Cronos Group's Fourth Quarter Revenue Increased 248% to $ 5.6 Million – New Cannabis Ventures



Cronos Group Inc. Announces Fourth Quarter 2018 and Year 2018 Results
  • Closed strategic $ 2.4 billion investment in growth of Altria, Inc. Group
  • Completion of the first harvest in the Peace Naturals Extension at Building 4
  • Launch of two leisure brands: COVE ™ and Spinach ™
  • Announcement of a historic partnership with Ginkgo Bioworks for the production of cultured cannabinoids
  • She became the first Pure Play Cannabis company to enter a major US market.

TORONTO, March 26, 2019 – Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) (the "Cronos Group" or the "Company") announced today the fourth quarter financial results and the Fiscal year ended December 31, 2018.

We are proud of everything we have accomplished in 2018 and the fourth quarter. Over the past year, Cronos Group has diligently focused on its strategic objectives, culminating in our transformative partnership with Altria Group, Inc.

Mike Gorenstein, CEO of Cronos Group

We expanded our production footprint nationally and internationally, developed our distribution with global partnerships, launched iconic brands for the Canadian adult use market, and expanded our intellectual property portfolio through research and innovation initiatives. of leading development.

"At Cronos Group, we are proud to lead the industry responsibly and we are motivated to create meaningful products that excite our consumers and bring happiness and an improved quality of life. We are very pleased to work with Altria to help us achieve our goals. Altria's investment and the services they provide will enhance our resources and allow us to expand our product development and commercialization capabilities. The growth potential of the cannabis industry is vast and we are just getting started. With our differentiated brands, global footprint, growing production capacity and commitment to cannabinoid innovation, and the partnership with Altria, Cronos Group is well positioned to seize this opportunity. We are getting ready for 2019 and ready to implement our strategy. "

Milestones and updates of the company

The Cronos Group has become the first pure play cannabis company to be listed on a major stock exchange in the United States. The common shares of the Company began trading on the NASDAQ Global Market ("NASDAQ") under the symbol "CRON" in February 2018. Another milestone event was reached in May 2018, trading in the common shares of Cronos Group. in Canada having moved from the TSX Venture Exchange to the Toronto Stock Exchange ("TSX"). In May 2018, the Board of Directors of Cronos Group (the "Cronos Group Board") approved the appointment of KPMG LLP as an independent auditor of the Company. These milestones reflect the significant progress made by the Cronos Group in strengthening its governance structure.

In March 2019, the Company finalized the $ 2.4 billion investment in the previously announced Company in December 2018 (the "Altria Investment") by Altria Group, Inc. ("Altria"), in accordance with a subscription agreement signed on December 7, 2018. At closing, Altria also received a warrant to acquire additional common shares of the Company (the "Warrant") which, if fully exercised at closing, would provide the Company with an additional product of approximately $ 1.4 billion.

At the date of the closing of the Altria Offering, Altria held an approximate 45% interest in the Company (calculated on an undiluted basis) and, if exercised in full at that date, the exercise of the Warrant would result in holding a total equity interest in the Company of approximately 55% (calculated on an undiluted basis). This strategic partnership with Altria provides the Cronos Group with additional financial resources, product development and marketing capabilities, and in-depth regulatory expertise to better position the company to compete in the global cannabis industry.

As part of the closing of the Altria investment, the Cronos Group Board of Directors has increased from five to seven members. The Cronos Group Board of Directors is now comprised of Cronos Group Chief Executive Officer, Mike Gorenstein, Chairman of the Board, Jim Rudyk, Chief Financial Officer of Roots Corporation, who will assume the role of Chief Executive Officer. Principal Administrator, and Jason Adler, Founder and Managing Partner of Gotham Green Partners, LLC. Four new directors, appointed by Altria, were also appointed to the Cronos Group Board as part of the closing of the investment in Altria, including Kevin "K.C." Crosthwaite Jr., Senior Vice President, Strategy and Growth Director Altria; Bronwen Evans, an independent consultant; Murray Garnick, Executive Vice President and General Counsel, Altria; and Bruce Gates, former Senior Vice President of External Affairs at Altria. The new directors of the Cronos Group Board of Directors bring additional experience and expertise as the Cronos Group continues to grow globally.

