Launched a new hemp-derived CBD brand,
Cronos Israel received approval to sell PEACE NATURALS™ branded pre-rolls and oils in
“The opportunities before
"In such a short period of time, Mike and the Cronos team have achieved several impressive milestones,” said
Financial Results
| (in thousands of |
Three months ended |
Change | Nine months ended |
Change | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | $ | % | 2020 | 2019 | $ | % | |||||||||||||||||||||||||||||||
| Net revenue | ||||||||||||||||||||||||||||||||||||||
| $ | 1,639 | $ | 675 | $ | 964 | 143 | % | $ | 5,989 | $ | 675 | $ | 5,314 | 787 | % | |||||||||||||||||||||||
| Rest of World | 9,719 | 5,110 | 4,609 | 90 | % | 23,684 | 15,767 | 7,917 | 50 | % | ||||||||||||||||||||||||||||
| Consolidated net revenue | 11,358 | 5,785 | 5,573 | 96 | % | 29,673 | 16,442 | 13,231 | 80 | % | ||||||||||||||||||||||||||||
| Gross profit (loss) | $ | (1,537 | ) | $ | (3,137 | ) | $ | 1,600 | (51 | ) | % | $ | (10,935 | ) | $ | 2,511 | $ | (13,446 | ) | (535 | ) | % | ||||||||||||||||
| Gross margin | (14 | ) | % | (54 | ) | % | — | 40 | pp | (37 | ) | % | 15 | % | — | (52 | ) | pp | ||||||||||||||||||||
| Reported operating loss | $ | (41,169 | ) | $ | (30,698 | ) | $ | (10,471 | ) | 34 | % | $ | (120,937 | ) | $ | (57,539 | ) | $ | (63,398 | ) | 110 | % | ||||||||||||||||
| Adjusted operating loss (i) | (40,211 | ) | (30,698 | ) | (9,513 | ) | 31 | % | (112,113 | ) | (57,539 | ) | (54,574 | ) | 95 | % | ||||||||||||||||||||||
| Other Data | ||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents (ii) | 1,097,846 | 1,114,414 | (16,568 | ) | (1 | ) | % | |||||||||||||||||||||||||||||||
| Short-term investments (ii) | 202,883 | 390,538 | (187,655 | ) | (48 | ) | % | |||||||||||||||||||||||||||||||
| Capital expenditures | 8,330 | 16,808 | (8,478 | ) | (50 | ) | % | 24,428 | 38,196 | (13,768 | ) | (36 | ) | % | ||||||||||||||||||||||||
(i) See “Non-GAAP Measures” for more information, including a reconciliation of adjusted operating loss.
(ii) Dollar amounts are as of the last day of the period indicated.
Third Quarter 2020
- Net revenue of
$11.4 million in Q3 2020 increased by$5.6 million from Q3 2019. The increase year-over-year was primarily driven by continued growth in the adult-use Canadian cannabis market, the inclusion of the Redwood acquisition in our financial results and growth in the Israeli medical cannabis market, partially offset by non-recurring wholesale revenue in the Canadian market in Q3 2019 and strategic price reductions on various adult-use cannabis products in certain Canadian provinces in Q3 2020. - Gross loss of
$1.5 million in Q3 2020 decreased by$1.6 million from Q3 2019. The decrease in losses year-over-year was primarily driven by an increase in net revenue and the gross profit contribution of theU.S. business segment. Offset by an increase in cost of sales primarily driven by a higher volume of adult-use sales and the associated third-party purchased flower, and a decline in wholesale sales. - Reported operating loss of
$41.2 million in Q3 2020 increased by$10.5 million from Q3 2019. The increase year-over-year was primarily driven by increased share-based payments related to separation agreements with certain Redwood employees, increased general and administrative expenses inclusive of review costs and costs related to the previously disclosed restatement of the Company's 2019 interim financial statements, higher sales and marketing costs related to brand development, and R&D spending, partially offset by a decrease in gross loss.
Business Updates
Brand Portfolio
Subsequent to the end of the third quarter of 2020,
In
Global Sales and Distribution
Cronos Israel has now received the IMC-GAP, IMC-GMP and IMC-GDP certifications required for the cultivation, production and marketing of dried flower, pre-rolls and oils in
Global Supply Chain
In the third quarter of 2020, Natuera continued to successfully complete imports of hemp-derived CBD extract to the
Intellectual Property Initiatives
In the third quarter of 2020,
Enterprise Initiatives
In the third quarter of 2020, the Company implemented a new enterprise resource planning (“ERP”) system across the Canadian business.
