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

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, due to three wholesale transactions (one in the three months ended March 31, 2019 and two in the three months ended September 30, 2019) that were 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 28 of the amended and restated unaudited condensed interim consolidated statements for more detail.


















https://cdn.kscope.io/d3497063ca51ea86e7254d62674ebdff-cronoslogoa08.jpg


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

For the Three and Nine Months ended September 30, 2019 and September 30, 2018

(In thousands of Canadian dollars)






Cronos Group Inc.
Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2019 and September 30, 2018

Table of Contents

Amended and Restated Unaudited Condensed Interim Consolidated Statements of Financial Position
1
Amended and Restated Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Income (Loss)
2
Amended and Restated Unaudited Condensed Interim Consolidated Statements of Changes in Equity
3
Amended and Restated Unaudited Condensed Interim Consolidated Statements of Cash Flows
4
Notes to the Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
5




Cronos Group Inc.
Amended and Restated Unaudited Condensed Interim Consolidated Statements of Financial Position
As at September 30, 2019 and December 31, 2018
(in thousands of CDN $)


 
Notes
 
As at September 30, 2019 (Restated - Note 28)
 
As at December 31, 2018
Assets
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
Cash and cash equivalents
23(a)
 
$
1,475,459

 
$
32,634
Short-term investments
23(a)
 
 
517,064

 
 
-
Interest receivable
23(a)
 
 
3,829

 
 
-
Accounts receivable
23(a)
 
 
6,935

 
 
4,163
Sales taxes receivable
 
 
 
3,999

 
 
3,419
Current portion of loans receivable
7,23(a)
 
 
6,083

 
 
314
Prepaid expenses and other assets
 
 
 
11,742

 
 
3,876
Biological assets
4
 
 
2,101

 
 
9,074
Inventory
4
 
 
54,138

 
 
11,584
Total current assets
 
 
 
2,081,350

 
 
65,064
Advances to joint ventures
5,23(a)
 
 
26,367

 
 
6,395
Net investments in equity accounted investees
5
 
 
1,389

 
 
4,038
Other investments
6
 
 
-

 
 
705
Loans receivable
7,23(a)
 
 
44,082

 
 
-
Property, plant and equipment
9
 
 
216,277

 
 
171,720
Right-of-use assets
3,12
 
 
7,957

 
 
171
Intangible assets
10
 
 
96,047

 
 
11,234
Goodwill
8,10
 
 
284,227

 
 
1,792
Total assets
 
 
$
2,757,696

 
$
261,119
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
Accounts payable and other liabilities
23(b)
 
 
54,391

 
 
15,372
Holdbacks payable
23(b)
 
 
-

 
 
7,887
Government remittances payable
23(b)
 
 
738

 
 
1,123
Current portion of lease obligations
3,12,23(b)
 
 
420

 
 
41
Construction loan payable
13,23(b)
 
 
-

 
 
20,951
Derivative liabilities
14,23(b)
 
 
545,514

 
 
-
Total current liabilities
 
 
 
601,063

 
 
45,374
Lease obligations
3,12,23(b)
 
 
7,744

 
 
119
Due to non-controlling interests
11,23(b)
 
 
2,378

 
 
2,136
Deferred income tax liability
21
 
 
(298
)
 
 
1,850
Total liabilities
 
 
$
610,887

 
$
49,479
Shareholders' equity
 
 
 
 
 
 
 
Share capital
15(a)
 
 
693,620

 
 
225,500
Share-based reserve
16
 
 
11,808

 
 
7,789
Retained earnings (accumulated deficit)
 
 
 
1,442,016

 
 
(22,715)
Accumulated other comprehensive (loss) income
 
 
 
(98
)
 
 
930
Total equity attributable to shareholders of Cronos Group
 
 
 
2,147,346

 
 
211,504
Non-controlling interests
3,11
 
 
(537
)
 
 
136
Total shareholders' equity
 
 
 
2,146,809

 
 
211,640
Total liabilities and shareholders' equity
 
 
$
2,757,696

 
$
261,119
 
 
 
