a future date. Therefore, the fair value of the Exchangeable Shares was estimated by giving consideration to the trading price of TerrAscend common shares (CNSX: TER) on the valuation date and applying a discount for lack of marketability that was calculated using an Asian Put Option model, across a series of possible exercise dates. Management has made assumptions as to the probability that the TerrAscend Triggering Event would occur at future dates and estimated the fair value of the Exchangeable Shares as the sum of the probability weighted discounted values across the range of these dates.

After completion of the Arrangement the Company no longer has significant influence over TerrAscend and ceased using the equity method. The Company recognized a net loss of $6,322 which is comprised of a gain of $54,949 on the derecognition of the equity investment and a loss of $61,271 on the Exchangeable Shares held following the Arrangement.

Page 27

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

16.	OTHER FINANCIAL ASSETS

The following table outlines changes in other financial assets. Additional details on how fair value is calculated is included in Note 24.

			Accounting
Entity	Instrument	Note	method
TerrAscend	warrants	15(vi)	FVTPL
TerrAscend	exchangeable shares	15(vi)	FVTPL
AusCann	shares	16(i)	FVOCI
AusCann	options	16(i)	FVTPL
Slang	warrants	16(x)	FVTPL
HydRx	shares	16(ii)	FVOCI
HydRx	warrants	16(ii)	FVTPL
Solo Growth	shares	16(v)	FVOCI
LiveWell	shares	16(iii)	FVOCI
JWC	shares	16(iv)	FVOCI
Agripharm	royalty interest / repayable debenture	16(vii)	FVTPL
Radicle	repayable debenture	16(viii)	FVTPL
CA infrastructure option	option	11(b)	FVTPL
Good Leaf	shares	16(vi)	FVOCI
Good Leaf	warrants	16(vi)	FVTPL
PharmHouse	loan receivable	15(i)	Amortized cost
Headset	shares	16(ix)	FVOCI

		Balance at															Balance at
		March 31,										Interest		Exercise of			December 31,
Entity	Instrument	2018		Additions		FVOCI			FVTPL			Revenue		warrants			2018
TerrAscend	warrants	$	75,154	$	-	$	-		$	36,473		$	-	$	(111,627	)	$	-
TerrAscend	exchangeable shares		-		120,000		-			-			-		-			120,000
AusCann	shares		39,086		3,975		(24,855	)		-			-		-			18,206
AusCann	options		10,487		915		-			(8,295	)		-		-			3,107
Slang	warrants		-		-		-			20,000			-		-			20,000
HydRx	shares		12,401		-		-			-			-		5,210			17,611
HydRx	warrants		5,210		-		-			-			-		(5,210	)		-
Solo Growth	shares		-		3,265		(6,192	)		6,192			-		-			3,265
LiveWell	shares		-		250		3,629			4,799			-		-			8,678
JWC	shares		10,591		2,124		(3,955	)		-			-		-			8,760
Agripharm	royalty interest / repayable debenture		2,326		9,000		-			(400	)		-		-			10,926
Radicle	repayable debenture		3,075		2,000		-			(3	)		-		-			5,072
California Option	option		-		-		-			2,500			-		-			2,500
Good Leaf	shares		-		4,566		45			-			-		-			4,611
Good Leaf	warrants		-		912		-			9			-		-			921
PharmHouse	loan receivable		-		40,000		-			-			-		-			40,000
Headset	shares		-		4,085		8			-			-		-			4,093
Canapar	options		-		-		-			4,453			-		-			4,453
Other measured at FVTPL	various		3,923		4,102		578			(418	)		-		-			8,185
Other measured at FVOCI	various		1,210		331		(1	)		-			-		-			1,540
		$	163,463	$	195,525	$	(30,743	)	$	65,310		$	-	$	(111,627	)	$	281,928

(i)

On July 12, 2018, the Company invested a further $4,890 in AusCann Group Holdings Ltd. (“AusCann”) through a private placement in exchange for 4,545,00 common shares and 2,272,500 options. The options are exercisable at AUD$ 1.465 for a term of 30 months. If the closing price of AusCann is AUD$

Page 28

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

2.25 or greater for 10 consecutive trading days, the issuer has the right to force early exercise of the option. The consideration was allocated $3,975 to the shares and $915 to the warrants based on their fair value on the transaction date. Following this financing the Company’s ownership interest in AusCann is 11.13%.

(ii)

HydRx Farms Ltd. (“HydRx”) operates as Scientus Pharma Inc. In the quarter ended June 30, 2018, the Company completed a cashless exercise of the 1,860,680 warrants in exchange for 1,302,476 shares. At December 31, 2018 the Company holds 4,402,783 shares in HydRx which represents a 9.6% ownership interest.

(iii)

On April 2, 2018, the Company entered into a strategic agreement with LiveWell Foods Canada Inc. (“LiveWell”) and its subsidiary, Artiva Inc. (“Artiva”). LiveWell and Artiva are both Cannabis Act applicants. This strategic agreement represents an amendment to the original investment agreement that the parties entered into on November 22, 2017. Under the terms of the amended agreement, in exchange for strategic support services, the offering of financial support and a commitment to fund $250 of licensing expenses, Canopy Growth was issued 5,487,642 common shares and Canopy Rivers was issued 5,487,642 common shares of LiveWell, together representing 10% equity interest in LiveWell. The total fair value of this investment on initial recognition was $5,049 resulting in a gain of $4,799 which was unrecognized until June 20, 2018 when LiveWell became a publicly-traded company. At that time the gain was recognized in the statement of operations. An additional 5,487,642 common shares, representing an additional 5% equity interest, were placed in escrow and will be released to the Company on the achievement of certain licensing milestones. These shares are a contingent asset since their receipt is based on future events not wholly within the control of the Company.

LiveWell was provided with the option to draw on up to $20,000 of debt financing from Canopy Rivers subject to the completion of certain milestones. The financing offer was not accepted and has expired.

Artiva has agreed to sell the Company 20% of its production for a 20-year term upon receiving its license to sell cannabis. Canopy Rivers is entitled to a royalty of $0.075 for every gram of cannabis purchased from LiveWell and Artiva by the Company.

(iv)

On April 6, 2018, Canopy Rivers subscribed for 2,000,000 subscription receipts in James E. Wagner Cultivation ltd. (“JWC”) for $2,300 in connection with a brokered private placement financing undertaken by JWC. Each receipt entitled the Company to one common share in the capital of JWC and one-half of one common share purchase warrant. Each warrant entitled the Company to acquire one common share in the capital of JWC for $1.50 for a period of 24 months following a specified date. The offering closed April 27, 2018 and the subscription price was allocated $2,124 to the shares and $176 to the warrants. The Company’s ownership interest in JWC is 14.2%.

(v)

On June 28, 2018 Canopy Rivers acquired 55,300,000 common shares of Solo Growth Corporation (“Solo Growth”) through a private placement for $2,765. The shares are subject to a four month hold period. On December 18, 2018, Canopy Rivers acquired an additional 10,000,000 common shares for $500. The Company’s ownership interest in Solo Growth at December 31, 2018 is 9.7% of the issued and outstanding shares.

(vi)

On April 23, 2018, the Company invested $5,478 in Good Leaf, Inc. (“Good Leaf”) in exchange for 674,709 Series A-1 preferred shares and warrants to acquire 139,432 common shares. The warrants are exercisable at a price of $0.01 per share for a period of 7 years. Following the transaction, the Company’s ownership interest in Good Leaf is 8.8% on a fully diluted basis.

(vii)

In the nine-month period ended December 31, 2018, Canopy Rivers further advanced an additional $9,000 under the Agripharm repayable debenture.

(viii)

In the nine-month period ended December 31, 2018, Canopy Rivers further advanced an additional $2,000 under the Radicle repayable debenture.

(ix)

On December 21, 2018 Canopy Rivers acquired 1,500,000 Series A Convertible Preferred Shares in Headset Inc. (“Headset”) for $4,085 cash. Following the investment the Company’s ownership interest in Headset is 7.9% of the issued and outstanding shares.

(x)

The Company holds a warrant to purchase shares of SLANG Worldwide Inc. (“SLANG Warrant”). The SLANG Warrant allows the Company to acquire 31,669,945 shares of SLANG Worldwide Inc. for a total exercise price of one dollar. The triggering event is the date the growth, cultivation, production, sale, use

Page 29

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

and consumption of cannabis and cannabis-related products are permitted in the US for any and all purposes under all applicable federal laws (“SLANG Triggering Event”). The SLANG warrant expires the earlier of two years following the SLANG Triggering Event and December 15, 2023.

Management has estimated the fair value of the SLANG Warrant at December 31, 2018 to be $20,000 using a Black-Scholes option pricing model, across a series of possible exercise dates. The fair value of the SLANG Warrant was calculated as the sum of the probability weighted option values across the range of these dates. Up to September 30, 2018 Management had estimated that this instrument had a nominal value.

(xi)

BC Tweed has entered into call/put option agreements with the Partner to acquire all of the limited partnership units of the limited partnerships which hold the greenhouses and related property. Since these options represent options to acquire the limited partnership units, the options will be accounted for as derivative financial instruments which will be recognized initially and subsequently at fair value through profit or loss. The fair value of these options is $nil as the exercise price of the option approximates the fair value of the limited partnership units.

17.	ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	December 31,		March 31,
	2018		2018

Trade payables	$	39,272	$	46,175
Accrued liabilities		176,340		43,396

Total accounts payable and accrued liabilities	$	215,612	$	89,571

The accounts payable and accrued liabilities balance of $215,612 (March 31, 2018 – $89,571) is comprised of amounts for property, plant and equipment of $98,043 (March 31, 2018 – $62,034), professional fees of $17,366 (March 31, 2018 – $7,391), excise taxes of $12,058 (March 31, 2018 – $nil), compensation related liabilities of $10,261 (March 31, 2018 – $5,747), marketing related liabilities of $11,426 (March 31, 2018 - $1,280), inventory purchase liabilities of $9,176 (March 31, 2018 - $nil), and other miscellaneous liabilities of $57,282 (March 31, 2018 – $13,119).

Page 30

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

18.	Long-term debt AND other Long-TERM LIABILITIES

(a)

Long-term debt

		December 31,			March 31,
	Maturity Date	2018			2018
Convertible senior notes at 4.25% interest with semi-annual interest payments	July 15, 2023

Principal amount		$	600,000		$	-
Accrued interest			13,668			-
Non-credit risk fair value adjustment (FVTPL)			26,730			-
Credit risk fair value adjustment (FVOCI)			62,520			-
			702,918			-

Mortgages payable with five-year terms and amortization periods of seven to twenty years bearing an annual interest rate of 4.5% to 5.3%	December 1, 2019 to November 1, 2021	$	8,179		$	6,514

Loan payables with terms from forty-two to eighty-seven months, bearing an annual interest rate between 1.23% and prime plus 3.0%	April 20, 2020 to June 30, 2025		6,385			-

Term loan at 10% interest with monthly repayment			-			1,564

Finance lease obligations			74,014			344
			791,496			8,422
Less: current portion			(18,447	)		(1,557	)
Long-term portion		$	773,049		$	6,865

Convertible senior notes

On June 20, 2018, the Company issued convertible senior notes (“the notes”) with an aggregate principal amount of $600,000. The notes bear interest at a rate of 4.25% per annum, payable semi-annually on January 15th and July 15th of each year commencing from January 15, 2019. The notes will mature on July 15, 2023. The notes are subordinated in right of payment to any existing and future senior indebtedness, including indebtedness under the revolving credit facility. The notes will rank senior in right of payment to any future subordinated borrowings. The notes are effectively junior to any secured indebtedness and the notes are structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries.

Holders of the notes may convert the notes at their option at any time from January 15, 2023 to the maturity date. The notes will be convertible, at the holder’s option, at a conversion rate of 20.7577 common shares for every $1 principal amount of notes (equal to an initial conversion price of approximately $48.18 per common share), subject to adjustments in certain events. In addition, the holder has the right to exercise the conversion option from September 30, 2018 to January 15, 2023, if (i) the market price of the Company common shares for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day, (ii) during the 5 business day period after any consecutive 5 trading day period (the “measurement period”) in which the trading price per $1 principal amount of the notes for each trading day in the measurement period was less than 98% of the product of the last reported sales price of the Company’s common shares and the conversion rate on each such trading day, (iii) the notes are called for redemption or (iv) upon occurrence of certain corporate events (“Fundamental Change”). The Company may upon conversion by the holder, elect to settle in either cash, common shares, or a combination of cash and common shares, subject to certain circumstances. Under the terms of the indenture if a Fundamental Change occurs and a holder elects to convert its notes from and including on the date of the fundamental change up to, and including, the business day immediately prior to the fundamental change repurchase date, the Company may be required to increase the Conversion Rate for the Notes so surrendered for conversion by a number of additional common shares (“Make Whole Fundamental Change”).

Page 31

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

The Company could not redeem the notes prior to July 20, 2021, except in the event of certain changes in Canadian tax law. On or after July 20, 2021, the Company could redeem for cash, subject to certain conditions, any or all of the notes, at its option, if the last reported sales price of the Company’s common shares for at least 20 trading days during any 30 consecutive trading day period ending within 5 trading days immediately preceding the date on which the Company provides notice of redemption exceeds 130% of the conversion price on each applicable trading day. The Company may also redeem the notes, if certain tax laws related to Canadian withholding tax change subject to certain further conditions. The redemption of notes in either case shall be at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

For accounting purposes, the Company has designated the notes at fair value through profit or loss (“FVTPL”). The equity conversion option was not separately classified as equity, since the Company has the ability to settle the option at fair value in cash, common shares or a combination of cash and common shares in certain circumstances. The Company does not separately account for the fair value of the equity conversion option as a derivative, as it has classified the entire notes as a liability accounted for at FVTPL. The notes were initially recognized at fair value on the balance sheet with all subsequent changes in fair value excluding the impact of the change in fair value related to Company’s own credit risk being recorded immediately in the statement of operations and changes in fair value related to the Company’s own credit risk through OCI. Transaction costs directly attributable to the issuance of the notes were immediately expensed in the statement of operations in the amount of $16,380.

The overall change in fair value of the notes during the three and nine months ended December 31, 2018 was a decrease of $198,306 and an increase $102,918 which included accrued contractual interest of $6,444 and $13,668.

On August 14, 2018 the Company entered into a subscription agreement with CBG Holdings LLC (“CBG”). In accordance with the indenture, the closing of this investment would result in a Fundamental Change which provides the note holders with the right to surrender all or any portion of their notes for conversion at any time from or after the date that is 30 scheduled trading days prior to anticipated effective date of the Fundamental Change. On September 18, 2018 the Company notified the note holders of this proposed Fundamental Change and, the notes are subject to conversion at any time from or after September 18, 2018 until the related fundamental change repurchase date. As a result of the proposed Fundamental Change the Company does not have the unconditional right to defer settlement of the liability and the convertible notes have been classified as current as of September 30, 2018. On November 1, 2018 this investment was completed (Note 19(a)(i)).

No note holders surrendered any portion of their notes as at the repurchase date of December 5, 2018 and no other redemption events have been triggered as of December 31, 2018 and the Company has therefore re-classified the convertible notes as non-current.

Term loans

The term loan was added to the existing lease agreement for the Toronto facilities and is held by a related party. On November 16, 2018 the Company purchased the leased facility and repaid the term loan.

Finance lease obligations

On October 24, 2018 the Company amended the terms of the lease agreements for the BC Tweed facilities in Delta and Aldergrove and the leases are now classified as finance leases. The Company has recognized the assets under finance lease and related of lease obligation of $73,000.

Page 32

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

(b)

Other long-term liabilities

	December 31, 2018			March 31, 2018

Acquisition consideration related liabilities	$	125,694		$	-
Minimum royalty obligations		27,587			-
Due to former shareholders of S&B		17,775			-
Put liability		9,600			61,150
Other		2,707			-
		183,363			61,150
Less: current portion		(61,357	)		-
Long-term portion	$	122,006		$	61,150

19.	Share capital

(a) Authorized

An unlimited number of common shares.

(i)

Equity Raises

On November 1, 2018 the Company issued 104,500,000 common shares from treasury and two tranches of warrants to Constellation Brands, Inc. (“CBI”) in exchange for proceeds of $5,072,500. The first tranche warrants (“New Warrants”) will allow CBI to acquire 88.5 million additional shares of Canopy for a fixed price of $50.40 per share. The second tranche warrants (“Final Warrants”) allows the purchase of 51.3 million additional shares at a price equal to the 5-day volume weighted average price immediately prior to exercise. These warrants can only be exercised after the New Warrants have been exercised. The New Warrants are immediately vested upon closing of the share purchase agreement and the Final Warrants become exercisable once the New Warrants have been exercised. Both the New and Final Warrants expire on November 1, 2021.

The proceeds of the common share issuance were allocated to the common shares and New Warrants based on their relative fair values in the amount of $3,567,149 and $1,505,351, respectively. The fair value of the common shares was determined using the closing price on October 31, 2018, and the fair value of the warrants was determined using a Black-Scholes model. Share issuance costs of $8,509 were allocated to the common shares and $3,591 to the warrants. Since the Final Warrants will be issued for a price that is equal to the 5-day volume weighted average price immediately prior to exercise, they fail the ‘fixed for fixed’ criterion and will be classified as a derivative liability. Management has estimated that the value of this liability is nominal and no value was allocated to the Final Warrants.

Through a wholly owned subsidiary, Greenstar Canada Investment Limited Partnership, CBI currently owns approximately 18.9 million shares of the Company and warrants to acquire an additional 18.9 million shares a price of $12.9783 per common share (“Greenstar Warrants”). CBI also holds convertible senior notes of the Company with an aggregate principal amount of $200,000. Following the exercise of the Greenstar Warrants, the New Warrants and the Final Warrants and conversion of these notes, CBI would hold approximately 57% of the outstanding shares of Canopy, as adjusted for any potentially dilutive shares.

