Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) (“Cronos Group”
or the “Company”), today announces its 2020 third quarter business
results.
“The opportunities before Cronos Group are more
exciting than ever and I am honored to have brought the company to
this important inflection point as we bring on Kurt Schmidt to
serve as our new President and CEO,” said Mike Gorenstein,
Executive Chairman of Cronos Group. “We look forward to continuing
to launch innovative cannabinoid products in Canada and to expand
our portfolio of U.S. hemp-derived CBD brands. Internationally,
we’re pleased with the progress we have made in Israel and as
regulations continue to evolve, we will look to establish ourselves
as a leader in the markets in which we operate."
"In such a short period of time, Mike and the
Cronos team have achieved several impressive milestones,” said Kurt
Schmidt, President and CEO of Cronos Group. “From being the first
pure-play cannabis company to list on the NASDAQ, to scaling
operations worldwide, Cronos Group is well-positioned to continue
to thrive. Joining as President and CEO is a unique opportunity for
me to bring my expertise in building outstanding brands, high
performance teams and results-driven organizations to Cronos Group.
I look forward to helping this Company achieve many more exciting
milestones.”
Financial Results
(in
thousands of U.S. dollars) |
|
Three months ended September 30, |
|
Change |
|
Nine months ended September 30, |
|
Change |
|
|
2020 |
|
2019 |
|
$ |
|
% |
|
2020 |
|
2019 |
|
$ |
|
% |
Net
revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
1,639 |
|
|
|
$ |
675 |
|
|
|
$ |
964 |
|
|
|
143 |
|
% |
|
$ |
5,989 |
|
|
|
$ |
675 |
|
|
|
$ |
5,314 |
|
|
|
787 |
|
% |
Rest of World |
|
9,719 |
|
|
|
5,110 |
|
|
|
4,609 |
|
|
|
90 |
|
% |
|
23,684 |
|
|
|
15,767 |
|
|
|
7,917 |
|
|
|
50 |
|
% |
Consolidated net revenue |
|
11,358 |
|
|
|
5,785 |
|
|
|
5,573 |
|
|
|
96 |
|
% |
|
29,673 |
|
|
|
16,442 |
|
|
|
13,231 |
|
|
|
80 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
$ |
(1,537 |
) |
|
|
$ |
(3,137 |
) |
|
|
$ |
1,600 |
|
|
|
(51 |
) |
% |
|
$ |
(10,935 |
) |
|
|
$ |
2,511 |
|
|
|
$ |
(13,446 |
) |
|
|
(535 |
) |
% |
Gross margin |
|
(14 |
) |
% |
|
(54 |
) |
% |
|
— |
|
|
|
40 |
|
pp |
|
(37 |
) |
% |
|
15 |
|
% |
|
— |
|
|
|
(52 |
) |
pp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported operating loss |
|
$ |
(41,169 |
) |
|
|
$ |
(30,698 |
) |
|
|
$ |
(10,471 |
) |
|
|
34 |
|
% |
|
$ |
(120,937 |
) |
|
|
$ |
(57,539 |
) |
|
|
$ |
(63,398 |
) |
|
|
110 |
|
% |
Adjusted operating loss (i) |
|
(40,211 |
) |
|
|
(30,698 |
) |
|
|
(9,513 |
) |
|
|
31 |
|
% |
|
(112,113 |
) |
|
|
(57,539 |
) |
|
|
(54,574 |
) |
|
|
95 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (ii) |
|
1,097,846 |
|
|
|
1,114,414 |
|
|
|
(16,568 |
) |
|
|
(1 |
) |
% |
|
|
|
|
|
|
|
|
Short-term investments (ii) |
|
202,883 |
|
|
|
390,538 |
|
|
|
(187,655 |
) |
|
|
(48 |
) |
% |
|
|
|
|
|
|
|
|
Capital expenditures |
|
8,330 |
|
|
|
16,808 |
|
|
|
(8,478 |
) |
|
|
(50 |
) |
% |
|
24,428 |
|
|
|
38,196 |
|
|
|
(13,768 |
) |
|
|
(36 |
) |
% |
(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.
Third Quarter 2020
- Net revenue of $11.4 million in Q3
2020 increased by $5.6 million from Q3 2019. The increase
year-over-year was primarily driven by continued growth in the
adult-use Canadian cannabis market, the inclusion of the Redwood
acquisition in our financial results and growth in the Israeli
medical cannabis market, partially offset by non-recurring
wholesale revenue in the Canadian market in Q3 2019 and strategic
price reductions on various adult-use cannabis products in certain
Canadian provinces in Q3 2020.
- Gross loss of $1.5 million in Q3
2020 decreased by $1.6 million from Q3 2019. The decrease in losses
year-over-year was primarily driven by an increase in net revenue
and the gross profit contribution of the U.S. business segment.
Offset by an increase in cost of sales primarily driven by a higher
volume of adult-use sales and the associated third-party purchased
flower, and a decline in wholesale sales.
- Reported operating loss of $41.2
million in Q3 2020 increased by $10.5 million from Q3 2019. The
increase year-over-year was primarily driven by increased
share-based payments related to separation agreements with certain
Redwood employees, increased general and administrative expenses
inclusive of review costs and costs related to the previously
disclosed restatement of the Company's 2019 interim financial
statements, higher sales and marketing costs related to brand
development, and R&D spending, partially offset by a decrease
in gross loss.
