Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) (“Cronos Group”
or the “Company”), today announces its 2021 First Quarter business
results.
“This quarter for Cronos Group would not have
been possible without the tenacious and innovative efforts put
forward by every Cronos employee across our organization. In the
first quarter of 2021 our results in Canada were impacted by market
dynamics due to the COVID-19 pandemic and ensuing stay-at-home
orders and various other restrictions. Despite this, we continued
to push forward our innovation pipeline and execute on our
strategy, which was a true testament to the strength of our team,”
said Kurt Schmidt, President and CEO, Cronos Group.
“In March, we were recognized as one of Fast
Company’s Most Innovative Companies for our joint venture with
Ginkgo Bioworks to produce cannabinoids using biosynthesis. Our
partnership with Ginkgo is critical to executing our Company’s
vision: to transform industries through cannabinoid innovation. A
critical component to commercializing fermented cannabinoids is a
Health Canada processing license, which Cronos Fermentation
received in April. Receiving this license is a great accomplishment
and I am looking forward to bringing our innovative product
pipeline to market over time utilizing this technology. This
partnership is a global effort for our organization, and it is a
great demonstration of how our research and development and
innovation teams across regions work together to push critical
projects forward. Last month, we also announced our U.S. Cronos
Employees Political Action Committee as well as a robust Marketing
Code of Conduct that all of our brands and employees have pledged
to uphold. We’re proud to be on the record supporting responsible
legalization efforts in the United States.”
Financial Results
(in thousands of U.S.
dollars) |
|
Three months ended March 31, |
|
Change |
|
|
2021 |
|
2020 |
|
$ |
|
% |
Net revenue |
|
|
|
|
|
|
|
|
United States |
|
$ |
2,441 |
|
|
|
$ |
2,176 |
|
|
|
$ |
265 |
|
|
|
12 |
|
% |
Rest of World |
|
10,170 |
|
|
|
6,256 |
|
|
|
3,914 |
|
|
|
63 |
|
% |
Consolidated net revenue |
|
12,611 |
|
|
|
8,432 |
|
|
|
4,179 |
|
|
|
50 |
|
% |
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
$ |
(2,963 |
) |
|
|
$ |
(6,476 |
) |
|
|
$ |
3,513 |
|
|
|
(54 |
) |
% |
Gross margin |
|
(23 |
) |
% |
|
(77 |
) |
% |
|
N/A |
|
54 |
|
pp |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (i) |
|
$ |
(37,075 |
) |
|
|
$ |
(37,055 |
) |
|
|
$ |
(20 |
) |
|
|
— |
|
% |
|
|
|
|
|
|
|
|
|
Other
Data |
|
|
|
|
|
|
|
|
Cash and cash equivalents
(ii) |
|
$ |
1,024,450 |
|
|
|
$ |
1,128,396 |
|
|
|
$ |
(103,946 |
) |
|
|
(9 |
) |
% |
Short-term investments
(ii) |
|
214,925 |
|
|
|
206,230 |
|
|
|
8,695 |
|
|
|
4 |
|
% |
Capital expenditures |
|
7,072 |
|
|
|
7,516 |
|
|
|
(444 |
) |
|
|
(6 |
) |
% |
(i) See “Non-GAAP Measures” for more
information, including a reconciliation of adjusted earnings (loss)
before interest, taxes, depreciation and amortization (“Adjusted
EBITDA”)(ii) Dollar amounts are as of the last day of
the period indicated
First Quarter 2021
- Net revenue of $12.6 million in Q1
2021 increased by $4.2 million from Q1 2020. The increase
year-over-year was primarily driven by continued growth in the
adult-use Canadian cannabis market, sales in the Israeli medical
cannabis market, and an increase in sales in the U.S. segment
driven by new U.S. hemp-derived CBD products introductions,
partially offset by strategic price reductions on various adult-use
cannabis products in Canada in the second half of 2020.
- Gross loss of $3.0 million in Q1
2021 decreased by $3.5 million from Q1 2020. The decrease in losses
year-over-year was primarily driven by an increase in net revenue
and a decrease in inventory write-downs in the Rest of World
("ROW") segment.
- Adjusted EBITDA loss of $37.1
million in Q1 2021 increased marginally from Q1 2020. The marginal
increase in losses year-over-year was primarily driven by an
increase in sales and marketing costs due to brand development in
the U.S. segment, and an increase in research and development
("R&D") costs driven by increased spending on product
development and developing cannabinoid intellectual property.
Partially offset by decreases in sales and marketing spend in the
ROW segment, gross loss and general and administrative
expenses.
Business Updates
Brand and Product Portfolio
In April 2021, Cronos Group announced that its
Lord Jones™ brand launched a brand campaign entitled, "A Higher
Order". The campaign features new creative assets along with a mix
of market activations including out-of-home advertising and
television spots in select U.S. test markets. This new Lord Jones™
campaign reaffirms the Company’s commitment to robust, breakthrough
marketing and brand building that aims to bring high-quality U.S.
hemp-derived CBD products to adult consumers.
In the coming weeks, Cronos Group’s mainstream
adult-use brand, Spinach™, intends to launch edibles, a new product
category for Cronos Group, in the Canadian adult-use market. This
product has been developed by the Company’s world class innovation
and R&D teams in partnership with various teams throughout the
organization such as consumer insights, marketing, and sales.