Page 33

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

(ii)

Acquisitions

During the nine months ended December 31, 2018 the Company issued the following shares as a result of business combinations that occurred in the current or prior periods:

	Notes	Number of Shares		Share Capital		Share Based Reserve
Issuance of shares for Annabis acquisition - net of share issue costs of $10	11(a)((viii)		50,735	$	1,558	$	-
Issuance of shares for DCL acquisition - net of share issue costs of $58	11(a)(i)		666,362	$	24,644	$	694
Issuance of shares for Spectrum Cannabis Colombia S.A.S. acquisition - net of share issue costs of $101	11(a)(ii)		1,193,237	$	46,018	$	-
Issuance of shares for CHI acquisition - net of share issue costs of $202	11(a)(ii)		3,076,941	$	97,832	$	-
Issuance of shares for Hiku acquisition - net of share issue costs of $250	11(a)(iv)		7,943,123	$	543,616	$	-
Shares released from escrow related to the Vert acquisition			88,469	$	-	$	-
Issuance of shares for ebbu acquisition - net of share issue costs of $250	11(a)(v)		5,275,005	$	233,802	$	29,880
Acquisition related share issuances for the nine months ended December 31, 2018			18,293,872	$	947,470	$	30,574

(iii)

Other

During the period ended December 31, 2018 the Company’s other share issuances were comprised of:

	Number of Shares		Share Capital		Share Based Reserve
Shares issued relating to milestone and performance conditions		1,292,707	$	15,181	$	(15,202	)
Shares released from escrow		39,463		1,448		(1,460	)
Shares issued in advance of meeting milestone and performance conditions		46,781		2,076		(2,076	)
Shares issued relating to fixed and intangible asset acquisitions		61,492		2,251		-
Shares issued relating to royalty agreements		208,786		9,168		(2,864	)
Shares issued for Newfoundland lease purchase option - net of share issue costs of $25		332,009		8,714		-
Shares issued to Canindica Capital Ltd		595,184		23,004		(23,004	)
Shares issued on conversion of Hiku debenture		22,866		1,580		(949	)
Other share issuances for the nine months ended December 31, 2018		2,599,288	$	63,422	$	(45,555	)

Page 34

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

(iv)

Warrants

	Number of whole warrants			Average exercise price		Warrant value
Balance outstanding at March 31, 2018		18,912,012		$	12.96	$	70,455
Issuance of warrants ¹		88,472,861			50.40		1,501,760
Replacement warrants granted through Hiku acquisition (Note 9(a)(iv))		920,452			41.28		30,611
Exercise of warrants		(454,378	)		41.12		(12,809	)
Expiry of warrants		(1	)		3.80		-
Balance outstanding at December 31, 2018 ¹		107,850,946		$	43.80	$	1,590,017
¹ This balance excludes Final Warrants, which represent a derivative liability and have nominal value, see note 19(a)(i).

(b) Omnibus plan

On September 15, 2017, shareholders approved an Omnibus Incentive Plan (“Omnibus Plan”) pursuant to which the Company is able to issue share-based long-term incentives. All directors, officers, employees and independent contractors of the Company are eligible to receive awards of common share purchase options (“Options”) restricted share units (“RSUs”), deferred share units (“DSUs”), stock appreciation rights (“Stock Appreciation Rights”), restricted stock (“Restricted Stock”), performance awards (“Performance Awards”) or other stock based awards (collectively, the “Awards”), under the Omnibus Plan. In addition, shareholders also approved the 2017 Employee Stock Purchase Plan of the Company (the “Purchase Plan”).

Under the Purchase Plan, the aggregate number of common shares that may be issued is 400,000, and the maximum number of common shares which may be issued in any one fiscal year shall not exceed 200,000.

Under the Omnibus Plan, the maximum number of shares issuable from treasury pursuant to Awards shall not exceed 15% of the total outstanding shares from time to time less the number of shares issuable pursuant to all other security-based compensation arrangements of the Company (being the existing employee stock option plan ("ESOP") and the Purchase Plan). The maximum number of common shares reserved for Awards is 50,197,864 at December 31, 2018. As of December 31, 2018, the only Awards issued have been options under the ESOP and RSUs. No shares have been issued under the Purchase Plan as it has not yet been implemented.

The ESOP is administered by the Board of Directors of the Company who establishes exercise prices, at not less than the market price at the date of grant, and expiry dates. Options under the Plan generally remain exercisable in increments with 1/3 being exercisable on each of the first, second and third anniversaries from the date of grant, and have expiry dates set at six years from issuance. The Board of Directors has the discretion to amend general vesting provisions and the term of any award, subject to limits contained in the Plan.

Page 35

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

The following is a summary of the changes in the Company’s ESOP options during the period:

	Options issued			Weighted average exercise price
Balance outstanding at March 31, 2018		17,245,835		$	12.95
Options granted		2,595,000			40.51
Options exercised		(637,187	)		8.00
Options forfeited/cancelled		(234,153	)		21.00
Balance outstanding at June 30, 2018		18,969,495		$	16.79
Options granted		5,942,000			50.45
Replacement options issued as a result of the CHI acquisitions		568,005			14.98
Replacement options issued as a result of the Hiku acquisition		291,629			10.64
Options exercised		(3,207,004	)		6.48
Options forfeited/cancelled		(355,287	)		27.06
Balance outstanding at September 30, 2018		22,208,838		$	28.16
Options granted		10,539,052			37.66
Options exercised		(434,480	)		8.83
Options forfeited/cancelled		(759,289	)		40.57
Balance outstanding at December 31, 2018		31,554,121		$	31.30

For the three and nine months ended December 31, 2018 the Company recorded $34,984 and $79,462, respectively, in share-based compensation expense related to options issued to both employees and consultants (for the three and nine months ended December 31, 2017 - $7,864 and $15,349 respectively). For the period ended December 31, 2018 compensation expense includes an amount related to 545,000 options being provided in exchange for services which are subject to performance conditions.

During the second quarter of fiscal 2019, the Company issued replacement options to employees in accordance with the CHI and Hiku acquisitions (Note 11(iii) and 11(iv), respectively). For the three- and nine-month period ended December 31, 2018 (December 31, 2017 - $nil) the Company recorded share-based compensation expense of $1,484 and $9,569, respectively related to these replacement options, of which $7,502 relates to an immediate share-based compensation expense recorded at the CHI acquisition date to reflect the accelerated vesting of certain CHI replacement options.

In determining the amount of share-based compensation related to options issued during the year, the Company used the Black-Scholes option pricing model to establish the fair value of options granted during the three months ended December 31, 2018 and 2017 on their measurement date by applying the following assumptions:

	December 31,		December 31,
	2018		2017

Risk-free interest rate	1.96%		1.61%
Expected life of options (years)	2-5		3-5
Expected annualized volatility	77%		64%
Expected forfeiture rate	12%		10%
Expected dividend yield	nil		nil
Black-Scholes value of each option	$	21.56	$	9.05

Volatility was estimated by using the historical volatility of the Company and other companies that the Company considers comparable that have trading and volatility history prior to the Company becoming public. Beginning the fourth quarter of Fiscal 2017, the Company began using its own historical volatility. The expected life in years represents the period of time that options granted are expected to be outstanding. The risk-free rate was based on the zero coupon Canada government bonds with a remaining term equal to the expected life of the options.

Page 36

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

The Company recorded $3,194 and $16,053 in the three and nine months ended December 31, 2018 (three and nine months ended December 31, 2017 – $1,101 and $2,373) in share-based compensation expense related to the issuance of shares and options in Canopy Rivers to employees and consultants (refer to Note 13).

During the nine months ended December 31, 2018, 4,278,671 ESOP options were exercised ranging in price from $0.56 to $29.57 for gross proceeds of $28,728.

During the three and nine months ended December 31, 2018 the Company issued 7,300 and 101,821, respectively, RSUs to consultants and directors of the Company of which 52,871 vested immediately, 29,306 vest over 5 years, 19,644 vest over 1 year. For the three months and nine months ended December 31, 2018 the Company recorded $400 and $3,075 in share-based compensation expense related to these RSUs (three and nine months ended December 31, 2017 – $nil).

Share-based compensation expense related to acquisition milestones is comprised of:

		Compensation expense				Compensation expense
	Notes	December 31, 2018 (3 months)		December 31, 2017 (3 months)		December 31, 2018 (9 months)		December 31, 2017 (9 months)
Apollo / Bodystream		$	1,481	$	1,044	$	5,568	$	3,132
Spektrum Cannabis GmBH			35		87		168		259
Spot			65		149		273		204
Spectrum Denmark			880		4,738		9,259		4,737
BC Tweed			-		2,732		1,387		2,732
Vert Mirabel			84		164		1,100		164
Green Hemp			231		-		691		-
Intellectual property acquisition			157		-		739		-
Annabis	11(a)(viii)		192		-		542		-
DCL	11(a)(i)		3,957		-		6,405		-
Colombia	11(a)(ii)		9,845		-		19,262		-
Canindica	11(a)(ii)		6,643		-		36,001		-
ebbu	11(a)(v)		279		-		279		-
		$	23,849	$	8,914	$	81,674	$	11,228

At December 31, 2018 there were up to 6,457,889 shares to be issued on the completion of acquisition and asset purchase milestones. In certain cases, the number of shares to be issued is based on the volume weighted average share price at the time the milestones are met. The number of shares has been estimated assuming the milestones were met at December 31, 2018. The number of shares excludes shares to be issued on July 4, 2023 to the previous shareholders of Spectrum Colombia and Canindica based on the fair market value of Canopy LATAM on that date. The number of shares to be issued to the previous shareholders of Spectrum Colombia and Canindica excludes shares to be issued on July 4, 2023 based on the fair market value of Canopy LATAM on that date.

(d) Other share-based payments

The Company recorded share-based compensation of $nil ($nil and a gain of $14 for the three and nine month period ended December 31, 2017) for escrowed shares issued on the acquisition of MedCann Access that were related to employment.

The Company recorded expenses in the amount of $177 and $4,763 for the three and nine month period ended December 31, 2018 ($1,137 and $1,314 for the three and nine months ended December 31, 2017, respectively) related to shares provided in exchange for royalty and marketing services. The Company has determined that these services received are best measured by reference to the fair value of the equity granted as the services are rendered. These expenses have been allocated as either sales and marketing expenses or royalty expenses reflected in cost of sales, depending on the terms of the agreement.

Page 37

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

20.	OTHER INCOME, NET

			Three months ended						Nine months ended
			December 31,			December 31,			December 31,			December 31,
	Notes		2018			2017			2018			2017

Fair value changes on financial assets classified as FVTPL		16	$	36,457		$	35,854		$	65,310		$	32,500
Loss on exchange of TerrAscend shares	15(vi)			(6,322	)		-			(6,322	)		-
Convertible debt issuance costs	18(a)			-			-			(16,380	)		-
Fair value changes on financial liabilities designated as FVTPL	18(a)			185,796			-			(40,398	)		-
Fair value changes on other liabilities	18(b)			(479	)		-			(19,429	)		-
Gain on warrant liability remeasurement	15(i)			-			-			720			-
Interest income				18,643			304			22,196			915
Interest (expense)				(1,025	)		(186	)		(1,374	)		(643	)
Gain/loss disposal of property, plant and equipment				272			(80	)		(1,637	)		(209	)
Gain on disposal/acquisition of consolidated entity	11(a)(iii)			-			8,820			62,682			8,820
Other income (expense), net				1,889			(71	)		(1,902	)		(102	)

Total other income, net			$	235,231		$	44,641		$	63,466		$	41,281

Page 38

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

21.	Earnings per share

A computation of earnings (loss) per share and weighted average shares of the Company's common stock outstanding for the three and nine months ended December 31, 2018 and 2017 is as follows:

	Three months ended December 31,					Nine months ended December 31,
	2018			2017		2018			2017

Net income (loss) attributable to common stockholders	$	67,582		$	1,583	$	(349,831	)	$	(8,809	)
Numerator adjustments for diluted EPS
Income allocated to non-controlling interest		(1,105	)		-		(1,212	)		-
Removal of mark-to-market gain on convertible senior notes		(187,504	)		-		-			-

Net income (loss) attributable to common stockholders for diluted EPS	$	(121,027	)	$	1,583	$	(351,043	)	$	(8,809	)


Basic weighted average common shares outstanding		303,281,549			182,029,481		241,806,351			171,075,324
Denominator adjustments for diluted EPS
Assumed exercise of put liability		238,470			-		238,470			-
Assumed exercise of stock options		-			7,441,248		-			-
Assumed exercise of warrants		-			5,268,315		-			-
Assumed conversion of senior notes		12,454,620			-		-			-

Dilutive weighted average common shares outstanding		315,974,639			194,739,044		242,044,821			171,075,324


Earnings (loss) per share attributable to common stockholders
Basic	$	0.22		$	0.01	$	(1.45	)	$	(0.05	)
Diluted	$	(0.38	)	$	0.01	$	(1.45	)	$	(0.05	)

For the three and nine months ended December 31, 2018 and 2017, the following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive or because milestones were not yet achieved for awards contingent on the achievement of licensing, operational, cultivation or sales milestones:

	Three months ended December 31,				Nine months ended December 31,
	2018		2017		2018		2017
Shares issuable upon settlement of Vert Mirabel put liability		0		-		0		-
Shares issuable upon vesting and exercise of stock options		31,555,057		1,607,500		19,229,357		14,350,455
Shares issuable upon exercise of warrants		107,850,946		-		107,850,946		5,268,315
Shares issuable upon conversion of convertible senior notes		-		-		12,454,620		-
Shares issuable upon achievement of certain milestones		12,195,574		6,701,652		12,195,574		6,701,652

Page 39

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

22.	Commitments and contingencies

(a) In March 2015, a claim was commenced against Canopy Growth Corporation by the former CEO for $330 in specified damages for breach of contract and wrongful dismissal. The litigation process will continue into the foreseeable future unless settled. No amount has been recorded in the interim financial statements since the amount cannot be reliably measured at this point.

(b) Prior to its acquisition by the Company, Mettrum had initiated voluntary Type III recalls for products where trace amounts of an unauthorized pesticide was found to have been applied in certain Mettrum products. A Type III recall refers to a situation in which the use of, or exposure to, a product is not likely to cause any adverse health consequences. In March 2017, two separate class action lawsuits relating to the Mettrum recalls were initiated naming Mettrum Health Corp. as respondent.

The proposed action seeks damages for the proposed class of individuals who purchased the products affected by the recall. The Company and its insurers are contesting the litigation. The litigation process will continue into the foreseeable future before the class action suit is certified by the court and unless settled out of court. No amount has been recorded in the interim financial statements since the amount cannot be reliably measured at this point.

23.	Supplementary cash flow information

The changes in non-cash working capital items are as follows:

	For the nine months ended
	December 31,			December 31,
	2018			2017
				(Restated - see note 3)
Amounts receivable	$	(56,137	)	$	(3,388	)
Prepaid expenses and other assets		(22,007	)		(15,200	)
Biological assets and inventory		(109,182	)		(17,475	)
Accounts payable and accrued liabilities		57,362			9,331
Deferred revenue		(845	)		137
Other liabilities		1,262			(80	)
Total	$	(129,547	)	$	(26,675	)

Non-cash transactions

Excluded from the December 31, 2018 interim statements of cash flows was a total of $98,568 in accounts payable and accrued liabilities as follows: $98,043 of property, plant and equipment and assets in process purchases and $525 of share issue costs. Included in the December 31, 2018 interim statements of cash flows is a total of $49,679 in accounts payable and accrued liabilities as follows: $49,627 of property, plant and equipment and assets in process purchases and $52 of share issue costs.

Excluded from the December 31, 2017 interim statements of cash flows was a total of $9,058 in accounts payable and accrued liabilities relating to property, plant and equipment and assets in process purchases. Included in the December 31, 2017 interim statements of cash flows was a total of $2,491 in accounts payable and accrued liabilities as follows: $2,338 of property, plant and equipment and assets in process purchases and $153 of share issue costs.

Cash and cash equivalents consist of the following:

	December 31,		March 31,
	2018		2018
Cash	$	2,014,590	$	322,560
Short term investments		2,101,280
Total cash and cash equivalents	$	4,115,870	$	322,560

Page 40

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

24.	Financial instruments

(a) Fair value of financial assets and liabilities that are measured at fair value on a recurring basis

The following table summarizes the valuation techniques and key inputs used in the fair value measurement of level 2 financial instruments:

Financial asset/financial liability	Valuation techniques	Key inputs
AusCann shares	Put option pricing model	Quoted prices in active market
AusCann options	Black-Scholes option pricing model	Quoted prices in active market
Convertible senior note	Convertible note pricing model	Quoted prices in over-the-counter broker market
JWC warrants	Black-Scholes option pricing model	Quoted prices in active market
Solo Growth shares	Put option pricing model	Quoted prices in active market
TerrAscend warrants	Black-Scholes option pricing model	Quoted prices in active market

Page 41

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

The following table summarizes the valuation techniques and significant unobservable inputs in the fair value measurement of level 3 financial instruments

Financial asset/financial liability	Valuation techniques	Significant unobservable inputs	Relationship of unobservable inputs to fair value
Agripharm warrant	Black-Scholes option pricing model	Share price	Increase or decrease in share price will result in an increase or decrease in fair value
Agripharm royalty interest and repayable debenture	Discounted cash flow	Discount rate	Increase or decrease in discount rate will result in a decrease or increase in fair value
		Future royalties	Increase in future royalties to be paid will result in an increase in fair value
BC Tweed and Vert Mirabel put liability	Discounted cash flow	Discount rate	Increase or decrease in discount rate will result in a decrease or increase in fair value
		Future wholesale price and production levels	Increase in future wholesale price and production levels will result in an increase in fair value
BC Tweed call option	Market approach	Appraised value of property	Increase or decrease in value will result in a increase or decrease in fair value
California Option	Discounted cash flow	Probability and timing of US legalization	Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
CanapaR call option	Black-Scholes option pricing model	Share price	Increase or decrease in value will result in a increase or decrease in fair value
Civilized shares	Market approach	Share price	Increase or decrease in share price will result in an increase or decrease in fair value
Civilized warrants	Black-Scholes option pricing model	Share price	Increase or decrease in share price will result in an increase or decrease in fair value
Good Leaf shares	Market approach	Share price	Increase or decrease in share price will result in an increase or decrease in fair value
Good Leaf warrants	Black-Scholes option pricing model	Share price	Increase or decrease in share price will result in an increase or decrease in fair value
Headset shares	Market approach	Share price	Increase or decrease in share price will result in an increase or decrease in fair value
HydRx shares	Market approach	Share price	Increase or decrease in share price will result in an increase or decrease in fair value
JWC royalty interest	Discounted cash flow	Discount rate	Increase or decrease in discount rate will result in a decrease or increase in fair value
		Future royalties	Increase in future royalties to be paid will result in an increase in fair value
Radicle repayable debenture	Discounted cash flow	Discount rate	Increase or decrease in discount rate will result in a decrease or increase in fair value
SLANG Warrant	Black-Scholes option pricing model	Share price	Increase or decrease in share price will result in an increase or decrease in fair value
		Probability and timing of US legalization	Increase or decrease in probability of US legalization will result in an increase or decrease in fair value
TerrAscend Exchangeable Shares	Put option pricing model	Probability and timing of US legalization	Increase or decrease in probability of US legalization will result in an increase or decrease in fair value

Page 42

Canopy Growth Corporation

Notes to the Condensed interim consolidated financial statements

for the Three and NINE Months ended DECEMBER 31, 2018 and 2017

(Expressed in CDN $000’s except share amounts)

During the nine month period ended December 31, 2018, there were no transfers of amounts between levels.

(b) Fair value of financial assets and liabilities that are not measured at fair value but fair value disclosures are required

The carrying values of cash, cash equivalents, accounts receivable and restricted investments and accounts payable and accrued liabilities approximate their fair values due to their short-term to maturity. The carrying value of mortgage payables approximates their fair value.

25.	Segmented information

The Company operates in two segments. 1) Cannabis operations, which encompasses the production, distribution and sale of both medical and recreational cannabis and 2) Canopy Rivers, through which the Company provides growth capital and strategic support in the global cannabis sector, where federally lawful. Financial information for Canopy Rivers is included in Note 13.

All property, plant and equipment and intangible assets are located in Canada, except for $70,604 which is located outside of Canada.

All revenues were principally generated in Canada during the three and nine months ended December 31, 2018, except for $6,089 and $11,699, respectively, related to exported medical cannabis generated outside of Canada (three and nine months ended December 31, 2017 - $994 and $1,404, respectively).

