Document


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

____________________________

FORM 8-K

____________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): March 30, 2020

____________________________
CRONOS GROUP INC.
(Exact Name of Registrant as Specified in Charter)

____________________________

 
 
 
 
 
Ontario, Canada
 
001-38403
 
N/A
(State or Other Jurisdiction
of Incorporation)
 
(Commission File Number)
 
(I.R.S. Employer
Identification No.)

 
 
 
720 King St. W., Suite 320
Toronto, Ontario
 
M5V 2T3
(Address of Principal Executive Offices)
 
(Zip Code)

Registrant’s telephone number, including area code: 416-504-0004
Not Applicable
(Former Name or Former Address if Changed Since Last Report)
____________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Shares, no par value
CRON
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 





Item 2.02     Results of Operations and Financial Condition.

On March 30, 2020, Cronos Group Inc. (the “Company”) issued a press release announcing its financial results for its fourth quarter and fiscal year ended December 31, 2019. A copy of the press release is attached as Exhibit 99.1 to and is incorporated by reference in this Current Report on Form 8-K.

The information in this Item 2.02, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such a filing or document.

Item 7.01    Regulation FD Disclosure.

As of June 30, 2019, the Company determined that it no longer qualified as a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act, and is thus required, as of January 1, 2020, to comply with the periodic disclosure and current reporting requirements of the Exchange Act as a domestic registrant. As a result of the Company’s status change, it is required to change the accounting standards in which it prepares its financial statements from International Financial Reporting Standards (“IFRS”) to generally accepted accounting principles in the United States (“U.S. GAAP”).

In accordance with Canadian securities laws, the Company is required to restate its unaudited condensed interim consolidated financial statements for (i) the three months ended March 31, 2019; (ii) the three and six months ended June 30, 2019; and (iii) the three and nine months ended September 30, 2019 (collectively, the “2019 Interim Financial Statements”) to reflect the Company’s transition to U.S. GAAP. The original 2019 Interim Financial Statements, which were prepared in accordance with IFRS, were filed with the Securities and Exchange Commission (“SEC”) on Forms 6-K on May 9, 2019, August 8, 2019 and November 12, 2019, respectively, each as amended by its respective Form 6-K/A in each case filed with the SEC on March 30, 2020. Copies of the restated 2019 Interim Financial Statements are attached as Exhibit 99.2, Exhibit 99.3 and Exhibit 99.4, respectively, to and are incorporated by reference in this Current Report on Form 8-K.

The information in this Item 7.01, including Exhibits 99.2, 99.3 and 99.4 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference into any filing or other document pursuant to the Securities Act or the Exchange Act, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such a filing or document.

Item 9.01     Financial Statements and Exhibits.

(d)    Exhibits.

Exhibit No.
 
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 hereunto duly authorized.

 
 
 
 
Date: March 30, 2020
CRONOS GROUP INC.
 
 
 
 
 
By:
/s/ Michael Gorenstein
 
Name:
Michael Gorenstein
 
Title:
President and Chief Executive Officer





Exhibit


Exhibit 99.1
https://cdn.kscope.io/4037cf4517a5f1325c1521ebc5a0e5f0-fy19pressrelease33020pr.jpg
Cronos Group Reports 2019 Fourth Quarter and Full-Year Results

Completed Audit Committee Review and Restated Certain 2019 Unaudited Interim Financial Statements

Expanded Canadian distribution to new provinces and product categories across the adult-use market

Established Cronos Fermentation, a critical step in advancing the production of cultured cannabinoids in partnership with Ginkgo Bioworks

Enhanced research and development capabilities at the Peace Naturals Campus

Advanced operational readiness of Cronos Israel with GAP and GMP certifications


TORONTO, March 30, 2020 - Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) (“Cronos Group” or the “Company”), today announces its 2019 fourth quarter and full-year business results.

The Audit Committee of the Cronos Group Board of Directors has completed its review of certain bulk resin purchases and sales of products through the wholesale channel. Following completion of the review, and on the recommendation of the Audit Committee and advice from the Company’s independent auditor, KPMG LLP, the Board determined that Cronos Group will restate its unaudited interim financial statements for the first, second and third quarters of 2019. Accordingly, the Company reduced revenue for the three months ended March 31, 2019 by C$2.5 million and the three months ended September 30, 2019 by C$5.1 million.

“We are pleased that the Audit Committee has completed its review, and that Cronos Group is now current with the filing of our financial reports. As we move forward, we are committed to improving our internal controls and financial reporting practices, maintaining the highest standards of transparency and accountability, and enhancing our capabilities and resources across functions to support our strategy,” said Mike Gorenstein, CEO of Cronos Group.

“Cronos Group ended 2019 with a strong foundation and balance sheet, and a clear focus on achieving our core strategic initiatives to drive long-term, sustainable growth. Importantly, we expanded our Canadian distribution footprint, broadened our brand portfolio, enhanced our global supply chain capabilities and advanced our breakthrough intellectual property and research and development initiatives. While the world currently faces an unprecedented time of uncertainty related to COVID-19, we believe we are well-positioned to build on these accomplishments as we maintain our investments in brands and products that will resonate with adult consumers and generate sustainable, long-term value for shareholders.”















Financial Results

(in thousands of USD)
 
Three months December 31,
 
Change
 
Year ended December 31,
 
Change
 
 
2019
 
2018
 
$
 
%
 
2019
 
2018
 
$
 
%
Net revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
2,693

 
$

 
$
2,693

 
N/A

 
$
3,364

 
$

 
$
3,364

 
N/A

Rest of World
 
4,615

 
4,285

 
330

 
8
 %
 
20,386

 
12,121

 
8,265

 
68
 %
Consolidated net revenue
 
7,308

 
4,285

 
3,023

 
71
 %
 
23,750

 
12,121

 
11,629

 
96
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit (loss)
 
(20,375
)
 
1,880

 
(22,255
)
 
(1184
)%
 
(17,864
)
 
6,213

 
(24,077
)
 
(388
)%
Gross margin
 
(279
)%
 
44
%
 

 
(323)pp

 
(75
)%
 
51
%
 

 
(126)pp

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported operating loss
 
$
(63,869
)
 
$
(8,871
)
 
$
(54,998
)
 
620
 %
 
$
(121,484
)
 
$
(21,341
)
 
$
(100,143
)
 
469
 %
Adjusted operating loss (i)
 
(56,601
)
 
(8,871
)
 
(47,730
)
 
538
 %
 
(114,216
)
 
(21,341
)
 
(92,875
)
 
435
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
1,199,693

 
23,927

 
1,175,766

 
4914
 %
Short-term investments
 
 
 
 
 
 
 
 
 
306,347

 

 
306,347

 
N/A

Capital expenditures
 
757

 
32,676

 
(31,919
)
 
(98
)%
 
38,953

 
88,586

 
(49,633
)
 
(56
)%
 (i)  See “Non-GAAP Measures” for more information, including a reconciliation of adjusted operating loss 
(ii)  Dollar amounts are as of the last day of the period indicated 

Fourth Quarter 2019
Net revenue of $7.3 million in Q4 2019 increased by $3.0 million from Q4 2018, primarily driven by an increase in the volume of products sold in the Rest of World segment and the Redwood acquisition, partially offset by a decrease in the price of products sold in the Rest of World segment.
Gross profit (loss) of ($20.4) million in Q4 2019 decreased by $22.3 million from Q4 2018, primarily driven by the inventory write-down of $24.0 million.
The Company incurred an inventory write-down of $24.0 million, made up of a one-time charge of $1.9 million, related to the repurposing of certain facilities at the Peace Naturals Campus, and a $22.1 million write-down on cannabis plants, based on the estimated market value of the specific strains previously in production, and cannabis oil, primarily driven by downward pressure in market prices during the year. If we were to adjust for the effects of the inventory write-down, gross profit in Q4 2019, would have been $3.6 million, representing a gross margin of 50%. We anticipate inventory write-downs in the short-term due to pricing pressures in the marketplace and while the Company executes its operational repurposing of the Peace Naturals Campus.
Reported operating loss of ($63.9) million in Q4 2019 increased by $55.0 million from Q4 2018, primarily driven by the inventory write-down in Q4 2019, one-time charges related to the repurposing of certain facilities at the Peace Naturals Campus, an increase in general and administrative expenses in order to support Cronos Group’s growth strategy, an increase in sales and marketing in order to create, build and develop brands and an increase in R&D costs.
Adjusted operating loss of ($56.6) million in Q4 2019 increased by $47.8 million from Q4 2018, primarily driven by inventory write-downs in Q4 2019 and an increase in general and administrative expenses in order to support Cronos Group’s growth strategy, an increase in sales and marketing in order to create, build and develop brands and an increase in R&D costs.