Appointments
On
In addition, the Company further bolstered its senior leadership team by adding
Additionally during the quarter, as previously disclosed, following the resignation of
Update on COVID-19
Cronos Group’s manufacturing sites have adjusted in order to comply with the current COVID-19 guidelines provided by governmental authorities. During the third quarter of 2020, because of the effects from COVID-19 in the
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
| (in thousands of |
Three months ended |
Change | Nine months ended |
Change | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | $ | % | 2020 | 2019 | $ | % | |||||||||||||||||||||||||||||||
| Cannabis flower | $ | 7,958 | $ | 4,266 | $ | 3,692 | 87 | % | $ | 16,373 | $ | 12,187 | $ | 4,186 | 34 | % | ||||||||||||||||||||||
| Cannabis extracts | 1,504 | 825 | 679 | 82 | % | 6,821 | 3,463 | 3,358 | 97 | % | ||||||||||||||||||||||||||||
| Other | 257 | 19 | 238 | 1,253 | % | 490 | 117 | 373 | 319 | % | ||||||||||||||||||||||||||||
| Net revenue | 9,719 | 5,110 | 4,609 | 90 | % | 23,684 | 15,767 | 7,917 | 50 | % | ||||||||||||||||||||||||||||
| Gross profit (loss) | $ | (2,203 | ) | $ | (3,580 | ) | $ | 1,377 | (38 | ) | % | $ | (13,270 | ) | $ | 2,068 | $ | (15,338 | ) | (742 | ) | % | ||||||||||||||||
| Gross margin | (23 | ) | % | (70 | ) | % | — | 47 | pp | (56 | ) | % | 13 | % | — | (69 | ) | pp | ||||||||||||||||||||
| Reported and adjusted operating loss | $ | (17,999 | ) | $ | (21,228 | ) | $ | 3,229 | (15 | ) | % | $ | (71,957 | ) | $ | (48,069 | ) | $ | (23,888 | ) | 50 | % | ||||||||||||||||
(i) See “Non-GAAP Measures” for more information, including a reconciliation of adjusted operating loss.
Third Quarter 2020
- Net revenue of
$9.7 million in Q3 2020 increased by$4.6 million from Q3 2019. The increase year-over-year was primarily driven by continued growth in the adult-use Canadian cannabis market and growth in the Israeli medical cannabis market, partially offset by non-recurring wholesale revenue in the Canadian market in Q3 2019 and strategic price reductions on various adult-use cannabis products in certain Canadian provinces. - Gross loss of
$2.2 million in Q3 2020 decreased by$1.4 million from Q3 2019. The decrease in losses year-over-year was primarily driven by an increase in net revenue, offset by an increase in cost of sales primarily driven by a higher volume of adult-use sales and the associated third-party purchased flower and a decline in wholesale sales. The Company anticipates that gross margin will continue to fluctuate as price and mix change from quarter-to-quarter. - Reported operating loss of
$18.0 million in Q3 2020 decreased by$3.2 million from Q3 2019. The decrease in losses year-over-year was primarily driven by a decrease in general and administrative costs driven by a reclassification of$4.6 million to corporate expenses in Q3 2020, which had no effect on the Company's consolidated statement of net income (loss) and a decrease in gross loss, partially offset by an increase in R&D spending.
United States Results
Cronos Group’s
| (in thousands of |
Three months ended |
Change | Nine months ended |
Change | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | $ | % | 2020 | 2019 | $ | % | |||||||||||||||||||||||||||||||
| Net revenue | $ | 1,639 | $ | 675 | $ | 964 | 143 | % | $ | 5,989 | $ | 675 | $ | 5,314 | 787 | % | ||||||||||||||||||||||
| Gross profit | $ | 666 | $ | 443 | 223 | 50 | % | $ | 2,335 | $ | 443 | 1,892 | 427 | % | ||||||||||||||||||||||||
| Gross margin | 41 | % | 66 | % | — | (25 | ) | pp | 39 | % | 66 | % | — | (27 | ) | pp | ||||||||||||||||||||||
| Reported operating loss | $ | (12,191 | ) | $ | (830 | ) | $ | (11,361 | ) | 1,369 | % | $ | (24,289 | ) | $ | (830 | ) | $ | (23,459 | ) | 2,826 | % | ||||||||||||||||
Third Quarter 2020
- Net revenue of
$1.6 million in Q3 2020 increased by$1.0 million from Q3 2019. The increase year-over-year was primarily driven by a full quarter of results in Q3 2020 as opposed to 25 days in Q3 2019. - Gross profit of
$0.7 million in Q3 2020 increased by$0.2 million from Q3 2019. The increase year-over-year was primarily driven by an increase in net revenue, partially offset by increased discounts, sales and promotions and new product introductions. - Reported operating loss of
$12.2 million in Q3 2020 increased by$11.4 million . The increase year-over-year was primarily driven by an increase in share-based payments related to separation agreements with certain Redwood employees, increased sales and marketing costs incurred in relation to the launch of newU.S. hemp-derived CBD products under the Lord Jones™ and Happy Dance™ brands and increased general and administrative expenses driven by salaries and wages to support the Company's growth strategy across a variety of functions, partially offset by an increase in gross profit.