In addition to the new appointees to the Cronos Group Board, the Cronos Group strengthened its management team with the arrival of Jerry Barbato, who was appointed CFO of the company, effective April 15, 2019. More recently Mr. Barbato was Altria's Senior Director of Corporate Strategy and will assume the role of Chief Financial Officer of William Hilson, who will then assume the role of Commercial Director of Cronos Group, also effective April 15, 2019. As Chief Commercial Officer, Mr. Hilson will report to Mike Gorenstein and will be responsible for improving the company's business strategy and product and research development priorities.

Overall production footprint

The Cronos Group is committed to creating a global network, with partnerships, joint ventures, production and distribution in domestic and international markets. In the Canadian market, Peace Naturals Project Inc. ("Peace Naturals"), the company's authorized producer and center of excellence, produced its first crop in December 2018 in the brand new Building 4 ("B4"). Peace Campus Naturals. B4 is the specially designed indoor production unit for the 286,000 square foot Cronos Group, which was built in accordance with GMP standards. In 2018, the company not only built B4 but also completed the construction of the Peace Naturals greenhouse. Peace Naturals is dedicated to the cultivation, production, research and development of cannabis, cannabinoids and cannabis products.

In addition, the company announced a venture with an investor group led by Bert Mucci, a leading large-scale greenhouse operator in Canada. The entity created by this new partnership, Cronos Growing Company Inc. ("Cronos GrowCo"), plans to build a purpose-built 850,000 square foot greenhouse on approximately 100 acres of land owned by Cronos GrowCo. Kingsville, Ontario.

The Cronos group joint venture, Cronos Israel, and the Israeli agricultural collective colony Kibbutz Gan Shmuel ("Gan Shmuel"), which produces, manufactures and distributes cannabis for medical purposes, are currently under construction. The company expects the construction of the 45,000 square foot greenhouse will be completed in the first half of 2019 and the construction of the manufacturing plant will be completed in the second half of 2019.

In January 2019, the Israeli government approved the export of medical cannabis from Israel, which would allow medical cannabis licensees meeting certain quality standards to export medical cannabis under the control of Israeli authorities, to the signatory countries of the Single Convention on Narcotic Drugs which explicitly approved the importation of cannabis. The Company intends to apply for licenses to export cannabis products for medical purposes from Cronos Israel once its production activities have begun.

Internationally, the Cronos Group announced the creation of a joint venture with a subsidiary of Agroidea SAS, a leading Colombian agricultural services provider, with more than 30 years of research, development and manufacturing operations. production, as well as expertise in the management of horticultural activities on an industrial scale in Colombia.

The partnership creates a newly formed entity, NatuEra S.à rl ("NatuEra") in Colombia, to develop, grow, manufacture and export cannabis-based medical and consumer products for the Latin American and global markets. NatuEra is the first outsourced manufacturing organization for the cannabis industry in Latin America. It plans to allow an increasing number of cannabis brands to outsource their cultivation and manufacturing. NatuEra plans to expand its initial cultivation and manufacturing activities with a dedicated GMP facility in Cundinamarca, Colombia.

NatuEra has obtained a license to grow non-psychoactive cannabis plants to produce seeds for planting and for the production of derived products. The commissioning of the facility will be contingent on obtaining the appropriate licenses remaining under applicable law.

The company also announced the creation of a joint venture in Australia early 2018 ("Cronos Australia") for research, production, manufacturing and distribution of cannabis for medical purposes. The company holds a 50% stake in Cronos Australia and believes that Cronos Australia will serve as a hub for Australia, New Zealand and Southeast Asia, strengthening its supply and distribution capabilities in the Australasia region.

Global sales and distribution

On October 17, 2018, Canada became the first G7 country and the second-largest country in the world to legalize sales of cannabis for adult use. The Cronos Group took part in this new market by launching its two adult brands, COVE ™ and Spinach ™. At present, these brands are distributed in the following provinces: Ontario, British Columbia, Nova Scotia, Prince Edward Island and Saskatchewan. As the Cronos Group's production capacity increases, the Company plans to expand its distribution to other Canadian provinces and territories by entering into agreements with the appropriate parties.

In addition, for the Canadian market, Cronos GrowCo entered into a supply agreement with Cura Cannabis Solutions ("Cura") in August 2018. Cura signed a five-year take-home supply agreement for purchase of a minimum of 20,000 kilograms of cannabis. Cronos GrowCo once a year after Cura has received all necessary licenses from Health Canada.

