Document










 
 
 
 
 
 

'
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________
FORM 6-K/A 
______________________________________________________
Report of Foreign Private Issuer
Pursuant to Section 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of March 2020
Commission File No. 001-38403  
______________________________________________________
CRONOS GROUP INC.
(Name of registrant)  
______________________________________________________
720 King Street W., Suite 320
Toronto, Ontario
M5V 2T3
(Address of registrant’s principal executive office)
______________________________________________________
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F  ¨   Form 40-F  x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b) (1):
    Yes  ¨    No  x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b) (7):
    Yes  ¨    No  x
 
 
 
 
 








EXHIBIT INDEX
 
 
 
Exhibit 
Description 
99.1
99.2
99.3
99.4






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
 
 
 
CRONOS GROUP INC.
(Registrant)
 
 
By:
/s/ Michael Gorenstein
Name:
Michael Gorenstein
Title:
President and Chief Executive Officer
Date: March 30, 2020



Exhibit


















https://cdn.kscope.io/594ac6875c379a05d02cfe3f386347e5-cronoslogoa05.jpg


CRONOS GROUP INC.
Amended and Restated Condensed Interim Unaudited Consolidated Financial Statements

For the Three Months Ended March 31, 2019 and March 31, 2018

(In thousands of Canadian dollars)










Notice to Reader

Cronos Group Inc. ("Cronos Group" or the "Company") has restated its unaudited condensed interim consolidated financial statements for the three months ended March 31, 2019, the six months ended June 30, 2019, and the three and nine months ended September 30, 2019, which were previously filed on SEDAR (the “interim financial statements”). Subsequent to the original issuance of the interim financial statements, the Audit Committee of the Company’s Board of Directors, with the assistance of outside counsel and forensic accountants, conducted a review of certain bulk resin purchases and sales of products through the wholesale channel and the appropriateness of the recognition of the revenue associated with those transactions. As a result of this review, it was concluded that there were accounting errors in the previously filed interim financial statements. In the case of the three months ended March 31, 2019, these accounting errors were due to one wholesale transaction that was inappropriately accounted for as revenue. These errors have been corrected in the amended and restated unaudited condensed interim consolidated financial statements for the three months ended March 31, 2019, the six months ended June 30, 2019, and the three and nine months ended September 30, 2019. See note 27 of the amended and restated unaudited condensed interim consolidated statements for more detail.







Cronos Group Inc.
Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and March 31, 2018

Table of Contents

Amended and Restated Unaudited Condensed Interim Consolidated Statements of Financial Position
Amended and Restated Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Income (Loss)
Amended and Restated Unaudited Condensed Interim Consolidated Statements of Changes in Equity
Amended and Restated Unaudited Condensed Interim Consolidated Statements of Cash Flows
Notes to the Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements




Cronos Group Inc.
Amended and Restated Unaudited Condensed Interim Consolidated Statements of Financial Position
As at March 31, 2019 and December 31, 2018
(in thousands of CDN $)


 
 
Notes
 
As at March 31, 2019 (Restated - Note 27)
 
As at December 31, 2018
Assets
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
22(a)
 
$
2,418,277

 
$
32,634

Interest receivable
 
22(a)
 
 
3,130

 
 
-

Accounts receivable
 
22(a)
 
 
2,761

 
 
4,163

Sales taxes receivable
 
 
 
 
5,240

 
 
3,419

Prepaid expenses and other assets
 
 
 
 
5,092

 
 
4,190

Biological assets
 
5
 
 
11,506

 
 
9,074

Inventory
 
5
 
 
25,082

 
 
11,584

Total current assets
 
 
 
 
2,471,088

 
 
65,064

Advances to joint ventures
 
6(a)
 
 
21,920

 
 
6,395

Net investments in equity accounted investees
 
6(b)
 
 
2,185

 
 
4,038

Other investments
 
7,22(c)
 
 
300

 
 
705

Property, plant and equipment
 
8
 
 
184,570

 
 
171,720

Right-of-use assets
 
3(a),11(a)
 
 
1,875

 
 
171

Intangible assets
 
9(a)
 
 
11,087

 
 
11,234

Goodwill
 
9(b)
 
 
1,792

 
 
1,792

Total assets
 
 
 
$
2,694,817

 
$
261,119

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
Bank indebtedness
 
22(b)
 
$
422

 
$
-

Accounts payable and other liabilities
 
22(b)
 
 
41,896

 
 
15,372

Holdbacks payable
 
22(b)
 
 
8,482

 
 
7,887

Government remittances payable
 
22(b)
 
 
1,313

 
 
1,123

Current portion of lease obligations
 
11,22(b)
 
 
134

 
 
41

Derivative liabilities
 
13,22(b)
 
 
1,664,275

 
 
-

Construction loan payable
 
12,22(b)
 
 
-

 
 
20,951

Total current liabilities
 
 
 
 
1,716,522

 
 
45,374

Lease obligations
 
11,22(b)
 
 
1,827

 
 
119

Due to non-controlling interests
 
10,22(b)
 
 
2,247

 
 
2,136

Deferred income tax liability
 
20
 
 
3,996

 
 
1,850

Total liabilities
 
 
 
 
1,724,592

 
 
49,479

Shareholders' equity
 
 
 
 
 
 
 
 
Share capital
 
14(a)
 
 
556,930

 
 
225,500

Warrants
 
15(a)
 
 
845

 
 
1,548

Stock options
 
15(b)
 
 
6,631

 
 
6,241

Retained earnings (accumulated deficit)
 
 
 