Business Updates
Brand Portfolio
Subsequent to the end of the third quarter of
2020, Cronos Group's U.S. segment launched a new hemp-derived CBD
skincare and personal care brand called Happy Dance™, in
partnership with Kristen Bell. Happy Dance™ products are made with
CBD from premium full-spectrum hemp extract and provide consumers
with high-quality skincare at an accessible price point. Happy
Dance™ launched with three product offerings: All-Over Whipped Body
Butter +CBD, Head-To-Toe Coconut Melt +CBD and Stress Away Bath
Bomb +CBD, all of which are currently available online, with
intentions to enter the brick and mortar channel in the future.
Through the partnership with Ms. Bell, Cronos Group looks forward
to future introductions of innovative products to the hemp-derived
CBD market.
In October 2020, the U.S. segment also launched
new full-spectrum tinctures under its hemp-derived CBD brand, Lord
Jones™. The full-spectrum tinctures are available in two flavors,
peppermint and orange. The U.S. segment anticipates launching a
Lord Jones™ branded hemp-derived CBD infused Lip Balm in November
2020. The Whole Plant Formula CBD Lip Balm is expected to contain
25mg of U.S. hemp-derived CBD from full-spectrum hemp extract and
other premium ingredients, including shea butter, mimosa wax,
beeswax, and an oil blend to provide additional hydration.
Global Sales and
Distribution
Cronos Israel has now received the IMC-GAP,
IMC-GMP and IMC-GDP certifications required for the cultivation,
production and marketing of dried flower, pre-rolls and oils in
Israel. Subsequent to the end of the third quarter of 2020, in
addition to the PEACE NATURALS™ branded dried flower currently sold
in the Israeli medical market, Cronos Israel began selling PEACE
NATURALS™ branded oils into the Israeli medical market.
Global Supply Chain
In the third quarter of 2020, Natuera continued
to successfully complete imports of hemp-derived CBD extract to the
U.S. for business development and R&D purposes. Natuera also
completed its first export of hemp-derived CBD distillate to the
United Kingdom for R&D purposes. Moreover, Natuera’s
wholly-owned subsidiary in Colombia was awarded four quotas by the
Colombian government for psychoactive cannabis R&D production:
(i) one cultivation quota to conduct field trials and characterize
cultivars; (ii) one cultivation quota to conduct R&D related to
the manufacture of derivatives; and (iii) two R&D manufacturing
quotas to analyze and characterize THC products.
Intellectual Property
Initiatives
In the third quarter of 2020, Cronos Device Labs
expanded its scope for cannabinoid research and the R&D center
was renamed to Cronos Research Labs. Cronos Group engages in both
understanding the fundamental science behind the interactions of
cannabinoids with each other and how those interactions can be
leveraged to best deliver on the consumer’s needs. Additionally,
the Company partners with leading scientific institutions engaged
in fundamental cannabis science to augment and accelerate the
internal efforts. Cronos Group’s work spans many aspects of
cannabis research from strain development to growing conditions to
extraction technology to biosynthesis to product development, all
supported by advances in analytical sciences.
Enterprise Initiatives
In the third quarter of 2020, the Company
implemented a new enterprise resource planning (“ERP”) system
across the Canadian business. Cronos Group has also commenced work
to broaden the reach of our ERP system to the U.S. business, which
is currently expected to be launched in the first half of 2021. The
new ERP system will be a meaningful component of the Company's
internal control over financial reporting and is expected to enable
us to realize efficiencies throughout our supply chain and
operations.
Appointments
On September 9, 2020, Cronos Group expanded its
leadership structure to drive its next phase of growth by
appointing Kurt Schmidt as President and Chief Executive Officer.
This move coincides with Mike Gorenstein's appointment to Executive
Chairman. Mr. Schmidt brings deep experience in consumer products
with decades of leadership experience in the U.S. and overseas. Mr.
Schmidt previously served as Director and Chief Executive Officer
of Blue Buffalo Company, Ltd. from 2012 through 2016. Prior to
joining Blue Buffalo, Mr. Schmidt was Deputy Executive Vice
President at Nestlé S.A., where he was responsible for Nestlé
Nutrition, including several science-oriented and heavily regulated
businesses. He also served as a member of Nestlé’s Executive
Committee. Mr. Schmidt joined Nestlé in 2007 as part of Nestlé’s
acquisition of Gerber Products Company, where he was the President
and Chief Executive Officer from 2004 to 2007. Prior to Gerber, Mr.
Schmidt held a variety of leadership roles at Kraft Foods, Inc.
In addition, the Company further bolstered its
senior leadership team by adding Shannon Buggy as Senior Vice
President, Global Head of People. Prior to joining Cronos Group,
Ms. Buggy was the Senior Vice President of Global Human Resources
for Nielsen where she led HR strategy for Nielsen Media. With over
25 years of experience, Ms. Buggy has a proven track record of
leading and managing global human resources teams and driving
excellence in talent acquisition, development, retention, employee
relations, compensation, benefits, talent management and labor
relations.
Additionally during the quarter, as previously
disclosed, following the resignation of Robert Rosenheck on July
20, 2020, Summer Frein was named General Manager USA. Ms. Frein
joined Cronos Group in January of this year; however, she has
worked with Cronos Group in various capacities since 2018.
Previously, Ms. Frein was employed with Altria, where she led the
Strategy and Business Development team’s due diligence in the
cannabis space which culminated in Cronos Group’s strategic
investment from Altria. Most recently, she was responsible for
leading the Company's U.S. sales efforts, including managing brand
and retail partnerships for Lord Jones™. Under Ms. Frein’s
leadership, the Company plans to further expand its U.S.
hemp-derived business, including introducing new product formats
under both Lord Jones™ and Happy Dance™, that will target different
retail channels and consumers.
