Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) (“Cronos Group”
or the “Company”), today announces its 2020 fourth quarter and
full-year business results.
“Our fourth quarter 2020 results are the
summation of the hard work and perseverance the Company has put
into this past year despite the challenges of 2020. As we look to
2021, I’m incredibly excited about the teams we have supporting our
brands and the breakthrough research and development ("R&D"),
innovation and exciting marketing campaigns Cronos Group plans to
execute on. We are poised to build upon the growth we experienced
in 2020 as we continue to push cannabinoid innovation and
differentiated product offerings under our portfolio of brands,”
said Kurt Schmidt, President and CEO of Cronos Group. “My goals
this year will be to focus on building a winning team by fostering
a collaborative, performance-driven culture; continue to focus on
creating disruptive technology and innovation; grow and develop our
brands and strengthen our ability to compete through R&D,
strategic global infrastructure and engaging in the legislative
process in key markets.”
Financial Results
(in thousands of USD) |
|
Three months endedDecember 31, |
|
Change |
|
Year endedDecember 31, |
|
Change |
|
|
2020 |
|
2019 |
|
$ |
|
% |
|
2020 |
|
2019 |
|
$ |
|
% |
Net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
3,506 |
|
|
|
$ |
2,689 |
|
|
|
$ |
817 |
|
|
|
30 |
|
% |
|
$ |
9,495 |
|
|
|
$ |
3,364 |
|
|
|
$ |
6,131 |
|
|
|
182 |
|
% |
Rest of World |
|
13,540 |
|
|
|
4,619 |
|
|
|
8,921 |
|
|
|
193 |
|
% |
|
37,224 |
|
|
|
20,386 |
|
|
|
16,838 |
|
|
|
83 |
|
% |
Consolidated net revenue |
|
17,046 |
|
|
|
7,308 |
|
|
|
9,738 |
|
|
|
133 |
|
% |
|
46,719 |
|
|
|
23,750 |
|
|
|
22,969 |
|
|
|
97 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
$ |
(14,898 |
) |
|
|
$ |
(20,108 |
) |
|
|
$ |
5,210 |
|
|
|
(26 |
) |
% |
|
$ |
(25,833 |
) |
|
|
$ |
(17,597 |
) |
|
|
$ |
(8,236 |
) |
|
|
47 |
|
% |
Gross margin |
|
(87 |
) |
% |
|
(275 |
) |
% |
|
N/A |
|
188 |
|
pp |
|
(55 |
) |
% |
|
(74 |
) |
% |
|
N/A |
|
19 |
|
pp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (i) |
|
$ |
(53,133 |
) |
|
|
$ |
(51,674 |
) |
|
|
$ |
(1,459 |
) |
|
|
3 |
|
% |
|
$ |
(147,253 |
) |
|
|
$ |
(98,308 |
) |
|
|
$ |
(48,945 |
) |
|
|
50 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents(ii) |
|
|
|
|
|
|
|
|
|
$ |
1,078,023 |
|
|
|
$ |
1,199,693 |
|
|
|
$ |
(121,670 |
) |
|
|
(10 |
) |
% |
Short-term investments
(ii) |
|
|
|
|
|
|
|
|
|
211,766 |
|
|
|
306,347 |
|
|
|
(94,581 |
) |
|
|
(31 |
) |
% |
Capital expenditures |
|
10,963 |
|
|
|
757 |
|
|
|
10,206 |
|
|
|
1348 |
|
% |
|
35,391 |
|
|
|
38,953 |
|
|
|
(3,562 |
) |
|
|
(9 |
) |
% |
(i) See “Non-GAAP Measures” for more
information, including a reconciliation of adjusted earnings
(loss) before interest, taxes, depreciation and amortization
(“Adjusted EBITDA”)(ii) Dollar amounts are as of the
last day of the period indicated
Fourth Quarter 2020
- Net revenue of $17.0 million in Q4
2020 increased by $9.7 million from Q4 2019. The increase
year-over-year was primarily driven by continued growth in the
adult-use market in Canada, sales in the Israeli medical market and
growth in our U.S. segment. Partially offset by non-recurring
wholesale revenue in the Canadian market in Q4 2019 and strategic
price reductions on various adult-use cannabis products in Canada
in Q4 2020.
- Gross loss of $14.9 million in Q4
2020 decreased by $5.2 million from Q4 2019. The decrease in losses
year-over-year was primarily driven by a decline in inventory
write-downs and increased gross profit in the U.S. segment. Offset
by third party purchased flower associated with adult-use products
in Canada and a decline in wholesale sales in Q4 2020 versus Q4
2019.
- The Company incurred an inventory
write-down in Q4 2020 of $15.0 million on dried cannabis and
cannabis extracts, primarily driven by cannabis product price
compression in the Canadian market. The Company may incur further
inventory write-downs due to pricing pressures in the
marketplace.
- Adjusted EBITDA loss of $53.1
million in Q4 2020 increased by $1.5 million from Q4 2019. The
increase in losses year-over-year was primarily driven by an
increase in general and administrative expenses and an increase in
R&D spending.
- Capital expenditures of $11.0
million in Q4 2020 increased by $10.2 million from Q4 2019. The
increase year-over-year was primarily driven by spending at the
Company's Peace Naturals campus, Cronos Fermentation, our Israeli
facility, and our new ERP system.
Full-Year 2020
- Net revenue of $46.7 million in
Full-Year 2020 increased by $23.0 million from Full-Year 2019. The
increase year-over-year was primarily driven by continued growth in
the adult-use market in Canada, growth in our U.S. segment, which
included a full-year of the Redwood business as opposed to 117 days
in Full-Year 2019, and sales in the Israeli medical market.
Partially offset by non-recurring wholesale revenue in the Canadian
market in Full-Year 2019 and strategic price reductions on various
adult-use cannabis products in Canada in Full-Year 2020.
- Gross loss of $25.8 million in
Full-Year 2020 increased by $8.2 million from Full-Year 2019. The
increase in losses year-over-year was primarily driven by third
party purchased flower associated with adult-use products in Canada
and a decline in wholesale sales in Full-Year 2020 versus Full-Year
2019. Partially offset by increased gross profit in the U.S.
segment due to a full year of results from the Redwood business and
a decrease in inventory write-downs in the ROW segment.
- The Company incurred an inventory
write-down in Full-Year 2020 of $26.1 million, on dried cannabis
and cannabis extracts, primarily driven by cannabis product price
compression in the Canadian market. The Company may incur further
inventory write-downs due to pricing pressures in the
marketplace.
- Adjusted EBITDA loss of $147.3
million in Full-Year 2020 increased by $48.9 million from Full-Year
2019. The increase in losses year-over-year was primarily driven by
an increase in gross loss, increased general and administrative
expenses, higher sales and marketing costs related to brand
development and R&D spending.
- Capital expenditures of $35.4
million in Full-Year 2020 decreased by $3.6 million from Full-Year
2019. The decrease year-over-year was primarily driven by a
reduction in spending at the Company's Peace Naturals campus and
Cronos Israel. Partially offset by an increase in spending at
Cronos Fermentation.
Business Updates
Brand Portfolio
Happy Dance™ continues its expansion by securing
its first major U.S. retailer, ULTA Beauty™. The full collection of
Happy Dance™ products is expected to launch online at ULTA.com and
in-store in over 550 ULTA Beauty™ locations across the U.S. in the
coming weeks. Happy Dance™ was co-founded by actress and New York
Times best-selling author Kristen Bell and features an easy-to-use
line of clean, vegan and cruelty-free U.S. hemp-derived CBD bath
and body products including an All-Over Whipped Body Butter + CBD,
Head-to-Toe Coconut Melt + CBD and Stress Away Bath Bomb + CBD.
During 2020, Cronos Israel received all
certifications and licenses required for the cultivation,
production and marketing of dried flower, pre-rolls and oils in
Israel and currently has PEACE NATURALS™ dried flower and oils in
market. On January 11, 2021, the PEACE NATURALS™ brand was
recognized by the Israeli Marketing Association and was given the
2020 Innovation Award for its successful marketing strategy in
2020, which led to increased brand exposure. The marketing campaign
gained this accolade for standing out amongst its peers by focusing
on the high-quality nature of PEACE NATURALS™ products. In February
2021, Cronos Israel signed a distribution agreement with the
largest pharmacy chain in Israel, Super-Pharm, which has over 250
branches in Israel. Cronos Israel continues to build distribution
and brand awareness through a growing network of pharmacies.
