Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) (“Cronos Group”
or the “Company”), today announces its 2019 fourth quarter and
full-year business results.
The Audit Committee of the Cronos Group Board of
Directors has completed its review of certain bulk resin purchases
and sales of products through the wholesale channel. Following
completion of the review, and on the recommendation of the Audit
Committee and advice from the Company’s independent auditor, KPMG
LLP, the Board determined that Cronos Group will restate its
unaudited interim financial statements for the first, second and
third quarters of 2019. Accordingly, the Company reduced revenue
for the three months ended March 31, 2019 by C$2.5 million and the
three months ended September 30, 2019 by C$5.1 million.
“We are pleased that the Audit Committee has
completed its review, and that Cronos Group is now current with the
filing of our financial reports. As we move forward, we are
committed to improving our internal controls and financial
reporting practices, maintaining the highest standards of
transparency and accountability, and enhancing our capabilities and
resources across functions to support our strategy,” said Mike
Gorenstein, CEO of Cronos Group.
“Cronos Group ended 2019 with a strong
foundation and balance sheet, and a clear focus on achieving our
core strategic initiatives to drive long-term, sustainable growth.
Importantly, we expanded our Canadian distribution footprint,
broadened our brand portfolio, enhanced our global supply chain
capabilities and advanced our breakthrough intellectual property
and research and development initiatives. While the world currently
faces an unprecedented time of uncertainty related to COVID-19, we
believe we are well-positioned to build on these accomplishments as
we maintain our investments in brands and products that will
resonate with adult consumers and generate sustainable, long-term
value for shareholders.”
Financial Results
(in thousands of USD) |
|
Three months December 31, |
|
Change |
|
Year ended December 31, |
|
Change |
|
|
2019 |
|
2018 |
|
$ |
|
% |
|
2019 |
|
2018 |
|
$ |
|
% |
Net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
2,693 |
|
|
$ |
— |
|
|
$ |
2,693 |
|
|
N/A |
|
$ |
3,364 |
|
|
$ |
— |
|
|
$ |
3,364 |
|
|
N/A |
Rest of World |
|
4,615 |
|
|
4,285 |
|
|
330 |
|
|
8 |
% |
|
20,386 |
|
|
12,121 |
|
|
8,265 |
|
|
68 |
% |
Consolidated net revenue |
|
7,308 |
|
|
4,285 |
|
|
3,023 |
|
|
71 |
% |
|
23,750 |
|
|
12,121 |
|
|
11,629 |
|
|
96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
(20,375 |
) |
|
1,880 |
|
|
(22,255 |
) |
|
(1184 |
)% |
|
(17,864 |
) |
|
6,213 |
|
|
(24,077 |
) |
|
(388 |
)% |
Gross margin |
|
(279 |
)% |
|
44 |
% |
|
— |
|
|
(323)pp |
|
(75 |
)% |
|
51 |
% |
|
— |
|
|
(126)pp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported operating loss |
|
$ |
(63,869 |
) |
|
$ |
(8,871 |
) |
|
$ |
(54,998 |
) |
|
620 |
% |
|
$ |
(121,484 |
) |
|
$ |
(21,341 |
) |
|
$ |
(100,143 |
) |
|
469 |
% |
Adjusted operating loss (i) |
|
(56,601 |
) |
|
(8,871 |
) |
|
(47,730 |
) |
|
538 |
% |
|
(114,216 |
) |
|
(21,341 |
) |
|
(92,875 |
) |
|
435 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
1,199,693 |
|
|
23,927 |
|
|
1,175,766 |
|
|
4914 |
% |
Short-term investments |
|
|
|
|
|
|
|
|
|
306,347 |
|
|
— |
|
|
306,347 |
|
|
N/A |
Capital expenditures |
|
757 |
|
|
32,676 |
|
|
(31,919 |
) |
|
(98 |
)% |
|
38,953 |
|
|
88,586 |
|
|
(49,633 |
) |
|
(56 |
)% |
(i) See “Non-GAAP Measures” for
more information, including a reconciliation of adjusted
operating loss(ii) Dollar amounts are as of the last day
of the period indicated
Fourth Quarter 2019
- Net revenue of $7.3 million in Q4 2019 increased by $3.0
million from Q4 2018, primarily driven by an increase in the volume
of products sold in the Rest of World segment and the Redwood
acquisition, partially offset by a decrease in the price of
products sold in the Rest of World segment.
- Gross profit (loss) of ($20.4) million in Q4 2019 decreased by
$22.3 million from Q4 2018, primarily driven by the inventory
write-down of $24.0 million.
- The Company incurred an inventory write-down of $24.0 million,
made up of a one-time charge of $1.9 million, related to the
repurposing of certain facilities at the Peace Naturals Campus, and
a $22.1 million write-down on cannabis plants, based on the
estimated market value of the specific strains previously in
production, and cannabis oil, primarily driven by downward pressure
in market prices during the year. If we were to adjust for the
effects of the inventory write-down, gross profit in Q4 2019, would
have been $3.6 million, representing a gross margin of 50%. We
anticipate inventory write-downs in the short-term due to pricing
pressures in the marketplace and while the Company executes its
operational repurposing of the Peace Naturals Campus.
- Reported operating loss of ($63.9) million in Q4 2019 increased
by $55.0 million from Q4 2018, primarily driven by the inventory
write-down in Q4 2019, one-time charges related to the repurposing
of certain facilities at the Peace Naturals Campus, an increase in
general and administrative expenses in order to support Cronos
Group’s growth strategy, an increase in sales and marketing in
order to create, build and develop brands and an increase in
R&D costs.
- Adjusted operating loss of ($56.6) million in Q4 2019 increased
by $47.8 million from Q4 2018, primarily driven by inventory
write-downs in Q4 2019 and an increase in general and
administrative expenses in order to support Cronos Group’s growth
strategy, an increase in sales and marketing in order to create,
build and develop brands and an increase in R&D costs.
Full-Year 2019
- Net revenue of $23.8 million in Full-Year 2019 increased by
$11.6 million from Full-Year 2018, primarily driven by an increase
in the volume of sales in the Rest of World Segment due to
increases in production, increases in the volume of wholesale sales
and the launch of the adult-use market in Canada.
- Gross profit (loss) of ($17.9) million in Full-Year 2019
decreased by $24.1 million from Full-Year 2018, primarily driven by
the inventory write-down of $29.4 million.
- The Company incurred an inventory write-down of $29.4 million,
made up of a one-time charge of $1.9 million, related to the
repurposing of certain facilities at the Peace Naturals Campus, and
a $27.5 million write-down on cannabis plants, based on the
estimated market value of the specific strains previously in
production, and cannabis oil, primarily driven by downward pressure
in market prices during the year. If we were to adjust for the
effects of the inventory write-downs, gross profit in Full-Year
2019, would have been $11.6 million, representing a gross margin of
49%.