Full-Year 2019
Net revenue of $23.8 million in Full-Year 2019 increased by $11.6 million from Full-Year 2018, primarily driven by an increase in the volume of sales in the Rest of World Segment due to increases in production, increases in the volume of wholesale sales and the launch of the adult-use market in Canada.
Gross profit (loss) of ($17.9) million in Full-Year 2019 decreased by $24.1 million from Full-Year 2018, primarily driven by the inventory write-down of $29.4 million.
The Company incurred an inventory write-down of $29.4 million, made up of a one-time charge of $1.9 million, related to the repurposing of certain facilities at the Peace Naturals Campus, and a $27.5 million write-down on cannabis plants, based on the estimated market value of the specific strains previously in production, and cannabis oil, primarily driven by downward pressure in market prices during the year. If we were to adjust for the effects of the inventory write-downs, gross profit in Full-Year 2019, would have been $11.6 million, representing a gross margin of 49%.
Reported operating loss of ($121.5) million in Full-Year 2019 increased by $100.1 million from Full-Year 2018, primarily driven by inventory write-downs in Full-Year 2019, an increase in general and administrative expenses in order to support Cronos Group’s growth strategy, an increase in sales and marketing in order to create, build and develop brands and an increase in R&D costs related to the Company’s two research partnerships and one-time charges related to the repurposing of certain facilities at the Peace Naturals Campus.
Adjusted operating loss of ($114.2) million in Full-Year 2019 increased by $92.9 million from Full-Year 2018, primarily driven by inventory write-downs in Full-Year 2019, an increase in general and administrative expenses in order to support Cronos Group’s growth strategy, an increase in sales and marketing in order to create, build and develop brands and an increase in R&D costs related to the Company’s two research partnerships.

Business Updates

Brand Portfolio

In December 2019, Cronos Group launched cannabis vaporizer devices for the Canadian adult-use market under the COVE™ and Spinach™ brands. In conjunction with this launch, the Company created new, tailored 510 thread vaporizer product lines for the COVE™ and Spinach™ brands, including cartridges that are tamper resistant, made from high-quality stainless-steel components and food grade silicone and have rechargeable draw batteries to prevent overheating. The formulations use premium cannabis extract and come in all-natural terpene-rich flavors. The vaporizer products are currently available at cannabis control authorities in Ontario, British Columbia, Manitoba, New Brunswick, and Nova Scotia, as well as from private-sector retailers in Saskatchewan.

In the fourth quarter, we successfully executed three holiday pop-up shops in Los Angeles and New York City to provide consumers with a curated retail experience of its Lord Jones™ products.

Cronos Group made the decision to pause distribution of PEACE+™ hemp-derived CBD tinctures through Altria Group. Inc.’s (“Altria”) sales and distribution network. Cronos Group remains focused on meeting the demands of adult consumers and will continue to evaluate other product formats and categories that we believe may be more suitable for the PEACE+TM brand in the evolving environment.

Global Sales and Distribution

In the fourth quarter, Cronos Group began selling cannabis flower and extract products to cannabis control authorities in Alberta, Manitoba, and Quebec. In addition to the new territories, the Company sells dried flower, pre-rolls, cannabis oils and cannabis extracts through its adult-use brands, COVE™ and Spinach™, to cannabis control authorities in Ontario, British Columbia, Nova Scotia and Prince Edward Island, as well as to private-sector retailers in Saskatchewan.






On October 25, 2019, Cronos Australia announced the closing of an A$20.0 million initial public offering. Cronos Group currently holds approximately 31 percent of the issued capital of Cronos Australia. With the initial public offering complete, Cronos Group is positioned to continue participating in Cronos Australia’s growth in the medicinal market in the Asia-Pacific region while generating value for the Company’s shareholders.

In the fourth quarter of 2019, Cronos Group completed its first test export of PEACE NATURALS™ branded cannabis oil products to Cronos Australia for distribution to the Australian medical market.

Global Supply Chain

In November 2019, Cronos Group began an operational redesign at the Peace Naturals Campus to better align the business with our strategic priorities. As part of this effort, specific facilities at the Peace Naturals Campus are in the process of being repurposed from cultivation to R&D, with a focus on developing new technologies for value-added product manufacturing, and production of derivative products. This redesign will also increase vault and warehousing capabilities at the facility.

In the fourth quarter of 2019, the Company recorded pre-tax charges of $7.2 million related to the repurposing efforts at the Peace Naturals Campus, with $1.9 million associated with an inventory write-down and $5.3 million of operating expenses, primarily related to impairment costs. The Company does not expect to incur any further significant costs related to the repurposing activities.

The Cronos Israel facility continues to move closer to operational readiness. Construction of Cronos Israel’s greenhouse and facility was completed in the third quarter of 2019. In December 2019, Cronos Israel successfully achieved GAP certification for propagation and cultivation, as well as GMP certification for the manufacturing and production facilities. Commencement of operations at the Cronos Israel facility will be subject to obtaining the remaining necessary cannabis production licenses under applicable law.

Intellectual Property Initiatives

Ginkgo Bioworks (“Ginkgo”) has filed certain patent applications pertaining to biosynthesis of cannabinoids to protect intellectual property developed as part of the research progressing under the partnership with Cronos Group. Under the partnership, Cronos Group is the exclusive licensee of the intellectual property covered by the patent applications for the target cannabinoids.

In July 2019, Cronos Group acquired a GMP compliant fermentation and manufacturing facility (“Cronos Fermentation”) in Winnipeg, Manitoba. The acquisition is expected to provide the fermentation and manufacturing capabilities needed in order to capitalize on the progress underway with Ginkgo by enabling Cronos Group to produce high-quality cannabinoids at scale using fermentation. In November 2019, a team of engineers, scientists, production and quality assurance personnel previously employed by Apotex Fermentation Inc., joined Cronos Group.

Cronos Group commenced work on developing scale-up and downstream processes at Cronos Fermentation, while in parallel Ginkgo develops microorganisms for producing cultured cannabinoids. As Cronos Group develops the processes and parameters, these learnings will be applied for the strains that will be utilized for commercial production of cultured cannabinoids. Commercial production at the facility is subject to completion of the equipment alignment for cannabinoid-based production, the receipt of the appropriate licenses from Health Canada and the achievement of the relevant milestones under the Ginkgo Strategic Partnership.






Update on COVID-19

Despite the significant challenges posed by the outbreak of COVID-19, as a designated essential business, Cronos Group’s global facilities currently remain operational. During this unprecedented time, the health, safety and well-being of our employees and our consumers remains Cronos Group’s top priority. The Company has business continuity plans in place to support its employee base while continuing to develop and produce reliable, high-quality products that meet the needs of consumers. As part of this, the Company implemented certain measures such as, among other measures, work-from-home policies for certain employees, enhanced hygiene and sanitation practices, modified schedules and social distancing protocols at the Peace Naturals Campus, Redwood, Cronos Fermentation, OGBC and Cronos Israel facilities. Cronos Group will continue to act in accordance with guidance from local, federal and international health and governmental authorities, and is prepared to make additional operational adjustments as necessary.

