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Canopy Growth(NASDAQ: CGC)
Q2 2025 Earnings Call
Nov 08, 2024, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning. My name is Nicole, and I will be your conference operator today. I would like to welcome you to Canopy Growth's second quarter fiscal 2025 financial results conference call. Currently, all participants are in a listen-only mode.
I will now turn the call over to Tyler Burns, director of investor relations. Tyler, you may begin the conference call.
Tyler Burns -- Director, Investor Relations
Good morning, and thank you for joining us. On our call today, we have Canopy Growth's chief executive officer, David Klein; and chief financial officer, Judy Hong. Before markets open today, Canopy Growth issued a news release announcing the financial results for our second quarter fiscal year 2025 ended September 30, 2024. This news release and financial statements have been filed on EDGAR and SEDAR and will be available on our website under the investors tab.
Before we begin, I would like to remind you that our discussion during this call will include forward-looking statements that are based on management's current views and assumptions and that this discussion is qualified in its entirety by the cautionary note regarding forward-looking statements included at the end of the news release today. Please review today's earnings release and Canopy's reports filed with the SEC and SEDAR for various factors that could cause actual results to differ materially from projections. In addition, reconciliations between any non-GAAP measures to their closest reported GAAP measures are included in our earnings release. Please note that all financial information is provided in Canadian dollars unless otherwise stated.
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Following remarks by David and Judy, we will conduct a question-and-answer session, where we will take questions from analysts. With that, I turn the call over to David.
David Eric Klein -- Chief Executive Officer
Thanks, Tyler. Good morning, and thank you for joining us to discuss Canopy Growth's results for the second quarter of fiscal 2025. We've had a busy and productive quarter led by outstanding performance from stores, as well as solid progress across our Canadian and medical -- and European medical cannabis businesses. In addition, we've taken substantial steps forward in our Canadian adult-use cannabis business, which we feel is well set up for growth in the second half of the year.
Overall, Canopy's performance in each of these areas supports our strategy to drive sustainable profitability, as well as to build a competitive foundation for long-term success across North America and key global markets, especially when we combine the growing momentum within Canopy USA, which we feel continues to set us apart from our competition as this strategy was specifically designed to succeed independent of the need for U.S. federal legalization. During the call today, I'll cover three main topics: first, the exceptional performance of Storz & Bickel device business, as well as out of our medical cannabis businesses. Second, I'll address our continued focus on profitability in Canada and the actions we're implementing to drive growth in our Canadian adult-use cannabis business in the second half of fiscal 2025.
And third, I'll update you on the developments happening within Canopy USA, which we believe is well-positioned to capture significant growth in the U.S. cannabis and hemp-derived markets. Following my remarks, Judy will provide a detailed overview of our results, market conditions, and the actions we've taken to further strengthen our financial standing. So, let's start with Storz & Bickel in our medical cannabis business, which performed very well in Q2.
These segments are critical drivers for Canopy, particularly as they are high margin and align with our focus on expanding within our existing markets, which are demonstrating strong and consistent demand. Our German-based Storz & Bickel business, known for premium devices like the VOLCANO and VENTY, delivered overall net revenue growth of 32% year over year. This exceptional performance was in part driven by the brand's well established reputation among German consumers, extensive in-market activities, as well as increased demand following the reform of cannabis regulations this past April. Beyond Germany, Storz & Bickel also saw the resumption of strong growth in the U.S., led by increased orders from new distribution partners.
The growth across these markets was driven by strong sales of the recently launched VENTY, as well as sell through of inventory of the MIGHTY classic vaporizer, which is being phased out in favor of the MIGHTY+. Overall, the achievements of Storz & Bickel in the quarter underscore how the brand's premium position in the market and portfolio innovation are driving our growth in high-margin device sales. Our medical cannabis businesses in Canada and Europe also produced great results in Q2. Our Canada medical business delivered an outstanding second quarter with revenues up 16% year over year.