Global Supply Chain
In 2020, Cronos Growing Company Inc. ("Cronos
GrowCo"), the Company's joint venture in Canada, fully completed
construction of its production facility, including all fixtures
within the greenhouse and all post-harvest activity areas. In
November 2020, Cronos GrowCo obtained a cultivation license for the
operations contemplated by the first phase of the project. The
Company expects the facility to become operational in phases
beginning in the first half of 2021.
Throughout 2020, Natuera, the Company’s joint
venture in Latin America, a fully licensed operation in Colombia
for hemp and cannabis derived bulk, consumer, and medicinal
cannabinoid products, continued to achieve significant operational
milestones. In addition to completing a number of test exports of
hemp-derived CBD extract to both the U.S. and the United Kingdom
for business development and R&D purposes over the course of
2020, during the fourth quarter of 2020, Natuera completed its
first export of hemp-derived CBD extract to the U.S. for commercial
purposes.
Update on COVID-19
Cronos Group’s manufacturing sites have adjusted
and continue to develop in order to comply with the current
COVID-19 guidelines provided by governmental authorities. In the
U.S., while online sales have continued despite facing pressure,
certain beauty and other retailers have temporarily closed physical
boutique locations. State specific limitations on retail capacity
have also reduced the ability of larger retailers to offer in-store
brand education for the Company’s products. Revenue in the Rest of
World segment was not materially impacted by the effects of
COVID-19 during the three months or year ended December 31, 2020.
However, prolonged closures of retail stores due to government
mandated lockdowns as well as the changes in consumer purchasing
behavior in Canada during the COVID-19 pandemic are expected to
have a negative impact on the Company’s short-term revenue growth
in Canada.
Rest of World Results
Cronos Group’s Rest of World reporting segment
includes results of the Company’s operations for all markets
outside of the U.S.
(in thousands of USD) |
|
Three months endedDecember 31, |
|
Change |
|
Year endedDecember 31, |
|
Change |
|
|
2020 |
|
2019 |
|
$ |
|
% |
|
2020 |
|
2019 |
|
$ |
|
% |
Cannabis flower |
|
$ |
11,559 |
|
|
|
$ |
2,833 |
|
|
|
$ |
8,726 |
|
|
308 |
|
% |
|
$ |
27,932 |
|
|
|
$ |
15,020 |
|
|
|
$ |
12,912 |
|
|
|
86 |
% |
Cannabis extracts |
|
1,938 |
|
|
|
1,875 |
|
|
|
63 |
|
|
3 |
|
% |
|
8,759 |
|
|
|
5,338 |
|
|
|
3,421 |
|
|
|
64 |
% |
Other |
|
43 |
|
|
|
(89 |
) |
|
|
132 |
|
|
148 |
|
% |
|
533 |
|
|
|
28 |
|
|
|
505 |
|
|
|
1,804 |
% |
Net revenue |
|
13,540 |
|
|
|
4,619 |
|
|
|
8,921 |
|
|
193 |
|
% |
|
37,224 |
|
|
|
20,386 |
|
|
|
16,838 |
|
|
|
83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
$ |
(16,723 |
) |
|
|
$ |
(21,538 |
) |
|
|
$ |
4,815 |
|
|
(22 |
) |
% |
|
$ |
(29,993 |
) |
|
|
$ |
(19,470 |
) |
|
|
$ |
(10,523 |
) |
|
|
54 |
% |
Gross margin |
|
(124 |
) |
% |
|
(466 |
) |
% |
|
N/A |
|
342 |
|
pp |
|
(81 |
) |
% |
|
(96 |
) |
% |
|
N/A |
|
15 |
pp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(i) |
|
$ |
(36,350 |
) |
|
|
$ |
(47,343 |
) |
|
|
$ |
10,993 |
|
|
(23 |
) |
% |
|
$ |
(98,349 |
) |
|
|
$ |
(84,826 |
) |
|
|
$ |
(13,523 |
) |
|
|
16 |
% |
(i) See “Non-GAAP Measures” for
more information, including a reconciliation to adjusted EBITDA
Fourth Quarter 2020
- Net revenue of $13.5 million in Q4
2020 increased by $8.9 million from Q4 2019. The increase
year-over-year was primarily driven by continued growth in the
adult-use market in Canada and sales in the Israeli medical market.
Partially offset by non-recurring wholesale revenue in the Canadian
market in Q4 2019 and strategic price reductions on various
adult-use cannabis products in Canada in Q4 2020.
- Gross loss of $16.7 million in Q4
2020 decreased by $4.8 million from Q4 2019. The decrease in losses
year-over-year was primarily driven by a decline in inventory
write-downs. Offset by third party purchased flower associated with
adult-use products in Canada and a decline in wholesale sales in Q4
2020 versus Q4 2019.
- The Company incurred an inventory
write-down in Q4 2020 of $15.0 million, on dried cannabis and
cannabis extracts, primarily driven by cannabis product price
compression in the Canadian market. The Company may incur further
inventory write-downs due to pricing pressures in the
marketplace.
- Adjusted EBITDA loss of $36.4
million in Q4 2020 decreased by $11.0 million from Q4 2019. The
improvement year-over-year was primarily driven by a decline in
gross loss, reduced sales and marketing costs and a decline in
general and administrative expenses.
Full-Year 2020
- Net revenue of $37.2 million in
Full-Year 2020 increased by $16.8 million from Full-Year 2019. The
increase year-over-year was primarily driven by continued growth in
the adult-use market in Canada and sales in the Israeli medical
market. Partially offset by non-recurring wholesale revenue in the
Canadian market in Full-Year 2019 and strategic price reductions on
various adult-use cannabis products in Canada in Full-Year
2020.
- Gross loss of $30.0 million in
Full-Year 2020 increased by $10.5 million from Full-Year 2019. The
increase in losses year-over-year was primarily driven by third
party purchased flower associated with adult-use products in Canada
and a decline in wholesale sales in Full-Year 2020 versus Full-Year
2019. The Company anticipates that gross margin will continue to
fluctuate as price and mix change from quarter-to-quarter.
- The Company incurred an inventory
write-down in Full-Year 2020 of $26.1 million, on dried cannabis
and cannabis extracts, primarily driven by cannabis product price
compression in the Canadian market. The Company may incur further
inventory write-downs due to pricing pressures in the
marketplace.
- Adjusted EBITDA loss of $98.3
million in Full-Year 2020 increased by $13.5 million from Full-Year
2019. The increase in losses year-over-year was primarily driven by
an increase in gross loss, increased R&D spending, increased
general and administrative expenses, and higher sales and marketing
costs related to brand development.
United States Results
Cronos Group’s U.S. reporting segment includes
results of the Company’s operations for all brands and products in
the U.S.
(in thousands of USD) |
|
Three months ended December 31, |
|
Change |
|
Year ended December 31, |
|
Change |
|
|
2020 |
|
2019 |
|
$ |
|
% |
|
2020 |
|
2019 |
|
$ |
|
% |
Net revenue |
|
$ |
3,506 |
|
|
|
2,689 |
|
|
|
$ |
817 |
|
|
|
30 |
|
% |
|
$ |
9,495 |
|
|
|
$ |
3,364 |
|
|
|
$ |
6,131 |
|
|
|
182 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
$ |
1,825 |
|
|
|
$ |
1,430 |
|
|
|
$ |
395 |
|
|
|
28 |
|
% |
|
$ |
4,160 |
|
|
|
$ |
1,873 |
|
|
|
$ |
2,287 |
|
|
|
122 |
|
% |
Gross margin |
|
52 |
|
% |
|
53 |
|
% |
|
N/A |
|
(1 |
) |
pp |
|
44 |
|
% |
|
56 |
|
% |
|
N/A |
|
(12 |
) |
pp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(i) |
|
$ |
(11,765 |
) |
|
|
$ |
(1,192 |
) |
|
|
$ |
(10,573 |
) |
|
|
887 |
|
% |
|
$ |
(28,019 |
) |
|
|
$ |
(1,703 |
) |
|
|
$ |
(26,316 |
) |
|
|
1,545 |
|
% |
(i) See “Non-GAAP Measures” for
more information, including a reconciliation to adjusted EBITDA
Fourth Quarter 2020
- Net revenue of $3.5 million in Q4
2020 increased by $0.8 million from Q4 2019. The increase
year-over-year was primarily driven by growth in existing product
lines and introductions of new hemp-derived CBD products.
- Gross profit of $1.8 million in Q4
2020 increased by $0.4 million from Q4 2019.
- Adjusted EBITDA loss of $11.8
million in Q4 2020 increased by $10.6 million from Q4 2019. The
increase in losses year-over-year was primarily driven by higher
sales and marketing costs related to brand development and
increased general and administrative expenses.