 
404,774

 
 
(22,715
)
Accumulated other comprehensive income
 
 
 
 
1,049

 
 
930

Total equity attributable to shareholders of Cronos Group
 
 
 
 
970,229

 
 
211,504

Non-controlling interests
 
10
 
 
(4
)
 
 
136

Total shareholders' equity
 
 
 
 
970,225

 
 
211,640

Total liabilities and shareholders' equity
 
 
 
$
2,694,817

 
$
261,119

 
 
 
 
 
 
 
 
 
Commitments and contingencies
 
19
 
 
 
 
 
 
Subsequent events
 
25
 
 
 
 
 
 
 
The accompanying notes are an integral part of these amended and restated unaudited condensed interim consolidated financial statements
 
Approved on behalf of the Board of Directors:
"Michael Gorenstein"
 
"James Rudyk"
Director
 
Director

1

Cronos Group Inc.
Amended and Restated Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Income (Loss)
For the three months ended March 31, 2019 and March 31, 2018
(in thousands of CDN $, except share and per share amounts)


 
 
 
 
Three Months Ended March 31,
 
 
Notes
 
2019
(Restated - Note 27)
 
2018
Gross revenue
 
16
 
$
4,509

 
$
2,945

Excise taxes
 
 
 
 
(515
)
 
 
-

Net revenue
 
 
 
 
3,994

 
 
2,945

Cost of sales
 
 
 
 
 
 
 
 
Cost of sales before fair value adjustments
 
4(b)
 
 
1,927

 
 
1,567

Gross profit before fair value adjustments
 
 
 
 
2,067

 
 
1,378

Fair value adjustments
 
 
 
 
 
 
 
 
Unrealized change in fair value of biological assets
 
4(b)
 
 
(13,553
)
 
 
(2,744
)
Realized fair value adjustments on inventory sold in the period
 
4(b)
 
 
2,403

 
 
2,194

Total fair value adjustments
 
 
 
 
(11,150
)
 
 
(550
)
Gross profit
 
 
 
 
13,217

 
 
1,928

Operating expenses
 
 
 
 
 
 
 
 
Sales and marketing
 
 
 
 
1,500

 
 
586

Research and development
 
 
 
 
1,557

 
 
-

General and administrative
 
 
 
 
9,611

 
 
2,461

Share-based payments
 
15(b),18
 
 
737

 
 
774

Depreciation and amortization
 
8,9(a),11(a)
 
 
470

 
 
285

Total operating expenses
 
 
 
 
13,875

 
 
4,106

Operating loss
 
 
 
 
(658
)
 
 
(2,178
)
Other income (expense)
 
 
 
 
 
 
 
 
Interest income (expense)
 
 
 
 
2,720

 
 
(22
)
Financing costs
 
12,13
 
 
(29,561
)
 
 
-

Gain on revaluation of derivative liabilities
 
13
 
 
436,383

 
 
-

Share of income (loss) from investments in equity accounted investees
 
6
 
 
(264
)
 
 
41

Gain on disposal of Whistler
 
6
 
 
20,606

 
 
-

Gain on other investments
 
7
 
 
924

 
 
221

Total other income
 
 
 
 
430,808

 
 
240

Income (loss) before income taxes
 
 
 
 
430,150

 
 
(1,938
)
Deferred income tax expense (recovery)
 
20
 
 
2,182

 
 
(888
)
Net income (loss)
 
 
 
$
427,968

 
$
(1,050
)
Net income (loss) attributable to:
 
 
 
 
 
 
 
 
Cronos Group
 
 
 
$
428,104

 
$
(1,050
)
Non-controlling interests
 
10
 
 
(136
)
 
 
-

 
 
 
 
$
427,968

 
$
(1,050
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Gain (loss) on revaluation and disposal of other investments, net of tax
 
7,20
 
$
103

 
$
(35
)
Foreign exchange gain on translation of foreign operations
 
2(d),10
 
 
16

 
 
-

Total other comprehensive income (loss)
 
 
 
 
119

 
 
(35
)
Comprehensive income (loss)
 
 
 
$
428,087

 
$
(1,085
)
Comprehensive income (loss) attributable to:
 
 
 
 
 
 
 
 
Cronos Group
 
 
 
$
428,223

 
$
(1,085
)
Non-controlling interests
 
10
 
 
(136
)
 
 
-

 
 
 
 
$
428,087

 
$
(1,085
)
Earnings (loss) per share
 
 
 
 
 
 
 
 
Basic
 
17
 
$
1.96

 
$
(0.01
)
Diluted
 
17
 
$
0.48

 
$
(0.01
)
Weighted average number of outstanding shares
 
 
 
 
 
 
 
 
Basic
 
17
 
 
218,949,590

 
 
157,054,891

Diluted
 
17
 
 
271,086,575

 
 
157,054,891

 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these amended and restated unaudited condensed interim consolidated financial statements




2

Cronos Group Inc.
Amended and Restated Unaudited Condensed Interim Consolidated Statements of Changes in Equity
For the three months ended March 31, 2019 and March 31, 2018
(in thousands of CDN $, except number of share amounts)


 
 
 
 
 
 
 
 
 
 
 
Share-based reserve
 
Retained earnings
 
 
 
 
 
 
 
 
Notes
Number of shares
 
Share capital
 
Shares to be issued
 
Warrants
 
Stock options
 
(accumulated deficit)
(Restated - Note 27)
 
Accumulated other
comprehensive income
 
Non-
controlling interests
 
Total
(Restated - Note 27)
Balance at January 1, 2019 as previously reported
 
 
178,720,022
 
$
225,500

 
$
-

 
$
1,548

 
$
6,241

 
$
(22,715
)
 