Update on COVID-19
Cronos Group’s manufacturing sites have adjusted
in order to comply with the current COVID-19 guidelines provided by
governmental authorities. During the third quarter of 2020, because
of the effects from COVID-19 in the U.S. a significant number of
the Company’s retail customers continued to be challenged by
permanent and temporary store closings. Those stores that are open
are faced with operating at reduced staff levels, reduced opening
hours and lower consumer foot traffic, which has continued in the
third quarter to negatively impact sales and demand for our
products in the U.S. segment. Revenue in the Rest of World segment
was not materially impacted by the effects of COVID-19 during the
three or nine months ended September 30, 2020.
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 U.S. dollars) |
|
Three months ended September 30, |
|
Change |
|
Nine months ended September 30, |
|
Change |
|
|
2020 |
|
2019 |
|
$ |
|
% |
|
2020 |
|
2019 |
|
$ |
|
% |
Cannabis flower |
|
$ |
7,958 |
|
|
|
$ |
4,266 |
|
|
|
$ |
3,692 |
|
|
|
87 |
|
% |
|
$ |
16,373 |
|
|
|
$ |
12,187 |
|
|
|
$ |
4,186 |
|
|
|
34 |
|
% |
Cannabis extracts |
|
1,504 |
|
|
|
825 |
|
|
|
679 |
|
|
|
82 |
|
% |
|
6,821 |
|
|
|
3,463 |
|
|
|
3,358 |
|
|
|
97 |
|
% |
Other |
|
257 |
|
|
|
19 |
|
|
|
238 |
|
|
|
1,253 |
|
% |
|
490 |
|
|
|
117 |
|
|
|
373 |
|
|
|
319 |
|
% |
Net
revenue |
|
9,719 |
|
|
|
5,110 |
|
|
|
4,609 |
|
|
|
90 |
|
% |
|
23,684 |
|
|
|
15,767 |
|
|
|
7,917 |
|
|
|
50 |
|
% |
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
$ |
(2,203 |
) |
|
|
$ |
(3,580 |
) |
|
|
$ |
1,377 |
|
|
|
(38 |
) |
% |
|
$ |
(13,270 |
) |
|
|
$ |
2,068 |
|
|
|
$ |
(15,338 |
) |
|
|
(742 |
) |
% |
Gross margin |
|
(23 |
) |
% |
|
(70 |
) |
% |
|
— |
|
|
|
47 |
|
pp |
|
(56 |
) |
% |
|
13 |
|
% |
|
— |
|
|
|
(69 |
) |
pp |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported and adjusted operating loss |
|
$ |
(17,999 |
) |
|
|
$ |
(21,228 |
) |
|
|
$ |
3,229 |
|
|
|
(15 |
) |
% |
|
$ |
(71,957 |
) |
|
|
$ |
(48,069 |
) |
|
|
$ |
(23,888 |
) |
|
|
50 |
|
% |
(i) See “Non-GAAP Measures” for
more information, including a reconciliation of adjusted
operating loss.
Third Quarter 2020
- Net revenue of $9.7 million in Q3
2020 increased by $4.6 million from Q3 2019. The increase
year-over-year was primarily driven by continued growth in the
adult-use Canadian cannabis market and growth in the Israeli
medical cannabis market, partially offset by non-recurring
wholesale revenue in the Canadian market in Q3 2019 and strategic
price reductions on various adult-use cannabis products in certain
Canadian provinces.
- Gross loss of $2.2 million in Q3
2020 decreased by $1.4 million from Q3 2019. The decrease in losses
year-over-year was primarily driven by an increase in net revenue,
offset by an increase in cost of sales primarily driven by a higher
volume of adult-use sales and the associated third-party purchased
flower and a decline in wholesale sales. The Company anticipates
that gross margin will continue to fluctuate as price and mix
change from quarter-to-quarter.
- Reported operating loss of $18.0
million in Q3 2020 decreased by $3.2 million from Q3 2019. The
decrease in losses year-over-year was primarily driven by a
decrease in general and administrative costs driven by a
reclassification of $4.6 million to corporate expenses in Q3 2020,
which had no effect on the Company's consolidated statement of net
income (loss) and a decrease in gross loss, partially offset by an
increase in R&D spending.
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 U.S. dollars) |
|
Three months ended September 30, |
|
Change |
|
Nine months ended September 30, |
|
Change |
|
|
2020 |
|
2019 |
|
$ |
|
% |
|
2020 |
|
2019 |
|
$ |
|
% |
Net revenue |
|
$ |
1,639 |
|
|
|
$ |
675 |
|
|
|
$ |
964 |
|
|
|
143 |
|
% |
|
$ |
5,989 |
|
|
|
$ |
675 |
|
|
|
$ |
5,314 |
|
|
|
787 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
666 |
|
|
|
$ |
443 |
|
|
|
223 |
|
|
|
50 |
|
% |
|
$ |
2,335 |
|
|
|
$ |
443 |
|
|
|
1,892 |
|
|
|
427 |
|
% |
Gross margin |
|
41 |
|
% |
|
66 |
|
% |
|
— |
|
|
|
(25 |
) |
pp |
|
39 |
|
% |
|
66 |
|
% |
|
— |
|
|
|
(27 |
) |
pp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported operating loss |
|
$ |
(12,191 |
) |
|
|
$ |
(830 |
) |
|
|
$ |
(11,361 |
) |
|
|
1,369 |
|
% |
|
$ |
(24,289 |
) |
|
|
$ |
(830 |
) |
|
|
$ |
(23,459 |
) |
|
|
2,826 |
|
% |
Third Quarter 2020
- Net revenue of $1.6 million in Q3
2020 increased by $1.0 million from Q3 2019. The increase
year-over-year was primarily driven by a full quarter of results in
Q3 2020 as opposed to 25 days in Q3 2019.