Cronos Group approaches product launches with an aim to be the
best, not necessarily the first. The adult-use edibles are
differentiated from what is currently on the market and seeks to
provide an elevated experience for the consumer. The Company’s new
edible capabilities will serve as a platform for future innovation
that is expected to provide Cronos Group with a robust competitive
advantage.
In April 2021, the Lord Jones™ brand launched a
new product, the Lord Jones™ CBD Bump & Smooth Body Serum,
which is designed to deliver non-abrasive chemical exfoliation that
reduces bumpiness to reveal smoother, brighter looking skin. The
product is available on the Lord Jones™ website and is expected to
be on Sephora’s website and in their retail outlets in the coming
weeks.
In the first quarter of 2021, Cronos Israel
successfully launched PEACE NATURALS™ branded pre-rolls into the
Israeli medical cannabis market. This launch follows the successful
launch of dried flower and oils to the Israeli medical cannabis
market in 2020. Cronos Israel continues to execute in Israel's
rapidly growing market.
Global Supply Chain
In the first quarter of 2021, Natuera, the
Company’s joint venture in Latin America, successfully exported THC
cannabis derivatives from Colombia to the U.S. for R&D
purposes. The import was conducted under a U.S. Drug Enforcement
Administration ("DEA") permit for R&D purposes. Additionally,
Natuera’s wholly owned subsidiary has been granted quotas by
Colombia's Ministry of Justice and Law and Ministry of Health and
Social Protection for the cultivation and manufacture of
psychoactive cannabis into THC products for commercial export.
In the first quarter of 2021, Cronos GrowCo, the
Company’s joint venture in Canada, continued to become operational
in phases, completing its first harvest in the first quarter of
2021. In addition to having a cultivation license for the
operations contemplated by the first phase of the project, Cronos
GrowCo has received a processing license, allowing it to sell into
the Canadian cannabis wholesale market.
Intellectual Property
Initiatives
In April 2021, Cronos Fermentation, Cronos
Group’s GMP-standard fermentation and manufacturing facility in
Winnipeg, Manitoba, received its processing license. This is a
significant milestone not just for Cronos Group, but for the
evolution of the industry and advancements in science that will be
applied in an effort to elevate the consumer experience.
Enterprise Initiatives
In April 2021, Cronos Group announced the launch
of its U.S. Cronos Employees Political Action Committee (the
"Employees PAC"). The Employees PAC was established to support and
educate legislators who are open to responsibly advancing
legislation and regulation for U.S. hemp-derived CBD products in
the U.S. market and supporting a regulated, safe and legal federal
cannabis industry in the U.S.
In May 2021, Cronos Group released a robust
Marketing Code of Conduct ("Marketing Code") as a commitment to
consumers and a resource for employees, industry peers, partners
and policy makers. The Company recognizes that there is a clear
need for standards, which is why Cronos proactively created its own
guidelines. The principles outlined in the Marketing Code apply to
all marketing activities for all brands globally. The Marketing
Code represents Cronos Group’s commitment to responsible marketing
standards - from our leadership team to our external agencies,
Cronos Group expects all such individuals to understand and follow
these principles.
Rest of World Results
Cronos Group’s Rest of World reporting segment
includes results of the Company’s operations for all markets
outside of the U.S.
(in thousands of USD) |
|
Three months ended March 31, |
|
Change |
|
|
2021 |
|
2020 |
|
$ |
|
% |
Cannabis flower |
|
$ |
9,434 |
|
|
|
$ |
2,741 |
|
|
|
$ |
6,693 |
|
|
|
244 |
|
% |
Cannabis extracts |
|
703 |
|
|
|
3,400 |
|
|
|
(2,697 |
) |
|
|
(79 |
) |
% |
Other |
|
33 |
|
|
|
115 |
|
|
|
(82 |
) |
|
|
(71 |
) |
% |
Net revenue |
|
10,170 |
|
|
|
6,256 |
|
|
|
3,914 |
|
|
|
63 |
|
% |
|
|
|
|
|
Gross profit (loss) |
|
$ |
(4,139 |
) |
|
|
$ |
(7,558 |
) |
|
|
$ |
3,419 |
|
|
|
(45 |
) |
% |
Gross margin |
|
(41 |
) |
% |
|
(121 |
) |
% |
|
N/A |
|
80 |
|
pp |
|
|
|
|
|
|
|
Adjusted EBITDA (i) |
|
$ |
(22,184 |
) |
|
|
$ |
(29,010 |
) |
|
|
$ |
6,826 |
|
|
|
(24 |
) |
% |
(i) See “Non-GAAP Measures” for
more information, including a reconciliation of Adjusted
EBITDA
First Quarter 2021
- Net revenue of $10.2 million in Q1
2021 increased by $3.9 million from Q1 2020. The increase
year-over-year was primarily driven by continued growth in the
adult-use cannabis flower market in Canada and sales in the Israeli
medical cannabis market. Partially offset by strategic price
reductions on various adult-use cannabis products in Canada in the
second half of 2020 and a decrease in cannabis extract sales in
Canada primarily due to fluctuating provincial demand.
- Gross loss of $4.1 million in Q1
2021 decreased by $3.4 million from Q1 2020. The decrease in losses
year-over-year was primarily driven by an increase in net revenue
and a decrease in inventory write-downs.
