Cronos Group Inc. Announces Third Quarter 2018 Results

Increased Revenues 186% and Kilograms Sold 213% Year-over-Year

Licensed and Commenced Cultivation in Building 4

Announced Landmark Partnership with Ginkgo Bioworks to Produce Cultured Cannabinoids

Launched Mainstream Recreational Brand Spinach(TM)

Created NatuEra, the First Cannabis CMO in Latin America and Received Non-Psychoactive Plant License

TORONTO, Nov. 13, 2018 /PRNewswire/ - Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) ("Cronos Group" or the "Company"), today announced financial results for the third quarter ended September 30, 2018.

"We are encouraged with our third quarter results, which reflect the meaningful progress we are making on our strategic initiatives. In the quarter, we announced a number of landmark partnerships to expand our reach beyond the flower and beyond Canada and launched our second differentiated recreational cannabis brand," said Mike Gorenstein, CEO of Cronos Group. "The recent legalization of cannabis sales for adult recreational use in Canada was a watershed moment for our industry and our Company. We are energized by the opportunities this creates for Cronos Group in Canada and look forward to leading the industry forward responsibly."

"As excited as we are about this milestone and our participation in this new market, it's truly just the beginning. Cronos Group is building an innovative global cannabinoid company. The opportunities for our Company extend across the globe as regulations evolve and markets open. The recent initiatives we launched with Gingko Bioworks and Technion are great examples of how we intend to use innovation and our growing intellectual property portfolio to develop new applications for cannabinoids across a range of categories. We are proud of all that we accomplished this quarter, and we are focused on executing on our strategic plan to drive growth and value creation for our shareholders, partners and consumers," concluded Mike Gorenstein.

Third Quarter 2018 Business Highlights

    --  Construction of Building 4, a 286,000 sq. ft. purpose-built indoor
        production facility built to GMP standards, is complete. Building 4 is
        expected to become fully operational in phases. The facility commenced
        cannabis cultivation after receiving its license on August 31, 2018. The
        first harvest from Building 4 is expected by year end 2018.
    --  Cronos Group and Ginkgo Bioworks, Inc. ("Ginkgo") announced a landmark
        partnership to produce cultured cannabinoids through fermentation that
        are 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 by leveraging existing fermentation infrastructure (i.e.
        breweries or pharmaceutical contract manufacturing operations) without
        incurring significant capital expenditures to build new cultivation and
        extraction facilities. The Company will fund certain research and
        development and foundry expenses expected to be approximately US$22.0
        million, subject to the achievement of certain milestones. In addition,
        tranches of Cronos Group's common shares will be issued to Ginkgo, upon
        Ginkgo's demonstration that the microorganisms are capable of producing
        the target cannabinoids for less than US$1,000 per kilogram of pure
        cannabinoid at a scale of greater than 200 liters. The Company targets
        three years to achieve the equity milestones for the eight target
        cannabinoids.
    --  In August 2018, the Company announced a 50/50 strategic joint venture
        with an affiliate of Agroidea SAS ("AGI"), a leading Colombian
        agricultural services provider with over 30 years of research,
        development and production operations and expertise managing industrial
        scale horticultural operations in Colombia. This partnership establishes
        a newly formed entity, NatuEra S.à r.l. ("NatuEra"), in Colombia that
        will develop, cultivate, manufacture and export cannabis-based medical
        and consumer products for the Latin American and global markets. NatuEra
        is the cannabis industry's first CMO in Latin America, with plans to
        allow the growing number of cannabis brands to outsource their
        cultivation and manufacturing. NatuEra plans to develop its initial
        cultivation and manufacturing operations with a purpose-built,
        GMP-standard facility located in Cundinamarca, Colombia. NatuEra was
        granted a license to cultivate non-psychoactive cannabis plants for the
        production of seeds for planting and the manufacture of derivative
        products. This license has an effective term of five years from August
        31, 2018. NatuEra is awaiting the grant of licenses to cultivate
        psychoactive cannabis and manufacture derivative products. Commencement
        of operations at the facility will be subject to obtaining the remaining
        appropriate licenses under applicable law.
    --  Cronos Group launched its mainstream recreational brand Spinach(TM). A
        fun, lighthearted and playful brand, Spinach(TM) is focused on offering
        Farm-To-Bowl(TM) products that bring friends together and make
        experiences more enjoyable. This brand has High Expectations(TM) and is
        geared towards a wide range of consumers that don't take life too
        seriously and are looking for entertaining, fun ways to enhance
        activities.
    --  In July 2018, Cronos Group announced a 50/50 strategic joint venture
        with a group of investors led by Bert Mucci, a leading Canadian
        large-scale greenhouse operator. The entity created by this new
        partnership, Cronos Growing Company Inc. ("Cronos GrowCo"), expects to
        construct an 850,000 square foot, purpose-built, GMP-standard greenhouse
        on approximately 100 acres of land to be acquired by Cronos GrowCo in
        Kingsville, Ontario. Once fully operational, the greenhouse is expected
        to produce up to 70,000 kilograms of cannabis annually. Construction of
        the greenhouse has commenced and is expected to be complete in the
        second half of 2019.
    --  Cronos Group entered into a supply agreement with one of the largest
        cannabis companies in the world by revenues in the first quarter of
        2018, Cura Cannabis Solutions ("Cura"). Cura signed a five year
        take-or-pay supply agreement to purchase a minimum of 20,000 kilograms
        of cannabis per annum from Cronos GrowCo after Cura receives all
        necessary licenses from Health Canada. Cura also expects to build its
        proprietary, state-of-the-art extraction facility on a parcel of land
        owned by Cronos Group in the heart of Okanagan Valley, British Columbia.