Conference Call
The Company will host a conference call and live audio webcast on
- Live audio webcast: https://ir.thecronosgroup.com/events-presentations
- Toll-Free from the
U.S. andCanada dial-in: (866) 795-2258 - International dial-in: (409) 937-8902
- Conference ID: 5159205
About
Forward-looking Statements
This press release may contain information that may constitute forward-looking information and forward-looking statements within the meaning of applicable securities laws (collectively, “Forward-Looking Statements”), which are based upon our current expectations, estimates, projections, assumptions and beliefs. All information that is not clearly historical in nature may constitute Forward-Looking Statements. In some cases, Forward-Looking Statements can be identified by the use of forward-looking terminology such as “expect”, “likely”, “may”, “will”, “should”, “intend”, “anticipate”, “potential”, “proposed”, “estimate” and other similar words, expressions and phrases, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussion of strategy. Forward-Looking Statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of historical fact.
Forward-Looking Statements include, but are not limited to, statements with respect to:
- the uncertainties associated with the COVID-19 pandemic, including our ability, and the abilities of our joint ventures and our suppliers and distributors, to effectively deal with the restrictions, limitations and health issues presented by the COVID-19 pandemic, the ability to continue our production, distribution and sale of our products, and demand for and the use of our products by consumers;
- laws and regulations and any amendments thereto applicable to our business and the impact thereof, including uncertainty regarding the application of
United States state and federal law toU.S. hemp (including CBD) products and the scope of any regulations by theU.S. Federal Drug Administration , theU.S. Federal Trade Commission , theU.S. Patent and Trademark Office and any state equivalent regulatory agencies overU.S. hemp (including CBD) products; - expectations regarding the regulation of the
U.S. hemp industry in theU.S. , including the promulgation of regulations for theU.S. hemp industry by theU.S. Department of Agriculture ; - the grant, renewal and impact of any license or supplemental license to conduct activities with cannabis or any amendments thereof;
- our international activities and joint venture interests, including required regulatory approvals and licensing, anticipated costs and timing, and expected impact;
- the ability to successfully create and launch brands and further create, launch and scale
U.S. hemp-derived consumer products, including through the acquisition of fourRedwood Holding Group, LLC operating subsidiaries (the "Redwood Acquisition") and cannabis products in jurisdictions where such products are legal and that we currently operate in; - the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis including CBD and other cannabinoids;
- expectations regarding the implementation and effectiveness of key personnel changes;
- the anticipated benefits and impact of the Altria's
C$2.4 billion (approximately$1.8 billion ) investment in us (the “Altria Investment”); - the potential exercise of the warrant held by Altria, pre-emptive rights and/or top-up rights in connection with the
Altria Investment , including proceeds to us that may result therefrom; - expectations regarding the use of proceeds of equity financings, including the proceeds from the
Altria Investment ; - the legalization of the use of cannabis for medical or adult-use in jurisdictions outside of
Canada , the related timing and impact thereof and our intentions to participate in such markets, if and when such use is legalized; - expectations regarding the potential success of, and the costs and benefits associated with, our joint ventures, strategic alliances and equity investments, including the strategic partnership with
Ginkgo Bioworks, Inc. ; - our ability to execute on our strategy and the anticipated benefits of such strategy;
- expectations of the amount or frequency of impairment losses, including as a result of the write-down of intangible assets, including goodwill;
- the ongoing impact of the legalization of additional cannabis product types and forms for adult-use in
Canada , including federal, provincial, territorial and municipal regulations pertaining thereto, the related timing and impact thereof and our intentions to participate in such markets; - the future performance of our business and operations;
- our competitive advantages and business strategies;
- the competitive conditions of the industry;
- the expected growth in the number of customers using our products;
- our ability or plans to identify, develop, commercialize or expand our technology and R&D initiatives in cannabinoids, or the success thereof;
- expectations regarding acquisitions and dispositions and the anticipated benefits therefrom, including the Redwood Acquisition and the acquisition of certain assets from
Apotex Fermentation Inc. , including a GMP-compliant fermentation and manufacturing facility inWinnipeg, Manitoba , and the proposed sale of ourOriginal B.C. Ltd. (“OGBC”) production facility; - expectations regarding revenues, expenses and anticipated cash needs;
- expectations regarding cash flow, liquidity and sources of funding;
- expectations regarding capital expenditures;
- the expansion of our production and manufacturing, the costs and timing associated therewith and the receipt of applicable production and sale licenses;
- the expected growth in our growing, production and supply chain capacities;
- expectations regarding the resolution of litigation and other legal and regulatory proceedings, reviews and investigations;
- expectations with respect to future production costs;
- expectations with respect to future sales and distribution channels;
- the expected methods to be used to distribute and sell our products;
- our future product offerings;
- the anticipated future gross margins of our operations;
- accounting standards and estimates;
- our ability to timely and effectively remediate material weaknesses in our internal control over financial reporting;
- expectations regarding our distribution network; and
- expectations regarding the costs and benefits associated with our contracts and agreements with third parties, including under our third-party supply and manufacturing agreements.
