Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) (“Cronos Group”
or the “Company”), today announces its 2022 first quarter business
results.
“I founded Cronos because of the
once-in-a-lifetime opportunity to help build and shape an industry
that has the potential to improve countless lives. As CEO, I am
committed to re-instilling a start-up culture with a founder’s
mentality across all levels of the organization,” said Mike
Gorenstein, Chairman, President and CEO, Cronos Group. “The
strategic realignment we announced in the first quarter of 2022
reset the organization to this mindset and we are seeing the
benefits show through in our performance.”
“Our execution in product development,
manufacturing, and go to market strategy resulted in strong growth
in both net revenue and gross profit in the first quarter of 2022,
proving that we are headed in the right direction. Our Spinach®
brand is one of the most sought-after brands in the Canadian
adult-use market, known for bringing high quality and
differentiated products to the consumer. We are also winning with
branded products in Israel, with Peace Naturals® driving
significant revenue growth in the first quarter of 2022. As we
execute our strategic realignment, I am encouraged with the
progress we are making by increasing our market share in both
Canada and Israel, and continuing to bring disruptive branded
products to market. In combination with our industry leading
balance sheet, our borderless products, such as SOURZ by Spinach™
winning in Canada, is one of the best ways to be prepared for
legalization in the U.S.”
Financial Results
(in thousands of USD) |
|
Three months ended March 31, |
|
Change |
|
|
|
2022 |
|
|
|
2021 |
|
|
$ |
|
% |
Net revenue |
|
|
|
|
|
|
|
|
United States |
|
$ |
2,328 |
|
|
$ |
2,441 |
|
|
$ |
(113 |
) |
|
(5) |
% |
Rest of World |
|
|
22,705 |
|
|
|
10,170 |
|
|
|
12,535 |
|
|
123 |
% |
Consolidated net revenue |
|
|
25,033 |
|
|
|
12,611 |
|
|
|
12,422 |
|
|
99 |
% |
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
18,107 |
|
|
|
15,574 |
|
|
|
2,533 |
|
|
16 |
% |
Gross profit |
|
$ |
6,926 |
|
|
$ |
(2,963 |
) |
|
$ |
9,889 |
|
|
334 |
% |
Gross margin(i) |
|
|
28 |
% |
|
(23) |
% |
|
N/A |
|
51 |
pp |
|
|
|
|
|
|
|
|
|
Net loss(ii) |
|
$ |
(32,653 |
) |
|
$ |
(161,625 |
) |
|
$ |
128,972 |
|
|
80 |
% |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(iii) |
|
$ |
(18,900 |
) |
|
$ |
(36,574 |
) |
|
$ |
17,674 |
|
|
48 |
% |
|
|
|
|
|
|
|
|
|
Other
Data |
|
|
|
|
|
|
|
|
Cash and cash
equivalents(iv) |
|
$ |
861,535 |
|
|
$ |
1,024,450 |
|
|
$ |
(162,915 |
) |
|
(16) |
% |
Short-term
investments(iv) |
|
|
119,933 |
|
|
|
214,925 |
|
|
|
(94,992 |
) |
|
(44) |
% |
Capital expenditures(v) |
|
|
734 |
|
|
|
7,072 |
|
|
|
(6,338 |
) |
|
(90) |
% |
(i) Gross margin is defined as gross profit
divided by net revenue.(ii) Net loss of $32.7 million in Q1 2022
improved by $129.0 million from Q1 2021. The improvement
year-over-year was primarily driven by the fluctuation in the
non-cash gain (loss) on revaluation of derivative
liabilities.(iii) See “Non-GAAP Measures” for more
information, including a reconciliation of adjusted earnings
(loss) before interest, taxes, depreciation and amortization
(“Adjusted EBITDA”) to net income (loss).(iv) Dollar
amounts are as of the last day of the period indicated.(v) Capital
expenditures represents component information of investing
activities and is defined as the sum of purchase of property, plant
and equipment, and purchase of intangible assets.
First Quarter 2022
- Net revenue of $25.0 million in Q1
2022 increased by $12.4 million from Q1 2021. The increase
year-over-year was primarily driven by an increase in net revenue
in the Rest of World (“ROW”) segment driven by growth in the
Israeli medical market and the Canadian adult-use market.
- Gross profit of $6.9 million in Q1
2022 improved by $9.9 million from Q1 2021. The improvement
year-over-year was primarily driven by increased cannabis flower
revenue in the ROW segment, the introduction of additional cannabis
extract products in the ROW segment that carry a higher gross
profit and gross margin than other product categories, lower
inventory valuation adjustments, lower depreciation expense as a
result of the lower fair value of the Peace Naturals Campus in
connection with the impairment taken in Q4 2021, and lower cannabis
biomass costs as we began to further leverage our joint venture
with Cronos Growing Company Inc. (“Cronos GrowCo”).