Business Highlights Subsequent to Third Quarter 2018

    --  In October 2018, the Company announced it had entered into a sponsored
        research agreement with the Technion Research and Development Foundation
        of the Technion - Israel Institute of Technology ("Technion") to explore
        the use of cannabinoids and their role in regulating skin health and
        skin disorders. The preclinical studies will be conducted by Technion
        over a three-year period and will focus on three skin conditions: acne,
        psoriasis and wound healing.
    --  On October 17, 2018, Canada became the first G7 country and the second
        country in the world to legalize cannabis sales for adult recreational
        use. The Company is actively engaged in this distribution channel and is
        currently selling dried cannabis, pre-rolls and cannabis oils to
        Ontario, British Columbia, Nova Scotia and Prince Edward Island, which
        collectively represent over 50% of the Canadian population. The Company
        expects to secure additional provincial listings as more of its
        production capacity comes online, which will allow the Company to
        adequately service additional provincial markets.

Third Quarter 2018 Financial Highlights

    --  Third quarter 2018 revenues totaled $3.8 million, as compared to $1.3
        million for the third quarter of 2017, representing an increase of $2.4
        million, or 186%. Kilograms of cannabis sold increased 213% in the third
        quarter from 164 kilograms in the third quarter of 2017 to 514 kilograms
        in the third quarter of 2018. The main drivers associated with the
        increase in revenues and the increase in kilograms sold are increased
        production capacity and increased volumes sold through the domestic
        medical and international channels, as well as initial shipments into
        the domestic adult-use recreational market.
    --  The Company continues to see strong growth in cannabis oil sales, which
        represented 29% of total revenue in the third quarter of 2018.

Conference Call
The Company will host a conference call and live audio webcast on Tuesday, November 13, 2018 at 8:30 a.m. EST to discuss third quarter 2018 results. The call will last approximately one hour. Instructions for the conference call are provided below:

Live Audio Webcast: https://thecronosgroup.com/investor-relations
Toll-free dial-in number: (888) 231-8191
International dial-in number: (647) 427-7450
Conference ID: 8084817

Additionally, an audio replay of the conference call will be available two hours after the call's completion and until 11:59 p.m. EST on November 27, 2018. Instructions for the audio replay are provided below:

Toll-free dial-in number: (855) 859-2056
Passcode: 8084817

About Cronos Group
Cronos Group is a globally diversified and vertically integrated cannabis company with a presence across five continents. Cronos Group operates two wholly-owned Canadian license holders: Peace Naturals Project Inc., which was the first non-incumbent medical cannabis license granted by Health Canada, and Original BC Ltd., which is based in the Okanagan Valley, British Columbia. Cronos Group has multiple international production and distribution platforms and intends to continue to rapidly expand its global footprint as it focuses on building an international iconic brand portfolio and developing disruptive intellectual property. Cronos Group is committed to building industry leading companies that transform the perception of cannabis and responsibly elevate the consumer experience.

Forward-looking statements
This news release contains "forward-looking information" and "forward-looking statements" within the meaning of applicable securities laws (collectively, "forward-looking statements"). All statements contained herein that are not clearly historical in nature may constitute forward-looking statements. In some cases, forward-looking statements can be identified by words or phrases such as "may", "will", "expect", "likely", "should", "would", "plan", "anticipate", "intend", "potential", "proposed", "estimate", "believe" or the negative of these terms, or other similar words, expressions and grammatical variations thereof, or statements that certain events or conditions "may" or "will" happen, or by discussions 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 are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash flows as at 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 such information may not be appropriate for any other purpose. Some of the forward-looking statements contained in this press release, include, but are not limited to, statements with respect to: our business and operations, our strategy for future growth, growing our global footprint, establishing partnerships and distribution relationships, the expansion of the Company's growing and production capacities, the construction of our facilities and our intention to build an international iconic brand portfolio and develop disruptive intellectual property. Forward-looking statements are based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including management's perceptions of historical trends, current conditions and expected future developments, as well as other considerations that are believed to be appropriate in the circumstances. While we consider 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. Such factors include, without limitation, those discussed in the Company's current MD&A and Annual Information Form, both of which have been filed on SEDAR and can be accessed at www.sedar.com. 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 contained herein are made as of the date of this press release and are based on the beliefs, estimates, expectations and opinions of management on the date such forward-looking statements are made. The Company undertakes 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, except as required by applicable law.