Full-Year 2020
- Net revenue of $9.5 million in
Full-Year 2020 increased by $6.1 million from Full-Year 2019. The
increase year-over-year was primarily driven by a full-year of the
Redwood business as opposed to 117 days in Full-Year 2019 and the
growth in existing product lines and introductions of new
hemp-derived CBD products. A significant amount of the U.S.
Segment's FY 2020 revenue was earned during the fourth quarter as a
result of increased sales in the direct-to-consumer channel driven
by holiday sales.
- Gross profit of $4.2 million in
Full-Year 2020 increased by $2.3 million from Full-Year 2019.
- Adjusted EBITDA loss of $28.0
million in Full-Year 2020 increased by $26.3 million from Full-Year
2019. The increase in losses year-over-year was primarily driven by
higher sales and marketing costs related to brand development and
increased general and administrative expenses.
Conference Call
The Company will host a conference call and live
audio webcast on Friday, February 26, 2021 at 8:30 a.m. EST to
discuss 2020 fourth quarter and full-year 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: 1192729
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 internal expectations, estimates, projections,
assumptions and beliefs. All information that is not clearly
historical in nature may constitute Forward-Looking Statements. In
some cases, Forward-Looking Statements can be identified by the use
of forward-looking terminology such as “expect”, “likely”, “may”,
“will”, “should”, “intend”, “anticipate”, “potential”, “proposed”,
“estimate” and other similar words, expressions and phrases,
including negative and grammatical variations thereof, or
statements that certain events or conditions “may” or “will”
happen, or by discussion of strategy. Forward-Looking Statements
include estimates, plans, expectations, opinions, forecasts,
projections, targets, guidance or other statements that are not
statements of historical fact.
Forward-Looking Statements include, but are not
limited to, statements with respect to:
- the uncertainties associated with
the COVID-19 pandemic, including our ability, and the abilities of
our joint ventures and our suppliers and distributors, to
effectively deal with the restrictions, limitations and health
issues presented by the COVID-19 pandemic, the ability to continue
our production, distribution and sale of our products, and demand
for and the use of our products by consumers;
- laws and regulations and any
amendments thereto applicable to our business and the impact
thereof, including uncertainty regarding the application of United
States ("U.S.") state and federal law to U.S. hemp (including CBD)
products and the scope of any regulations by the U.S. Food and Drug
Administration, the U.S. Drug Enforcement 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;
- the laws and regulations and any
amendments thereto relating to U.S. hemp industry in the U.S.,
including the promulgation of regulations for the U.S. hemp
industry by the U.S. Department of Agriculture and relevant state
regulatory authorities;
- the grant, renewal and impact of
any license or supplemental license to conduct activities with
cannabis or any amendments thereof;
- our international activities and
joint venture interests, including required regulatory approvals
and licensing, anticipated costs and timing, and expected
impact;
- our ability to successfully create
and launch brands and further create, launch and scale U.S.
hemp-derived consumer products and cannabis products;
- the benefits, viability, safety,
efficacy, dosing and social acceptance of cannabis including CBD
and other cannabinoids;
- expectations regarding the
implementation and effectiveness of key personnel changes;
- the anticipated benefits and impact
of the Altria's C$2.4 billion (approximately $1.8 billion)
investment in us (the “Altria Investment”);
- the potential exercise of the
warrant held by Altria, pre-emptive rights and/or top-up rights in
connection with the Altria Investment, including proceeds to us
that may result therefrom;
- expectations regarding the use of
proceeds of equity financings, including the proceeds from the
Altria Investment;
- the legalization of the use of
cannabis for medical or adult-use in jurisdictions outside of
Canada, the related timing and impact thereof and our intentions to
participate in such markets, if and when such use is
legalized;
- expectations regarding the
potential success of, and the costs and benefits associated with,
our joint ventures, strategic alliances and equity investments,
including the strategic partnership with Ginkgo Bioworks,
Inc.;
- our ability to execute on our
strategy and the anticipated benefits of such strategy;
- expectations of the amount or
frequency of impairment losses, including as a result of the
write-down of intangible assets, including goodwill;
- the ongoing impact of the
legalization of additional cannabis product types and forms for
adult-use in Canada, including federal, provincial, territorial and
municipal regulations pertaining thereto, the related timing and
impact thereof and our intentions to participate in such
markets;
- the future performance of our
business and operations;
- our competitive advantages and
business strategies;
- the competitive conditions of the
industry;
- the expected growth in the number
of customers using our products;
- our ability or plans to identify,
develop, commercialize or expand our technology and R&D
initiatives in cannabinoids, or the success thereof;
- expectations regarding acquisitions
and dispositions and the anticipated benefits therefrom, including
the proposed sale of our Original B.C. Ltd. (“OGBC”) production
facility;
- expectations regarding revenues,
expenses and anticipated cash needs;
- expectations regarding cash flow,
liquidity and sources of funding;
- expectations regarding capital
expenditures;
- the expansion of our production and
manufacturing, the costs and timing associated therewith and the
receipt of applicable production and sale licenses;
- the expected growth in our growing,
production and supply chain capacities;
- expectations regarding the
resolution of litigation and other legal and regulatory
proceedings, reviews and investigations;
- expectations with respect to future
production costs;
- expectations with respect to future
sales and distribution channels and networks;
- the expected methods to be used to
distribute and sell our products;
- the anticipated future gross
margins of our operations;
- accounting standards and
estimates;
- our ability to timely and
effectively remediate any material weaknesses in our internal
control over financial reporting; and
- expectations regarding the costs
and benefits associated with our contracts and agreements with
third parties, including under our third-party supply and
manufacturing agreements.
Certain of the Forward-Looking Statements
contained herein concerning the industries in which we conduct our
business are based on estimates prepared by us using data from
publicly available governmental sources, market research, industry
analysis and on assumptions based on data and knowledge of these
industries, which we believe to be reasonable. However, although
generally indicative of relative market positions, market shares
and performance characteristics, such data is inherently imprecise.
The industries in which we conduct our business involve risks and
uncertainties that are subject to change based on various factors,
which are described further below.
The Forward-Looking Statements contained herein
are based upon certain material assumptions that were applied in
drawing a conclusion or making a forecast or projection, including:
(i) our ability, and the abilities of our joint ventures and our
suppliers and distributors, to effectively deal with the
restrictions, limitations and health issues presented by the
COVID-19 pandemic and the ability to continue our production,
distribution and sale of our products and customer demand for and
use of our products; (ii) management’s perceptions of historical
trends, current conditions and expected future developments; (iii)
our ability to generate cash flow from operations; (iv) general
economic, financial market, regulatory and political conditions in
which we operate; (v) the production and manufacturing capabilities
and output from our facilities and our joint ventures, strategic
alliances and equity investments; (vi) consumer interest in our
products; (vii) competition; (viii) anticipated and unanticipated
costs; (ix) government regulation of our activities and products
including, but not limited, to the areas of taxation and
environmental protection; (x) the timely receipt of any required
regulatory authorizations, approvals, consents, permits and/or
licenses; (xi) our ability to obtain qualified staff, equipment and
services in a timely and cost-efficient manner; (xii) our ability
to conduct operations in a safe, efficient and effective manner;
(xiii) our ability to realize anticipated benefits, synergies or
generate revenue, profits or value from our recent acquisitions
into our existing operations; (xiv) our ability to complete planned
dispositions, including the sale of OGBC, and, if completed, obtain
our anticipated sales price; and (xv) other considerations that
management believes to be appropriate in the circumstances. While
our management considers these assumptions to be reasonable based
on information currently available to management, there is no
assurance that such expectations will prove to be correct.
