Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) (“Cronos Group”
or the “Company”), today announces its 2020 second quarter business
results.
“In the second quarter of 2020, we continued our
progress despite unprecedented shifts in our industry and the
global economy. We officially entered the Israeli medical cannabis
market, with Cronos Israel commencing the sale of PEACE NATURALS™
branded dried flower products to medical patients. During these
extraordinary times, it is very encouraging to see that we are
making progress against our strategy across our global footprint,"
said Mike Gorenstein, CEO of Cronos Group.
"While following safety guidelines, our
employees are finding new and creative ways to keep our production,
manufacturing, and R&D facilities operating, and we are
bringing new products and brands to markets across the globe.
Cronos Group was founded on the mission to improve people’s lives
by unlocking the full potential of cannabis and our Company is very
proud to be at the forefront of providing safe access and
high-quality products to patients and consumers around the
world.”
Financial Results
(in thousands of U.S.
dollars) |
|
Three months ended June 30, |
|
Change |
|
Six months ended June 30, |
|
Change |
|
|
2020 |
|
2019 |
|
$ |
|
% |
|
2020 |
|
2019 |
|
$ |
|
% |
Net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
2,174 |
|
|
|
$ |
— |
|
|
|
$ |
2,174 |
|
|
|
N/A |
|
$ |
4,350 |
|
|
|
$ |
— |
|
|
|
$ |
4,350 |
|
|
|
N/A |
Rest of World |
|
7,709 |
|
|
|
7,653 |
|
|
|
56 |
|
|
|
1 |
|
% |
|
13,965 |
|
|
|
10,657 |
|
|
|
3,308 |
|
|
|
31 |
|
% |
Consolidated net revenue |
|
9,883 |
|
|
|
7,653 |
|
|
|
2,230 |
|
|
|
29 |
|
% |
|
18,315 |
|
|
|
10,657 |
|
|
|
7,658 |
|
|
|
72 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
$ |
(2,953 |
) |
|
|
$ |
4,093 |
|
|
|
$ |
(7,046 |
) |
|
|
(172 |
) |
% |
|
$ |
(9,429 |
) |
|
|
$ |
5,648 |
|
|
|
$ |
(15,077 |
) |
|
|
(267 |
) |
% |
Gross margin |
|
(30 |
) |
% |
|
53 |
|
% |
|
— |
|
|
|
(83 |
) |
pp |
|
(51 |
) |
% |
|
53 |
|
% |
|
— |
|
|
|
(104 |
) |
pp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported operating loss |
|
$ |
(34,755 |
) |
|
|
$ |
(16,755 |
) |
|
|
$ |
(18,000 |
) |
|
|
107 |
|
% |
|
$ |
(79,815 |
) |
|
|
$ |
(26,881 |
) |
|
|
$ |
(52,934 |
) |
|
|
197 |
|
% |
Adjusted operating loss
(i) |
|
(31,296 |
) |
|
|
(16,755 |
) |
|
|
(14,541 |
) |
|
|
87 |
|
% |
|
(71,949 |
) |
|
|
(26,881 |
) |
|
|
(45,068 |
) |
|
|
168 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
(ii) |
|
1,109,700 |
|
|
|
1,206,059 |
|
|
|
(96,359 |
) |
|
|
(8 |
) |
% |
|
|
|
|
|
|
|
|
Short-term investments
(ii) |
|
213,614 |
|
|
|
568,908 |
|
|
|
(355,294 |
) |
|
|
(62 |
) |
% |
|
|
|
|
|
|
|
|
Capital expenditures |
|
8,582 |
|
|
|
11,231 |
|
|
|
(2,649 |
) |
|
|
(24 |
) |
% |
|
16,098 |
|
|
|
21,388 |
|
|
|
(5,290 |
) |
|
|
(25 |
) |
% |
(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.
Second Quarter 2020
- Net revenue of $9.9 million in Q2 2020 increased by $2.2
million from Q2 2019. The increase year-over-year was primarily
driven by continued growth in the adult-use Canadian cannabis
market, sales resulting from the launch of cannabis vaporizers in
the Canadian market, including both adult-use and
direct-to-consumer, and the inclusion of the Redwood acquisition in
our financial results, partially offset by non-recurring wholesale
revenue in the Canadian market in Q2 2019.
- Gross profit (loss) was $(3.0) million in Q2 2020 as compared
to $4.1 million in Q2 2019. The decrease year-over-year was
primarily driven by an increase in cost of sales driven by a higher
volume of adult-use sales and the lack of wholesale revenue, as
well as an inventory write-down of $3.1 million on dried cannabis
and cannabis extracts.
- The Company incurred an inventory write-down of $3.1 million,
on dried cannabis and cannabis extracts, primarily driven by
cannabis product price compression in the Canadian market. If we
were to adjust for the effects of the inventory write-downs, gross
profit in Q2 2020 would have been $0.1 million, representing a
gross margin of 1%. We anticipate further inventory write-downs due
to pricing pressures in the marketplace, as well as increased
marginal production costs at the Peace Naturals Campus.