The spread and impact from COVID-19 on the global economy continues to rapidly evolve, and the ultimate impact of the COVID-19 outbreak is uncertain and subject to change. Despite Cronos Group’s business continuity efforts, the Company may see an impact on certain parts of its business and operations such as operational capacity or supply chain delays. The Company continues to closely monitor the rapidly evolving COVID-19 situation, and the impact it may have on the Company, its customers and its supply chain.

Rest of World Results

Cronos Group’s Rest of World reporting segment includes results of the Company’s operations for all markets outside of the United States of America. Cronos Group owns and operates license holders, Peace Naturals and OGBC, and currently sells dried flower, pre-rolls and cannabis extracts in the Canadian adult-use and medical markets. The Company established strategic joint ventures in Canada, Israel and Colombia. Cronos Group currently exports cannabis products to countries that permit the import of such products, such as Germany and Australia.

(in thousands of USD )
Three months December 31,
 
Change
 
Year ended December 31,
 
Change
 
2019
 
2018
 
$
 
%
 
2019
 
2018
 
$
 
%
Cannabis flower
$
2,877

 
$
3,228

 
$
(351
)
 
(11
)%
 
$
15,020

 
$
9,210

 
$
5,810

 
63
 %
Cannabis extracts
1,678

 
1,028

 
650

 
63
 %
 
5,338

 
2,732

 
2,606

 
95
 %
Other
60

 
29

 
31

 
107
 %
 
28

 
179

 
(151
)
 
(84
)%
Net revenue
4,615

 
4,285

 
330

 
8
 %
 
20,386

 
12,121

 
8,265

 
68
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
(21,805
)
 
1,880

 
(23,685
)
 
(1,260
)%
 
(19,737
)
 
6,213

 
(25,950
)
 
(418
)%
Gross margin
(472
)%
 
44
%
 

 
(516)pp

 
(97
)%
 
51
%
 

 
(148)pp

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported operating loss
$
(59,066
)
 
$
(8,871
)
 
$
(50,195
)
 
566
 %
 
$
(106,928
)
 
$
(21,341
)
 
$
(85,587
)
 
401
 %
Adjusted operating loss (i)
(51,798
)
 
(8,871
)
 
(42,927
)
 
484
 %
 
(99,660
)
 
(21,341
)
 
(78,319
)
 
367
 %
 (i)  See “Non-GAAP Measures” for more information, including a reconciliation of adjusted operating loss 

Fourth Quarter 2019
Net revenue of $4.6 million in Q4 2019 increased by $0.3 million from Q4 2018, primarily driven by the introduction of vaporizer products and an increase in the volume of products sold, which were partially offset by a decrease in the price of products sold.
Gross profit (loss) of ($21.8) million in Q4 2019 decreased by $23.7 million from Q4 2018, primarily driven by the inventory write-down of $24.0 million.





The Company incurred an inventory write-down of $24.0 million, made up of a one-time charge of $1.9 million, related to the repurposing of certain facilities at the Peace Naturals Campus, and a $22.1 million write-down on cannabis plants, based on the estimated market value of the specific strains previously in production, and cannabis oil, primarily driven by downward pressure in market prices during the year. If we were to adjust for the effects of the inventory write-down, gross profit in Q4 2019, would have been $2.2 million, representing a gross margin of 48%. We anticipate inventory write-downs in the short-term due to pricing pressures in the marketplace and while the Company executes its operational repurposing of the Peace Naturals Campus.
Reported operating loss of ($59.1) million in Q4 2019 increased by $50.2 million from Q4 2018, primarily driven by the inventory write-down in Q4 2019, one-time charges related to the repurposing of certain facilities at the Peace Naturals Campus, an increase in general and administrative expenses in order to support the segment's growth, an increase in sales and marketing in order to create, build and develop brands and an increase in R&D costs.
Adjusted operating loss of ($51.8) million in Q4 2019 increased by $42.9 million from Q4 2018, primarily driven by inventory write-downs in Q4 2019 and an increase in general and administrative expenses in order to support the segment's growth, an increase in sales and marketing in order to create, build and develop brands and an increase in R&D costs.

Full-Year 2019
Net revenues of $20.4 million in Full-Year 2019 increased by $8.3 million from Full-Year 2018, primarily driven by higher volume of wholesale sales and an increase in the volume of products sold due to increased cannabis production and the growth of the adult-use market in Canada.
Gross profit (loss) of ($19.7) million in Full-Year 2019 decreased by $26.0 million from Full-Year 2018, primarily driven by the inventory write-down of $29.4 million.
The Company incurred an inventory write-down of $29.4 million, made up of a one-time charge of $1.9 million, related to the repurposing of certain facilities at the Peace Naturals Campus, and a $27.5 million write-down on cannabis plants, based on the estimated market value of the specific strains previously in production, and cannabis oil, primarily driven by downward pressure in market prices during the year. If we were to adjust for the effects of the inventory write-downs, gross profit in Full-Year 2019, would have been $9.7 million, representing a gross margin of 48%.
Reported operating loss of ($106.9) million in Full-Year 2019 increased $85.6 million from Full-Year 2018, primarily driven by inventory write-downs in Q4 2019, one-time charges related to the repurposing of certain facilities at the Peace Naturals Campus, an increase in general and administrative expenses in order to support the segment's growth, an increase in sales and marketing in order to create, build and develop brands and an increase in R&D costs.
Adjusted operating loss of ($99.7) million in Full-Year 2019 increased by $78.3 million from Full-Year 2018, primarily driven by inventory write-downs in Q4 2019, an increase in general and administrative expenses in order to support the segment's growth, an increase in sales and marketing in order to create, build and develop brands and an increase in R&D costs.






United States Results

As a result of Cronos Group’s acquisition of Redwood on September 5, 2019, a manufacturer and distributor of hemp-derived CBD infused products in the United States under the brand, Lord Jones™, the Company established the United States reporting segment.
(in thousands of USD)
Three months December 31
 
Change
 
Year ended December 31,
 
Change
 
2019
 
2018
 
$
 
%
 
2019
 
2018
 
$
 
%
Net revenue
$
2,693

 

 
N/A
 
N/A
 
$
3,364

 

 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
1,430

 

 
N/A
 
N/A
 
1,873

 

 
N/A
 
N/A
Gross margin
53
%
 

 
N/A
 
N/A
 
56
%
 

 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported operating loss 
$
(1,797
)
 

 
N/A
 
N/A
 
$
(2,777
)
 

 
N/A
 
N/A

Fourth Quarter 2019
Net revenues of $2.7 million in Q4 2019, driven by expanded distribution of Lord JonesTM branded products through online sales and an increased retail channel footprint.
Gross profit of $1.4 million in Q4 2019, driven by strong sales prices and brand equity. Gross margin for Q4 2019 was 53%.
Operating loss of ($1.8) million in Q4 2019, driven by increased investments in sales and marketing and general and administrative expenses as the business focuses on growth prospects and developing new brands and products.

Full-Year 2019
Net revenue of $3.4 million in Full-Year 2019, driven by the Redwood Acquisition on September 5, 2019.
Gross profit of $1.9 million in Full-Year 2019, driven by sales through e-commerce, retail and hospitality channels within Q4 2019. Gross margin in Full-Year 2019 was 56%.
Operating loss of $2.8 million in Full-Year 2019, driven by the increase in gross profit and the increased sales and marketing costs incurred in relation to the preparation for the launch of the PEACE+™ U.S hemp-derived CBD brand, as well as the introduction of several new U.S. hemp-derived CBD products under the Lord Jones™ brand.