Certain of the Forward-Looking Statements contained herein concerning the industries in which we conduct our business are based on estimates prepared by us using data from publicly available governmental sources, market research, industry analysis and on assumptions based on data and knowledge of these industries, which we believe to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. The industries in which we conduct our business involve risks and uncertainties that are subject to change based on various factors, which are described further below.
The Forward-Looking Statements contained herein are based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including: (i) our ability, and the abilities of our joint ventures and our suppliers and distributors, to effectively deal with the restrictions, limitations and health issues presented by the COVID-19 pandemic and the ability to continue our production, distribution and sale of our products and customer demand for and use of our products; (ii) management’s perceptions of historical trends, current conditions and expected future developments; (iii) our ability to generate cash flow from operations; (iv) general economic, financial market, regulatory and political conditions in which we operate; (v) the production and manufacturing capabilities and output from our facilities and our joint ventures, strategic alliances and equity investments; (vi) consumer interest in our products; (vii) competition; (viii) anticipated and unanticipated costs; (ix) government regulation of our activities and products including but not limited to the areas of taxation and environmental protection; (x) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses; (xi) our ability to obtain qualified staff, equipment and services in a timely and cost-efficient manner; (xii) our ability to conduct operations in a safe, efficient and effective manner; (xiii) our ability to realize anticipated benefits, synergies or generate revenue, profits or value from our recent acquisitions into our existing operations; (xiv) our ability to complete planned dispositions, including the sale of OGBC, and, if completed, obtain our anticipated sales price; and (xv) other considerations that management believes to be appropriate in the circumstances. While our management considers these assumptions to be reasonable based on information currently available to management, there is no assurance that such expectations will prove to be correct.
By their nature, Forward-Looking Statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of factors, including known and unknown risks, many of which are beyond our control, could cause actual results to differ materially from the Forward-Looking Statements in this press release and other reports we file with, or furnish to, the
Forward-Looking Statements are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash flows as of and for periods ended on certain dates and to present information about management’s current expectations and plans relating to the future, and the reader is cautioned that the Forward-Looking Statements may not be appropriate for any other purpose. While we believe that the assumptions and expectations reflected in the Forward-Looking Statements are reasonable based on information currently available to management, there is no assurance that such assumptions and expectations will prove to have been correct. Forward-Looking Statements are made as of the date they are made and are based on the beliefs, estimates, expectations and opinions of management on that date. We undertake no obligation to update or revise any Forward-Looking Statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such Forward-Looking Statements. The Forward-Looking Statements contained in this press release and other reports we file with, or furnish to, the
As used in this press release, “CBD” means cannabidiol and “U.S. hemp” has the meaning given to the term “hemp” in the
| Condensed Consolidated Balance Sheets |
| As of |
| (In thousands of |
| As of | |||||||||
| Assets | |||||||||
| Current assets | |||||||||
| Cash and cash equivalents | $ | 1,097,846 | $ | 1,199,693 | |||||
| Short-term investments | 202,883 | 306,347 | |||||||
| Accounts receivable(i) | 6,086 | 4,638 | |||||||
| Other receivables | 10,401 | 7,232 | |||||||
| Current portion of loans receivable | 7,781 | 4,664 | |||||||
| Prepaids and other assets | 10,532 | 9,395 | |||||||
| Inventory, net | 56,359 | 38,043 | |||||||
| Held-for-sale assets | 2,066 | 3,248 | |||||||
| Total current assets | 1,393,954 | 1,573,260 | |||||||
| Investments in equity accounted investees | 19,059 | 557 | |||||||
| Advances to joint ventures | 461 | 19,437 | |||||||
| Loan receivable, net | 76,148 | 44,967 | |||||||
| Property, plant and equipment | 171,404 | 159,948 | |||||||
| Right-of-use assets | 9,840 | 6,546 | |||||||
| Intangible assets | 68,604 | 71,235 | |||||||
| 179,459 | 214,492 | ||||||||
| Total assets | $ | 1,918,929 | $ | 2,090,442 | |||||
| Liabilities | |||||||||
| Current liabilities | |||||||||
| Accounts payable and other liabilities | $ | 39,012 | $ | 35,301 | |||||
| Current portion of lease obligation | 1,274 | 427 | |||||||
| Derivative liabilities | 102,655 | 297,160 | |||||||
| Total current liabilities | 142,941 | 332,888 | |||||||
| Due to non-controlling interests | 2,889 | 1,844 | |||||||