- Adjusted EBITDA of $(18.9) million
in Q1 2022 improved by $17.7 million from Q1 2021. The improvement
year-over-year was primarily driven by the improvement in gross
profit and a decrease in sales and marketing and research and
development (“R&D”) expenses.
- Capital expenditures of $0.7
million in Q1 2022 decreased by $6.3 million from Q1 2021. The
decrease year-over-year was primarily driven by decreased spending
on property, plant and equipment in the ROW segment.
Business Updates
Strategic and Organizational
Update
In the first quarter of 2022, the Company
initiated a strategic plan to realign the business around its
brands, centralize functions and evaluate the Company’s supply
chain (the “Realignment”). The organizational and cost reduction
initiatives undertaken are intended to better position Cronos Group
to drive profitable and sustainable growth over time. The program
consists of the following:
-
Centralizing functions under common leadership to increase
efficient distribution of resources, improve strategic alignment
and eliminate duplicative roles and costs;
-
Evaluating the Company’s global supply chain and reducing
complexity and fixed expenses, which resulted in the announcement
of the planned exit of the Peace Naturals Campus in Stayner,
Ontario, and the Company's ongoing review of product, pricing and
distribution optimization; and
- Implementing an
operating expense target to optimize cash deployment for activities
such as margin accretive innovation and U.S. adult-use market
entry. The overall strategic realignment initiative is expected to
deliver $20 to $25 million in initially identified savings across
operating expense categories in 2022, primarily driven by savings
in sales and marketing, general and administrative, and research
and development.
Brand and Product Portfolio
In April 2022, the Company expanded its SOURZ by
Spinach™ gummy portfolio with a new flavor, Cherry Lime, in a five
piece per pack format with 2mg of THC per piece. The Company now
has five SKUs in the gummy category across its SOURZ by Spinach™
and Spinach FEELZ™ sub-brands.
Spinach® continues to organically grow market
share across Canada, most notably, Spinach® held an approximate 13%
market share in the edibles category, which expands to
approximately 17% within the gummy category during Q1 2022,
according to Hifyre data. Furthermore, three out of the four SOURZ
by Spinach™ gummies ranked in the top-10 for market share in Canada
in Q1 2022, according to Hifyre data. Having launched its first
gummy product in July 2021, the consumer adoption of Spinach®
gummies speaks to the strong innovation Cronos Group is bringing to
market. Furthermore, in April 2022, the Spinach® vape portfolio
entered Ontario's top-10 in market share. The Company will continue
to launch new vape products in May, including Cosmic Green Apple
and Polar Mint Vortex, across various provinces in an effort to
continue to expand market share within the category.
Global Supply Chain
In the first quarter of 2022, the Company began
to leverage Cronos GrowCo's capabilities as part of the
Realignment. These activities include, among others, the transfer
of certain manufacturing equipment to Cronos GrowCo from the Peace
Naturals Campus. In April 2022, the Company began building
dedicated space within Cronos GrowCo for various manufacturing and
R&D activities.
In the first quarter of 2022, Cronos GrowCo
reported preliminary unaudited net revenue of approximately $7.0
million to licensed producers excluding sales to the Company.
Appointments
In March 2022, the Board of Directors appointed
Cronos Group’s founder, Mike Gorenstein, as Chairman, President and
Chief Executive Officer, in connection with Kurt Schmidt’s
retirement. Mr. Gorenstein previously served as Chairman, President
and Chief Executive Officer of Cronos Group until September 2020,
when he transitioned to the Executive Chairman role.
In April 2022, the Company appointed Terry
Doucet as Senior Vice President, Legal, Regulatory Affairs and
Corporate Secretary, after serving in an interim capacity since
December 2021. Mr. Doucet has been with Cronos Group since 2018 and
has guided Cronos Group through significant growth over the last
few years, including the build-out of the Company's Legal and
Regulatory Affairs teams, our strategic investment from Altria
Group Inc., our R&D partnership with Ginkgo Bioworks Holdings
Inc. (the “Ginkgo Strategic Partnership”), the PharmaCann Option
(as defined below) and various product commercialization
initiatives.
Rest of World Results
Cronos Group’s ROW reporting segment includes
results of the Company’s operations for all markets outside of the
U.S.
(in thousands of USD) |
|
Three months ended March 31, |
|
Change |
|
|
|
2022 |
|
|
|
2021 |
|
|
$ |
|
% |
Cannabis flower |
|
$ |
18,625 |
|
|
$ |
9,434 |
|
|
$ |
9,191 |
|
97 |
% |
Cannabis extracts |
|
|
3,988 |
|
|
|
703 |
|
|
|
3,285 |
|
467 |
% |
Other |
|
|
92 |
|
|
|
33 |
|
|
|
59 |
|
179 |
% |
Net revenue |
|
|
22,705 |
|
|
|
10,170 |
|
|
|
12,535 |
|
123 |
% |
|
|
|
|
|
Cost of sales |
|
|
15,995 |
|
|
|
14,309 |
|
|
|
1,686 |
|
12 |
% |
Gross profit |
|
$ |
6,710 |
|
|
$ |
(4,139 |
) |
|
$ |
10,849 |
|
262 |
% |
Gross margin |
|
|
30 |
% |
|
(41) |
% |
|
N/A |
|
71 |
pp |
First Quarter 2022
- Net revenue of $22.7 million in Q1
2022 increased by $12.5 million from Q1 2021. The increase
year-over-year was primarily driven by an increase in net revenue
in the Israeli medical market largely attributable to the cannabis
flower category and the Canadian adult-use market driven primarily
by cannabis extracts used in edibles and vaporizers.