- Gross profit of $0.7 million in Q3
2020 increased by $0.2 million from Q3 2019. The increase
year-over-year was primarily driven by an increase in net revenue,
partially offset by increased discounts, sales and promotions and
new product introductions.
- Reported operating loss of $12.2
million in Q3 2020 increased by $11.4 million. The increase
year-over-year was primarily driven by an increase in share-based
payments related to separation agreements with certain Redwood
employees, increased sales and marketing costs incurred in relation
to the launch of new U.S. hemp-derived CBD products under the Lord
Jones™ and Happy Dance™ brands and increased general and
administrative expenses driven by salaries and wages to support the
Company's growth strategy across a variety of functions, partially
offset by an increase in gross profit.
Conference Call
The Company will host a conference call and live
audio webcast on Thursday, November 5, 2020, at 8:30 a.m. EST to
discuss 2020 third quarter 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: 5159205
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 three 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 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 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 U.S. Federal Trade Commission, 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 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 acquisition
of four Redwood Holding Group, LLC operating subsidiaries (the
"Redwood Acquisition") 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;
- 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 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 Redwood Acquisition and the acquisition of certain assets from
Apotex Fermentation Inc., including a GMP-compliant fermentation
and manufacturing facility in Winnipeg, Manitoba, and 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;
- 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;
- our ability to timely and
effectively remediate material weaknesses in our internal control
over financial reporting;
- 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) 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;
disruption of production, distribution and sales as a result of the
COVID-19 pandemic and any adverse effects the COVID-19 pandemic has
on the demand for and use of our products; the implementation and
effectiveness of key personnel changes; 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, regulatory
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 the Company's Annual Report on Form 10-K for the year
ended December 31, 2019 (as amended) and the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September 30,
2020. 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 Sheets |
As of September 30, 2020 and December 31,
2019 |
(In thousands of U.S. dollars, except share amounts,
unaudited) |
|
As of |
|
September 30, 2020 |
|
December 31, 2019 |
Assets |
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
$ |
1,097,846 |
|
|
|
$ |
1,199,693 |
|
|
Short-term investments |
202,883 |
|
|
|
306,347 |
|
|
Accounts receivable(i) |
6,086 |
|
|
|
4,638 |
|
|
Other receivables |
10,401 |
|
|
|
7,232 |
|
|
Current portion of loans receivable |
7,781 |
|
|
|
4,664 |
|
|
Prepaids and other assets |
10,532 |
|
|
|
9,395 |
|
|
Inventory, net |
56,359 |
|
|
|
38,043 |
|
|
Held-for-sale assets |
2,066 |
|
|
|
3,248 |
|
|
Total current assets |
1,393,954 |
|
|
|
1,573,260 |
|
|
Investments in equity accounted investees |
19,059 |
|
|
|
557 |
|
|
Advances to joint ventures |
461 |
|
|
|
19,437 |
|
|
Loan receivable, net |
76,148 |
|
|
|
44,967 |
|
|
Property, plant and equipment |
171,404 |
|
|
|
159,948 |
|
|
Right-of-use assets |
9,840 |
|
|
|
6,546 |
|
|
Intangible assets |
68,604 |
|
|
|
71,235 |
|
|
Goodwill |
179,459 |
|
|
|
214,492 |
|
|
Total assets |
$ |
1,918,929 |
|
|
|
$ |
2,090,442 |
|
|
|
|
|
|
Liabilities |
|
|
|
Current
liabilities |
|
|
|
Accounts payable and other liabilities |
$ |
39,012 |
|
|
|
$ |
35,301 |
|
|
Current portion of lease obligation |
1,274 |
|
|
|
427 |
|
|
Derivative liabilities |
102,655 |
|
|
|
297,160 |
|
|
Total current liabilities |
142,941 |
|
|
|
332,888 |
|
|
Due to non-controlling interests |
2,889 |
|
|
|
1,844 |
|
|
Lease obligation |
8,612 |
|
|
|
6,680 |
|
|
Total liabilities |
$ |
154,442 |
|
|
|
$ |
341,412 |
|
|
Commitments and contingencies(ii) |
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
Share capital(iii, iv) |
$ |
566,577 |
|
|
|
$ |
561,165 |
|
|
Additional paid-in capital |
32,491 |
|
|
|
23,234 |
|
|
Retained earnings |
1,175,742 |
|
|
|
1,137,646 |
|
|
Accumulated other comprehensive income (loss) |
(7,820 |
) |
|
|
27,838 |
|
|
Total equity attributable to shareholders of Cronos Group |
1,766,990 |
|
|
|
1,749,883 |
|
|
Non-controlling interests |
(2,503 |
) |
|
|
(853 |
) |
|
Total shareholders’ equity |
1,764,487 |
|
|
|
1,749,030 |
|
|
Total liabilities and shareholders’ equity |
$ |
1,918,929 |
|
|
|
$ |
2,090,442 |
|
|
(i) Net of current expected credit loss allowance of $64 as of
September 30, 2020 (December 31, 2019 – $136). (ii) Refer to
Note 19 and Note 20 in the notes to condensed consolidated
financial statements in Form 10-Q for the period ending September
30, 2020.(iii) Authorized for issuance as of September 30,
2020: unlimited (December 31, 2019 – unlimited). (iv) Shares issued
as of September 30, 2020: 355,733,914 (as of December 31,
2019: 348,817,472).