26.	Capital management

As at December 31, 2018 total managed capital was comprised of shareholders’ equity and debt of $8,215,174 (March 31, 2018 - $1,251,660).

As described in Note 19, on November 1, 2018 the Company issued shares and warrants to CBI for cash consideration of $5,072,500 to fund domestic and international expansion and emerging opportunities including research, production, distribution and sale of hemp as well as innovation investments.

The Company is subject to externally imposed restrictions related to covenants on its mortgages payable.

27.	Subsequent event

On February 4, 2019, Canopy Rivers announced that it had entered into an agreement with CIBCapital Markets (“CIBC”) and Eight Capital (together with CIBC, the “Joint Bookrunners”), under which the Joint Bookrunners have agreed to purchase, together with a syndicate of underwriters (the “Underwriters”), 11,500,000 subordinated voting shares of Canopy Rivers (the “Subordinated Voting Shares”) on a “bought deal” basis at a price of $4.80 per Subordinated Voting Share (the “Issue Price”) for gross proceeds of approximately $55,000 (the “Bought Deal”).

Concurrent with the Bought Deal, Canopy Growth, will purchase a minimum of 6,250,000 Subordinated Voting Shares on a private placement basis, at a price per Subordinated Voting Share equal to the Issue Price (the “Private Placement” and together with the Bought Deal, the “Offering”) for additional gross proceeds of a minimum of approximately $30,000. Canopy Growth currently owns approximately 26.5% of the issued and outstanding shares of Canopy Rivers on a non-diluted basis and has elected to subscribe under the Private Placement for more than its pro rata participation right. Following completion of the Offering (prior to giving effect to an over-allotment options granted to the Underwriters), Canopy Growth’s ownership interest in Canopy Rivers will increase to approximately 27.3% of the issued and outstanding shares of Canopy Rivers on a non-diluted basis. The combined gross proceeds to Canopy Rivers under the Offering will be a minimum of approximately $85,000 and is expected to close on or about February 27, 2019.

Page 43

cgc-ex992_7.htm

Exhibit 99.2

canopy growth corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the three and nine months ENDED december 31, 2018

february 14, 2019

Canopy Growth Corporation (“the Company” or “Canopy Growth”) is a publicly traded corporation, incorporated in Canada, with its head office located at 1 Hershey Drive, Smiths Falls, Ontario. Common shares of Canopy Growth trade on the Toronto Stock Exchange (“TSX”) under the ticker symbol “WEED” and on the New York Stock Exchange (“NYSE”) under the symbol “CGC”.

This Management’s Discussion and Analysis of the Financial Condition and Results of Operation (“MD&A”) is dated February 14, 2019. It should be read in conjunction with the Company’s unaudited condensed interim consolidated financial statements (the “Interim Financial Statements”) for the three and nine months ended December 31, 2018, including the accompanying notes.

This MD&A was prepared with reference to National Instrument 51-102 – Continuous Disclosure Obligations of the Canadian Securities Administrators. Under the U.S./Canada Multijurisdictional Disclosure System, we are permitted to prepare this MD&A in accordance with Canadian disclosure requirements which may differ from U.S. disclosure requirements. This MD&A provides information for the three and nine months ended December 31, 2018 and up to and including February 14, 2019.

The Interim Financial Statements and this MD&A have been reviewed by the Company’s Audit Committee and were approved by the Company’s Board of Directors on February 14, 2019.

The accompanying Interim Financial Statements were prepared in compliance with International Financial Reporting Standards 34 – Interim Financial Reporting (“IAS 34”), in accordance with subparagraph 3.2(1) (b) of NI 52-107 and include the accounts of the Company and its subsidiaries and the Company’s interests in affiliated companies (see page 5). All intercompany balances and transactions have been eliminated on consolidation.

Additional information including this MD&A, the Interim Financial Statements, and press releases have been filed electronically through the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com or at www.sec.gov/edgar and also on the Company’s website at www.canopygrowth.com.

Canopy Growth does not engage in any unlawful U.S. marijuana-related activities as defined in Canadian Securities Administrators Staff Notice 51-352. While the Company has several partnerships with U.S.-based companies that may themselves participate in the U.S. cannabis market, these relationships are licensing relationships that see intellectual property developed in the United States brought into Canada, and in no manner involves Canopy Growth in any unlawful US activities respecting cannabis. Where a non-controlled affiliate has expressed an intent to enter the U.S. cannabis market, the Company has taken steps to insulate itself from all economic and voting interests until such time that U.S. federal laws change in favour of cannabis related activities. (See Corporate Position on Conducting Business in the United States)

Financial information contained herein is expressed in thousands of Canadian dollars, except share and per share amounts, or as otherwise stated.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This MD&A contains certain “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and “forward looking information” within the meaning of Canadian securities legislation, including but not limited to statements relating to:

•	assumptions and expectations described in the Company’s critical accounting policies and estimates;

•	the Company’s expectations regarding the adoption and impact of certain accounting pronouncements;

•	the Company’s expectations regarding legislation, regulations and licensing related to the cultivation, production and sale of cannabis and hemp products by the Company’s wholly-owned subsidiaries;

•	the expected number of users of medical cannabis or the size of the legal medical cannabis market in Canada and internationally;

•	the expected number of users of recreational cannabis or the size of the legal recreational cannabis market in Canada and internationally;

•	the expected number of users of hemp or the size of the legal hemp market in Canada and internationally;

•

the potential time frame for the implementation of legislation to legalize regulated medical or recreational cannabis, or hemp internationally and the potential form implementation of the legislation will take, including the method of delivery and framework adopted or to be adopted by various international jurisdictions;

•	the ability to enter and participate in international market opportunities;

•	the Company’s expectations with respect to the Company’s future financial and operating performance;

•	the Company’s expectations with respect to future performance, results and terms of strategic initiatives, strategic agreements and supply agreements;

•	product sales expectations;

•	development of affiliated brands, product diversification and future corporate development;

•	anticipated results of research and development;

•	inventory and production capacity expectations including discussions of plans or potential for expansion of capacity at existing or new facilities;

•	expectations with respect to future expenditures and capital activities;

•	statements about expected use of proceeds from fund raising activities; and

•	the Company’s ability to achieve profitability without further equity or debt financing.

The words “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates” “forecasts”, “intends”, “anticipates”, or “believes” or variation (including negative variations) of such words and phrases, or statements that certain actions, events, or results “may”, “could”, “would”, “might”, or “will” be taken, occur or to achieve are all forward-looking statements. Forward-looking statements are based on the reasonable assumptions, estimates, internal and external analysis and opinions of management made considering its experience and perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable at the date that such statements are made. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. This MD&A should be read in conjunction with the risk factors described in the “Risk and Uncertainties” section of this MD&A and as described in the Company’s annual information form for the year ended March 31, 2018. Although the Company has attempted to identify important factors that could cause actions, events or results to differ materially from those described in the forward-looking statements, there may be other factors that cause actions, events, or results to differ from those anticipated, estimated or intended. Forward-looking statements contained herein are made as at the date of the MD&A. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on the forward-looking statements. The Company does not undertake to update any forward-looking statements except as required by applicable securities laws.

CORPORATE STRATEGY

Canopy Growth, an early mover in Canadian and international markets, is a multi-brand cannabis and hemp company that management believes its strong focus on and investment in the development of intellectual property, domestic and international markets, differentiated products, brands, increased cannabis and hemp supply, securing channels to market, and education, to help citizens safely, effectively and responsibly use cannabis and hemp, will create a dominant global business with the potential to generate a significant and sustained return on invested capital over the long-term.

To achieve this, the Company will continue making deliberate investments, including via acquisition and entering into strategic partnerships to:

•	Invest in the development of international markets in which cannabis or hemp is or is expected to become federally legal/permissible, with the goal of increasing the Company’s total addressable market over the medium to long term;

•	Invest in research and development activities to increase cultivation efficiency and yield and to develop protectable intellectual property;

•	Invest in research and development activities related to the development and production of value-added, higher-margin cannabis and hemp-based consumer products to increase the Company’s total addressable market over the medium to long-term and to develop protectable intellectual property;

•	Invest in research and development activities related to the development of value-added, higher margin, cannabis and hemp-based medical treatments to increase the Company’s total addressable market over the medium to long-term and to develop protectable intellectual property;

•	Invest in the marketing, production and sale of value-added, higher margin, cannabis and hemp based consumer and medical products as permitted by regulations;

•	Invest in research and development activities to increasing the capacity and efficiency of the Company’s post-harvest processing capabilities and to develop protectable intellectual property;

•	Invest in research and development activities related to packaging automation to improve operating efficiencies and develop protectable intellectual property;

•	Implement retail sales strategies, effective sales management and market support capabilities to help drive and participate in the growth of the Canadian Regulated Recreational, or Adult Access market;

•	Increase the strength and differentiation of the Company’s multiple brands;

•	Implement robust information technology systems including Enterprise Resource Planning;

•	Increase the efficiency and effectiveness of the Company’s customer engagement resources;

•	Support and participate in the development of social responsibility initiatives related to cannabis; and

•	Foster a positive, challenging and rewarding work environment for the Company’s staff.

In the third quarter, Canopy Growth closed the previously announced strategic $5 billion investment from Fortune 500 beverage leader Constellation Brands. These funds will be deployed towards the Company’s core strategic objectives of (i) intellectual property development or acquisition, and (ii) replicating the Company’s Canadian platform for success across many international markets. These objectives will be achieved through international acquisitions as well as continued internal investments across the globe.

BUSINESS TRANSITION

In the period leading up to legalizing recreational cannabis in Canada on October 17, 2018, while operating in an existing medical cannabis market, the Company began expanding its Canadian business model from business to consumer (“B2C”) transactions to a hybrid-business model dominated by business to business (“B2B”) transactions in a new expanded market, both through provincial on-line and brick and mortar stores as well as continuation of B2C online medical sales and introducing brick and mortar retail stores where permitted in a recreational market.

From inception of the Company’s business up to the launch of the recreational market in Canada on October 17, 2018, the Company has been in control of every aspect of the sales process to the Company’s Canadian end customers, from product selection, to inventory management and logistics, to the operation of the Company’s online medical cannabis sales portal.

With the opening of the new recreational cannabis market in Canada on October 17, 2018, the Company’s business transitioned largely to a B2B model. Being a brand new market, it will take some time for Licensed Producers (“LP”), including Tweed Inc. (“Tweed”), and provincial/territorial agencies to develop an understanding and readiness for the real demand profile for regulated recreational cannabis products, including the type/strain and quantity of products.

Evidence of these early challenges were observable on launch of recreational cannabis on October 17, 2018 and through to December 31, 2018. Management believes these challenges throughout the sector supply chain will continue in the months to come before stabilizing.

In transitioning to a largely B2B model in Canada, the Company wholesales large quantities of cannabis as requested by provincial/territorial agencies for distribution to new brick & mortar and online retail stores. In this model, sales of the Company’s products are impacted by many factors that are beyond the Company’s control including the profile of cannabis products (type/strain) being purchased by provincial/territorial agencies, the size and frequency of wholesale cannabis orders received from provincial/territorial agencies, the effectiveness of inventory and distribution management systems operated by provincial/territorial agencies, the size of brick & mortar retail networks and the quality of the shopping experience delivered by online and brick and mortar retail stores.

CORPORATE STRUCTURE
Controlled subsidiaries
	Legal entity	Defined as	% Ownership	Accounting method
	Tweed Inc.	Tweed	100.0%	consolidation
	Tweed Farms Inc.	Tweed Farms	100.0%	consolidation
	1955625 Ontario Inc.	1955625 Ontario Inc.	100.0%	consolidation
	Spectrum Cannabis Canada Ltd. (formerly Mettrum Ltd.)	Spectrum Cannabis	100.0%	consolidation
	BC Tweed Joint Venture Inc.	BC Tweed	100.0%	consolidation
	Tweed Grasslands Cannabis Inc.	Tweed Grasslands	100.0%	consolidation
	Mettrum Hempworks Inc.	Mettrum Hempworks	100.0%	consolidation
	Hiku Brands Company Ltd.	Hiku	100.0%	consolidation
	POS Holdings Inc.	POS	0.0%	consolidation
	Spektrum Cannabis GmbH	Spektrum Cannabis	100.0%	consolidation
	Vert Cannabis Inc.	Vert Cannabis	100.0%	consolidation
	11065220 Canada Inc.	11065220 Canada Inc.	100.0%	consolidation
	2344823 Ontario Inc. d/b/a Bodystream	Bodystream	100.0%	consolidation
	Apollo Applied Research Inc. and Apollo CRO Inc.	together "Apollo"	100.0%	consolidation
	EB Transaction Sub I, LLC	Transaction Sub I	100.0%	consolidation
	Spot Therapeutics Inc.	Spot	100.0%	consolidation
	Spectrum Cannabis Australia PTY Ltd.	Spectrum Australia	100.0%	consolidation
	Spectrum Cannabis Farms Australia PTY Ltd.	Spectrum Australia Farms	100.0%	consolidation
	Spectrum Cannabis Czech s.r.o	Spectrum Czech	100.0%	consolidation
	Spectrum Cannabis Chile SpA	Spectrum Chile	100.0%	consolidation
	Spectrum Cannabis (Lesotho) PTY Ltd. (formerly DaddyCann Lesotho PTY Limited)	DCL	100.0%	consolidation
	Storz & Bickel GmbH & Co, KG	S&B	100.0%	consolidation
	Canopy Health Innovations Inc.	CHI	100.0%	consolidation
	Canopy LATAM Corporation	Canopy LATAM	100.0%	consolidation
	Spectrum Cannabis Colombia S.A.S.	Spectrum Colombia	100.0%	consolidation
	Les Serres Vert Cannabis	Vert Mirabel	66.7%	consolidation
	Spectrum Cannabis Denmark Aps	Spectrum Cannabis Denmark	82.0%	consolidation
	Grow House JA Limited	Tweed JA	49.0%	consolidation
	Canopy Rivers Corporation	Canopy Rivers	27.2%	consolidation
Investments in affiliates
	Legal entity	Defined as	% Ownership	Accounting method
	Agripharm Corp.	Agripharm	40.0%	equity
	10730076 Canada Inc.	PharmHouse	49.0%	equity
	Bedrocan Brasil S.A.	Bedrocan Brasil	39.4%	equity
	Entourage Phytolab S.A.	Entourage	40.0%	equity
	N49AROW Global Ventures, ULC	N49AROW	25.0%	equity
	Beckley Canopy Therapeutics	BCT	42.2%	equity
	AusCann Group Holdings Ltd.	AusCann	11.1%	FVTOCI and FVTPL
	Vapium Incorporated	Vapium	12.2%	FVTOCI
	Headset Inc.	Headset	7.9%	FVTOCI
	HydRx Farms Ltd. (operating as Scientus Pharma Inc.)	HydRx	9.6%	FVTOCI
	Slang Worldwide Inc.	Slang	0.0%	FVTPL
	TerrAscend Corp	TerrAscend	0.0%	FVTPL
	Civilized Worldwide Inc.	Civilized	25.5%	equity
	CanapaR Corp.	CanapaR	46.0%	equity
	James E. Wagner Cultivation Ltd.	JWC	14.2%	FVTOCI
	Radicle Medical Marijuana Inc.	Radicle	23.8%	equity
	LiveWell Foods Canada Inc.	LiveWell	10.0%	FVTOCI
	Solo Growth Corp.	Solo Growth	9.7%	FVTOCI
	Good Leaf, Inc.	Good Leaf	8.8%	FVTOCI and FVTPL

HIGHLIGHTS

Third Quarter Fiscal 2019 Highlights

Results

•

Net revenue, after deducting excise taxes of $14,655, was $83,048 representing a 283% increase over the quarter ended December 31, 2017 when revenue totaled $21,700 and a 256% increase compared over revenues of $23,327 in the second quarter of fiscal 2019. Revenue from the new Canadian recreation market accounted for 71% of net revenue in the third quarter; medical products accounting for 20% of third quarter net revenue, with other revenues (accessories, such as merchandise and devices, and clinics) making up the remainder.

•

10,102 kilograms and kilogram¹ equivalents were sold in the third quarter ended December 31, 2018, representing an increase of 334% over the third quarter of last year, and an increase of 360% over the second quarter of fiscal 2019 in which 2,330 and 2,197 kilograms and kilogram equivalents were sold, respectively. Recreation accounted for 8,288 kilogram and kilogram equivalents sold in the third quarter, of which 89% was sold directly to the provinces and the remainder through direct retail and on-line consumer channels. Medical accounted for 1,814 kilograms and kilogram shipments in the quarter, representing a decline from the prior quarters which were entirely medical markets, due in part to repositioning to a more limited medical focused Spectrum brand offering affecting supply availability for the on-line product offerings and to available competing offerings through the newly legal recreation market in Canada.

•

Approximately 2.8 million units were shipped in the third quarter as compared to approximately 0.1 million units in the same quarter last year, reflecting the increase scale and automation of Canopy Growth’s shipping and fulfilment capability in the last year. A “unit” represents a discrete packaged item.

•

Oil sales, including gel caps, accounted for 33% of third quarter product revenue (reported revenue net of merchandise and clinic revenue). In comparison, oil sales, including gel caps, accounted for 23% of product revenue in the three month period ended December 31, 2017. Approximately 30% of fiscal 2019 third quarter recreation sales were comprised of oils, including gel caps. Oils, including gel caps, made up 42% of medical sales in the third quarter of fiscal 2019.

•

International medical cannabis sales, consisting primarily of sales in Germany, accounted for 16% of net medical product revenue in the third quarter as compared to 5% in the same quarter last year when medical access was still in its emerging phase after being introduced earlier in calendar 2018.

•

Average sales price per gram, net of excise tax, was $7.33 for the third quarter, as compared to $8.30 last year in the same quarter and $9.87 in the second quarter of fiscal 2019, due to a higher proportion of B2B recreational sales to provincial crown corporations, slightly offset by higher average pricing in the retail channel to achieve an overall recreation average price of $6.96. The average medical sales price per gram was $9.03, net of excise taxes and more directly compares to the prior quarter figures above.

•

Spektrum Cannabis sold 204 kilograms in Germany, all medical, at an average price of $13.28 per gram, up from 164 kilograms at an average price of $13.58 per gram in the second quarter of fiscal 2019, representing quarter over quarter increase of 22% on kilograms sold but down slightly on a price per gram basis due to mix.

•

Harvested 7,556 kilograms in the third quarter as compared to 15,217 kilograms in the second quarter of fiscal 2019 and 7,961 kilograms in the third quarter of fiscal 2018. The lower harvest in the third quarter was due in part to timing at quarter end and certain greenhouses undergoing further retrofits.

•

Net income for third quarter of fiscal 2019 was $74,860, or $0.22 per basic share and a net loss of $0.38 per fully diluted share, due to the dilutive impact assuming the convertible debt was converted at the beginning of the quarter and compares to net income of $11,014 and $0.01 per share in the same quarter last year. The fiscal 2019 net income was driven principally by fair value changes on financial liabilities more than offsetting the loss from operations.

Cash, cash equivalents and marketable securities

•

Consolidated cash, cash equivalents and marketable securities totaled $4,915,288 at December 31, 2018.

Innovation

•	Completed cannabis consumption safety trials key to validating safety of consumer products as well as animal and human medicines, data expected to be released by end of fiscal 2019.