- Reported operating loss of ($121.5) million in Full-Year 2019
increased by $100.1 million from Full-Year 2018, primarily driven
by inventory write-downs in Full-Year 2019, an increase in general
and administrative expenses in order to support Cronos Group’s
growth strategy, an increase in sales and marketing in order to
create, build and develop brands and an increase in R&D costs
related to the Company’s two research partnerships and one-time
charges related to the repurposing of certain facilities at the
Peace Naturals Campus.
- Adjusted operating loss of ($114.2) million in Full-Year 2019
increased by $92.9 million from Full-Year 2018, primarily driven by
inventory write-downs in Full-Year 2019, an increase in general and
administrative expenses in order to support Cronos Group’s growth
strategy, an increase in sales and marketing in order to create,
build and develop brands and an increase in R&D costs related
to the Company’s two research partnerships.
Business Updates
Brand Portfolio
In December 2019, Cronos Group launched cannabis
vaporizer devices for the Canadian adult-use market under the COVE™
and Spinach™ brands. In conjunction with this launch, the Company
created new, tailored 510 thread vaporizer product lines for the
COVE™ and Spinach™ brands, including cartridges that are tamper
resistant, made from high-quality stainless-steel components and
food grade silicone and have rechargeable draw batteries to prevent
overheating. The formulations use premium cannabis extract and come
in all-natural terpene-rich flavors. The vaporizer products are
currently available at cannabis control authorities in Ontario,
British Columbia, Manitoba, New Brunswick, and Nova Scotia, as well
as from private-sector retailers in Saskatchewan.
In the fourth quarter, we successfully executed
three holiday pop-up shops in Los Angeles and New York City to
provide consumers with a curated retail experience of its Lord
Jones™ products.
Cronos Group made the decision to pause
distribution of PEACE+™ hemp-derived CBD tinctures through Altria
Group. Inc.’s (“Altria”) sales and distribution network. Cronos
Group remains focused on meeting the demands of adult consumers and
will continue to evaluate other product formats and categories that
we believe may be more suitable for the PEACE+TM brand in the
evolving environment.
Global Sales and
Distribution
In the fourth quarter, Cronos Group began
selling cannabis flower and extract products to cannabis control
authorities in Alberta, Manitoba, and Quebec. In addition to the
new territories, the Company sells dried flower, pre-rolls,
cannabis oils and cannabis extracts through its adult-use brands,
COVE™ and Spinach™, to cannabis control authorities in Ontario,
British Columbia, Nova Scotia and Prince Edward Island, as well as
to private-sector retailers in Saskatchewan.
On October 25, 2019, Cronos Australia announced
the closing of an A$20.0 million initial public offering. Cronos
Group currently holds approximately 31 percent of the issued
capital of Cronos Australia. With the initial public offering
complete, Cronos Group is positioned to continue participating in
Cronos Australia’s growth in the medicinal market in the
Asia-Pacific region while generating value for the Company’s
shareholders.
In the fourth quarter of 2019, Cronos Group
completed its first test export of PEACE NATURALS™ branded cannabis
oil products to Cronos Australia for distribution to the Australian
medical market.
Global Supply Chain
In November 2019, Cronos Group began an
operational redesign at the Peace Naturals Campus to better align
the business with our strategic priorities. As part of this effort,
specific facilities at the Peace Naturals Campus are in the process
of being repurposed from cultivation to R&D, with a focus on
developing new technologies for value-added product manufacturing,
and production of derivative products. This redesign will also
increase vault and warehousing capabilities at the facility.
In the fourth quarter of 2019, the Company
recorded pre-tax charges of $7.2 million related to the repurposing
efforts at the Peace Naturals Campus, with $1.9 million associated
with an inventory write-down and $5.3 million of operating
expenses, primarily related to impairment costs. The Company does
not expect to incur any further significant costs related to the
repurposing activities.
The Cronos Israel facility continues to move
closer to operational readiness. Construction of Cronos Israel’s
greenhouse and facility was completed in the third quarter of 2019.
In December 2019, Cronos Israel successfully achieved GAP
certification for propagation and cultivation, as well as GMP
certification for the manufacturing and production facilities.
Commencement of operations at the Cronos Israel facility will be
subject to obtaining the remaining necessary cannabis production
licenses under applicable law.
Intellectual Property
Initiatives
Ginkgo Bioworks (“Ginkgo”) has filed certain
patent applications pertaining to biosynthesis of cannabinoids to
protect intellectual property developed as part of the research
progressing under the partnership with Cronos Group. Under the
partnership, Cronos Group is the exclusive licensee of the
intellectual property covered by the patent applications for the
target cannabinoids.
In July 2019, Cronos Group acquired a GMP
compliant fermentation and manufacturing facility (“Cronos
Fermentation”) in Winnipeg, Manitoba. The acquisition is expected
to provide the fermentation and manufacturing capabilities needed
in order to capitalize on the progress underway with Ginkgo by
enabling Cronos Group to produce high-quality cannabinoids at scale
using fermentation. In November 2019, a team of engineers,
scientists, production and quality assurance personnel previously
employed by Apotex Fermentation Inc., joined Cronos Group.
Cronos Group commenced work on developing
scale-up and downstream processes at Cronos Fermentation, while in
parallel Ginkgo develops microorganisms for producing cultured
cannabinoids. As Cronos Group develops the processes and
parameters, these learnings will be applied for the strains that
will be utilized for commercial production of cultured
cannabinoids. Commercial production at the facility is subject to
completion of the equipment alignment for cannabinoid-based
production, the receipt of the appropriate licenses from Health
Canada and the achievement of the relevant milestones under the
Ginkgo Strategic Partnership.
Update on COVID-19
Despite the significant challenges posed by the
outbreak of COVID-19, as a designated essential business, Cronos
Group’s global facilities currently remain operational. During this
unprecedented time, the health, safety and well-being of our
employees and our consumers remains Cronos Group’s top priority.
The Company has business continuity plans in place to support its
employee base while continuing to develop and produce reliable,
high-quality products that meet the needs of consumers. As part of
this, the Company implemented certain measures such as, among other
measures, work-from-home policies for certain employees, enhanced
hygiene and sanitation practices, modified schedules and social
distancing protocols at the Peace Naturals Campus, Redwood, Cronos
Fermentation, OGBC and Cronos Israel facilities. Cronos Group will
continue to act in accordance with guidance from local, federal and
international health and governmental authorities, and is prepared
to make additional operational adjustments as necessary.
The spread and impact from COVID-19 on the global economy
continues to rapidly evolve, and the ultimate impact of the
COVID-19 outbreak is uncertain and subject to change. Despite
Cronos Group’s business continuity efforts, the Company may see an
impact on certain parts of its business and operations such as
operational capacity or supply chain delays. The Company continues
to closely monitor the rapidly evolving COVID-19 situation, and the
impact it may have on the Company, its customers and its supply
chain.
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 United States of America. Cronos Group owns and
operates license holders, Peace Naturals and OGBC, and currently
sells dried flower, pre-rolls and cannabis extracts in the Canadian
adult-use and medical markets. The Company established strategic
joint ventures in Canada, Israel and Colombia. Cronos Group
currently exports cannabis products to countries that permit the
import of such products, such as Germany and Australia.