     
     Cronos Group Inc.



     
     
                Unaudited Condensed Interim Consolidated Statements of Financial Position



     
     As at September
               
              30, 2018 and December
               
              31, 2017



     
     (in thousands of CDN $)

                                                                          Notes   As at                        As at

                                                                                September                     December

                                                                                           30,                          31,

                                                                                          2018                         2017




     
                Assets



     Current assets



     Cash                                                                                      $
        41,482                  $
        9,208



     Accounts receivable                                       
       23(i)                              3,278                        1,140



     Sales taxes receivable                                                                           9,953                        3,114



     Prepaids and other receivables                            
       23(i)                             10,246                          790



     Biological assets                                                       6                         5,632                        3,722



     Inventory                                                               6                        15,073                        8,416



     Loan receivable                                          
       7,23(i)                               314                          314




     Total current assets                                                                            85,978                       26,704



     Advances to related corporations                         
       8,23(i)                             2,674



     Investments in equity accounted investees                               9                         4,072                        3,807



     Other investments                                       
       10,23(iii)                             994                        1,347



     Property, plant and equipment                                          11                       127,595                       56,172



     Intangible assets                                                      12                        11,345                       11,207



     Goodwill                                                               13                         1,792                        1,792




     
                Total assets                                                                $
        234,450                $
        101,029






     
                Liabilities



     Current liabilities



     Accounts payable and other liabilities                    
       23(ii)                       $
        3,066                  $
        7,878



     Government remittances payable                                                                     739



     Construction loan payable                                              15                         5,724




     Total current liabilities                                                                        9,529                        7,878



     Construction loan payable                                              15                                                     5,367



     Deferred income tax liability                                          22                         2,656                        1,416




     Total liabilities                                                                               12,185                       14,661



     
                Shareholders' equity



     Share capital                                             
       16(a)                            225,549                       83,559



     Shares to be issued                                       
       16(b)                                 17



     Warrants                                                  
       17(a)                              1,548                        3,364



     Stock options                                             
       17(b)                              4,982                        2,289



     Accumulated deficit                                                                           (11,261)                     (3,724)



     Accumulated other comprehensive income                                                           1,119                          880




     Total equity attributable to shareholders of Cronos                                            221,954                       86,368



     Non-controlling interests                                              14                           311




     Total shareholders' equity                                                                     222,265                       86,368




     
                Total liabilities and shareholders' equity                                  $
        234,450                $
        101,029



     
     Cronos Group Inc.



     
     Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Income (Loss)



     
     For the three and nine months ended September
                 
                30, 2018 and September
       
     30, 2017



     
     (in thousands of CDN $, except share and per share amounts)


                                                                                                                      Three                               Nine
                
                Months
                                                                                                                        Months                                           
               Ended
                                                                                                                        Ended

                                                                                                                    September                                 September
                                                                                                                          30,                                         30,



                                                                                            Notes           2018               2017                  2018                       2017




     
                Revenue                                                               18          $
           3,760                   $
           1,314                 $
             10,099            $
           2,471



     Cost of sales before fair value adjustments                                       5,6                   1,688                              464                             4,509                       877




     
                Gross profit before fair value adjustments                                                2,072                              850                             5,590                     1,594



     
                Fair value adjustments



     Unrealized change in fair value of biological assets                              5,6                 (1,533)                         (2,478)                         (11,108)                  (5,179)



     Realized fair value adjustments on inventory sold in the period                   5,6                   1,511                            1,324                             6,330                     2,612




     Total fair value adjustments                                                                            (22)                         (1,154)                          (4,778)                  (2,567)




     
                Gross profit                                                                              2,094                            2,004                            10,368                     4,161





     
                Operating expenses



     Sales and marketing                                                                                      598                              176                             1,548                       306



     General and administrative                                                                             4,820                            1,066                            11,500                     4,274



     Share-based payments                                                     
       17(b),20                  1,223                              539                             2,947                     1,170



     Depreciation and amortization                                                   11,12                     330                              255                               938                       684




     Total operating expenses                                                                               6,971                            2,036                            16,933                     6,434






     
                Operating loss                                                                          (4,877)                            (32)                          (6,565)                  (2,273)





     
                Other income (expense)



     Interest expense                                                                                        (62)                            (22)                            (121)                    (159)



     Share of income (loss) from investment in associate                                 9                      20                             (53)                               64                       363



