The Board of Directors (the “Board”) of Canopy Growth Corporation (“CGC” or the “Company”) has established the Audit Committee (the “Committee”) as a standing committee of the Board for the purposes of (i) overseeing the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company, (ii) ensuring the adequacy and effectiveness of CGC’s internal controls and procedures for financial reporting and (iii) ensuring the adequacy and effectiveness of CGC’s risk management program. The Committee is hereby constituted with all the powers and duties conferred on it by the laws governing CGC and such powers and duties as may be conferred on it from time to time by resolution of the Board.
Member Qualifications, Appointment and Removal
The members of the Committee (the “Members”), and from amongst those Members, the Chairperson of the Committee, are appointed annually by the Board. The Board will appoint not less than three directors as Members. The number of members of the Committee shall be determined from time to time by resolution of the Board.
No director who is an officer or employee of CGC (or any related entity of CGC) may be a Member. The Committee and each Member must meet the independence and audit committee composition requirements promulgated by all governmental and regulatory bodies exercising control over CGC as may be in effect from time to time, including Rule 10A-3(b)(1) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (subject to the exemptions provided in Rule 10A-3(c)), Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and relevant rules of any other stock exchanges on which CGC’s shares are listed.
In general, each Member must be free of any relationship with CGC that could or could reasonably be perceived to, in the opinion of the Board, interfere with the exercise of that director’s judgment as a Member. All Members must be financially literate and at least one Member must have accounting or related financial management expertise, as each such qualification is interpreted by the Board in its business judgment. Each Member must (i) not have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years and (ii) be able to read and understand fundamental financial statements, including CGC’s balance sheet, income statement, and cash flow statement. At least one Member must satisfy the definition of “audit committee financial expert” as set out in Item 407(d)(5)(ii) and (iii) of Regulation S-K under the United States Securities Act of 1933, as amended (“Regulation S-K”).
Any Member may be removed or replaced at any time by the Board as needed. A Member shall cease to be a Member upon ceasing to be a CGC director. The Board will fill vacancies on the Committee by the appointment of other qualified directors.
Duties and Responsibilities
In general, the Committee performs a number of roles including:
- assisting the Board with oversight of:
- the integrity of CGC’s financial statements,
- CGC’s compliance with legal and regulatory requirements,
- the qualifications and independence of any independent auditor and/or registered public accounting firm engaged by CGC for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for CGC (“Independent Auditors”), and
- the performance of CGC’s internal audit function and Independent Auditors;
- providing better communication between directors and CGC’s Independent Auditors;
- increasing the credibility and objectivity of financial reports; and
- strengthening the role of the directors by facilitating in-depth discussions amongst directors, management and the Independent Auditors.
The Committee will have the specific duties and responsibilities set out below, as well as other such duties that are, in the opinion of the Board, in line with the purpose of the Committee as stated above.
Relationship with Auditors
The Committee is responsible for managing, on behalf of CGC’s shareholders, the relationship between CGC and its Independent Auditors. The Independent Auditors are ultimately accountable to the Committee and the Board as representatives of the shareholders of CGC and shall report directly to the Committee. In furtherance of this responsibility, as delegated by the Board, the Committee shall:
- be directly responsible for the appointment, compensation and oversight of the work of the Independent Auditors, including resolution of disagreements between management and the Independent Auditors regarding financial reporting;
- oversee the work of the Independent Auditors;
- establish procedures to monitor the independence of the Independent Auditors and take necessary actions to eliminate all factors that might impair or be perceived to impair the independence of the Independent Auditors;
- establish procedures for review and approval of all audit and permitted non-audit services provided by Independent Auditors;
- pre-approve all non-audit services to be provided to CGC or its subsidiaries by the Independent Auditors (subject to the de minimisexceptions set forth in the Exchange Act and the rules of the U.S. Securities and Exchange Commission), which pre-approval may be delegated to any Member, provided such Member shall report any such pre-approval to the Committee at the next meeting of the Committee;
- provide the Independent Auditors with the opportunity to meet with the Committee or the Board without management present at each regularly scheduled meeting of the Committee or the Board;
- review with the Independent Auditors any audit problems or difficulties and management’s response, including any restrictions on the scope of the Independent Auditors’ activities or on access to requested information, and any significant disagreements with management; and
- prepare the Audit Committee report required by Item 407(d)(3)(i) of Regulation S-K.