(in thousands of USD ) |
Three months December 31, |
|
Change |
|
Year ended December 31, |
|
Change |
|
2019 |
|
2018 |
|
$ |
|
% |
|
2019 |
|
2018 |
|
$ |
|
% |
Cannabis flower |
$ |
2,877 |
|
|
$ |
3,228 |
|
|
$ |
(351 |
) |
|
(11 |
)% |
|
$ |
15,020 |
|
|
$ |
9,210 |
|
|
$ |
5,810 |
|
|
63 |
% |
Cannabis extracts |
1,678 |
|
|
1,028 |
|
|
650 |
|
|
63 |
% |
|
5,338 |
|
|
2,732 |
|
|
2,606 |
|
|
95 |
% |
Other |
60 |
|
|
29 |
|
|
31 |
|
|
107 |
% |
|
28 |
|
|
179 |
|
|
(151 |
) |
|
(84 |
)% |
Net revenue |
4,615 |
|
|
4,285 |
|
|
330 |
|
|
8 |
% |
|
20,386 |
|
|
12,121 |
|
|
8,265 |
|
|
68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
(21,805 |
) |
|
1,880 |
|
|
(23,685 |
) |
|
(1,260 |
)% |
|
(19,737 |
) |
|
6,213 |
|
|
(25,950 |
) |
|
(418 |
)% |
Gross margin |
(472 |
)% |
|
44 |
% |
|
— |
|
|
(516)pp |
|
(97 |
)% |
|
51 |
% |
|
— |
|
|
(148)pp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported operating loss |
$ |
(59,066 |
) |
|
$ |
(8,871 |
) |
|
$ |
(50,195 |
) |
|
566 |
% |
|
$ |
(106,928 |
) |
|
$ |
(21,341 |
) |
|
$ |
(85,587 |
) |
|
401 |
% |
Adjusted operating loss
(i) |
(51,798 |
) |
|
(8,871 |
) |
|
(42,927 |
) |
|
484 |
% |
|
(99,660 |
) |
|
(21,341 |
) |
|
(78,319 |
) |
|
367 |
% |
(i) See “Non-GAAP Measures” for
more information, including a reconciliation of adjusted
operating loss
Fourth Quarter 2019
- Net revenue of $4.6 million in Q4 2019 increased by $0.3
million from Q4 2018, primarily driven by the introduction of
vaporizer products and an increase in the volume of products sold,
which were partially offset by a decrease in the price of products
sold.
- Gross profit (loss) of ($21.8) million in Q4 2019 decreased by
$23.7 million from Q4 2018, primarily driven by the inventory
write-down of $24.0 million.
- The Company incurred an inventory write-down of $24.0 million,
made up of a one-time charge of $1.9 million, related to the
repurposing of certain facilities at the Peace Naturals Campus, and
a $22.1 million write-down on cannabis plants, based on the
estimated market value of the specific strains previously in
production, and cannabis oil, primarily driven by downward pressure
in market prices during the year. If we were to adjust for the
effects of the inventory write-down, gross profit in Q4 2019, would
have been $2.2 million, representing a gross margin of 48%. We
anticipate inventory write-downs in the short-term due to pricing
pressures in the marketplace and while the Company executes its
operational repurposing of the Peace Naturals Campus.
- Reported operating loss of ($59.1) million in Q4 2019 increased
by $50.2 million from Q4 2018, primarily driven by the inventory
write-down in Q4 2019, one-time charges related to the repurposing
of certain facilities at the Peace Naturals Campus, an increase in
general and administrative expenses in order to support the
segment's growth, an increase in sales and marketing in order to
create, build and develop brands and an increase in R&D
costs.
- Adjusted operating loss of ($51.8) million in Q4 2019 increased
by $42.9 million from Q4 2018, primarily driven by inventory
write-downs in Q4 2019 and an increase in general and
administrative expenses in order to support the segment's growth,
an increase in sales and marketing in order to create, build and
develop brands and an increase in R&D costs.
Full-Year 2019
- Net revenues of $20.4 million in Full-Year 2019 increased by
$8.3 million from Full-Year 2018, primarily driven by higher volume
of wholesale sales and an increase in the volume of products sold
due to increased cannabis production and the growth of the
adult-use market in Canada.
- Gross profit (loss) of ($19.7) million in Full-Year 2019
decreased by $26.0 million from Full-Year 2018, primarily driven by
the inventory write-down of $29.4 million.
- The Company incurred an inventory write-down of $29.4 million,
made up of a one-time charge of $1.9 million, related to the
repurposing of certain facilities at the Peace Naturals Campus, and
a $27.5 million write-down on cannabis plants, based on the
estimated market value of the specific strains previously in
production, and cannabis oil, primarily driven by downward pressure
in market prices during the year. If we were to adjust for the
effects of the inventory write-downs, gross profit in Full-Year
2019, would have been $9.7 million, representing a gross margin of
48%.
- Reported operating loss of ($106.9) million in Full-Year 2019
increased $85.6 million from Full-Year 2018, primarily driven by
inventory write-downs in Q4 2019, one-time charges related to the
repurposing of certain facilities at the Peace Naturals Campus, an
increase in general and administrative expenses in order to support
the segment's growth, an increase in sales and marketing in order
to create, build and develop brands and an increase in R&D
costs.
- Adjusted operating loss of ($99.7) million in Full-Year 2019
increased by $78.3 million from Full-Year 2018, primarily driven by
inventory write-downs in Q4 2019, an increase in general and
administrative expenses in order to support the segment's growth,
an increase in sales and marketing in order to create, build and
develop brands and an increase in R&D costs.
United States Results
As a result of Cronos Group’s acquisition of
Redwood on September 5, 2019, a manufacturer and distributor of
hemp-derived CBD infused products in the United States under the
brand, Lord Jones™, the Company established the United States
reporting segment.
(in thousands of USD) |
Three months December 31 |
|
Change |
|
Year ended December 31, |
|
Change |
|
2019 |
|
2018 |
|
$ |
|
% |
|
2019 |
|
2018 |
|
$ |
|
% |
Net revenue |
$ |
2,693 |
|
|
— |
|
|
N/A |
|
N/A |
|
$ |
3,364 |
|
|
— |
|
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
1,430 |
|
|
— |
|
|
N/A |
|
N/A |
|
1,873 |
|
|
— |
|
|
N/A |
|
N/A |
Gross margin |
53 |
% |
|
— |
|
|
N/A |
|
N/A |
|
56 |
% |
|
— |
|
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported operating loss |
$ |
(1,797 |
) |
|
— |
|
|
N/A |
|
N/A |
|
$ |
(2,777 |
) |
|
— |
|
|
N/A |
|
N/A |
Fourth Quarter 2019
- Net revenues of $2.7 million in Q4 2019, driven by expanded
distribution of Lord JonesTM branded products through online sales
and an increased retail channel footprint.