By their nature, Forward-Looking Statements are
subject to inherent risks and uncertainties that may be general or
specific and which give rise to the possibility that expectations,
forecasts, predictions, projections or conclusions will not prove
to be accurate, that assumptions may not be correct and that
objectives, strategic goals and priorities will not be achieved. A
variety of factors, including known and unknown risks, many of
which are beyond our control, could cause actual results to differ
materially from the Forward-Looking Statements in this press
release and other reports we file with, or furnish to, the SEC and
other regulatory agencies and made by our directors, officers,
other employees and other persons authorized to speak on our
behalf. Such factors include, without limitation, the risk that the
COVID-19 pandemic may disrupt our operations and those of our
suppliers and distribution channels and negatively impact the
demand for and use of our products; the risk that cost savings and
any other synergies from the Altria Investment may not be fully
realized or may take longer to realize than expected; the risk that
we will not complete planned dispositions, including the sale of
OGBC, or, if completed, obtain our anticipated sales price; the
implementation and effectiveness of key personnel changes; future
levels of revenues; consumer demand for cannabis and U.S. hemp
products; our ability to manage disruptions in credit markets or
changes to our credit ratings; future levels of capital,
environmental or maintenance expenditures, general and
administrative and other expenses; the success or timing of
completion of ongoing or anticipated capital or maintenance
projects; business strategies, growth opportunities and expected
investment; the adequacy of our capital resources and liquidity,
including but not limited to, availability of sufficient cash flow
to execute our business plan (either within the expected timeframe
or at all); the potential effects of judicial, regulatory or other
proceedings, or threatened litigation or proceedings, on our
business, financial condition, results of operations and cash
flows; volatility in and/or degradation of general economic,
market, industry or business conditions; compliance with applicable
environmental, economic, health and safety, energy and other
policies and regulations and in particular health concerns with
respect to vaping and the use of cannabis and U.S. hemp products in
vaping devices; the anticipated effects of actions of third parties
such as competitors, activist investors or federal (including U.S.
federal), state, provincial, territorial or local regulatory
authorities or self-regulatory organizations; changes in regulatory
requirements in relation to our business and products; and the
factors discussed under the heading “Risk Factors” in the Company's
Annual Report on Form 10-K for the year ended December 31, 2020.
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.Consolidated Balance
SheetsAs of December 31, 2020 and 2019(In
thousands of USD)
|
As of December 31, |
|
2020 |
|
2019 |
Assets |
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
$ |
1,078,023 |
|
|
|
$ |
1,199,693 |
|
|
Short-term investments |
211,766 |
|
|
|
306,347 |
|
|
Accounts receivable |
8,928 |
|
|
|
4,638 |
|
|
Other receivables |
10,033 |
|
|
|
7,232 |
|
|
Current portion of loans receivable |
7,083 |
|
|
|
4,664 |
|
|
Prepaids and other assets |
11,161 |
|
|
|
9,395 |
|
|
Inventory, net |
44,002 |
|
|
|
38,043 |
|
|
Held-for-sale assets |
1,176 |
|
|
|
3,248 |
|
|
Total current assets |
1,372,172 |
|
|
|
1,573,260 |
|
|
Investments in equity accounted investees |
19,235 |
|
|
|
557 |
|
|
Advances to joint ventures |
467 |
|
|
|
19,437 |
|
|
Loans receivable, net |
87,191 |
|
|
|
44,967 |
|
|
Property, plant and equipment |
187,599 |
|
|
|
159,948 |
|
|
Right-of-use assets |
9,776 |
|
|
|
6,546 |
|
|
Intangible assets |
69,720 |
|
|
|
71,235 |
|
|
Goodwill |
179,522 |
|
|
|
214,492 |
|
|
Total
assets |
$ |
1,925,682 |
|
|
|
$ |
2,090,442 |
|
|
|
|
|
|
Liabilities |
|
|
|
Current liabilities |
|
|
|
Accounts payable and other liabilities |
$ |
42,102 |
|
|
|
$ |
35,301 |
|
|
Current portion of lease obligation |
1,322 |
|
|
|
427 |
|
|
Derivative liabilities |
163,410 |
|
|
|
297,160 |
|
|
Total current liabilities |
206,834 |
|
|
|
332,888 |
|
|
Due to non-controlling interests |
2,188 |
|
|
|
1,844 |
|
|
Lease obligation |
8,492 |
|
|
|
6,680 |
|
|
Total liabilities |
217,514 |
|
|
|
341,412 |
|
|
Commitments and contingencies |
|
|
|
Shareholders’
equity |
|
|
|
Share capital |
569,260 |
|
|
|
561,165 |
|
|
Additional paid-in capital |
34,596 |
|
|
|
23,234 |
|
|
Retained earnings |
1,064,509 |
|
|
|
1,137,646 |
|
|
Accumulated other comprehensive income |
42,999 |
|
|
|
27,838 |
|
|
Total equity attributable to shareholders of Cronos Group |
1,711,364 |
|
|
|
1,749,883 |
|
|
Non-controlling interests |
(3,196 |
) |
|
|
(853 |
) |
|
Total shareholders'
equity |
1,708,168 |
|
|
|
1,749,030 |
|
|
Total liabilities and
shareholders' equity |
$ |
1,925,682 |
|
|
|
$ |
2,090,442 |
|
|
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, 2020, 2019
and 2018(In thousands of USD, except share and per share
amounts)
|
Year ended December 31, |
|
2020 |
|
2019 |
|
2018 |
Net revenue, before excise taxes |
$ |
54,353 |
|
|
|
$ |
25,639 |
|
|
|
$ |
13,234 |
|
|
Excise taxes |
(7,634 |
) |
|
|
(1,889 |
) |
|
|
(1,113 |
) |
|
Net
revenue |
46,719 |
|
|
|
23,750 |
|
|
|
12,121 |
|
|
Cost of sales |
46,497 |
|
|
|
12,174 |
|
|
|
5,908 |
|
|
Inventory write-down |
26,055 |
|
|
|
29,173 |
|
|
|
— |
|
|
Gross profit
(loss) |
(25,833 |
) |
|
|
(17,597 |
) |
|
|
6,213 |
|
|
Operating
expenses |
|
|
|
|
|
Sales and marketing |
34,386 |
|
|
|
23,048 |
|
|
|
2,537 |
|
|
Research and development |
20,366 |
|
|
|
12,155 |
|
|
|
1,814 |
|
|
General and administrative |
80,529 |
|
|
|
49,271 |
|
|
|
13,349 |
|
|
Share-based payments |
15,361 |
|
|
|
11,619 |
|
|
|
8,151 |
|
|
Depreciation and amortization |
2,872 |
|
|
|
2,090 |
|
|
|
807 |
|
|
Repurposing charges |
— |
|
|
|
5,328 |
|
|
|
— |
|
|
Total operating expenses |
153,514 |
|
|
|
103,511 |
|
|
|
26,658 |
|
|
Operating
loss |
(179,347 |
) |
|
|
(121,108 |
) |
|
|
(20,445 |
) |
|
Other income
(expense) |
|
|
|
|
|
Interest income, net |
18,415 |
|
|
|
27,969 |
|
|
|
81 |
|
|
Gain on revaluation of derivative liabilities |
129,254 |
|
|
|
1,276,819 |
|
|
|
— |
|
|
Impairment loss on goodwill and intangible assets |
(40,000 |
) |
|
|
— |
|
|
|
— |
|
|
Gain on disposal of other investments |
4,789 |
|
|
|
16,277 |
|
|
|
164 |
|
|
Share of loss from investments in equity accounted investees |
(4,510 |
) |
|
|
(2,009 |
) |
|
|
(723 |
) |
|
Financing and transaction costs |
(40 |
) |
|
|
(32,208 |
) |
|
|
— |
|
|
Other income (loss) |
(1,834 |
) |
|
|
197 |
|
|
|
— |
|
|
Total other income (expense) |
106,074 |
|
|
|
1,287,045 |
|
|
|
(478 |
) |
|
Income (loss) before income
taxes |
(73,273 |
) |
|
|
1,165,937 |
|
|
|
(20,923 |
) |
|
Income tax expense |
1,347 |
|
|
|
— |
|
|
|
— |
|
|
Income (loss) from continuing operations |
(74,620 |
) |
|
|
1,165,937 |
|
|
|
(20,923 |
) |
|
Loss from discontinued
operations |
(650 |
) |
|
|
(363 |
) |
|
|
(894 |
) |
|
Net income (loss) |
$ |
(75,270 |
) |
|
|
$ |
1,165,574 |
|
|
|
$ |
(21,817 |
) |
|
Net income (loss)
attributable to: |
|
|
|
|
|
Cronos Group |
$ |
(73,137 |
) |
|
|
$ |
1,166,506 |
|
|
|
$ |
(21,636 |
) |
|
Non-controlling interests |
(2,133 |
) |
|
|
(932 |
) |
|
|
(181 |
) |
|
|
$ |
(75,270 |
) |
|
|
$ |
1,165,574 |
|
|
|
$ |
(21,817 |
) |
|
Other comprehensive
income (loss) |
|
|
|
|
|
Foreign exchange gain (loss) on translation |
$ |
14,951 |
|
|
|
$ |
37,687 |
|
|
|
$ |
(12,337 |
) |
|
Gain on revaluation and disposal of other investments, net of
tax |
— |
|
|
|
— |
|
|
|
3 |
|
|
Total other comprehensive income (loss) |
14,951 |
|
|
|
37,687 |
|
|
|
(12,334 |
) |
|
Comprehensive income
(loss) |
$ |
(60,319 |
) |
|
|
$ |
1,203,261 |
|
|
|
$ |
(34,151 |
) |
|
Comprehensive income
(loss) attributable to: |
|
|
|
|
|
Cronos Group |
$ |
(57,976 |
) |
|
|
$ |
1,204,214 |
|
|
|
$ |
(33,964 |
) |
|
Non-controlling interests |
(2,343 |
) |
|
|
(953 |
) |
|
|
(187 |
) |
|
|
$ |
(60,319 |
) |
|
|
$ |
1,203,261 |
|
|
|
$ |
(34,151 |
) |
|
Net income (loss) per
share |
|
|
|
|
|
Basic |
$ |
(0.21 |
) |
|
|
$ |
3.76 |
|
|
|
$ |
(0.12 |
) |
|
Diluted |
(0.21 |
) |
|
|
3.33 |
|
|
|
(0.12 |
) |
|
Weighted average
number of outstanding shares |
|
|
|
|
|
Basic |
351,576,848 |
|
|
|
310,067,179 |
|
|
|
172,269,170 |
|
|
Diluted |
351,576,848 |
|
|
|
342,811,992 |
|
|
|
172,269,170 |
|
|
See notes to consolidated financial statements.
