Closed C$2.4 Billion Strategic Growth Investment
from Altria Group, Inc.
Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) (“
Cronos
Group” or the “
Company”), today announced
financial results for the fourth quarter and full year ended
December 31, 2018.
“We are proud of all we have accomplished in
2018 and in the fourth quarter. Over the past year, Cronos Group
has diligently focused on our strategic objectives, which
culminated in our transformative partnership with Altria Group,
Inc.,” said Mike Gorenstein, CEO of Cronos Group. “We’ve expanded
our production footprint domestically and internationally,
developed our distribution with global partnerships, launched
iconic brands for the Canadian adult-use market and grown our IP
portfolio with landmark research and development initiatives.”
“At Cronos Group, we take pride in leading the
industry forward responsibly and are motivated to create meaningful
products that excite our consumers and bring happiness and an
improved quality of life. We are very excited to partner with
Altria to help us realize our goals. Altria’s investment and the
services they provide will enhance our resources and enable us to
scale our product development and commercialization capabilities.
The growth potential in the cannabis industry is vast and we are
only just beginning. With our differentiated brands, global
footprint, growing production capacity and commitment to
cannabinoid innovation, together with Altria’s partnership, Cronos
Group is well positioned to realize this opportunity. We’re heading
into 2019 energized and ready to execute on our strategy.”
Corporate Milestones and
Updates Cronos
Group became the first pure play cannabis company to list on a
major stock exchange in the United States. The Company’s common
shares began trading on the NASDAQ Global Market
(“NASDAQ”) under the trading symbol “CRON” in
February 2018. Another milestone came in May 2018, as the trading
of Cronos Group’s common shares in Canada was up-listed from the
TSX Venture Exchange to the Toronto Stock Exchange
(“TSX”). In May 2018, the Cronos Group board of
directors (the “Cronos Group Board”) approved the
appointment of KPMG LLP as independent auditor of the Company.
These major corporate milestones reflect the significant progress
Cronos Group has made in strengthening our corporate governance
structure.
In March 2019, the Company closed the $2.4
billion equity investment in the Company previously announced in
December 2018 (the “Altria Investment”) by Altria
Group, Inc. (“Altria”), pursuant to a subscription
agreement dated December 7, 2018. At closing, Altria also received
a warrant to acquire additional common shares of the Company (the
“Warrant”) that if fully exercised at closing,
would provide the Company with approximately $1.4 billion of
additional proceeds.
As of the closing date of the Altria Investment,
Altria held an approximately 45% ownership interest in the Company
(calculated on a non-diluted basis) and, if exercised in full on
such date, the exercise of the Warrant, would result in Altria
holding a total ownership interest in the Company of approximately
55% (calculated on a non-diluted basis). This strategic partnership
with Altria provides Cronos Group with additional financial
resources, product development and commercialization capabilities,
and deep regulatory expertise to better position the Company to
compete in the global cannabis industry.
In connection with the closing of the Altria
Investment, the Cronos Group Board expanded from five to seven
members. The Cronos Group Board now consists of Cronos Group CEO,
Mike Gorenstein as Chairman, Jim Rudyk, Chief Financial Officer of
Roots Corporation, who will serve as lead director, and Jason
Adler, Founder and Managing Partner of Gotham Green Partners, LLC.
Four new directors nominated by Altria were also appointed to the
Cronos Group Board in connection with the closing of the Altria
Investment, including Kevin “K.C.” Crosthwaite Jr., Senior Vice
President, Chief Strategy and Growth Officer of Altria; Bronwen
Evans, an independent consultant; Murray Garnick, Executive Vice
President and General Counsel of Altria; and Bruce Gates, former
Senior Vice President of External Affairs at Altria. These new
directors to the Cronos Group Board bring additional experience and
expertise as Cronos Group continues to grow globally.
Along with new appointees to the Cronos Group
Board, Cronos Group bolstered its management team with the addition
of Jerry Barbato, who has been appointed Chief Financial Officer
(“CFO”) of the Company, effective April 15, 2019.
Mr. Barbato most recently was the Senior Director of Corporate
Strategy at Altria and will assume the CFO role from William
Hilson, who will transition to a new role as Cronos Group’s Chief
Commercial Officer, also effective April 15, 2019. As Chief
Commercial Officer, Mr. Hilson will report to Mike Gorenstein and
be responsible for further enhancing the commercial strategy as
well as the product and research development priorities of the
Company.