Cronos Group Inc. |
|
|
|
Condensed Consolidated Statements of Net
Income (Loss) and Comprehensive Income (Loss) |
For the three and nine months ended
September 30, 2020 and 2019 |
(In thousands of U.S. dollars, except share
amounts, unaudited) |
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net revenue, before excise taxes |
$ |
13,621 |
|
|
|
$ |
6,269 |
|
|
|
$ |
34,397 |
|
|
|
$ |
17,724 |
|
|
Excise taxes |
(2,263 |
) |
|
|
(484 |
) |
|
|
(4,724 |
) |
|
|
(1,282 |
) |
|
Net revenue |
11,358 |
|
|
|
5,785 |
|
|
|
29,673 |
|
|
|
16,442 |
|
|
Cost of sales |
12,895 |
|
|
|
3,498 |
|
|
|
29,584 |
|
|
|
8,507 |
|
|
Inventory write-down |
— |
|
|
|
5,424 |
|
|
|
11,024 |
|
|
|
5,424 |
|
|
Gross profit (loss) |
(1,537 |
) |
|
|
(3,137 |
) |
|
|
(10,935 |
) |
|
|
2,511 |
|
|
Operating expenses |
|
|
|
|
|
|
|
Sales and marketing |
7,236 |
|
|
|
4,591 |
|
|
|
20,849 |
|
|
|
9,723 |
|
|
Research and development (“R&D”) |
4,734 |
|
|
|
2,605 |
|
|
|
12,955 |
|
|
|
6,076 |
|
|
General and administrative |
18,860 |
|
|
|
16,202 |
|
|
|
61,048 |
|
|
|
34,987 |
|
|
Share-based payments |
7,916 |
|
|
|
3,531 |
|
|
|
12,898 |
|
|
|
7,949 |
|
|
Depreciation and amortization |
886 |
|
|
|
632 |
|
|
|
2,252 |
|
|
|
1,315 |
|
|
Total operating expenses |
39,632 |
|
|
|
27,561 |
|
|
|
110,002 |
|
|
|
60,050 |
|
|
Operating loss |
(41,169 |
) |
|
|
(30,698 |
) |
|
|
(120,937 |
) |
|
|
(57,539 |
) |
|
Other income (expense) |
|
|
|
|
|
|
|
Interest income, net |
3,781 |
|
|
|
8,939 |
|
|
|
15,266 |
|
|
|
20,455 |
|
|
Share of loss from investments in equity accounted investees |
(1,327 |
) |
|
|
(565 |
) |
|
|
(3,293 |
) |
|
|
(1,504 |
) |
|
Gain on revaluation of derivative liabilities |
105,307 |
|
|
|
632,482 |
|
|
|
182,795 |
|
|
|
1,158,008 |
|
|
Financing and transaction costs |
(40 |
) |
|
|
(6,083 |
) |
|
|
(40 |
) |
|
|
(31,684 |
) |
|
Impairment loss on goodwill and intangible assets |
— |
|
|
|
— |
|
|
|
(40,000 |
) |
|
|
— |
|
|
Gain on disposal of other investments |
3,974 |
|
|
|
— |
|
|
|
4,743 |
|
|
|
16,242 |
|
|
Loss on reclassification of held-for-sale assets |
(919 |
) |
|
|
— |
|
|
|
(919 |
) |
|
|
— |
|
|
Other income (loss) |
318 |
|
|
|
147 |
|
|
|
334 |
|
|
|
147 |
|
|
Total other income (loss) |
111,094 |
|
|
|
634,920 |
|
|
|
158,886 |
|
|
|
1,161,664 |
|
|
Income
(loss) before income taxes |
69,925 |
|
|
|
604,222 |
|
|
|
37,949 |
|
|
|
1,104,125 |
|
|
Income
tax expense |
988 |
|
|
|
58 |
|
|
|
988 |
|
|
|
58 |
|
|
Income from continuing operations |
$ |
68,937 |
|
|
|
$ |
604,164 |
|
|
|
$ |
36,961 |
|
|
|
$ |
1,104,067 |
|
|
Income (loss) from discontinued operations |
(473 |
) |
|
|
(36 |
) |
|
|
(519 |
) |
|
|
(63 |
) |
|
Net income (loss) |
$ |
68,464 |
|
|
|
$ |
604,128 |
|
|
|
$ |
36,442 |
|
|
|
$ |
1,104,004 |
|
|
Net income (loss) attributable to: |
|
|
|
|
|
|
|
Cronos Group |
$ |
69,033 |
|
|
|
$ |
604,410 |
|
|
|
$ |
38,096 |
|
|
|
$ |
1,104,501 |
|
|
Non-controlling interests |
(569 |
) |
|
|
(282 |
) |
|
|
(1,654 |
) |
|
|
(497 |
) |
|
|
$ |
68,464 |
|
|
|
$ |
604,128 |
|
|
|
$ |
36,442 |
|
|
|
$ |
1,104,004 |
|
|
Other comprehensive
income (loss) |
|
|
|
|
|
|
|
Foreign exchange gain (loss) on translation |
$ |
26,167 |
|
|
|
$ |
(12,422 |
) |
|
|
$ |
(35,654 |
) |
|
|
$ |
9,424 |
|
|
Total other comprehensive income (loss) |
26,167 |
|
|
|
(12,422 |
) |
|
|
(35,654 |
) |
|
|
9,424 |
|
|
Comprehensive income (loss) |
$ |
94,631 |
|
|
|
$ |
591,706 |
|
|
|
$ |
788 |
|
|
|
$ |
1,113,428 |
|
|
Comprehensive income (loss) attributable to: |
|
|
|
|
|
|
|
Cronos Group |
$ |
95,183 |
|
|
|
$ |
591,996 |
|
|
|
$ |
2,438 |
|
|
|
$ |
1,113,929 |
|
|
Non-controlling interests |
(552 |
) |
|
|
(290 |
) |
|
|
(1,650 |
) |
|
|
(501 |
) |
|
|
$ |
94,631 |
|
|
|
$ |
591,706 |
|
|
|
$ |
788 |
|
|
|
$ |
1,113,428 |
|
|
Net income (loss) per share |
|
|
|
|
|
|
|
Basic - continuing operations |
0.20 |
|
|
|
1.78 |
|
|
|
0.11 |
|
|
|
3.71 |
|
|
Basic - discontinued operations |
|
0.00 |
|
|
|
|
0.00 |
|
|
|
|
0.00 |
|
|
|
|
0.00 |
|
|
Diluted - continuing operations |
0.19 |
|
|
|
1.62 |
|
|
|
0.10 |
|
|
|
0.92 |
|
|
Diluted - discontinued operations(i) |
|
0.00 |
|
|
|
|
0.00 |
|
|
|
|
0.00 |
|
|
|
|
0.00 |
|
|
Weighted average number of outstanding shares |
|
|
|
|
|
|
|
Basic |
350,288,783 |
|
|
|
338,957,949 |