- Gross profit of $1.4 million in Q4 2019, driven by strong sales
prices and brand equity. Gross margin for Q4 2019 was 53%.
- Operating loss of ($1.8) million in Q4 2019, driven by
increased investments in sales and marketing and general and
administrative expenses as the business focuses on growth prospects
and developing new brands and products.
Full-Year 2019
- Net revenue of $3.4 million in Full-Year 2019, driven by the
Redwood Acquisition on September 5, 2019.
- Gross profit of $1.9 million in Full-Year 2019, driven by sales
through e-commerce, retail and hospitality channels within Q4 2019.
Gross margin in Full-Year 2019 was 56%.
- Operating loss of $2.8 million in Full-Year 2019, driven by the
increase in gross profit and the increased sales and marketing
costs incurred in relation to the preparation for the launch of the
PEACE+™ U.S hemp-derived CBD brand, as well as the introduction of
several new U.S. hemp-derived CBD products under the Lord
Jones™ brand.
Conference Call
The Company will host a conference call and live
audio webcast on Monday, March 30, 2020 at 5:30 p.m. EDT to discuss
2019 fourth quarter and full-year results, the Company's outlook
and other matters. 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: 6999389
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 health and wellness platform, two adult-use
brands, COVE™ and Spinach™, and two hemp-derived CBD
brands, Lord Jones™ 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 to continue operations, the ability of our
suppliers and distribution channels to continue to operate, 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. Federal Drug Administration (the “FDA”), the U.S.
Federal Trade Commission (the “FTC”), the U.S. Patent and Trademark
Office and any state equivalent regulatory agencies over U.S. hemp
(including CBD) products;
- expectations regarding the regulation of 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 (the
“USDA”);
- 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;
- the ability to successfully create and launch brands and
further create, launch and scale U.S. hemp-derived consumer
products, including through the Redwood Acquisition (as defined
herein) and cannabis products in jurisdictions where such products
are legal and that we currently operate in;
- the benefits, viability, safety, efficacy, dosing and social
acceptance of cannabis including CBD and other cannabinoids;
- the anticipated benefits and impact of the Altria Group Inc.’s
C$2.4 billion (approximately $1.8 billion) investment in us (the
“Altria Investment”);
- the potential exercise of the warrant held by Altria Group
Inc., 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 with Ginkgo Bioworks, Inc.;
- our ability to execute on our strategy and the anticipated
benefits of such strategy;
- 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 research and development (“R&D”)
initiatives in cannabinoids, or the success thereof;
- expectations regarding acquisitions and the anticipated
benefits therefrom, including the Redwood Acquisition and the
acquisition of certain assets from Apotex Fermentation Inc.;
- 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 proceedings;
- expectations with respect to future production costs;
- expectations with respect to future sales and distribution
channels;
- the expected methods to be used to distribute and sell our
products;
- our future product offerings;
- the anticipated future gross margins of our operations;
- accounting standards and estimates;
- expectations regarding our distribution network; 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)
management’s perceptions of historical trends, current conditions
and expected future developments; (ii) our ability to generate cash
flow from operations; (iii) general economic, financial market,
regulatory and political conditions in which we operate; (iv) the
production and manufacturing capabilities and output from our
facilities and our joint ventures, strategic alliances and equity
investments; (v) consumer interest in our products; (vi)
competition; (vii) anticipated and unanticipated costs; (viii)
government regulation of our activities and products including but
not limited to the areas of taxation and environmental protection;
(ix) the timely receipt of any required regulatory authorizations,
approvals, consents, permits and/or licenses; (x) our ability to
obtain qualified staff, equipment and services in a timely and
cost-efficient manner; (xi) our ability to conduct operations in a
safe, efficient and effective manner; (xii) our ability to realize
anticipated benefits, synergies or generate revenue, profits or
value from our recent acquisitions into our existing operations;
(xiii) our ability to continue to operate in light of the COVID-19
pandemic and the impact of the pandemic on sales of our products
and our distribution channels; and (xiv) 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 use
of our products; that cost savings and any other synergies from the
Altria Investment may not be fully realized or may take longer to
realize than expected; disruption from the Altria Investment making
it more difficult to maintain relationships with customers,
employees or suppliers; 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 rating;
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 or other
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, self-regulatory organizations,
plaintiffs in litigation or persons threatening litigation; changes
in regulatory requirements in relation to our business and
products; and the factors discussed under the heading “Risk
Factors” in this press release. 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 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 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.
Use of Non-GAAP Measures
Cronos Group reports its financial results in
accordance with accounting principles generally recognized in the
United States (“GAAP”). However, management use various measures
which are not recognized under GAAP such as adjusted operating
loss, adjusted operating loss by business segment and adjusted
earnings before interest, tax depreciation and amortization
(“Adjusted EBITDA”). These non-GAAP measures may not be calculated
the same as similarly titled measures used by other companies and
should thus be considered as supplemental in nature and not
considered in isolation or as a substitute for the related
financial information prepared in accordance with GAAP. Management
believes these measures provide useful insight into underlying
trends and results and will provide a more meaningful comparison of
year-over-year results, going forward. Management uses these
metrics for planning, forecasting and evaluating business and
financial performance, including allocating resources.
Reconciliations of each non-GAAP measure to US GAAP recognized
measures are provided below.
Cronos Group
Inc.Consolidated Balance SheetsAs
of December 31, 2019 and 2018(In thousands of USD)
|
As of December 31, |
|
2019 |
|
2018 |
Assets |
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
$ |
1,199,693 |
|
|
$ |
23,927 |
|
Short-term investments |
306,347 |
|
|
— |
|
Accounts receivable, net of current expected credit loss ("CECL")
of $136 and $37 as of December 31, 2019 and 2018, respectively |
4,638 |
|
|
3,052 |
|
Other receivables |
7,232 |
|
|
2,507 |
|
Current portion of loans receivable |
4,664 |
|
|
230 |
|
Prepaids and other assets |
9,395 |
|
|
2,842 |
|
Inventory |
38,043 |
|
|
7,386 |
|
Total current assets |
1,570,012 |
|
|
39,944 |
|
Investments in equity accounted
investees |
557 |
|
|
2,960 |
|
Advances to joint ventures |
19,437 |
|
|
4,689 |
|
Other investments |
— |
|
|
297 |
|
Loan receivable |
44,967 |
|
|
— |
|
Property, plant and
equipment |
161,809 |
|
|
125,905 |
|
Right-of-use assets |
6,546 |
|
|
125 |
|
Intangible assets |
72,320 |
|
|
8,237 |
|
Goodwill |
214,794 |
|
|
1,314 |
|
Total assets |
$ |
2,090,442 |
|
|
$ |
183,471 |
|
|
|
|
|
Liabilities |
|
|
|
Current liabilities |
|
|
|
Accounts payable and other liabilities |
$ |
35,301 |
|
|
$ |
33,239 |
|
Current portion of lease obligation |
427 |
|
|
30 |
|
Derivative liabilities (Note 28) |
297,160 |
|
|
— |
|
Total current liabilities |
332,888 |
|
|
33,269 |
|
Due to non-controlling
interests |
1,844 |
|
|
1,566 |
|
Lease obligation |
6,680 |
|
|
87 |
|
Total liabilities |
341,412 |
|
|
34,922 |
|
Commitments and contingencies
(Note 21 & 22) |
|
|
|
Shareholders’
equity |
|
|
|
Share capital (authorized: 2019 and 2018 – unlimited; issued: 2019
– 348,817,472; 2018 – 178,720,022) |
561,165 |
|
|
175,001 |
|
Additional paid-in capital |
23,234 |
|
|
11,263 |
|
Retained earnings (accumulated deficit) |
1,137,646 |
|
|
(27,945 |
|
Accumulated other comprehensive income (loss) |
27,838 |
|
|
(9,870 |
|
Total equity attributable to shareholders of Cronos Group |
1,749,883 |
|
|
148,449 |
|
Non-controlling interests |
(853 |
) |
|
100 |
|
Total shareholders' equity |
1,749,030 |
|
|
148,549 |
|
Total liabilities and shareholders' equity |
$ |
2,090,442 |
|
|
$ |
183,471 |
|
See notes to consolidated financial statements.