Global Production Footprint
Cronos Group is committed to building a global
network, with partnerships, joint ventures, production and
distribution across international and domestic markets. In the
Canadian market, the Company’s wholly-owned licensed producer and
center of excellence, Peace Naturals Project Inc. (“Peace
Naturals”), yielded its first harvest in December 2018 in
the newly completed Building 4 (“B4”) at the Peace
Naturals campus. B4 is Cronos Group’s 286,000 sq. ft. purpose-built
indoor production facility, which was built to Good Manufacturing
Practice (“GMP”) standards. In 2018, the Company
not only constructed B4 but also completed construction of the
Peace Naturals greenhouse. Peace Naturals engages in the
cultivation, production, and research and development of cannabis,
cannabinoids and cannabis-based products.
Additionally, the Company announced a venture
with a group of investors led by Bert Mucci, a leading Canadian
large-scale greenhouse operator. The entity created by this new
partnership, Cronos Growing Company Inc. (“Cronos
GrowCo”), expects to construct an 850,000 square foot,
purpose-built, greenhouse on approximately 100 acres of land, owned
by Cronos GrowCo in Kingsville, Ontario.
Cronos Group’s joint venture, Cronos Israel,
with the Israeli agricultural collective settlement Kibbutz Gan
Shmuel (“Gan Shmuel”) for the production,
manufacture and distribution of medical cannabis, is currently
under construction. The Company anticipates that construction of
the 45,000 sq. ft. greenhouse will be complete in the first half of
2019 and construction of the manufacturing facility will be
complete in the second half of 2019.
In January 2019, the Israeli government approved
the export of medical cannabis from Israel, which would allow
medical cannabis license holders who meet certain quality standards
to export medical cannabis, under tight supervision of the Israeli
authorities, to Single Convention of Narcotic Drugs signatory
countries that have explicitly approved the import of cannabis. The
Company intends to pursue the necessary licensing for and export of
medical cannabis products from Cronos Israel once production
operations have commenced.
Internationally, Cronos Group announced a joint
venture with an affiliate of Agroidea SAS , a leading Colombian
agricultural services provider with over 30 years of research,
development and production operations and expertise managing
industrial scale horticultural operations in Colombia.
This partnership establishes a newly formed
entity, NatuEra S.à r.l. (“NatuEra”), in Colombia
that will develop, cultivate, manufacture and export cannabis-based
medical and consumer products for the Latin American and global
markets. NatuEra is the cannabis industry’s first Contract
Manufacturing Organization (CMO) in Latin America, with plans to
allow the growing number of cannabis brands to outsource
cultivation and manufacturing. NatuEra plans to develop its initial
cultivation and manufacturing operations with a purpose-built,
GMP-standard facility located in Cundinamarca, Colombia.
NatuEra was granted a license to cultivate
non-psychoactive cannabis plants to produce seeds for planting and
the manufacture of derivative products. Commencement of operations
at the facility will be subject to obtaining the remaining
appropriate licenses under applicable law.
The Company also announced a joint venture in
Australia at the start of 2018 (“Cronos
Australia”) for the research, production, manufacture and
distribution of medical cannabis. The Company owns a 50%
equity interest in Cronos Australia and believes that Cronos
Australia will serve as its hub for Australia, New Zealand and
South East Asia, bolstering the Company’s supply capabilities and
distribution network in the Australasia region.
Global Sales and
Distribution
On October 17, 2018, Canada became the first G7
country and the second country in the world to legalize cannabis
sales for adult use. Cronos Group participated in this new market
through the launch of its two adult-use brands COVE™ and Spinach™.
Currently, these brands are distributed to the following provinces:
Ontario, British Columbia, Nova Scotia, Prince Edward Island and
Saskatchewan. As Cronos Group’s production capacity grows, the
Company intends to explore expanding its distribution into
additional Canadian provinces and territories by entering into
agreements with the appropriate parties.
Additionally, for the Canadian market, Cronos
GrowCo, entered into a supply agreement with Cura Cannabis
Solutions (“Cura”) in August 2018. Cura signed a
five year take-or-pay supply agreement to purchase a minimum of
20,000 kilograms of cannabis per annum from Cronos GrowCo after
Cura receives all necessary licenses from Health Canada.