This growth is a result of the continued expansion of the product selection in our Spectrum online store, as well as constant availability, which are enabling us to capture a progressively larger share of the high-margin Canadian medical cannabis market, particularly as we see more insured patients accessing Spectrum for their medical cannabis needs. On the international front, demand continues to be robust, driving substantial year-over-year revenue growth. This reinforces the potential that we see across the high margin European markets where Canopy's revenues are up 72% year over year. In Germany, our medical cannabis revenue surged by 47% from the first to second quarter, demonstrating the rapidly rising demand in Germany's medical market since legalization and Canopy's positioning as one of the long-term players within that market.
In Poland, our revenues grew 200% year over year. It's also worth noting that this European growth is currently being largely supported by our Kincardine GMP cultivation. However, our asset-light model for Europe is now coming online, supported by agreements with multiple EU based cultivators and we expect this will provide the scalability that we need to meet rising demand over the coming quarters without the need for heavy capital investments. This approach not only preserves our flexibility, but also supports strong gross margins across our international medical business.
Now, let's dive a bit deeper into our Canadian adult-use business. With our improved cost structure, we're highly focused on profitably growing the top line in Canada. To power this growth, we're executing several targeted initiatives to drive back to its position of leadership in the edibles category, rejuvenate and strengthened the competitive position of our core flower offerings, and to bring new and innovative products to market. I'm pleased to share that the production of Wana edibles is fully resumed within the quarter, and supply is now coming back into retailers across Canada, as well as into the Spectrum online store, supported by in-market activations and by tender education.
In addition, we anticipate bringing new premium and Better for You Wana gummies to the Canadian market early in the new tear as part of our focus on delivering innovation to consumers. In our core portfolio, the quality and variety of Tweed and 7ACRES product offerings within the flower as well as pre-roll joint segments is driving consumer demand. And further honing our production platform and its ability to cultivate high-quality strains with elevated and consistent THC levels, we've strengthened the competitive positioning of these brands in the market. We're seeing this pay-off through the reinvigorated performance of Tweed Cushman's and a significant uptake of Tweed Cherry Acai Mints, which is now carried in all markets nationally.
In addition, as the sign of things to come, our team was thrilled to bring 7ACRES Ultra Jack to markets. Ultra Jack for those that haven't yet had a chance to sample it is a homegrown 7ACRES creation. The brand will also be bringing [Technical Difficulty]
Questions & Answers:
Operator
Ladies and gentlemen, please do stand by. Again, ladies and gentlemen, please do stand by. Thank you. Please go ahead.
You may begin.
David Eric Klein -- Chief Executive Officer
Thank you very much. Sorry about that technical difficulty here. I'm going to -- I'm going to back up a little bit to make because I'm not entirely sure when we were dropped. So, I'm going to address our flower offering.
So, in our core portfolio, the quality variety of Tweed and 7ACRES product offerings within the flower, as well as pre-roll joint segments is driving consumer demand. And by further honing our production platform and its ability to cultivate high quality strains with elevated and consistent THC levels, we've strengthened the competitive positioning of these brands in the market. We're seeing this pay off through the reinvigorated performance of Tweed Cushman's and a significant uptake of Tweed Cherry Acai Mint, which is now carried in all markets nationally. In addition, as a sign of things to come, our team was thrilled to bring 7ACRES Ultra Jack to the market.
Ultra Jack for those that haven't yet had a chance to sample it is a homegrown 7ACRES creation. The brand will also be bringing a number of historically high-performing strains back to consumers over the coming months. In parallel, we're investing in efforts to increase distribution of our flower and PRJ offerings and have been very encouraged to see distribution of our Tweed flower products increased by over 10% this quarter. Finally to improve the performance of our adult-use business, we're investing in a robust NPD pipeline with a particular focus on the growth categories of pre-rolled joints, vapes and concentrates.
One such example coming to market is an innovative brand of infused pre-rolled joints, that's a top seller in California and will be available to consumers in the next month. Early feedback from provincial cannabis sports and retail partners has been overwhelmingly positive. We're confident that this new product lineup in the high-margin pre-roll category will resonate well with consumers and contribute meaningful revenue over the coming quarters. In addition to new flower offerings, new game changer infused pre-rolls and health conscious innovation from Wana, we'll also be bringing to market a number of limited time only beverage and flower SKUs just in time for the holiday season.