$
930

 
$
136

 
$
211,640

Adoption of IFRS 16
3(a)
 
-
 
 
-

 
 
-

 
 
-

 
 
-

 
 
(68
)
 
 
-
 
 
(4
)
 
 
(72
)
Balance at January 1, 2019 as restated
 
 
178,720,022
 
 
225,500

 
 
-

 
 
1,548

 
 
6,241

 
 
(22,783
)
 
 
930

 
 
132

 
 
211,568

Shares issued
14(a)
 
149,831,154
 
 
334,099

 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
334,099

Share issuance costs
 
 
-
 
 
(4,901
)
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
(4,901
)
Warrants exercised
15(a)
 
4,390,961
 
 
1,884

 
 
-
 
 
(703
)
 
 
-
 
 
-
 
 
-
 
 
-
 
 
1,181

Vesting of options
15(b)
 
-
 
 
-
 
 
-
 
 
-
 
 
737

 
 
-
 
 
-
 
 
-
 
 
737

Options exercised
15(b)
 
375
 
 
2

 
 
-
 
 
-
 
 
(1
)
 
 
-
 
 
-
 
 
-
 
 
1

Share appreciation rights exercised
15(b)
 
77,865
 
 
346

 
 
-
 
 
-
 
 
(346
 
 
(547
)
 
 
-
 
 
-
 
 
(547
)
Net income (loss)
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
428,104

 
 
-
 
 
(136
)
 
 
427,968

Other comprehensive income
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
119

 
 
-
 
 
119

Balance at March 31, 2019
 
 
333,020,377
 
$
556,930

 
$
-
 
$
845

 
$
6,631

 
$
404,774

 
$
1,049

 
$
(4
)
 
$
970,225

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2018
 
 
149,360,603
 
$
83,559

 
$
-

 
$
3,364

 
$
2,289

 
$
(3,724
)
 
$
880

 
$
-
 
$
86,368

Shares issued
14(a)
 
5,257,143
 
 
46,000

 
 
-

 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
46,000

Share issuance costs
 
 
-
 
 
(3,081
)
 
 
-

 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
(3,081
)
Shares to be issued
14(b)
 
 
 
 
-

 
 
961

 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
961

Warrants exercised
15(a)
 
6,972,479
 
 
1,966

 
 
-

 
 
(686
)
 
 
-
 
 
-
 
 
-
 
 
-
 
 
1,280

Vesting of options
15(b)
 
-
 
 
-

 
 
-

 
 
-
 
 
774

 
 
-
 
 
-
 
 
-
 
 
774

Options exercised
15(b)
 
42,256
 
 
106

 
 
-

 
 
-
 
 
(33
)
 
 
-
 
 
-
 
 
-
 
 
73

Net loss
 
 
-
 
 
-

 
 
-

 
 
-
 
 
-
 
 
(1,050
)
 
 
-
 
 
-
 
 
(1,050
)
Other comprehensive loss
 
 
-
 
 
-

 
 
-

 
 
-
 
 
-
 
 
-
 
 
(35
 
 
-
 
 
(35
)
Balance at March 31, 2018
 
 
161,632,481
 
$
128,550

 
$
961

 
$
2,678

 
$
3,030

 
$
(4,774
)
 
$
845

 
$
-
 
$
131,290

 
The accompanying notes are an integral part of these amended and restated unaudited condensed interim consolidated financial statements




3

Cronos Group Inc.
Amended and Restated Unaudited Condensed Interim Consolidated Statements of Cash Flows
For the three months ended March 31, 2019 and March 31, 2018
(in thousands of CDN $)

 
 
 
Three Months Ended March 31,
 
Notes
 
2019
(Restated - Note 27)
 
2018
Operating activities
 
 
 
 
 
 
 
Net income (loss)
 
 
$
427,968

 
$
(1,050
)
Items not affecting cash and cash equivalents:
 
 
 
 
 
 
 
Unrealized change in fair value of biological assets
4(b)
 
 
(13,553
)
 
 
(2,744
)
Realized fair value adjustments on inventory sold in the period
4(b)
 
 
2,403

 
 
2,194

Share-based payments
15(b),18
 
 
737

 
 
774

Depreciation and amortization
8,9(a),11(a)
 
 
470

 
 
285

Depreciation relieved on inventory sold
 
 
 
235

 
 
169

Share of loss (income) from investments in equity accounted investees
6
 
 
264

 
 
(41
)
Gain on disposal of Whistler
6
 
 
(20,606
)
 
 
-

Gain on other investments
7
 
 
(924
)
 
 
(221

Gain on revaluation of derivative liabilities
13
 
 
(436,383
)
 
 
-

Deferred income tax expense (recovery)
20
 
 
2,182

 
 
(888
)
Foreign exchange loss (gain)
 
 
 
67

 
 
(16
)
Net changes in non-cash working capital
21
 
 
18,739

 
 
(12,212
)
Cash and cash equivalents used in operating activities
 
 
 
(18,401
)
 
 
(13,750

Investing activities
 
 
 
 
 
 
 
Investments in equity accounted investees
6
 
 
(2,200
)
 
 
-

Advances to joint ventures
6
 
 
(15,812
)
 
 
-

Proceeds from sale of other investments
7
 
 
26,078

 
 
687

Payment to exercise ABcann warrants
7
 
 
-

 
 
(113
)
Purchase of property, plant and equipment
8
 
 
(13,454
)
 