- Reported operating loss of $34.8 million in Q2 2020 increased
by $18.0 million from Q2 2019. The change year-over-year was
primarily driven by a decrease in gross profit, an increase in
general and administrative expenses as a result of increased
headcount, review costs and costs related to the Company's
responses to requests for information from various regulatory
authorities related to the restatement of our 2019 interim
financial statements totaling $3.5 million, higher sales and
marketing costs related to brand development, and research and
development costs related to increased spending at the Cronos
Device Labs R&D center and upscaling activities at Cronos
Fermentation.
Business Updates
Brand Portfolio
During the quarter, we continued to expand
distribution of cannabis vaporizer devices in the Canadian
adult-use market under the COVE™ and Spinach™ brands, and for the
direct-to-consumer market in Canada under the PEACE
NATURALS™ brand.
In June 2020, Cronos Group’s luxury hemp-derived
CBD brand, Lord Jones™, launched the Lord Jones Limited Edition
Pride hemp-derived CBD Gumdrops to the United States ("U.S.")
market. These special edition gumdrops were designed to honor the
LGBTQ community with a percentage of profits donated to the West
Hollywood-based group, LA Pride. In addition, Lord
Jones™ launched a new product size for the best-selling Lord
Jones CBD Body Lotion, which is now available in a larger 100ml
bottle.
Global Sales and
Distribution
In June 2020, following the successful export of
bulk dried flower from Cronos Group to Cronos Israel in April 2020,
Cronos Israel commenced sales of PEACE NATURALS™ branded
cannabis to the Israeli medical market. Cronos Israel will continue
to build distribution of dried flower while it awaits final
licensing for the sale of oils and pre-rolls, which are currently
expected to be received later in 2020. Cronos Israel will seek to
continue to build its distribution network and brand presence in
this rapidly growing medical market.
Global Supply Chain
During the second quarter of 2020, Natuera, the
Company's contract manufacturing joint venture in Latin America, a
fully licensed operation in Colombia for hemp- and cannabis-derived
bulk, consumer, and medicinal cannabinoid products, continued to
achieve significant operational milestones. At the end of April
2020, Natuera completed its first harvest of a non-psychoactive
(hemp) cultivar registered with the Colombian Agricultural
Institute. Between May 2020 and July 2020, Natuera successfully
completed three test exports of hemp-derived CBD extract to the
U.S. for business development and R&D purposes.
With its extraction facility commencing
operations in the first quarter of 2020, Natuera is currently
focused on accessing new markets and product development, including
developing additional bulk offerings of hemp-derived CBD distillate
and water-soluble hemp-derived CBD solutions.
Enterprise Initiatives
Subsequent to the second quarter, the Company
successfully implemented a new enterprise resource planning (“ERP”)
system across the Canadian business. Cronos Group has also
commenced work to broaden the reach of our ERP system to the U.S.
business, which is currently expected to be launched in the first
half of 2021. The new ERP system will be a meaningful component of
the Company's internal control over financial reporting and is
expected to enable us to realize efficiencies throughout our supply
chain and operations.
Appointments
Cronos Group continues to build and fortify a
seasoned management team. Subsequent to the second quarter,
following the resignation of Robert Rosenheck on July 20, 2020,
Summer Frein was named General Manager of the U.S. hemp-derived CBD
business, with oversight of sales, marketing, and operations. Ms.
Frein joined Cronos Group in January of this year; however, she has
worked with Cronos Group in various capacities since 2018.
Previously, Ms. Frein was employed with Altria Group, Inc.
("Altria"), where she led the Strategy and Business Development
team’s due diligence in the cannabis space which culminated in
Cronos Group’s strategic investment from Altria. Most recently, she
was responsible for leading the Company's U.S. sales efforts,
including managing brand and retail partnerships for Lord Jones™.
Under Ms. Frein’s leadership, the Company plans to further expand
its U.S. hemp-derived business, including introducing new product
formats under Lord Jones™ and launching new brands, that will
target different retail channels and consumers.
Update on COVID-19
Cronos Group’s manufacturing sites have adjusted
in order to comply with the current COVID-19 guidelines provided by
local and federal governments. The Company has reduced the number
of personnel working on-site at its production facilities in the
U.S., Canada, and Israel to essential employees, implemented
work-from-home policies where appropriate, and implemented
additional health and safety measures, including enhanced hygiene
and sanitation procedures, modified work schedules and social
distancing protocols at its production facilities. The Company 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.
While the production and sale of cannabis have
been generally allowed to continue in the various geographies in
which Cronos Group operates, due to ongoing developments and
uncertainty resulting from the COVID-19 pandemic, it has been
difficult to predict the continuing impact that COVID-19 will have
on the Company. During the second quarter of 2020, the Company
determined that there had been a material impact on the Company’s
revenue growth rate in the U.S. segment as a result of the effects
from COVID-19. A significant number of the Company’s retail
customers experienced store closures in connection with COVID-19
which negatively impacted sales and demand in the segment. Further
decreases in consumer demand, increases in COVID-19 case numbers in
various states in the U.S. and extended periods of retail store
closure could result in negative impacts on future operating
results. As a result, the Company recorded $35 million of
impairment charges on its U.S. reporting unit and $5 million of
impairment charges on the Lord Jones™ brand.