- Adjusted EBITDA loss of $22.2
million in Q1 2021 decreased by $6.8 million from Q1 2020. The
improvement year-over-year was primarily driven by a decrease in
gross loss and a decline in general and administrative expenses.
Partially offset by increased R&D costs.
United States Results
Cronos Group’s U.S. reporting segment includes
results of the Company’s operations for all brands and products in
the U.S.
(in thousands of USD) |
|
Three months ended March 31, |
|
Change |
|
|
2021 |
|
2020 |
|
$ |
|
% |
Net revenue |
|
$ |
2,441 |
|
|
|
$ |
2,176 |
|
|
|
$ |
265 |
|
|
|
12 |
|
% |
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
$ |
1,176 |
|
|
|
$ |
1,082 |
|
|
|
$ |
94 |
|
|
|
9 |
|
% |
Gross margin |
|
48 |
|
% |
|
50 |
|
% |
|
N/A |
|
(2 |
) |
pp |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (i) |
|
$ |
(9,510 |
) |
|
|
$ |
(5,782 |
) |
|
|
$ |
(3,728 |
) |
|
|
64 |
|
% |
(i) See “Non-GAAP Measures” for
more information, including a reconciliation of Adjusted
EBITDA.
First Quarter 2021
- Net revenue of $2.4 million in Q1
2021 increased by $0.3 million from Q1 2020. The increase
year-over-year was primarily driven by the introduction of new U.S.
hemp-derived CBD products.
- Gross profit of $1.2 million in Q1
2021 increased by $0.1 million from Q1 2020.
- Adjusted EBITDA loss of $9.5
million in Q1 2021 increased by $3.7 million from Q1 2020. The
increase in losses year-over-year was primarily driven by an
increase in sales and marketing costs related to brand
development.
Conference Call
The Company will host a conference call and live
audio webcast on Friday, May 7, 2021, at 8:30 a.m. EDT to discuss
First Quarter 2021 business results and outlook. The call will last
approximately one hour. An audio replay of the call will be
archived on the Company’s website for replay. 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: 3586688
About Cronos Group
Cronos 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 wellness platform, two adult-use brands, COVE™ and Spinach™,
and three U.S. hemp-derived CBD brands, Lord Jones™, Happy Dance™
and PEACE+™. For more information about Cronos Group and its
brands, please visit: www.thecronosgroup.com.
Forward-looking Statements
This press release may contain information that
may constitute forward-looking information and forward-looking
statements within the meaning of applicable securities laws
(collectively, “Forward-Looking Statements”), which are based upon
our current internal expectations, estimates, projections,
assumptions and beliefs. All information 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 “expect”, “likely”, “may”,
“will”, “should”, “intend”, “anticipate”, “potential”, “proposed”,
“estimate” and other similar words, expressions and phrases,
including negative and grammatical variations thereof, or
statements that certain events or conditions “may” or “will”
happen, or by discussion 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 include, but are not
limited to, statements with respect to:
- the uncertainties associated with
the COVID-19 pandemic, including our ability, and the abilities of
our joint ventures and our suppliers and distributors, to
effectively deal with the restrictions, limitations and health
issues presented by the COVID-19 pandemic, the ability to continue
our production, distribution and sale of our products, and demand
for and the use of our products by consumers;
- laws and regulations and any
amendments thereto applicable to our business and the impact
thereof, including uncertainty regarding the application of United
States ("U.S.") state and federal law to U.S. hemp (including CBD)
products and the scope of any regulations by the U.S. Food and Drug
Administration, the DEA, the U.S. Federal Trade Commission, the
U.S. Patent and Trademark Office (the "PTO") and any state
equivalent regulatory agencies over U.S. hemp (including CBD)
products;
- the laws and regulations and any
amendments thereto relating to the U.S. hemp industry in the U.S.,
including the promulgation of regulations for the U.S. hemp
industry by the U.S. Department of Agriculture and relevant state
regulatory authorities;
- the grant, renewal and impact of
any license or supplemental license to conduct activities with
cannabis or any amendments thereof;
- our international activities and
joint venture interests, including required regulatory approvals
and licensing, anticipated costs and timing, and expected
impact;
- our ability to successfully create
and launch brands and further create, launch and scale U.S.