In March 2018, Cronos Group announced a joint
venture with MedMen Enterprises USA, LLC. The Company owns a
50% equity interest in the joint venture MedMen Canada Inc.
(“MedMen Canada”). MedMen Canada is focused
on branded products in Canada and creating a Canadian branded
retail chain in provinces that permit private retailers. MedMen
Canada is in the process of reviewing and analyzing the evolving
regulatory retail landscape in provinces where private retail is
permitted under applicable law.
Internationally, Cronos Group made strides to
expand its footprint with a distribution agreement to supply the
medical market in Poland. In June 2018, Cronos Group entered into a
five-year exclusive distribution partnership with Delfarma Sp. Zo.o
(“Delfarma”). Delfarma, pharmaceutical wholesaler
with a distribution network of over 5,000 pharmacies and more than
200 hospitals, reaches approximately 40% of the Polish domestic
market. Under the five-year exclusive distribution agreement,
Cronos Group will supply Peace Naturals™ branded cannabis products
to Delfarma for distribution within Poland. The Company also has a
five-year exclusive distribution agreement with G. Pohl-Boskamp
GmbH & Co. KG entered into in October 2017, an international
European pharmaceutical manufacturer and distributor, for the
German market.
Intellectual Property
Initiatives
Cronos Group’s vision to transform industries
through cannabinoid innovation has resulted in two key research and
development initiatives with Ginkgo Bioworks, Inc.
(“Ginkgo”) and Technion Research and Development
Foundation of the Technion – Israel Institute of Technology
(“Technion”).
In September 2018, Cronos Group and Ginkgo
announced a landmark partnership to produce cultured cannabinoids
through fermentation that are identical to those extracted from the
cannabis plant. The research and development partnership is focused
on producing large volumes of eight target cannabinoids, including
rare cannabinoids, from custom yeast strains by leveraging existing
fermentation infrastructure without incurring significant capital
expenditures to build new cultivation and extraction
facilities.
The Company will fund certain research and
development and foundry expenses expected to be approximately
US$22.0 million, subject to the achievement of certain milestones.
In addition, tranches of Cronos Group’s common shares will be
issued to Ginkgo, upon Ginkgo’s demonstration that the
microorganisms are able to produce the target cannabinoids for less
than US$1,000 per kilogram of pure cannabinoid at a scale of
greater than 200 liters.
In November 2018, Ginkgo received from the U.S.
Drug Enforcement Agency (the “DEA”) a DEA
Researcher Controlled Substance Registration Certificate and a
Researcher Controlled Substance Registration Certificate from the
Massachusetts Department of Public Health for the conduct of
research involving cannabinoids. The Company intends to produce and
distribute the target cannabinoids globally and has received
confirmation from Health Canada that this method of production is
permitted under the Cannabis Act.
In October 2018, Cronos Group announced that the
Company had entered into a sponsored research agreement with
Technion to explore the use of cannabinoids and their role in
regulating skin health and skin disorders. The preclinical studies
will be conducted by Technion over a three-year period and will
focus on three skin conditions: acne, psoriasis and skin repair.
Research will be led by Technion faculty members Dr. David “Dedi”
Meiri, Head, Laboratory of Cancer Biology and Cannabinoid Research,
and Dr. Yaron Fuchs, Head, Laboratory of Stem Cell Biology and
Regenerative Medicine, two of the world’s leading researchers in
cannabis and skin stem cell research, respectively.
Brand Portfolio
Cronos Group is building an iconic brand
portfolio designed to meet the needs and exceed the expectations of
our consumers. In May 2018, Cronos Group previewed its premium
recreational brand COVE™. COVE™ was born in the Okanagan Valley in
British Columbia, which is known for producing some of the world’s
finest cannabis. COVE™ products are terpene-rich and hand-trimmed
using only the best results from each harvest. By avoiding
shortcuts like harsh refining processes, COVE™ maintains the
natural balance of the plant across all the brand’s terpene-rich
cannabis extracts and brings the highest quality products to its
consumers.
In September 2018, Cronos Group launched its
other adult-use brand, Spinach™. This mainstream adult-use brand is
fun, lighthearted and playful. Spinach™ is focused on offering
Farm-To-Bowl™ products that bring friends together and make
experiences more enjoyable. This brand has High Expectations™ and
is geared towards a wide range of consumers that don’t take life
too seriously and are looking for entertaining, fun ways to enhance
activities.