 
(7,642
)
Purchase of intangible assets
9(a)
 
 
(51
)
 
 
(131
)
Advance to Cronos Israel
2(a),10
 
 
-

 
 
(926
)
Cash and cash equivalents used in investing activities
 
 
 
(5,439
)
 
 
(8,125
)
Financing activities
 
 
 
 
 
 
 
Increase in bank indebtedness
 
 
 
422

 
 
-

Advance from non-controlling interests
10
 
 
111

 
 
-

Repayment of lease obligations
11
 
 
(32
)
 
 
(13
)
Repayment of construction loan payable
12
 
 
(21,311
)
 
 
-

Payment of accrued interest on construction loan payable
12
 
 
(121
)
 
 
(185
)
Advance under Credit Facility
12
 
 
65,000

 
 
-

Repayment of Credit Facility
12
 
 
(65,000
)
 
 
-

Proceeds from Altria Investment
13,14(a)
 
 
2,434,757

 
 
-

Proceeds from share issuance
14(a)
 
 
-

 
 
46,000

Share issuance costs
 
 
 
(4,901
)
 
 
(3,081
)
Proceeds from shares to be issued
14(b)
 
 
-

 
 
961

Proceeds from exercise of warrants and options
15(a),(b)
 
 
1,182

 
 
1,353

Withholding taxes paid on share appreciation rights
15(b)
 
 
(547
)
 
 
-

Cash and cash equivalents provided by financing activities
 
 
 
2,409,560

 
 
45,035

Net change in cash and cash equivalents
 
 
 
2,385,720

 
 
23,160

Cash and cash equivalents - beginning of period
 
 
 
32,634

 
 
9,208

Effects of foreign exchange on cash
 
 
 
(77
)
 
 
-

Cash and cash equivalents - end of period
 
 
$
2,418,277

 
$
32,368

Supplemental cash flow information
 
 
 
 
 
 
 
Interest paid
 
 
$
675

 
$
307

 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these amended and restated unaudited condensed interim consolidated financial statements


4

Cronos Group Inc.
Notes to Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and March 31, 2018
(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)
____________________________________________________________________________________________________________


 
1.
Nature of business
 
Cronos Group Inc. ("Cronos Group" or the "Company") was incorporated under the Business Corporations Act (Ontario). Cronos Group is a public corporation, with its head office located at 720 King Street West, Suite 320, Toronto, Ontario, M5V 2T3. The Company's common shares are listed on the Nasdaq Global Market and on the Toronto Stock Exchange ("TSX") under the ticker symbol ("CRON").
 
Cronos Group is an innovative global cannabinoid company, with international production and distribution across five continents. The Company is engaged in the cultivation, manufacturing, and marketing of cannabis and cannabis-derived products for the medical and adult-use markets. 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 brand portfolio includes PEACE NATURALS™, a global health and wellness brand, and two adult-use brands, COVE™ and Spinach™. The Company operates two wholly-owned license holders ("License Holders") under the Cannabis Act (Canada) and its relevant regulations (the "Cannabis Act"). The Company's License Holders are Peace Naturals Project Inc. ("Peace Naturals"), which has production facilities near Stayner, Ontario, and Original BC Ltd. ("OGBC"), which has a production facility in Armstrong, British Columbia.
 
Cronos Group has also established five strategic joint ventures in Canada, Israel, Australia, and Colombia, and holds minority interests in cannabis-related companies and License Holders. One of these strategic joint ventures is considered a subsidiary for financial reporting purposes, refer to Note 2(a).

2.
Basis of presentation
 
 
 
 
These amended and restated unaudited condensed interim consolidated financial statements for the three months ended March 31, 2019 and March 31, 2018 have been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting. The accounting policies adopted in the preparation of the amended and restated unaudited condensed interim consolidated financial statements are consistent with those followed in the preparation of the Company's audited annual consolidated financial statements for the year ended December 31, 2018, except for the adoption of new standards effective as of January 1, 2019. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. The Company applied, as of January 1, 2019, International Financial Reporting Standard ("IFRS") 16, Leases and Interpretation of the IFRS Interpretations Committee ("IFRIC") 23, Uncertainty over income tax treatments. As required by IAS 34, the nature and effect of these changes are disclosed in Note 3.
 
 
 
 
These amended and restated unaudited condensed interim consolidated financial statements do not conform in all respects to the requirements of IFRS as issued by the International Accounting Standards Board for annual financial statements. Accordingly, these amended and restated unaudited condensed interim consolidated financial statements should be read in conjunction with the Company's December 31, 2018 audited annual consolidated financial statements and notes.
 
 
 
 
These amended and restated unaudited condensed interim consolidated financial statements were approved by the Board of Directors (the "Board") on March 29, 2020.
 