Cronos Group Inc.Consolidated
Statements of Net Income (Loss) and Comprehensive Income
(Loss)For the three months ended December 31, 2020
and 2019(In thousands of USD, except share and per share
amounts, unaudited)
|
Three months ended December 31, |
|
2020 |
|
2019 |
Net revenue, before excise taxes |
$ |
19,956 |
|
|
|
$ |
7,915 |
|
|
Excise taxes |
(2,910 |
) |
|
|
(607 |
) |
|
Net
revenue |
17,046 |
|
|
|
7,308 |
|
|
Cost of sales |
16,913 |
|
|
|
3,667 |
|
|
Inventory write-down |
15,031 |
|
|
|
23,749 |
|
|
Gross profit
(loss) |
(14,898 |
) |
|
|
(20,108 |
) |
|
Operating
expenses |
|
|
|
Sales and marketing |
13,537 |
|
|
|
13,325 |
|
|
Research and development |
7,411 |
|
|
|
6,079 |
|
|
General and administrative |
19,481 |
|
|
|
14,284 |
|
|
Share-based payments |
2,463 |
|
|
|
3,670 |
|
|
Depreciation and amortization |
620 |
|
|
|
775 |
|
|
Repurposing charges |
— |
|
|
|
5,328 |
|
|
Total operating expenses |
43,512 |
|
|
|
43,461 |
|
|
Operating
loss |
(58,410 |
) |
|
|
(63,569 |
) |
|
Other income
(expense) |
|
|
|
Interest income (expense) |
3,149 |
|
|
|
7,514 |
|
|
Gain (loss) on revaluation of derivative liabilities |
(53,541 |
) |
|
|
118,811 |
|
|
Gain on disposal of other investments |
46 |
|
|
|
34 |
|
|
Share of income (loss) from investments in equity accounted
investees |
(1,217 |
) |
|
|
(505 |
) |
|
Financing and transaction costs |
— |
|
|
|
(524 |
) |
|
Other income (loss) |
(1,249 |
) |
|
|
50 |
|
|
Total other income (expense) |
(52,812 |
) |
|
|
125,380 |
|
|
Income (loss) before income
taxes |
(111,222 |
) |
|
|
61,812 |
|
|
Income tax recovery
(expense) |
359 |
|
|
|
(58 |
) |
|
Income (loss) from
continuing operations |
(111,581 |
) |
|
|
61,870 |
|
|
Loss from discontinued operations |
(131 |
) |
|
|
(300 |
) |
|
Net income
(loss) |
$ |
(111,712 |
) |
|
|
$ |
61,570 |
|
|
Net income (loss)
attributable to: |
|
|
|
Cronos Group |
$ |
(111,233 |
) |
|
|
$ |
62,005 |
|
|
Non-controlling interests |
(479 |
) |
|
|
(435 |
) |
|
|
$ |
(111,712 |
) |
|
|
$ |
61,570 |
|
|
Other comprehensive
income (loss) |
|
|
|
Foreign exchange gain (loss) on translation |
$ |
50,605 |
|
|
|
$ |
28,263 |
|
|
Total other comprehensive income (loss) |
50,605 |
|
|
|
28,263 |
|
|
Comprehensive income
(loss) |
(61,107 |
) |
|
|
89,833 |
|
|
Comprehensive income (loss) attributable to: |
|
|
|
Cronos Group |
(60,414 |
) |
|
|
90,285 |
|
|
Non-controlling interests |
(693 |
) |
|
|
(452 |
) |
|
|
$ |
(61,107 |
) |
|
|
$ |
89,833 |
|
|
Net income (loss) per
share |
|
|
|
Basic |
$ |
(0.31 |
) |
|
|
$ |
0.18 |
|
|
Diluted |
(0.31 |
) |
|
|
0.17 |
|
|
Weighted average
number of outstanding shares |
|
|
|
Basic |
358,068,549 |
|
|
|
345,981,864 |
|
|
Diluted |
358,068,549 |
|
|
|
375,318,457 |
|
|
See notes to consolidated financial statements.
Cronos Group Inc.Consolidated
Statements of Cash FlowsFor the years ended
December 31, 2020, 2019, and 2018(In thousands of USD)
|
Year ended December 31, |
|
2020 |
|
2019 |
|
2018 |
Operating
activities |
|
|
|
|
|
Net (loss) income |
$ |
(75,270 |
) |
|
|
$ |
1,165,574 |
|
|
|
$ |
(21,817 |
) |
|
Items not affecting cash: |
|
|
|
|
|
Gain on revaluation of derivative liabilities |
(129,254 |
) |
|
|
(1,276,819 |
) |
|
|
— |
|
|
Impairment on goodwill and intangible assets |
40,000 |
|
|
|
— |
|
|
|
— |
|
|
Inventory write-down |
26,055 |
|
|
|
29,173 |
|
|
|
— |
|
|
Provisions for inventory and doubtful accounts |
3,741 |
|
|
|
136 |
|
|
|
— |
|
|
Share-based payments |
15,361 |
|
|
|
11,619 |
|
|
|
8,151 |
|
|
Depreciation and amortization |
7,045 |
|
|
|
3,913 |
|
|
|
1,937 |
|
|
Share of loss from investments in equity accounted investees |
4,510 |
|
|
|
2,009 |
|
|
|
723 |
|
|
Gain on disposal of other investments |
(4,789 |
) |
|
|
(16,277 |
) |
|
|
(164 |
) |
|
Non-cash sales and marketing |
2,863 |
|
|
|
410 |
|
|
|
— |
|
|
Income tax expense |
1,347 |
|
|
|
— |
|
|
|
— |
|
|
Non-cash repurposing costs |
— |
|
|
|
4,439 |
|
|
|
— |
|
|
Other non-cash operating activity expense (income) |
(123 |
) |
|
|
(243 |
) |
|
|
(9 |
) |
|
Net changes in non-cash working capital |
(33,943 |
) |
|
|
(54,208 |
) |
|
|
3,662 |
|
|
Net cash provided by (used in) operating activities |
(142,457 |
) |
|
|
(130,274 |
) |
|
|
(7,517 |
) |
|
Investing
activities |
|
|
|
|
|
Proceeds from (purchase of) short-term investments, net |
95,404 |
|
|
|
(299,923 |
) |
|
|
— |
|
|
Investments in equity accounted investees |
— |
|
|
|
(1,658 |
) |
|
|
(480 |
) |
|
Proceeds from sale of other investments |
4,789 |
|
|
|
19,614 |
|
|
|
747 |
|
|
Advances to joint ventures |
— |
|
|
|
(15,135 |
) |
|
|
(5,358 |
) |
|
Purchase of property, plant and equipment, net of disposals |
(31,412 |
) |
|
|
(38,664 |
) |
|
|
(88,308 |
) |
|
Purchase of intangible assets |
(3,979 |
) |
|
|
(289 |
) |
|
|
(278 |
) |
|
Acquisition of Redwood |
— |
|
|
|
(224,295 |
) |
|
|
— |
|
|
Advances on loans receivable |
(44,652 |
) |
|
|
(43,337 |
) |
|
|
— |
|
|
Other non-cash investing activity expense (income) |
— |
|
|
|
415 |
|
|
|
(231 |
) |
|
Net cash provided by (used in) investing activities |
20,150 |
|
|
|
(603,272 |
) |
|
|
(93,908 |
) |
|
Financing
activities |
|
|
|
|
|
Advance to non-controlling interests |
(1,019 |
) |
|
|
— |
|
|
|
— |
|
|
Repayment of lease obligations |
(2,414 |
) |
|
|
(919 |
) |
|
|
— |
|
|
Withholding taxes paid on equity awards |
(2,148 |
) |
|
|
(915 |
) |
|
|
(16 |
) |
|
Proceeds from Altria Investment |
— |
|
|
|
1,809,556 |
|
|
|
— |
|
|
Proceeds from exercise of Top-up Rights |
— |
|
|
|
67,051 |
|
|
|
— |
|
|
Proceeds from exercise of warrants and options |
116 |
|
|
|
1,455 |
|
|
|
2,612 |
|
|
Proceeds from share issuance |
— |
|
|
|
— |
|
|
|
115,510 |
|
|
Share issuance costs |
— |
|
|
|
(3,722 |
) |
|
|
(7,577 |
) |
|
Proceeds from construction loan payable |
— |
|
|
|
— |
|
|
|
11,583 |
|
|
Repayment of construction loan payable |
— |
|
|
|
(15,971 |
) |
|
|
— |
|
|
Advance under Credit Facility |
— |
|
|
|
48,715 |
|
|
|
— |
|
|
Repayment of Credit Facility |
— |
|
|
|
(48,309 |
) |
|
|
— |
|
|
Net cash provided by (used in) financing activities |
(5,465 |
) |
|
|
1,856,941 |
|
|
|
122,112 |
|
|
Effect of foreign currency
translation on cash and cash equivalents |
6,102 |
|
|
|
52,371 |
|
|
|
(4,085 |
) |
|
Increase in cash and cash
equivalents |
(121,670 |
) |
|
|
1,175,766 |
|
|
|
16,602 |
|
|
Cash and cash equivalents,
beginning of period |
1,199,693 |
|
|
|
23,927 |
|
|
|
7,325 |
|
|
Cash and cash equivalents, end of period |
$ |
1,078,023 |
|
|
|
$ |
1,199,693 |
|
|
|
$ |
23,927 |
|
|
See notes to consolidated financial statements.