In March 2018, the Cronos Group announced the creation of a joint venture with MedMen Enterprises USA, LLC. The Company holds a 50% interest in the joint venture MedMen Canada Inc. ("MedMen Canada"). MedMen Canada focuses on branded products in Canada and creates a chain of Canadian-branded retailers in provinces that allow private retailers. MedMen Canada is currently reviewing and analyzing the changing regulatory landscape of retail sales in provinces where private retailing is permitted under applicable law.

Internationally, the Cronos Group has been striving to expand its footprint with a distribution agreement to supply the medical market in Poland. In June 2018, the Cronos Group entered into a five-year exclusive distribution partnership with Delfarma Sp. Zo.o ("Delfarma"). Delfarma, a pharmaceutical wholesaler with a distribution network of more than 5,000 pharmacies and more than 200 hospitals, covers about 40% of the Polish domestic market. Under the exclusive five-year distribution agreement, the Cronos Group will supply Peace Naturals ™ brand cannabis products to Delfarma for distribution in Poland. The company also concluded a five-year exclusive distribution agreement with the German company G. Pohl-Boskamp GmbH & Co. KG in October 2017 for the German market.

IP Initiatives

The Cronos Group's vision of transforming industries through cannabinoid innovation has resulted in two research and development initiatives with Ginkgo Bioworks, Inc. ("Ginkgo") and the Technion Foundation for Technion Research and Development – Israeli Institute of Technology ("Technion").

In September 2018, the Cronos and Ginkgo group announced a historic partnership to ferment cannabinoids in culture, identical to those extracted from the cannabis plant. The research and development partnership is focused on producing large volumes of eight target cannabinoids, including rare cannabinoids, from custom yeast strains, leveraging existing fermentation infrastructure without incurring significant capital expenditures. for the construction of new cultivation and extraction facilities.

The Company will finance certain research and development and smelting expenses that are expected to be approximately US $ 22.0 million, subject to completion of certain milestones. In addition, tranches of Cronos Group ordinary shares will be issued to Ginkgo, after demonstration by the latter that the microorganisms are capable of producing the target cannabinoids at less than US $ 1,000 per kilogram of pure cannabinoid on a larger scale. to 200 liters.

In November 2018, Ginkgo received from the United States Drug Enforcement Agency (the "DEA") a substance registration certificate controlled by a DEA researcher and a certificate of substance registration controlled by a Department researcher. of Massachusetts Public Health for conducting research involving cannabinoids. The company intends to produce and distribute the target cannabinoids worldwide and has received confirmation from Health Canada that this production method is authorized under the Cannabis Act.

In October 2018, the Cronos group announced that the company had signed a research agreement with Technion to explore the use of cannabinoids and their role in regulating skin health and disorders. skin. The preclinical studies will be conducted by Technion over a three-year period and will focus on three skin conditions: acne, psoriasis and skin repair. The research will be led by Professors David "Dedi" Meiri, of the Cancer Biology and Cannabinoids Research Laboratory, and Dr. Yaron Fuchs, Director of the Stem Cell Biology and Regenerative Medicine Lab, two of most important researchers in the world. cannabis and stem cell research, respectively.

Brand Portfolio

The Cronos Group builds a portfolio of iconic brands designed to meet the needs and exceed the expectations of our consumers. In May 2018, the Cronos group previewed its high-end leisure brand COVE ™. COVE ™ was born in the Okanagan Valley, British Columbia, known for producing the best cannabis in the world. COVE ™ products are rich in terpenes and hand-trimmed using only the best results from each harvest. By avoiding short cuts such as stringent refining processes, COVE ™ maintains the plant's natural balance among all of the brand's terpenes-rich cannabis extracts and delivers the highest quality products to its consumers.

In September 2018, the Cronos group launched its other brand for adults, Spinach ™. This adult brand for adults is fun, light and fun. Spinach ™ aims to offer Farm-To-Bowl ™ products that bring together friends and make experiences more enjoyable. This brand has high expectations ™ and is aimed at a wide range of consumers who do not take life too seriously and who are looking for fun and fun ways to improve their business.