Overall, our focus remains on investing to continually enhance our product quality increased distribution and bring new and innovative products to delight our consumers. Finally, looking to the U.S., I'd like to provide an update on the accelerating momentum occurring within the Canopy USA ecosystem. In the second quarter, Canopy USA closed the acquisition, and I'm pleased to report that the acquisition of remains on track for completion no later than the first half of calendar year 2025. Canopy USA is Wana brand also launched Wanderous a new marketplace for hemp-derived THC and CBD products as the brand expands its reach to access a new national customer base.
Canopy USA's Jetty brand is gearing up to introduce a new line of solvent-less all-in-one vapes in California and Colorado with a planned launch in New York early next year. Finally, at Acreage, work remains underway to leverage the improved capital structure to strengthen the fundamentals of the business, streamline costs and drive growth in priority states where acreage holds a strong foothold, including Ohio. The ecosystem approach, which will integrate the best of Wana, Jetty, and Acreage will enable Canopy USA to leverage synergies across these brands, optimize existing market positioning and capitalize on immediate growth opportunities as a differentiated and brand-driven platform. Overall, we're confident that Canopy USA is well-positioned to deliver significant value for our shareholders over time, including as new U.S.
markets come online for adult use. Finally, while we would have liked to see a positive outcome in Florida, our view remains that Canopy USA is ideally set up to thrive in the current environment, independent of federal legalization. And while we would welcome future movement on Safe Banking or 280E reform by rescheduling, the strength of our approach is that we are not dependent on this taking place in the immediate term. Overall, we're proud of the progress made this quarter as we continue to strengthen and grow our core businesses, advance our profitability at the enterprise level, and position Canopy USA for long-term growth.
I'll now turn the call over to Judy.
Judy Hong -- Chief Financial Officer
Thank you very much, David, and good morning, everyone. I'll start by reviewing our second quarter fiscal 2025 results, including performance by key business units. I'll then discuss continued progress we've made on our balance sheet and cash flow, followed by a discussion on our priorities and outlook for the balance of fiscal 2025. Let's begin with our second quarter results.
Q2 FY2025 was a solid quarter overall with strong revenue growth in Storz & Bickel and our medical cannabis businesses driving year-over-year improvement in gross margins, adjusted EBITDA and free cash flow. Canopy delivered consolidated net revenue of $63 million in Q2, a decrease of 9% or increase of 3%, excluding the impact of divested businesses compared to Q2 of last year. Consolidated gross margin in Q2 was 35%, a 100 basis point improvement compared to last year. I'm pleased to see consistent gross margin performance in our overall business as we've now delivered gross margins in the mid-30% for four out of the past five quarters.
Q2 adjusted EBITDA was a loss of $6 million, an improvement of 54% versus last year. And free cash flow was an outflow of $56 million, an improvement of 16% compared to Q of last year. As I noted during our Q1 earnings call, we typically incurred negative working capital in the first half of fiscal year due to the timing of certain payments but we expect significant improvement in the second half. I'd like to now review the results of our key businesses in more detail, starting with Canada.
Q2 net revenue was $37 million, a decline of 8% compared to a year ago. Canada Medical continued its momentum with revenue growth of 16% compared to last year as our medical customer mix continues to shift toward a greater number of insured patients and we're expanding our product assortment to meet the needs of our customers. The overall Canada medical market is also now seeing modest growth and we're pleased with the continued outperformance in our Canada Medical sales, which is also a high-margin business for us. The growth in Medical was offset by our Canada adult-use business, which was down 24% year-over-year.
Our Canada adult-use business did not show the expected sales improvement in Q2, in part due to a supply interruption of Wana edibles, resulting from financial challenges faced by its contract manufacturer. We estimate that not having a sufficient Wana supply during Q2 drove approximately $3 million of negative revenue impact for our total Canadian business. We've since addressed the supply interruptions and expect to see improved Wana performance in the second half. Canada gross margin in Q2 was 32% and cash gross margin adding back noncash depreciation cost and cost was 43%.