Audit and Financial Reporting
The Committee is responsible for overseeing the audit and financial reporting process. In furtherance of this responsibility, as delegated by the Board, the Committee shall:
- review, establish and monitor each annual audit of the Independent Auditors with a written audit plan, including scope, fees, staffing and schedule;
- review with both management and the Independent Auditors the appropriateness and acceptability of CGC’s critical accounting policies and any proposed changes thereto;
- review with management and the Independent Auditors the presentation and impact of significant risks and uncertainties associated with CGC’s business, all alternative accounting treatments within U.S. GAAP that have been discussed with management, the material assumptions made by management relating to them and their effect on CGC’s financial statements;
- meet separately, periodically, with management, with internal auditors (or other personnel responsible for the internal audit function) and with the Independent Auditors;
- question management and the Independent Auditors regarding financial reporting issues discussed during the fiscal period;
- meet to review and discuss the audited annual financial statements and quarterly financial statements with management and the Independent Auditors, including reviewing CGC’s specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;
- discuss earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies, which may be done generally (, discussion of the types of information to be disclosed and the type of presentation to be made, paying particular attention to any use of “pro forma,” or “adjusted” non-GAAP, information); the Committee need not discuss in advance each earnings release or each instance in which CGC may provide earnings guidance;
- review and discuss the Independent Auditors’ report with the Independent Auditors and management;
- review all material written communications between the Independent Auditors and management, including post audit or management letters containing recommendations of the Independent Auditors, management’s response and follow up with respect to the identified weaknesses;
- satisfy itself that adequate procedures are in place for the review of CGC’s public disclosure of financial information extracted or derived from CGC’s financial statements;
- review with management CGC’s relationship with the regulators and the quality of its filings with the regulators; and
- review with the Chief Legal Officer (“CLO”) any current or anticipated litigation or legal activity that could have a material effect on CGC’s financial position
Internal Controls and Procedures
The Committee is responsible for overseeing the design, implementation and on-going effectiveness of a system of internal controls. In furtherance of this responsibility, as delegated by the Board, the Committee shall:
- establish, monitor and review policies and procedures for internal accounting, financial control and management information (“Internal Controls”);
- establish procedures for: (i) the receipt, retention and treatment of complaints received by CGC regarding accounting, internal accounting controls or auditing matters; and (ii) the confidential, anonymous submission by CGC employees of concerns regarding questionable accounting or auditing matters;
- monitor compliance with CGC’s Whistleblower Protection Policy and coordinate and review all investigations undertaken thereunder;
- consult with the Independent Auditors regarding the adequacy of the Internal Controls and review with the Independent Auditors its report on the Internal Controls;
- address, on a regular basis, any perceived shortcomings in the Internal Controls;
- review the involvement of officers and directors in any matter related to business ethics or potential conflict of interest and advise the Board on the appropriate course of action;
- review and approve CGC’s hiring policies regarding partners, employees and former partners and employees of the present and former Independent Auditors;
- administer and annually review and reassess the adequacy of the Audit Committee Related Party Transactions Policy, and adopt any changes it deems necessary; and
- obtain from management adequate assurances that all statutory payments and withholdings have been in compliance with relevant laws and regulations.
Internal Audit Functions
The Committee is responsible for overseeing the performance of CGC’s internal audit function.
The Committee is responsible for overseeing the process by which CGC assesses and manages risk. In furtherance of this responsibility, as delegated by the Board, the Committee shall:
- identify risks inherent in CGC’s business (“Risks”);
- maintain policies and procedures that address the Risks on a reasonable, cost-effective basis;
- in conjunction with management, review, on an annual basis, all aspects of CGC’s risk management program, including all significant policies and procedures relating to insurance coverage, foreign exchange exposures and investments (including CGC’s use of financial risk management instruments);
- monitor compliance with environmental codes of conduct and legislation; and
- monitor compliance with safety codes of conduct and legislation.