|
|
|
349,397,156 |
|
|
|
297,964,058 |
|
|
Diluted(i) |
369,619,020 |
|
|
|
369,268,672 |
|
|
|
374,731,451 |
|
|
|
333,618,691 |
|
|
(i) In computing diluted earnings per share, incremental
common shares are not considered in periods in which a net loss is
reported, as the inclusion of the common share equivalents would be
anti-dilutive.
Cronos Group
Inc. |
|
Condensed
Consolidated Statements of Cash Flows |
For the nine months
ended September 30, 2020 and 2019 |
|
(In thousands of
U.S. dollars, except share amounts, unaudited) |
|
Nine months ended September 30, |
|
2020 |
|
2019 |
Operating
activities |
|
|
|
Net income (loss) |
$ |
36,442 |
|
|
|
$ |
1,104,004 |
|
|
Items not affecting cash: |
|
|
|
Inventory write-down |
11,024 |
|
|
|
5,424 |
|
|
Share-based payments |
12,898 |
|
|
|
7,949 |
|
|
Depreciation and amortization |
5,095 |
|
|
|
2,956 |
|
|
Share of loss from investments in equity accounted investees |
3,293 |
|
|
|
1,504 |
|
|
Gain on revaluation of derivative liabilities |
(182,795 |
) |
|
|
(1,158,008 |
) |
|
Gain on disposal of other investments |
(4,743 |
) |
|
|
(16,242 |
) |
|
Impairment loss on goodwill and intangible assets |
40,000 |
|
|
|
— |
|
|
Loss (gain) on unrealized foreign exchange |
(3,020 |
) |
|
|
807 |
|
|
Provision for inventory and doubtful accounts |
3,119 |
|
|
|
— |
|
|
Non-cash sales and marketing |
2,505 |
|
|
|
— |
|
|
Loss on reclassification of held-for-sale assets |
919 |
|
|
|
— |
|
|
Other, net |
(298 |
) |
|
|
(89 |
) |
|
Net changes in non-cash working capital |
(29,123 |
) |
|
|
(25,098 |
) |
|
Cash flows used in operating
activities |
(104,684 |
) |
|
|
(76,793 |
) |
|
Investing
activities |
|
|
|
Purchase of short-term investments |
(125,562 |
) |
|
|
(384,288 |
) |
|
Proceeds from disposal of short-term investments |
220,058 |
|
|
|
— |
|
|
Investments in equity accounted investees |
— |
|
|
|
(1,658 |
) |
|
Proceeds from sale of other investments |
4,743 |
|
|
|
19,614 |
|
|
Advances to joint ventures |
— |
|
|
|
(15,951 |
) |
|
Purchase of property, plant and equipment |
(21,334 |
) |
|
|
(37,622 |
) |
|
Payment of accrued interest on construction loan payable |
— |
|
|
|
(89 |
) |
|
Purchase of intangible assets |
(3,094 |
) |
|
|
(574 |
) |
|
Acquisition of Redwood |
— |
|
|
|
(227,224 |
) |
|
Advances on loans receivable |
(37,000 |
) |
|
|
(33,012 |
) |
|
Proceeds from repayment of loans receivable |
— |
|
|
|
238 |
|
|
Cash assumed on acquisition |
— |
|
|
|
2,957 |
|
|
Cash flows provided by (used in) investing activities |
37,811 |
|
|
|
(677,609 |
) |
|
Financing
activities |
|
|
|
Advance from non-controlling interests |
(187 |
) |
|
|
183 |
|
|
Repayment of lease obligations |
(1,859 |
) |
|
|
(414 |
) |
|
Proceeds from Altria Investment |
— |
|
|
|
1,809,556 |
|
|
Proceeds from exercise of Top-up Rights |
— |
|
|
|
31,566 |
|
|
Proceeds from exercise of warrants and options |
5 |
|
|
|
1,455 |
|
|
Withholding taxes paid on equity awards |
(2,148 |
) |
|
|
(861 |
) |
|
Share issuance costs |
— |
|
|
|
(3,722 |
) |
|
Advance of loans payable |
— |
|
|
|
48,715 |
|
|
Repayment of loans payable |
— |
|
|
|
(48,309 |
) |
|
Transaction costs paid on construction loan payable |
— |
|
|
|
(15,971 |
) |
|
Cash flows provided by (used in) financing activities |
(4,189 |
) |
|
|
1,822,198 |
|
|
Effect of foreign currency
translation on cash and cash equivalents |
(30,785 |
) |
|
|
22,691 |
|
|
Net change in cash and cash equivalents |
(101,847 |
) |
|
|
1,090,487 |
|
|
Cash and cash equivalents,
beginning of period |
1,199,693 |
|
|
|
23,927 |
|
|
Cash and cash equivalents, end of period |
$ |
1,097,846 |
|
|
|
$ |
1,114,414 |
|
|
Supplemental cash flow
information |
|
|
|
Interest paid |
156 |
|
|
|
647 |
|
|
Interest received |
13,473 |
|
|
|
9,690 |
|
|
Non-GAAP Measures
In addition to its financial results reported in
accordance with accounting principles generally recognized in the
U.S. ("GAAP"), the Company uses certain measures that 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 financial measures 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 typically include non-recurring
charges such as our review costs related to the restatement of our
2019 interim financial statements. 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 U.S.