 

 
 
 
Commitments and contingencies
20
 
 
 
 
 
 
Subsequent events
29
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 and nine months ended September 30, 2019 and September 30, 2018
(in thousands of CDN $, except share and per share amounts)


 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Notes
 
2019 (Restated - Note 28)
 
2018
 
2019 (Restated - Note 28)
 
2018
Gross revenue
17
 
$
8,277

 
$
3,760

 
$
23,573

 
$
10,099

Excise taxes
 
 
(639
)
 
-

 
(1,704
)
 
-

Net revenue
 
 
7,638

 
3,760

 
21,869

 
10,099

Cost of sales
 
 
 
 
 
 
 
 
 
Cost of sales before fair value adjustments
 
 
4,618

 
1,688

 
11,307

 
4,509

Inventory write-down
4
 
4,929

 
-

 
4,929

 
-

Gross profit before fair value adjustments
 
 
(1,909
)
 
2,072

 
5,633

 
5,590

Fair value adjustments
 
 
 
 
 
 
 
 
 
Unrealized change in fair value of biological assets
4
 
10,015

 
(1,533
)
 
(7,562
)
 
(11,108
)
Realized fair value adjustments on inventory sold in the period
 
 
9,081

 
1,511

 
15,041

 
6,330

Total fair value adjustments
 
 
19,096

 
(22
)
 
7,479

 
(4,778
)
Gross profit (loss)
 
 
(21,005
)
 
2,094

 
(1,846
)
 
10,368

Operating expenses
 
 
 
 
 
 
 
 
 
Sales and marketing
 
 
6,057

 
598

 
12,915

 
1,548

Research and development
 
 
3,439

 
-

 
8,072

 
-

General and administrative
 
 
21,270

 
4,820

 
46,057

 
11,500

Share-based payments
16
 
3,125

 
1,223

 
5,864

 
2,947

Depreciation and amortization
9,10,12
 
907

 
330

 
2,052

 
938

Total operating expenses
 
 
34,798

 
6,971

 
74,960

 
16,933

Operating loss
 
 
(55,803
)
 
(4,877
)
 
(76,806
)
 
(6,565
)
Other income (expense)
 
 
 
 
 
 
 
 
 
Interest income (expense)
 
 
11,703

 
(62
)
 
26,954

 
(121
)
Financing and transaction costs
 
 
(8,031
)
 
-

 
(42,097
)
 
-

Gain on revaluation of derivative liabilities
14
 
835,079

 
-

 
1,535,405

 
-

Gain on revaluation of financial liabilities
16(d)
 
194

 
-

 
194

 
-

Share of (loss) income from equity accounted investees
5
 
(746
)
 
20

 
(2,001
)
 
64

Gain on disposal of Whistler
5
 
-

 
-

 
20,606

 
-

Gain on other investments
6
 
-

 
-

 
924

 
221

Total other income (expense)
 
 
838,199

 
(42
)
 
1,539,985

 
164

Income (loss) before income taxes
 
 
782,396

 
(4,919

 
1,463,179

 
(6,401
)
Deferred income tax (recovery) expense
21
 
(3,959
)
 
2,352

 
(2,112
)
 
1,197

Net income (loss)
 
 
$
786,355

 
$
(7,271
)
 
$
1,465,291

 
$
(7,598
)
Net income (loss) attributable to:
 
 
 
 
 
 
 
 
 
Cronos Group
 
 
$
786,727

 
$
(7,210
)
 
$
1,465,948

 
$
(7,537
)
Non-controlling interests
11
 
(372
)
 
(61
)
 
(657
)
 
(61
)
 
 
 
$
786,355

 
$
(7,271
)
 
$
1,465,291

 
$
(7,598
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
Gain (loss) on revaluation or disposal of other investments
6,21
 
$
(300
)
 
$
233

 
$
(197
)
 
$
237

Foreign exchange gain (loss) on translation of subsidiaries
2(a),11
 
(755
)
 
3

 
(843
)
 
3

Total other comprehensive income (loss)
 