| Lease obligation | 8,612 | 6,680 | |||||||
| Total liabilities | $ | 154,442 | $ | 341,412 | |||||
| Commitments and contingencies(ii) | |||||||||
| Shareholders’ equity | |||||||||
| Share capital(iii, iv) | $ | 566,577 | $ | 561,165 | |||||
| Additional paid-in capital | 32,491 | 23,234 | |||||||
| Retained earnings | 1,175,742 | 1,137,646 | |||||||
| Accumulated other comprehensive income (loss) | (7,820 | ) | 27,838 | ||||||
| Total equity attributable to shareholders of |
1,766,990 | 1,749,883 | |||||||
| Non-controlling interests | (2,503 | ) | (853 | ) | |||||
| Total shareholders’ equity | 1,764,487 | 1,749,030 | |||||||
| Total liabilities and shareholders’ equity | $ | 1,918,929 | $ | 2,090,442 | |||||
(i) Net of current expected credit loss allowance of
(ii) Refer to Note 19 and Note 20 in the notes to condensed consolidated financial statements in Form 10-Q for the period ending
(iii) Authorized for issuance as of
(iv) Shares issued as of
| Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) | |||
| For the three and nine months ended |
|||
| (In thousands of |
|||
| Three months ended |
Nine months ended |
||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
| Net revenue, before excise taxes | $ | 13,621 | $ | 6,269 | $ | 34,397 | $ | 17,724 | |||||||||||
| Excise taxes | (2,263 | ) | (484 | ) | (4,724 | ) | (1,282 | ) | |||||||||||
| Net revenue | 11,358 | 5,785 | 29,673 | 16,442 | |||||||||||||||
| Cost of sales | 12,895 | 3,498 | 29,584 | 8,507 | |||||||||||||||
| Inventory write-down | — | 5,424 | 11,024 | 5,424 | |||||||||||||||
| Gross profit (loss) | (1,537 | ) | (3,137 | ) | (10,935 | ) | 2,511 | ||||||||||||
| Operating expenses | |||||||||||||||||||
| Sales and marketing | 7,236 | 4,591 | 20,849 | 9,723 | |||||||||||||||
| Research and development (“R&D”) | 4,734 | 2,605 | 12,955 | 6,076 | |||||||||||||||
| General and administrative | 18,860 | 16,202 | 61,048 | 34,987 | |||||||||||||||
| Share-based payments | 7,916 | 3,531 | 12,898 | 7,949 | |||||||||||||||
| Depreciation and amortization | 886 | 632 | 2,252 | 1,315 | |||||||||||||||
| Total operating expenses | 39,632 | 27,561 | 110,002 | 60,050 | |||||||||||||||
| Operating loss | (41,169 | ) | (30,698 | ) | (120,937 | ) | (57,539 | ) | |||||||||||
| Other income (expense) | |||||||||||||||||||
| Interest income, net | 3,781 | 8,939 | 15,266 | 20,455 | |||||||||||||||
| Share of loss from investments in equity accounted investees | (1,327 | ) | (565 | ) | (3,293 | ) | (1,504 | ) | |||||||||||
| Gain on revaluation of derivative liabilities | 105,307 | 632,482 | 182,795 | 1,158,008 | |||||||||||||||
| Financing and transaction costs | (40 | ) | (6,083 | ) | (40 | ) | (31,684 | ) | |||||||||||
| Impairment loss on goodwill and intangible assets | — | — | (40,000 | ) | — | ||||||||||||||
| Gain on disposal of other investments | 3,974 | — | 4,743 | 16,242 | |||||||||||||||
| Loss on reclassification of held-for-sale assets | (919 | ) | — | (919 | ) | — | |||||||||||||
| Other income (loss) | 318 | 147 | 334 | 147 | |||||||||||||||
| Total other income (loss) | 111,094 | 634,920 | 158,886 | 1,161,664 | |||||||||||||||
| Income (loss) before income taxes | 69,925 | 604,222 | 37,949 | 1,104,125 | |||||||||||||||
| Income tax expense | 988 | 58 | 988 | 58 | |||||||||||||||
| Income from continuing operations | $ | 68,937 | $ | 604,164 | $ | 36,961 | $ | 1,104,067 | |||||||||||
| Income (loss) from discontinued operations | (473 | ) | (36 | ) | (519 | ) | (63 | ) | |||||||||||
| Net income (loss) | $ | 68,464 | $ | 604,128 | $ | 36,442 | $ | 1,104,004 | |||||||||||
| Net income (loss) attributable to: | |||||||||||||||||||
| $ | 69,033 | $ | 604,410 | $ | 38,096 | $ | 1,104,501 | ||||||||||||
| Non-controlling interests | (569 | ) | (282 | ) | (1,654 | ) | (497 | ) | |||||||||||
| $ | 68,464 | $ | 604,128 | $ | 36,442 | $ | 1,104,004 | ||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||
| Foreign exchange gain (loss) on translation | $ | 26,167 | $ | (12,422 | ) | $ | (35,654 | ) | $ | 9,424 | |||||||||
| Total other comprehensive income (loss) | 26,167 | (12,422 | ) | (35,654 | ) | 9,424 | |||||||||||||
| Comprehensive income (loss) | $ | 94,631 | $ | 591,706 | $ | 788 | $ | 1,113,428 | |||||||||||
| Comprehensive income (loss) attributable to: | |||||||||||||||||||
| $ | 95,183 | $ | 591,996 | $ | 2,438 | $ | 1,113,929 | ||||||||||||
| Non-controlling interests | (552 | ) | (290 | ) | (1,650 | ) | (501 | ) | |||||||||||
| $ | 94,631 | $ | 591,706 | $ | 788 | $ | 1,113,428 | ||||||||||||
| Net income (loss) per share | |||||||||||||||||||
| Basic - continuing operations | 0.20 | 1.78 | 0.11 | 3.71 | |||||||||||||||
| Basic - discontinued operations | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||
| Diluted - continuing operations | 0.19 | 1.62 | 0.10 | 0.92 | |||||||||||||||
| Diluted - discontinued operations(i) | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||
| Weighted average number of outstanding shares | |||||||||||||||||||
| Basic | 350,288,783 | 338,957,949 | 349,397,156 | 297,964,058 | |||||||||||||||
| Diluted(i) | 369,619,020 | 369,268,672 | 374,731,451 | 333,618,691 | |||||||||||||||
(i) In computing diluted earnings per share, incremental common shares are not considered in periods in which a net loss is reported, as the inclusion of the common share equivalents would be anti-dilutive.