hemp-derived consumer products, and cannabis products;
- the benefits, viability, safety,
efficacy, dosing and social acceptance of cannabis including CBD
and other cannabinoids;
- expectations regarding the
implementation and effectiveness of key personnel changes;
- the anticipated benefits and impact
of the Altria's C$2.4 billion (approximately $1.8 billion)
investment in us (the “Altria Investment”);
- the potential exercise of the
warrant held by Altria, pre-emptive rights and/or top-up rights in
connection with the Altria Investment, including proceeds to us
that may result therefrom;
- expectations regarding the use of
proceeds of equity financings, including the proceeds from the
Altria Investment;
- the legalization of the use of
cannabis for medical or adult-use in jurisdictions outside of
Canada, the related timing and impact thereof and our intentions to
participate in such markets, if and when such use is
legalized;
- expectations regarding the
potential success of, and the costs and benefits associated with,
our joint ventures, strategic alliances and equity investments,
including the strategic partnership (the "Ginkgo Strategic
Partnership") with Ginkgo Bioworks, Inc.;
- our ability to execute on our
strategy and the anticipated benefits of such strategy;
- expectations of the amount or
frequency of impairment losses, including as a result of the
write-down of intangible assets, including goodwill;
- the ongoing impact of the
legalization of additional cannabis product types and forms for
adult-use in Canada, including federal, provincial, territorial and
municipal regulations pertaining thereto, the related timing and
impact thereof and our intentions to participate in such
markets;
- the future performance of our
business and operations;
- our competitive advantages and
business strategies;
- the competitive conditions of the
industry;
- the expected growth in the number
of customers using our products;
- our ability or plans to identify,
develop, commercialize or expand our technology and R&D
initiatives in cannabinoids, or the success thereof;
- expectations regarding acquisitions
and dispositions and the anticipated benefits therefrom, including
the proposed sale of our Original B.C. Ltd. (“OGBC”) production
facility;
- expectations regarding revenues,
expenses and anticipated cash needs;
- expectations regarding cash flow,
liquidity and sources of funding;
- expectations regarding capital
expenditures;
- the expansion of our production and
manufacturing, the costs and timing associated therewith and the
receipt of applicable production and sale licenses;
- the expected growth in our growing,
production and supply chain capacities;
- expectations regarding the
resolution of litigation and other legal and regulatory
proceedings, reviews and investigations;
- expectations with respect to future
production costs;
- expectations with respect to future
sales and distribution channels and networks;
- the expected methods to be used to
distribute and sell our products;
- the anticipated future gross
margins of our operations;
- accounting standards and
estimates;
- our ability to timely and
effectively remediate any material weaknesses in our internal
control over financial reporting; and
- expectations regarding the costs
and benefits associated with our contracts and agreements with
third parties, including under our third-party supply and
manufacturing agreements.
Certain of the Forward-Looking Statements
contained herein concerning the industries in which we conduct our
business are based on estimates prepared by us using data from
publicly available governmental sources, market research, industry
analysis and on assumptions based on data and knowledge of these
industries, which we believe to be reasonable. However, although
generally indicative of relative market positions, market shares
and performance characteristics, such data is inherently imprecise.
The industries in which we conduct our business involve risks and
uncertainties that are subject to change based on various factors,
which are described further below.
The Forward-Looking Statements contained herein
are based upon certain material assumptions that were applied in
drawing a conclusion or making a forecast or projection, including:
(i) our ability, and the abilities of our joint ventures and our
suppliers and distributors, to effectively deal with the
restrictions, limitations and health issues presented by the
COVID-19 pandemic and the ability to continue our production,
distribution and sale of our products and customer demand for and
use of our products; (ii) management’s perceptions of historical
trends, current conditions and expected future developments; (iii)
our ability to generate cash flow from operations; (iv) general
economic, financial market, regulatory and political conditions in
which we operate; (v) the production and manufacturing capabilities
and output from our facilities and our joint ventures, strategic
alliances and equity investments; (vi) consumer interest in our
products; (vii) competition; (viii) anticipated and unanticipated
costs; (ix) government regulation of our activities and products
including but not limited to the areas of taxation and
environmental protection; (x) the timely receipt of any required
regulatory authorizations, approvals, consents, permits and/or
licenses; (xi) our ability to obtain qualified staff, equipment and
services in a timely and cost-efficient manner; (xii) our ability
to conduct operations in a safe, efficient and effective manner;
(xiii) our ability to realize anticipated benefits, synergies or
generate revenue, profits or value from our recent acquisitions
into our existing operations; (xiv) our ability to complete planned
dispositions, including the sale of OGBC, and, if completed, obtain
our anticipated sales price; and (xv) other considerations that
management believes to be appropriate in the circumstances. While
our management considers 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 and other reports we file with, or furnish to, the SEC and
other regulatory agencies and made by our directors, officers,
other employees and other persons authorized to speak on our
behalf. Such factors include, without limitation, the risk that the
COVID-19 pandemic may disrupt our operations and those of our
suppliers and distribution channels and negatively impact the
demand for and use of our products; the risk that cost savings and
any other synergies from the Altria Investment may not be fully
realized or may take longer to realize than expected; the risk that
we will not complete planned dispositions, including the sale of
OGBC, or, if completed, obtain our anticipated sales price; the
implementation and effectiveness of key personnel changes; future
levels of revenues; consumer demand for cannabis and U.S. hemp
products; our ability to manage disruptions in credit markets or
changes to our credit ratings; future levels of capital,
environmental or maintenance expenditures, general and
administrative and other expenses; the success or timing of
completion of ongoing or anticipated capital or maintenance
projects; business strategies, growth opportunities and expected
investment; the adequacy of our capital resources and liquidity,
including but not limited to, availability of sufficient cash flow
to execute our business plan (either within the expected timeframe
or at all); the potential effects of judicial, regulatory or other
proceedings, or threatened litigation or proceedings, on our
business, financial condition, results of operations and cash
flows; volatility in and/or degradation of general economic,
market, industry or business conditions; compliance with applicable
environmental, economic, health and safety, energy and other
policies and regulations and in particular health concerns with
respect to vaping and the use of cannabis and U.S. hemp products in
vaping devices; the anticipated effects of actions of third parties
such as competitors, activist investors or federal (including U.S.
federal), state, provincial, territorial or local regulatory
authorities or self-regulatory organizations, changes in regulatory
requirements in relation to our business and products; and the
factors discussed under the heading “Risk Factors” in the Company's
Annual Report on Form 10-K for the year ended December 31, 2020 and
subsequent reports on Form 10-Q. 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 are provided for the
purposes of assisting the reader in understanding our financial
performance, financial position and cash flows as of 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 the Forward-Looking Statements may
not be appropriate for any other purpose. While we believe that the
assumptions and expectations reflected in the Forward-Looking
Statements are reasonable based on information currently available
to management, there is no assurance that such assumptions and
expectations will prove to have been correct. Forward-Looking
Statements are made as of the date they are made and are based on
the beliefs, estimates, expectations and opinions of management on
that date. We undertake 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. The Forward-Looking Statements
contained in this press release and other reports we file with, or
furnish to, the SEC and other regulatory agencies and made by our
directors, officers, other employees and other persons authorized
to speak on our behalf are expressly qualified in their entirety by
these cautionary statements.