 
(1,055
)
 
236

 
(1,040
)
 
240

Comprehensive income (loss)
 
 
$
785,300

 
$
(7,035
)
 
$
1,464,251

 
$
(7,358
)
Comprehensive income (loss) attributable to:
 
 
 
 
 
 
 
 
 
Cronos Group
 
 
$
785,686

 
$
(6,975
)
 
$
1,464,920

 
$
(7,298
)
Non-controlling interests
11
 
(386
)
 
(60
)
 
(669
)
 
(60
)
 
 
 
$
785,300

 
$
(7,035
)
 
$
1,464,251

 
$
(7,358
)
Earnings (loss) per share
 
 
 
 
 
 
 
 
 
Basic
18
 
$
2.32

 
$
(0.04
)
 
$
4.92

 
$
(0.04
)
Diluted
18
 
$
0.53

 
$
(0.04
)
 
$
1.22

 
$
(0.04
)
Weighted average number of outstanding shares
 
 
 
 
 
 
 
 
 
Basic
18
 
338,957,949

 
177,483,122

 
297,964,058

 
170,097,232

Diluted
18
 
369,268,672

 
177,483,122

 
333,618,691

 
170,097,232

 
 
 
 
 
 
 
 
 
 
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 nine months ended September 30, 2019 and September 30, 2018
(in thousands of CDN $, except number of share amounts)


 
 
 
 
 
 
 
 
 
 
 
Share-based reserve
 
 
 
 
 
 
 
 
 
 
 
Notes
 
Number of shares
 
Share capital
 
Shares to be issued
 
Warrants
 
Stock options
 
Restricted stock units
 
Retained
earnings (accumulated deficit) (Restated - Note 28)
 
Accumulated
other comprehensive income (loss)
 
Non-controlling interests
 
Total (Restated - Note 28)
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
 
-

 
 
-

 
 
-

 
 
-

 
 
-

 
 
-
 
 
(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
15(a)
 
154,917,740

 
 
408,516

 
 
-

 
 
-

 
 
-

 
 
-
 
 
-

 
 
-

 
 
-

 
 
408,516

Share issuance costs
15(a)
 
-

 
 
(5,007)

 
 
-

 
 
-

 
 
-

 
 
-
 
 
-

 
 
-

 
 
-

 
 
(5,007
)
Warrants exercised
16(a)
 
7,390,961

 
 
2,709

 
 
-

 
 
(794)

 
 
-

 
 
-
 
 
-

 
 
-

 
 
-

 
 
1,915

Vesting of options
16(b)
 
-

 
 
-

 
 
-

 
 
-

 
 
5,018

 
 
-
 
 
-

 
 
-

 
 
-

 
 
5,018

Options exercised
16(b)
 
8,217

 
 
36

 
 
-

 
 
-

 
 
(12)

 
 
-
 
 
-

 
 
-

 
 
-

 
 
24

Share appreciation rights exercised
16(b)
 
161,870

 
 
439

 
 
-

 
 
-

 
 
(439)

 
 
-
 
 
(1,149
)
 
 
-

 
 
-

 
 
(1,149
)
Vesting of restricted stock units
16(c)
 
-

 
 
-

 
 
-

 
 
-

 
 
-

 
 
246
 
 
-

 
 
-

 
 
-

 
 
246

Top-up Rights exercised
14(c),15(c)
 
2,565,397

 
 
61,427

 
 
-

 
 
-

 
 
-

 
 
-
 
 
-

 
 
-

 
 
-

 
 
61,427

Net income (loss)
 
 
-

 
 
-

 
 
-

 
 
-

 
 
-

 
 
-
 
 
1,465,948

 
 
-

 
 
(657
)
 
 
1,465,291

Other comprehensive income (loss)
 
 
-

 
 
-

 
 
-

 
 
-

 
 
-

 
 
-
 
 
-

 
 
(1,028
)
 
 
(12
)
 
 
(1,040
)
Balance at September 30, 2019
 
 
343,764,207

 
$
693,620

 
$
-

 
$
754

 
$
10,808

 
$
246
 
$
1,442,016

 
$
(98
)
 