•

Completed clinical trials of CBD-based anti-anxiety treatment for companion animals, data expected to be released by end of fiscal 2019; The Company believes that the clinical trial activities completed and underway will position Canopy Growth to publicly announce cannabis-based companion animal products in the first half of calendar 2019.

•	Acquired the assets, including over 40 cannabis-related patent applications filed representing over 1,500 inventions, of Colorado-based hemp researcher, ebbu, Inc. (“ebbu”). Intellectual Property (“IP”) and R&D advancements

¹	Kilogram equivalents refers to cannabis oils where 8 ml is the equivalent of approximately 1 gram of dried cannabis.

achieved by ebbu’s team apply directly to Canopy Growth’s hemp and THC-rich cannabis genetic breeding program. The Company believes applying ebbu’s IP has the potential to vastly reduce the cost of CBD production. In addition, ebbu’s IP portfolio will contribute to the clinical formulations program being executed by Canopy Health Innovations Inc. (“Canopy Health”).

•

Acquired Storz & Bickel GmbH & Co. KG and related IP (collectively, “Storz & Bickel” or “S&B”). With a 22-year track record of breakthrough innovations, Storz & Bickel is widely recognized as the global leader for the design and manufacture of medically approved vaporizers, most notably the Volcano® Medic and the Mighty® Medic. Storz & Bickel has spent the last two decades developing an automated and internationally certified factory, achieving ISO 13485 certification in 2009. Storz & Bickel has exported devices to 50 markets around the world. Leveraging S&B will help the Company bring vaporizer products to market that set a new bar for quality, functionality and safety.

•	Company’s intellectual portfolio increased to 32 issued patents and over 140 patent applications.

EVENTS SUBSEQUENT TO QUARTER-END

•

On January 9, 2019, the Company announced the addition of Spectrum Cannabis Peru S.A.C. (“Spectrum Cannabis Peru”) to the Canopy LATAM (Latin America) group of companies. With Peru poised to introduce new regulations for the use of medical cannabis, Spectrum Cannabis Peru will support the opening of the Peruvian market while leveraging Canopy Growth’s global expertise in patient and physician education, as well as in medical cannabis production.

•

On January 14, 2019, Canopy Growth announced that it had been granted a hemp processing and production license by New York State and its commitment to invest in New York in order to establish a Hemp Industrial Park. Canopy Growth intends to invest between $100 million USD and $150 million USD in its New York operations, capable of producing tons of hemp extract on an annual basis.

•

On January 21, 2019, the Company announced that Spectrum Cannabis Polska, after completing a rigorous regulatory approval process, completed its first import of medical cannabis into Poland. According to the Polish Pharmaceutical Chamber, which represents about 15,000 pharmacies in Poland, it is estimated that up to 300,000 patients could qualify for medical cannabis treatment.

•

On January 21, 2019, the Company announced Spectrum Biomedical UK, a new company focused on providing access to cannabis-based medicinal products to UK patients with a wide range of symptoms. Spectrum UK aims to provide patients reliable access to Spectrum Cannabis products and information physicians can use to support them in their practice.

•	On February 4, 2019, Canopy Rivers announced a bought deal transaction and concurrent with the bought deal transaction, Canopy Growth will participate through a private placement expected to close on or about February 27, 2019. Refer to the Canopy Rivers section below for details.

DESCRIPTION OF THE BUSINESS

CANNABIS REGULATORY FRAMEWORK IN CANADA

On October 17, 2018, the Cannabis Act went into effect which governs both the medical and recreational regulated markets in Canada.

Prior to October 17, 2018, legal access to and use of medicinal cannabis in Canada was regulated by the Access to Cannabis for Medical Purposes Regulations (“ACMPR”). The Cannabis Act now applies to both medical and recreational use of cannabis. Medical patients are required to obtain a medical approval from their healthcare practitioner and provide a medical document to the licensed producer from which they wish to purchase cannabis. Health Canada recently reported that over 342,000 patients had enrolled by September 30, 2018². By 2024, Health Canada estimates that the number of patients using medical cannabis will grow to 450,000 creating a market worth an estimated $1.3 billion³, estimates that management believes is conservative considering the growth in patient enrollment that has been experienced to date in the program.

At the onset of the regulated recreational cannabis market, permitted products are essentially the same as what is currently offered in the medical cannabis market – dried flowers, oils and soft-gel with the addition of pre-rolled cannabis products. As this product offering represents only a portion of the products available on the illicit market, the federal government has indicated that value-added products including higher concentrated oils and ingestibles will be permitted

²	http://www.hc-sc.gc.ca/dhp-mps/marihuana/info/market-marche-eng.php

³	http://www.cbc.ca/news/canada/1-3b-medical-marijuana-free-market-coming-to-canada-1.1872652

for sale within a year of the opening of the regulated recreational cannabis market. Federal legislation gives responsibility for regulating the distribution and retail of recreational cannabis to the provinces and territories.

CIBC World Markets reports estimates of the potential value of the regulated recreational cannabis market in Canada range from $5.0 billion to $10.0 billion per year. To put the potential size of the Canadian regulated recreational market in context, Statistics Canada valued the beer market in Canada, in 2014, at $8.7 billion.⁴

LEGALIZAtiON/permissibility Of CANNABIS in international jurisdictions

In 2014, a limited number of countries in the world, in addition to Canada, specifically, Israel, Czech Republic, Netherlands and Uruguay had established federally legal cannabis access regimes.

Since 2014, the actions of governments around the world have signaled a significant change in attitudes towards cannabis. To date, federal governments in over 30 additional countries including Argentina, Austria, Australia, Brazil, Denmark, Chile, Colombia, England, Germany, Greece, Israel, Italy, Jamaica, Lesotho, Mexico, Netherlands, Norway, Poland, Puerto Rico, South Africa, Switzerland and Turkey have formally legalized medicinal cannabis access to either foster research into cannabis-based medical treatments and/or towards increasing legal access to medical cannabis for their citizens.

In addition, many other countries including Belgium, Ireland, France, Portugal, Spain, India, Malaysia, South Korea and Thailand have established formal government efforts to explore the legalization of medicinal cannabis access.

In the United States of America, multiple legislative reforms related to Cannabis are currently being considered by the federal government. On December 20, 2018, the Agricultural and Nutrition Act, H.R. 2⁵ (the “Farm Bill”), which included the language of the Hemp Farming Act of 2018, legalize the cultivation of Hemp to produce the CBD and other cannabinoids, except for THC. Further, management believes The Strengthening the Tenth Amendment Through Entrusting States Act (the “States Act”), S.3032⁶, if passed in its current form, would make cannabis federally permissible (not illegal) in US states where cannabis is state legal.

Figure 1: Map of countries with/exploring federally legal cannabis access regimes in 2018

The forty-first meeting of the Expert Committee on Drug Dependence (“ECDD”) was held in Geneva, Switzerland, November 12 to16, 2018. At that meeting, the ECDD undertook a critical review of whole-plant cannabis and cannabis extracts. The Director-General of the World Health Organization sent a letter to the UN Secretary General on January 24, 2019, outlining its recommendations that included the recommendation that cannabis be removed from Schedule IV of the 1961 Convention on Narcotic Drugs. The UN’s Commission on Narcotic Drugs may decide to consider, and vote upon, those recommendations at its next annual session, which will be held March 22 to 26, 2019, in Vienna, Austria, however since the recommendations were only released in January it’s possible that consideration will be postponed until 2020.

⁴	http://www.statcan.gc.ca/daily-quotidien/150504/dq150504a-eng.htm

⁵	https://agriculture.house.gov/farmbill/

⁶	https://www.congress.gov/bill/115th-congress/senate-bill/3032/text

Canopy Growth will only conduct business activities related to growing or processing cannabis or hemp in jurisdictions where it is federally lawful to do so.

OVERVIEW OF CANOPY GROWTH CORPORATION

At December 31, 2018, there were approximately 2,700 full-time employees in the Company as compared to approximately 2,000 at September 30, 2018 and approximately 700 at December 31, 2017.

Canopy Growth is a multi-brand cannabis and hemp company that management believes its strong focus on and investment in the development of intellectual property, domestic and international markets, differentiated products, brands, increased cannabis and hemp supply, securing channels to market, and education, to help citizens safely, effectively and responsibly use cannabis and hemp, will create a dominant global business with the potential to generate a significant and sustained return on invested capital over the long-term.

INTELLECTUAL PROPERTY – PATENT PORTFOLIO

The Company’s intellectual portfolio has increased to 32 issued patents and over 140 patent applications with more applications under development. Protectable inventions cover cannabis-based beverage production, cannabis-based medical treatments, device & delivery technologies, large-scale cannabis processing and plant genetics. The portfolio features broad geographic coverage.

INTELLECTUAL PROPERTY - RESEARCH & DEVELOPMENT

Management believes a significant potential future opportunity exists, within an appropriate regulatory framework, to improve the Company’s profit margins by vertically integrating up the value chain towards products that treat cannabis and cannabinoids as ingredients rather than the base product. This view applies to the medical and regulated recreational cannabis/cannabinoid markets. The Company has been investing for over two years in research and development activities related to the development of medical and recreational products.

Development of Cannabis-Based Medical Therapies - Canopy Health Innovations

Canopy Growth established the cannabis research incubator and now wholly-owned subsidiary Canopy Health, to develop and research clinically ready cannabis drug formulations and dose delivery systems. Canopy Health has put a team in place to evaluate, prepare for, and develop cannabis drug formulations and dose delivery systems. The role of the Canopy Health is to act as the pre-clinical and clinical research arm of the Company, which would include elements of product design and ingredient selection, formulation, safety and efficacy testing, and pre-clinical and clinical trials (to the extent required), for a range of products which are anticipated to be developed as the regulatory framework and market evolve. Canopy Health established a division called Canopy Animal Health (“CAH”) to create Cannabis-derived products for applications in veterinary medicine.

The development and maintenance of a robust IP program, including filing provisional applications, conversion of provisional applications into non-provisional utility filings, prosecution of utility filings through to issuance, and extending filings into various additional countries, is a key element of the Canopy Health’s strategy. IP is important in order to create competitive advantage in the marketplace and provide an opportunity to earn appropriate economic returns on R&D investments.

To date, Canopy Health has filed forty-three (43) US provisional patent applications, across a range of cannabis and cannabinoid uses, compositions, formulations, indications, methods of delivery, and dosing regimens.

On June 12, 2018, the Company announced that Canopy Health has received approval from Health Canada to proceed with Phase IIb “in-human” clinical trials to evaluate the use of medical cannabis in the treatment of insomnia. The trial is being conducted in collaboration with a leading Canadian research institution.

On August 8, 2018, the Company announced that CAH has received approval from the Veterinary Drug Directorate of Health Canada to research the effectiveness of cannabidiol to treat anxiety in certain animals. Canopy Health has a total of 15 clinical trials underway or planned.

Development of Cannabis-based Consumer Recreational Products

The Canadian federal government has indicated that the sale of value-added cannabis-based Consumer Recreational products will be permitted within one of year of the opening of the legal recreational cannabis market in Canada. These products can be expected to include higher concentrated vaping oils (along with related device hardware), edibles and beverages.

Canopy Growth is actively laying the foundation for these products through investment in a range of research and development efforts, the licensing of intellectual property from innovative entrepreneurs in the cannabis industry, the acquisition of select technologies and investing in and constructing and outfitting edible and beverage production facilities.

Development of Cannabis-based Beverages

Management believes the benefits that cannabis-based beverages can offer consumers including tailored consumption experiences, consumption with reduced/no weight gain, no “hangover”, and limited/no negative interaction with traditional pharmaceutical medications, could cause significant demand to develop for cannabis-based beverages and resulting disruption to traditional alcohol beverage markets.

Canopy has invested significant resources in researching and developing technologies, processes and applications involved in the creation of clear, shelf-stable cannabis-based beverages that offer a social experience that is superior to that of traditional sugar-based alcoholic beverages, specifically, a rapid on-set and shorter duration. Like the IP program at Canopy Health, Canopy Growth has built, or otherwise secured, protected status, through pending patents and other IP forms.

CBD Products

The Company has taken steps to diversify its cannabis-related business into the development, production and sale of hemp-based medical, regulated recreational and industrial products. Hemp and cannabis come from the Cannabis sativa L specie but are genetically distinct and are further distinguished by use, chemical makeup and cultivation methods. Hemp, which refers to the non-psychoactive (less than 0.3% THC) varieties of Cannabis sativa L, is a renewable raw material used in thousands of products including health foods, body care, clothing, construction materials, biofuels and plastic composites. The Company believes that entry into the regulated hemp market, whose regulations allow for more robust consumer-facing brand marketing, advertising and retail channels, will serve to strengthen the Company’s consumer facing brands in the future.

Management believes the Company’s expertise in large-scale cannabinoid extraction processes with its unique whole-plant hemp harvesting knowledge and library of stable CBD-rich hemp genetics, acquired through the acquisition of Green Hemp Industries Ltd. in fiscal 2018 and its relationship with POS Holdings Inc. (“POS”) described below, positions Canopy Growth as a leader in low-cost, high yield CBD production.

On November 23, 2018 the Company acquired effective control for accounting purposes over the operations of POS, a bio-processing facility located in Saskatchewan, Canada as a result of a debenture financing transaction which was entered concurrent with the grant of an option to acquire POS.

In July 2018, prior to completing the transaction, the Company had entered into an agreement whereby the Company was granted an option to acquire all the assets of POS in exchange for $6,000. The amount advanced for this option was to be applied against the purchase price of the assets of POS when the option was exercised and had been recorded as a deposit. In addition, the Company had entered into an agreement for processing services to be conducted by POS on behalf of the Company and had made advances of $13,864 under this agreement. Since processing under this agreement has not yet commenced, all the amounts advanced prior to November 23, 2018 had been recorded as a prepaid expense. The deposit and prepaid amounts form part of the consideration transferred. On closing November 23, 2018, the Company advanced a further $109,094 pursuant to a convertible debenture for total cash consideration of $128,958.

The acquisition of ebbu with research and resultant IP related to hemp-based CBD and other non-THC cannabinoids along with receiving a hemp license in the State of New York (See EVENTS SUBSEQUENT TO QUARTER-END) are other key elements in the deployment of Canopy Growth’s hemp and CBD product strategy.

INTERNATIONAL DEVELOPMENT

Management believes that a significant opportunity exists today to leverage the Company’s intellectual property, expertise, financial strength and business model in federally legal/permissible cannabis markets around the world. In addition, management believes future opportunities are likely to exist for the Company in jurisdictions where governments are actively moving towards such a legal framework. Subject to regulatory approval, strategic international business opportunities pursued by the Company could include:

•	Providing advisory services to third-parties that are interested in establishing licensed cannabis cultivation and sales operations;

•	The export of cannabis and cannabis-based medicines to countries outside of Canada; and

•	Ownership of cannabis cultivation, value-added cannabis-based product production and sales operations in countries outside of Canada, where it is federally legal/permissible to do so.

Canopy Growth, with the assistance of international subsidiaries or partners, has secured the necessary agreements to export cannabis to Australia, Brazil, Czech Republic, Denmark, Germany, Poland, Spain and certain Caribbean countries. Management believes that an opportunity will exist, for some time to come, to export medical cannabis to countries that require a secure supply of medicinal cannabis but have yet to develop domestic production capabilities.

Further, management believes that over time many countries will move to establish domestic production capabilities, in part due to the economic development opportunities that this represents. Many countries are looking to Canada, and its regulatory framework for the production and commercialization of medical cannabis, with much interest and respect. As Canada has developed an enviable regulatory model, companies acting within that framework have expertise, knowledge and potentially product to share with the global community.

To date, the Company has announced subsidiaries, partnerships or business activities in Germany, Chile, Peru, Columbia, Denmark, Jamaica, Lesotho, Australia, Brazil, Czech Republic, the UK, Poland Spain, and the United States as described below.

Figure 2: International subsidiaries, partnerships or business activities

Europe

Spektrum Biomedical UK

Subsequent to the end of the third quarter of fiscal 2019, the Company announced Spectrum Biomedical UK, a new company focused on providing access to cannabis-based medicinal products to UK patients with a wide range of symptoms. Spectrum UK aims to provide patients reliable access to Spectrum Cannabis products and information physicians can use to support them in their practice.

Spektrum Cannabis GmbH

Spektrum Cannabis GmbH (“Spektrum”) is a German-based pharmaceutical distributor. Spektrum has the necessary approvals in Canada and Germany to export/import medical cannabis for sale to German patients. To date, Spektrum distributes cannabis products to over 1,200 pharmacies across Germany. Spektrum’s processing facility is GMP certified by Regierungspraesidium Tübingen.

Spectrum Denmark ApS

Spectrum Denmark ApS (“Spectrum Denmark”) was established to produce, cultivate and distribute medical cannabis products in Denmark. Spectrum Denmark will also seek to establish operations in other jurisdictions in Europe where federally lawful and regulated. In fiscal 2018, Spectrum Denmark purchased a 430,000 sq. ft. operating greenhouse facility in Odense, Denmark (“Odense”) and received a cannabis production license by Laegemiddelstyrelsen, Denmark’s Medicines Agency. The license was issued without conditions, meaning that Spectrum Cannabis Denmark will not be limited to a production cap or limited to the product formats it can produce. Spectrum Denmark recently received clones from our Spanish partner for purposes of testing and are now held as mother plants.

Spectrum Czech ApS

In the first quarter of fiscal 2019, the Company acquired Annabis Medical s.r.o (“Annabis Medical”). Annabis Medical is the leader in the Czech Republic’s medical cannabis industry and currently imports and distributes cannabis products pursuant to federal Czech licenses, with products for sale through pharmacy channels across the Czech Republic. Annabis Medical was renamed Spectrum Czech ApS.

Spectrum Cannabis Polska

Subsequent to the end of the third quarter of fiscal 2019, the Company announced that Spectrum Cannabis Polska, after completing a rigorous regulatory approval process, completed its first import of medical cannabis into Poland. According to the Polish Pharmaceutical Chamber, which represents about 15,000 pharmacies in Poland, it is estimated that up to 300,000 patients could qualify for medical cannabis treatment.

Alcaliber S.A.

In fiscal 2018, the Company and its wholly-owned subsidiary Spektrum announced a supply license agreement with Spain’s Alcaliber, S.A. (“Alcaliber”). Per the supply license agreement, Canopy Growth and Spektrum will grant Alcaliber a license to use certain strains and seeds to be grown and cultivated at Alcaliber’s facilities for sale worldwide. In the fourth quarter of fiscal 2018, Canopy Growth confirmed that it had completed a transfer of 1,500 cannabis clones to Alcaliber completing the first phase of the partnership announced on September 11, 2017. Alcaliber shipped the first group of clones to Spectrum Denmark in the first quarter of fiscal 2019.

Alcaliber specializes in research and development, breeding and cultivation, and the extraction, purification and preparation of Narcotic Raw Materials (“NRMs”) and Active Pharmaceutical Ingredients (“APIs”). Alcaliber has been granted a license to cultivate, produce, manufacture, export/import, and commercialize cannabis for medical and scientific purposes by the Spanish Agency of Medicinal Products and Medical Devices.