As used in this press release, “CBD” means
cannabidiol and “U.S. hemp” has the meaning given to the term
“hemp” in the U.S. Agricultural Improvement Act of 2018, including
hemp-derived CBD.
Cronos Group Inc.Condensed Consolidated
Balance SheetsAs of March 31, 2021 and December 31,
2020(In thousands of U.S. dollars, except share
amounts)
|
As of March 31, 2021 |
|
As of December 31, 2020 |
Assets |
(Unaudited) |
|
(Audited) |
Current assets |
|
|
|
Cash and cash equivalents |
$ |
1,024,450 |
|
|
|
$ |
1,078,023 |
|
|
Short-term investments |
214,925 |
|
|
|
211,766 |
|
|
Accounts receivable, net |
6,997 |
|
|
|
8,928 |
|
|
Other receivables |
3,796 |
|
|
|
10,033 |
|
|
Current portion of loans receivable, net |
6,717 |
|
|
|
7,083 |
|
|
Prepaids and other current assets |
15,053 |
|
|
|
11,161 |
|
|
Inventory, net |
46,437 |
|
|
|
44,002 |
|
|
Held-for-sale assets |
1,969 |
|
|
|
1,176 |
|
|
Total current assets |
1,320,344 |
|
|
|
1,372,172 |
|
|
Advances to joint ventures |
487 |
|
|
|
467 |
|
|
Investments in equity accounted investees, net |
19,221 |
|
|
|
19,235 |
|
|
Loan receivable, net |
90,953 |
|
|
|
87,191 |
|
|
Property, plant and equipment, net |
192,123 |
|
|
|
187,599 |
|
|
Right-of-use assets |
8,538 |
|
|
|
9,776 |
|
|
Intangible assets, net |
70,085 |
|
|
|
69,720 |
|
|
Goodwill |
179,531 |
|
|
|
179,522 |
|
|
Total assets |
$ |
1,881,282 |
|
|
|
$ |
1,925,682 |
|
|
|
|
|
|
Liabilities |
|
|
|
Current liabilities |
|
|
|
Accounts payable and other liabilities |
$ |
29,213 |
|
|
|
$ |
42,102 |
|
|
Current portion of lease obligation |
1,130 |
|
|
|
1,322 |
|
|
Derivative liabilities |
272,300 |
|
|
|
163,410 |
|
|
Total current liabilities |
302,643 |
|
|
|
206,834 |
|
|
Due to non-controlling interests |
2,129 |
|
|
|
2,188 |
|
|
Lease obligation |
8,231 |
|
|
|
8,492 |
|
|
Total
liabilities |
313,003 |
|
|
|
217,514 |
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
Shareholders’
equity |
|
|
|
Share capital |
584,912 |
|
|
|
569,260 |
|
|
Additional paid-in capital |
32,090 |
|
|
|
34,596 |
|
|
Retained earnings |
895,503 |
|
|
|
1,064,509 |
|
|
Accumulated other comprehensive income |
58,144 |
|
|
|
42,999 |
|
|
Total equity attributable to shareholders of Cronos Group |
1,570,649 |
|
|
|
1,711,364 |
|
|
Non-controlling interests |
(2,370 |
) |
|
|
(3,196 |
) |
|
Total shareholders’
equity |
1,568,279 |
|
|
|
1,708,168 |
|
|
Total liabilities and
shareholders’ equity |
$ |
1,881,282 |
|
|
|
$ |
1,925,682 |
|
|
See notes to consolidated financial statements.