dollars) |
|
For the three months ended September 30, |
|
For the nine months ended September 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Reported operating loss |
|
$ |
(41,169 |
) |
|
|
$ |
(30,698 |
) |
|
|
$ |
(120,937 |
) |
|
|
$ |
(57,539 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
Review and defense costs related to restatement of 2019 interim
financial statements |
|
958 |
|
|
|
— |
|
|
|
8,824 |
|
|
|
— |
|
|
Adjusted operating loss |
|
$ |
(40,211 |
) |
|
|
$ |
(30,698 |
) |
|
|
$ |
(112,113 |
) |
|
|
$ |
(57,539 |
) |
|
Adjusted operating loss by business
segmentManagement reviews operating loss by business segment, 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 expense items typically include
non-recurring charges such as our review costs related to the
restatement of our 2019 interim financial statements. 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 unusual or 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 U.S.
dollars) |
For the three months ended September 30,
2020 |
|
U.S. |
|
Rest of World |
|
Total Segments |
|
Corporate Expenses |
|
Total |
Reported operating loss |
$ |
(12,191 |
) |
|
|
$ |
(17,999 |
) |
|
|
$ |
(30,190 |
) |
|
|
$ |
(10,979 |
) |
|
|
$ |
(41,169 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
|
Review and defense costs related to restatement of 2019 interim
financial statements |
— |
|
|
|
— |
|
|
|
— |
|
|
|
958 |
|
|
|
958 |
|
|
Adjusted operating loss |
$ |
(12,191 |
) |
|
|
$ |
(17,999 |
) |
|
|
$ |
(30,190 |
) |
|
|
$ |
(10,021 |
) |
|
|
$ |
(40,211 |
) |
|
(In thousands of U.S.
dollars) |
For the nine months ended September 30,
2020 |
|
U.S. |
|
Rest of World |
|
Total Segments |
|
Corporate Expenses |
|
Total |
Reported operating loss |
$ |
(24,289 |
) |
|
|
$ |
(71,957 |
) |
|
|
$ |
(96,246 |
) |
|
|
$ |
(24,691 |
) |
|
|
$ |
(120,937 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
|
Review and defense costs related to restatement of 2019 interim
financial statements |
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,824 |
|
|
|
8,824 |
|
|
Adjusted operating loss |
$ |
(24,289 |
) |
|
|
$ |
(71,957 |
) |
|
|
$ |
(96,246 |
) |
|
|
$ |
(15,867 |
) |
|
|
$ |
(112,113 |
) |
|
(In
thousands of U.S. dollars) |
For the three months ended September 30,
2019 |
|
U.S. |
|
Rest of World |
|
Total Segments |
|
Corporate Expenses |
|
Total |
Reported and adjusted operating loss |
$ |
(830 |
) |
|
|
$ |
(21,228 |
) |
|
|
$ |
(22,058 |
) |
|
|
$ |
(8,640 |
) |
|
|
$ |
(30,698 |
) |
|
(In
thousands of U.S. dollars) |
For the nine months ended September 30,
2019 |
|
U.S. |
|
Rest of World |
|
Total Segments |
|
Corporate Expenses |
|
Total |
Reported and adjusted operating loss |
$ |
(830 |
) |
|
|
$ |
(48,069 |
) |
|
|
$ |
(48,899 |
) |
|
|
$ |
(8,640 |
) |
|
|
$ |
(57,539 |
) |
|
Adjusted EBITDA
Adjusted 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, and special items. Special items consist of income tax
recovery (expense), financing and transaction costs, other non-cash
gains (losses), including share-based payments as it is a non-cash
item, and other unforeseeable, non-recurring charges which
management has described below.