Conference Call

The Company will host a conference call and live audio webcast on Monday, March 30, 2020 at 5:30 p.m. EDT to discuss 2019 fourth quarter and full-year results, the Company's outlook and other matters. The call will last approximately one hour. An audio replay of the call will be archived on the Company’s website for replay. Instructions for the conference call are provided below:

Live audio webcast: https://ir.thecronosgroup.com/events-presentations
Toll Free from the U.S. and Canada dial-in: (866) 795-2258
International dial-in: (409) 937-8902
Conference ID: 6999389






About Cronos Group

Cronos Group is an innovative global cannabinoid company with international production and distribution across five continents. Cronos Group is committed to building disruptive intellectual property by advancing cannabis research, technology and product development. With a passion to responsibly elevate the consumer experience, Cronos Group is building an iconic brand portfolio. Cronos Group’s portfolio includes PEACE NATURALS™, a global health and wellness platform, two adult-use brands, COVE™ and Spinach™, and two hemp-derived CBD brands, Lord Jones™ and PEACE+™. For more information about Cronos Group and its brands, please visit: www.thecronosgroup.com.

Forward-looking statements

This press release may contain information that may constitute forward-looking information and forward-looking statements within the meaning of applicable securities laws (collectively, “Forward-Looking Statements”), which are based upon our current internal expectations, estimates, projections, assumptions and beliefs. All information that is not clearly historical in nature may constitute Forward-Looking Statements. In some cases, Forward-Looking Statements can be identified by the use of forward-looking terminology such as “expect”, “likely”, “may”, “will”, “should”, “intend”, “anticipate”, “potential”, “proposed”, “estimate” and other similar words, expressions and phrases, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussion of strategy. Forward-Looking Statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of historical fact.

Forward-Looking Statements include, but are not limited to, statements with respect to:
the uncertainties associated with the COVID-19 pandemic, including our ability to continue operations, the ability of our suppliers and distribution channels to continue to operate, and the use of our products by consumers;
laws and regulations and any amendments thereto applicable to our business and the impact thereof including uncertainty regarding the application of United States (“U.S.”) state and federal law to U.S. hemp (including CBD) products and the scope of any regulations by the U.S. Federal Drug Administration (the “FDA”), the U.S. Federal Trade Commission (the “FTC”), the U.S. Patent and Trademark Office and any state equivalent regulatory agencies over U.S. hemp (including CBD) products;
expectations regarding the regulation of the U.S. hemp industry in the U.S., including the promulgation of regulations for the U.S. hemp industry by the U.S. Department of Agriculture (the “USDA”);
the grant, renewal and impact of any license or supplemental license to conduct activities with cannabis or any amendments thereof;
our international activities and joint venture interests, including required regulatory approvals and licensing, anticipated costs and timing, and expected impact;
the ability to successfully create and launch brands and further create, launch and scale U.S. hemp-derived consumer products, including through the Redwood Acquisition (as defined herein) and cannabis products in jurisdictions where such products are legal and that we currently operate in;
the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis including CBD and other cannabinoids;
the anticipated benefits and impact of the Altria Group Inc.’s C$2.4 billion (approximately $1.8 billion) investment in us (the “Altria Investment”);
the potential exercise of the warrant held by Altria Group Inc., pre-emptive rights and/or top-up rights in connection with the Altria Investment, including proceeds to us that may result therefrom;
expectations regarding the use of proceeds of equity financings, including the proceeds from the Altria Investment;





the legalization of the use of cannabis for medical or adult-use in jurisdictions outside of Canada, the related timing and impact thereof and our intentions to participate in such markets, if and when such use is legalized;
expectations regarding the potential success of, and the costs and benefits associated with, our joint ventures, strategic alliances and equity investments, including the strategic partnership with Ginkgo Bioworks, Inc.;
our ability to execute on our strategy and the anticipated benefits of such strategy;
the ongoing impact of the legalization of additional cannabis product types and forms for adult-use in Canada, including federal, provincial, territorial and municipal regulations pertaining thereto, the related timing and impact thereof and our intentions to participate in such markets;
the future performance of our business and operations;
our competitive advantages and business strategies;
the competitive conditions of the industry;
the expected growth in the number of customers using our products;
our ability or plans to identify, develop, commercialize or expand our technology and research and development (“R&D”) initiatives in cannabinoids, or the success thereof;
expectations regarding acquisitions and the anticipated benefits therefrom, including the Redwood Acquisition and the acquisition of certain assets from Apotex Fermentation Inc.;
expectations regarding revenues, expenses and anticipated cash needs;
expectations regarding cash flow, liquidity and sources of funding;
expectations regarding capital expenditures;
the expansion of our production and manufacturing, the costs and timing associated therewith and the receipt of applicable production and sale licenses;
the expected growth in our growing, production and supply chain capacities;
expectations regarding the resolution of litigation and other legal proceedings;
expectations with respect to future production costs;
expectations with respect to future sales and distribution channels;
the expected methods to be used to distribute and sell our products;
our future product offerings;
the anticipated future gross margins of our operations;
accounting standards and estimates;
expectations regarding our distribution network; and
expectations regarding the costs and benefits associated with our contracts and agreements with third parties, including under our third-party supply and manufacturing agreements.

Certain of the Forward-Looking Statements contained herein concerning the industries in which we conduct our business are based on estimates prepared by us using data from publicly available governmental sources, market research, industry analysis and on assumptions based on data and knowledge of these industries, which we believe to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. The industries in which we conduct our business involve risks and uncertainties that are subject to change based on various factors, which are described further below.

The Forward-Looking Statements contained herein are based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including: (i) management’s perceptions of historical trends, current conditions and expected future developments; (ii) our ability to generate cash flow from operations; (iii) general economic, financial market, regulatory and political conditions in which we operate; (iv) the production and manufacturing capabilities and output from our facilities and our joint ventures, strategic alliances and equity investments; (v) consumer interest in our products; (vi) competition; (vii) anticipated and unanticipated costs; (viii) government regulation of our activities and products including but not limited to the areas of taxation and environmental protection; (ix) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses; (x) our ability to obtain qualified staff, equipment and services in a timely and cost-efficient





manner; (xi) our ability to conduct operations in a safe, efficient and effective manner; (xii) our ability to realize anticipated benefits, synergies or generate revenue, profits or value from our recent acquisitions into our existing operations; (xiii) our ability to continue to operate in light of the COVID-19 pandemic and the impact of the pandemic on sales of our products and our distribution channels; and (xiv) other considerations that management believes to be appropriate in the circumstances. While our management considers these assumptions to be reasonable based on information currently available to management, there is no assurance that such expectations will prove to be correct.

By their nature, Forward-Looking Statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of factors, including known and unknown risks, many of which are beyond our control, could cause actual results to differ materially from the Forward-Looking Statements in this press release and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf. Such factors include, without limitation, the risk that the COVID-19 pandemic may disrupt our operations and those of our suppliers and distribution channels and negatively impact the use of our products; that cost savings and any other synergies from the Altria Investment may not be fully realized or may take longer to realize than expected; disruption from the Altria Investment making it more difficult to maintain relationships with customers, employees or suppliers; future levels of revenues; consumer demand for cannabis and U.S. hemp products; our ability to manage disruptions in credit markets or changes to our credit rating; future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses; the success or timing of completion of ongoing or anticipated capital or maintenance projects; business strategies, growth opportunities and expected investment; the adequacy of our capital resources and liquidity, including but not limited to, availability of sufficient cash flow to execute our business plan (either within the expected timeframe or at all); the potential effects of judicial or other proceedings on our business, financial condition, results of operations and cash flows; volatility in and/or degradation of general economic, market, industry or business conditions; compliance with applicable environmental, economic, health and safety, energy and other policies and regulations and in particular health concerns with respect to vaping and the use of cannabis and U.S. hemp products in vaping devices; the anticipated effects of actions of third parties such as competitors, activist investors or federal (including U.S. federal), state, provincial, territorial or local regulatory authorities, self-regulatory organizations, plaintiffs in litigation or persons threatening litigation; changes in regulatory requirements in relation to our business and products; and the factors discussed under the heading “Risk Factors” in this press release. Readers are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on Forward-Looking Statements.