- Gross profit of $6.7 million in Q1
2022 improved by $10.8 million from Q1 2021. The improvement
year-over-year was primarily driven by increased cannabis flower
revenue, the introduction of additional cannabis extract products
that carry a higher gross profit and gross margin than other
product categories, lower inventory valuation adjustments, lower
depreciation expense as a result of the lower fair value of the
Peace Naturals Campus in connection with the impairment taken in Q4
2021, and lower cannabis biomass costs as we began to further
leverage our joint venture with Cronos GrowCo.
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 March 31, |
|
Change |
|
|
|
2022 |
|
|
|
2021 |
|
|
$ |
|
% |
Net revenue |
|
$ |
2,328 |
|
|
$ |
2,441 |
|
|
$ |
(113 |
) |
|
(5) |
% |
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
2,112 |
|
|
|
1,265 |
|
|
|
847 |
|
|
67 |
% |
Gross profit |
|
$ |
216 |
|
|
$ |
1,176 |
|
|
$ |
(960 |
) |
|
(82) |
% |
Gross margin |
|
|
9 |
% |
|
|
48 |
% |
|
N/A |
|
(39) |
pp |
First Quarter 2022
- Net revenue of $2.3 million in Q1
2022 decreased by $0.1 million from Q1 2021. The decrease
year-over-year was primarily driven by a reduction in volume as a
result of a decrease in promotional spend as the Company works
through its review of the U.S. business as part of the
Realignment.
- Gross profit of $0.2 million in Q1
2022 decreased by $1.0 million from Q1 2021. The decrease
year-over-year was primarily due to increased inventory valuation
adjustments, higher shipping costs and unfavorable sales mix.
Conference Call
The Company will host a conference call and live
audio webcast on Tuesday, May 10, 2022, at 8:30 a.m. ET to discuss
2022 First Quarter business results. 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: 1888263
About Cronos Group
Cronos Group is an innovative global cannabinoid
company 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
diverse international brand portfolio includes Spinach®, PEACE
NATURALS®, Lord Jones®, Happy Dance® and PEACE+™. For more
information about Cronos Group and its brands, please visit:
thecronosgroup.com.
Forward-Looking Statements
This press release contains information that
constitutes forward-looking information and forward-looking
statements within the meaning of applicable securities laws
(collectively, “Forward-Looking Statements”), which are based upon
our current internal expectations, estimates, projections,
assumptions and beliefs. All information that is not clearly
historical in nature may constitute Forward-Looking Statements. In
some cases, Forward-Looking Statements can be identified by the use
of forward-looking terminology such as “expect”, “likely”, “may”,
“will”, “should”, “intend”, “anticipate”, “potential”, “proposed”,
“estimate” and other similar words, expressions and phrases,
including negative and grammatical variations thereof, or
statements that certain events or conditions “may” or “will”
happen, or by discussion of strategy. Forward-Looking Statements
include estimates, plans, expectations, opinions, forecasts,
projections, targets, guidance or other statements that are not
statements of historical fact.
Forward-Looking Statements include, but are not
limited to, statements with respect to:
- the uncertainties associated with
the COVID-19 pandemic, including our ability, 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 U.S.
state and federal law to U.S. hemp (including CBD and other U.S.
hemp-derived cannabinoids) products and the scope of any
regulations by the U.S. Food and Drug Administration, the U.S. Drug
Enforcement 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 and other U.S.
hemp-derived cannabinoids) products;
- the laws and regulations and any
amendments thereto relating to 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 and relevant state
regulatory authorities;
- expectations related to our
Realignment and any progress, challenges and effects related
thereto as well as changes in strategy, metrics, investments,
reporting structure, costs, operating expenses, employee turnover
and other changes with respect thereto;
- the timing of our exit from our
facility in Stayner, Ontario (the “Stayner Facility”) and the
expected costs and benefits from the wind-down of the Stayner
Facility;
- our ability to effectively
wind-down the Stayner Facility in an organized fashion and acquire
raw materials from other suppliers, including Cronos GrowCo and the
costs and timing associated therewith;
- 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;
- our ability to successfully create
and launch brands and further create, launch and scale U.S.