(in thousands of U.S.
dollars) |
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net income (loss) |
|
$ |
68,464 |
|
|
|
$ |
604,128 |
|
|
|
$ |
36,442 |
|
|
|
$ |
1,104,004 |
|
|
Adjustments |
|
|
|
|
|
|
|
|
Income tax expense |
|
988 |
|
|
|
58 |
|
|
|
988 |
|
|
|
58 |
|
|
Interest income, net |
|
(3,781 |
) |
|
|
(8,939 |
) |
|
|
(15,266 |
) |
|
|
(20,455 |
) |
|
Share of loss from investments in equity accounted investees |
|
1,327 |
|
|
|
565 |
|
|
|
3,293 |
|
|
|
1,504 |
|
|
Gain on revaluation of derivative liabilities |
|
(105,307 |
) |
|
|
(632,482 |
) |
|
|
(182,795 |
) |
|
|
(1,158,008 |
) |
|
Impairment loss on goodwill and intangible assets |
|
— |
|
|
|
— |
|
|
|
40,000 |
|
|
|
— |
|
|
Financing and transaction costs |
|
40 |
|
|
|
6,083 |
|
|
|
40 |
|
|
|
31,684 |
|
|
Other (income) loss |
|
(318 |
) |
|
|
(147 |
) |
|
|
(334 |
) |
|
|
(147 |
) |
|
Loss on reclassification of held-for-sale assets |
|
919 |
|
|
|
— |
|
|
|
919 |
|
|
|
— |
|
|
Gain on disposal of other investments |
|
(3,974 |
) |
|
|
— |
|
|
|
(4,743 |
) |
|
|
(16,242 |
) |
|
Loss (income) from discontinued operations |
|
473 |
|
|
|
36 |
|
|
|
519 |
|
|
|
63 |
|
|
Review and defense costs related to restatement of 2019 interim
financial statements |
|
958 |
|
|
|
— |
|
|
|
8,824 |
|
|
|
— |
|
|
Share-based payments |
|
7,916 |
|
|
|
3,531 |
|
|
|
12,898 |
|
|
|
7,949 |
|
|
Adjusted
EBIT |
|
(32,295 |
) |
|
|
(27,167 |
) |
|
|
(99,215 |
) |
|
|
(49,590 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
2,216 |
|
|
|
1,782 |
|
|
|
5,095 |
|
|
|
2,956 |
|
|
Adjusted
EBITDA |
|
$ |
(30,079 |
) |
|
|
$ |
(25,385 |
) |
|
|
$ |
(94,120 |
) |
|
|
$ |
(46,634 |
) |
|
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.
Impairment loss on goodwill and intangible
assets
- During the nine months ended
September 30, 2020, the Company recorded $35.0 million of
impairment charges on the U.S. reporting unit and $5.0 million of
impairment charges on the Lord Jones™ brand. The carrying values of
both the U.S. reporting segment goodwill and the Lord Jones™ brand
were deemed to be greater than their fair value after an impairment
test was performed because results in the U.S. operating segment
were negatively impacted by the effects of COVID-19.
- During the three and nine months
ended September 30, 2019, the Company recorded no impairment
charges on goodwill or intangible assets.
Financing and transaction costs
- During the three and nine months
ended September 30, 2020, there were financing or transaction
costs of $0.04 million.
- During the three and nine months
ended September 30, 2019, the Company recorded pre-tax charges
of $6.1 million and $31.7 million, respectively, primarily related
to the Altria Investment.
Gain (loss) on revaluation of derivative
liabilities
- During the three and nine months
ended September 30, 2020, Cronos Group recorded unrealized
gains of $105.3 million and $182.8 million, respectively, primarily
resulting from the non-cash change in the fair value of financial
derivative liabilities associated with the investment by
Altria.
- During the three and nine months
ended September 30, 2019, the unrealized gain resulting from
the non-cash change in the fair value of the financial derivative
liabilities was $632.5 million and $1,158.0 million,
respectively.
Review costs related to restatement of 2019
interim financial statements
- During the three and nine months
ended September 30, 2020, the Company incurred $1.0 million
and $8.8 million, respectively, in review costs related to the
restatement of the Company's 2019 interim financial statements and
costs related to the Company's responses to reviews of such
restatement by various regulatory authorities.
- During the three and nine months
ended September 30, 2019, the Company recorded no costs
related to the restatement of previously issued financial
statements.
Gain on disposal of other investments
- During the three and nine months
ended September 30, 2020, the Company recognized gains of $4.0
million and $4.7 million, respectively, in connection with the
receipt of Aurora Cannabis shares after the achievement of
milestones related to the Company's sale of Whistler Medical
Marijuana Company in March 2019.
- During the nine months ended
September 30, 2019, the Company recorded a gain on disposal of
other investments of $16.2 million related to the sale of Aurora
Cannabis shares in connection with the sale of Whistler Medical
Marijuana Company as well as the sale of common shares of Canopy
Growth Corporation.
Foreign currency exchange
rates
All currency amounts in this Press
Release are stated in U.S. dollars (“USD”), which is
our reporting currency, unless otherwise noted. All references to
“dollars” or “$” 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 September 30, 2020 and December
31, 2019. 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 |
|
September 30, 2020 |
|
June 30, 2020 |
|
March 31, 2020 |
|
December 31, 2019 |
|
September 30, 2019 |
Average rate(i) |
1.3323 |
|
1.3856 |
|
1.3437 |
|
1.3268 |
|
1.3204 |
Spot rate |
1.3308 |
|
1.3576 |
|
1.4062 |
|
1.2990 |
|
1.3241 |
(i) Average rates are three months ended.
The year-to-date average rate used for the nine months ended
September 30, 2020 was 1.3539. The year-to-date average rate used
for the nine months ended September 30, 2019 was 1.3292.
For further information, please
contact:Anna ShlimakInvestor RelationsTel: (416)
504-0004investor.relations@thecronosgroup.com
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