Revenue in the Rest of World segment was not
materially impacted by the effects of COVID-19 during the three or
six months ended June 30, 2020. In Canada, brick-and-mortar
cannabis retailers in certain provinces have mandated curbside
click-and-collect models, reduced store opening hours, or have
closed retail entirely. Provincial purchasers and private retailers
have also reduced staff on-site, which has led to a decrease in
delivery availability and a reduction in the frequency and/or size
of purchase orders. Online cannabis stores throughout Canada have
remained operational.
The Company currently has sufficient inventory
and supply of materials to meet current demand, although closures,
quarantine requirements or other restrictions may impact business
operations for third-party manufacturers, suppliers or vendors,
which may in turn disrupt the Company's 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.
(in thousands of
USD) |
|
Three months ended June 30, |
|
Change |
|
Six months ended June 30, |
|
Change |
|
|
2020 |
|
2019 |
|
$ |
|
% |
|
2020 |
|
2019 |
|
$ |
|
% |
Cannabis
flower |
|
$ |
5,674 |
|
|
|
$ |
6,096 |
|
|
|
$ |
(422 |
) |
|
|
(7 |
) |
% |
|
$ |
8,415 |
|
|
|
$ |
7,921 |
|
|
|
$ |
494 |
|
|
|
6 |
|
% |
Cannabis
extracts |
|
1,917 |
|
|
|
1,535 |
|
|
|
382 |
|
|
|
25 |
|
% |
|
5,317 |
|
|
|
2,638 |
|
|
|
2,679 |
|
|
|
102 |
|
% |
Other |
|
118 |
|
|
|
22 |
|
|
|
96 |
|
|
|
436 |
|
% |
|
233 |
|
|
|
98 |
|
|
|
135 |
|
|
|
138 |
|
% |
Net revenue |
|
7,709 |
|
|
|
7,653 |
|
|
|
56 |
|
|
|
1 |
|
% |
|
13,965 |
|
|
|
10,657 |
|
|
|
3,308 |
|
|
|
31 |
|
% |
|
|
|
|
|
|
|
|
|
Gross profit
(loss) |
|
$ |
(3,540 |
) |
|
|
$ |
4,093 |
|
|
|
$ |
(7,633 |
) |
|
|
(186 |
) |
% |
|
$ |
(11,098 |
) |
|
|
$ |
5,648 |
|
|
|
$ |
(16,746 |
) |
|
|
(296 |
) |
% |
Gross margin |
|
(46 |
) |
% |
|
53 |
|
% |
|
— |
|
|
|
(99 |
) |
pp |
|
(79 |
) |
% |
|
53 |
|
% |
|
— |
|
|
|
(132 |
) |
pp |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported and
adjusted operating loss |
|
$ |
(22,138 |
) |
|
|
$ |
(16,755 |
) |
|
|
$ |
(5,383 |
) |
|
|
32 |
|
% |
|
$ |
(54,005 |
) |
|
|
$ |
(26,881 |
) |
|
|
$ |
(27,124 |
) |
|
|
101 |
|
% |
(i) See “Non-GAAP Measures” for
more information, including a reconciliation of adjusted
operating loss.
Second Quarter 2020
- Net revenue of $7.7 million in Q2 2020 increased by $0.1
million from Q2 2019. The increase year-over-year was primarily
driven by continued growth in the adult-use Canadian cannabis
market and sales resulting from the launch of cannabis vaporizers
to the Canadian market, including both adult-use and
direct-to-consumer, partially offset by non-recurring wholesale
revenue in the Canadian market in Q2 2019.
- Gross profit (loss) was $(3.5) million in Q2 2020 as compared
to $4.1 million in Q2 2019. The decrease year-over-year was
primarily driven by an increase in cost of sales driven by a higher
volume of adult-use sales and the lack of wholesale revenue, as
well as an inventory write-down of $3.1 million on dried cannabis
and cannabis extracts.
- The Company incurred an inventory write-down of $3.1 million,
on dried cannabis and cannabis extracts, primarily driven by
cannabis product price compression in the Canadian market. If we
were to adjust for the effects of the inventory write-downs, gross
profit (loss) in Q2 2020, would have been $(0.5) million,
representing a gross margin of (6)%. We anticipate further
inventory write-downs due to pricing pressures in the marketplace,
as well as increased marginal production costs at the Peace
Naturals Campus.
- Reported operating loss of $(22.1) million in Q2 2020 increased
by $5.4 million from Q2 2019. The change year-over-year was
primarily driven by a decrease in gross profit and an increase in
research and development costs related to increased spending at the
Cronos Device Labs R&D center and upscaling activities at
Cronos Fermentation.
United States Results
Cronos Group’s U.S. reporting segment includes
results of the Company’s operations for all brands and products in
the U.S.