Financial Highlights Fiscal Year 2018
and Subsequent to Fiscal 2018
Cronos Group reported net revenues of $5.6
million in the fourth quarter 2018 as compared to $1.6 million for
the fourth quarter 2017, representing an increase of $4.0 million,
or 248%. The increase in revenue was driven by shipments to the
Canadian adult-use market and growth in cannabis oil revenue. For
full year 2018, the Company reported net revenue of $15.7 million
as compared to $4.1 million for full year 2017, representing an
increase of $11.6 million, or 285%. The increase in revenues was
driven by increased production capacity, commencement of shipment
into the Canadian adult-use market, growth of the Company’s medical
client base and growth in cannabis oil revenues.
The Company reported gross profit before fair
value adjustments of $2.5 million in the fourth quarter 2018 as
compared to $0.4 million for the fourth quarter 2017, representing
an increase of $2.0 million, or 449%. The increase in gross profit
before fair value adjustments was largely driven by an increase in
kilograms sold over the comparable prior year period. Gross margin
before fair value adjustments was 44% in the fourth quarter of
2018. The Company reported gross profit before fair value
adjustments of $8.0 million in the full year 2018 as compared to
$2.0 million for the full year 2017, representing an increase of
$6.0 million, or 294%. This increase driven by the increase in
kilograms sold during the period. Gross margin before fair value
was 50% in the full year of 2018.
Cronos Group reported total operating expenses
of $12.4 million in the fourth quarter 2018 as compared to $2.9
million for the fourth quarter 2017, representing an increase of
$9.5 million, or 328%. The increase in operating expenses was
driven by an increase in research and development expenses, talent
acquisition and an increase in professional and consulting fees for
serves rendered in connection with various strategic initiatives,
including the Altria Investment. For full year 2018, the Company
reported operating expenses of $29.4 million as compared to $9.3
million for full year 2017, representing an increase of $20.0
million, or 215%. The increase in operating expenses was driven by
an increase in research and development expenditures including the
Ginkgo Strategic Partnership, talent acquisition and an increase in
professional and consulting fees for services rendered in
connection with various strategic initiatives.
In 2018, Cronos Group strengthened liquidity by
raising $100.0 million and $46.0 million of gross proceeds through
two separate bought deal offerings of common shares in April 2018
and January 2018, respectively. In March 2019, the Company’s
liquidity position was further strengthened by the closing of the
Altria Investment.
In January 2019, the Company entered into a
credit agreement with Canadian Imperial Bank of Commerce, as
administrative agent and lender, and the Bank of Montreal, as
lender, in respect of a $65 million secured non-revolving term loan
credit facility (the “Credit Facility”). In
connection with the closing of the Credit Facility, the Company
used the funds available under the Credit Facility to fully repay
its $40.0 million senior secured construction loan with Romspen
Investment Corporation. In March 2019, the Credit Facility was
repaid in full by the Company with a portion of the proceeds from
the Altria Investment.
In March 2019, the Company sold all of its
approximately 19% equity interest in Whistler Medical Marijuana
Corporation (“Whistler”) to Aurora Cannabis Inc.
(“Aurora”) in an all-share transaction (the
“Aurora Acquisition”). At closing of the Aurora
Acquisition, the Company received approximately $24.7 million in
value of Aurora common shares. Subject to the satisfaction of
certain specified milestones, the Company expects to receive an
additional $7.6 million in value of Aurora common shares.
Conference Call
The Company will host a conference call and live
audio webcast on Tuesday, March 26, 2019 at 8:30 a.m. EST to
discuss fourth quarter 2018 and fiscal year 2018 results. The call
will last approximately one hour. Instructions for the conference
call are provided below:
- Live audio webcast:
https://ir.thecronosgroup.com/events-presentations
- Toll Free from the U.S. and Canada dial-in: (866) 795-2258
- International dial-in: (409) 937-8902
- Conference ID: 8599026
An audio replay of the call will be archived on the Company’s
website for replay.