In furtherance of its duties, the Committee shall:
- meet regularly with management to discuss any areas of concern to the Committee or management;
- consider whether the quality of employees involved in the audit and financial reporting process and the processes described herein meets an acceptable standard;
- annually review this Mandate and any other documents used by the Committee in fulfilling its duties and responsibilities;
- annually obtain and review a report by the Independent Auditors describing: the Independent Auditors’ internal quality-control procedures; any material issues raised by the most recent internal quality-control review, or peer review, of the Independent Auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the Independent Auditors, and any steps taken to deal with any such issues; and (to assess the Independent Auditors’ independence) all relationships between the Independent Auditors and the Company;
- actively engage in a dialogue with the Independent Auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the Independent Auditors and take, or recommend that the full Board take, appropriate action to oversee the independence of the Independent Auditors;
- review and evaluate the lead partner of the Independent Auditors and ensure the regular rotation of audit partners on the audit engagement, as required by applicable laws and regulations, and consider whether rotation of the Independent Auditors is required to ensure independence; and
- annually evaluate the performance of the Committee.
Meetings, Structure and Reporting
The Committee meets as required, but at least quarterly, typically, the day before the full Board to allow ample time for discussion. A majority of the Committee shall constitute a quorum. At all meetings of the Committee, every question shall be decided by a majority of the votes cast on the question. Without a meeting, the Committee may act by unanimous consent, in writing or by electronic transmission, of all Members. However, the Committee may delegate to one or more of its Members the authority to grant pre-approvals of audit and permitted non-audit services, provided the decision is reported to the full Committee at its next scheduled meeting. The Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Legal Officer shall attend Committee meetings upon the Committee’s request and, subject to the Committee requesting otherwise, the Corporate Secretary, or his designee, shall act as secretary at all Committee meetings. The audit partner from the Independent Auditors will be invited to meet with the Committee at least twice a year and may request a meeting with the Committee at any time. The Committee may also meet by telephone conference call or by any other means permitted by law or the CGC by-laws.
The Committee shall report to the Board on all proceedings, deliberations, decisions and recommendations of the Committee at the first subsequent meeting of the Board and at such other times and in such manner as the Board may require or as the Committee may, in its discretion, consider advisable.
The Chairperson’s primary role is to ensure that the Committee functions properly, meets its obligations and responsibilities, fulfills its purpose and that its organisation and mechanisms are in place and are working effectively. More specifically, the Chairperson shall:
- chair meetings of the Committee;
- in consultation with the Chairperson of the Board, the Lead Director, the Members, the CFO and Corporate Secretary, as necessary, set the agendas for the meetings of the Committee;
- in collaboration with the Chairperson of the Board, the Lead Director (if one is elected), the CEO, the CFO and the Corporate Secretary, ensure that agenda items for all Committee meetings are ready for presentation and that adequate information is distributed to Members in advance of such meetings to allow Members to properly inform themselves on matters to be acted upon;
- assign work to Members;
- approve the expense report of the Chairperson of the Board;
- act as liaison and maintain communication with the Chairperson of the Board, the Lead Director (if one is elected) and the Board to optimize and coordinate input from directors, and to optimize the effectiveness of the Committee;
- provide leadership to the Committee with respect to its functions as described in this Mandate and as otherwise may be appropriate; and
- be available to the CFO one full business day per calendar quarter to provide advice and guidance.
The Committee shall have unrestricted access to the Independent Auditors, CGC personnel and documents and shall be provided with the resources necessary to carry out its duties. The Committee may engage independent counsel and other advisers, as it determines necessary to carry out its duties. CGC shall provide for appropriate funding, as determined by the Committee, for:
- payment of compensation to the Independent Auditors and any legal counsel and other consultants, accountants, experts and advisors retained by the Committee; and
- ordinary administrative expenses of the Committee that are necessary and appropriate in carrying out its functions.
While the Committee has the responsibilities and powers set forth in this Mandate, it is not the duty of the Committee to plan or conduct audits or to determine that the CGC’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the Independent Auditors.
Last Approved by the Committee: May 26, 2021