hemp-derived cannabinoid consumer products and cannabis
products;
- 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 Altria Group Inc.’s investment in the Company (the “Altria
Investment”), pursuant to a subscription agreement dated December
7, 2018;
- the potential exercise of one
warrant of the Company included as part of the Altria Investment,
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 Ginkgo Strategic Partnership;
- 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;
- uncertainties as to our ability to
exercise our option to buy Class A shares of common stock of
PharmaCann Inc. (the "PharmaCann Option") in the near term or the
future in full or in part, including the uncertainties as to the
status and future development of federal legalization of cannabis
in the U.S. and our ability to realize the anticipated benefits of
the transaction with PharmaCann Inc. ("PharmaCann");
- expectations regarding revenues,
expenses and anticipated cash needs;
- expectations regarding cash flow,
liquidity and sources of funding;
- expectations regarding capital
expenditures;
- expectations regarding our future
production and manufacturing strategy and operations, the costs and
timing associated therewith and the receipt of applicable
production and sale licenses;
- expectations regarding 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 and networks;
- the expected methods to be used to
distribute and sell our products;
- the impact of the ongoing military
conflict between Russia and Ukraine (and resulting sanctions) on
our business, financial condition and results of operations or cash
flows;
- the anticipated future gross
margins of our operations;
- accounting standards and
estimates;
- our ability to timely and
effectively remediate any material weaknesses in our internal
control over financial reporting; 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 to efficiently and effectively exit the Stayner
Facility, receive the benefits of the Stayner Facility wind down
and acquire raw materials on a timely and cost-effective basis from
third parties, including Cronos GrowCo; (ii) 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; (iii) management’s
perceptions of historical trends, current conditions and expected
future developments; (iv) our ability to generate cash flow from
operations; (v) general economic, financial market, regulatory and
political conditions in which we operate; (vi) the production and
manufacturing capabilities and output from our facilities and our
joint ventures, strategic alliances and equity investments; (vii)
consumer interest in our products; (viii) competition; (ix)
anticipated and unanticipated costs; (x) government regulation of
our activities and products including, but not limited to, the
areas of taxation and environmental protection; (xi) the timely
receipt of any required regulatory authorizations, approvals,
consents, permits and/or licenses; (xii) our ability to obtain
qualified staff, equipment and services in a timely and
cost-efficient manner; (xiii) our ability to conduct operations in
a safe, efficient and effective manner; (xiv) our ability to
realize anticipated benefits, synergies or generate revenue,
profits or value from our recent acquisitions into our existing
operations; (xv) our ability to realize the expected cost-savings,
efficiencies and other benefits of our Realignment and employee
turnover related thereto; (xvi) our ability to complete planned
dispositions, and, if completed, obtain our anticipated sales
price; (xvii) our ability to exercise the PharmaCann Option and
realize the anticipated benefits of the transaction with
PharmaCann; and (xviii) 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
Securities and Exchange Commission (“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, that we may not be able to exit the
Stayner Facility in an organized fashion or achieve the anticipated
benefits of the exit or be able to access raw materials on a timely
and cost-effective basis from third parties, including Cronos
GrowCo; the risk that the COVID-19 pandemic and the military
conflict between Russia and Ukraine 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; the
risk that we will not complete planned dispositions, or, if
completed, obtain our anticipated sales price; the implementation
and effectiveness of key personnel changes; the risks that our
Realignment, the closure of the Stayner Facility and our further
leveraging of our strategic partnerships will not result in the
expected cost-savings, efficiencies and other benefits or will
result in greater than anticipated turnover in personnel; 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 ratings; 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, or threatened litigation or 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 or self-regulatory organizations; changes in regulatory
requirements in relation to our business and products; legal or
regulatory obstacles that could prevent us from being able to
exercise the PharmaCann Option and thereby realizing the
anticipated benefits of the transaction with PharmaCann; dilution
of our fully-diluted ownership of PharmaCann and the loss of our
rights as a result of that dilution; our remediation of material
weaknesses in our internal control over financial reporting and the
improvement of our control environment and our systems, processes
and procedures; and the factors discussed under Part I, Item 1A
“Risk Factors” of our Annual Report on Form 10-K for the year ended
December 31, 2021 and under Part II, Item 1A “Risk Factors” or our
Quarterly Report on Form 10-Q for the period ended March 31, 2022.