Forward-Looking Statements are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash flows as at and for periods ended on certain dates and to present information about management’s current expectations and plans relating to the future, and the reader is cautioned that the Forward-Looking Statements may not be appropriate for any other purpose. While we believe that the assumptions and expectations reflected in the Forward-Looking Statements are reasonable based on information currently available to management, there is no assurance that such assumptions and expectations will prove to have been correct. Forward-Looking Statements are made as of the date they are made and are based on the beliefs, estimates, expectations and opinions of management on that date. We undertake no obligation to update or revise any Forward-Looking Statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such Forward-Looking Statements. The Forward-Looking Statements contained in this press release and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf are expressly qualified in their entirety by these cautionary statements.






Use of Non-GAAP Measures

Cronos Group reports its financial results in accordance with accounting principles generally recognized in the United States (“GAAP”). However, management use various measures which are not recognized under GAAP such as adjusted operating loss, adjusted operating loss by business segment and adjusted earnings before interest, tax depreciation and amortization (“Adjusted EBITDA”). These non-GAAP measures may not be calculated the same as similarly titled measures used by other companies and should thus be considered as supplemental in nature and not considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. Management believes these measures provide useful insight into underlying trends and results and will provide a more meaningful comparison of year-over-year results, going forward. Management uses these metrics for planning, forecasting and evaluating business and financial performance, including allocating resources. Reconciliations of each non-GAAP measure to US GAAP recognized measures are provided below.





Cronos Group Inc.
Consolidated Balance Sheets
As of December 31, 2019 and 2018
(In thousands of USD)
 
As of December 31,
 
2019
 
2018
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
1,199,693

 
$
23,927

Short-term investments
306,347

 

Accounts receivable, net of current expected credit loss ("CECL") of $136 and $37 as of December 31, 2019 and 2018, respectively
4,638

 
3,052

Other receivables
7,232

 
2,507

Current portion of loans receivable
4,664

 
230

Prepaids and other assets
9,395

 
2,842

Inventory
38,043

 
7,386

Total current assets
1,570,012

 
39,944

Investments in equity accounted investees
557

 
2,960

Advances to joint ventures
19,437

 
4,689

Other investments

 
297

Loan receivable
44,967

 

Property, plant and equipment
161,809

 
125,905

Right-of-use assets
6,546

 
125

Intangible assets
72,320

 
8,237

Goodwill
214,794

 
1,314

Total assets
$
2,090,442

 
$
183,471

 
 
 
 
Liabilities
 
 
 
Current liabilities
 
 
 
Accounts payable and other liabilities
$
35,301

 
$
33,239

Current portion of lease obligation
427

 
30

Derivative liabilities (Note 28)
297,160

 

Total current liabilities
332,888

 
33,269

Due to non-controlling interests
1,844

 
1,566

Lease obligation
6,680

 
87

Total liabilities
341,412

 
34,922

Commitments and contingencies (Note 21 & 22)
 
 
 
Shareholders’ equity
 
 
 
Share capital (authorized: 2019 and 2018 – unlimited; issued: 2019 – 348,817,472; 2018 – 178,720,022)
561,165

 
175,001

Additional paid-in capital
23,234

 
11,263

Retained earnings (accumulated deficit)
1,137,646

 
(27,945
)
Accumulated other comprehensive income (loss)
27,838

 
(9,870
)
Total equity attributable to shareholders of Cronos Group
1,749,883

 
148,449

Non-controlling interests
(853
)
 
100

Total shareholders' equity
1,749,030

 
148,549

Total liabilities and shareholders' equity
$
2,090,442

 
$
183,471

See notes to consolidated financial statements.





Cronos Group Inc.
Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)
For the years ended December 31, 2019, 2018, and 2017
(In thousands of USD, except share and per share amounts)
 
Year ended December 31,
 
2019
 
2018
 
2017
Net revenue, before excise taxes
$
25,639

 
$
13,234

 
$
3,147

Excise taxes
(1,889
)
 
(1,113
)
 

Net revenue
23,750

 
12,121

 
3,147

Cost of sales
12,174

 
5,908

 
1,573

Inventory write-down
29,440

 

 

Gross profit (loss)
(17,864
)
 
6,213

 
1,574

Operating expenses
 
 
 
 
 
Sales and marketing
23,045

 
3,173

 
443

Research and development
12,155

 
1,814

 

General and administrative
49,372

 
13,447

 
4,904

Share-based payments
11,619

 
8,151

 
1,931

Depreciation and amortization
2,101

 
969

 
417

Repurposing charges
5,328

 

 

Total operating expenses
103,620

 
27,554

 
7,695

Operating loss
(121,484
)
 
(21,341
)
 
(6,121
)
Other income (expense)
 
 
 
 
 
Interest income (expense)
27,982

 
83

 
(97
)
Financing and transaction costs
(32,208
)
 

 

Gain on revaluation of derivative liabilities (Note 28)
1,276,819

 

 

Gain on revaluation of financial liabilities
197

 

 

Gain on disposal of Whistler
15,530

 

 

Gain on other investments
747

 
164

 
3,746

Share of income (loss) from investments in equity accounted investees
(2,009
)
 
(723
)
 
127

Total other income (expense)
1,287,058

 
(476
)
 
3,776

Income (loss) before income taxes
1,165,574

 
(21,817
)
 
(2,345
)
Income tax recovery

 

 
(862
)
Net income (loss)
$
1,165,574

 
$
(21,817
)
 
$
(1,483
)
Net income (loss) attributable to:
 
 
 
 
 
Cronos Group
$
1,166,506

 
$
(21,636
)
 
$
(1,483
)
Non-controlling interests
(932
)
 
(181
)
 
0

 
$
1,165,574

 
$
(21,817
)
 
$
(1,483
)
Other comprehensive income (loss)
 
 
 
 
 
Foreign exchange gain (loss) on translation
$
37,687

 
$
(12,337
)
 
$
2,456

Gain on revaluation and disposal of other investments, net of tax

 
3

 
415

Unrealized gains reclassified to net income

 

 
(12
)
Total other comprehensive income (loss)
37,687

 
(12,334
)
 
2,859

Comprehensive income (loss)
$
1,203,261

 
$
(34,151
)
 
$
1,376

Comprehensive income (loss) attributable to:
 
 
 
 
 
Cronos Group
$
1,204,214

 
$
(33,964
)
 
$
1,376

Non-controlling interests
(953
)
 
(187
)
 

 
$
1,203,261

 
$
(34,151
)
 
$
1,376

Net income (loss) per share
 
 
 
 
 
Basic
$
3.76

 
$
(0.13
)
 
$
(0.01
)
Diluted
3.33

 
(0.13
)
 
(0.01
)
Weighted average number of outstanding shares
 
 
 
 
 
Basic
310,067,179

 
172,269,170

 
134,803,542

Diluted
342,811,992

 
172,269,170

 
176,789,161

See notes to consolidated financial statements.