About Cronos GroupCronos Group
is an innovative global cannabinoid company with international
production and distribution across five continents. Cronos
Group is committed to building disruptive
intellectual property by advancing cannabis
research, technology and product development. With a
passion to responsibly elevate the consumer experience, Cronos
Group is building an iconic brand portfolio. Cronos Group’s
portfolio includes Peace Naturals™, a global health and
wellness platform, and two adult-use brands COVE™ and
Spinach™. To learn more about the Cronos Group and its brands,
please
visit: www.thecronosgroup.com; www.peacenaturals.com; www.covecannabis.ca; www.spinachcannabis.com
Forward-looking statements
This news release contains "forward-looking
information" and "forward-looking statements" within the meaning of
applicable securities laws (collectively, "forward-looking
statements"), which are based on the Company’s current internal
expectations, estimates, projections, assumptions and beliefs. All
information contained herein that is not clearly historical in
nature may constitute forward-looking statements. In some cases,
forward-looking statements can be identified by the use of
forward-looking terminology such as “may”, “will”, “expect”,
“likely”, “should”, “would”, “plan”, “anticipate”, “intend”,
“potential”, “proposed”, “estimate”, “believe”, or other similar
words, expressions, phrases, including negative and grammatical
variations thereof, or statements that certain events or conditions
“may” or “will” happen, or by discussions of strategy.
Forward-looking statements include estimates, plans, expectations,
opinions, forecasts, projections, targets, guidance or other
statements that are not statements of historical fact.
Forward-looking statements are provided for the purposes of
assisting the reader in understanding our financial performance,
financial position and cash flows as at and for periods ended on
certain dates and to present information about management's current
expectations and plans relating to the future and the reader is
cautioned that such information may not be appropriate for any
other purpose. Some of the forward-looking statements contained in
this press release, include, but are not limited to, statements
with respect to: the anticipated benefits of the Altria Investment,
including our ability to scale our product development and
commercialization capabilities as a result thereof; the anticipated
benefits of our joint ventures, strategic alliances, research and
development initiatives and other commercial arrangements,
including the ability to produce and distribute the target
cannabinoids under our strategic partnership with Ginkgo; the
anticipated benefits of the Aurora Acquisition, including the
satisfaction of certain specified milestones; our ability to
execute on our growth strategy, including the construction of
production facilities and the commencement of operations by our
joint ventures and the timing thereof; the ability of Cronos Group,
our joint ventures, strategic partners and commercial
counterparties to obtain all necessary licenses, permits and
approvals; our ability to expand our distribution network and
global footprint; our business and operations; our strategy for
future growth; our intention to build an international iconic brand
portfolio and develop disruptive intellectual property; and the
growth potential of the cannabis industry and our ability to
realize such opportunity. No forward-looking statement can be
guaranteed and Cronos Group cannot guarantee the future statements
contained herein. Forward-looking statements are based upon certain
material assumptions that were applied in drawing a conclusion or
making a forecast or projection, including management's perceptions
of historical trends, current conditions and expected future
developments, as well as other considerations that are believed to
be appropriate in the circumstances. While we consider these
assumptions to be reasonable based on information currently
available to management, there is no assurance that such
expectations will prove to be correct. By their nature,
forward-looking statements are subject to inherent risks and
uncertainties that may be general or specific and which give rise
to the possibility that expectations, forecasts, predictions,
projections or conclusions will not prove to be accurate, that
assumptions may not be correct and that objectives, strategic goals
and priorities will not be achieved. A variety of factors,
including known and unknown risks, many of which are beyond our
control, could cause actual results to differ materially from the
forward-looking statements in this press release. Such factors
include, without limitation, those discussed in the Company's
management’s discussion and analysis for the year ended December
31, 2018 and the Company’s annual information form for the year
ended December 31, 2018, both of which have been filed on the
Company’s profile on SEDAR at www.sedar.com and on EDGAR at
www.sec.gov. Readers are cautioned to consider these and other
factors, uncertainties and potential events carefully and not to
put undue reliance on forward-looking statements. Forward-looking
statements contained herein are made as of the date of this press
release and are based on the beliefs, estimates, expectations and
opinions of management on the date such forward-looking statements
are made. The Company undertakes no obligation to update or revise
any forward-looking statements, whether as a result of new
information, estimates or opinions, future events or results or
otherwise or to explain any material difference between subsequent
actual events and such forward-looking statements, except as
required by applicable law.
All references in this news release to
“dollars”, “C$” or “$” are to Canadian dollars and all references
to “US$” are to United States dollars.