Cronos Group Inc.Consolidated
Statements of Net Income (Loss) and Comprehensive Income
(Loss)For the years ended December 31, 2019, 2018,
and 2017(In thousands of USD, except share and per share
amounts)
|
Year ended December 31, |
|
2019 |
|
2018 |
|
2017 |
Net revenue, before excise taxes |
$ |
25,639 |
|
|
$ |
13,234 |
|
|
$ |
3,147 |
|
Excise taxes |
(1,889 |
) |
|
(1,113 |
) |
|
— |
|
Net revenue |
23,750 |
|
|
12,121 |
|
|
3,147 |
|
Cost of sales |
12,174 |
|
|
5,908 |
|
|
1,573 |
|
Inventory write-down |
29,440 |
|
|
— |
|
|
— |
|
Gross profit
(loss) |
(17,864 |
) |
|
6,213 |
|
|
1,574 |
|
Operating
expenses |
|
|
|
|
|
Sales and marketing |
23,045 |
|
|
3,173 |
|
|
443 |
|
Research and development |
12,155 |
|
|
1,814 |
|
|
— |
|
General and administrative |
49,372 |
|
|
13,447 |
|
|
4,904 |
|
Share-based payments |
11,619 |
|
|
8,151 |
|
|
1,931 |
|
Depreciation and amortization |
2,101 |
|
|
969 |
|
|
417 |
|
Repurposing charges |
5,328 |
|
|
— |
|
|
— |
|
Total operating expenses |
103,620 |
|
|
27,554 |
|
|
7,695 |
|
Operating
loss |
(121,484 |
) |
|
(21,341 |
) |
|
(6,121 |
) |
Other income
(expense) |
|
|
|
|
|
Interest income (expense) |
27,982 |
|
|
83 |
|
|
(97 |
) |
Financing and transaction costs |
(32,208 |
) |
|
— |
|
|
— |
|
Gain on revaluation of derivative liabilities (Note 28) |
1,276,819 |
|
|
— |
|
|
— |
|
Gain on revaluation of financial liabilities |
197 |
|
|
— |
|
|
— |
|
Gain on disposal of Whistler |
15,530 |
|
|
— |
|
|
— |
|
Gain on other investments |
747 |
|
|
164 |
|
|
3,746 |
|
Share of income (loss) from investments in equity accounted
investees |
(2,009 |
) |
|
(723 |
) |
|
127 |
|
Total other income (expense) |
1,287,058 |
|
|
(476 |
) |
|
3,776 |
|
Income (loss) before income
taxes |
1,165,574 |
|
|
(21,817 |
) |
|
(2,345 |
) |
Income tax recovery |
— |
|
|
— |
|
|
(862 |
) |
Net income (loss) |
$ |
1,165,574 |
|
|
$ |
(21,817 |
) |
|
$ |
(1,483 |
) |
Net income (loss)
attributable to: |
|
|
|
|
|
Cronos Group |
$ |
1,166,506 |
|
|
$ |
(21,636 |
) |
|
$ |
(1,483 |
) |
Non-controlling interests |
(932 |
) |
|
(181 |
) |
|
0 |
|
|
$ |
1,165,574 |
|
|
$ |
(21,817 |
) |
|
$ |
(1,483 |
) |
Other comprehensive
income (loss) |
|
|
|
|
|
Foreign exchange gain (loss) on translation |
$ |
37,687 |
|
|
$ |
(12,337 |
) |
|
$ |
2,456 |
|
Gain on revaluation and disposal of other investments, net of
tax |
— |
|
|
3 |
|
|
415 |
|
Unrealized gains reclassified to net income |
— |
|
|
— |
|
|
(12 |
) |
Total other comprehensive income (loss) |
37,687 |
|
|
(12,334 |
) |
|
2,859 |
|
Comprehensive income
(loss) |
$ |
1,203,261 |
|
|
$ |
(34,151 |
) |
|
$ |
1,376 |
|
Comprehensive income
(loss) attributable to: |
|
|
|
|
|
Cronos Group |
$ |
1,204,214 |
|
|
$ |
(33,964 |
) |
|
$ |
1,376 |
|
Non-controlling interests |
(953 |
) |
|
(187 |
) |
|
— |
|
|
$ |
1,203,261 |
|
|
$ |
(34,151 |
) |
|
$ |
1,376 |
|
Net income (loss) per
share |
|
|
|
|
|
Basic |
$ |
3.76 |
|
|
$ |
(0.13 |
) |
|
$ |
(0.01 |
) |
Diluted |
3.33 |
|
|
(0.13 |
) |
|
(0.01 |
) |
Weighted average number
of outstanding shares |
|
|
|
|
|
Basic |
310,067,179 |
|
|
172,269,170 |
|
|
134,803,542 |
|
Diluted |
342,811,992 |
|
|
172,269,170 |
|
|
176,789,161 |
|
See notes to consolidated financial statements.