| Condensed Consolidated Statements of Cash Flows | |
| For the nine months ended |
|
| (In thousands of |
|
| Nine months ended |
|||||||||
| 2020 | 2019 | ||||||||
| Operating activities | |||||||||
| Net income (loss) | $ | 36,442 | $ | 1,104,004 | |||||
| Items not affecting cash: | |||||||||
| Inventory write-down | 11,024 | 5,424 | |||||||
| Share-based payments | 12,898 | 7,949 | |||||||
| Depreciation and amortization | 5,095 | 2,956 | |||||||
| Share of loss from investments in equity accounted investees | 3,293 | 1,504 | |||||||
| Gain on revaluation of derivative liabilities | (182,795 | ) | (1,158,008 | ) | |||||
| Gain on disposal of other investments | (4,743 | ) | (16,242 | ) | |||||
| Impairment loss on goodwill and intangible assets | 40,000 | — | |||||||
| Loss (gain) on unrealized foreign exchange | (3,020 | ) | 807 | ||||||
| Provision for inventory and doubtful accounts | 3,119 | — | |||||||
| Non-cash sales and marketing | 2,505 | — | |||||||
| Loss on reclassification of held-for-sale assets | 919 | — | |||||||
| Other, net | (298 | ) | (89 | ) | |||||
| Net changes in non-cash working capital | (29,123 | ) | (25,098 | ) | |||||
| Cash flows used in operating activities | (104,684 | ) | (76,793 | ) | |||||
| Investing activities | |||||||||
| Purchase of short-term investments | (125,562 | ) | (384,288 | ) | |||||
| Proceeds from disposal of short-term investments | 220,058 | — | |||||||
| Investments in equity accounted investees | — | (1,658 | ) | ||||||
| Proceeds from sale of other investments | 4,743 | 19,614 | |||||||
| Advances to joint ventures | — | (15,951 | ) | ||||||
| Purchase of property, plant and equipment | (21,334 | ) | (37,622 | ) | |||||
| Payment of accrued interest on construction loan payable | — | (89 | ) | ||||||
| Purchase of intangible assets | (3,094 | ) | (574 | ) | |||||
| Acquisition of Redwood | — | (227,224 | ) | ||||||
| Advances on loans receivable | (37,000 | ) | (33,012 | ) | |||||
| Proceeds from repayment of loans receivable | — | 238 | |||||||
| Cash assumed on acquisition | — | 2,957 | |||||||
| Cash flows provided by (used in) investing activities | 37,811 | (677,609 | ) | ||||||
| Financing activities | |||||||||
| Advance from non-controlling interests | (187 | ) | 183 | ||||||
| Repayment of lease obligations | (1,859 | ) | (414 | ) | |||||
| Proceeds from |
— | 1,809,556 | |||||||
| Proceeds from exercise of Top-up Rights | — | 31,566 | |||||||
| Proceeds from exercise of warrants and options | 5 | 1,455 | |||||||
| Withholding taxes paid on equity awards | (2,148 | ) | (861 | ) | |||||
| Share issuance costs | — | (3,722 | ) | ||||||
| Advance of loans payable | — | 48,715 | |||||||
| Repayment of loans payable | — | (48,309 | ) | ||||||
| Transaction costs paid on construction loan payable | — | (15,971 | ) | ||||||
| Cash flows provided by (used in) financing activities | (4,189 | ) | 1,822,198 | ||||||
| Effect of foreign currency translation on cash and cash equivalents | (30,785 | ) | 22,691 | ||||||
| Net change in cash and cash equivalents | (101,847 | ) | 1,090,487 | ||||||
| Cash and cash equivalents, beginning of period | 1,199,693 | 23,927 | |||||||
| Cash and cash equivalents, end of period | $ | 1,097,846 | $ | 1,114,414 | |||||
| Supplemental cash flow information | |||||||||
| Interest paid | 156 | 647 | |||||||
| Interest received | 13,473 | 9,690 | |||||||
Non-GAAP Measures
In addition to its financial results reported in accordance with accounting principles generally recognized in the
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 typically include non-recurring charges such as our review costs related to the restatement of our 2019 interim financial statements. Management does not view these items to be part of underlying results as they may be highly variable, may be infrequent, are difficult to predict and can distort underlying business trends and results.