For further information, please
contact:Anna Shlimak Investor Relations Tel: (416)
504-0004 investor.relations@thecronosgroup.com
|
Cronos Group
Inc. |
Consolidated
Statements of Financial Position |
As at
December 31, 2018 and December 31, 2017 |
(in thousands of CDN
$) |
|
|
Notes |
|
2018 |
|
|
2017 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
Cash |
|
25(a) |
|
$ |
32,634 |
|
|
$ |
9,208 |
|
Accounts
receivable |
|
25(a) |
|
|
4,163 |
|
|
|
1,140 |
|
Sales
taxes receivable |
|
|
|
|
3,419 |
|
|
|
3,114 |
|
Prepaids
and other receivables |
|
25(a) |
|
|
3,876 |
|
|
|
790 |
|
Biological assets |
|
7(a) |
|
|
9,074 |
|
|
|
3,722 |
|
Inventory |
|
7(b) |
|
|
11,584 |
|
|
|
8,416 |
|
Loan
receivable |
|
8,25(a) |
|
|
314 |
|
|
|
314 |
|
Total
current assets |
|
|
|
|
65,064 |
|
|
|
26,704 |
|
Advances to joint
ventures |
|
9,25(a) |
|
|
6,941 |
|
|
|
- |
|
Investments in equity
accounted investees |
|
10 |
|
|
3,492 |
|
|
|
3,807 |
|
Other investments |
|
11,25(c) |
|
|
705 |
|
|
|
1,347 |
|
Property, plant and
equipment |
|
12 |
|
|
171,891 |
|
|
|
56,172 |
|
Intangible assets |
|
6(a),13(a) |
|
|
11,234 |
|
|
|
11,207 |
|
Goodwill |
|
13(b) |
|
|
1,792 |
|
|
|
1,792 |
|
Total assets |
|
|
|
$ |
261,119 |
|
|
$ |
101,029 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
|
|
|
Accounts
payable and other liabilities |
|
25(b) |
|
$ |
15,532 |
|
|
$ |
7,848 |
|
Holdbacks
payable |
|
25(b) |
|
|
7,887 |
|
|
|
- |
|
Government remittances payable |
|
25(b) |
|
|
1,123 |
|
|
|
30 |
|
Construction loan payable |
|
15,25(b) |
|
|
20,951 |
|
|
|
- |
|
Total
current liabilities |
|
|
|
|
45,493 |
|
|
|
7,878 |
|
Construction loan
payable |
|
15,25(b) |
|
|
- |
|
|
|
5,367 |
|
Due to non-controlling
interests |
|
14,25(b) |
|
|
2,136 |
|
|
|
- |
|
Deferred income tax
liability |
|
22 |
|
|
1,850 |
|
|
|
1,416 |
|
Total
liabilities |
|
|
|
|
49,479 |
|
|
|
14,661 |
|
Shareholders'
equity |
|
|
|
|
|
|
|
|
|
|
Share
capital |
|
16 |
|
|
225,500 |
|
|
|
83,559 |
|
Warrants |
|
17(a) |
|
|
1,548 |
|
|
|
3,364 |
|
Stock
options |
|
17(b) |
|
|
6,241 |
|
|
|
2,289 |
|
Accumulated deficit |
|
|
|
|
(22,715 |
) |
|
|
(3,724 |
) |
Accumulated other comprehensive income |
|
|
|
|
930 |
|
|
|
880 |
|
Total
equity attributable to shareholders of Cronos Group |
|
|
|
|
211,504 |
|
|
|
86,368 |
|
Non-controlling interests |
|
14 |
|
|
136 |
|
|
|
- |
|
Total
shareholders' equity |
|
|
|
|
211,640 |
|
|
|
86,368 |
|
Total liabilities and shareholders' equity |
|
|
|
$ |
261,119 |
|
|
$ |
101,029 |
|
Commitments and
contingencies |
|
21 |
|
|
|
|
|
|
|
|
Subsequent events |
|
28 |
|
|
|
|
|
|
|
|
|
Cronos Group
Inc. |
Consolidated
Statements of Operations and Comprehensive Income
(Loss) |
For the Years
Ended December 31, 2018 and December 31,
2017 |
(in thousands of CDN $,
except share and per share amounts) |
|
|
Notes |
|
2018 |
|
|
2017 |
|
Gross
revenue |
|
18 |
|
$ |
17,145 |
|
|
$ |
4,082 |
|
Excise taxes |
|
|
|
|
(1,442 |
) |
|
|
- |