(in thousands of
USD) |
|
Three months ended June 30, |
|
Change |
|
Six months ended June 30, |
|
Change |
|
|
2020 |
|
2019 |
|
$ |
|
% |
|
2020 |
|
2019 |
|
$ |
|
% |
Net revenue |
|
$ |
2,174 |
|
|
|
$ |
— |
|
|
N/A |
|
N/A |
|
$ |
4,350 |
|
|
|
$ |
— |
|
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
587 |
|
|
|
$ |
— |
|
|
N/A |
|
N/A |
|
$ |
1,669 |
|
|
|
$ |
— |
|
|
N/A |
|
N/A |
Gross margin |
|
27 |
|
% |
|
— |
|
|
— |
|
|
N/A |
|
38 |
|
% |
|
— |
|
|
— |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
operating loss |
|
$ |
(5,575 |
) |
|
|
$ |
— |
|
|
N/A |
|
N/A |
|
$ |
(12,098 |
) |
|
|
$ |
— |
|
|
N/A |
|
N/A |
Second Quarter 2020
- Net revenue was $2.2 million in Q2 2020, of which the primary
contributors to revenue in the quarter were the continued
distribution of products in both e-commerce and physical retail
channels which has been somewhat restricted by the temporary
closure of a significant number of customers’ physical retail
stores as a result of COVID-19 preventive measures.
- Gross profit was $0.6 million in Q2 2020, representing a gross
margin of 27%. The sequential decline in gross margin from 50% in
Q1 2020 was driven by an increase in labor costs due to premiums
paid to our essential employees during the COVID-19 pandemic as
well as increased discounts and promotions in the
direct-to-consumer channel to drive online sales growth in an
effort to offset the negative impact of retail channel customer
closures due to COVID-19.
- Reported operating loss was $(5.6) million in Q2 2020. The loss
was driven by a decrease in gross profit, increased sales and
marketing costs incurred in relation to the launch of new products
and increased general and administrative expenses driven by
increased headcount to support our growth strategy across a variety
of functions.
Conference Call
The Company will host a conference call and live
audio webcast on Thursday, August 6, 2020, at 8:30 a.m. EDT to
discuss 2020 second quarter business results. 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: 9993888
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 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 to
U.S. hemp (including CBD) products and the scope of any regulations
by the U.S. Federal Drug Administration, the U.S. Federal Trade
Commission, the U.S. Patent and Trademark Office and any state
equivalent regulatory agencies over U.S. hemp (including CBD)
products;
- 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 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 four Redwood 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;
- 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 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
in Winnipeg, Manitoba;
- 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; 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
demand for and use of our products; the risk that cost savings and
any other synergies from the Altria Investment may not be fully
realized or may take longer to realize than expected; disruption of
production, distribution and sales as a result of the COVID-19
pandemic and any adverse effects the COVID-19 pandemic has on the
demand for and use of our products; 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, regulatory
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 the Company's Annual Report on Form 10-K for the year
ended December 31, 2019 (as amended) and the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2020.
Readers are cautioned to consider these and other factors,
uncertainties and potential events carefully and not to put undue
reliance on Forward-Looking Statements.
Forward-Looking Statements are provided for the
purposes of assisting the reader in understanding our financial
performance, financial position and cash flows as of and for
periods ended on certain dates and to present information about
management’s current expectations and plans relating to the future,
and the reader is cautioned that the Forward-Looking Statements may
not be appropriate for any other purpose. While we believe that the
assumptions and expectations reflected in the Forward-Looking
Statements are reasonable based on information currently available
to management, there is no assurance that such assumptions and
expectations will prove to have been correct. Forward-Looking
Statements are made as of the date they are made and are based on
the beliefs, estimates, expectations and opinions of management on
that date. We undertake no obligation to update or revise any
Forward-Looking Statements, whether as a result of new information,
estimates or opinions, future events or results or otherwise or to
explain any material difference between subsequent actual events
and such Forward-Looking Statements. The Forward-Looking Statements
contained in this press release and other reports we file with, or
furnish to, the SEC and other regulatory agencies and made by our
directors, officers, other employees and other persons authorized
to speak on our behalf are expressly qualified in their entirety by
these cautionary statements.
As used in this press release, “CBD” means
cannabidiol and “U.S. hemp” has the meaning given to the term
“hemp” in the U.S. Agricultural Improvement Act of 2018, including
hemp-derived CBD.