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 not to place undue reliance on these
Forward-Looking Statements because of their inherent uncertainty
and to appreciate the limited purposes for which they are being
used by management. 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 |
(In thousands of U.S. dollars,
except share amounts) |
|
As of March 31, 2022 |
|
As of December 31, 2021 |
Assets |
(Unaudited) |
|
(Audited) |
Current assets |
|
|
|
Cash and cash equivalents |
$ |
861,535 |
|
|
$ |
886,973 |
|
Short-term investments |
|
119,933 |
|
|
|
117,684 |
|
Accounts receivable, net |
|
25,814 |
|
|
|
22,067 |
|
Other receivables |
|
3,297 |
|
|
|
5,765 |
|
Current portion of loans receivable, net |
|
6,235 |
|
|
|
5,460 |
|
Inventory, net |
|
37,054 |
|
|
|
32,802 |
|
Prepaids and other current assets |
|
9,537 |
|
|
|
8,967 |
|
Total current assets |
|
1,063,405 |
|
|
|
1,079,718 |
|
Investments in equity
accounted investees, net |
|
17,084 |
|
|
|
16,764 |
|
Other investments |
|
111,761 |
|
|
|
118,392 |
|
Non-current portion of loans
receivable, net |
|
81,529 |
|
|
|
80,635 |
|
Property, plant and equipment,
net |
|
71,828 |
|
|
|
74,070 |
|
Right-of-use assets |
|
6,325 |
|
|
|
8,882 |
|
Goodwill |
|
1,119 |
|
|
|
1,098 |
|
Intangible assets, net |
|
17,880 |
|
|
|
18,079 |
|
Other assets |
|
70 |
|
|
|
100 |
|
Total
assets |
$ |
1,371,001 |
|
|
$ |
1,397,738 |
|
|
|
|
|
Liabilities |
|
|
|
Current liabilities |
|
|
|
Accounts payable |
$ |
10,904 |
|
|
$ |
11,218 |
|
Accrued liabilities |
|
23,076 |
|
|
|
26,069 |
|
Current portion of lease obligation |
|
2,173 |
|
|
|
2,711 |
|
Derivative liabilities |
|
4,099 |
|
|
|
14,375 |
|
Total current liabilities |
|
40,252 |
|
|
|
54,373 |
|
Due to non-controlling
interests |
|
1,888 |
|
|
|
1,913 |
|
Non-current portion of lease
obligation |
|
7,094 |
|
|
|
7,095 |
|
Deferred income tax
liability |
|
396 |
|
|
|
81 |
|
Total
liabilities |
|
49,630 |
|
|
|
63,462 |
|
|
|
|
|
Shareholders’
equity |
|
|
|
Share capital |
|
596,368 |
|
|
|
595,497 |
|
Additional paid-in capital |
|
35,365 |
|
|
|
32,465 |
|
Retained earnings |
|
626,778 |
|
|
|
659,416 |
|
Accumulated other comprehensive income |
|
66,088 |
|
|
|
49,865 |
|
Total equity attributable to shareholders of Cronos Group |
|
1,324,599 |
|
|
|
1,337,243 |
|
Non-controlling interests |
|
(3,228 |
) |
|
|
(2,967 |
) |
Total shareholders’
equity |
|
1,321,371 |
|
|
|
1,334,276 |
|
Total liabilities and
shareholders’ equity |
$ |
1,371,001 |
|
|
$ |
1,397,738 |
|
Cronos
Group Inc. |
Condensed
Consolidated Statements of Net Income (Loss) and Comprehensive
Income (Loss) |
(In thousands of
U.S. dollars, except share and per share amounts, unaudited) |
|
Three months ended March 31, |
|
|
2022 |
|
|
|
2021 |
|
Net revenue, before
excise taxes |
$ |
29,406 |
|
|
$ |
14,654 |
|
Excise taxes |
|
(4,373 |
) |
|
|
(2,043 |
) |
Net revenue |
|
25,033 |
|
|
|
12,611 |
|
Cost of sales |
|
18,107 |
|
|
|
15,574 |
|
Gross
profit |
|
6,926 |
|
|
|
(2,963 |
) |
Operating
expenses |
|
|
|
Sales and marketing |
|
5,012 |
|
|
|
10,254 |
|
Research and development |
|
4,039 |
|
|
|
5,102 |
|
General and administrative |
|
22,368 |
|
|
|
21,906 |
|
Restructuring costs |
|
3,084 |
|
|
|
— |
|
Share-based compensation |
|
3,686 |
|
|
|
2,499 |
|
Depreciation and amortization |
|
1,293 |
|
|
|
735 |
|
Impairment loss on long-lived assets |
|
3,493 |
|
|
|
1,741 |
|
Total operating expenses |
|
42,975 |
|
|
|
42,237 |
|
Operating loss |
|
(36,049 |
) |
|
|
(45,200 |
) |
Other income
(expense) |
|
|
|
Interest income, net |
|
2,046 |
|
|
|
2,329 |
|
Gain (loss) on revaluation of derivative liabilities |
|
10,419 |
|
|
|
(116,874 |
) |
Share of loss from equity accounted investments |
|
— |
|
|
|
(1,643 |
) |
Gain (loss) on revaluation of financial instruments |
|
4,268 |
|
|
|
(200 |
) |
Impairment loss on other investments |
|
(11,238 |
) |
|
|
— |
|
Foreign currency transaction loss |
|
(1,872 |
) |
|
|
— |
|
Other, net |
|
135 |
|
|
|
(16 |
) |
Total other income (expense) |
|
3,758 |
|
|
|
(116,404 |
) |
Loss before income taxes |
|
(32,291 |
) |
|
|
(161,604 |
) |
Income tax expense |
|
362 |
|
|
|
— |
|
Loss from continuing
operations |