Cronos Group Inc.
Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)
For the quarters ended December 31, 2019 and 2018
(In thousands of USD, except share and per share amounts)
 
 
Three months ended December 31,
 
 
2019
 
2018
Net revenue, before excise taxes
$
7,915

 
5,398

Excise taxes
 
(607
)
 
(1,113
)
Net revenue
 
7,308

 
4,285

Cost of sales
 
3,667

 
2,405

Inventory write-down
 
24,016

 

Gross profit
 
(20,375
)
 
1,880

Operating expenses
 
 
 
 
Sales and marketing
 
13,324

 
1,970

Research and development
 
6,079

 
1,814

General and administrative
 
14,314

 
4,544

Share-based payments
 
3,670

 
2,183

Depreciation and amortization
 
779

 
240

Repurposing costs
 
5,328

 

Total operating expenses
 
43,494

 
10,751

Operating loss
 
(63,869
)
 
(8,871
)
Other income (expense)
 
 
 
 
Interest income (expense)
 
7,514

 
177

Financing and transaction cost
 
(524
)
 

Gain (loss) on revaluation of derivative liabilities (Note 11)
 
118,811

 

Gain on other investments
 
2

 
(225
)
Gain on disposal of Whistler Medical Marijuana Company
 
32

 
(15
)
Share of income (loss) from investments in equity accounted investees
 
(505
)
 
(758
)
Gain (loss) on revaluation of financial liabilities
 
50

 

Total other income (expense)
 
125,380

 
(821
)
Income (loss) before income taxes
 
61,511

 
(9,692
)
Income tax recovery
 
58

 

Net income (loss)
 
61,569

 
(9,692
)
Net income (loss) attributable to:
 
 
 
 
Cronos Group
$
62,005

 
(9,558
)
Non-controlling interests
 
(436
)
 
(134
)
 
$
61,569

 
(9,692
)
Other comprehensive income (loss)
 
 
 
 
Foreign exchange gain (loss) on translation
$
28,264

 
(8,511
)
Gain on revaluation and disposal of other investments, net of tax
 

 
3

Total other comprehensive income (loss)
$
28,264

 
(8,508
)
Comprehensive income (loss)
 
 
 
 
Comprehensive income (loss) attributable to:
 
 
 
 
Cronos Group
$
90,284

 
(18,056
)
Non-controlling interests
 
(451
)
 
(144
)
 
$
89,833

 
(18,200
)
Net income (loss) per share
 
 
 
 
Basic
 
$
0.18

 
$
(0.05
)
Diluted
 
0.16

 
(0.05
)
Weighted average number of outstanding shares
 
 
 
 
Basic
 
345,981,864

 
178,720,022

Diluted
 
375,318,457

 
178,720,022








Cronos Group Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2019, 2018, and 2017
(In thousands of USD)
 
 
Year ended December 31,
 
2019
 
2018
 
2017
Operating activities
 
 
 
 
 
Net income (loss)
$
1,165,574

 
$
(21,817
)
 
$
(1,483
)
Items not affecting cash:
 
 
 
 
 
Inventory write-down
29,440

 

 

Share-based payments
11,619

 
8,151

 
1,931

Depreciation and amortization
3,913

 
1,937

 
768

Share of loss (income) from investments in equity accounted investees
2,009

 
723

 
(127
)
Non-cash repurposing costs
4,439

 

 

Gain on disposal of Whistler
(15,530
)
 

 

Gain on revaluation of derivative liabilities (Note 28)
(1,276,819
)
 

 

Gain on revaluation of financial liabilities
(197
)
 

 

Gain on other investments
(747
)
 
(164
)
 
(3,746
)
Deferred income tax expense (recovery)

 

 
(862
)
Foreign exchange gain
115

 
(9
)
 

Non-cash sales and marketing
410

 

 

Non-cash interest
(25
)
 

 

Net changes in non-cash working capital
(54,208
)
 
3,662

 
(759
)
Cash flows used in operating activities
(130,007
)
 
(7,517
)
 
(4,278
)
Investing activities
 
 
 
 
 
Purchase of short-term investments, net
(299,923
)
 

 

Repayment of purchase price liability

 

 
(1,997
)
Investments in equity accounted investees
(1,658
)
 
(480
)
 
(830
)
Investment in Vivo

 

 
(783
)
Proceeds from sale of other investments
19,614

 
747

 
8,388

Payment to exercise Vivo warrants

 
(88
)
 
(1,749
)
Advances to joint ventures
(15,135
)
 
(5,358
)
 

Purchase of property, plant and equipment, net of disposals
(38,664
)
 
(88,308
)
 
(32,926
)
Payment of accrued interest on construction loan payable
(89
)
 
(143
)
 

Purchase of intangible assets
(289
)
 
(278
)
 

Acquisition of Redwood
(224,295
)
 

 

Advances on loans receivable
(43,337
)
 

 

Proceeds from repayment of loans receivable
237

 

 

Cash flows used in investing activities
(603,539
)
 
(93,908
)
 
(29,897
)
Financing activities
 
 
 
 
 
Repayment of lease obligations
(919
)
 

 

Proceeds from Altria Investment
1,809,556

 

 

Proceeds from exercise of Top-up Rights
67,051

 

 

Proceeds from exercise of warrants and options
1,455

 
2,612

 
1,697

Withholding taxes paid on share appreciation rights
(915
)
 
(16
)
 

Proceeds from share issuance

 
115,510

 
38,542

Share issuance costs
(3,722
)
 
(7,577
)
 
(2,114
)
Proceeds from construction loan payable

 
11,583

 
5,022

Repayment of construction loan payable
(15,971
)
 

 

Advance under Credit Facility
48,715

 

 

Repayment of Credit Facility
(48,309
)
 

 

Repayment of mortgage payable

 

 
(3,084
)
Transaction costs paid on construction loan payable

 

 
(989
)
Cash flows provided by financing activities
1,856,941

 
122,112

 
39,074

Effect of foreign currency translation on cash and cash equivalents
52,371

 
(4,085
)
 
(152
)
Increase in cash and cash equivalents
1,175,766

 
16,602

 
4,747

Cash and cash equivalents, beginning of period
23,927

 
7,325

 
2,578

Cash and cash equivalents, end of period
$
1,199,693

 
$
23,927

 
$
7,325







See notes to consolidated financial statements.
Cronos Group Inc.
Consolidated Statements of Cash Flows
For the quarters ended December 31, 2019 and 2018
(In thousands of USD)

 
 
Three months December 31,
 
 
2019
 
2018
Operating activities
 
 
 
Net income (loss)
61,570

 
(9,692
)
Items not affecting cash:
 
 
 
Inventory write down
24,016

 

Share-based payments
3,670

 
2,182

Depreciation and amortization
957

 
928

Share of loss (income) from investments in equity accounted investees
505

 
773

Non-cash repurposing costs
4,439

 

Gain on disposal of Whistler
(33
)
 

Gain on revaluation of derivative liabilities
(118,811
)
 

Gain on revaluation of financial liabilities
(50
)
 

Gain on other investments
(2
)
 
225

Deferred income tax (recovery) expense
(58
)
 

Foreign exchange gain
(692
)
 
(1
)
Non-cash sales and marketing
410

 

Non-cash interest
(25
)
 

Net changes in non-cash working capital
(29,110
)
 
23,882

Cash flows used in operating activities
(53,214
)
 
18,297

Investing activities
 
 
 
Purchase of short term investments
84,365

 

Repayment of purchase price liability

 

Investments in equity accounted investees

 
(326
)
Proceeds from sale of other investments

 
(10
)
Payment to exercise Vivo Cannabis ("Vivo") warrants

 
1

Advances to joint ventures
816

 
(2,291
)
Purchase of property, plant and equipment
(1,042
)
 
(32,625
)
Payments of interest on construction in progress

 
2

Purchase of intangible assets
285

 
(51
)
Acquisition of Redwood
2,929

 

Advances on loans receivable
(10,325
)
 

Proceeds from repayment of loans receivable
(1
)
 

Cash assumed on acqusition
(2,957
)
 

Cash assumed on acquisition of Cronos Israel

 
(998
)
Cash flows used in investing activities
74,070

 
(36,298
)
Financing activities
 
 
 
Advance from non-controlling interests
(183
)
 

Repayment of lease liabilities
(505
)
 

Proceeds from Altria Investment

 

Proceeds from exercise of Top-up Rights
35,485

 

Proceeds from exercise of options and warrants

 
(15
)
Withholding taxes paid on share appreciation rights
(54
)
 
(16
)
Proceeds from share issuance

 

Share issuance costs

 
26

Proceeds from construction loan payable

 
11,583

Repayment of construction loan payable

 

Advance under Credit Facility

 

Repayment of Credit Facility

 

Repayment of mortgage payable

 

Transaction costs paid on construction loan payable

 

Cash flows provided by financing activities
34,743

 
11,578

Effect of foreign currency translation on cash and cash equivalents
29,680

 
(1,782
)
Increase (decrease) in cash and cash equivalents
85,279

 
(8,205
)
Cash and cash equivalents, beginning of period
1,114,414

 
32,132

Cash and cash equivalents, end of period
$
1,199,693

 
$
23,927







Non-GAAP Measures

The Company uses certain measures that are not recognized under GAAP. These financial measures are not recognized under GAAP, do not have a standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as a supplement to those GAAP measures to provide additional information regarding our results of operations from management’s perspective. Accordingly, non-GAAP measures should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. All non-GAAP measures presented in this press release are reconciled to their closest reported GAAP measure. Reconciliations of historical adjusted financial measures to corresponding GAAP measures are provided below.