Cronos Group Inc. |
Condensed Consolidated Balance
Sheets |
As of June 30, 2020 and
December 31, 2019 |
(In thousands of U.S. dollars, except
share amounts, unaudited) |
|
As of |
|
June 30, 2020 |
|
December 31, 2019 |
Assets |
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
$ |
1,109,700 |
|
|
|
$ |
1,199,693 |
|
|
Short-term investments |
213,614 |
|
|
|
306,347 |
|
|
Accounts receivable(1) |
3,477 |
|
|
|
4,638 |
|
|
Other receivables |
9,568 |
|
|
|
7,232 |
|
|
Current portion of loans receivable |
4,458 |
|
|
|
4,664 |
|
|
Prepaids and other assets |
7,827 |
|
|
|
9,395 |
|
|
Inventory |
53,216 |
|
|
|
38,043 |
|
|
Total current assets |
1,401,860 |
|
|
|
1,570,012 |
|
|
Investments in equity accounted investees |
933 |
|
|
|
557 |
|
|
Advances to joint ventures |
18,598 |
|
|
|
19,437 |
|
|
Loan receivable, net |
65,371 |
|
|
|
44,967 |
|
|
Property, plant and equipment |
164,290 |
|
|
|
161,809 |
|
|
Right-of-use assets |
10,100 |
|
|
|
6,546 |
|
|
Intangible assets |
69,399 |
|
|
|
72,320 |
|
|
Goodwill |
179,736 |
|
|
|
214,794 |
|
|
Total
assets |
$ |
1,910,287 |
|
|
|
$ |
2,090,442 |
|
|
|
|
|
|
Liabilities |
|
|
|
Current
liabilities |
|
|
|
Accounts payable and other liabilities |
$ |
28,316 |
|
|
|
$ |
35,301 |
|
|
Current portion of lease obligation |
1,206 |
|
|
|
427 |
|
|
Derivative liabilities |
205,714 |
|
|
|
297,160 |
|
|
Total current liabilities |
235,236 |
|
|
|
332,888 |
|
|
Due to non-controlling interests |
3,048 |
|
|
|
1,844 |
|
|
Lease obligation |
8,958 |
|
|
|
6,680 |
|
|
Total
liabilities |
$ |
247,242 |
|
|
|
$ |
341,412 |
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
Share capital(2,3) |
$ |
565,211 |
|
|
|
$ |
561,165 |
|
|
Additional paid-in capital |
27,046 |
|
|
|
23,234 |
|
|
Retained earnings |
1,106,709 |
|
|
|
1,137,646 |
|
|
Accumulated other comprehensive income (loss) |
(33,970 |
) |
|
|
27,838 |
|
|
Total equity attributable to shareholders of Cronos Group |
1,664,996 |
|
|
|
1,749,883 |
|
|
Non-controlling interests |
(1,951 |
) |
|
|
(853 |
) |
|
Total
shareholders’ equity |
1,663,045 |
|
|
|
1,749,030 |
|
|
Total
liabilities and shareholders’ equity |
$ |
1,910,287 |
|
|
|
$ |
2,090,442 |
|
|
(1) Net of current expected credit loss (“CECL”) of $80 as of
June 30, 2020 (December 31, 2019 – $136). (2) Authorized
for issuance as of June 30, 2020: unlimited (December 31, 2019
– unlimited). (3) Shares issued as of June 30, 2020:
349,886,402 (as of December 31, 2019: 348,817,472).
Cronos Group Inc. |
|
|
|
Condensed Consolidated
Statements of Net Income (Loss) and Comprehensive Income
(Loss) |
For the three and six
months ended June 30, 2020 and 2019 |
(In thousands of U.S. dollars,
except share amounts, unaudited) |
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net revenue,
before excise taxes |
$ |
11,432 |
|
|
|
$ |
8,064 |
|
|
|
$ |
20,776 |
|
|
|
$ |
11,455 |
|
|
Excise taxes |
(1,549 |
) |
|
|
(411 |
) |
|
|
(2,461 |
) |
|
|
(798 |
) |
|
Net
revenue |
9,883 |
|
|
|
7,653 |
|
|
|
18,315 |
|
|
|
10,657 |
|
|
Cost of sales |
9,774 |
|
|
|
3,560 |
|
|
|
16,720 |
|
|
|
5,009 |
|
|
Inventory write-down |
3,062 |
|
|
|
— |
|
|
|
11,024 |
|
|
|
— |
|
|
Gross profit
(loss) |
(2,953 |
) |
|
|
4,093 |
|
|
|
(9,429 |
) |
|
|
5,648 |
|
|
Operating
expenses |
|
|
|
|
|
|
|
Sales and marketing |
6,504 |
|
|
|
4,005 |
|
|
|
13,616 |
|
|
|
5,133 |
|
|
Research and development (“R&D”) |
3,631 |
|
|
|
2,300 |
|
|
|
8,221 |
|
|
|
3,471 |
|
|
General and administrative |
18,437 |
|
|
|
11,488 |
|
|
|
42,196 |
|
|
|
18,781 |
|
|
Share-based payments |
2,546 |
|
|
|
2,647 |
|
|
|
4,982 |
|
|
|
4,418 |
|
|
Depreciation and amortization |
684 |
|
|
|
408 |
|
|
|
1,371 |
|
|
|
726 |
|
|
Total operating expenses |
31,802 |
|
|
|
20,848 |
|
|
|
70,386 |
|
|
|
32,529 |
|
|
Operating
loss |
(34,755 |
) |
|
|
(16,755 |
) |
|
|
(79,815 |
) |
|
|
(26,881 |
) |
|
Other income
(expense) |
|
|
|
|
|
|
|
Interest income, net |
3,734 |
|
|
|
9,442 |