This is the second consecutive quarter of cash gross margin in the mid-40% in Canada as the growth in our medical business, which carries higher margin than our adult-use business is contributing to strong gross margin performance. During Q2, our medical business accounted for more than half of revenue in Canada. As we focus on accelerating growth in our adult-use business, we expect Canada's cash gross margins to revert back to our target of mid to high 30%. International markets cannabis net revenue of $10 million in Q2 FY2025, was up 12% compared to Q2 of last year.
We saw strong growth in Poland and Germany, which was partially offset by the decline in sales in our Australian medical cannabis business, driven by increased price competition. International markets cannabis gross margin was 47% in Q2 FY 2025, up from 30% in Q2 of last year, driven by a favorable shift in country mix, with higher margin pull in contributing to a greater portion of sales this quarter as compared to the prior year period and overall loss to lower cost structure. Storz & Bickel had an exceptional quarter with revenue of $16 million in Q2 and was up 32% compared to last year. Key drivers include strong growth in Germany following regulatory reform, significant improvement in U.S.
sales compared to the year ago period as well as the final sell-through of the MIGHTY vaporizer, which is going through a planned phase up. We also note that last year's Q2 did not include any sales from VENTY as the product was launched during Q3 of last year. We did see a significant decline in shipments to Australia in Q2 following a recent regulatory change. However, we continue to see Storz & Bickel medical vaporizers as well positioned in the medical channel in Australia, given their unique status as the only medical approved old flower vaporizers.
Storz & Bickel gross margin was 32% compared to 33% last year. Q2 gross margin is typically lower for Storz & Bickel and margin was also impacted by higher rebates on MIGHTY. Looking at our SG&A expenses for Q2 of fiscal '25, sales and marketing and G&A expenses have combined declined 20% year over year, primarily due to the cost reduction program undertaken during fiscal 2024. Year to date, our corporate G&A costs have also declined by nearly $10 million versus the prior year and we're well on track to achieve $10 million to $15 million additional cost reductions by end of this fiscal year.
Q2 fiscal 2025 adjusted EBITDA was a loss of $6 million compared to a loss of $12 million a year ago. We estimate that our three business units again achieved positive adjusted EBITDA in Q2 with all of the Q2 adjusted EBITDA losses driven by unallocated corporate overhead costs, including public company costs. I'd like to now review our cash flow and balance sheet. Free cash flow was an outflow of $56 million in Q2, an improvement of 16% compared to the prior year.
Cash used from continuing operation was $54 million. This included cash interest payments in the quarter of $18 million, down from $28 million in Q2 of last year. Similar to Q1, we incurred negative working capital in Q2, driven by certain -- timing of certain payments as well as higher inventory builds in Canada, but we expect free cash flow to narrow significantly in the second half of the year versus the first half run rate to reflect the timing of payments and continued reduction in interest expenses. Turning to the balance sheet.
As of September 30, 2024, we had 231 million in cash and short-term investments and total principal debt balance of 574 million. In October, we further reduced our term loan balance by $100 million by making an early prepayment, bringing the total term loan principal balance to approximately $250 million. This will also reduce our annualized interest expenses by approximately $14 million. We have an option to further extend maturity of the term loan to September 2027 from December 2026, if we choose to make an additional $100 million payment at USD 97.5 to par before the end of March 31, 2025.
Under the current ATM program that was launched in June to date, we've generated total gross proceeds of $149 million. We believe we have ample cash on our balance sheet to meet our near-term obligations, and the remaining ATM program should provide us with the flexibility to invest in growth initiatives. I'd like to now briefly discuss Canopy USA. As David mentioned, Canopy USA has completed its acquisition of Wana and Jetty and is on track to close an Acreage acquisition no later than in the first half of calendar 2025.