$
(537
)
 
$
2,146,809

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2018
 
 
149,360,603

 
$
83,559

 
$
-

 
$
3,364

 
$
2,289

 
$
-
 
$
(3,724
)
 
$
880

 
$
-

 
$
86,368

Shares issued
15(a)
 
15,677,143

 
 
146,032

 
 
-

 
 
-

 
 
-

 
 
-
 
 
-

 
 
-

 
 
-

 
 
146,032

Share issuance costs
 
 
-

 
 
(9,479
)
 
 
-

 
 
-

 
 
-

 
 
-
 
 
-

 
 
-

 
 
-

 
 
(9,479
)
Shares to be issued
 
 
-

 
 
-

 
 
17

 
 
-

 
 
-

 
 
-
 
 
-

 
 
-

 
 
-

 
 
17

Warrants exercised
16(a)
 
13,114,336

 
 
4,616

 
 
-

 
 
(1,816
)
 
 
-

 
 
-
 
 
-

 
 
-

 
 
-

 
 
2,800

Vesting of options
16(b)
 
-

 
 
-

 
 
-

 
 
-

 
 
2,947

 
 
-
 
 
-

 
 
-

 
 
-

 
 
2,947

Options exercised
16(b)
 
366,638

 
 
721

 
 
-

 
 
-

 
 
(154
)
 
 
-
 
 
-

 
 
-

 
 
-

 
 
567

Share appreciation rights exercised
16(b)
 
181,726

 
 
100

 
 
-

 
 
-

 
 
(100
)
 
 
-
 
 
-

 
 
-

 
 
-

 
 
-

Non-controlling interests arising from Cronos Israel
 
 
-

 
 
-

 
 
-

 
 
-

 
 
-

 
 
-
 
 
-

 
 
-

 
 
371

 
 
371

Net loss
 
 
-

 
 
-

 
 
-

 
 
-

 
 
-

 
 
-
 
 
(7,537
)
 
 
-

 
 
(61
)
 
 
(7,598
)
Other comprehensive income
 
 
-

 
 
-

 
 
-

 
 
-

 
 
-

 
 
-
 
 
-

 
 
239

 
 
1

 
 
240

Balance at September 30, 2018
 
 
178,700,446

 
$
225,549

 
$
17

 
$
1,548

 
$
4,982

 
$
-
 
$
(11,261
)
 
$
1,119

 
$
311

 
$
222,265

 
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 and nine months ended September 30, 2019 and September 30, 2018
(in thousands of CDN $)



 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
Notes
 
2019
(Restated - Note 28)
 
2018
 
2019
(Restated - Note 28)
 
2018
Operating activities
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
 
$
786,355

 
$
(7,271)

 
$
1,465,291

 
$
(7,598)

Items not affecting cash and cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized change in fair value of biological assets
4
 
 
10,015

 
 
(1,533)

 
 
(7,562
)
 
 
(11,108)

Realized fair value adjustments on inventory sold in the period
 
 
 
9,081

 
 
1,511

 
 
15,041

 
 
6,330

Share-based payments
16
 
 
3,125

 
 
1,223

 
 
5,864

 
 
2,947

Depreciation and amortization
9,10,12
 
 
907

 
 
330

 
 
2,052

 
 
938

Depreciation relieved on inventory sold
22
 
 
1,566

 
 
145

 
 
2,164

 
 
361

Gain on revaluation of derivative liabilities
14
 
 
(835,079
)
 
 
-

 
 
(1,535,405
)
 
 
-

Gain on revaluation of financial liabilities
16(d)
 
 
(194
)
 
 
-

 
 
(194
)
 
 
-

Share of loss (income) from equity accounted investees
5
 
 
746

 
 
(20)

 
 
2,001

 
 
(64)

Inventory write-down
 
 
 
4,929

 
 
-

 
 
4,929

 
 
-

Gain on disposal of Whistler
5
 
 
-

 
 
-

 
 