|
|
|
11,485 |
|
|
|
11,528 |
|
|
Share of loss from investments in equity accounted investees |
(794 |
) |
|
|
(741 |
) |
|
|
(1,966 |
) |
|
|
(939 |
) |
|
Gain (loss) on revaluation of derivative liabilities |
(35,880 |
) |
|
|
197,310 |
|
|
|
77,488 |
|
|
|
525,526 |
|
|
Impairment loss on goodwill and intangible assets |
(40,000 |
) |
|
|
— |
|
|
|
(40,000 |
) |
|
|
— |
|
|
Financing and transaction costs |
— |
|
|
|
(3,368 |
) |
|
|
— |
|
|
|
(25,601 |
) |
|
Other income (loss) |
(8 |
) |
|
|
— |
|
|
|
786 |
|
|
|
16,243 |
|
|
Total other income (loss) |
(72,948 |
) |
|
|
202,643 |
|
|
|
47,793 |
|
|
|
526,757 |
|
|
Income (loss) before
income taxes |
(107,703 |
) |
|
|
185,888 |
|
|
|
(32,022 |
) |
|
|
499,876 |
|
|
Income tax
expense |
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net income (loss) |
$ |
(107,703 |
) |
|
|
$ |
185,888 |
|
|
|
$ |
(32,022 |
) |
|
|
$ |
499,876 |
|
|
Net income
(loss) attributable to: |
|
|
|
|
|
|
|
Cronos Group |
$ |
(106,977 |
) |
|
|
$ |
185,999 |
|
|
|
$ |
(30,937 |
) |
|
|
$ |
500,090 |
|
|
Non-controlling interests |
(726 |
) |
|
|
(111 |
) |
|
|
(1,085 |
) |
|
|
(214 |
) |
|
|
$ |
(107,703 |
) |
|
|
$ |
185,888 |
|
|
|
$ |
(32,022 |
) |
|
|
$ |
499,876 |
|
|
Other
comprehensive income (loss) |
|
|
|
|
|
|
|
Foreign exchange gain (loss) on translation |
$ |
51,871 |
|
|
|
$ |
17,947 |
|
|
|
$ |
(61,821 |
) |
|
|
$ |
21,845 |
|
|
Total other comprehensive income (loss) |
51,871 |
|
|
|
17,947 |
|
|
|
(61,821 |
) |
|
|
21,845 |
|
|
Comprehensive income (loss) |
$ |
(55,832 |
) |
|
|
$ |
203,835 |
|
|
|
$ |
(93,843 |
) |
|
|
$ |
521,721 |
|
|
Comprehensive income (loss) attributable to: |
|
|
|
|
|
|
|
Cronos Group |
$ |
(55,070 |
) |
|
|
$ |
203,947 |
|
|
|
$ |
(92,745 |
) |
|
|
$ |
521,932 |
|
|
Non-controlling interests |
(762 |
) |
|
|
(112 |
) |
|
|
(1,098 |
) |
|
|
(211 |
) |
|
|
$ |
(55,832 |
) |
|
|
$ |
203,835 |
|
|
|
$ |
(93,843 |
) |
|
|
$ |
521,721 |
|
|
Net income
(loss) per share |
|
|
|
|
|
|
|
Basic |
$ |
(0.31 |
) |
|
|
$ |
0.56 |
|
|
|
$ |
(0.09 |
) |
|
|
$ |
1.57 |
|
|
Diluted |
(0.31 |
) |
|
|
0.16 |
|
|
|
(0.09 |
) |
|
|
0.41 |
|
|
Weighted
average number of outstanding shares |
|
|
|
|
|
|
|
Basic |
349,075,408 |
|
|
|
334,665,873 |
|
|
|
348,946,439 |
|
|
|
317,940,749 |
|
|
Diluted |
349,075,408 |
|
|
|
374,676,595 |
|
|
|
348,946,439 |
|
|
|
364,872,093 |
|
|
Cronos
Group Inc. |
|
Condensed Consolidated Statements of Cash
Flows |
For the
six months ended June 30, 2020 and 2019 |
|
(In
thousands of U.S. dollars, except share amounts, unaudited) |
|
Six months ended June 30, |
|
2020 |
|
2019 |
Operating
activities |
|
|
|
Net (loss)
income |
$ |
(32,022 |
) |
|
|
$ |
499,876 |
|
|
Items not affecting
cash: |
|
|
|
Inventory write-down |
11,024 |
|
|
|
— |
|
|
Share-based payments |
4,982 |
|
|
|
4,418 |
|
|
Depreciation and amortization |
2,879 |
|
|
|
1,174 |
|
|
Share of loss from investments in equity accounted investees |
1,966 |
|
|
|
939 |
|
|
Gain on revaluation of derivative liabilities |
(77,488 |
) |
|
|
(525,526 |
) |
|
Gain on disposal of other investments |
(769 |
) |
|
|
(15,498 |
) |
|
Impairment loss on goodwill and intangible assets |
40,000 |
|
|
|
— |
|
|
Loss (gain) on unrealized foreign exchange |
(1,097 |
) |
|
|
184 |
|
|
Provision for doubtful accounts |
1,437 |
|
|
|
— |
|
|
Non-cash sales and marketing |
2,158 |
|
|
|
— |
|
|
Other, net |
307 |
|
|
|
(745 |
) |
|
Net changes in non-cash working capital |
(30,570 |
) |
|
|
(21,591 |
) |
|
Cash flows used in operating activities |
(77,193 |
) |
|
|
(56,769 |
) |
|
Investing
activities |
|
|
|
Purchase of short-term investments |
(124,576 |
) |
|
|
(556,876 |
) |
|
Proceeds from disposal of short-term investments |
203,678 |
|
|
|
— |
|
|
Investments in equity accounted investees |
— |
|
|
|
(1,658 |
) |
|
Proceeds from sale of other investments |
769 |
|
|
|
19,614 |
|
|
Advances to joint ventures |
— |
|
|
|
(15,990 |
) |
|