Let me provide some commentary on performance of each entity. Acreage management continues to focus on improving performance in its core states with its year-to-date results impacted by its credit challenges earlier in the year. The launch of nonmedical sales in Ohio was delayed and full adult-use sales have not begun. Further, as indicated by other market participants, growth in Ohio has yet to benefit significantly from the opening of the nonmedical markets given restrictions around marketing and product formats.
That said, with five stores currently operating in Ohio and the ability to open additional three stores, Acreage management believes it's well positioned to show significant growth once the market fully opens for adult use. Turning to Wana. Year-to-date, Wana's performance has been somewhat hindered by slower-than-expected launches in New York and Ohio as well as lower licensing revenue in Canada due to the supply interruption. Wana is focused on expanding into new states and has solidified the launch of its East Coast markets, which now includes New York, New Jersey, Massachusetts, Vermont, Connecticut and Maryland.
Wana also launched a hemp-derived marketplace in August, with sales seeing gradual improvement. Jetty is seeing strong underlying momentum and has successfully transitioned its distributor in California with minimal disruption. And with the new distribution partner now in place to drive enhanced route to market at reduced cost, Jetty is focused on expanding its lineup of solvent-less vape offerings into California, Colorado, and New York. I'd like to now provide our key priorities and outlook for the balance of fiscal '25.
In Canada cannabis, we expect continued strength in our medical business and improved performance at our adult use business in the second half of fiscal 2025, driven by Wana supply being restored, additional investments driving expanded distribution and improved velocity for our core products as well as new product launches. In international markets cannabis, we're focused on ensuring consistent supply of high-quality products as well as launching new products to meet demand in Poland and Germany, while actions are underway to strengthen our competitive positioning in Australia. For Storz & Bickel, we expect growth to continue in the second half with Q3 benefiting from higher contribution from Venti compared to last year, while Q4 growth is likely to be more muted due to exceptionally strong sales of the device following its launch quarter in fiscal '24. And finally, the impact from divested businesses will continue to negatively impact reported sales growth throughout fiscal 2025.
Q3 FY'24 revenue included approximately $9 million of revenue from divested businesses. So, with expected improvement in top line growth in the second half and continued cost discipline, we believe we remain on a path to achieve positive adjusted EBITDA at the consolidated level in the coming quarters and our focus on driving long-term sustainable growth in our businesses, while continuing to find additional opportunities for cost efficiencies.This concludes my prepared comments. We'll now take questions.
Operator
[Operator instructions] Our first question will be coming from Aaron Grey from Alliance Global Partners.
Aaron Grey -- Alliance Global Partners -- Analyst
Good afternoon, thank you for the question here. So, question I want to ask is regarding the hemp initiative that you have here in the U.S. Just looking at the Wanderous website by Wana, you guys have both edibles and beverages. So, do you want to give some greater color in terms of planned distribution initiatives? Are you able to leverage any relationships with Constellation on the beverage side? I know that's been, you know, a big push for a lot of companies out there with the growth in hemp beverages.
So, any color you could offer on that? And then, how you're seeing potential for regulatory reform through THC cannabinoids via hemp versus cannabis and how that could impact your decision there? Thank you.
David Eric Klein -- Chief Executive Officer
Thanks for the question. I believe that the opportunity for hemp derived offerings in the U.S. is massive. And I'll start with the last part of your question first.
I think, you know, our view is, for the most parts, it will be left up to the states to determine the path forward, and we're prepared to work in that environment. Our first step in this and when I'm saying our -- I mean, Wana's step in this activity was to get themselves set up from a direct-to-consumer standpoint. And as part of the QC infrastructure, they brought over the Martha Stewart CBD offerings, as well as putting their own offerings in, and quite frankly, working with partners to go direct-to-consumer. So, that was step one.
There is a lot of engagement going on right now from a B2B standpoint to get on the shelf at retail. And that pathway is heavily influenced or being addressed anyway by beverage alcohol distributors. And, you know, of course, the connections that Canopy has in that industry are very valuable in trying to establish that B2B marketplace for ourselves. So, we're really excited about hemp.
We're really early in that process. The entire industry is. But, you know, we think it could be huge.
Operator
Next question will be coming from Frederico Gomes from ATB Capital Markets.