Management believes that adjusted operating loss provides useful insight into underlying business trends and results and provides a more meaningful comparison of year-over-year results. Management uses adjusted operating loss for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets.
| (In thousands of |
For the three months ended |
For the nine months ended |
||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||
| Reported operating loss | $ | (41,169 | ) | $ | (30,698 | ) | $ | (120,937 | ) | $ | (57,539 | ) | ||||||||
| Adjustments | ||||||||||||||||||||
| Review and defense costs related to restatement of 2019 interim financial statements | 958 | — | 8,824 | — | ||||||||||||||||
| Adjusted operating loss | $ | (40,211 | ) | $ | (30,698 | ) | $ | (112,113 | ) | $ | (57,539 | ) | ||||||||
Adjusted operating loss by business segment
Management reviews operating loss by business segment, which excludes corporate expenses, and adjusted operating loss by business segment, which further excludes certain income and expense items that management believes are not part of the underlying segment’s operations. Corporate expenses are expenses that relate to the consolidated business and not to an individual operating segment while the income and expense items typically include non-recurring charges such as our review costs related to the restatement of our 2019 interim financial statements. Management does not view the income and expense items above to be part of underlying results of the segment as they may be highly variable, may be unusual or infrequent, are difficult to predict and can distort underlying business trends and results.
Management believes that adjusted operating loss by business segment provides useful insight into underlying segment trends and results and will provide a more meaningful comparison of year-over-year results, going forward. Management uses adjusted operating loss by business segment for planning, forecasting and evaluating segment performance, including allocating resources and evaluating results relative to employee compensation.
| (In thousands of |
For the three months ended |
|||||||||||||||||||||||
| Rest of World | Total Segments | Corporate Expenses | Total | |||||||||||||||||||||
| Reported operating loss | $ | (12,191 | ) | $ | (17,999 | ) | $ | (30,190 | ) | $ | (10,979 | ) | $ | (41,169 | ) | |||||||||
| Adjustments | ||||||||||||||||||||||||
| Review and defense costs related to restatement of 2019 interim financial statements | — | — | — | 958 | 958 | |||||||||||||||||||
| Adjusted operating loss | $ | (12,191 | ) | $ | (17,999 | ) | $ | (30,190 | ) | $ | (10,021 | ) | $ | (40,211 | ) | |||||||||
| (In thousands of |
For the nine months ended |
|||||||||||||||||||||||
| Rest of World | Total Segments | Corporate Expenses | Total | |||||||||||||||||||||
| Reported operating loss | $ | (24,289 | ) | $ | (71,957 | ) | $ | (96,246 | ) | $ | (24,691 | ) | $ | (120,937 | ) | |||||||||
| Adjustments | ||||||||||||||||||||||||
| Review and defense costs related to restatement of 2019 interim financial statements | — | — | — | 8,824 | 8,824 | |||||||||||||||||||
| Adjusted operating loss | $ | (24,289 | ) | $ | (71,957 | ) | $ | (96,246 | ) | $ | (15,867 | ) | $ | (112,113 | ) | |||||||||
| (In thousands of |
For the three months ended |
|||||||||||||||||||||||
| Rest of World | Total Segments | Corporate Expenses | Total | |||||||||||||||||||||
| Reported and adjusted operating loss | $ | (830 | ) | $ | (21,228 | ) | $ | (22,058 | ) | $ | (8,640 | ) | $ | (30,698 | ) | |||||||||
| (In thousands of |
For the nine months ended |
|||||||||||||||||||||||
| Rest of World | Total Segments | Corporate Expenses | Total | |||||||||||||||||||||
| Reported and adjusted operating loss | $ | (830 | ) | $ | (48,069 | ) | $ | (48,899 | ) | $ | (8,640 | ) | $ | (57,539 | ) | |||||||||
Adjusted EBITDA
Adjusted earnings before interest, tax, depreciation and amortization (“Adjusted EBITDA”) is used by management as a supplemental measure to review and assess operating performance and trends on a comparable basis with the rest of the industry, although our measure of Adjusted EBITDA may not be directly comparable to similar measures used by other companies.