Purchase of property, plant and equipment |
(13,344 |
) |
|
|
(20,918 |
) |
|
Payment of accrued interest on construction loan payable |
— |
|
|
|
(89 |
) |
|
Purchase of intangible assets |
(2,754 |
) |
|
|
(470 |
) |
|
Advances on loans receivable |
(23,974 |
) |
|
|
(12,222 |
) |
|
Cash flows provided (used) in investing activities |
39,799 |
|
|
|
(588,609 |
) |
|
Financing
activities |
|
|
|
Advance from non-controlling interests |
— |
|
|
|
85 |
|
|
Repayment of lease obligations |
(1,184 |
) |
|
|
(160 |
) |
|
Proceeds from Altria Investment |
— |
|
|
|
1,809,556 |
|
|
Proceeds from exercise of Top-up Rights |
— |
|
|
|
619 |
|
|
Proceeds from exercise of warrants and options |
1 |
|
|
|
1,450 |
|
|
Withholding taxes paid on options |
— |
|
|
|
(836 |
) |
|
Share issuance costs |
— |
|
|
|
(3,718 |
) |
|
Advance of loans payable |
— |
|
|
|
48,715 |
|
|
Repayment of loans payable |
— |
|
|
|
(48,309 |
) |
|
Transaction costs paid on construction loan payable |
— |
|
|
|
(15,971 |
) |
|
Cash flows provided (used) in financing activities |
(1,183 |
) |
|
|
1,791,431 |
|
|
Effect of foreign
currency translation on cash and cash equivalents |
(51,416 |
) |
|
|
36,079 |
|
|
Increase (decrease)
in cash and cash equivalents |
(89,993 |
) |
|
|
1,182,132 |
|
|
Cash and cash
equivalents, beginning of period |
1,199,693 |
|
|
|
23,927 |
|
|
Cash and cash equivalents, end of period |
$ |
1,109,700 |
|
|
|
$ |
1,206,059 |
|
|
Supplemental
cash flow information |
|
|
|
Interest paid |
90 |
|
|
|
589 |
|
|
Interest received |
11,575 |
|
|
|
7,871 |
|
|
Non-GAAP Measures
In addition to its financial results reported in
accordance with accounting principles generally recognized in the
U.S. ("GAAP"), the Company uses certain measures that 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 financial measures 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 lossManagement 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
USD) |
|
For the three months ended June 30, |
|
For the six months ended June 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Reported
operating loss |
|
$ |
(34,755 |
) |
|
|
$ |
(16,755 |
) |
|
|
$ |
(79,815 |
) |
|
|
$ |
(26,881 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
Review costs related to restatement of 2019 interim financial
statements |
|
3,459 |
|
|
|
— |
|
|
|
7,866 |
|
|
|
— |
|
|
Adjusted
operating loss |
|
$ |
(31,296 |
) |
|
|
$ |
(16,755 |
) |
|
|
$ |
(71,949 |
) |
|
|
$ |
(26,881 |
) |
|
Adjusted operating loss by business
segmentManagement 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
USD) |
For the three months ended June 30, 2020 |
|
U.S. |
|
Rest of World |
|
Total Segments |
|
Corporate Expenses |
|
Total |
Reported
operating loss |
$ |
(5,575 |
) |
|
|
$ |
(22,138 |
) |
|
|
$ |
(27,713 |
) |
|
|
$ |
(7,042 |
) |
|
|
$ |
(34,755 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
|
Review costs related to restatement of 2019 interim financial
statements |
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,459 |
|
|
|
3,459 |
|
|
Adjusted
operating loss |
$ |
(5,575 |
) |
|
|
$ |
(22,138 |
) |
|
|
$ |
(27,713 |
) |
|
|
$ |
(3,583 |
) |
|
|
$ |
(31,296 |
) |
|
(In thousands of
USD) |
For the six months ended June 30, 2020 |
|
U.S. |
|
Rest of World |
|
Total Segments |
|
Corporate Expenses |
|
Total |
Reported
operating loss |
$ |
(12,098 |
) |
|
|
$ |
(54,005 |
) |
|
|
$ |
(66,103 |
) |
|
|
$ |
(13,712 |
) |
|
|
$ |
(79,815 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
|
Review costs related to restatement of 2019 interim financial
statements |
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,866 |
|
|
|
7,866 |
|
|
Adjusted
operating loss |
$ |
(12,098 |
) |
|
|
$ |
(54,005 |
) |
|
|
$ |
(66,103 |
) |
|
|
$ |
(5,846 |
) |
|
|
$ |
(71,949 |
) |
|
Adjusted EBITDAAdjusted 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) and other unforeseeable, non-recurring charges which
management has described below.