Frederico Gomes -- ATB Capital Markets -- Analyst
Hi. Good morning. Thanks for taking my questions. Just on the comment on Australia, the competitive dynamics in that market.
I'm just curious, how do you plan to, I guess, become more competitive there on the pricing side? I mean what initiatives are you going to be implementing to achieve that?
Judy Hong -- Chief Financial Officer
Yes. Thanks, Federico, for the question. So, in Australia, we've actually had pretty good growth over the last few years as we've been able to really supply that market out of Canada. I think as you've seen other players really leverage some of the Canadian supply to service the Australian market, you've seen increased competition, the number of players have gone up and then you've started to see more price competition taking place similar to, frankly, what you've seen in the Canadian market.
We are really looking to take advantage of our supply opportunities in Canada with our lower cost structure, obviously, working with partners and making sure we've got an ample supply in place to service that market with the better cost structure. And we are also focused on just making sure we're going to the market with a broader assortment of product in the marketplace.
Operator
Next in line will be coming from Bill Kirk from ROTH Capital Partners.
Bill Kirk -- ROTH Capital Partners -- Analyst
I'd one on the adjusted EBITDA turning positive outlook. The language, I think, you used was in the coming quarters, whereas prior language was for the second half. So, I'm curious if that is a change or not? And if it is a change, what is causing the kind of the -- maybe possibly the push out a little bit?
Judy Hong -- Chief Financial Officer
Yeah, thanks for the question, Bill. So, look, I mean, we're very pleased with the continued progress that we're making on our consolidated adjusted EBITDA. I think we're seeing good performance out of all of our businesses. And as I said on the call, all of our business units have delivered positive adjusted EBITDA.
We are also making progress on reducing our corporate G&A costs, and we've already reduced on a year-to-date basis, $10 million and we think we'll see additional cost opportunities in the back half of the year. Our, I think, expectation around second half positive adjusted EBITDA was partly predicated on more growth coming from our Canada adult use businesses. We're confident that we will see improved growth in the back half. It's just the time line of getting the growth in the second half from a pace and timing perspective is really what we're thinking about as we think about when we can achieve that positive adjusted EBITDA.
The other thing I would just want to point out is that we are really building a business that is able to achieve positive adjusted EBITDA kind of quarter in and quarter out. So, we also want to make sure that all of our businesses are getting to the physician where consistently. They're delivering on an adjusted EBITDA positive basis, and we'll -- we're confident that we're nearing that point.
Bill Kirk -- ROTH Capital Partners -- Analyst
And then, on Storz & Bickel, Judy, you mentioned higher rebates on MIGHTY in the quarter. Why the rebating program? What's kind of behind offering a larger rebates?
David Eric Klein -- Chief Executive Officer
Yes. So, Bill, it was really just we have -- it's portfolio management, right? So we have VENTY in the market. We've upgraded MIGHTY, actually, several times over the past few years and so there were a couple of specific SKUs within the portfolio that we were just clearing through in the portfolio that drove some of the growth. But I don't want you to walk away thinking that, that's where -- that's the reason we had such a strong quarter.
I do believe it was growth in Germany of really household penetration for Storz & Bickel. We're ramping back up in the U.S. to the trajectory we had before. There were some distributor financial problems over the last couple of years.
And we're really leaning into the strength of the innovation that the VENTY represents. So, I think Judy had made the caveat that we do have to lap kind of like the VENTY launch last year, but we're confident that Storz & Bickel is going to continue to grow. It wasn't an aberration just caused by the portfolio management component related to the MIGHTY.
Operator
[Operator instructions] Our next question will be coming from Michael Lavery from Piper Sandler.
Michael Lavery -- Analyst
Thank you. Good morning. Just wanted to touch on international. You called out a pretty big growth rates in Europe and specifically mentioned Germany and Poland.
But overall, obviously, it was still more subdued. And so, maybe just how intense was the price competition in Australia? How big of a headwind was that? And is there any way to get a sense in so many cases, we've seen some version of it's just pretty much a matter of time before price competition creates some of these headwinds in markets over the last few years. Is there structural differences in Poland and Germany that help mitigate or mute that? And what should we expect looking ahead a little bit?