(20,606
)
 
 
-

Gain on other investments
6
 
 
-

 
 
-

 
 
(924
)
 
 
(221)

Deferred income tax (recovery) expense
21
 
 
(3,959
)
 
 
2,352

 
 
(2,112
)
 
 
1,197

Foreign exchange loss (gain)
 
 
 
822

 
 
2

 
 
914

 
 
(10)

Net changes in non-cash working capital
22
 
 
(4,748
)
 
 
(9,377)

 
 
(33,870
)
 
 
(26,039)

Cash and cash equivalents used in operating activities
 
 
 
(26,434
)
 
 
(12,638)

 
 
(102,417
)
 
 
(33,267)

Investing activities
 
 
 
 
 
 
 
 
 
 
 
 
 
Maturity (purchase) of short-term investments, net
 
 
 
227,872

 
 
-

 
 
(517,064
)
 
 
-

Advances to joint ventures
5
 
 
93

 
 
(2,674)

 
 
(21,200
)
 
 
(2,674)

Investments in equity accounted investees
5
 
 
-

 
 
(201)

 
 
(2,200
)
 
 
(201)

Proceeds from sale of other investments
6
 
 
-

 
 
-

 
 
26,078

 
 
967

Payment to exercise ABcann warrants
6
 
 
-

 
 
-

 
 
-

 
 
(113)

Advances on loans receivable
7
 
 
(27,450
)
 
 
-

 
 
(43,800
)
 
 
-

Proceeds from repayment of loans receivable
7
 
 
314

 
 
-

 
 
314

 
 
-

Purchase of property, plant and equipment
8
 
 
(22,055
)
 
 
(34,229)

 
 
(49,954
)
 
 
(71,896)

Purchase of intangible assets
9
 
 
(137
)
 
 
(125)

 
 
(765
)
 
 
(294)

Acquisition of Redwood
8
 
 
(301,368
)
 
 
-

 
 
(301,368
)
 
 
-

Cash assumed on acquisition
8,11
 
 
3,922

 
 
1,304

 
 
3,922

 
 
-

Cash and cash equivalents used in investing activities
 
 
 
(118,809
)
 
 
(35,925)

 
 
(906,037
)
 
 
(74,211)

Financing activities
 
 
 
 
 
 
 
 
 
 
 
 
 
Advance from non-controlling interests
11
 
 
129

 
 
-

 
 
242

 
 
-

Repayment of lease obligations
12
 
 
(336
)
 
 
-

 
 
(552
)
 
 
-

Repayment of construction loan payable
13
 
 
-

 
 
-

 
 
(21,311
)
 
 
-

Payment of accrued interest on construction loan payable
13
 
 
-

 
 
-

 
 
(121
)
 
 
(185
)
Proceeds from Altria Investment
14,15(a)
 
 
-

 
 
-

 
 
2,434,757

 
 
-

Proceeds from share issuance
15(a)
 
 
-

 
 
-

 
 
-

 
 
146,993

Share issuance costs
15(a)
 
 
(5
)
 
 
(35
)
 
 
(5,007
)
 
 
(9,479
)
Proceeds from exercise of warrants and options
16(a),16(b)
 
 
7

 
 
471

 
 
1,939

 
 
2,423

Withholding taxes paid on share appreciation rights
16(b)
 
 
(33
)
 
 
-

 
 
(1,149
)
 
 
-

Proceeds from exercise of Top-up Rights
14(c),15(a)
 
 
40,860

 
 
-

 
 
41,688

 
 
-

Cash and cash equivalents provided by financing activities
 
 
 
40,622

 
 
436

 
 
2,450,486

 
 
139,752

Net change in cash and cash equivalents
 
 
 
(104,621
)
 
 
(48,127
)
 
 
1,442,032

 
 
32,274

Cash and cash equivalents - beginning of period
 
 
 
1,579,231

 
 
89,609

 
 
32,634

 
 
9,208

Effects of foreign exchange on cash and cash equivalents
 
 
 
849

 
 
-

 
 
793

 
 
-

Cash and cash equivalents - end of period
 
 
$
1,475,459

 
$
41,482

 
$
1,475,459

 
$
41,482

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental cash flow information
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest paid
 
 
$
77

 
 
189

 
$
829

 
 
684

Interest received
 
 
 
2,402

 
 
-

 
 
12,456

 
 
-

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 and nine months ended September 30, 2019 and September 30, 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 ("NASDAQ") and on the Toronto Stock Exchange ("TSX") under the ticker symbol "CRON".
 