Financial highlights for fiscal 2018 and subsequent years 2018

The Cronos Group reported net revenues of $ 5.6 million in the fourth quarter of 2018, compared with $ 1.6 million in the fourth quarter of 2017, an increase of $ 4.0 million, or 248%. The increase in operating revenues is attributable to shipments to the Canadian adult market and to growth in cannabis oil products. For the 2018 fiscal year, the Company reported a net business turnover of $ 15.7 million, compared to $ 4.1 million for fiscal 2017, which represents an increase of 11, $ 6 million, or 285%. The increase in revenues is due to increased production capacity, the start of deliveries to the Canadian adult market, growth in the Company's medical client base and cannabis oil products.

The company reported gross profit before fair value adjustments of $ 2.5 million in the fourth quarter of 2018, compared to $ 0.4 million in the fourth quarter of 2017, an increase of $ 2.0 million. dollars, or 449%. The increase in gross profit before fair value adjustments is mainly due to the increase in the number of kilograms sold compared to the same period of the previous year. Gross margin before fair value adjustments was 44% in the fourth quarter of 2018. The Company recorded gross profit before fair value adjustments of $ 8.0 million for the full year. fiscal year 2018, compared to $ 2.0 million for fiscal 2017, which represents an increase of $ 6.0 million. or 294%. This increase results from the increase in the number of kilograms sold during the period. Gross margin before fair value was 50% for the full year 2018.

The Cronos Group reported total operating expenses of $ 12.4 million in the fourth quarter of 2018, compared with $ 2.9 million in the fourth quarter of 2017, an increase of $ 9.5 million, or 328%. The increase in operating expenses is attributable to increased research and development expenses, the acquisition of talent and the increase in fees for experts and consultants for services rendered under various initiatives. including Altria Investment. For the 2018 fiscal year, the Company reported operating expenses of $ 29.4 million, compared to $ 9.3 million for fiscal 2017, representing an increase of 20.0 $ M, or 215%. The increase in operating expenses is a result of increased research and development expenses, including the Ginkgo strategic partnership, talent acquisition and increased fees for consultants and associations for services rendered in framework for various strategic initiatives.

In 2018, Cronos Group strengthened its liquidity by raising gross proceeds of $ 100.0 million and $ 46.0 million through two separate common share purchase offers in April 2018 and in January 2018, respectively. In March 2019, the liquidity position of the Company was further strengthened by the closing of Altria Investment.

In January 2019, the Company entered into a credit agreement with Canadian Imperial Bank of Commerce, as administrative agent and lender, and with the Bank of Montreal, as lender, in respect of a credit facility. non-revolving term guarantee facility of $ 65 million (the "Credit Facility") As part of the closing of the credit facility, the Company used available funds under the credit facility to fully repay its credit facility. Guaranteed senior secured loan of $ 40.0 million from Romspen Investment Corporation In March 2019, the Company repaid the entire credit facility with a portion of the Altria investment product.

In March 2019, the Company sold all of its approximately 19% interest in Whistler Medical Marijuana Corporation ("Whistler") to Aurora Cannabis Inc. ("Aurora") in a transaction aimed at all actions ("the acquisition of Aurora"). At the closing of the acquisition of Aurora, the company received a value of approximately $ 24.7 million of common shares of Aurora. Subject to the achievement of specified milestones, the company expects to receive an additional $ 7.6 million of common shares of Aurora.

Conference call

The company will host a conference call and live audio webcast on Tuesday, March 26, 2019 at 8:30 am EST to discuss the fourth quarter results of 2018 and fiscal year 2018. The call will last approximately one hour. . The instructions for the teleconference are provided below:

An audio replay of the call will be archived on the company's website for retransmission.

About the Cronos Group

The Cronos Group is an innovative global cannabinoid company that produces and distributes on five continents. The Cronos Group is committed to creating disruptive intellectual property by advancing cannabis research, technology and product development. In an effort to responsibly enhance the consumer experience, the Cronos Group builds an iconic brand portfolio. The Cronos portfolio includes Peace Naturals ™, a global platform for health and wellness, and two adult brands, COVE ™ and Spinach ™. To learn more about the Cronos Group and its brands, visit: www.thecronosgroup.com; www.peacenaturals.com; www.covecannabis.ca; www.spinachcannabis.com

Original press release

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