David Eric Klein -- Chief Executive Officer
I think -- so, you know, a couple of points that I'll make here. First of all, we have purposefully continued to focus our supply on the markets that are high margin like Germany, Poland, like our Canadian medical business and then driving Storz & Bickel, right? And the areas of our business that have been more challenged like Australia and Canadian adult use, we've actually -- while we're working to improve our positioning in those markets, we're purposefully focused the business on the high-margin components of the business. So, then specifically to address Australia, I think that there are things that we have done in the quarter, meaning expand our offerings, change our pack sizes and so forth that will allow us to be more competitive. But as you point out, every market ultimately gets to the place where there's price compression.
I would say the thing I feel good about at Canopy is that maybe the most difficult market to compete in, in the world might be in Canada. And we've build-to-cost infrastructure from a growth standpoint and a back office standpoint where we now feel that we have, you know, attractive gross margins. So, we think we're prepared to compete in these markets as they price compress. Now, specifically to address Germany and Poland, you know, Poland is a bit of a different market than any of the other markets we're in because you have to -- you sell through effectively the government and so that probably provides a little bit of near-term protection.
Germany, I think, over time, is going to go the route of every other developed market. I think it will be a while from now, but Germany will go the route of every other developed market in that we'll see capacity increase in that market, and it will drive down cost. And we're actually -- we spent a lot of time planning around that, Michael, so that we're actually prepared to be an aggressive leader in that market instead of getting whipsawed by the market. So, we've built our infrastructure in Germany to be super asset light because we've seen that work elsewhere.
And so I think you're right, I think every market goes through a good price environment and then a compressed price environment and then it normalizes. And we're -- we think it will be a while in Germany, but we're prepared to ride it out and to win when that happens.
Operator
Next in line will be coming from Matt Bottomley from Canaccord Genuity.
Matt Bottomley -- Canaccord Genuity -- Analyst
Yeah. Good morning, everyone. I just wanted to get a bit more clarification potentially, Judy, on some of your comments on the cash flows and the balance sheet. So, we look at kind of the first six months of the fiscal year and we're a little over 100 million in free cash flow burn.
And I know a lot of that is working capital fluctuations or at least I assume that a chunk of it is. When you say it will narrow significantly, I'm just trying to get an idea of maybe on a relative basis, the quantum. And then, further, just the ATM that's being used in the interim, just given some of the price action we saw on the back of the U.S. election, if there's any changes to the cadence we're seeing of that being utilized? Thank you.
Judy Hong -- Chief Financial Officer
Yes. So, on the cash flow side, so as you point out and as I mentioned on the call, the first run rate is typically much higher. And a lot of that is because of the timing of payments. That includes insurance premiums.
We also have prior year bonus payments, the time line and then the Health Canada fees. So, all of those are -- have hit first half of the year and those are amounts that won't be repeated in the second half. So, our expectation is in the second half, when you look at the cash outflow, I do estimate that to be -- close to be half of what we saw in the first half of the year. The interest payments also would be lower as we paid down t Frederico Gomes he $100 million of additional term loan, we would see a reduction in the interest payment.
We would expect to very tightly manage the working capital and just the -- some of the timing of the payments now working more in favor in the back half versus the first half. And then, finally, the capex is also likely to be more modest in the second half versus the first half, just given some of the timing of the investment. So, that would be my expectation for the back half of the cash flow.
Operator
Next will be coming from Pablo Zuanic from Zuanic & Associates.
Pablo Zuanic -- Analyst
Thank you. Good morning, everyone. David, my question is one around Canopy USA. Can you talk about, you know, room there for expansion in the way of acquiring more brands beyond Wana and Jetty? And also, maybe remind us of how you're going to accelerate the expansion or the room for growth for both Wana and Jetty in the case of Wana going to go deeper in the state? Is there room to license in other states? Can you even go vertically in some cases, given and follow more of the Jetty model? And in the case of Jetty, you said New York, Colorado, California, is there room to add more states? So, that's the first part of your question regarding kind of USA growth opportunities.