Adjusted operating loss
Management reviews operating loss on an adjusted basis, which excludes certain income and expense items that management believes are not part of underlying operations. These items include repurposing charges. Management does not view these items to be part of underlying results as they may be highly variable, may be infrequent, are difficult to predict and can distort underlying business trends and results.

Management believes that adjusted operating loss provides useful insight into underlying business trends and results and provides a more meaningful comparison of year-over-year results. Management uses adjusted operating loss for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets.
(In thousands of USD)
 
Three months ended December 31,
 
Year ended December 31,
 
 
2019
 
2018
 
2019
 
2018
Reported operating loss
 
$
(63,869
)
 
$
(8,871
)
 
$
(121,484
)
 
$
(21,341
)
Adjustments
 
 
 
 
 
 
 
 
Repurposing charges
 
7,268

 

 
7,268

 

Adjusted operating loss
 
(56,601
)
 
(8,871
)
 
(114,216
)
 
(21,341
)

Adjusted operating loss by business segment
Management reviews segment operating loss, which excludes corporate expenses, and adjusted operating loss by business segment, which further excludes certain income and expense items that management believes are not part of the underlying segment’s operations. Corporate expenses are expenses that relate to the consolidated business and not to an individual operating segment while the income and expenses items include repurposing charges. Management does not view the income and expense items above to be part of underlying results of the segment as they may be highly variable, may be infrequent, are difficult to predict and can distort underlying business trends and results.

Management believes that adjusted operating loss by business segment provides useful insight into underlying segment trends and results and will provide a more meaningful comparison of year-over-year results, going forward. Management uses adjusted operating loss by business segment for planning, forecasting and evaluating segment performance, including allocating resources and evaluating results relative to employee compensation.

(In thousands of USD)
Year ended December 31, 2019
 
US
 
RoW
 
Total Segments
 
Corporate Expenses
 
Total
Reported operating loss
$
(2,777
)
 
$
(106,928
)
 
$
(109,705
)
 
$
(11,779
)
 
$
(121,484
)
Adjustments
 
 
 
 
 
 
 
 
 
Repurposing charges

 
7,268

 
7,268

 

 
7,268

Adjusted operating loss
(2,777
)
 
(99,660
)
 
(102,437
)
 
(11,779
)
 
(114,216
)






(In thousands of USD)
Three months December 31, 2019
 
US
 
RoW
 
Total Segments
 
Corporate Expenses
 
Total
Reported operating loss
$
(1,797
)
 
$
(59,066
)
 
$
(60,863
)
 
$
(3,006
)
 
$
(63,869
)
Adjustments
 
 
 
 
 
 
 
 
 
Repurposing charges

 
7,268

 
7,268

 

 
7,268

Adjusted operating loss
(1,797
)
 
(51,798
)
 
(53,595
)
 
(3,006
)
 
(56,601
)


Adjusted EBITDA
Adjusted earnings before interest, tax depreciation and amortization (“Adjusted EBITDA”) is used by management as a supplemental measure to review and assess operating performance and trends on a comparable basis with the rest of the industry, although our measure of Adjusted EBITDA may not be directly comparable to similar measures used by other companies.

Management reviews EBITDA on an adjusted basis, which excludes net income attributable to non-controlling interests, repurposing charges and special items. Special items consist of financing and transaction costs, other non-cash gains (losses) and other unforeseeable, non-recurring charges which management has described below.
(In thousands of USD)
 
Three months December 31,
 
Year ended December 31,
 
 
2019
 
2018
 
2019
 
2018
Net income (loss)
 
$
61,569

 
$
(9,692
)
 
$
1,165,574

 
$
(21,817
)
Adjustments
 
 
 
 
 
 
 
 
Interest expense (income)
 
(7,514
)
 
(177
)
 
(27,982
)
 
(83
)
Income tax expense (recovery)
 

 

 

 

Repurposing charges
 
7,268

 

 
7,268

 

Financing and transaction costs
 
524

 

 
32,208

 

Loss (gain) on revaluation of derivative liabilities
 
(118,811
)
 

 
(1,276,819
)
 

Loss (gain) on revaluation of financial liabilities
 
(50
)
 

 
(197
)
 

Loss (gain) on disposal of investments
 
(34
)
 
240

 
(16,277
)
 
(164
)
Share of loss (income) from equity accounted investees
 
505

 
758

 
2,009

 
723

Share-based payments
 
3,670

 
2,183

 
11,619

 
8,151

Adjusted EBIT
 
(52,873
)
 
(6,688
)
 
(102,597
)
 
(13,190
)
Adjustments
 
 
 
 
 
 
 
 
Depreciation and amortization
 
957

 
928

 
3,913

 
1,937

Adjusted EBITDA
 
(51,916
)
 
(5,760
)
 
(98,684
)
 
(11,253
)

Special Items

Management does not view any of the following special items to be part of the underlying results as they may be highly variable, may be infrequent, may be unpredictable and may distort underlying business results and trends.

Peace Natural Campus repurposing charges
In Q4 of 2019, Cronos Group recorded pre-tax charges of $7.2 million related to the Company’s decision to redesign its efforts at the Peace Naturals Campus, which includes impairment costs, inventory write-down, and employee termination benefits.

Financing and transaction costs
In Full-Year 2019, Cronos Group recorded pre-tax charges of $32.2 million related to the Altria Investment; acquisition related costs associated with the Cronos Fermentation and Redwood transactions; and a term loan credit facility.





No financing and transaction costs were recorded in 2018.

Gain on revaluation of derivative liabilities
In Q4 2019, Cronos Group recorded a pre-tax unrealized gain of $118.8 million primarily resulting from the non-cash change in the fair value of financial derivative liabilities associated with the investment by Altria Group, Inc. (“Altria”).
In Full-Year 2019, Cronos Group recorded a pre-tax unrealized gain of $1,276.8 million primarily resulting from the non-cash change in the fair value of financial derivative liabilities associated with the investment by Altria.

Gain on disposal of investments
In Full-Year 2019, Cronos Group recorded a pre-tax gain of $21.5 million primarily related to the disposal of shares in Whistler Marijuana Company (“Whistler”) to Aurora Cannabis Inc. (“Aurora”) in connection with Aurora’s acquisition of Whistler.
In Full-Year 2018, Cronos Group recorded a pre-tax gain of $0.2 million related to the disposal of its investment in AB Cann Global Corporation.

Foreign currency exchange rates

All currency amounts in this Press Release are stated in U.S. dollars (“USD”), which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to USD. The assets and liabilities of the Company's foreign operations are translated into USD at the exchange rate in effect as of December 31, 2019 and December 31, 2018. Transactions affecting shareholders' equity are translated at historical foreign exchange rates. The consolidated statements of net income (loss) and comprehensive income (loss) and the consolidated statements of cash flows of the Company's foreign operations are translated into USD by applying the average foreign exchange rate in effect for the reporting period.