Asia/Pacific

Spectrum Australia

In the first quarter of fiscal 2019, Canopy Growth and the Victoria State Government announced the launch of Spectrum Australia. The Victoria facility, when completed, will enable domestic cultivation and production of high quality medical cannabis for patients while serving as a distribution hub for other jurisdictions in APAC. It will also operate as the APAC

Research and Development Center for the Company, supporting the ongoing research collaboration between Spectrum Australia and Agriculture Victoria on innovations in medical cannabis cultivation and production.

In fiscal 2018, the Company and the Victorian State Government signed a MOU to further develop research and technical capabilities in the production of medical cannabis in Australia. The work will focus on medical applications for cannabis genetics, strain development, cultivation, and processing. This partnership will directly contribute to the emerging medical cannabis industry in Australia, allowing for improved patient access in that market, creating a leadership position for Australia and Canopy Growth in the Asia Pacific geography.

AusCann Group Holdings Ltd.

In exchange for consultation in several areas including production, quality assurance and operations and strategic advisory services, the Company initially received a 15% interest and options in Auscann (ASX:AC8). Following subsequent dilutive financings, now owns an 11.1% interest.

The Company has an exclusive supply agreement with AusCann, whereby Canopy Growth will act as AusCann’s exclusive supplier of medical cannabis for the Australian market, beginning with the transfer of a range of medicines for research and commercialization in Australia.

Africa

Spectrum Cannabis Africa

Spectrum Cannabis Africa has received license approval, under the South African unregistered medicines program, to facilitate prescriptions for Spectrum Cannabis Oil products that are necessary to seek a permit to import products into South Africa.

Spectrum Lesotho

In the first quarter of fiscal 2019, Canopy Growth announced that it had acquired DaddyCann Lesotho PTY Ltd., trading as Highlands (“Highlands”) and since renamed Spectrum Cannabis Lesotho (Pty) Ltd (“Spectrum Lesotho”). Based in the Kingdom of Lesotho, Spectrum Lesotho holds a license to cultivate, manufacture, supply, hold, import, export and transport cannabis and its resin.

Combining the domestic and regional knowledge of Spectrum Lesotho with the global experience and expertise of Canopy Growth is the latest example of the Company establishing a meaningful local presence. With the objective of future local production to serve the regional market, these operations are part of Canopy Growth’s commitment to the Lesotho economy including supporting job creation and lasting community engagement. All key members of Spectrum Lesotho’s management team will continue to lead the organization.

Spectrum Lesotho has commenced cultivation operations at its facility near the Capital City, Maseru. The facility, covering approximately 48,400 sq. ft. includes a propagation room, vegetation greenhouse, and an outdoor growing area.

Caribbean

Tweed JA

The Company owns 49% of Tweed JA, a Jamaican company that recently received its cultivation license after completing construction of the greenhouse. Canopy Growth believes that the production and formulation model it has built in Canada, combined with the strength of the existing team in Jamaica, made up of experienced entrepreneurs with substantial cannabis cultivation experience, will drive the national conversation around cannabis forward, and promote Jamaica's well-established and renowned ganja, oils and other cannabis products on a global level. The post-harvest building is expected to be completed in the first half of calendar 2019. The processing license is expected to follow completion of the post-harvest building in the first calendar quarter of 2019. Tweed JA completed a clone transfer of Tweed genetics into Jamaica and has commenced the production of cannabis for medical purposes. Tweed JA expects to be selling medical cannabis in Jamaica by the second half of calendar 2019.

LATAM

Canopy LATAM, headquartered in Sao Paulo, Brazil, will focus on advancing medical cannabis through the Spectrum brand and capturing market share across the region comprised of Brazil, Columbia and Chile, home to more than 600 million people, as individual nations modernize their medical cannabis legislation.

Spectrum Cannabis Colombia

Spectrum Cannabis Colombia will serve as a regional production and processing hub for Canopy LATAM. Further, Spectrum Cannabis Colombia owns a uniquely-positioned 126 hectare farm suitable for growing and future operations. This site receives a steady supply of fresh water from a natural lagoon, has favourable electricity rates, and is currently licensed for 126 hectares (4.5 million sq. ft.) of production capacity.

Spectrum Chile SpA

Medical cannabis markets in Chile are emerging and the Company plans to enter the market aggressively in order to position itself as a leader. Through a strategic partnership with a domestic Chilean medical cannabis company, Spectrum Chile will work to ensure Chilean patients have access to high-quality cannabis products.

Spectrum Cannabis Peru

With Peru poised to introduce new regulations for the use of medical cannabis, Spectrum Cannabis Peru will support the opening of the Peruvian market while leveraging Canopy Growth’s global expertise in patient and physician education, as well as in medical cannabis production.

Corporate Position on Conducting Business in THE United States

Canopy Growth will only conduct business activities related to growing or processing cannabis, in jurisdictions where it is federally legal/permissible to do so. As cannabis is currently federally illegal in the U.S., Canopy Growth does not engage in any U.S. cannabis- related activities as defined in Canadian Securities Administrators Staff Notice 51-352 as of February 14, 2019.

While the Company has several partnerships with U.S.-based companies that may themselves participate in the U.S. cannabis market, these relationships are licensing relationships that see intellectual property developed in the United States brought into Canada, and in no manner involve Canopy Growth in any US activities respecting cannabis.

Further, while the Company will not engage in cannabis-related activities in the U.S related to growing and processing cannabis so long as cannabis is federally illegal, Canopy Growth has developed specific plans related to establishing business operations in the U.S. in the event cannabis becomes federally legal/permissible. The Company has entered into option agreements to purchase certain cultivation infrastructure (for capped capital investment amounts) should cannabis become federally legal/permissible in the U.S.

In respect of the Company’s policy to not engage in any unlawful U.S. cannabis-related activities as defined in Canadian Securities Administrators Staff Notice 51-352, two affiliates of the Company, TerrAscend and Slang, with interests in pursuing cannabis related business in the United States, the Company took steps to structure the Company’s ownership stake interest in the affiliates to insulate the Company. Under the restructurings and arrangement, the Company has no voting rights and economic interest in these affiliates until cannabis becomes federally lawful/permissible in the United States. Ownership in the affiliates has been held or converted to warrants that are exercisable in circumstances related to cannabis becoming federally lawful/permissible in the United States. The Company monitors its non-controlled affiliates for compliance with U.S. cannabis laws, and would make similar arrangements, if necessary, to ensure the Company’s ongoing compliance with U.S. federal laws.

Multiple legislative reforms related to cannabis were recently implemented or are currently being considered by the federal government. The Farm Bill was recently signed into by law by the US President which federally legalized the cultivation of Hemp to produce CBD and other cannabinoids, except for THC. The STATES Act, in the current form being debated by the US Senate, if passed into law, would make cannabis federally permissible (not illegal) in US states where cannabis is state legal.

Leading up to and following passage of the Farm Bill, including its provisions for federally legalizing the production and sale of Hemp-based CBD products, the Company began to seize this potentially large opportunity. On November 26, 2018, the Company closed its previously announced agreement to acquire the assets of ebbu, an Evergreen, Colorado-based hemp research leader. Intellectual Property ("IP") and R&D advancements achieved by ebbu’s team apply directly

to Canopy Growth’s hemp and THC-rich cannabis genetic breeding program and its cannabis-infused beverage capabilities. In addition, ebbu’s IP portfolio will contribute to the clinical formulations program being executed by Canopy Health. Canopy Growth operates a rapidly emerging, field-scale hemp operation based in Saskatchewan and by applying ebbu’s IP, the Company has the potential to vastly reduce the cost of CBD production.

Canopy Growth, through a newly formed subsidiary, will employ ebbu's assets and personnel to conduct R&D. There will be no production or sale of cannabis products resulting from such R&D in the United States unless and until it would be federally legal/permissible to do so.

On October 9, 2018, the Company announced that it had completed a legal transfer of cannabis products to a research partner in the United States. To the Company’s knowledge, this was the first export of legal cannabis products from Canada to the United States pursuant to an import permit issued by the federal United States Drug Enforcement Administration (“DEA”). The shipment was completed for the sole purpose of supporting medical research and development. To date, four such shipments have been made under DEA approval.

CANNABIS BRANDS

The Company’s diverse platform of brands “under the Canopy” allows the Company to effectively deploy brands that are targeted towards specific customer demographics, use occasions and product form factors.

OWNED BRANDS

Spectrum Cannabis

Spectrum Cannabis is the Company’s international medical brand and will serve as the Company’s physician and patient facing identity across all federally legal jurisdictions where Canopy Growth operates. “Spectrum” in the name refers to the Company’s trademarked colour-coded cannabis strain classification system.

Tweed

A key focus of the Company, since its inception, has been the development of its flagship Tweed brand. From the name, quality and consistency, logo and design aesthetic, to the tone and light-hearted copy, Tweed deliberately chose to incorporate a sense of texture and approachability that welcomes customers and encourages an intimate relationship and trust with the brand. The Tweed brand has evolved towards an adult lifestyle brand to best serve the needs of the regulated recreational market in Canada.

Van der Pop

Van der Pop is a female focused cannabis brand, with a focus on education and community; a guide to helping women discover and consider cannabis for self-care. Van der Pop dried cannabis whole flower launched in select markets in January 2019. Soft gels are planned to be released in the first half of calendar 2019 while a selection of Van der Pop derivative cannabis products is planned to launch in the second half of calendar 2019.

Maitri

Founded by Quebecers for Quebecers, Maitri focuses on adventure seekers looking to combine the power of the outdoors with cannabis. Maitri continues to build loyal followers through its growing line of designed-in-Quebec accessories. Maitri plans to launch a line of derivative cannabis products in the second half of calendar 2019.

Vert

From the Company’s facility in Mirabel, Quebec, Vert is poised to be a premium supplier of craft cannabis for markets in Canada. Vert intends to launch into the Canadian recreational market in the second half of calendar 2019.

AFFILIATED BRANDS

LBS

Tweed and renowned cannabis business pioneer Snoop Dogg have partnered to bring the LBS (formerly known as Leafs By Snoop prior to October 17, 2018) offering of diverse whole-flower and oil strains, including a high CBD option and mid to high-range THC options to the recreational market.

DNA-Certified

DNA Genetics, world-renowned Cannabis breeders, have won awards in every category in the Cannabis Cup, the world’s preeminent cannabis competition. Tweed has leveraged DNA's expertise in cannabis breeding to bring new, exclusive DNA Certified strains to primarily the recreational market.

Green House Brands and Organa Brands

Green House Brands, through Canopy Growth, is bringing the most awarded and recognized cannabis brand in the world to the Canadian market in the second half of calendar 2019. Established in 1985, the Green House Brands portfolio includes Green House Seed Co. and Strain Hunters, both of which are market exclusive cannabis strains. Green House assets have won numerous accolades, including over 40 High Times Cannabis Cups and 200 plus awards for top genetics, establishing the brand’s leadership in the global cannabis industry. As Strain Hunters, the brand has been featured in documentary series on HBO and VICE, highlighting its globetrotting journeys to find the rarest landrace strains of cannabis.

Organa Brands revolutionized the cannabis industry with the introduction of supercritical CO₂ extracted cannabis oil in 2010 and the introduction of the groundbreaking O.penVAPE device in 2012. Today the company is home to some of the world's largest consumer cannabis brands, including O.penVAPE, Bakked, Magic Buzz and District Edibles. Organa Brands will launch in the Canadian recreational market, through Canopy Growth, in the second half of calendar 2019.

Retail STRATEGY AND BRANDS

The provinces of New Brunswick^[⁷^], Quebec⁸ , PEI⁹ and Nova Scotia¹⁰ decided that their provincial liquor control agencies will oversee the distribution and retail on non-medicinal cannabis. The provinces of Manitoba¹¹, Newfoundland &

⁷	http://www2.gnb.ca/content/gnb/en/news/news_release.2017.09.1206.html

⁸	http://plus.lapresse.ca/screens/b9063848-7868-4a20-846b-a84fcd3a747f%7C_0.html

⁹	https://www.princeedwardisland.ca/en/news/province-sets-next-policy-directions-cannabis-legalization

¹⁰	https://novascotia.ca/cannabis/#cannabis-retail-and-distribution

¹¹	http://news.gov.mb.ca/news/?archive=&item=42491

Labrador¹², Saskatchewan¹³, Alberta¹⁴, British Columbia¹⁵, Ontario¹⁶ and the Yukon Territory¹⁷ decided that the provincial/territorial liquor control agency will be responsible for distribution and oversee the private retail of non‑medicinal cannabis.

The Company is pursuing a cannabis retail presence in provinces, where permitted, to capture retail gross margin (incremental to wholesale margin), capture higher market share and establish direct connections with customers. Controlling the retail environment provides the Company with a powerful marketing engine to build the Tweed, Tokyo Smoke and other company owned brands whilst data and customer feedback collected from owned stores enables the Company to better understand customers and quickly react to their changing needs.

The Company operates in both physical and digital channels to better meet to the needs of our customers. To date, the Company has received licenses or permits to apply for licenses to operate private retail and online sites in each of the provinces that have announced private retail operations – Newfoundland & Labrador (licenses for up to 7 stores), Manitoba (licenses for up to 15 stores) and Saskatchewan (licenses for up to 6 stores). The Company is also pursuing retail licenses in a select number of cities in Alberta and British Columbia; the Company has already secured over 20 development permits in Alberta and is progressing through the provincial cannabis retail licensing process. Finally, the Company is pursuing opportunities to license its Tweed and Tokyo Smoke retail banners in Ontario. As at February 14, 2019, the Company had opened 15 cannabis retail stores, including one Tweed store under license, with more to follow in the coming months, subject to cannabis retail licensing timelines in each province.

The Company has established an owned, technology-enabled direct sales force across the country. This sales force will be responsible for interfacing with cannabis retailers across the country to, among other things, educate retail staff on the Company’s products, foster positive product placement in retail stores and garner real-time/near real-time market intelligence on product demand and to communicate this intelligence back to the Company’s operations.

Tweed and Tokyo Smoke Stores

Canopy Growth finalized its acquisition of HIKU during the second quarter of fiscal 2019, adding the Tokyo Smoke retail network to its network of Tweed stores. Offering two distinct customer experiences will allow the Company to appeal to various consumer demographics without saturating any single segment. Tokyo Smoke operates four retail cannabis stores and an e-commerce platform in Manitoba. Tweed retail now has 10 locations selling cannabis across Newfoundland & Labrador and Manitoba, a licensed store in Saskatchewan and an e-commerce presence in Manitoba and Nunavut. The Company plans to add, in provinces with private retail models, 20 additional Tweed stores and 20 additional Tokyo Smoke stores. In the province of Ontario, the company is exploring partnership opportunities to ensure consumers in the that market can experience the distinct Tweed and Tokyo Smoke retail experiences while working within the provincial framework limited to Licensed Producer ownership at 9.9%.

DOMESTIC CANNABIS Production – OWNED & PARTNER FACILITIES

Through its wholly-owned subsidiaries and partnerships, Canopy Growth operates numerous state-of-the-art production facilities with over 4.3 million sq. ft. of licensed indoor and greenhouse production capacity. In addition, through wholly-owned subsidiaries and partnerships, the Company is developing several additional production facilities in Canada. The Company has ten licenses issued by Health Canada to cultivate cannabis and 8 licenses from Health Canada to sell cannabis.

The Company will continue to place the highest priority on meeting the needs of medical patients, expanding internationally as federal laws permit, and increasing its capacity to serve regulated recreational customers across Canada in the future. To date, the Company has announced capacity expansions totaling over 1.3 million sq. ft. beyond the current licensed footprint for a total of 5.6 million sq. ft licensed facilities when completed. Construction commenced in October 2018 at Smiths Falls to build a 125,000 square foot bottling facility with four automated bottling and canning lines. It is expected to be fully completed and ready by the summer of calendar 2019.

¹²	http://www.releases.gov.nl.ca/releases/2017/exec/1123n01.aspx

¹³	https://globalnews.ca/news/3951690/marijuana-to-be-sold-in-private-saskatchewan-stores-and-online/

¹⁴	https://www.alberta.ca/cannabis-framework.aspx

¹⁵	https://globalnews.ca/news/3897846/bc-government-unveils-how-cannabis-will-be-sold-once-legalized/

¹⁶	https://news.ontario.ca/mof/en/2018/08/ontario-announces-cannabis-retail-model.html

¹⁷	https://yukon.ca/en/news/government-yukon-tables-cannabis-control-and-regulation-act

DOMESTIC CANNABIS Production – ParTNER CAPACITY OFFTAKE

The Company has established several programs designed to help sector partners, both license applicants and LPs, establish and/or grow their licensed operations and achieve greater success faster. Through these programs, additional cannabis production capacity will be secured for sale to the Company’s customers.

Tweed’s Curated CraftGrow Line

Tweed’s curated CraftGrow line was created to introduce high quality cannabis grown by a diverse set of producers to our customers. As of February 14, 2019, CraftGrow partners include AB Laboratories Inc., Delta 9 Cannabis Inc., JWC Ltd., PhyeinMed Inc., PUF Ventures Inc. SweetGrass Inc., TerrAscend Corp. and Valens GroWorks, all with different growing styles and approaches to cannabis. Cannabis grown by AB Laboratories Inc. and JWC Ltd. Is available on the Company’s on-line medical store at www.spectrumcannabis.com.

Agripharm

Agripharm is 40% owned by the Company under a collaborative agreement with Green House and Organa Brands. Pursuant to the agreement, the Company has the right to purchase all the cannabis products produced by Agripharm, subject to the right of Agripharm to sell up to 25% of its products directly in its own physical brick and mortar retail locations.

Canopy Rivers

Canopy Rivers (TSXV:RIV) works collaboratively with Canopy Growth to identify strategic counterparties seeking financial and/or operating support and affiliation with the Canopy Growth group of companies. The result is an ecosystem of complementary companies operating throughout the cannabis value chain. As the portfolio continues to develop, each constituent benefits from opportunities to collaborate with Canopy Growth and among themselves, which the company believes results in an ideal environment for innovation, synergy, and value creation for Canopy Rivers, Canopy Growth, and across the entire Rivers ecosystem.

To date, in collaboration with Canopy Growth, Canopy Rivers has established a diversified portfolio of cannabis industry investments that includes licensed producers, late stage applicants, pharmaceutical formulators, branded developers & distributors, and technology & media platforms. Investments are customized for each counterparty and include a balanced mix of equity, debt, royalty, and profit-sharing agreements.

On February 4, 2019, Canopy Rivers announced that it had entered into an agreement with CIBC Capital Markets (“CIBC”) and Eight Capital (together with CIBC, the “Joint Bookrunners”), under which the Joint Bookrunners have agreed to purchase, together with a syndicate of underwriters (the “Underwriters”), 11,500,000 subordinated voting shares of the Canopy Rivers (the “Subordinated Voting Shares”) on a “bought deal” basis at a price of $4.80 per Subordinated Voting Share (the “Issue Price”) for gross proceeds of approximately $55,000 (the “Bought Deal”).