Cronos Group Inc.Condensed Consolidated
Statements of Net Income (Loss) and Comprehensive Income
(Loss) For the three months ended
March 31, 2021 and 2020 (In thousands of
U.S. dollars, except share amounts, unaudited)
|
|
Three months ended March 31, |
|
|
2021 |
|
2020 |
Net revenue, before excise taxes |
|
$ |
14,654 |
|
|
|
$ |
9,344 |
|
|
Excise taxes |
|
(2,043 |
) |
|
|
(912 |
) |
|
Net revenue |
|
12,611 |
|
|
|
8,432 |
|
|
Cost of sales |
|
15,574 |
|
|
|
6,946 |
|
|
Inventory write-down |
|
— |
|
|
|
7,962 |
|
|
Gross profit (loss) |
|
(2,963 |
) |
|
|
(6,476 |
) |
|
Operating
expenses |
|
|
|
|
Sales and marketing |
|
10,254 |
|
|
|
7,112 |
|
|
Research and development (“R&D”) |
|
5,102 |
|
|
|
4,590 |
|
|
General and administrative |
|
21,906 |
|
|
|
23,759 |
|
|
Share-based payments |
|
2,499 |
|
|
|
2,436 |
|
|
Depreciation and amortization |
|
735 |
|
|
|
687 |
|
|
Total operating expenses |
|
40,496 |
|
|
|
38,584 |
|
|
Operating loss |
|
(43,459 |
) |
|
|
(45,060 |
) |
|
Other income
(loss) |
|
|
|
|
Interest income, net |
|
2,329 |
|
|
|
7,751 |
|
|
Gain (loss) on revaluation of derivative liabilities |
|
(116,874 |
) |
|
|
113,368 |
|
|
Impairment loss on property, plant and equipment and right-of-use
assets |
|
(1,741 |
) |
|
|
— |
|
|
Other loss |
|
(1,859 |
) |
|
|
(378 |
) |
|
Total other income (loss) |
|
(118,145 |
) |
|
|
120,741 |
|
|
Income (loss) from continuing
operations |
|
(161,604 |
) |
|
|
75,681 |
|
|
Loss from discontinued operations |
|
(21 |
) |
|
|
— |
|
|
Net income (loss) |
|
$ |
(161,625 |
) |
|
|
$ |
75,681 |
|
|
Net income (loss)
attributable to: |
|
|
|
|
Cronos Group |
|
$ |
(161,312 |
) |
|
|
$ |
76,040 |
|
|
Non-controlling interests |
|
(313 |
) |
|
|
(359 |
) |
|
|
|
$ |
(161,625 |
) |
|
|
$ |
75,681 |
|
|
Other comprehensive
income (loss) |
|
|
|
|
Foreign exchange gain (loss) on translation |
|
$ |
16,284 |
|
|
|
$ |
(113,692 |
) |
|
Total other comprehensive income (loss) |
|
16,284 |
|
|
|
(113,692 |
) |
|
Comprehensive loss |
|
$ |
(145,341 |
) |
|
|
$ |
(38,011 |
) |
|
Comprehensive income
(loss) attributable to: |
|
|
|
|
Cronos Group |
|
$ |
(146,167 |
) |
|
|
$ |
(37,675 |
) |
|
Non-controlling interests |
|
826 |
|
|
|
(336 |
) |
|
|
|
$ |
(145,341 |
) |
|
|
$ |
(38,011 |
) |
|
Net income (loss) per
share |
|
|
|
|
Basic - continuing operations |
|
$ |
(0.44 |
) |
|
|
$ |
0.22 |
|
|
Diluted - continuing operations |
|
(0.44 |
) |
|
|
0.20 |
|
|
Weighted average
number of outstanding shares |
|
|
|
|
Basic |
|
363,012,740 |
|
|
|
348,817,472 |
|
|
Diluted |
|
363,012,740 |
|
|
|
374,330,168 |
|
|
See notes to consolidated financial statements.
Cronos Group Inc.Condensed Consolidated
Statements of Cash Flows For the three
months ended March 31, 2021 and 2020(In thousands of
U.S. dollars, except share amounts, unaudited)
|
Three months ended March 31, |
|
2021 |
|
2020 |
Operating
activities |
|
|
|
Net income (loss) |
$ |
(161,625 |
) |
|
|
$ |
75,681 |
|
|
Items not affecting cash: |
|
|
|
Inventory write-down |
— |
|
|
|
7,962 |
|
|
Share-based payments |
2,499 |
|
|
|
2,436 |
|
|
Depreciation and amortization |
1,880 |
|
|
|
1,162 |
|
|
Gain (loss) on revaluation of derivative liabilities |
116,874 |
|
|
|
(113,368 |
) |
|
Impairment loss on property, plant and equipment and right-of-use
assets |
1,741 |
|
|
|
— |
|
|
Expected credit losses on financial assets and non-cash charges to
inventory |
681 |
|
|
|
2,068 |
|
|
Other non-cash operating activities, net |
1,749 |
|
|
|
643 |
|
|
Changes in non-cash working
capital: |
|
|
|
Accounts receivable, net |
1,931 |
|
|
|
472 |
|
|
Other receivables |
5,687 |
|
|
|
(1,235 |
) |
|
Prepaids and other current assets |
(3,737 |
) |
|
|
(2,439 |
) |
|
Inventory, net |
(1,007 |
) |
|
|
(14,319 |
) |
|
Accounts payable and other liabilities |
(12,675 |
) |
|
|
2,039 |
|
|
Cash flows used in operating
activities |
(46,002 |
) |
|
|
(38,898 |
) |
|
Investing
activities |
|
|
|
Proceeds from (purchase of) short-term investments, net |
— |
|
|
|
80,333 |
|
|
Purchase of property, plant and equipment |
(6,680 |
) |
|
|
(6,411 |
) |
|
Purchase of intangible assets |
(392 |
) |
|
|
(1,105 |
) |
|
Advances on loans receivable |
(2,645 |
) |
|
|
(14,512 |
) |
|
Other non-cash investing activities, net |
— |
|
|
|
781 |
|
|
Cash flows provided by (used in) investing activities |
(9,717 |
) |
|
|
59,086 |
|
|
Financing
activities |
|
|
|
Repayment of lease obligations |
(613 |
) |
|
|
(448 |
) |
|
Withholding taxes paid on share-based awards |
(8,673 |
) |
|
|
— |
|
|
Other non-cash investing activities, net |
10 |
|
|
|
— |
|
|
Cash flows provided by (used in) financing activities |
(9,276 |
) |
|
|
(448 |
) |
|
Effect of foreign currency
translation on cash and cash equivalents |
11,422 |
|
|
|
(91,037 |
) |
|
Net change in cash and cash equivalents |
(53,573 |
) |
|
|
(71,297 |
) |
|
Cash and cash equivalents,
beginning of period |
1,078,023 |
|
|
|
1,199,693 |
|
|
Cash and cash equivalents, end of period |
$ |
1,024,450 |
|
|
|
$ |
1,128,396 |
|
|
Supplemental cash flow
information |
|
|
|
Interest paid |
$ |
— |
|
|
|
$ |
7 |
|
|
Interest received |
1,157 |
|
|
|
7,758 |
|
|
Income taxes paid |
624 |
|
|
|
— |
|
|
See notes to consolidated financial
statements.