 
 
 



5

Cronos Group Inc.
Notes to Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and March 31, 2018
(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)
____________________________________________________________________________________________________________


2.
Basis of presentation (continued)

(a)
Basis of consolidation
 
 
 
 
 
 
These amended and restated unaudited condensed interim consolidated financial statements include the accounts of Cronos Group Inc. and its subsidiaries, summarized in the following chart:

Subsidiaries
Jurisdiction of incorporation
Incorporation date
Ownership interest
 
Hortican Inc. ("Hortican")
Canada
January 17, 2013
100%
 
Peace Naturals
Canada
November 21, 2012
100%
 
OGBC
Canada
March 15, 2013
100%
 
Cronos Canada Holdings Inc.
Canada
March 13, 2018
100%
 
Cronos Global Holdings Inc.
Canada
April 25, 2017
100%
 
Cronos Israel G.S. Cultivations Ltd. (i)
Israel
February 4, 2018
70%
 
Cronos Israel G.S. Manufacturing Ltd. (i)
Israel
September 4, 2018
90%
 
Cronos Israel G.S. Store Ltd. (i)
Israel
June 28, 2018
90%
 
Cronos Israel G.S. Pharmacies Ltd. (i)
Israel
February 15, 2018
90%
 
Cronos Labs Ltd. ("Cronos Device Labs")
Israel
March 14, 2019
100%
 
Cronos Group Celtic Holdings Ltd.
Ireland
February 6, 2018
100%
 
Cronos Malta Holdings Ltd.
Malta
October 25, 2018
100%
 
 
 
 
 
 
 
 
 
 
 
(i) 
These Israeli entities are collectively referred to as "Cronos Israel".
 
In the amended and restated unaudited condensed interim consolidated statements of operations and comprehensive income (loss), net income (loss) and other comprehensive income (loss) are attributed to the equity holders of the Company and to the non-controlling interests. Non-controlling interests in the equity of Cronos Israel are presented separately in the shareholders' equity section of the amended and restated unaudited condensed interim consolidated statements of financial position and the amended and restated unaudited condensed interim consolidated statements of changes in equity.
 
 
 
 
 
 
(b)
Investments in equity accounted investees
 
Investees in which the Company has significant influence or joint control are accounted for using the equity method. The Company's interests in equity accounted investees as at March 31, 2019 are summarized in the following chart.
Equity accounted investees
Jurisdiction of incorporation
Ownership interest
 
Cronos Australia Limited ("Cronos Australia")
Australia
50%
 
MedMen Canada Inc. ("MedMen Canada")
Canada
50%
 
Cronos Growing Company Inc. ("Cronos GrowCo")
Canada
50%
 
NatuEra S.à r.l
Luxembourg
50%
 
As at December 31, 2018, the Company held a 19% ownership interest in Whistler Medical Marijuana Company ("Whistler"). During the three months ended March 31, 2019, the Company divested of its investment in Whistler.
 
 
 
 
 
 
(c)
Basis of measurement
 
 
 
 
Apart from biological assets, other investments, and derivative liabilities, which are measured at fair value, the amended and restated unaudited condensed interim consolidated financial statements have been presented and prepared on the basis of historical cost.

6

Cronos Group Inc.
Notes to Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and March 31, 2018
(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)
____________________________________________________________________________________________________________


2.
Basis of presentation (continued)

(d)
Functional and presentation currency
 
These amended and restated unaudited condensed interim consolidated financial statements are presented in Canadian dollars, which is the functional currency of the Company. The functional currency of all subsidiaries is the national currency of the respective jurisdiction of incorporation. Refer to Note 2(a).

3.
Adoption of new accounting pronouncements
 
(a)
IFRS 16, Leases
 
IFRS 16 was issued in January 2016 and replaces the previous guidance on leases, predominantly IAS 17, Leases. The Company has applied IFRS 16 with an initial application date of January 1, 2019, in accordance with the transitional provisions specified in IFRS 16. As a result, the Company has changed its accounting policy for lease contracts as detailed below. The Company has applied the following practical expedients:
 
 
 
 
 
 
 
 
(i)
The Company applied the simplified transition approach and did not restate comparative information. As a result, the Company recognized the cumulative effect of initially applying IFRS 16 as an adjustment to the accumulated deficit as at January 1, 2019.
 
 
 
 
 
 
 
 
(ii)
On transition to IFRS 16, the Company elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Company applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17, and IFRIC 4, Determining whether an arrangement contains a lease, were not reassessed for whether there is a lease. The Company applied the definition of a lease under IFRS 16 to contracts entered into or changed on or after January 1, 2019.
 
 
 
 
 
 
 
 
In accordance with the practical expedients applied, the Company has recognized lease liabilities and right-of-use assets at the date of initial application for leases previously classified as operating leases in accordance with IAS 17. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases (lease term of 12 months or less) and leases for which the underlying asset is of low value. The Company has elected to measure the right-of-use assets at the carrying amount as if IFRS 16 had been applied since the commencement date, discounted using the Company's incremental borrowing rate at the date of initial application. For the lease previously classified as a finance lease under IAS 17, the carrying amount of the right-of-use asset and the lease liability at the date of initial application is equal to the carrying amount of the leased asset and lease liability immediately before the date of initial application.
 
The following table summarizes the impacts of adopting IFRS 16 on the Company's amended and restated unaudited condensed interim consolidated financial statements as at the date of initial application:
 
 
 
 
 
 
 
 

As at January 1, 2019
As previously reported
under IAS 17
 
Adjustments (i)
 
As restated
under IFRS 16
Right-of-use assets
$
217

 
$
1,890

 
$
2,107

Accumulated depreciation
 
46

 
 
144

 
 
190

Current lease liabilities
 
41

 
 
303

 
 
344

Non-current lease liabilities
 
119

 
 
1,515

 
 
1,634

Accumulated deficit
 
(22,715
)
 
 
(68
)
 
 
(22,783
)
Non-controlling interests
 
136

 
 
(4
)
 
 
132


(i) 
The adjustments are due to the recognition of right-of-use assets and lease obligations for lease contracts previously classified as operating leases under IAS 17 prior to the date of initial application. The weighted average incremental borrowing rate applied to the lease liabilities recognized at the date of initial application is 12%. There would be no difference between the discounted value of the operating lease commitments disclosed at December 31, 2018 and the adjustments above. Furthermore, there were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.