Management reviews EBITDA on an adjusted basis, which excludes net income attributable to non-controlling interests, and special items. Special items consist of income tax recovery (expense), financing and transaction costs, other non-cash gains (losses), including share-based payments as it is a non-cash item, and other unforeseeable, non-recurring charges which management has described below.
| (in thousands of |
Three months ended |
Nine months ended |
||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||
| Net income (loss) | $ | 68,464 | $ | 604,128 | $ | 36,442 | $ | 1,104,004 | ||||||||||||
| Adjustments | ||||||||||||||||||||
| Income tax expense | 988 | 58 | 988 | 58 | ||||||||||||||||
| Interest income, net | (3,781 | ) | (8,939 | ) | (15,266 | ) | (20,455 | ) | ||||||||||||
| Share of loss from investments in equity accounted investees | 1,327 | 565 | 3,293 | 1,504 | ||||||||||||||||
| Gain on revaluation of derivative liabilities | (105,307 | ) | (632,482 | ) | (182,795 | ) | (1,158,008 | ) | ||||||||||||
| Impairment loss on goodwill and intangible assets | — | — | 40,000 | — | ||||||||||||||||
| Financing and transaction costs | 40 | 6,083 | 40 | 31,684 | ||||||||||||||||
| Other (income) loss | (318 | ) | (147 | ) | (334 | ) | (147 | ) | ||||||||||||
| Loss on reclassification of held-for-sale assets | 919 | — | 919 | — | ||||||||||||||||
| Gain on disposal of other investments | (3,974 | ) | — | (4,743 | ) | (16,242 | ) | |||||||||||||
| Loss (income) from discontinued operations | 473 | 36 | 519 | 63 | ||||||||||||||||
| Review and defense costs related to restatement of 2019 interim financial statements | 958 | — | 8,824 | — | ||||||||||||||||
| Share-based payments | 7,916 | 3,531 | 12,898 | 7,949 | ||||||||||||||||
| Adjusted EBIT | (32,295 | ) | (27,167 | ) | (99,215 | ) | (49,590 | ) | ||||||||||||
| Adjustments | ||||||||||||||||||||
| Depreciation and amortization | 2,216 | 1,782 | 5,095 | 2,956 | ||||||||||||||||
| Adjusted EBITDA | $ | (30,079 | ) | $ | (25,385 | ) | $ | (94,120 | ) | $ | (46,634 | ) | ||||||||
Special Items
Management does not view any of the following special items to be part of the underlying results as they may be highly variable, may be infrequent, may be unpredictable and may distort underlying business results and trends.
Impairment loss on goodwill and intangible assets
- During the nine months ended
September 30, 2020 , the Company recorded$35.0 million of impairment charges on theU.S. reporting unit and$5.0 million of impairment charges on the Lord Jones™ brand. The carrying values of both theU.S. reporting segment goodwill and the Lord Jones™ brand were deemed to be greater than their fair value after an impairment test was performed because results in theU.S. operating segment were negatively impacted by the effects of COVID-19. - During the three and nine months ended
September 30, 2019 , the Company recorded no impairment charges on goodwill or intangible assets.
Financing and transaction costs
- During the three and nine months ended
September 30, 2020 , there were financing or transaction costs of$0.04 million . - During the three and nine months ended
September 30, 2019 , the Company recorded pre-tax charges of$6.1 million and$31.7 million , respectively, primarily related to theAltria Investment .
Gain (loss) on revaluation of derivative liabilities
- During the three and nine months ended
September 30, 2020 ,Cronos Group recorded unrealized gains of$105.3 million and$182.8 million , respectively, primarily resulting from the non-cash change in the fair value of financial derivative liabilities associated with the investment by Altria. - During the three and nine months ended
September 30, 2019 , the unrealized gain resulting from the non-cash change in the fair value of the financial derivative liabilities was$632.5 million and$1,158.0 million , respectively.
Review costs related to restatement of 2019 interim financial statements
- During the three and nine months ended
September 30, 2020 , the Company incurred$1.0 million and$8.8 million , respectively, in review costs related to the restatement of the Company's 2019 interim financial statements and costs related to the Company's responses to reviews of such restatement by various regulatory authorities. - During the three and nine months ended
September 30, 2019 , the Company recorded no costs related to the restatement of previously issued financial statements.
Gain on disposal of other investments
- During the three and nine months ended
September 30, 2020 , the Company recognized gains of$4.0 million and$4.7 million , respectively, in connection with the receipt of Aurora Cannabis shares after the achievement of milestones related to the Company's sale ofWhistler Medical Marijuana Company inMarch 2019 . - During the nine months ended
September 30, 2019 , the Company recorded a gain on disposal of other investments of$16.2 million related to the sale of Aurora Cannabis shares in connection with the sale ofWhistler Medical Marijuana Company as well as the sale of common shares of Canopy Growth Corporation.
Foreign currency exchange rates
All currency amounts in this Press Release are stated in
The exchange rates used to translate from USD to Canadian dollars (“C$”) is shown below:
| (Exchange rates are shown as C$ per $) | As of | ||||||||
| Average rate(i) | 1.3323 | 1.3856 | 1.3437 | 1.3268 | 1.3204 | ||||
| Spot rate | 1.3308 | 1.3576 | 1.4062 | 1.2990 | 1.3241 | ||||
(i) Average rates are three months ended. The year-to-date average rate used for the nine months ended
For further information, please contact:
Investor Relations
Tel: (416) 504-0004
investor.relations@thecronosgroup.com
Source: Cronos Group Inc.