Cronos Group Inc.Consolidated
Statements of Net Income (Loss) and Comprehensive Income
(Loss)For the quarters ended December 31, 2019 and
2018(In thousands of USD, except share and per share
amounts)
|
|
Three months ended December 31, |
|
|
2019 |
|
2018 |
Net revenue, before
excise taxes |
$ |
7,915 |
|
|
5,398 |
|
Excise taxes |
|
(607 |
) |
|
(1,113 |
) |
Net revenue |
|
7,308 |
|
|
4,285 |
|
Cost of sales |
|
3,667 |
|
|
2,405 |
|
Inventory write-down |
|
24,016 |
|
|
— |
|
Gross
profit |
|
(20,375 |
) |
|
1,880 |
|
Operating
expenses |
|
|
|
|
Sales and marketing |
|
13,324 |
|
|
1,970 |
|
Research and development |
|
6,079 |
|
|
1,814 |
|
General and administrative |
|
14,314 |
|
|
4,544 |
|
Share-based payments |
|
3,670 |
|
|
2,183 |
|
Depreciation and amortization |
|
779 |
|
|
240 |
|
Repurposing costs |
|
5,328 |
|
|
— |
|
Total operating expenses |
|
43,494 |
|
|
10,751 |
|
Operating
loss |
|
(63,869 |
) |
|
(8,871 |
) |
Other income
(expense) |
|
|
|
|
Interest income (expense) |
|
7,514 |
|
|
177 |
|
Financing and transaction cost |
|
(524 |
) |
|
— |
|
Gain (loss) on revaluation of derivative liabilities (Note 11) |
|
118,811 |
|
|
— |
|
Gain on other investments |
|
2 |
|
|
(225 |
) |
Gain on disposal of Whistler Medical Marijuana Company |
|
32 |
|
|
(15 |
) |
Share of income (loss) from investments in equity accounted
investees |
|
(505 |
) |
|
(758 |
) |
Gain (loss) on revaluation of financial liabilities |
|
50 |
|
|
— |
|
Total other income (expense) |
|
125,380 |
|
|
(821 |
) |
Income (loss) before income taxes |
|
61,511 |
|
|
(9,692 |
) |
Income tax recovery |
|
58 |
|
|
— |
|
Net income
(loss) |
|
61,569 |
|
|
(9,692 |
) |
Net income (loss)
attributable to: |
|
|
|
|
Cronos Group |
$ |
62,005 |
|
|
(9,558 |
) |
Non-controlling interests |
|
(436 |
) |
|
(134 |
) |
|
$ |
61,569 |
|
|
(9,692 |
) |
Other comprehensive
income (loss) |
|
|
|
|
Foreign exchange gain (loss) on translation |
$ |
28,264 |
|
|
(8,511 |
) |
Gain on revaluation and disposal of other investments, net of
tax |
|
— |
|
|
3 |
|
Total other comprehensive income (loss) |
$ |
28,264 |
|
|
(8,508 |
) |
Comprehensive income
(loss) |
|
|
|
|
Comprehensive income
(loss) attributable to: |
|
|
|
|
Cronos Group |
$ |
90,284 |
|
|
(18,056 |
) |
Non-controlling interests |
|
(451 |
) |
|
(144 |
) |
|
$ |
89,833 |
|
|
(18,200 |
) |
Net income (loss) per
share |
|
|
|
|
Basic |
|
$ |
0.18 |
|
|
$ |
(0.05 |
) |
Diluted |
|
0.16 |
|
|
(0.05 |
) |
Weighted average number
of outstanding shares |
|
|
|
|
Basic |
|
345,981,864 |
|
|
178,720,022 |
|
Diluted |
|
375,318,457 |
|
|
178,720,022 |
|
Cronos Group Inc.Consolidated
Statements of Cash FlowsFor the years ended
December 31, 2019, 2018, and 2017(In thousands of USD)
|
|
Year ended December 31, |
|
2019 |
|
2018 |
|
2017 |
Operating activities |
|
|
|
|
|
Net income (loss) |
$ |
1,165,574 |
|
|
$ |
(21,817 |
) |
|
$ |
(1,483 |
) |
Items not affecting cash: |
|
|
|
|
|
Inventory write-down |
29,440 |
|
|
— |
|
|
— |
|
Share-based payments |
11,619 |
|
|
8,151 |
|
|
1,931 |
|
Depreciation and amortization |
3,913 |
|
|
1,937 |
|
|
768 |
|
Share of loss (income) from investments in equity accounted
investees |
2,009 |
|
|
723 |
|
|
(127 |
) |
Non-cash repurposing costs |
4,439 |
|
|
— |
|
|
— |
|
Gain on disposal of Whistler |
(15,530 |
) |
|
— |
|
|
— |
|
Gain on revaluation of derivative liabilities (Note 28) |
(1,276,819 |
) |
|
— |
|
|
— |
|
Gain on revaluation of financial liabilities |
(197 |
) |
|
— |
|
|
— |
|
Gain on other investments |
(747 |
) |
|
(164 |
) |
|
(3,746 |
) |
Deferred income tax expense (recovery) |
— |
|
|
— |
|
|
(862 |
) |
Foreign exchange gain |
115 |
|
|
(9 |
) |
|
— |
|
Non-cash sales and marketing |
410 |
|
|
— |
|
|
— |
|
Non-cash interest |
(25 |
) |
|
— |
|
|
— |
|
Net changes in non-cash working capital |
(54,208 |
) |
|
3,662 |
|
|
(759 |
) |
Cash flows used in operating activities |
(130,007 |
) |
|
(7,517 |
) |
|
(4,278 |
) |
Investing activities |
|
|
|
|
|
Purchase of short-term investments, net |
(299,923 |
) |
|
— |
|
|
— |
|
Repayment of purchase price liability |
— |
|
|
— |
|
|
(1,997 |
) |
Investments in equity accounted investees |
(1,658 |
) |
|
(480 |
) |
|
(830 |
) |
Investment in Vivo |
— |
|
|
— |
|
|
(783 |
) |
Proceeds from sale of other investments |
19,614 |
|
|
747 |
|
|
8,388 |
|
Payment to exercise Vivo warrants |
— |
|
|
(88 |
) |
|
(1,749 |
) |
Advances to joint ventures |
(15,135 |
) |
|
(5,358 |
) |
|
— |
|
Purchase of property, plant and equipment, net of disposals |
(38,664 |
) |
|
(88,308 |
) |
|
(32,926 |
) |
Payment of accrued interest on construction loan payable |
(89 |
) |
|
(143 |
) |
|
— |
|
Purchase of intangible assets |
(289 |
) |
|
(278 |
) |
|
— |
|
Acquisition of Redwood |
(224,295 |
) |
|
— |
|
|
— |
|
Advances on loans receivable |
(43,337 |
) |
|
— |
|
|
— |
|
Proceeds from repayment of loans receivable |
237 |
|
|
— |
|
|
— |
|
Cash flows used in investing activities |
(603,539 |
) |
|
(93,908 |
) |
|
(29,897 |
) |
Financing activities |
|
|
|
|
|
Repayment of lease obligations |
(919 |
) |
|
— |
|
|
— |
|
Proceeds from Altria Investment |
1,809,556 |
|
|
— |
|
|
— |
|
Proceeds from exercise of Top-up Rights |
67,051 |
|
|
— |
|
|
— |
|
Proceeds from exercise of warrants and options |
1,455 |
|
|
2,612 |
|
|
1,697 |
|
Withholding taxes paid on share appreciation rights |
(915 |
) |
|
(16 |
) |
|
— |
|
Proceeds from share issuance |
— |
|
|
115,510 |
|
|
38,542 |
|
Share issuance costs |
(3,722 |
) |
|
(7,577 |
) |
|
(2,114 |
) |
Proceeds from construction loan payable |
— |
|
|
11,583 |
|
|
5,022 |
|
Repayment of construction loan payable |
(15,971 |
) |
|
— |
|
|
— |
|
Advance under Credit Facility |
48,715 |
|
|
— |
|
|
— |
|
Repayment of Credit Facility |
(48,309 |
) |
|
— |
|
|
— |
|
Repayment of mortgage payable |
— |
|
|
— |
|
|
(3,084 |
) |
Transaction costs paid on construction loan payable |
— |
|
|
— |
|
|
(989 |
) |
Cash flows provided by financing activities |
1,856,941 |
|
|
122,112 |
|
|
39,074 |
|
Effect of foreign currency translation on cash and
cash equivalents |
52,371 |
|
|
(4,085 |
) |
|
(152 |
) |
Increase in cash and cash equivalents |
1,175,766 |
|
|
16,602 |
|
|
4,747 |
|
Cash and cash equivalents, beginning of period |
23,927 |
|
|
7,325 |
|
|
2,578 |
|
Cash and cash equivalents, end of period |
$ |
1,199,693 |
|
|
$ |
23,927 |
|
|
$ |
7,325 |
|
See notes to consolidated financial statements.