7

Cronos Group Inc.
Notes to Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and March 31, 2018
(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)
____________________________________________________________________________________________________________


3.
Adoption of new accounting pronouncements (continued)

(a)
IFRS 16, Leases (continued)

The following is the Company's policy for accounting for lease contracts in accordance with IFRS 16:
 
 
 
 
 
 
 
 
At the inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company recognizes a right-of-use asset and a lease liability at the commencement date of the lease. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. In addition, the right-of-use assets are adjusted for impairment losses, if any. The estimated useful lives and recoverable amounts of right-of-use assets are determined on the same basis as those of property and equipment. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. The lease liability is subsequently measured at amortized cost using the effective interest method. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases (lease term of 12 months or less) and leases for which the underlying asset is of low value. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.


(b)
IFRIC 23, Uncertainty over income tax treatments
 
IFRIC 23 clarifies the application of recognition and measurement requirements in IAS 12, Income taxes, when there is uncertainty over income tax treatments. It specifically addresses whether an entity considers each tax treatment independently or collectively, the assumptions an entity makes about the examination of tax treatments by taxation authorities, how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, and how an entity considers changes in facts and circumstances. IFRIC 23 became effective for fiscal years beginning on or after January 1, 2019, with earlier application permitted. The Company has adopted this interpretation as of its effective date and has assessed no significant impact as a result of the adoption of this interpretation.

 
4.
Accounting changes
 
 
 
 
 
 
 
 
(a)
Change in estimate
 
During the three months ended March 31, 2018, the Company revised its estimate of the useful life of the Health Canada licenses, and assessed that the licenses have an estimated useful life equal to the remaining useful life of the corresponding facilities described in Note 9(a). Previously, the Company estimated that the Health Canada Licenses had an indefinite life. The change in estimate was accounted for prospectively.
 
(b)
Change in accounting policy
 
During the three months ended June 30, 2018, the Company made a voluntary change in accounting policy to capitalize the direct and indirect costs attributable to the biological asset transformation. The previous accounting policy was to expense these costs as period costs.

The new accounting policy provides more reliable and relevant information to users as the gross profit before fair value adjustments only considers the costs incurred on inventory sold during the period, and excludes costs incurred on the biological transformation until the related harvest is sold. The following demonstrates the change for each prior period presented. There is no impact of this policy change on gross profit, net income (loss), basic and diluted earnings per share, the amended and restated unaudited condensed interim consolidated statement of financial position, or the amended and restated unaudited condensed interim consolidated statement of changes in equity on the current or any prior period, upon retrospective application



8

Cronos Group Inc.
Notes to Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and March 31, 2018
(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)
____________________________________________________________________________________________________________


4.
Accounting changes (continued)
 
 
 
 
 
 
 

 
Three Months Ended
March 31, 2019
 
Three Months Ended
March 31, 2018
 
Original
accounting
policy
(Restated - Note 27)
 
New
accounting
policy
(Restated - Note 27)
 
Original
accounting
policy
 
 
New
accounting
policy
Amended and restated unaudited condensed interim consolidated statement of operations and comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales before fair value adjustments
$
627

 
$
1,927

 
$
521

 
 
$
1,567

Production costs
 
3,338

 
 
-

 
 
1,714

 
 
 
-

Total cost of sales
 
3,965

 
 
1,927

 
 
2,235

 
 
 
1,567

Gross profit before fair value adjustments
 
29

 
 
2,067

 
 
710

 
 
 
1,378

Fair value adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized change in fair value of biological assets
 
(16,891
)
 
 
(13,553
)
 
 
(4,458
)
 
 
 
(2,744
)
Realized fair value adjustments on inventory sold in the period
 
3,703

 
 
2,403

 
 
3,240

 
 
 
2,194

Total fair value adjustments
 
(13,188
)
 
 
(11,150
)
 
 
(1,218
)
 
 
 
(550
)
Gross profit
$
13,217

 
$
13,217

 
$
1,928

 
 
$
1,928


 
Three Months Ended
March 31, 2019
 
Three Months Ended
March 31, 2018
 
Original
accounting
policy
(Restated - Note 27)
 
New
accounting
policy
(Restated - Note 27)
 
Original
accounting
policy
 
New
accounting
policy
Amended and restated unaudited condensed interim consolidated statement of cash flows
 
 
 
 
 
 
 
 
 
 
 
Operating activities
 
 
 
 
 
 
 
 
 
 
 
Items not affecting cash:
 
 
 
 
 
 
 
 
 
 
 
Unrealized change in fair value of biological assets
$
(16,891)

 
$
(13,553)
 
$
(4,458)
 
$
(2,744)
Realized fair value adjustments on inventory sold in the period
 
3,703

 
 
2,403
 
 
3,240
 
 
2,194
Net changes in non-cash working capital:
 
 
 
 
 
 
 
 
 
 
 
Biological assets
 
15,033

 
 
11,695
 
 
3,740
 
 
2,026
Inventory
 
(17,144
)
 
 
(15,814)
 
 
(3,802)
 
 
(2,756)
Net effect on cash flows used in operating activities
$
(15,269)

 
$
(15,269)
 
$
(1,280)
 
$
(1,280)


5.
Biological assets and inventory
 
 
 
 
 
(a)
Biological assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Company's biological assets consist of cannabis plants. The changes in the carrying amounts of the biological assets are as follows:


9

Cronos Group Inc.
Notes to Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and March 31, 2018
(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)
____________________________________________________________________________________________________________


5.
Biological assets and inventory (continued)
 
Three Months Ended March 31,
 
 
2019
(Note 4)
 
2018
(Note 4)
Biological assets - beginning of period
$
9,074

 
$
3,722

Capitalization of production costs
 
3,338

 
 
1,714

Unrealized change in fair value of biological assets
 
13,553

 
 
2,744

Transferred to inventory upon harvest
 
(14,459
)
 
 
(3,690
)
Biological assets - end of period
$
11,506

 
$
4,490

As at March 31, 2019, the Company has 67,635 plants classified as biological assets which are expected to ultimately yield 6,155 kg of dry cannabis (December 31, 2018 - 46,004 plants which were expected to ultimately yield 6,303 kg of dry cannabis).
 