|
(32,653 |
) |
|
|
(161,604 |
) |
Loss from discontinued operations |
|
— |
|
|
|
(21 |
) |
Net loss |
|
(32,653 |
) |
|
|
(161,625 |
) |
Net loss attributable to
non-controlling interest |
|
(15 |
) |
|
|
(313 |
) |
Net loss attributable to Cronos Group |
$ |
(32,638 |
) |
|
$ |
(161,312 |
) |
|
|
|
|
Comprehensive
loss |
|
|
|
Net loss |
$ |
(32,653 |
) |
|
$ |
(161,625 |
) |
Other comprehensive income |
|
|
|
Foreign exchange gain on translation |
|
15,977 |
|
|
|
16,284 |
|
Comprehensive loss |
|
(16,676 |
) |
|
|
(145,341 |
) |
Comprehensive income (loss) attributable to non-controlling
interests |
|
(261 |
) |
|
|
826 |
|
Comprehensive loss attributable to Cronos
Group |
$ |
(16,415 |
) |
|
$ |
(146,167 |
) |
|
|
|
|
Net loss from continuing
operations per share |
|
|
|
Basic - continuing operations |
$ |
(0.09 |
) |
|
$ |
(0.44 |
) |
Diluted - continuing operations |
|
(0.09 |
) |
|
|
(0.44 |
) |
Cronos Group
Inc. |
|
Condensed Consolidated
Statements of Cash Flows |
|
(In thousands of U.S. dollars,
except share amounts, unaudited) |
|
|
Three months ended March 31, |
|
|
2022 |
|
|
|
2021 |
|
Operating
activities |
|
|
|
Net loss |
$ |
(32,653 |
) |
|
$ |
(161,625 |
) |
Adjustments to reconcile net
loss to cash used in operating activities: |
|
|
|
Share-based compensation |
|
3,686 |
|
|
|
2,499 |
|
Depreciation and amortization |
|
2,824 |
|
|
|
1,880 |
|
Impairment loss on long-lived assets |
|
3,493 |
|
|
|
1,741 |
|
Impairment loss on other investments |
|
11,238 |
|
|
|
— |
|
Share of loss from investments in equity accounted investees |
|
— |
|
|
|
1,643 |
|
Gain (loss) on revaluation of derivative liabilities |
|
(10,419 |
) |
|
|
116,874 |
|
Expected credit losses on long-term financial assets |
|
— |
|
|
|
416 |
|
Foreign currency transaction loss |
|
1,872 |
|
|
|
— |
|
Other non-cash operating activities, net |
|
(4,467 |
) |
|
|
106 |
|
Changes in operating assets
and liabilities: |
|
|
|
Accounts receivable, net |
|
(3,530 |
) |
|
|
1,931 |
|
Other receivables |
|
2,435 |
|
|
|
5,687 |
|
Prepaids and other current assets |
|
(1,195 |
) |
|
|
(3,737 |
) |
Inventory |
|
(3,867 |
) |
|
|
(742 |
) |
Accounts payable |
|
(178 |
) |
|
|
(3,119 |
) |
Accrued liabilities |
|
(3,150 |
) |
|
|
(10,169 |
) |
Cash flows used in operating
activities |
|
(33,911 |
) |
|
|
(46,615 |
) |
Investing
activities |
|
|
|
Proceeds from dissolution of joint venture |
|
44 |
|
|
|
— |
|
Proceeds from repayment of loans receivable |
|
790 |
|
|
|
— |
|
Purchase of property, plant and equipment |
|
(711 |
) |
|
|
(6,680 |
) |
Purchase of intangible assets |
|
(23 |
) |
|
|
(392 |
) |
Advances on loans receivable |
|
— |
|
|
|
(2,645 |
) |
Cash flows provided by (used in) investing activities |
|
100 |
|
|
|
(9,717 |
) |
Financing
activities |
|
|
|
Withholding taxes paid on share-based awards |
|
(534 |
) |
|
|
(8,673 |
) |
Other financing activities, net |
|
70 |
|
|
|
10 |
|
Cash flows used in financing activities |
|
(464 |
) |
|
|
(8,663 |
) |
Effect of foreign currency
translation on cash and cash equivalents |
|
8,837 |
|
|
|
11,422 |
|
Net change in cash and cash equivalents |
|
(25,438 |
) |
|
|
(53,573 |
) |
Cash and cash equivalents,
beginning of period |
|
886,973 |
|
|
|
1,078,023 |
|
Cash and cash equivalents, end of period |
$ |
861,535 |
|
|
$ |
1,024,450 |
|
Supplemental cash flow
information |
|
|
|
Interest received |
|
822 |
|
|
|
1,157 |
|
Income taxes paid |
|
66 |
|
|
|
624 |
|
Non-GAAP Measures
Cronos Group reports its financial results in
accordance with Generally Accepted Accounting Principles in the
United States (“U.S. GAAP”). This press release refers to measures
not recognized under U.S. GAAP (“non-GAAP measures”). These
non-GAAP measures do not have a standardized meaning prescribed by
U.S. GAAP and are therefore unlikely to be comparable to similar
measures presented by other companies. Rather, these non-GAAP
measures are provided as a supplement to corresponding U.S. GAAP
measures to provide additional information regarding the 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
U.S. GAAP. All non-GAAP measures presented in this press release
are reconciled to their closest reported U.S. GAAP measure.