The exchange rates used to translate from USD to Canadian dollars (“C$”) is shown below:
(Exchange rates are shown as C$ per $)
As at December 31,
 
2019
 
2018
 
2017
Average rate
1.3268
 
 
1.2955
 
 
1.2969
 
Spot rate
1.2990
 
 
1.3639
 
 
1.2571
 

For further information, please contact:
Anna Shlimak
Investor Relations
Tel: (416) 504-0004
investor.relations@thecronosgroup.com


Exhibit
Exhibit 99.2

NOTICE TO READER
As of June 30, 2019, Cronos Group Inc. (the “Company”) determined that it no longer qualified as a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act of 1933, which means that the Company, as of January 1, 2020, has been required to comply with all of the periodic disclosure and current reporting requirements of the Securities Exchange Act of 1934 applicable to U.S. domestic issuers, such as Forms 10-K, 10-Q and 8-K, rather than the forms the Company has filed with the Securities and Exchange Commission (“SEC”) in the past as a foreign private issuer, such as Forms 40-F and 6-K.
The Company is accordingly now required to prepare its financial statements filed with the SEC in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). As required pursuant to section 4.3(4) of National Instrument 51-102 - Continuous Disclosure Obligations, the Company must restate its amended and restated interim financial reports for the fiscal year ended December 31, 2019 in accordance with U.S. GAAP, such amended and restated interim financial reports having previously been prepared in accordance with the International Financial Reporting Standards as issued by the International Accounting Standards Board.
The attached unaudited condensed consolidated financial statements for the three months ended March 31, 2019 and 2018 have been prepared in accordance with U.S. GAAP.



















https://cdn.kscope.io/4037cf4517a5f1325c1521ebc5a0e5f0-cronoslogoa05.jpg


CRONOS GROUP INC.
Consolidated Financial Statements

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

(In thousands of U.S. dollars)





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

Table of Contents

Condensed Consolidated Balance Sheet as of March 31, 2019 and December 31, 2018                     1
Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)
for the Three Months Ended March 31 2019 and 2018                                 2
Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018    3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018        4
Notes to Condensed Consolidated Financial Statements                                5



Cronos Group Inc.
Consolidated Balance Sheets
As of March 31, 2019
(In thousands of U.S. dollars, expect share and per share amounts)



As of

March 31, 2019
 
December 31, 2018
Assets


 


Current assets

 

Cash and cash equivalents
$
1,811,531

 
$
23,927

Accounts receivable, net of current expected credit loss ("CECL") of $166 and $37 as of March 31, 2019 and December 31, 2018, respectively
2,068

 
3,052

Other receivables
6,270

 
2,507
Prepaids and other assets
3,815

 
2,842

Inventory
11,123

 
7,386

Current portion of loan receivable

 
230

Total current assets
1,834,807

 
39,944

Investments in equity accounted investees
1,637

 
2,960

Advances to joint ventures
16,420

 
4,689

Other investments

 
297

Property, plant and equipment
138,261

 
125,905

Right-of-use assets
1,472

 
125

Intangible assets
8,305

 
8,237

Goodwill
1,342

 
1,314

Total assets
$
2,002,244

 
$
183,471



 

Liabilities

 

Current liabilities

 

Bank indebtedness
$
316

 
$

Accounts payable and other liabilities
38,722

 
33,239

Current portion of lease obligation
100

 
30

Derivative liabilities (Note 10)
1,246,708

 

Total current liabilities
1,285,846

 
33,269

Due to non-controlling interests
1,684

 
1,566

Lease obligation
1,369

 
87

Total liabilities
$
1,288,899

 
$
34,922

Commitments and contingencies (Note 17)
 
 
 
Shareholders' equity (deficit)

 

Share capital (authorized: 2019 and 2018 – unlimited; issued: 2019 – 333,020,377; 2018 – 178,720,022)
$
421,340

 
$
175,001

Additional paid-in capital
12,244

 
11,263

Retained earnings (accumulated deficit)
285,736

 
(27,945
)
Accumulated other comprehensive loss
(5,975
)
 
(9,870
)
Total equity attributable to shareholders of Cronos Group
713,345

 
148,449

Non-controlling interests

 
100

Total shareholders' equity
713,345

 
148,549

Total liabilities and shareholders' equity
$
2,002,244

 
$
183,471

See notes to consolidated financial statements.
    

1

Cronos Group Inc.
Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)
For the three months ended March 31, 2019 and 2018
(In thousands of U.S. dollars, except share and per share amounts)

 
Three months ended March 31,
 
2019
 
2018
Net revenue, before excise taxes
$
3,391

 
$
2,329

Excise taxes
(387
)
 

Net revenue
3,004

 
2,329

Cost of sales
1,449

 
1,239

Gross profit
1,555

 
1,090

Operating expenses
 
 
 
Sales and marketing
1,128

 
463

Research and development
1,171

 

General and administrative
7,293

 
1,947

Share-based payments
1,771

 
1,862

Depreciation and amortization
318

 
225

Total operating expenses
11,681

 
4,497

Operating loss
(10,126
)
 
(3,407
)
Other income (expense)
 
 
 
Interest income (expense)
2,087

 
(18
)
Financing and transaction cost
(22,233
)
 

Gain (loss) on revaluation of derivative liabilities (Note 10)
328,216

 

Gain on disposal of Whistler Medical Marijuana Company
15,498

 

Gain on other investments
745

 
168

Share of income (loss) from investments in equity accounted investees
(198
)
 
33

Total other income (expense)
324,115

 
183

Income (loss) before income taxes
313,989

 
(3,224
)
Income tax expense

 

Net income (loss)
$
313,989

 
$
(3,224
)
Net income (loss) attributable to:
 
 
 
Cronos Group
$
314,092

 
$
(3,224
)
Non-controlling interests
(103
)
 

 
$
313,989

 
$
(3,224
)
Other comprehensive income (loss)
 
 
 
Foreign exchange gain (loss) on translation
$
3,898

 
$
(3,088
)
Total other comprehensive income (loss)
3,898

 
(3,088
)
Comprehensive income (loss)
$
317,887

 
$
(6,312
)
Comprehensive income (loss) attributable to:
 
 
 
Cronos Group
$
317,987

 
$
(6,312
)
Non-controlling interests
(100
)
 

 
$
317,887

 
$
(6,312
)
Net income (loss) per share
 
 
 
Basic
$
1.43

 
$
(0.02
)
Diluted
0.33

 
(0.02
)
Weighted average number of outstanding shares
 
 
 
Basic
218,949,590

 
157,054,891

Diluted
271,086,575

 
157,054,891

See notes to consolidated financial statements.



2

Cronos Group Inc.
Consolidated Statements of Stockholder’s Equity (Deficit)
For the three months ended March 31, 2019 and 2018
(In thousands of U.S. dollars, except share amounts)


 
Number of shares
 
Share capital
 
Shares to be issued
 
Additional paid-in capital
 
 Restricted earnings (accumulated deficit)
 
Accumulated other comprehensive income (loss)
 
Non-controlling interests
 
Total shareholders’ equity (deficit)
Balance at January 1, 2019
178,720,022

 
$
175,001

 
$

 
$
11,263

 
$
(27,945
)
 
$
(9,870
)
 
$
100

 
$
148,549

Shares issued
149,831,154

 
248,302

 

 

 

 

 

 
248,302

Share issuance costs

 
(3,642
)
 

 

 

 

 

 
(3,642
)
Warrants exercised
4,390,961

 
1,417

 

 
(529
)
 

 

 

 
888

Vesting of options

 

 

 
1,771

 

 

 

 
1,771

Options exercised
375

 
1

 

 

 

 

 

 
1

Share appreciation rights (“SARs”) exercised
77,865

 
261

 

 
(261
)
 
(411
)
 

 

 
(411
)
Net income (loss)

 

 

 

 
314,092

 

 
(103
)
 
313,989

Other comprehensive loss

 

 

 

 

 
3,895

 
3

 
3,898

Balance at March 31, 2019
333,020,377

 
$
421,340