Concurrent with the Bought Deal, Canopy Growth, will purchase a minimum of 6,250,000 Subordinated Voting Shares on a private placement basis, at a price per Subordinated Voting Share equal to the Issue Price (the “Private Placement” and together with the Bought Deal, the “Offering”) for additional gross proceeds of a minimum of approximately $30,000. Canopy Growth currently owns approximately 26.5% of the issued and outstanding shares of the Canopy Rivers on a non-diluted basis and has elected to subscribe under the Private Placement for more than its pro rata participation right. Following completion of the Offering (prior to giving effect to an over-allotment options granted to the Underwriters), Canopy Growth’s ownership interest in the Canopy Rivers will increase to approximately 27.3% of the issued and outstanding shares of the Canopy Rivers on a non-diluted basis. The combined gross proceeds to the Canopy Rivers under the Offering will be a minimum of approximately $85,000 and is expected to close on or about February 27, 2019.

RESULTS OF OPERATIONS

The following table sets forth consolidated statements of operations and balance sheet data, which is expressed in thousands of Canadian dollars, except share and per share amounts, for the indicated periods.

SELECTED OPERATIONAL INFORMATION
(CDN $000's, except share amounts)
	Three Months Ended						Nine Months Ended
	December 31,			December 31,			December 31,			December 31,
	2018			2017			2018			2017
				(Restated)						(Restated)
Gross revenue	$	97,703		$	21,700		$	146,946		$	55,142
Net revenue		83,048			21,700			132,291			55,142
Gross margin before fair value impacts in cost of sales		18,290			11,889			35,942			30,069
Gross margin before fair value impacts in cost of sales %		19	%		55	%		24	%		55	%
Gross margin		12,452			16,530			20,453			61,454
Gross margin %		13	%		76	%		14	%		111	%
Operating expenses before acquisition costs and non-cash operating expenses		96,247			20,746			211,949			51,302
Total operating expenses		169,693			42,562			423,028			92,703
Loss from operations		(157,241	)		(26,032	)		(402,575	)		(31,249	)
Adjusted EBITDA¹		(75,081	)		(5,681	)		(69,006	)		(14,359	)
Net loss after taxes		74,860			11,014			(346,732	)		227
Net loss attributable to Canopy Growth Corporation		67,582			1,583			(349,831	)		(8,809	)
Net loss per share - basic and diluted	$	0.22		$	0.01		$	(1.45	)	$	(0.05	)
Weighted average shares - basic and diluted		303,281,549			182,029,481			241,806,351			171,075,324
Net loss per share - basic and diluted	$	(0.38	)	$	0.01		$	(1.45	)	$	(0.05	)
Weighted average shares - basic and diluted		315,974,640			194,739,044			242,044,822			171,075,324

¹ Adjusted EBITDA, a non-GAAP measure, is Earnings Before Interest, Tax, and Depreciation and other non-cash items, and as adjusted for acquisition related items.

Selected statements of financial position information
	December 31,			March 31,
	2018			2018

Cash and cash equivalents	$	4,115,870		$	322,560
Marketable Securities		799,418			-
Biological assets		31,013			16,348
Inventory		184,961			101,607
Other working capital		(131,317	)		(49,209	)
Total assets		8,640,115			1,436,817
Current and long-term debt		791,496			8,422
Other long-term liabilities		122,006			61,150
Deferred tax liability		25,703			33,536
Shareholders' equity		7,423,678			1,243,238

Third quarter RevIEW

Results of Operations for the three and nine months ended December 31, 2018 as compared to the three and nine months ended December 31, 2017.

SELECTED QUARTERLY INFORMATION
(CDN $000's, except share amounts)	Q3'19		Q2'19			Q1'19			Q4'18
Net revenue - Recreational	$	57,687	$	-		$	-		$	-
Net revenue - Medical & Other	$	25,362	$	23,327		$	25,916		$	22,806
Net income (loss) attributable to Canopy Growth Corporation	$	67,582	$	(337,136	)	$	(80,277	)	$	(61,544	)
Net income (loss) per share - basic	$	0.22	$	(1.52	)	$	(0.40	)	$	(0.31	)
Weighted average shares - basic		303,281,549		221,725,511			200,160,740			196,571,715
Net income (loss) per share - diluted	$	0.22	$	(1.52	)	$	(0.40	)	$	(0.31	)
Weighted average shares - diluted		303,281,549		221,725,511			200,160,740			196,571,715

	Q3'18		Q2'18			Q1'18			Q4'17
Net revenue - Recreational	$	-	$	-		$	-		$	-
Net revenue - Medical & Other	$	21,700	$	17,569		$	15,873		$	14,661
Net income (loss) attributable to Canopy Growth Corporation	$	1,583	$	(1,338	)	$	(9,054	)	$	(11,994	)
Net income (loss) per share - basic	$	0.01	$	(0.01	)	$	(0.06	)	$	(0.08	)
Weighted average shares - basic		182,029,481		167,226,218			163,884,269			147,060,478
Net income (loss) per share - diluted	$	0.01	$	(0.01	)	$	(0.06	)	$	(0.08	)
Weighted average shares - diluted		194,739,044		167,226,218			163,884,269			147,060,478


	Three months ended					Nine months ended
	December 31,		December 31,			December 31,			December 31,
(CDN $000's, except share amounts)	2018		2017			2018			2017
Net revenue - Recreational	$	57,687	$	-		$	57,687		$	-
Net revenue - Medical & Other	$	25,362	$	21,700		$	74,605		$	55,142
Net income (loss) attributable to Canopy Growth Corporation	$	67,582	$	1,583		$	(349,831	)	$	(8,809	)
Net income (loss) per share - basic	$	0.22	$	0.01		$	(1.45	)	$	0.01
Weighted average shares - basic		303,281,549		182,029,481			241,722,600			171,046,656
Net income (loss) per share - diluted	$	0.22	$	0.01		$	(1.45	)	$	0.01
Weighted average shares - diluted		303,281,549		194,739,044			241,722,600			175,283,177

REVENUE

Revenue by Channel	Three months ended				Nine months ended
	December 31,		December 31,		December 31,		December 31,
(CDN $000's)	2018		2017		2018		2017
Recreational revenue
Business to business	$	60,141	$	-	$	60,141	$	-
Business to consumer		11,477		-		11,477		-
Medical revenue
Canadian		15,931		19,331		57,198		51,079
International		2,702		988		8,294		1,392
Other revenue		7,452		1,381		9,836		2,671
Gross revenue		97,703		21,700		146,946		55,142
Excise taxes		14,655		-		14,655		-
Net revenue	$	83,048	$	21,700	$	132,291	$	55,142

Revenue by Form	Three months ended
						Kilograms							Kilograms
						and							and
			As a % of			Kilogram				As a % of			Kilogram
	December 31,		Gross			Equivalents		December 31,		Gross			Equivalents
(CDN $000's)	2018		Revenue			Sold		2017		Revenue			Sold
Recreational revenue by form
Dry bud	$	50,244		51	%		6,394	$	-		0	%		-
Oil (Includes oil's and gelcaps)		21,374		22	%		1,893		-		0	%		-
Medical revenue by form
Dry bud		10,859		11	%		1,196		13,059		60	%		1,999
Oil (Includes oil's and gelcaps)		7,774		8	%		619		4,435		20	%		331
Other revenue		7,452		8	%				4,206		20	%
Gross revenue		97,703							21,700
Excise taxes		14,655							-
Net revenue	$	83,048						$	21,700

	Nine months ended
						Kilograms							Kilograms
						and							and
			As a % of			Kilogram				As a % of			Kilogram
	December 31,		Gross			Equivalents		December 31,		Gross			Equivalents
(CDN $000's)	2018		Revenue			Sold		2017		Revenue			Sold
Recreational revenue by form
Dry bud	$	50,244		34	%		6,394	$	-		0	%		-
Oil (Includes oil's and gelcaps)		21,374		15	%		1,893		-		0	%		-
Medical revenue by form
Dry bud		44,040		30	%		5,137		37,589		68	%		5,336
Oil (Includes oil's and gelcaps)		21,453		15	%		1,570		10,367		19	%		853
Other revenue		9,836		7	%				7,186		13	%
Gross revenue		146,947							55,142
Excise taxes		14,655							-
Net revenue	$	132,292						$	55,142

Average sales price per gram	Three months ended				Nine months ended
	December 31,		December 31,		December 31,		December 31,
$	2018		2017		2018		2017
Recreational	$	6.96	$	-	$	6.96	$	-
Medical
Canada	$	8.49	$	8.21	$	9.18	$	8.11
International	$	13.28	$	12.61	$	13.49	$	12.57
Recreational & medical (weighted average)	$	7.33	$	8.36	$	7.99	$	8.11

The Company currently offers the following formats to Canadian recreational markets; dry flower, milled, oils, gel caps, and pre-rolled cannabis. Medical offerings are similar, except for pre-rolled cannabis. Revenue also includes sales of merchandise and cannabis accessories, as well as clinic revenue earned by Bodystream Medical and Apollo Cannabis clinics. New categories such as vape pens, edibles and beverages are expected to be available for sale later in calendar 2019 when Canadian laws permit.

Net revenue is determined by deducting excise taxes included in the gross revenue and remitted to the provinces, which began on October 17, 2018 when The Cannabis Act went into effect. These excise taxes accounted for 15% of gross revenue in the third quarter of fiscal 2019. The Company elected to absorb the excise taxes for medical customers, which amounted to $2.1 million of the total $14.7 million in the third quarter. Shipments to the provinces commenced in volume on October 1, 2018, so the third quarter reflects a full quarter of revenue from the Canadian recreational market.

The recreational market business model is, to date, principally a B2B market with sales directly to or through the provincial crown corporations, and to a lesser extent, so far, through B2C channels with retail stores under the Tweed and Tokyo Smoke banners. The Medical business model is a B2C market in Canada where customers register and order directly on-line through www.spectrumcannabis.com as well as international sales in emerging markets such as Germany.

The sales growth over the second quarter of fiscal 2019 and third quarter of fiscal 2018 was entirely due to the launch of the Canadian recreation market on October 17, 2018. Recreational sales of Tweed and affiliated

brands were recorded in all provinces and territories, with the highest concentration in those provinces where the Company focused on brick and mortar retail store channels, including Alberta, Quebec, Newfoundland, and New Brunswick. Ontario which to date has only an on-line channel to market also contributed to the top line revenue growth. The Company believes focusing on brick and mortar retail channels provides the greatest opportunity to develop brand loyalty, providing the customer with a consistent branded education and experience.

The Company’s own retail stores in Newfoundland and Manitoba, under the Tweed and Tokyo Smoke brands contributed 12%, or 906 kilograms and kilogram equivalents sold in recreational channels in the quarter.

The comparative periods have no recreational sales, except for a small amount of early shipments at the end of the second quarter of fiscal 2019.

As expected, Medical product sales under principally the Spectrum Brand declined by approximately 12% and 8%, respectively, compared to the second quarter of fiscal 2019 and the third quarter of fiscal 2018. The decline in medical revenue was expected due in part to the available legal recreation market but was also impacted as medical customers were transitioned to the new Spectrum website, a more limited product offering and availability in particular spectrum formats and the absorption of the excise tax of $2.1 million by the Company for medical customers. The Company believes the Canadian medical market will recover and eventually continue to grow as customers seek out trusted product and brand formats such as oils and gel caps, often with varying concentrations of CBD and THC which may be more difficult to access through recreational channels. However, it may take several quarters before there is more certainty on the rate of patient and medical revenue growth. Brand loyalty and a direct relationship to medical practitioners and our customers through our customer care and the Spectrum Cannabis on-line store with prompt direct to home delivery remains an important factor in retaining and growing the medical market. The Company expects increased availability of CBD oils approved for sale to increase significantly in the coming quarters, from planned harvests, to translate into improved medical product revenue. In addition, the Company is actively exploring other opportunities to increase the reach to medical patients and the medical community, as well as expanding global medical markets.

As at December 31, 2018, there were approximately 83,400 registered Canadian patients with the Company (Spectrum Cannabis) down slightly as compared to approximately 84,400 patients at September 30, 2018 but higher by 21% compared to approximately 69,000 patients a year ago on December 31, 2017. The decrease since the preceding quarter partly reflects a partial cannibalization caused by the introduction of the Canadian recreational market. As noted, the Company believes the medical market will continue to grow, but it will take several quarters before there is more certainty on the rate of growth to be expected in concert with other medical channel programs being developed by the Company.

Other sales include revenue from clinics, merchandise and almost one month of device sales resulting from the acquisition of Storz & Bickel on December 6, 2018.

The total quantity of cannabis sold during the three months ended December 31, 2018 was 10,102 kilograms and kilogram equivalents at an overall average price of $7.33 per gram, up from 2,330 kilograms and kilogram equivalents at an average price of $8.30 per gram in same period last year. As noted, the increase in kilograms and kilogram equivalents sold was due to the launch of the Canadian recreation market in the third quarter, offset by a slight decline in medical due to a limited product offering in the on-line store and to cross-over effects for some customers to recreation channels. The average selling price declined in the third quarter due to principally wholesale pricing to the provincial crown corporations in the recreation market.

Year-to-date, the Company has sold 15,194 kilograms and kilogram equivalents at an average price of $7.99 per gram, compared to 6,198 kilograms and kilogram equivalents at an average price of $8.11 per gram in nine months ended December 31, 2017 due to the launch of the Canadian recreational market in the third quarter of fiscal.

COST OF SALES

Plants that are in pre-harvest are considered biological assets and are capitalized on the balance sheet at fair market value less cost to sell at their point of harvest. Fair market value estimates are based directly on the Company’s selling list prices for specific cannabis strains and estimated or expected selling prices to provincial crown corporations in a regulated domestic recreational market, as applicable, though no such prices have yet been established. Costs to sell include post-harvest, trimming, fulfillment, testing and shipping costs. The

Company capitalizes all the direct and indirect costs as incurred related to the biological transformation of the biological assets between the point of initial recognition and the point of harvest including labour related costs, grow consumables, materials, utilities, facilities costs, quality and testing costs, and production related depreciation. As they continue to grow through the pre-harvest stages, a corresponding non-cash unrealized gain is recognized in income, reflecting the changes in fair value of the biological assets. At harvest, the biological assets are transferred to inventory at their fair value, which becomes the deemed cost for inventory. Inventory is later expensed to cost of sales when sold. In addition, the inventory production costs are expensed through cost of sales and represents overheads and other production costs of growing, processing and selling cannabis products, including packaging, shipping and fulfilment costs. Together, the inventory production costs expensed, the fair value changes in biological assets included in inventory sold and other charges, and the gain from changes in the fair value of biological assets comprise cost of sales. Management expects cost of sales to vary from quarter to quarter based on the number of pre-harvest plants, the strains being grown, and where the pre-harvest plants are in the grow cycle at the end of the period.

Cost of Sales
	Three months ended						Nine months ended
	December 31,			December 31,			December 31,			December 31,
(CDN $000's)	2018			2017			2018			2017
Cost of sales
Inventory production costs expensed to cost of sales	$	64,758		$	9,811		$	96,349		$	25,073
Fair value changes in biological assets included in inventory sold and other charges		28,105			24,204			105,989			47,836
Unrealized gain on changes in fair value of biological assets		(22,267	)		(28,845	)		(90,500	)		(79,221	)
Total cost of sales	$	70,596		$	5,170		$	111,838		$	(6,312	)

The cost of sales of $70,596 during the three months ended December 31, 2018 was comprised of inventory production costs expensed to cost of sales of $64,758, fair value changes in biological assets included in inventory sold and other charges of $28,105 offset by the unrealized gain on changes in the fair value of biological assets of $22,267.

The changes in the fair value of biological assets recorded during the third quarter of fiscal 2019 was principally due to commencement of growing at Aldergrove and Mirabel, along with new grow rooms added at Smiths Falls.

In the quarter ended December 31, 2017, the net cost of sales was $5,170 with inventory production costs expensed amounting to $9,811, fair value changes in biological assets included in inventory sold and other charges of $24,204 offset by the unrealized gain on changes in the fair value of biological assets of $28,845.

The inventory production costs expensed to cost of sales for the three month period ending December 31, 2018 of $64,578 was principally comprised of the cash costs of the inventory sold in the period for both recreation and medical as well as $13,092 of cash operating costs of subsidiaries not yet fully cultivating, such as the Delta, BC greenhouse, a number of zones at the Aldergrove, BC greenhouse, Mirabel, Quebec in a pilot phase and at Fredericton, New Brunswick) and distribution charges of $12,641. This compares to the same period last year when the inventory production costs expensed to cost of sales was $9,811.

GROSS MARGIN

The third quarter fiscal 2019 gross margin before the effects of IFRS fair value impacts in cost of sales and other charges and including the costs of non-cultivating subsidiaries of $13,092, distribution charges of $12,041 and medical excise taxes absorbed by the company of $2,059 was $18,290 or 22% of net revenue. In comparison, the third quarter fiscal 2018 gross margin before the effects of IFRS fair value impacts in cost of sales and other charges was $11,889 or 55% of net revenue.

In the nine month period ended December 31, 2018, gross margin before the effects of the IFRS fair value impacts in cost of sales and other charges, and including the costs of not yet fully cultivating subsidiaries and medical excise taxes absorbed, totaling approximately $46,742, was $35,942 or 27% of net revenue. In the

comparison period last year, gross margin before the effects of IFRS fair value impacts in cost of sales and other charges was $30,069 or 55% of net revenue.

The lower gross margin percentage was due primarily to the impact of cash operating costs of subsidiaries not yet cultivating as described above, the impact of absorbing excise taxes in the medical market, lower average selling price in B2B channels with the provinces in the recreation market, and to absorbing early costs associated with developing and testing edibles and beverages for introduction later in calendar 2019. Greenhouse facilities in Aldergrove, Delta and Mirabel have since been planted in a manner that allows for ongoing harvests, rather than one large harvest, to increase the utilization of assets such as post harvest processes and provide for a steady supply of product going forward. The Aldergrove greenhouse began its third harvest earlier in the fourth quarter of fiscal 2019 and the Delta facility is expected to begin its next harvest later in the fourth quarter of fiscal 2019. The Denmark greenhouse is also expected to begin sales into Germany in the fall of calendar 2019.

The Company believes gross margins will improve in the coming quarters when all of its cultivation facilities reach full utilization and cycle through initial pilot harvests to be high performing assets. In addition, margins are expected to benefit when edibles and beverages are introduced later in calendar 2019 with lower costs of active ingredients per serving.

The IFRS reported gross margin was $12,452 for the three-month period ended December 31, 2018. In the comparative period ended December 31, 2017, the gross margin on the same basis was $16,530 or 76% of revenue. Gross margin includes the fair value changes in biological assets included in inventory sold and other charges and unrealized gain on changes in fair value of biological assets.

The IFRS gross margin was mostly impacted by the limited utilization of both BC Tweed facilities and Vert Mirabel, the absorption of medical excise taxes and lower average selling price into the B2B recreational channel.

The IFRS reported gross margin was $20,453 or 15% of net revenue, for the nine month period ended December 31, 2018. In the comparative period ended December 31, 2017, the gross margin on the same basis was $61,454 or 111% of revenue with differences mostly influenced by the IFRS accounting for the fair value changes in biological assets relative to net revenue reported in each respective period.

The Company’s announced production expansion plans, which will add up to 1.3 million sq. ft. over the remainder of calendar 2019, are expected to yield harvests that will produce increased volumes of available inventories for domestic sales and for export. The Company continues to refine its production processes and methodologies to increase production yields and gross margins.