Non-GAAP Measures
Cronos Group reports its financial results in
accordance with Generally Accepted Accounting Principles in the
U.S. (“US GAAP”). This press release refers to measures not
recognized under US GAAP (“non-GAAP measures”). These non-GAAP
measures do not have a standardized meaning prescribed by US GAAP
and are therefore unlikely to be comparable to similar measures
presented by other companies. Rather, these non-GAAP measures are
provided as a supplement to corresponding US GAAP measures to
provide additional information regarding our results of operations
from management’s perspective. Accordingly, non-GAAP measures
should not be considered a substitute for, or superior to, the
financial information prepared and presented in accordance with US
GAAP. All non-GAAP measures presented in this press release are
reconciled to their closest reported US GAAP measure.
Adjusted EBITDA
Management reviews Adjusted EBITDA, a non-GAAP
measure which excludes non-cash items or items that do not reflect
management’s assessment of on-going business performance.
Management defines Adjusted EBITDA as net income (loss) before
interest, tax expense, depreciation and amortization adjusted for:
impairment loss on goodwill and intangible assets, repurposing
charges, financing and transaction costs, loss (gain) on
revaluation of derivative liabilities, loss (gain) on disposal of
investments, share of loss (income) from equity accounted
investees, loss from discontinued operations, other loss (income),
review costs related to the restatement of the Company’s 2019
interim financial statements, the Company’s responses to the
reviews of such interim financial statements by various regulatory
authorities and legal costs defending shareholder class action
complaints brought against the Company as a result of the
restatement, and share-based payments.
Management believes that Adjusted EBITDA
provides the most useful insight into underlying business trends
and results and provides a more meaningful comparison of
year-over-year results. Management uses Adjusted EBITDA for
planning, forecasting and evaluating business and financial
performance, including allocating resources and evaluating results
relative to employee compensation targets. As a result of the
appointment of Mr. Schmidt as President and Chief Executive Officer
in September 2020 and a review of how management looks at the
business, Adjusted EBITDA is now the primary metric upon which
management views the consolidated business performance and results
year-over-year.
Adjusted EBITDA by segment
Management also reviews adjusted earnings (loss)
before interest, tax, depreciation and amortization by segment
(“Adjusted EBITDA by segment”), a non-GAAP measure which excludes
non-cash items or items that do not reflect management’s assessment
of on-going business performance. Corporate expenses are removed
from Adjusted EBITDA by segment. Corporate expenses are expenses
that relate to the consolidated business. The Company’s method of
allocating corporate expenses is refined periodically. Management
defines Adjusted EBITDA by segment as net income (loss) by segment
before interest, tax expense, depreciation and amortization
adjusted for the same items that are adjusted in consolidated
Adjusted EBITDA.
Management believes that Adjusted EBITDA by
segment provides useful insight into underlying segment trends and
results and provides a more meaningful comparison of year-over-year
segment results. Management uses Adjusted EBITDA by segment for
planning, forecasting and evaluating business and financial
performance, including allocating resources and evaluating results
relative to employee compensation targets. As a result of the
appointment of Mr. Schmidt as President and Chief Executive Officer
in September 2020 and a review of how management looks at the
business by segment, Adjusted EBITDA by segment is now the primary
metric upon which management views the segment performance and
results year-over-year.
Adjusted EBITDA is reconciled to net income
(loss) as follows for the years ended December 31, 2020 and
2019:
(in thousands of USD) |
|
Year ended December 31, 2020 |
|
|
US |
|
ROW |
|
CorporateExpenses |
|
Total |
Net income (loss) |
|
$ |
(77,368 |
) |
|
|
$ |
32,671 |
|
|
|
$ |
(30,573 |
) |
|
|
$ |
(75,270 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
Interest expense (income), net |
|
18 |
|
|
|
(18,433 |
) |
|
|
— |
|
|
|
(18,415 |
) |
|
Income tax expense |
|
323 |
|
|
|
1,024 |
|
|
|
— |
|
|
|
1,347 |
|
|
Impairment loss on goodwill and intangible assets |
|
40,000 |
|
|
|
— |
|
|
|
— |
|
|
|
40,000 |
|
|
Financing and transaction costs |
|
40 |
|
|
|
— |
|
|
|
— |
|
|
|
40 |
|
|
Gain on revaluation of derivative liabilities |
|
— |
|
|
|
(129,254 |
) |
|
|
— |
|
|
|
(129,254 |
) |
|
Gain on disposal of other investments |
|
— |
|
|
|
(4,789 |
) |
|
|
— |
|
|
|
(4,789 |
) |
|
Share of loss from equity accounted investees |
|
— |
|
|
|
4,510 |
|
|
|
— |
|
|
|
4,510 |
|
|
Loss from discontinued operations |
|
— |
|
|
|
650 |
|
|
|
— |
|
|
|
650 |
|
|
Other loss (income) |
|
20 |
|
|
|
1,814 |
|
|
|
— |
|
|
|
1,834 |
|
|
Review costs related to restatement of 2019 interim financial
statements |
|
— |
|
|
|
— |
|
|
|
9,688 |
|
|
|
9,688 |
|
|
Share-based payments |
|
8,714 |
|
|
|
6,647 |
|
|
|
— |
|
|
|
15,361 |
|
|
Adjusted EBIT |
|
(28,253 |
) |
|
|
(105,160 |
) |
|
|
(20,885 |
) |
|
|
(154,298 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
234 |
|
|
|
6,811 |
|
|
|
— |
|
|
|
7,045 |
|
|
Adjusted EBITDA |
|
$ |
(28,019 |
) |
|
|
$ |
(98,349 |
) |
|
|
$ |
(20,885 |
) |
|
|
$ |
(147,253 |
) |
|
(in thousands of USD) |
|
Year ended December 31, 2019 |
|
|
US |
|
ROW |
|
CorporateExpenses |
|
Total |
Net income (loss) |
|
$ |
(3,070 |
) |
|
|
$ |
1,180,241 |
|
|
|
$ |
(11,597 |
) |
|
|
$ |
1,165,574 |
|
|
Adjustments |
|
|
|
|
|
|
|
|
Interest income, net |
|
(6 |
) |
|
|
(27,963 |
) |
|
|
— |
|
|
|
(27,969 |
) |
|
Repurposing charges |
|
— |
|
|
|
7,268 |
|
|
|
— |
|
|
|
7,268 |
|
|
Financing and transaction costs |
|
117 |
|
|
|
32,091 |
|
|
|
— |
|
|
|
32,208 |
|
|
Gain on revaluation of derivative liabilities |
|
— |
|
|
|
(1,276,819 |
) |
|
|
— |
|
|
|
(1,276,819 |
) |
|
Gain on disposal of other investments |
|
— |
|
|
|
(16,277 |
) |
|
|
— |
|
|
|
(16,277 |
) |
|
Share of loss from equity accounted investees |
|
— |
|
|
|
2,009 |
|
|
|
— |
|
|
|
2,009 |
|
|
Loss from discontinued operations |
|
— |
|
|
|
363 |
|
|
|
— |
|
|
|
363 |
|
|
Other loss (income) |
|
182 |
|
|
|
(197 |
) |
|
|
(182 |
) |
|
|
(197 |
) |
|
Share-based payments |
|
900 |
|
|
|
10,719 |
|
|
|
— |
|
|