And then, the second part is that back in the day, you know, you used to mention the term federal permissibility. We are waiting for the Acreage deal to close June next year. But in practical terms, pretty much you can do almost most of the things you want to do around Canopy USA at the moment, right? And correct me if I'm wrong, you know, even though we don't have permissibility and the deal on Acreage hasn't closed, or at least just explain what else could you do once those things happen compared to what you're going to do now around Canopy USA?
David Eric Klein -- Chief Executive Officer
Yeah. Thanks, Pablo. And, yes, if I'm being honest, I don't even know what federal permissibility means anymore. It just seems like we're going to get -- you know, the path is more likely to be a series of regulatory reforms that basically looks like federal legalization.
And so, I'm going to start with that part of your question first. I would say that our structure where our investors have exposure to the U.S. THC market, but we can still continue to trade on the U.S. exchange was really built for this long process of getting to that federal permissibility.
And so, we remain, you know, optimistic and very interested in things like 280E reform and safe banking, which, by the way, the President elect has agreed to support. And that would help our business in the U.S. from a financial perspective, but it's not necessary for our structure to work. And I think that's one of the things that is unique about the structure that we have set up.
And then that even plays into our ability to expand Canopy USA. It really is the team at Canopy USA is focused on execution at Acreage. And I would say that looks like a deeper, not wider strategy, just get better in the markets that we're in, and use the production assets that we have at Acreage to bolster the other parts of the portfolio, meaning Wana and Jetty. I think expansion for Jetty will be to build its business around the core of its innovation, which is solvent-less capabilities.
And we want to bring that to every market we're in because we think that's a massive differentiator for the Jetty brands, but also -- yes, there are opportunities for Jetty to be produced in markets by Acreage. And clearly, Jetty and Wana have already started distributing together, so that they're getting the benefit of calling on retail accounts as a unified portfolio. And then, I would say with Wana, it's probably a bit -- expansion is probably a bit two-fold because I think it's -- it is also kind of a deeper, not wider, let's get stronger in the states we're in. Let's get on more shelves in the states that we're in.
And then, we're also putting some efforts behind the portfolio, which we talked about earlier. So, I think there's a lot of reasons to believe that the differentiated kind of brand led approach that we have between the companies in the U.S. ecosystem are pretty attractive. And then, we'll continue to look both for Canopy and the Canopy USA board of managers will continue to look for opportunities to partner with other players in the industry.
And in particular, if it's a long drawn out federal legalization time period, you know, we think there will be some really great opportunities for CUSA to continue to build its business.
Operator
Thank you. There are no questions in the queue, I will now turn the call over to Mr. Klein for final remarks.
David Eric Klein -- Chief Executive Officer
Great. Thanks for attending today's conference call. For those in Canada, as you enjoy the fall and prepare for the holidays, be on the lookout for the PRJ innovation that we talked about, which should be arriving in stores over the next few weeks. And for those of you in the U.S., yes, please visit shopwanderous.com to take a look at the great hemp-derived product offering that's currently available for shipment to your home.
Our investor relations team will be available to answer additional questions throughout the day. Thanks, everyone.
Operator
This concludes Canopy Group's second quarter fiscal 2025 financial results conference call. A replay of this conference call will be available until February 6, 2025 and can be accessed following the instructions provided in the company's press release issued earlier today. Thank you for attending today for today's call. [Operator signoff]
Duration: 0 minutes
Call participants:
Tyler Burns -- Director, Investor Relations
David Eric Klein -- Chief Executive Officer
David Klein -- Chief Executive Officer
Judy Hong -- Chief Financial Officer
Aaron Grey -- Alliance Global Partners -- Analyst
Frederico Gomes -- ATB Capital Markets -- Analyst
Bill Kirk -- ROTH Capital Partners -- Analyst
Michael Lavery -- Analyst
Matt Bottomley -- Canaccord Genuity -- Analyst
Pablo Zuanic -- Analyst
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