Cronos Group is an innovative global cannabinoid company, with an international supply chain 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 platform, two adult-use brands, COVE™ and Spinach™, and Lord Jones™, a hemp-derived cannabidiol ("CBD") personal care brand. 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. One of these strategic joint ventures is considered a subsidiary for financial reporting purposes, refer to Note 11.

2.
Basis of presentation
 
 
 
 
 
 
 
These amended and restated unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019 and September 30, 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 ("IASB") 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 of the Company (the "Board") on March 29, 2020.



5

Cronos Group Inc.
Notes to Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2019 and September 30, 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 are comprised of the financial results of the Company and its wholly-owned subsidiaries, which are the entities over which the Company has control. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases. Where the Company does not have a controlling interest but has the ability to exert significant influence, the equity method is used. The Company consolidates the financial results of the following entities, which the Company controls:
Subsidiaries
 
Jurisdiction of incorporation
 
Incorporation date
 
Ownership interest
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%
 
 
 
 
 
 
 
 
 
(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 are summarized in the following chart.
Equity accounted investees
 
Notes
 
Jurisdiction of incorporation
 
Ownership interest
Cronos Australia Limited ("Cronos Australia")
 
5,28
 
Australia
 
50%
MedMen Canada Inc. ("MedMen Canada")
 
5
 
Canada
 
50%
Cronos Growing Company Inc. ("Cronos GrowCo")
 
5
 
Canada
 
50%
NatuEra S.à. r.l ("NatuEra")
 
5
 
Luxembourg
 
50%

As at December 31, 2018, the Company held a 19% ownership interest in Whistler Marijuana Company ("Whistler"). During the nine months ended September 30, 2019, the Company divested its investment in Whistler.

(c)
Basis of measurement
 
 
 
 
 
 
 
Apart from biological assets, other investments, deferred share units, 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.

(d)
Functional and presentation currency
 
These amended and restated unaudited condensed interim consolidated financial statements are presented in Canadian dollars ("CDN"), which is the functional currency of the Company. The functional currency of all subsidiaries is the national currency of the respective jurisdiction of incorporation which includes Israel and the United States of America ("U.S.").

on

6

Cronos Group Inc.
Notes to Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2019 and September 30, 2018
(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

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 they contain 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 and nine months ended September 30, 2019 and September 30, 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)

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.
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:
 
Three Months Ended September 30,
 
 
Nine Months Ended September 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
Balance - beginning of period
 
$
10,032
 
 
$
6,899
 
 
$
9,074
 
 
$
3,722
Capitalization of production costs
 
 
6,208
 
 
 
1,276
 
 
 
15,044
 
 
 
4,986
Unrealized change in fair value of biological assets
 
 
(10,015)
 
 
 
1,533
 
 
 
7,562
 
 
 
11,108
Transferred to inventory upon harvest
 
 
(4,124)
 
 
 
(4,076)
 
 
 
(29,579)
 
 
 
(14,184)
Balance - end of period
 
$
2,101
 
 
$
5,632
 
 
$
2,101
 
 
$
5,632

As at September 30, 2019, the Company has 75,649 plants classified as biological assets which are expected to ultimately yield 4,388 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 September 30, 2019, the plants were on average 6 weeks into the growing cycle, 45% complete, and were ascribed approximately 45% (December 31, 2018 - 6 weeks, 37%, and 37%, respectively) of their expected fair value at harvest date.