Cronos Group Inc.Consolidated
Statements of Cash FlowsFor the quarters ended
December 31, 2019 and 2018(In thousands of USD)
|
|
Three months December 31, |
|
|
2019 |
|
2018 |
Operating
activities |
|
|
|
Net income
(loss) |
61,570 |
|
|
(9,692 |
) |
Items not
affecting cash: |
|
|
|
Inventory write down |
24,016 |
|
|
— |
|
Share-based payments |
3,670 |
|
|
2,182 |
|
Depreciation and amortization |
957 |
|
|
928 |
|
Share of loss (income) from investments in equity accounted
investees |
505 |
|
|
773 |
|
Non-cash repurposing costs |
4,439 |
|
|
— |
|
Gain on disposal of Whistler |
(33 |
) |
|
— |
|
Gain on revaluation of derivative liabilities |
(118,811 |
) |
|
— |
|
Gain on revaluation of financial liabilities |
(50 |
) |
|
— |
|
Gain on other investments |
(2 |
) |
|
225 |
|
Deferred income tax (recovery) expense |
(58 |
) |
|
— |
|
Foreign exchange gain |
(692 |
) |
|
(1 |
) |
Non-cash sales and marketing |
410 |
|
|
— |
|
Non-cash interest |
(25 |
) |
|
— |
|
Net changes in non-cash working capital |
(29,110 |
) |
|
23,882 |
|
Cash flows used in operating activities |
(53,214 |
) |
|
18,297 |
|
Investing
activities |
|
|
|
Purchase of short term investments |
84,365 |
|
|
— |
|
Repayment of purchase price liability |
— |
|
|
— |
|
Investments in equity accounted investees |
— |
|
|
(326 |
) |
Proceeds from sale of other investments |
— |
|
|
(10 |
) |
Payment to exercise Vivo Cannabis ("Vivo") warrants |
— |
|
|
1 |
|
Advances to joint ventures |
816 |
|
|
(2,291 |
) |
Purchase of property, plant and equipment |
(1,042 |
) |
|
(32,625 |
) |
Payments of interest on construction in progress |
— |
|
|
2 |
|
Purchase of intangible assets |
285 |
|
|
(51 |
) |
Acquisition of Redwood |
2,929 |
|
|
— |
|
Advances on loans receivable |
(10,325 |
) |
|
— |
|
Proceeds from repayment of loans receivable |
(1 |
) |
|
— |
|
Cash assumed on acquisition |
(2,957 |
) |
|
— |
|
Cash assumed on acquisition of Cronos Israel |
— |
|
|
(998 |
) |
Cash flows used in investing activities |
74,070 |
|
|
(36,298 |
) |
Financing
activities |
|
|
|
Advance from non-controlling interests |
(183 |
) |
|
— |
|
Repayment of lease liabilities |
(505 |
) |
|
— |
|
Proceeds from Altria Investment |
— |
|
|
— |
|
Proceeds from exercise of Top-up Rights |
35,485 |
|
|
— |
|
Proceeds from exercise of options and warrants |
— |
|
|
(15 |
) |
Withholding taxes paid on share appreciation rights |
(54 |
) |
|
(16 |
) |
Proceeds from share issuance |
— |
|
|
— |
|
Share issuance costs |
— |
|
|
26 |
|
Proceeds from construction loan payable |
— |
|
|
11,583 |
|
Repayment of construction loan payable |
— |
|
|
— |
|
Advance under Credit Facility |
— |
|
|
— |
|
Repayment of Credit Facility |
— |
|
|
— |
|
Repayment of mortgage payable |
— |
|
|
— |
|
Transaction costs paid on construction loan payable |
— |
|
|
— |
|
Cash flows provided by financing activities |
34,743 |
|
|
11,578 |
|
Effect of foreign
currency translation on cash and cash equivalents |
29,680 |
|
|
(1,782 |
) |
Increase
(decrease) in cash and cash equivalents |
85,279 |
|
|
(8,205 |
) |
Cash and cash equivalents, beginning of period |
1,114,414 |
|
|
32,132 |
|
Cash and cash equivalents, end of period |
$ |
1,199,693 |
|
|
$ |
23,927 |
|
Non-GAAP Measures
The Company uses certain measures that are not
recognized under GAAP. These financial measures are not recognized
under GAAP, do not have a standardized meaning prescribed by GAAP
and are therefore unlikely to be comparable to similar measures
presented by other companies. Rather, these measures are provided
as a supplement to those 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 GAAP. All
non-GAAP measures presented in this press release are reconciled to
their closest reported GAAP measure. Reconciliations of historical
adjusted financial measures to corresponding GAAP measures are
provided below.
Adjusted operating lossManagement reviews
operating loss on an adjusted basis, which excludes certain income
and expense items that management believes are not part of
underlying operations. These items include repurposing charges.
Management does not view these items to be part of underlying
results as they may be highly variable, may be infrequent, are
difficult to predict and can distort underlying business trends and
results.
Management believes that adjusted operating loss
provides useful insight into underlying business trends and results
and provides a more meaningful comparison of year-over-year
results. Management uses adjusted operating loss for planning,
forecasting and evaluating business and financial performance,
including allocating resources and evaluating results relative to
employee compensation targets.
(In thousands of USD) |
|
Three months ended December 31, |
|
Year ended December 31, |
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Reported operating loss |
|
$ |
(63,869 |
) |
|
$ |
(8,871 |
) |
|
$ |
(121,484 |
) |
|
$ |
(21,341 |
) |
Adjustments |
|
|
|
|
|
|
|
|
Repurposing charges |
|
7,268 |
|
|
— |
|
|
7,268 |
|
|
— |
|
Adjusted operating loss |
|
(56,601 |
) |
|
(8,871 |
) |
|
(114,216 |
) |
|
(21,341 |
) |
Adjusted operating loss by business
segmentManagement reviews segment operating loss, which excludes
corporate expenses, and adjusted operating loss by business
segment, which further excludes certain income and expense items
that management believes are not part of the underlying segment’s
operations. Corporate expenses are expenses that relate to the
consolidated business and not to an individual operating segment
while the income and expenses items include repurposing charges.