|
Net
revenue |
|
|
|
|
15,703 |
|
|
|
4,082 |
|
Cost of
sales |
|
|
|
|
|
|
|
|
|
|
Cost of sales before
fair value adjustments |
|
6(b) |
|
|
7,654 |
|
|
|
2,040 |
|
Gross profit
before fair value adjustments |
|
|
|
|
8,049 |
|
|
|
2,042 |
|
Fair value
adjustments |
|
|
|
|
|
|
|
|
|
|
Unrealized change in fair value of biological assets |
|
6(b) |
|
|
(11,568 |
) |
|
|
(7,637 |
) |
Realized
fair value adjustments on inventory sold in the year |
|
6(b) |
|
|
8,349 |
|
|
|
2,449 |
|
Total
fair value adjustments |
|
|
|
|
(3,219 |
) |
|
|
(5,188 |
) |
Gross
profit |
|
|
|
|
11,268 |
|
|
|
7,230 |
|
Operating
expenses |
|
|
|
|
|
|
|
|
|
|
Sales and
marketing |
|
|
|
|
4,111 |
|
|
|
575 |
|
Research
and development |
|
|
|
|
2,350 |
|
|
|
- |
|
General
and administrative |
|
|
|
|
17,421 |
|
|
|
6,360 |
|
Share-based payments |
|
17(b),20 |
|
|
4,238 |
|
|
|
1,862 |
|
Depreciation and amortization |
|
12,13(a) |
|
|
1,256 |
|
|
|
541 |
|
Total
operating expenses |
|
|
|
|
29,376 |
|
|
|
9,338 |
|
Operating
loss |
|
|
|
|
(18,108 |
) |
|
|
(2,108 |
) |
Other income
(expense) |
|
|
|
|
|
|
|
|
|
|
Interest
income (expense) |
|
|
|
|
107 |
|
|
|
(126 |
) |
Share of
income (loss) from investments in equity accounted investees |
|
10 |
|
|
(936 |
) |
|
|
165 |
|
Gain on
other investments |
|
11 |
|
|
221 |
|
|
|
4,858 |
|
Total
other income (expense) |
|
|
|
|
(608 |
) |
|
|
4,897 |
|
Income (loss) before
income taxes |
|
|
|
|
(18,716 |
) |
|
|
2,789 |
|
Income tax expense |
|
22 |
|
|
489 |
|
|
|
298 |
|
Net income (loss) |
|
|
|
$ |
(19,205 |
) |
|
$ |
2,491 |
|
Net income (loss) attributable to: |
|
|
|
|
|
|
|
|
|
|
Cronos
Group |
|
|
|
$ |
(18,970 |
) |
|
$ |
2,491 |
|
Non-controlling interests |
|
14 |
|
|
(235 |
) |
|
|
- |
|
|
|
|
|
$ |
(19,205 |
) |
|
$ |
2,491 |
|
Other
comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
Gain on
revaluation and disposal of other investments, net of tax |
|
11,22 |
|
$ |
46 |
|
|
$ |
947 |
|
Foreign
exchange gain on translation of foreign operations |
|
2(d),14 |
|
|
4 |
|
|
|
- |
|
Unrealized gains reclassified to net income |
|
11 |
|
n/a |
|
|
|
(1,651 |
) |
Total
other comprehensive income (loss) |
|
|
|
|
50 |
|
|
|
(704 |
) |
Comprehensive
income (loss) |
|
|
|
$ |
(19,155 |
) |
|
$ |
1,787 |
|
Comprehensive
income (loss) attributable to: |
|
|
|
|
|
|
|
|
|
|
Cronos
Group |
|
|
|
$ |
(18,920 |
) |
|
$ |
1,787 |
|
Non-controlling interests |
|
14 |
|
|
(235 |
) |
|
|
- |
|
|
|
|
|
$ |
(19,155 |
) |
|
$ |
1,787 |
|
Net income
(loss) per share |
|
|
|
|
|
|
|
|
|
|
Basic |
|
19 |
|
$ |
(0.11 |
) |
|
$ |
0.02 |
|
Diluted |
|
19 |
|
$ |
(0.11 |
) |
|
$ |
0.01 |
|
Weighted
average number of outstanding shares |
|
|
|
|
|
|
|
|
|
|
Basic |
|
19 |
|
|
172,269,170 |
|
|
|
134,803,542 |
|
Diluted |
|
19 |
|
|
172,269,170 |
|
|
|
176,789,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cronos Group
Inc. |
Consolidated
Statements of Cash Flows |
For the Years
Ended December 31, 2018 and December 31,