OPERATING EXPENSES

Operating Expenses
	Three months ended
			As a % of					As a % of
	December 31,		Net			December 31,		Net
(CDN $000's)	2018		Revenue			2017		Revenue
Operating Expenses
Sales and marketing	$	44,895		54	%	$	9,409		43	%
Research and development		5,264		6	%		287		1	%
General and administration		46,088		55	%		11,050		51	%
Acquisition-related costs		4,520		5	%		790		4	%
Share-based compensation expense		63,911		77	%		17,879		82	%
Depreciation and amortization		5,015		6	%		3,147		15	%
Total operating expenses	$	169,693				$	42,562

	Nine months ended
			As a % of					As a % of
	December 31,		Net			December 31,		Net
(CDN $000's)	2018		Revenue			2017		Revenue
Operating Expenses
Sales and marketing	$	101,208		77	%	$	23,452		43	%
Research and development		7,964		6	%		914		2	%
General and administration		102,777		78	%		26,936		49	%
Acquisition-related costs		9,606		7	%		2,491		5	%
Share-based compensation expense		189,833		143	%		28,936		52	%
Depreciation and amortization		11,640		9	%		9,974		18	%
Total operating expenses	$	423,028				$	92,703

Sales and marketing expenses include, 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.

These expenditures represent the Company’s view that strong brand recognition is, over time, essential to the Company’s successful market share acquisition strategy, particularly in the new recreational market in Canada. These costs represent a strategic upfront investment, which management believes will have a long-term benefit in growing customer acquisition and retention. Further, the Company is making these investments to aggressively seek new domestic and international business opportunities to build for the future.

As a result, sales and marketing expenses were up significantly relative to the same period last year for the purpose of being ready for the emerging recreation market while at the same time developing international markets.

The Company’s R&D team is researching a variety of intellectual property opportunities (See also INTELLECTUAL PROPERTY – PATENT PORTFOLIO and INTELLECTUAL PROPERTY - RESEARCH & DEVELOPMENT), including those relating to growth patterns under different environmental scenarios and the genetics of various strains, the production of encapsulated cannabis oil capsules in higher volumes as well as in the development and implementation of internal testing resources, capabilities and procedures. In addition, the Company has invested in the development of patent pending technology related to equipment that the Company has engineered specifically for the cannabis industry to be incorporated in Canopy Growth’s operations. Also, ongoing R&D work being performed in the Company’s Dealers License Area is expected to lead to the development of new cannabis-based product form factors that will enter the market when permitted. R&D will continue to increase in absolute amounts with the acquisition of Canopy Health and funding approved clinical human and animal trials.

The G&A expenses increased as the company scaled up to be ready for the Canadian legal recreational market, international expansion, and increased governance costs associated with listing on the New York Stock Exchange and meeting additional regulatory reporting requirements. G&A includes higher legal and professional services fees related to investments in governance, expanded operations and supporting business development as well as expanding the Company’s information technology capability. G&A expenses also included higher employee compensation costs due to increased staff levels, necessary use of consultants and advisory services while expanding and commercializing the Company’s operations, compliance costs associated with meeting Health Canada requirements, as well as other public company compliance related expenses including related professional fees. Overall, the increase in G&A reflects the Company’s growth and building of commercial capacity and capability. As international expansion forms a key component of the Company’s business growth strategy, the Company expects to incur related costs, such as legal and tax advice, while pursuing these business ventures in the future.

Acquisition-related expenses in the third quarter period ended December 31, 2018 were primarily related to the ebbu and Storz & Bickel acquisitions and POS investment and costs incurred due to the ongoing evaluation of potential acquisitions performed during the period and increased legal, accounting and strategic business consulting services required to complete or evaluate the transactions. The Company may acquire strategic businesses and assets in the future as it pursues its growth strategy. As such, the Company may incur related acquisition expenses, including legal, accounting and strategic business consulting service related fees, in the future.

Share-based compensation expense related to options granted to employees and consultants of the Company and to acquisition-related milestones. As noted earlier in this MD&A, the number of employees increased from 700 full time employees at the end of December 31, 2017 to approximately 2,700 at December 31, 2018.

ADJUSTED EBITDA (NON-GAAP MEASURE)

The Company’s “Adjusted EBITDA” is a Non-GAAP metric used by management that does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. Management defines the Adjusted EBITDA as the Income (loss) from operations, as reported, before interest, tax, and adjusted for removing the share-based compensation expense, depreciation, and the fair value effects of accounting for biological assets and inventories, and further adjusted to remove acquisition related costs. Management believes Adjusted EBITDA is a useful financial metric to assess its operating performance on an adjusted basis as described above.

Adjusted EBITDA in the three months ended December 31, 2018 and 2017, amounted to a loss of $75,081 and a loss of $5,681, respectively.

Adjusted EBITDA in the nine months ended December 31, 2018 and 2017, amounted to a loss of $69,006 and a loss of $14,359, respectively.

CANOPY GROWTH CORPORATION
Adjusted EBITDA¹ Non-GAAP Measure	Three Months Ended						Nine Months Ended
(In CDN$000's)	December 31, 2018			December 31, 2017			December 31, 2018			December 31, 2017
				(Restated)						(Restated)
Adjusted EBITDA¹ Reconciliation
Loss from operations - as reported	$	(157,241	)	$	(26,032	)	$	(316,427	)	$	(31,249	)

IFRS fair value accounting related to biological assets and inventory
Fair value changes in biological assets included in inventory sold and other charges		28,105			24,204			105,989			47,836
Unrealized gain on changes in fair value of biological assets		(22,267	)		(28,845	)		(90,500	)		(79,221	)
		5,838			(4,641	)		15,489			(31,385	)
Share-based compensation expense (per statement of cash flows)²		64,090			19,015			194,686			30,249
Excess space provision included in general and administration expenses		(178	)		-			4,068			-
Acquisition Costs		4,520			790			9,606			2,491
Depreciation and amortization (per statement of cash flows)		7,890			5,187			23,572			15,535
		76,322			24,992			231,932			48,275
Adjusted EBITDA	$	(75,081	)	$	(5,681	)	$	(69,006	)	$	(14,359	)

1 - Adjusted EBITDA is Earnings Before Interest, Tax, and Depreciation, stock compensation, fair value changes and other non-cash items, and as adjusted for acquisition related items.
2 - Includes $23,849 and $8,914 for the three months ended December 31, 2018 and 2017, respectively, in share-based compensation expense related to acquisition milestones

Other expenses and net income

Other income of $235,231 for the three months ended December 31, 2018 was primarily made up of fair value changes on financial assets and financial liabilities. The amount includes a fair value gain of $185,796 arising from the decrease in the fair value of the senior convertible notes from the end of the second quarter to the end of the third quarter and a fair value gain of $36,457 on financial assets, principally the TerrAscend and Slang warrants. The Company also had interest income of $18,643 on cash and marketable securities. This income was partly offset by a loss of $6,322 as a result of the TerrAscend restructuring which resulted in the exchange of the TerrAscend shares for the non-voting, non-participating exchangeable shares.

The Company recorded an income tax expense of $1,041 for the three months ended December 31, 2018. In the comparative period last year, the Company recorded income tax expense of $7,595.

Net income for the three months ended December 31, 2018 was $74,860 compared to a net income of $11,014 in the comparative period last year.

Other income of $63,466 for the nine months ended December 31, 2018 is primarily made up of fair value changes on financial assets and financial liabilities, and a gain on the acquisition of the Company’s unowned interest in CHI.

The Company recorded an income tax recovery of $1,398 for the nine months ended December 31, 2018. In the comparative period last year, the Company recorded income tax expense of $9,635.

Net loss for the nine months ended December 31, 2018 was $346,732 compared to net income of $227 in the comparative period last year.

LIQUIDITY

As at December 31, 2018, the Company had cash and cash equivalents available of $4,115,870 and marketable securities of $799,418, a combined increase from $322,560 at the end of fiscal 2018. The increase from the end of fiscal 2018 was mainly due to the investment of approximately $5,000,000 by Constellation Brands on November 1, 2018, issuance of convertible senior notes with an aggregate principal amount of $600,000 offset by cash used to fund operations of $294,949, cash used for acquisition of subsidiaries and investments in facility enhancements totaling $568,236. The Company’s excess cash resources are invested in government backed, liquid treasury bills and bonds.

While the Company has incurred losses to date, management anticipates success and eventual cash profitability of the business, though there can be no assurance that the Company will gain adequate market acceptance for its products or be able to generate sufficient positive cash flow to achieve its business plans.

The Company’s objectives when managing its liquidity and capital structure are to generate sufficient cash to fund the Company’s operating, acquisition and organic growth requirements.

The table below sets out the cash, biological assets, inventory, other working capital, and long-term debt at December 31, 2018 and March 31, 2018.

(CDN $000's)	December 31, 2018			March 31, 2018

Cash & cash equivalents	$	4,115,870		$	322,560
Marketable securities		799,418			-
Biological assets		31,013			16,348
Inventory		184,961			101,607
Other working capital		(131,317	)		(49,209	)
Current and long-term debt		791,496			8,422
Other long-term liabilities		122,006			61,150

The increase in total working capital to a surplus of $4,981,498 (March 31, 2018 – surplus of $389,749) was primarily due to capital raised through the Constellation Brands investment and the convertible notes issued. An increase in accounts payable and accrued liabilities, primarily due to construction activities and the scaling of the business due to the new recreation market, partially offset the increase in total working capital.

Inventory at December 31, 2018 amounted to $184,961 (March 31, 2018 - $101,607) and biological assets amounted to $31,013 (March 31, 2018 - $16,348), together totaling $215,974 (March 31, 2018 - $117,955) all of which Management believes is required to meet expected market demands, including the legalized recreational market.

Finished goods consist of packaged cannabis and cannabis derivatives. Work-in-process inventory consists of bulk cannabis, bulk hemp, and cannabis derivative products in a semi-finished goods state or in a production process. Consumables include non-cannabis purchased inputs into the production process including packaging and grow consumables. Merchandise include non-cannabis purchased goods ready for sale as well as manufactured devices.

The increase in inventory since March 31, 2018 was due to the harvests at the Company’s greenhouses in Niagara-on-the-Lake and BC Tweed. Harvested plants were added to inventories during the quarter and quantities were maintained to meet the growth in sales expected and meet strain availability requirements, and the expansion of oils.

The chart below highlights the Company’s cash flows during the quarter ended December 31, 2018 and 2017.

(CDN $000's)	Nine months ended
Net cash provided by (used in)	December 31, 2018			December 31, 2017

Operating activities	$	(294,899	)	$	(44,595	)
Investing activities		(1,785,363	)		(130,339	)
Financing activities		5,769,908			310,842
Effect of exchange rate changes on cash and cash equivalents		103,664			-
Cash and cash equivalents, beginning of year		322,560			101,800
Cash and cash equivalents, end of period	$	4,115,870		$	237,708

CASH USED IN OPERATING ACTIVITIES

The cash used in operating activities prior to changes in working capital during the nine months ended December 31, 2018 amounted to $165,353, with a net loss of $346,732, which included the IFRS accounting for unrealized gain on biological assets of $90,500, change in other assets of $16,908, other income and expense of $45,919, and income tax recovery of $1,398 which is offset by the fair value changes in biological assets included in inventory sold and other charges of $105,989 and other non-cash items such as depreciation and amortization of $23,572, total share-based compensation of $194,686, and other non-cash operating adjustments of $11,857. The cash used in operating activities after changes in working capital during the quarter ended December 31, 2018 amounted to $294,900.

In comparison, the cash used in operating activities prior to changes in working capital during the nine months ended December 31, 2017 amounted to $17,290, with net income of $227 offset by the IFRS accounting for unrealized gain on biological assets of $79,221, change in other assets of $1,932, and other income and expense of $40,972 which are offset by the fair value changes in biological assets included in inventory sold and other charges of $47,836 and other non-cash items such as depreciation and amortization of $15,535, total share-based compensation of $30,249, and other non-cash operating adjustments of $10,358. The cash used in operating activities after changes in working capital during the quarter ended December 31, 2017 amounted to $44,595.

CASH USED IN INVESTING ACTIVITIES

The cash used in investing activities during the nine months ended December 31, 2018 of $1,785,363 was primarily due to the expansion of growing capacity at Tweed, the development of BC Tweed and Fredericton New Brunswick locations of $495,236, purchases of marketable securities of $802,247, and other investments made by the Company and its subsidiaries of $447,740.

In comparison, the cash used in investing activities during the nine months ended December 31, 2017 of $130,339 was primarily due to the respective acquisition and construction of equipment and facilities and to investments made in associated companies.

CASH FROM FINANCING ACTIVITIES

The cash provided by financing activities during the nine months ended December 31, 2018 of $5,769,908 is primarily due to closing the $5,072,500 Constellation Brands investment on November 1, 2018, the issuance of convertible senior notes of $600,000, the exercise of stock options and warrants amounting to $47,414, and proceeds from shares issued by Canopy Rivers of $91,218 which were partially offset, by the payment of share issue costs of $18,617, payment of debt financing costs of $16,380 and payment of lease obligations and repayment of long-term debt amounting to $6,227.

In comparison, the cash provided by financing activities during the nine months ended December 31, 2017 of $310,842 was due to $35,113 raised by a controlled subsidiary, Canopy Rivers. The Company’s voting rights allow it to direct the relevant activities of Canopy Rivers such that the Company has control over Canopy Rivers and Canopy Rivers is consolidated in the financial statements. The Company also received proceeds from the issuance of shares and warrants of $269,990 and the exercise of stock options and warrants amounting to $8,225. These were partially offset by the payment of share issue costs of $1,345 and repayment of lease obligations and long-term debt amount to $1,141.

LIQUIDITY, FINANCING AND CAPITAL RESOURCES

The Company is subject to risks including, but not limited to, its inability to raise additional funds through debt and/or equity financing to support the Company’s development and continued operations and to meet the Company’s liabilities and commitments as they come due. Specifically, the Company has a history of losses with an accumulated deficit of $441,480, share capital of $5,947,715 and working capital surplus of $4,981,498 as at December 31, 2018. This compares to an accumulated deficit of $91,649, share capital of $1,076,838 and working capital surplus of $389,749 as at March 31, 2018. See below under the heading “Risk Factors”.

FUNDAMENTAL CHANGE NOTICE AND TENDER OFFER

On November 2, 2018, the Company provided a Fundamental Change Notice, Notice of Right to Convert, Notice of MakeWhole Fundamental Change and Related Conversion Rate Adjustment, and Offer to Repurchase for Cash (the “Notice”) to holders of its $600,000 aggregate principal amount of 4.25% Convertible Senior Notes Due 2023 (the “Notes”), pursuant to the Indenture, dated June 20, 2018. The Notice expired on December 6, 2018 without any repurchase or issuance of shares.

CAPITAL ACTIVITIES

The Company manages its capital with the objective of maximizing shareholder value and sustaining future development of the business. The Company defines capital as the Company’s equity and any debt it may issue. The Company manages its capital structure and adjusts it, based on the funds available to the Company, in order to support the Company’s activities. The Company, upon approval from its Board of Directors, will undertake to balance its overall capital structure through new share issues, the issue of debt or by undertaking other activities as deemed appropriate under the specific circumstances.

The Company’s principal capital needs are for funds to implement strategic acquisitions, invest in innovation and intellectual property, develop international business opportunities, expand its growing rooms, ancillary rooms, invest in technology and equipment, and general working capital requirements to fund operations. Since its formation, the Company has financed its cash requirements primarily through the issuance of capital stock, including the recent $5,000,000 investment by Constellation Brands, with the following exceptions.

On November 7, 2014, a mortgage was obtained on the Tweed Farms property. The mortgage was obtained from Farm Credit Canada for an original amount of $1,875 at an annual interest rate of 5.3% and had a term of 5 years and an amortization period of 7 years. On August 5, 2016, the Company obtained a second mortgage on the Tweed Farms property with the same Canadian financial institution for an original amount of $3,500with an annual interest rate of 4.9%, term of 5 years and an amortization period of 7 years. Through the acquisition of Mettrum on January 31, 2017, the Company has an additional mortgage of, also with the same Canadian

financial institution, on the Mettrum property, with an annual interest rate of 4.8%, term of 5 years and an amortization period of 7 years. All combined, the mortgages with Farm Credit Canada amounted to $8,179 at December 31, 2018 (March 31, 2018 - $6,514).

The Company also has revolving lines of credit for up to $6,018, with Farm Credit Corporation, with variable interest rates based on the FCC Variable Mortgage Rate plus 1.2% with a 5-year term and interest only payments on drawn amounts but is payable on demand or may be prepaid at any time at the option of the Company. The lines of credit are subject to disbursement conditions related to capital expenditures at Tweed Farms and Mettrum. The lines of credit were undrawn as at December 31, 2018.

The Company’s authorized share capital is an unlimited number of common shares of which 342,983,810 common shares were issued and outstanding as at December 31, 2018, after including 128,935 escrowed shares to be released after meeting certain conditions (March 31, 2018 – 199,557,208 common shares after including 236,277 escrowed shares to be released after meeting certain conditions).

The Company has 31,555,161 options outstanding at December 31, 2018 under the Company employee stock option plan (“ESOP”) at prices between $0.22 and $67.54 per share (March 31, 2018 – 17,245,835 option shares).

At December 31, 2018 the Company also had 159,122,618 warrants for common shares outstanding at prices between $12.98 and $50.40, which expire between January 31, 2020 and November 1, 2021.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements other than those as stated below in the section titled “Transactions with Related Parties”.

TRANSACTIONS WITH RELATED PARTIES

On November 16, 2018, the Company acquired two previously leased facilities from a company controlled by Murray Goldman, a former director of Canopy Growth Corporation for cash proceeds of $31,281, including $1,454 to repay the loan to Mr. Goldman’s company. Mr. Goldman resigned from the Board on November 1, 2018 following the previously discussed investment by Constellation Brands. The basis for the consideration paid was supported by independent appraisals of the properties. The Company continues to lease one Toronto facility from Mr. Goldman’s company. The Toronto facility leases had original expiration dates on October 15, 2018 and August 31, 2024 and the Edmonton facility lease was to expire on July 31, 2037. One of the Toronto facilities and the Edmonton facility were purchased on November 16, 2018 for $29,827. Included in the expenses for the three and nine months ended December 31, 2018 for rent and operating costs was ($755) and $1,243, respectively (for the three and nine months ended December 31, 2017 - $1,301 and $1,673, respectively). In addition to the leased premises, consulting services of $73 and $230 were also provided to the Company for the three and nine months ended December 31, 2018, respectively (three and nine months ended December 31, 2017 - $nil and $nil). Included in interest expense for the three and nine months ended December 31, 2018 was an amount of $24 and $104, respectively (for the three and nine months ended December 31, 2017 - $44 and $130, respectively). At December 31, 2018, the loan balance was $nil (March 31, 2018 - $1,564). The Company had $29 owing in accounts payable and accrued liabilities at December 31, 2018 (March 31, 2018 - $137).

The Chairman and Chief Executive Officer has been engaged to provide services to the Company at $75 per quarter and is eligible for up to a $300 annual bonus. For the three and nine months ended December 31, 2018 consulting expenses including travel totaled $80 and $215, respectively (for the three and nine months ended December 31, 2017 - $55 and $165, respectively). The Company had $225 owing in accounts payable and accrued liabilities at December 31, 2018 (March 31, 2018 - $375). All amounts exclude HST.