Management does not view the income and expense items above to be
part of underlying results of the segment as they may be highly
variable, may be infrequent, are difficult to predict and can
distort underlying business trends and results.
Management believes that adjusted operating loss
by business segment provides useful insight into underlying segment
trends and results and will provide a more meaningful comparison of
year-over-year results, going forward. Management uses adjusted
operating loss by business segment for planning, forecasting and
evaluating segment performance, including allocating resources and
evaluating results relative to employee compensation.
(In thousands of USD) |
Year ended December 31, 2019 |
|
US |
|
RoW |
|
Total Segments |
|
Corporate Expenses |
|
Total |
Reported operating loss |
$ |
(2,777 |
) |
|
$ |
(106,928 |
) |
|
$ |
(109,705 |
) |
|
$ |
(11,779 |
) |
|
$ |
(121,484 |
) |
Adjustments |
|
|
|
|
|
|
|
|
|
Repurposing charges |
— |
|
|
7,268 |
|
|
7,268 |
|
|
— |
|
|
7,268 |
|
Adjusted operating loss |
(2,777 |
) |
|
(99,660 |
) |
|
(102,437 |
) |
|
(11,779 |
) |
|
(114,216 |
) |
(In thousands of USD) |
Three months December 31, 2019 |
|
US |
|
RoW |
|
Total Segments |
|
Corporate Expenses |
|
Total |
Reported operating loss |
$ |
(1,797 |
) |
|
$ |
(59,066 |
) |
|
$ |
(60,863 |
) |
|
$ |
(3,006 |
) |
|
$ |
(63,869 |
) |
Adjustments |
|
|
|
|
|
|
|
|
|
Repurposing charges |
— |
|
|
7,268 |
|
|
7,268 |
|
|
— |
|
|
7,268 |
|
Adjusted operating loss |
(1,797 |
) |
|
(51,798 |
) |
|
(53,595 |
) |
|
(3,006 |
) |
|
(56,601 |
) |
Adjusted EBITDAAdjusted earnings before
interest, tax depreciation and amortization (“Adjusted EBITDA”) is
used by management as a supplemental measure to review and assess
operating performance and trends on a comparable basis with the
rest of the industry, although our measure of Adjusted EBITDA may
not be directly comparable to similar measures used by other
companies.
Management reviews EBITDA on an adjusted basis,
which excludes net income attributable to non-controlling
interests, repurposing charges and special items. Special items
consist of financing and transaction costs, other non-cash gains
(losses) and other unforeseeable, non-recurring charges which
management has described below.
(In thousands of USD) |
|
Three months December 31, |
|
Year ended December 31, |
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Net income (loss) |
|
$ |
61,569 |
|
|
$ |
(9,692 |
) |
|
$ |
1,165,574 |
|
|
$ |
(21,817 |
) |
Adjustments |
|
|
|
|
|
|
|
|
Interest expense (income) |
|
(7,514 |
) |
|
(177 |
) |
|
(27,982 |
) |
|
(83 |
) |
Income tax expense (recovery) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Repurposing charges |
|
7,268 |
|
|
— |
|
|
7,268 |
|
|
— |
|
Financing and transaction costs |
|
524 |
|
|
— |
|
|
32,208 |
|
|
— |
|
Loss (gain) on revaluation of derivative liabilities |
|
(118,811 |
) |
|
— |
|
|
(1,276,819 |
) |
|
— |
|
Loss (gain) on revaluation of financial liabilities |
|
(50 |
) |
|
— |
|
|
(197 |
) |
|
— |
|
Loss (gain) on disposal of investments |
|
(34 |
) |
|
240 |
|
|
(16,277 |
) |
|
(164 |
) |
Share of loss (income) from equity accounted investees |
|
505 |
|
|
758 |
|
|
2,009 |
|
|
723 |
|
Share-based payments |
|
3,670 |
|
|
2,183 |
|
|
11,619 |
|
|
8,151 |
|
Adjusted EBIT |
|
(52,873 |
) |
|
(6,688 |
) |
|
(102,597 |
) |
|
(13,190 |
) |
Adjustments |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
957 |
|
|
928 |
|
|
3,913 |
|
|
1,937 |
|
Adjusted EBITDA |
|
(51,916 |
) |
|
(5,760 |
) |
|
(98,684 |
) |
|
(11,253 |
) |
Special Items
Management does not view any of the following
special items to be part of the underlying results as they may be
highly variable, may be infrequent, may be unpredictable and may
distort underlying business results and trends.
Peace Natural Campus repurposing charges
- In Q4 of 2019, Cronos Group recorded pre-tax charges of $7.2
million related to the Company’s decision to redesign its efforts
at the Peace Naturals Campus, which includes impairment costs,
inventory write-down, and employee termination benefits.
Financing and transaction costs
- In Full-Year 2019, Cronos Group recorded pre-tax charges of
$32.2 million related to the Altria Investment; acquisition related
costs associated with the Cronos Fermentation and Redwood
transactions; and a term loan credit facility.
- No financing and transaction costs were recorded in 2018.
Gain on revaluation of derivative
liabilities
- In Q4 2019, Cronos Group recorded a pre-tax unrealized gain of
$118.8 million primarily resulting from the non-cash change in the
fair value of financial derivative liabilities associated with the
investment by Altria Group, Inc. (“Altria”).
- In Full-Year 2019, Cronos Group recorded a pre-tax unrealized
gain of $1,276.8 million primarily resulting from the non-cash
change in the fair value of financial derivative liabilities
associated with the investment by Altria.
Gain on disposal of investments
- In Full-Year 2019, Cronos Group recorded a pre-tax gain of
$21.5 million primarily related to the disposal of shares in
Whistler Marijuana Company (“Whistler”) to Aurora Cannabis Inc.
(“Aurora”) in connection with Aurora’s acquisition of
Whistler.
- In Full-Year 2018, Cronos Group recorded a pre-tax gain of $0.2
million related to the disposal of its investment in AB Cann Global
Corporation.
Foreign currency exchange
rates
All currency amounts in this Press
Release are stated in U.S. dollars (“USD”), which is
our reporting currency, unless otherwise noted. All references to
“dollars” or “$” 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 December 31, 2019 and December
31, 2018. 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.
The exchange rates used to translate from USD to
Canadian dollars (“C$”) is shown below:
(Exchange rates are shown as C$ per $) |
As at December 31, |
|
2019 |
|
2018 |
|
2017 |
Average rate |
1.3268 |
|
|
1.2955 |
|
|
1.2969 |
|
Spot rate |
1.2990 |
|
|
1.3639 |
|
|
1.2571 |
|
For further information, please
contact:Anna ShlimakInvestor RelationsTel: (416)
504-0004investor.relations@thecronosgroup.com
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