|
11,619 |
|
|
Adjusted EBIT |
|
(1,877 |
) |
|
|
(88,565 |
) |
|
|
(11,779 |
) |
|
|
(102,221 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
174 |
|
|
|
3,739 |
|
|
|
— |
|
|
|
3,913 |
|
|
Adjusted EBITDA |
|
$ |
(1,703 |
) |
|
|
$ |
(84,826 |
) |
|
|
$ |
(11,779 |
) |
|
|
$ |
(98,308 |
) |
|
Adjusted EBITDA is reconciled to net income
(loss) as follows for the three months ended December 31, 2020
and 2019:
(in thousands of USD) |
|
Three months ended December 31, 2020 |
|
|
US |
|
ROW |
|
CorporateExpenses |
|
Total |
Net income (loss) |
|
$ |
(12,861 |
) |
|
|
$ |
(92,969 |
) |
|
|
$ |
(5,882 |
) |
|
|
$ |
(111,712 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
Interest expense (income), net |
|
4 |
|
|
|
(3,153 |
) |
|
|
— |
|
|
|
(3,149 |
) |
|
Income tax expense |
|
180 |
|
|
|
179 |
|
|
|
— |
|
|
|
359 |
|
|
Loss on revaluation of derivative liabilities |
|
— |
|
|
|
53,541 |
|
|
|
— |
|
|
|
53,541 |
|
|
Gain on disposal of other investments |
|
— |
|
|
|
(46 |
) |
|
|
— |
|
|
|
(46 |
) |
|
Share of loss from equity accounted investees |
|
— |
|
|
|
1,217 |
|
|
|
— |
|
|
|
1,217 |
|
|
Loss from discontinued operations |
|
— |
|
|
|
131 |
|
|
|
— |
|
|
|
131 |
|
|
Other loss (income) |
|
(1 |
) |
|
|
1,250 |
|
|
|
— |
|
|
|
1,249 |
|
|
Share-based payments |
|
783 |
|
|
|
1,680 |
|
|
|
— |
|
|
|
2,463 |
|
|
Review costs related to restatement of 2019 interim financial
statements |
|
— |
|
|
|
— |
|
|
|
864 |
|
|
|
864 |
|
|
Adjusted EBIT |
|
(11,895 |
) |
|
|
(38,170 |
) |
|
|
(5,018 |
) |
|
|
(55,083 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
130 |
|
|
|
1,820 |
|
|
|
— |
|
|
|
1,950 |
|
|
Adjusted EBITDA |
|
$ |
(11,765 |
) |
|
|
$ |
(36,350 |
) |
|
|
$ |
(5,018 |
) |
|
|
$ |
(53,133 |
) |
|
(in thousands of USD) |
|
Three months ended December 31, 2019 |
|
|
US |
|
ROW |
|
CorporateExpenses |
|
Total |
Net income (loss) |
|
$ |
(2,096 |
) |
|
|
$ |
67,289 |
|
|
|
$ |
(3,623 |
) |
|
|
$ |
61,570 |
|
|
Adjustments |
|
|
|
|
|
|
|
|
Interest income, net |
|
(6 |
) |
|
|
(7,508 |
) |
|
|
— |
|
|
|
(7,514 |
) |
|
Income tax expense |
|
— |
|
|
|
58 |
|
|
|
(116 |
) |
|
|
(58 |
) |
|
Repurposing charges |
|
— |
|
|
|
7,268 |
|
|
|
— |
|
|
|
7,268 |
|
|
Financing and transaction costs |
|
155 |
|
|
|
369 |
|
|
|
— |
|
|
|
524 |
|
|
Gain on revaluation of derivative liabilities |
|
— |
|
|
|
(118,811 |
) |
|
|
— |
|
|
|
(118,811 |
) |
|
Gain on disposal of other investments |
|
— |
|
|
|
(35 |
) |
|
|
— |
|
|
|
(35 |
) |
|
Share of loss from equity accounted investees |
|
— |
|
|
|
505 |
|
|
|
— |
|
|
|
505 |
|
|
Loss from discontinued operations |
|
— |
|
|
|
(300 |
) |
|
|
600 |
|
|
|
300 |
|
|
Other loss (income) |
|
— |
|
|
|
(50 |
) |
|
|
— |
|
|
|
(50 |
) |
|
Share-based payments |
|
714 |
|
|
|
2,956 |
|
|
|
— |
|
|
|
3,670 |
|
|
Adjusted EBIT |
|
(1,233 |
) |
|
|
(48,259 |
) |
|
|
(3,139 |
) |
|
|
(52,631 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
41 |
|
|
|
916 |
|
|
|
— |
|
|
|
957 |
|
|
Adjusted EBITDA |
|
$ |
(1,192 |
) |
|
|
$ |
(47,343 |
) |
|
|
$ |
(3,139 |
) |
|
|
$ |
(51,674 |
) |
|
Adjusted operating lossManagement previously
reviewed operating loss on an adjusted basis, which excluded
certain income and expense items that management believed were not
part of underlying operations. These items typically included
repurposing charges and non-recurring charges such as the review
costs related to the restatement of the Company's 2019 interim
financial statements, the Company’s responses to the reviews of
such interim financial statements by various regulatory authorities
and legal costs defending shareholder class action complaints
brought against the Company as a result of the restatement.
Management did not view these items to be part
of underlying results as they may have been highly variable,
unusual or infrequent, were difficult to predict or could distort
underlying business trends and results. Management believed that
adjusted operating loss provided useful insight into underlying
business trends and results and provided a more meaningful
comparison of year-over-year results. Management used to use
adjusted operating loss for planning, forecasting and evaluating
business and financial performance, including allocating resources
and evaluating results relative to employee compensation targets.
As a result of the appointment of Mr. Schmidt as President and
Chief Executive Officer in September 2020 and a review of how
management looks at the business, adjusted operating loss is no
longer a primary metric upon which management views the
consolidated business performance and results year-over-year.
(In thousands of USD) |
|
Three months ended December 31, |
|
Year ended December 31, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Reported operating loss |
|
$ |
(58,410 |
) |
|
|
$ |
(63,569 |
) |
|
|
$ |
(179,347 |
) |
|
|
$ |
(121,108 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
Review costs related to restatement of 2019 interim financial
statements |
|
864 |
|
|
|
— |
|
|
|
9,688 |
|
|
|
— |
|
|
Repurposing charges |
|
— |
|
|
|
7,268 |
|
|
|
— |
|
|
|
7,268 |
|
|
Adjusted operating loss |
|
$ |
(57,546 |
) |
|
|
$ |
(56,301 |
) |
|
|
$ |
(169,659 |
) |
|
|
$ |
(113,840 |
) |
|
Adjusted operating loss by segment
Management previously reviewed operating loss by
segment, which excluded corporate expenses, and adjusted operating
loss by segment, which further excluded certain income and expense
items that management believed were not part of the underlying
segment’s operations. Corporate expenses were expenses that relate
to the consolidated business and not to an individual operating
segment while the income and expense items typically included
non-recurring charges such as repurposing charges and review costs
related to the restatement of the Company's 2019 interim financial
statements, the Company’s responses to the reviews of such interim
financial statements by various regulatory authorities and legal
costs defending shareholder class action complaints brought against
the Company as a result of the restatement. Management did not view
the income and expense items above to be part of underlying results
of the segment as they may have been highly variable, unusual or
infrequent, were difficult to predict and could distort underlying
business trends and results. As a result of the appointment of Mr.
Schmidt as President and Chief Executive Officer in September 2020
and a review of how management looks at the business, adjusted
operating loss by segment is no longer the primary metric upon
which management views the segment performance and results
year-over-year.