Non-GAAP Measures
Cronos Group reports its financial results in
accordance with Generally Accepted Accounting Principles in the
U.S. (“US GAAP”). This press release refers to measures not
recognized under US GAAP (“non-GAAP measures”). These non-GAAP
measures do not have a standardized meaning prescribed by US GAAP
and are therefore unlikely to be comparable to similar measures
presented by other companies. Rather, these non-GAAP measures are
provided as a supplement to corresponding US GAAP measures to
provide additional information regarding our results of operations
from management’s perspective. Accordingly, non-GAAP measures
should not be considered a substitute for, or superior to, the
financial information prepared and presented in accordance with US
GAAP. All non-GAAP measures presented in this press release are
reconciled to their closest reported US GAAP measure.
Adjusted EBITDA
Management reviews Adjusted EBITDA, a non-GAAP
measure which excludes non-cash items or items that do not reflect
management’s assessment of on-going business performance.
Management defines Adjusted EBITDA as net income (loss) before
interest, tax expense, depreciation and amortization adjusted for:
impairment loss on property, plant and equipment and right-of-use
assets, loss (gain) on revaluation of derivative liabilities, other
loss (income), loss from discontinued operations, share-based
payments and review costs related to the restatement of the
Company’s 2019 interim financial statements, the Company’s
responses to the reviews of such interim financial statements by
various regulatory authorities and legal costs defending
shareholder class action complaints brought against the Company as
a result of the restatement (see Part II, Item 1 “Legal
Proceedings” of our Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2021 for a discussion of the regulatory
reviews and shareholder class action complaints relating to the
restatement of the 2019 interim financial statements).
Management believes that Adjusted EBITDA
provides useful insight into underlying business trends and results
and provides a more meaningful comparison of period-over-period
results. Management uses Adjusted EBITDA for planning, forecasting
and evaluating business and financial performance, including
allocating resources and evaluating results relative to employee
compensation targets.
Adjusted EBITDA by segment
Management also reviews adjusted earnings (loss)
before interest, tax, depreciation and amortization by segment
(“Adjusted EBITDA by segment”), a non-GAAP measure which excludes
non-cash items or items that do not reflect management’s assessment
of on-going business performance. Corporate expenses are removed
from Adjusted EBITDA by segment. Corporate expenses are expenses
that relate to the consolidated business. The Company’s method of
allocating corporate expenses is refined periodically. Management
defines Adjusted EBITDA by segment as net income (loss) by segment
before interest, tax expense, depreciation and amortization
adjusted for the same items that are adjusted in consolidated
Adjusted EBITDA.
Management believes that Adjusted EBITDA by
segment provides useful insight into underlying segment trends and
results and provides a more meaningful comparison of
period-over-period segment results. Management uses Adjusted EBITDA
by segment for planning, forecasting and evaluating business and
financial performance, including allocating resources and
evaluating results relative to employee compensation targets.
Adjusted EBITDA and Adjusted EBITDA by segment
is reconciled to net income (loss) as follows for the three months
ended March 31, 2021 and 2020:
(In thousands of U.S.
dollars) |
Three months ended March 31, 2021 |
|
US |
|
ROW |
|
CorporateExpenses |
|
Total |
Net income (loss) |
$ |
(12,092 |
) |
|
|
$ |
(142,147 |
) |
|
|
$ |
(7,386 |
) |
|
|
$ |
(161,625 |
) |
Adjustments |
|
|
|
|
|
|
|
Interest income, net |
(3 |
) |
|
|
(2,326 |
) |
|
|
— |
|
|
|
(2,329 |
) |
Impairment loss on property, plant and equipment and right-of-use
assets |
1,741 |
|
|
|
— |
|
|
|
— |
|
|
|
1,741 |
|
Loss on revaluation of derivative liabilities |
— |
|
|
|
116,874 |
|
|
|
— |
|
|
|
116,874 |
|
Other loss |
— |
|
|
|
1,859 |
|
|
|
— |
|
|
|
1,859 |
|
Loss from discontinued operations |
— |
|
|
|
21 |
|
|
|
— |
|
|
|
21 |
|
Share-based payments |
745 |
|
|
|
1,754 |
|
|
|
— |
|
|
|
2,499 |
|
Review costs related to restatement of 2019 interim financial
statements |
— |
|
|
|
— |
|
|
|
2,005 |
|
|
|
2,005 |
|
Adjusted EBIT |
(9,609 |
) |
|
|
(23,965 |
) |
|
|
(5,381 |
) |
|
|
(38,955 |
) |
Adjustments |
|
|
|
|
|
|
|
Depreciation and amortization |
99 |
|
|
|
1,781 |
|
|
|
— |
|
|
|
1,880 |
|
Adjusted EBITDA |
$ |
(9,510 |
) |
|
|
$ |
(22,184 |
) |
|
|
$ |
(5,381 |
) |
|
|
$ |
(37,075 |
) |
(In thousands of U.S.