2017 |
(in thousands of CDN
$) |
|
|
Notes |
|
2018 |
|
|
2017 |
|
Operating
activities |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
$ |
(19,205 |
) |
|
$ |
2,491 |
|
Items not affecting
cash: |
|
|
|
|
|
|
|
|
|
|
Unrealized change in fair value of biological assets |
|
6(b) |
|
|
(11,568 |
) |
|
|
(7,637 |
) |
Realized
fair value adjustments on inventory sold in the year |
|
6(b) |
|
|
8,349 |
|
|
|
2,449 |
|
Share-based payments |
|
17(b),20 |
|
|
4,238 |
|
|
|
1,862 |
|
Depreciation and amortization |
|
12,13(a) |
|
|
2,510 |
|
|
|
996 |
|
Share of
loss (income) from investments in equity accounted investees |
|
10 |
|
|
936 |
|
|
|
(165 |
) |
Gain on
other investments |
|
11 |
|
|
(221 |
) |
|
|
(4,858 |
) |
Deferred
income tax expense |
|
22 |
|
|
489 |
|
|
|
298 |
|
Foreign
exchange gain |
|
|
|
|
(11 |
) |
|
|
- |
|
Net changes in non-cash
working capital |
|
24 |
|
|
4,744 |
|
|
|
(984 |
) |
Cash flows used in
operating activities |
|
|
|
|
(9,739 |
) |
|
|
(5,548 |
) |
Investing
activities |
|
|
|
|
|
|
|
|
|
|
Repayment
of purchase price liability |
|
|
|
|
- |
|
|
|
(2,590 |
) |
Investments in equity accounted investees |
|
10 |
|
|
(621 |
) |
|
|
(1,076 |
) |
Investment in ABcann Global Corporation |
|
11 |
|
|
- |
|
|
|
(1,016 |
) |
Proceeds
from sale of other investments |
|
11 |
|
|
967 |
|
|
|
10,879 |
|
Payment
to exercise ABcann Global Corporation warrants |
|
11 |
|
|
(113 |
) |
|
|
(2,268 |
) |
Advances
to joint ventures |
|
9 |
|
|
(6,941 |
) |
|
|
- |
|
Purchase
of property, plant and equipment |
|
12 |
|
|
(114,407 |
) |
|
|
(42,701 |
) |
Purchase
of intangible assets |
|
13(a) |
|
|
(360 |
) |
|
|
- |
|
Cash flows used in
investing activities |
|
|
|
|
(121,475 |
) |
|
|
(38,772 |
) |
Financing
activities |
|
|
|
|
|
|
|
|
|
|
Proceeds
from exercise of warrants |
|
17(a) |
|
|
2,800 |
|
|
|
1,624 |
|
Payments
from share appreciation rights |
|
17(b) |
|
|
(21 |
) |
|
|
- |
|
Proceeds
from exercise of options |
|
17(b) |
|
|
584 |
|
|
|
591 |
|
Proceeds
from share issuance |
|
16 |
|
|
146,032 |
|
|
|
49,594 |
|
Share
issuance costs |
|
|
|
|
(9,577 |
) |
|
|
(2,767 |
) |
Proceeds
from construction loan payable |
|
15 |
|
|
15,007 |
|
|
|
6,304 |
|
Payment
of accrued interest on construction loan payable |
|
15 |
|
|
(185 |
) |
|
|
- |
|
Repayment
of mortgage payable |
|
|
|
|
- |
|
|
|
(4,000 |
) |
Transaction costs paid on construction loan payable |
|
15 |
|
|
- |
|
|
|
(1,282 |
) |
Cash flows provided by
financing activities |
|
|
|
|
154,640 |
|
|
|
50,064 |
|
Net change in cash |
|
|
|
|
23,426 |
|
|
|
5,744 |
|
Cash - beginning of
year |
|
|
|
|
9,208 |
|
|
|
3,464 |
|
Cash - end of
year |
|
|
|
$ |
32,634 |
|
|
$ |
9,208 |
|
Supplemental
cash flow information |
|
|
|
|
|
|
|
|
|
|
Interest
paid |
|
|
|
$ |
870 |
|
|
$ |
200 |
|
Interest
received |
|
|
|
$ |
- |
|
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
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