During the three and nine months ended December 31, 2018, $121 and $499 was expensed in director’s fees, respectively (for the three and nine months ended December 31, 2017 - $112 and $464, respectively). The Company had $nil owing in accounts payable and accrued liabilities to directors at December 31, 2018 and March 31, 2018.

These transactions are in the normal course of operations and are measured at the exchange amounts being the amounts agreed to by the parties.

CHANGE IN ACCOUNTING POLICIES

Effective April 1, 2018, the Company has changed its accounting policy with respect to production and fulfillment related depreciation. Prior to this change the Company expensed all depreciation and amortization costs as operating expenses. The Company now capitalizes production related depreciation and amortization to biological assets and inventory and expenses this depreciation to costs of goods sold as inventory is sold. In addition, depreciation and amortization associated with shipping and fulfillment will be recorded to cost of goods sold as period charges. Previously this depreciation and amortization was grouped with other depreciation and amortization on the Statement of Operations. The Company believes that the revised policy and presentation provides more relevant financial information to users of the financial statements.

The Company’s amended policy is as follows:

Biological assets

The Company’s biological assets consist of cannabis plants. The Company capitalizes all the direct and indirect costs as incurred related to the biological transformation of the biological assets between the point of initial recognition and the point of harvest including labour related costs, grow consumables, materials, utilities, facilities costs, quality and testing costs, and production related depreciation. The Company then measures the biological assets at fair value less cost to sell up to the point of harvest, which becomes the basis for the cost of finished goods inventories after harvest. Cost to sell includes post-harvest production, fulfillment and shipping costs. The net unrealized gains or losses arising from changes in fair value less cost to sell during the year are included in the results of operations of the related year. Seeds are measured at fair value.

Inventories

Inventories of harvested work-in-process and finished goods are valued at the lower of cost and net realizable value. Inventories of harvested cannabis are transferred from biological assets at their fair value less cost to sell to the point of harvest, which becomes the initial deemed cost. All subsequent direct and indirect post-harvest costs are capitalized to inventory as incurred, including labour related costs, consumables, materials, packaging supplies, utilities, facilities costs, quality and testing costs, and production related depreciation. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Inventories for resale and supplies and consumables are valued at the lower of costs and net realizable value, with cost determined using the weighted average cost basis.

The line item “Inventory production costs expensed to cost of sales” in the Consolidated Statements of Operations is comprised of the cost of inventories expensed in the period and the direct and indirect costs of fulfillment including labour related costs, materials, shipping costs, customs and duties, royalties, utilities, facilities costs, and fulfillment related depreciation.

The change in accounting policy has been applied retrospectively and is further described in Note 3 to the Interim Statements for the quarter ended December 31, 2018.

NEW OR AMENDED STANDARDS EFFECTIVE APRIL 1, 2018

The Company has adopted the following new or amended IFRS standards for the annual period beginning on April 1, 2018.

IFRS 15 Revenue from Contracts with Customers

The Company has applied IFRS 15 retrospectively but determined that there is no change to the comparative periods or transitional adjustments required as a result of the adoption of this standard The Company’s accounting policy for revenue recognition under IFRS 15 is as follows:

To determine the amount and timing of revenue to be recognized, the Company follows a 5-step process:

Identifying the contract with a customer

Identifying the performance obligations

Determining the transaction price

Allocating the transaction price to the performance obligations

Recognizing revenue when/as performance obligation(s) are satisfied.

Revenue from the direct sale of cannabis to customers for a fixed price is recognized when the Company transfers control of the good to the customer.

IFRS 9 Financial Instruments ("IFRS 9")

IFRS 9 was issued by the IASB in November 2009 and October 2010 and will replace IAS 39. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Financial liabilities are classified in a similar manner as under IAS 39.

Under IFRS 9, financial assets are initially measured at fair value plus, in the case of a financial asset not at fair value through profit and loss [“FVTPL”], transaction costs.

Financial assets are subsequently measured at:

FVTPL;

amortized cost;

debt measured at fair value through other comprehensive income [“FVOCI”];

equity investments designated at FVOCI; or

financial instruments designated at FVTPL.

The Company has elected to measure investments in equity instruments of AusCann, JWC, HydRx, Vapium, Good Leaf, Solo Growth, Livewell and Headset which are included in Other financial assets on the Statement of Financial Position, at FVOCI on transition or initial recognition as these investments are long-term and strategic in nature, and net changes in fair value are more suited to be presented in other comprehensive income.

The assessment of the Company’s business models for managing the financial assets was made as of the date of initial application of April 1, 2018. The assessment of whether contractual cash flows on debt instruments meet the SPPI test was made based on the facts and circumstances as at the initial recognition of the financial assets.


Financial assets	IAS 39 Classification	IFRS 9 Classification
Cash and cash equivalents	Loans and receivables	Amortized cost
Marketable securities	FVTPL	FVTPL
Accounts receivables	Loans and receivables	Amortized cost
Interest receivable	Loans and receivables	Amortized cost
Restricted investments	Loans and receivables	Amortized cost
Other financial assets	Available for sale, loans and receivables and FVTPL	FVOCI and FVTPL
Accounts payable and accrued liabilities	Other liabilities	Other liabilities
Long-term debt	Other liabilities	Other liabilities
Convertible debentures	Not applicable	FVTPL
BC Tweed and Vert Mirabel put liability	FVTPL	FVTPL
Acquisition consideration related liabilities	FVTPL	FVTPL

The Company’s investments in JWC royalty interest, Agripharm royalty interest and Radicle repayable debenture (Note 14) were classified as loans and receivables and measured at amortized cost under IAS 39. Under IFRS 9, these investments are classified and measured at FVTPL as these investments fail the SPPI test. The change in classification of these investments did not materially impact the carrying amounts of these investments on the transition date.

Impairment

Under IFRS 9, the Company is required to apply an expected credit loss [“ECL”] model to all debt financial assets not held at FVTPL, where credit losses that are expected to transpire in futures years are provided for, irrespective of whether a loss event has occurred or not as at the balance sheet date. For trade receivables, the Company has applied the simplified approach under IFRS 9 and has calculated ECLs based on lifetime expected credit losses taking into considerations historical credit loss experience and financial factors specific to the debtors and general economic conditions. The Company has assessed the impairment of its amounts receivable using the expected credit loss model, and no material difference was noted. As a result, no impairment loss has been recognized upon transition and at April 1, 2018.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to provide reasonable assurance that information required to be publicly disclosed is recorded, processed, summarized and reported on a timely basis. An evaluation of the design of Disclosure Controls was done under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, the material weakness in our internal control over financial reporting set forth below was noted.

Internal Controls Over Financial Reporting

National Instrument 52-109 requires the CEO and CFO to certify that they are responsible for establishing and maintaining internal controls over financial reporting (“ICFR”) for the Company and that those internal controls have been designed and are effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS. The CEO and CFO are also responsible for disclosing any changes to the Company’s internal controls during the most recent period that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

The Company’s management, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company´s internal control over financial reporting as of March 31, 2018, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013 (the “COSO 2013 Framework”). Based on this evaluation management concluded that a material weakness existed as of March 31, 2018, as described below.

Previously Identified Material Weakness Not Fully Remediated

As of March 31, 2018, management concluded that the Company did not maintain effective internal controls over Corporate-wide End User Computing (EUC) spreadsheets; this material weakness was initially identified as of March 31, 2017. The accounting complexities encountered in the financial reporting relies on equally complex spreadsheets, most significantly around the valuation of inventory and biological assets and the related classification of line items on the Consolidated Statements of Operations. Spreadsheets are inherently prone to error due to their manual nature. The Company´s controls related to spreadsheets did not address all risks associated with updating assumptions, manual entry into spreadsheets, completeness of data entry, nor evidence of review of completed spreadsheets

Material weaknesses cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Management has determined that the material weaknesses over EUC has not been fully remediated as of the date hereof.

Remediation Plan and Activities

Management continues to strengthen and improve controls related to the remaining material weaknesses related to End User Computing in the following ways:

•

Continued engagement of third party resources to assist the Company in its risk assessment process and in completing the design and implementation of certain internal controls over financial reporting pursuant to the COSO 2013 Framework;

•

Inventoried EUC spreadsheets in use and associated control and implementation of several IT supported systems to reduce reliance on EUC tools. Further IT support initiatives are underway to continue to reduce the use of EUC tools;

•

A cross-functional business transformation process enabled by a new end to end Enterprise Resource Planning (“ERP”) system was launched in June 2017 to standardize and automate business processes and controls across the organization domestically and internationally. The project is a major initiative that is utilizing third party consultants and will expand the depth and breadth of the finance and information technology organizations. The project, named Project Summit, will enable continuous improvement and scalability. As Project Summit progresses internal controls over financial reporting are being reviewed and are being updated accordingly. The new ERP is intended to facilitate improved reporting and oversight and enhance internal controls over financial reporting.

The material weakness related to reliance on EUC has not been fully remediated as at December 31, 2018. The initial “go live” date for Phase 1 of the implementation was October fiscal 2019 and in order to accommodate changing business requirements the roll out will extend into fiscal 2020. Remediation is expected to be completed with the full implementation of the ERP.

The ERP implementation represents a material change that took place during the period ended December 31, 2018. Phase 1 of the implementation project covered the migration of the new ERP system of certain entities, with the remainder to be migrated into fiscal 2020. In consequence, the internal controls over financial reporting are being reviewed and updated accordingly.

Another significant change that took place during the period was the Cannabis Legalization across Canada on October 17, 2018. Due to this, the company expanded its business model and the revenue stream was expanded to include retail sales and business to business sales for the recreational cannabis market. New processes and controls have been designed, implemented and continue to be assessed for internal control over financial reporting purposes.

Other than those described above, there have been no changes in the Company's internal control over financial reporting during the three months ended December 31, 2018 that have materially affected, or are likely to materially affect, the Company's internal control over financial reporting.

No assurance can be provided at this time that the actions and remediation efforts will effectively remediate the material weakness described above or prevent the incidence of other material weaknesses in the Company’s internal control over financial reporting in the future. Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that disclosure controls and procedures or internal control over financial reporting will prevent all errors, even as the remediation measures are implemented and further improved to address the material weaknesses. A control system is subject to inherent limitations and even those systems determined to be effective can provide only reasonable, but not absolute, assurance that control objectives will be met with respect to financial statement preparation and presentation.

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has limited the scope of the design of the Company’s disclosure controls and procedures and internal controls over financial reporting to exclude controls, policies and procedures and internal controls over financial reporting of the recently acquired operations of ebbu Inc. (acquired 100% interest on November 23, 2018), Storz & Bickel GmbH & Co. (acquired 100% interest on December 6, 2018.), POS Holdings Corp. (acquired 100% control on November 23, 2018), DaddyCann Lesotho PTY Ltd (acquired on May 17, 2018), Annabis Ltd (acquired on April 16, 2018), Spectrum Cannabis Colombia (acquired on July 5, 2018), Canopy Health Innovations (acquired on August 7, 2018), and HIKU (acquired on September 5, 2018).

The operations of ebbu Inc., Storz & Bickel GmbH & Co. and POS Holdings Corp., DaddyCann Lesotho PTY Ltd, Annabis Ltd, Spectrum Cannabis Colombia, Canopy Health Innovations and HIKU combined, represent approximately 20% of the Company’s assets (approximately 1% of current assets and 55% of non-current assets); they also represent approximately 34% of current liabilities and 1% of long-term liabilities, 9% of the Company’s revenues and 5% of operating expenses for the three months ended December 31, 2018.

ADDITIONAL GAAP MEASURES

The Company uses “Income (loss) from operations” as an additional GAAP financial measure within the financial statements and MD&A, but is not a defined term under IFRS to assess performance. Management believes that this measure provides useful supplemental information to investors and is computed on a consistent basis for each reporting period.

Income from operations is calculated as total revenues less total operating expenses derived from the Consolidated Statements of Operations. It is used by management to analyze operating performance, but it is not intended to represent an alternative to net earnings or other measures of financial performance in accordance with IFRS.

NON-GAAP MEASURE

“Adjusted EBITDA” is a metric used by management which is Income (loss) from operations, as reported, before interest, tax, and adjusted for removing other non-cash items, including the stock-based compensation expense, depreciation, and the non-cash effects of accounting for biological assets and inventories, and further adjusted to remove acquisition related costs. Management believes “Adjusted EBITDA” is a useful financial metric to

assess its operating performance on a cash basis before the impact of non-cash items and acquisition related activities.

RISKS AND UNCERTAINTIES

Many factors could cause the Company’s actual results, performance and achievements to differ materially from those expressed or implied by the forward-looking statements and forward-looking information, including without limitation, the following factors, which are discussed in greater detail under the heading “Risk Factors” in the Company’s AIF dated June 27 2018 and in the Company’s Short-Form Prospectus dated January 31, 2018 filed with securities regulators and available on www.sedar.com, which risk factors are incorporated by reference into this document, and should be reviewed in detail by all readers:

•

The Company operates in a highly regulated business and we may not always succeed in complying fully with applicable regulatory requirements in all jurisdictions in which we operate;

•

The laws and regulations governing cannabis are still developing, including in ways that the Company may not foresee;

•

The Company and its subsidiaries have limited operating history, and accordingly, we are subject to many of the risks of early stage enterprises;

•

The Company is reliant on a small number of facilities;

•

This Company is highly dependent on our senior management;

•

The Company is reliant on several key inputs, and we are vulnerable to increases in price of those inputs;

•

The Company is dependent on its suppliers and on access to, and its ability to retain, skilled labor;

•

The Company’s cannabis and hemp growing operations are subject to risks inherent in an agricultural business;

•

The Company is reliant on third parties to transport its products to its customers;

•

Premiums for the Company’s insurance coverage may not continue to be commercially justifiable, and the Company’s insurance coverage may have limitations and other exclusions and may not be enough to cover potential liabilities;

•

The Company is required to comply with safety, health and environmental regulations;

•

The Company may be subject to product liability claims;

•

The Company’s products may be subject to recalls;

•

The cannabis industry may receive unfavorable publicity or become subject to negative consumer perceptions;

•

The Company may not be able to attract or retain customers;

•

The Company may not be able to successfully manage its growth;

•

The Company has a history of losses;

•

The development and operation of the Company’s business may require additional financing, which the Company may not be able to secure;

•

The Company must rely largely on its own market research and market demand which may not materialize;

•

Conflicts of interest may arise between the Company and its directors and officers;

•

From time to time the Company may be involved in legal proceedings arising in the ordinary course of business;

•

The Company competes for market share with several competitors and expect even more competitors to enter the market since the Cannabis Act came into effect, and many of the Company’s current and future competitors may have longer operating histories, more financial resources and lower costs;

•

Third parties with whom the Company does business may perceive themselves as being exposed to reputational risk by virtue of their relationship with the Company and may ultimately elect not to do business with the Company;

•

The Company is subject to restrictions from the TSX and NYSE which may constrain the Company’s ability to expand its business internationally;

•

The Company operates as a holding company and depends on the Company’s subsidiaries for cash to satisfy the obligations of the holding company;

•

The Company’s due diligence may not have revealed all material issues relating to acquisitions;

•

The Company may not be successful in the integration of acquired companies into our business;

•

The Company may be unable to successfully achieve the objectives of our strategic alliances;

•

The Company’s operations are subject to increased risk as a result of international expansion;

•

The Company may encounter political and other risks in emerging markets;

•

There may be a risk of corruption and fraud in the emerging markets in which the Company operates;

•

The Company’s operations in emerging international markets may posed an increased inflation risk on its business;

•

Foreign jurisdiction may impose ownership or control restrictions that could adversely impact the Company’s international operations;

•

The Company relies on international advisors and consultants in order to keep abreast of material legal, regulatory and government developments that impact the Company’s business and operations in the jurisdictions in which it operates;

•

International operations will result in increased operational, regulatory and other risks;

•

Canadian laws impose prohibitions on corruption and bribery that may be violated by employees or other agents without the Company’s knowledge and despite the Company’s policies and procedures;

•

Future sales or issuances of equity securities could decrease the value of the Company’s common shares, dilute investors’ voting power and reduce the Company’s earnings per share;

•

The Company’s common share price has experienced volatility and may be subject to fluctuation in the future based on market conditions;

•

The listing on the TSX and NYSE may increase the volatility in the price of the Company’s common shares;

•

The Company may not pay dividends in the future;

•

There is no assurance of a sufficient liquid trading market for the Company’s common shares in the future;

•

There is no assurance the Company will continue to meet the listing requirements of the TSX and NYSE;

•

A significant number of the Company’s common shares are owned by Greenstar Holdings and CBG Holdings LLC;

•

The Company may lose its status as a foreign private issuer; and

•

As a public company, the Company has substantial obligations.

cgc-ex993_6.htm

Exhibit 99.3

Form 52-109F2

Certification of Interim Filings

Full Certificate

I, Bruce Linton, Chairman and Co-Chief Executive Officer, Canopy Growth Corporation, certify the following:

1.	Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Canopy Growth Corporation (the “issuer”) for the interim period ended December 31, 2018.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5.	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)

information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b)

designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

Exhibit 99.3

5.1	Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is the Internal Control – Integrated Framework (COSO Framework 2013) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).

5.2	ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period

(a)

a description of the material weakness;

(b)

the impact of the material weakness on the issuer’s financial reporting and its ICFR; and

(c)

the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness.

5.3	Limitation on scope of design: The issuer has disclosed in its interim MD&A

(a)

the fact that the issuer’s other certifying officer and I have limited the scope of our design of DC&P and ICFR to exclude controls, policies and procedures of

(i)

N/A;

(ii)

N/A; or

(iii)

a business that the issuer acquired not more than 365 days before the last day of the period covered by the interim filings; and

(b)

summary financial information about the proportionately consolidated entity, special purpose entity or business that the issuer acquired that has been proportionately consolidated or consolidated in the issuer’s financial statements.

6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on October 1, 2018 and ended on December 31, 2018 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: February 14, 2019

/s/ Bruce Linton

Bruce Linton

Chairman and Co-Chief Executive Officer

cgc-ex994_9.htm

Exhibit 99.4

Form 52-109F2

Certification of Interim Filings

Full Certificate

I, Tim Saunders, Executive Vice-President and Chief Financial Officer, Canopy Growth Corporation, certify the following:

1.	Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Canopy Growth Corporation (the “issuer”) for the interim period ended December 31, 2018.

5.	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)

(b)

Exhibit 99.4

5.1	Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is the Internal Control – Integrated Framework (COSO Framework 2013) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).

5.2	ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period

(a)

a description of the material weakness;

(b)

the impact of the material weakness on the issuer’s financial reporting and its ICFR; and

(c)

the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness.

5.3	Limitation on scope of design: The issuer has disclosed in its interim MD&A

(a)

the fact that the issuer’s other certifying officer and I have limited the scope of our design of DC&P and ICFR to exclude controls, policies and procedures of

(i)

N/A;

(ii)

N/A; or

(iii)

a business that the issuer acquired not more than 365 days before the last day of the period covered by the interim filings; and

(b)

6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on October 1, 2018 and ended on December 31, 2018 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: February 14, 2019

/s/ Tim Saunders

Tim Saunders

Executive Vice-President and Chief Financial Officer