(In thousands of USD) |
|
Year ended December 31, 2020 |
|
|
US |
|
ROW |
|
TotalSegments |
|
CorporateExpenses |
|
Total |
Reported operating loss |
|
$ |
(36,967 |
) |
|
|
$ |
(111,807 |
) |
|
|
$ |
(148,774 |
) |
|
|
$ |
(30,573 |
) |
|
|
$ |
(179,347 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
Review costs related to restatement of 2019 interim financial
statements |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,688 |
|
|
|
9,688 |
|
|
Adjusted operating loss |
|
$ |
(36,967 |
) |
|
|
$ |
(111,807 |
) |
|
|
$ |
(148,774 |
) |
|
|
$ |
(20,885 |
) |
|
|
$ |
(169,659 |
) |
|
(In thousands of USD) |
|
Three months ended December 31, 2020 |
|
|
US |
|
ROW |
|
TotalSegments |
|
CorporateExpenses |
|
Total |
Reported operating loss |
|
$ |
(12,678 |
) |
|
|
$ |
(39,850 |
) |
|
|
$ |
(52,528 |
) |
|
|
$ |
(5,882 |
) |
|
|
$ |
(58,410 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
Review costs related to restatement of 2019 interim financial
statements |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
864 |
|
|
|
864 |
|
|
Adjusted operating loss |
|
$ |
(12,678 |
) |
|
|
$ |
(39,850 |
) |
|
|
$ |
(52,528 |
) |
|
|
$ |
(5,018 |
) |
|
|
$ |
(57,546 |
) |
|
(In thousands of USD) |
|
Year ended December 31, 2019 |
|
|
US |
|
ROW |
|
TotalSegments |
|
CorporateExpenses |
|
Total |
Reported operating loss |
|
$ |
(2,777 |
) |
|
|
$ |
(106,552 |
) |
|
|
$ |
(109,329 |
) |
|
|
$ |
(11,779 |
) |
|
|
$ |
(121,108 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
Repurposing charges |
|
— |
|
|
|
7,268 |
|
|
|
7,268 |
|
|
|
— |
|
|
|
7,268 |
|
|
Adjusted operating loss |
|
$ |
(2,777 |
) |
|
|
$ |
(99,284 |
) |
|
|
$ |
(102,061 |
) |
|
|
$ |
(11,779 |
) |
|
|
$ |
(113,840 |
) |
|
(In thousands of USD) |
|
Three months ended December 31, 2019 |
|
|
US |
|
ROW |
|
TotalSegments |
|
CorporateExpenses |
|
Total |
Reported operating loss |
|
$ |
(1,947 |
) |
|
|
$ |
(58,483 |
) |
|
|
$ |
(60,430 |
) |
|
|
$ |
(3,139 |
) |
|
|
$ |
(63,569 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
Repurposing charges |
|
— |
|
|
|
7,268 |
|
|
|
7,268 |
|
|
|
— |
|
|
|
7,268 |
|
|
Adjusted operating loss |
|
$ |
(1,947 |
) |
|
|
$ |
(51,215 |
) |
|
|
$ |
(53,162 |
) |
|
|
$ |
(3,139 |
) |
|
|
$ |
(56,301 |
) |
|
Other items affecting the comparability
of net income (loss) during FY 2020 and FY 2019 –
consolidated
Review costs related to restatement of 2019
interim financial statements
For FY 2020, the Company reported review costs
related to the restatement of 2019 interim financial statements of
$9.7 million (Q4 2020: $0.9 million) within the general and
administrative line in the consolidated statements of net Income
(loss). These financial statement review costs include costs
related to the restatement of the Company’s 2019 interim financial
statements, costs related to the Company’s responses to requests
for information from various regulatory authorities relating to
such restatement and legal costs defending shareholder class action
complaints brought against the Company as a result of the
restatement. There were no costs related to the restatement of the
Company's 2019 interim financial statement incurred during the year
ended December 31, 2019.
Repurposing charges
For Q4 2019 and FY 2019, the Company reported
pre-tax charges of $7.3 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. There were no repurposing costs incurred
during FY 2020.
Interest income, net
For FY 2020, the Company reported interest
income, net of $18.4 million, representing a decrease of $9.6
million from FY 2019 primarily due to the impact of a decrease in
interest rates on cash and cash equivalents and short-term
investments during FY 2020 compared to FY 2019.
For Q4 2020, the Company reported interest
income, net of $3.1 million, representing a decrease of $4.4
million from Q4 2019 primarily due to the impact of a decrease in
interest rates on cash and cash equivalents and short-term
investments during Q4 2020 compared to Q4 2019.
Gain on revaluation of derivative
liabilities
For FY 2020, the Company reported a gain on
revaluation of derivative liabilities of $129.3 million
representing a decrease of $1,147.6 million from FY 2019 primarily
driven by a decrease in the Company's share price since December
31, 2019. The Company expects continued changes in derivative
valuations as the Company’s share price fluctuates
period-to-period. For further information, see Note 14 to the
consolidated financial statements in Item 8 of the Company's Annual
Report on Form 10-K.
For Q4 2020, the Company reported a loss on
revaluation of derivative liabilities of $53.5 million representing
a decrease of $172.4 million from Q4 2019 primarily driven by a
decrease in the Company's share price since December 31, 2019. The
Company expects continued changes in derivative valuations as the
Company’s share price fluctuates period-to-period. For further
information, see Note 14 to the consolidated financial statements
in Item 8 of the Company's Annual Report on Form 10-K.
Impairment loss on goodwill and intangible
assets
For FY 2020, the Company reported an impairment
loss on goodwill and intangible assets of $40.0 million
representing an increase of $40.0 million from FY 2019 primarily
driven by a $35.0 million impairment charge on the U.S. reporting
unit and a $5.0 million impairment charge on the Lord Jones™ brand
during the year ended December 31, 2020. For further information,
see Note 11 to the consolidated financial statements in Item 8 of
the Company's Annual Report on Form 10-K.
For Q4 2020 and Q4 2019, no impairment loss was
recorded on goodwill and intangible assets.
Gain on disposal of other investments
For FY 2020, the Company reported a gain on
disposal of other investments of $4.8 million representing a
decrease of $11.5 million from FY 2019 primarily driven by a
decrease in the sale of shares associated with the Whistler
Transaction (as defined below) during FY 2020 compared to FY 2019.
For further information, see Note 7 to the consolidated financial
statements in Item 8 of the Company's Annual Report on Form
10-K.
For Q4 2020 and Q4 2019, the increase in gain on
disposal of other investments did not materially impact the
comparability of net income (loss).
Financing and transaction costs
For FY 2020, the Company reported financing and
transaction costs of $0.04 million representing a decrease of $32.2
million from FY 2019 primarily driven by the increased financing
and transaction costs incurred in FY 2019 compared to FY 2020 as a
result of the Altria Investment and the Redwood Acquisition. For
further information, see Note 27 and Note 14 to the consolidated
financial statements in Item 8 of the Company's Annual Report on
Form 10-K.
For Q4 2020, the Company reported no financing
and transaction costs representing a decrease of $0.5 million from
Q4 2019.
Income tax expense
For FY 2020, the Company reported an income tax
expense of $1.3 million representing an increase of $1.3 million
from FY 2019 primarily driven by changes in valuation allowance
partially offset by a decrease in the fair value gain on financial
liabilities.
For Q4 2020, the Company reported an income tax
expense of $0.4 million representing an increase of $0.4 million
from FY 2019 primarily driven by changes in valuation allowance and
a decrease in the fair value gain on financial liabilities.
Foreign currency exchange
rates
All currency amounts in this press release are
stated in U.S. dollars ("USD"), which is our reporting currency,
unless otherwise noted. All references to “dollars” or “$” are to
USD. The assets and liabilities of the Company’s foreign operations
are translated into dollars at the exchange rate in effect as of
December 31, 2020, December 31, 2019 and
December 31, 2018 as reported on Bloomberg. 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 as reported on Bloomberg.
The exchange rates used to translate from USD to
Canadian dollars (“C$”) is shown below:
(Exchange rates are shown as
C$ per $) |
Year ended December 31, |
|
2020 |
|
2019 |
|
2018 |
Average rate |
1.3411 |
|
|
1.3268 |
|
|
1.2955 |
|
Spot rate |
1.2751 |
|
|
1.2990 |
|
|
1.3639 |
|
For further information, please
contact: Shayne Laidlaw Investor
Relations Tel: (416)
504-0004 investor.relations@thecronosgroup.com
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