Reconciliations of historical adjusted financial measures to
corresponding U.S. GAAP measures are provided below.
Adjusted EBITDA
Management reviews Adjusted EBITDA, a non-GAAP
measure, which excludes non-cash items and items that do not
reflect management’s assessment of ongoing business performance of
our operating segments. Management defines Adjusted EBITDA as net
income (loss) before interest, tax expense, depreciation and
amortization adjusted for: share of loss from equity accounted
investments; impairment loss on goodwill and intangible assets;
impairment loss on long-lived assets; (gain) loss on revaluation of
derivative liabilities; (gain) loss on revaluation of financial
instruments; transaction costs related to strategic projects;
impairment loss on other investments; foreign currency transaction
loss; other, net; loss from discontinued operations; restructuring
costs; share-based compensation; and review costs related to the
restatements of the Company's 2019 and 2021 interim financial
statements, including the costs related to the Company's responses
to the reviews of such interim financial statements by various
regulatory authorities and legal costs defending shareholder class
action complaints brought against the Company as a result of the
2019 restatement. Impairment loss on other investments has been
included as an adjustment to Adjusted EBITDA due to the PharmaCann
Option impairment analysis. Foreign currency transaction loss has
been included as an adjustment to Adjusted EBITDA for the
anticipated settlement of intercompany loans. Additionally,
restructuring costs have been included as an adjustment to Adjusted
EBITDA in light of the Realignment and exit from the Stayner
Facility.
Management believes that Adjusted EBITDA
provides the most useful insight into underlying business trends
and results and provides a more meaningful comparison of
period-over-period results. Management uses Adjusted EBITDA for
planning, forecasting and evaluating business and financial
performance, including allocating resources and evaluating results
relative to employee compensation targets.
The following tables set forth a reconciliation
of Net income (loss) as determined in accordance with U.S. GAAP to
Adjusted EBITDA for the periods indicated:
(in thousands of U.S.
dollars) |
Three months ended March 31, 2022 |
|
United States |
|
Rest of World |
|
Corporate |
|
Total |
Net income (loss) |
$ |
(22,216 |
) |
|
$ |
2,014 |
|
|
$ |
(12,451 |
) |
|
$ |
(32,653 |
) |
Interest income, net |
|
(29 |
) |
|
|
(2,017 |
) |
|
|
— |
|
|
|
(2,046 |
) |
Income tax expense |
|
— |
|
|
|
362 |
|
|
|
— |
|
|
|
362 |
|
Impairment loss on long-lived assets(i) |
|
— |
|
|
|
3,493 |
|
|
|
— |
|
|
|
3,493 |
|
Gain on revaluation of derivative liabilities(ii) |
|
— |
|
|
|
(10,419 |
) |
|
|
— |
|
|
|
(10,419 |
) |
Gain on revaluation of financial instruments(iv) |
|
— |
|
|
|
(4,268 |
) |
|
|
— |
|
|
|
(4,268 |
) |
Impairment loss on other investment(v) |
|
11,238 |
|
|
|
— |
|
|
|
— |
|
|
|
11,238 |
|
Foreign currency transaction loss |
|
— |
|
|
|
1,872 |
|
|
|
— |
|
|
|
1,872 |
|
Other, net(vi) |
|
— |
|
|
|
(135 |
) |
|
|
— |
|
|
|
(135 |
) |
Restructuring costs(viii) |
|
1,053 |
|
|
|
2,031 |
|
|
|
— |
|
|
|
3,084 |
|
Share-based compensation(ix) |
|
2,436 |
|
|
|
1,250 |
|
|
|
— |
|
|
|
3,686 |
|
Financial statement review costs(x) |
|
— |
|
|
|
— |
|
|
|
4,062 |
|
|
|
4,062 |
|
Depreciation and amortization |
|
432 |
|
|
|
2,392 |
|
|
|
— |
|
|
|
2,824 |
|
Adjusted EBITDA |
$ |
(7,086 |
) |
|
$ |
(3,425 |
) |
|
$ |
(8,389 |
) |
|
$ |
(18,900 |
) |
(in thousands of U.S.