The Company measures its biological assets at fair value less costs to sell. This valuation is based on the expected harvest yield (on a grams per plant basis) for plants currently being cultivated, adjusted for the expected net selling price less post-harvest costs attributable to bringing a harvested gram of cannabis to a saleable condition and ultimate sale (on a per gram basis). The Company accretes the fair value of each cannabis plant on a straight-line basis over the expected growing cycle. As at March 31, 2019, the plants were on average 5 weeks into the growing cycle, 38% complete, and were ascribed approximately 38% (December 31, 2018 - 6 weeks, 37%, and 37%, respectively) of their expected fair value at harvest date.
(b)
Inventory
 
Inventory consisted of the following:
 
As at March 31, 2019
(Restated - Note 27)
 
 
As at December 31, 2018
Dry cannabis
 
 
 
 
 
 
 
 
 
 
Finished goods
181 kg
 
$
1,014
 
 
187 kg
 
$
972
Work-in-process
3,261 kg
 
 
18,878
 
 
1,789 kg
 
 
7,733
 
 
 
 
19,892
 
 
 
 
 
8,705
 
 
 
 
 
 
 
 
 
 
 
Cannabis oils (i)
 
 
 
 
 
 
 
 
 
 
Finished goods
200 kg
 
 
1,054
 
 
115 kg
 
 
656
Work-in-process
1,175 kg
 
 
2,648
 
 
220 kg
 
 
1,250
 
 
 
 
3,702
 
 
 
 
 
1,906
 
 
 
 
 
 
 
 
 
 
 
Raw materials (ii)
 
 
 
169
 
 
 
 
 
171
Supplies and consumables
 
 
 
1,319
 
 
 
 
 
802
 
 
 
$
25,082
 
 
 
 
$
11,584
(i) 
Cannabis oils are expressed in dry cannabis gram equivalents. Refer to Note 5(d) for the equivalency factor applied.
 
 
 
 
 
 
 
 
 
 
 
 
 
(ii) 
As at March 31, 2019 and December 31, 2018, raw materials consisted of 0.267 kg of seeds held by the Company.
 
 
 
 
 
 
 
 
 
 
 
 
 
As at March 31, 2019, the Company held 40 kg (December 31, 2018 - 29 kg) of dry cannabis and 5 kg (December 31, 2018 - 4 kg) of cannabis oils as retention samples, which are valued at $nil.
 
 

10

Cronos Group Inc.
Notes to Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and March 31, 2018
(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)
____________________________________________________________________________________________________________


5.
Biological assets and inventory (continued)

(c)
Direct and indirect cost allocations
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs incurred to transform biological assets up to the point of harvest ("production costs") are capitalized as they are incurred, which become the cost basis of the biological assets. These costs include direct costs such as nutrients, soil, and seeds, as well as other indirect costs such as utilities, an allocation of indirect labour, property taxes, and depreciation of equipment used in the growing process. The biological assets are then revalued to fair value less costs to sell immediately prior to harvest and at the end of each reporting period. Gains or losses arising from changes in fair value less costs to sell, excluding capitalized production costs, are presented as unrealized change in fair value of biological assets. At the point of harvest, agricultural produce consisting of cannabis is considered inventory. The fair value less costs to sell becomes the cost base of inventory. Any subsequent post-harvest costs ("processing costs"), including direct costs attributable to processing and related overhead, are capitalized to inventory as they are incurred. Upon ultimate sale of inventory, the associated production and processing costs are presented as cost of sales before fair value adjustments; the remaining cost of inventory, associated with fair value less costs to sell prior to harvest, is presented as realized fair value adjustments on inventory sold in the period.

The direct and indirect costs related to biological assets and inventory are allocated as follows. The allocation basis was consistent for the three months ended March 31, 2019 and 2018, unless otherwise specified.
 
 
 
 
 

Nature of cost
Allocation basis
Consumables (insect control, fertilizers, soil)
100% allocated to production costs because these costs are incurred to support plant growth
Labour costs (including salaries and benefits)
Allocated based on job descriptions of various personnel
40% allocated to processing costs; 40% allocated to production costs; 20% allocated to operating expenses (2018 - 20%; 60%; and 20%; respectively)
Supplies and small tools
80% allocated to production costs; 20% allocated to processing costs
Utilities
Allocated based on estimates of usage
10% allocated to processing costs; 90% allocated to production costs
Property taxes, depreciation, security
Allocated based on estimates of square footage
20% allocated to processing costs; 50% allocated to production costs; 30% allocated to operating expenses
Packaging costs
100% allocated to processing costs

(d)
Significant inputs and sensitivity analyses
 
 
 
 
 