8

Cronos Group Inc.
Notes to Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2019 and September 30, 2018
(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

4.
Biological assets and inventory (continued)
(b)
Inventory
 
Inventory consisted of the following:
 
As at September 30, 2019
(Restated - Note 28)
 
 
As at December 31, 2018
Dry cannabis
 
 
 
 
 
 
 
 
 
 
Finished goods
420 kg
 
$
1,467
 
 
187 kg
 
$
972
Work-in-process
7,860 kg
 
 
28,155
 
 
1,789 kg
 
 
7,733
 
 
 
 
29,622
 
 
 
 
 
8,705
 
 
 
 
 
 
 
 
 
 
 
Cannabis oils (i)
 
 
 
 
 
 
 
 
 
 
Finished goods
596 kg
 
 
3,429
 
 
115 kg
 
 
656
Work-in-process
5,580 kg
 
 
14,458
 
 
220 kg
 
 
1,250
 
 
 
 
17,887
 
 
 
 
 
1,906
 
 
 
 
 
 
 
 
 
 
 
Cannabinoid infused products (ii)
 
 
 
 
 
 
 
 
 
 
Finished goods
 
 
 
977
 
 
 
 
 
-
Cannabinoid concentrates
 
 
 
2,505
 
 
 
 
 
-
 
 
 
 
3,482
 
 
 
 
 
-
 
 
 
 
 
 
 
 
 
 
 
Raw materials (iii)
 
 
 
161
 
 
 
 
 
171
Supplies and consumables
 
 
 
2,986
 
 
 
 
 
802
 
 
 
$
54,138
 
 
 
 
$
11,584
(i) 
Cannabis oils are expressed in dry cannabis gram equivalents. Refer to Note 4(d) for the equivalency factor applied.

(ii) 
Cannabinoid infused products pertain to inventory related to the four operating subsidiaries (collectively, "Redwood") of Redwood Holding Group, LLC acquired by the Company, refer to Note 8. Redwood does not have any biological assets and is not subject to the fair value adjustment. Inventory is measured at the lower of cost and net realizable value.
(iii) 
As at September 30, 2019, raw materials consisted of 0.265 kg (December 31, 2018 - 0.267 kg) of seeds held by the Company.

As at September 30, 2019, the Company held 89 kg (December 31, 2018 - 29 kg) of dry cannabis and 7 kg (December 31, 2018 - 4 kg) of cannabis oils as retention samples, which are valued at $nil. Inventory is written down for any obsolescence or when the net realizable value of inventory is less than the carrying value. For the three and nine months ended September 30, 2019, the Company recorded an inventory write-down of $4,929.

(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 the fair value less costs to sell, excluding capitalized production costs, are presented as unrealized changes in the 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.

9

Cronos Group Inc.
Notes to Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2019 and September 30, 2018
(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

4.
Biological assets and inventory (continued)

(c)
Direct and indirect cost allocations (continued)

The direct and indirect costs related to biological assets and inventory are allocated as follows. The allocation basis was consistent for the nine months ended September 30, 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 - 30%; 40%; and 30%; 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 of dry cannabis, excluding sales of cannabis oil, 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

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.


10

Cronos Group Inc.
Notes to Amended and Restated Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2019 and September 30, 2018
(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

4.
Biological assets and inventory (continued)
(d)
Significant inputs and sensitivity analyses
 
 
As at September 30,
 
Increase (decrease) as at
September 30, 2019
 
As at December 31,
 
Increase (decrease) as at
December 31, 2018
 
2019
 
Biological assets
 
Inventory
 
2018
 
Biological assets
 
Inventory
Net selling price per gram
$3.58/g
 
$
(360)
 
$
(897)
 
$5.58/g
 
$
(673)
 
$
(640)
Harvest yield per plant
58 g
 
 
(102)
 
 
-
 
137 g
 
 
(446)
 
 
-
Stage of growth
6 weeks
 
 
(102)
 
 
-
 
6 weeks
 
 
(446)
 
 
-
Processing costs per gram
$2.47/g
 
 
248
 
 
447
 
$1.98/g
 
 
175
 
 
65
Selling costs per gram
$0.09/g