dollars) |
Three months ended March 31, 2021 |
|
United States |
|
Rest of World |
|
Corporate |
|
Total |
Net loss |
$ |
(12,092 |
) |
|
$ |
(142,147 |
) |
|
$ |
(7,386 |
) |
|
$ |
(161,625 |
) |
Interest income, net |
|
(3 |
) |
|
|
(2,326 |
) |
|
|
— |
|
|
|
(2,329 |
) |
Share of loss from equity accounted investments |
|
— |
|
|
|
1,643 |
|
|
|
— |
|
|
|
1,643 |
|
Impairment loss on long-lived assets(i) |
|
1,741 |
|
|
|
— |
|
|
|
— |
|
|
|
1,741 |
|
Loss on revaluation of derivative liabilities(ii) |
|
— |
|
|
|
116,874 |
|
|
|
— |
|
|
|
116,874 |
|
Transaction costs(iii) |
|
— |
|
|
|
— |
|
|
|
501 |
|
|
|
501 |
|
Loss on revaluation of financial instruments(iv) |
|
— |
|
|
|
200 |
|
|
|
— |
|
|
|
200 |
|
Other, net(vi) |
|
— |
|
|
|
16 |
|
|
|
— |
|
|
|
16 |
|
Loss from discontinued operations(vii) |
|
— |
|
|
|
21 |
|
|
|
— |
|
|
|
21 |
|
Share-based compensation(ix) |
|
745 |
|
|
|
1,754 |
|
|
|
— |
|
|
|
2,499 |
|
Financial statement review costs(x) |
|
— |
|
|
|
— |
|
|
|
2,005 |
|
|
|
2,005 |
|
Depreciation and amortization |
|
99 |
|
|
|
1,781 |
|
|
|
— |
|
|
|
1,880 |
|
Adjusted EBITDA |
$ |
(9,510 |
) |
|
$ |
(22,184 |
) |
|
$ |
(4,880 |
) |
|
$ |
(36,574 |
) |
(i) |
For the three months ended March 31, 2022, impairment loss on
long-lived assets related to the Company’s decision to seek a
sublease for leased office space located in Toronto, Ontario,
Canada. For the three months ended March 31, 2021, impairment loss
on long-lived assets related to an impairment on leased premises in
the U.S. segment. |
(ii) |
For the three months ended March 31, 2022 and 2021, (gain) loss
on revaluation of derivative liabilities represents the fair value
changes on the derivative liabilities. |
(iii) |
For the three months ended March 31, 2021, transaction costs
represent legal, financial and other advisory fees and expenses
incurred in connection with various strategic investments. These
costs are included in general and administrative expenses on the
condensed consolidated statements of net income (loss) and
comprehensive income (loss). |
(iv) |
For the three months ended March 31, 2022, gain on
revaluation of financial instruments related primarily to the
Company’s equity securities in Cronos Australia Limited. For the
three months ended March 31, 2021, loss on revaluation of
financial instruments related primarily to revaluations of
financial liabilities resulting from Deferred Share Units. |
(v) |
For the three months ended March 31, 2022, impairment loss on
other investments related to the PharmaCann Option for the
difference between its fair value and carrying amount. |
(vi) |
For the three months ended March 31, 2022 and 2021, other, net
is primarily related to (gain) loss on reclassification of
held-for-sale assets and (gain) loss on disposal of assets. |
(vii) |
For the three months ended March 31, 2021, loss from
discontinued operations related to the discontinuance of Original
B.C. Ltd. |
(viii) |
For the three months ended March 31, 2022, restructuring costs
related to the employee-related severance costs and other
restructuring costs associated with the Realignment and the exit of
the Stayner Facility. |
(ix) |
For the three months ended March 31, 2022 and 2021, share-based
compensation related to the vesting expenses of share-based
compensation awarded to employees under the Company’s share-based
award plans. |
(x) |
For the three months ended March 31, 2022 and 2021, financial
statement review costs include costs related to the restatements of
the Company’s 2019 and second quarter 2021 interim financial
statements, costs related to the Company’s responses to requests
for information from various regulatory authorities relating to
such restatement and legal costs defending shareholder class action
complaints brought against the Company as a result of the 2019
restatement. |
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 “$” are to USD. The assets and liabilities
of the Company's foreign operations are translated into USD at the
exchange rate in effect as of March 31, 2022, March 31,
2021 and December 31, 2021. Transactions affecting shareholders’
equity are translated at historical foreign exchange rates. The
consolidated statements of net income (loss) and comprehensive
income (loss) and the consolidated statements of cash flows of the
Company’s foreign operations are translated into USD by applying
the average foreign exchange rate in effect for the reporting
period using Bloomberg.
The exchange rates used to translate from USD to
Canadian dollars (“C$”) is shown below:
(Exchange rates are shown as
C$ per $) |
As of |
|
March 31, 2022 |
|
March 31, 2021 |
|
December 31, 2021 |
Average rate |
1.2665 |
|
1.2665 |
|
N/A |
Spot rate |
1.2507 |
|
1.2563 |
|
1.2746 |
For further information, please
contact:Shayne LaidlawInvestor RelationsTel: (416)
504-0004investor.relations@thecronosgroup.com
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