dollars) |
Three months ended March 31, 2020 |
|
US |
|
ROW |
|
CorporateExpenses |
|
Total |
Net income (loss) |
$ |
(6,516 |
) |
|
|
$ |
88,867 |
|
|
|
$ |
(6,670 |
) |
|
|
$ |
75,681 |
|
Adjustments |
|
|
|
|
|
|
|
Interest income, net |
(7 |
) |
|
|
(7,744 |
) |
|
|
— |
|
|
|
(7,751 |
) |
Gain on revaluation of derivative liabilities |
— |
|
|
|
(113,368 |
) |
|
|
— |
|
|
|
(113,368 |
) |
Other loss |
— |
|
|
|
378 |
|
|
|
— |
|
|
|
378 |
|
Share-based payments |
706 |
|
|
|
1,730 |
|
|
|
— |
|
|
|
2,436 |
|
Review costs related to restatement of 2019 interim financial
statements |
— |
|
|
|
— |
|
|
|
4,407 |
|
|
|
4,407 |
|
Adjusted EBIT |
(5,817 |
) |
|
|
(30,137 |
) |
|
|
(2,263 |
) |
|
|
(38,217 |
) |
Adjustments |
|
|
|
|
|
|
|
Depreciation and amortization |
35 |
|
|
|
1,127 |
|
|
|
— |
|
|
|
1,162 |
|
Adjusted EBITDA |
$ |
(5,782 |
) |
|
|
$ |
(29,010 |
) |
|
|
$ |
(2,263 |
) |
|
|
$ |
(37,055 |
) |
Other items affecting the comparability
of net income (loss) during Q1 2021 and Q1 2020
Interest income, net
For Q1 2021, we reported interest income, net of
$2.3 million representing a decrease of $5.4 million from Q1 2020.
Net interest income in the first quarter of 2021 decreased compared
to the first quarter of 2020 primarily due to a lower interest
earning account during the three months ended March 31, 2021
compared to the interest earning accounts during the three months
ended March 31, 2020.
Gain/loss on revaluation of derivative
liabilities
For Q1 2021, we reported a loss on revaluation
of derivative liabilities of $116.9 million representing a decrease
of $230.2 million from Q1 2020. The valuation of derivative
liabilities is based on inputs such as the Company’s share price
and volatility, expected term and expected risk-free interest rate
which have in the past, and may in the future, fluctuate
significantly period-to-period. The Company expects continued
changes in derivative valuations. For further information, see Note
5. Derivative Liabilities to the Company’s condensed consolidated
financial statements under Item 1 “Financial Statements” of the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2021.
Review costs related to restatement of 2019
interim financial statements
For Q1 2021, we reported review costs related to
the restatement of 2019 interim financial statements of $2.0
million, which are included within general and administrative
expenses in the consolidated statements of net income (loss)
representing a decrease of $2.4 million from Q1 2020. These
financial statement review costs include costs related to the
restatement of the Company’s 2019 interim financial statements,
costs related to the Company’s responses to requests for
information from various regulatory authorities relating to such
restatement and legal costs defending shareholder class action
complaints brought against the Company as a result of the
restatement.
Impairment loss on property, plant and equipment
and right-of-use assets
For Q1 2021, we reported an impairment loss on
property, plant and equipment of $1.0 million related to
leasehold improvements located within leased premises, encompassing
approximately 6,000 square feet, in Los Angeles, California, which
the Company determined it no longer had plans to use. An impairment
loss on the associated right-of-use asset of $0.7 million was
also recorded during Q1 2021. No impairment loss was recognized on
leasehold improvements or right-of-use assets during Q1 2020.
Foreign currency exchange
rates
All currency amounts in this Press
Release are stated in U.S. dollars (“USD”), which is
our reporting currency, unless otherwise noted. All references to
“dollars” or “$” are to USD. The assets and liabilities
of the Company's foreign operations are translated into USD at the
exchange rate in effect as of March 31, 2021, December 31,
2020, and March 31, 2020. Transactions affecting shareholders'
equity are translated at historical foreign exchange rates. The
consolidated statements of net income (loss) and comprehensive
income (loss) and the consolidated statements of cash flows of the
Company's foreign operations are translated into USD by applying
the average foreign exchange rate in effect for the reporting
period using Bloomberg.
The exchange rates used to translate from USD to
Canadian dollars (“C$”) is shown below:
(Exchange rates are shown as
C$ per $) |
As of |
|
March 31, 2021 |
|
March 31, 2020 |
|
December 31, 2020 |
Average rate |
1.2665 |
|
|
1.3437 |
|
|
1.3036 |
|
Spot rate |
1.2563 |
|
|
1.4062 |
|
|
1.2751 |
|
For further information, please
contact:Shayne LaidlawInvestor RelationsTel: (416)
504-0004investor.relations@thecronosgroup.com
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