The Company has made the following estimates related to significant inputs in the valuation model:
Significant inputs
Definition
Net selling price per gram
Estimated net selling price per gram of dry cannabis based on historical sales and anticipated prices, after adjustment for excise taxes
Harvest yield per plant
Expected grams of dry cannabis to be harvested from a cannabis plant, based on the weighted average historical yields by plant strain
Stage of growth
Weighted average plant age (in weeks) out of the 14 week (December 31, 2018 - 16 week) growing cycle as of the period end date
Processing costs per gram
Estimated post-harvest costs per gram to bring a gram of harvested cannabis to its saleable condition, including drying, curing, testing and packaging, and overhead allocation; estimated based on post-harvest costs incurred during the period divided by number of grams processed during the period
Selling costs per gram
Estimated shipping, order fulfillment, and labelling costs per gram; calculated as selling costs incurred during the period divided by number of grams sold during the period
Equivalency factor
Estimated grams of dry cannabis required to produce one millilitre of cannabis oil; estimated based on historical conversion results
Mass multipliers
Estimated multiples of crude extract and isolate mass in diluted cannabis oil products

11

Cronos Group Inc.
Notes to Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and March 31, 2018
(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)
____________________________________________________________________________________________________________


5.
Biological assets and inventory (continued)

(d)
Significant inputs and sensitivity analyses (continued)

These inputs are level 3 on the fair value hierarchy, and are subject to volatility and several uncontrollable factors, which could significantly affect the fair value of biological assets and inventory in future periods.
 
The following table quantifies each of the significant unobservable inputs described above and provides a sensitivity analysis of the impact on the reported values of biological assets and inventory. The sensitivity analysis for each significant input is performed by assuming a 5% decrease in the input while other significant inputs remain constant at management's best estimate as of the period end date.
 
 
 
 
Increase (decrease) as at
March 31, 2019
 
 
 
Increase (decrease) as at
December 31, 2018
 
As at
March 31,
2019
 
Biological assets
 
Inventory
 
As at
December 31, 2018
 
Biological assets
 
Inventory
Net selling price per gram
$5.97/g
 
$
(708
)
 
$
(705
)
 
$5.58/g
 
$
(673
)
 
$
(640
)
Harvest yield per plant
91 g
 
 
(572
)
 
 
-

 
137 g
 
 
(446
)
 
 
-

Stage of growth
5 weeks
 
 
(572
)
 
 
-

 
6 weeks
 
 
(446
)
 
 
-

Processing costs per gram
$0.76/g
 
 
90

 
 
83

 
$1.98/g
 
 
175

 
 
65

Selling costs per gram
$0.40/g
 
 
47

 
 
47

 
$0.43/g
 
 
52

 
 
50

Equivalency factor
0.3 g/mL
 
 
(48
)
 
 
(138
)
 
0.3 g/mL
 
 
(45
)
 
 
(104
)
Mass multipliers
35x - 50x
 
 
(35
)
 
 
(222
)
 
30x - 50x
 
 
(5
)
 
 
(24
)

6.
Equity accounted investees
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)
Advances to joint ventures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Advances to joint ventures are unsecured, non-interest bearing, and have no terms of repayment, unless otherwise specified. The joint ventures are solely funded by their shareholders and the advances are considered an extension of the Company's investments therein. As such, losses recognized in excess of the Company's capital contributions are applied against the respective advances.
As at March 31, 2019
Natuera Colombia (v)
 
MedMen Canada (ii)
 
Cronos
GrowCo (iii)
 
Cronos Australia (iv)
 
Total
Gross advances to joint ventures
$
302

 
$
1,856

 
$
19,115

 
$
1,480

 
$
22,753

Less: advances to joint ventures applied to carrying amount of investments
 
-

 
 
(167
)
 
 
-

 
 
(666
)
 
 
(833
)
Advances to joint ventures
$
302

 
$
1,689

 
$
19,115

 
$
814

 
$
21,920

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As at December 31, 2018
Natuera Colombia (v)
 
MedMen Canada (ii)
 
Cronos
GrowCo (iii)
 
Cronos Australia (iv)
 
Total
Gross advances to joint ventures
$
-

 
$
1,871

 
$
4,080

 
$
990

 
$
6,941

Less: advances to joint ventures applied to carrying amount of investments
 
-

 
 
(175
)
 
 
(29
)
 
 
(342
)
 
 
(546
)
Advances to joint ventures
$
-

 
$
1,696

 
$
4,051

 
$
648

 
$
6,395


The Company did not make any advances to its joint ventures during the three months ended March 31, 2018.

12

Cronos Group Inc.
Notes to Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2019 and March 31, 2018
(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)
____________________________________________________________________________________________________________


6.
Equity accounted investees (continued)

(b)
Net investment in equity accounted investees
 
 
 
 
 
 
 
 
 
 
 
 
A reconciliation of the carrying amount of the investments in associates and joint ventures is as follows:
 
 
 
Whistler (i)
 
MedMen Canada (ii)
 
Cronos
GrowCo (iii)
 
Cronos Australia (iv)
 
Total
As at January 1, 2019
 
$
4,038

 
$
-

 
$
-

 
$
-

 
$
4,038

Share of net income (loss)
 
 
38

 
 
8

 
 
14

 
 
(324
)
 
 
(264
)
Contribution to (disposal of) investment
 
 
(4,076
)
 
 
-

 
 
2,200

 
 
-

 
 
(1,876

Advances to joint ventures applied to (transferred from) carrying amount of investments
 
 
-

 
 
(8
)
 
 
(29
)
 
 
324

 
 
287

As at March 31, 2019
 
$
-

 
$
-

 
$
2,185

 
$
-

 
$
2,185