(in thousands of
USD) |
|
For the three months ended June 30, |
|
For the six months ended June 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net income
(loss) |
|
$ |
(107,703 |
) |
|
|
$ |
185,888 |
|
|
|
$ |
(32,022 |
) |
|
|
$ |
499,876 |
|
|
Adjustments |
|
|
|
|
|
|
|
|
Interest income |
|
(3,734 |
) |
|
|
(9,442 |
) |
|
|
(11,485 |
) |
|
|
(11,528 |
) |
|
Share of loss from investments in equity accounted investees |
|
794 |
|
|
|
741 |
|
|
|
1,966 |
|
|
|
939 |
|
|
Loss (gain) on revaluation of derivative liabilities |
|
35,880 |
|
|
|
(197,310 |
) |
|
|
(77,488 |
) |
|
|
(525,526 |
) |
|
Impairment loss on goodwill and intangible assets |
|
40,000 |
|
|
|
— |
|
|
|
40,000 |
|
|
|
— |
|
|
Financing and transaction costs |
|
— |
|
|
|
3,368 |
|
|
|
— |
|
|
|
25,601 |
|
|
Other income |
|
8 |
|
|
|
— |
|
|
|
(786 |
) |
|
|
(16,243 |
) |
|
Review costs related to restatement of 2019 interim financial
statements |
|
3,459 |
|
|
|
— |
|
|
|
7,866 |
|
|
|
— |
|
|
Share-based payments |
|
2,546 |
|
|
|
2,647 |
|
|
|
4,982 |
|
|
|
4,418 |
|
|
Adjusted EBIT |
|
(28,750 |
) |
|
|
(14,108 |
) |
|
|
(66,967 |
) |
|
|
(22,463 |
) |
|
Adjustments |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
1,717 |
|
|
|
680 |
|
|
|
2,879 |
|
|
|
1,174 |
|
|
Adjusted EBITDA |
|
$ |
(27,033 |
) |
|
|
$ |
(13,428 |
) |
|
|
$ |
(64,088 |
) |
|
|
$ |
(21,289 |
) |
|
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 three and six months ended June 30, 2020, the
Company recorded $35.0 million of impairment charges on the U.S.
reporting unit and $5.0 million of impairment charges on the Lord
Jones™ brand. The carrying values of both the U.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 the U.S. operating segment were
negatively impacted by the effects of COVID-19.
- During the three and six months ended June 30, 2019, the
Company recorded no impairment charges on goodwill or intangible
assets.
Financing and transaction costs
- During the three and six months ended June 30, 2020, there
were no financing or transaction costs.
- During the three and six months ended June 30, 2019, the
Company recorded pre-tax charges of $3.4 million and $25.6 million,
respectively, primarily related to the Altria Investment.
Gain (loss) on revaluation of derivative
liabilities
- During the three and six months ended June 30, 2020,
Cronos Group recorded a pre-tax unrealized loss of $(35.9) million
and unrealized gain of $77.5 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 six months ended June 30, 2019, the
unrealized gain resulting from the non-cash change in the fair
value of the financial derivative liabilities was $197.3 million
and $525.5 million, respectively.
Review costs related to restatement of 2019
interim financial statements
- During the three and six months ended June 30, 2020, the
Company incurred $3.5 million and $7.9 million, respectively, in
review costs related to the restatement of the Company's 2019
interim financial statements and costs related to the Company's
responses to reviews of such restatement by various regulatory
authorities.
- During the three and six months ended June 30, 2019, the
Company recorded no costs related to the restatement of previously
issued financial statements.
Foreign currency exchange
rates
All currency amounts in this Press
Release are stated in U.S. dollars (“USD”), which is
our reporting currency, unless otherwise noted. All references to
“dollars” or “$” 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 June 30, 2020 and December 31,
2019. 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 using
Bloomberg.
The exchange rates used to translate from USD to
Canadian dollars (“C$”) is shown below:
(Exchange rates
are shown as C$ per $) |
As of |
|
June 30, 2020 |
|
March 31, 2020 |
|
December 31, 2019 |
|
June 30, 2019 |
Average rate |
1.3856 |
|
1.3437 |
|
1.3268 |
|
1.3377 |
Spot rate |
1.3576 |
|
1.4062 |
|
1.2990 |
|
1.3095 |
For further information, please
contact:Anna ShlimakInvestor RelationsTel: (416)
504-0004investor.relations@thecronosgroup.com
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