     Gain on other investments                                                          10                                                   1,128                               221                     2,399




     Total other income (expense)                                                                            (42)                           1,053                               164                     2,603






     Income (loss) before income taxes                                                                    (4,919)                           1,021                           (6,401)                      330





     Income tax expense (recovery)                                                      22                   2,352                             (76)                            1,197                      (98)




     
                Net income (loss)                                                              $
           (7,271)                  $
           1,097                $
             (7,598)             $
           428




     
                Net income (loss) attributable to:



     Cronos Group                                                                                         (7,210)                           1,097                           (7,537)                      428



     Non-controlling interests                                                          14                    (61)                                                             (61)



                                                                                                  $
           (7,271)                  $
           1,097                $
             (7,598)             $
           428




     
                Other comprehensive income (loss)



     Gain (loss) on revaluation and disposal of other investments, net of tax        10,22                     233                              (2)                              237                       692



     Foreign exchange gain on translation of foreign operations                 
       2(c)                        3                                                                 3




     Total other comprehensive income (loss)                                                                  236                              (2)                              240                       692




     
                Comprehensive income (loss)                                                    $
           (7,035)                  $
           1,095                $
             (7,358)           $
           1,120




     
                Comprehensive income (loss) attributable to:



     Cronos Group                                                                                         (6,975)                           1,095                           (7,298)                    1,120



     Non-controlling interests                                                          14                    (60)                                                             (60)



                                                                                                  $
           (7,035)                  $
           1,095                $
             (7,358)           $
           1,120




     
                Net income (loss) per share



     Basic and diluted                                                                  19         $
           (0.04)                   $
           0.01                 $
             (0.04)            $
           0.00




     
                Weighted average number of outstanding shares



     Basic                                                                              19             177,483,122                      134,913,931                       170,097,232               130,782,161



     Diluted                                                                            19             177,483,122                      143,592,860                       170,097,232               139,461,090


                            Cronos Group Inc.


                                           Unaudited Condensed Interim
                                            Consolidated Statements of Cash
                                            Flows


                            For the three and nine months ended
                             September
                             30, 2018 and September
                             
                30, 2017


                            (in thousands of CDN $)


                                                                                          Three                         Nine
                                                                                          Months                         Months
                                                                                           Ended                           Ended

                                                                                        September                       September
                                                                                              30,                             30,



                                                                                  Notes      2018                  2017                    2018 2017




     
                Operating activities



     Net income (loss)                                                                           $
          (6,392)              $
           1,097        $
            (6,719)    $
             428



     Items not affecting cash:



     Unrealized change in fair value of biological assets                          5,6                    (1,533)                     (2,478)                (11,108)           (5,179)



     Realized fair value adjustments on inventory sold in the period               5,6                      1,511                        1,324                    6,330              2,612



     Share-based payments                                            
       17(b),20                          1,223                          539                    2,947              1,170



     Depreciation and amortization                                               11,12                        645                          255                    1,760                684



     Share of income (loss) from investment in associate                             9                       (20)                          53                     (64)             (363)



     Gain on other investments                                                      10                                                (1,128)                   (221)           (2,399)



     Deferred income tax expense (recovery)                                         22                      1,473                         (76)                     318               (98)



     Foreign exchange loss (gain)                                                                              2                                                 (10)



                                                                                                          (3,091)                       (414)                 (6,767)           (3,145)



     Net changes in non-cash working capital:



     Accounts receivable                                               
       23(i)                           (434)                       (102)                 (2,138)             (293)



     Sales taxes receivable                                                                              (3,001)                                             (6,839)



     Prepaids and other receivables                                    
       23(i)                         (6,134)                         452                  (9,456)           (1,700)



     Biological assets                                                             5,6                      2,800                        2,452                    9,198              4,162



     Inventory                                                                     5,6                    (4,250)                     (3,408)                (12,987)           (5,502)



     Accrued interest on loan receivable                                                                                                                                           (5)



     Accounts payable and other liabilities                                                                  733                        3,261                  (5,017)             3,470



     Government remittances payable                                                                          739                                                  739




     Cash flows provided by (used in) operating activities                                              (12,638)                       2,241                 (33,267)           (3,013)



     
                Investing activities



     Repayment of purchase price liability                                                                                           (1,291)                                   (2,590)



     Investments in equity accounted investees                                       9                      (201)                                               (201)           (1,076)



     Investment in ABcann Global Corporation                                        10                                                                                          (1,016)



     Proceeds from sale of other investments                                        10                                                  3,383                      967              5,154



     Payment to exercise ABcann Global Corporation warrants                         10                                                (2,268)                   (113)           (2,268)



     Advances to related corporations                                                8                    (2,674)                                             (2,674)



     Cash assumed on acquisition of Cronos Israel                                   14                      1,304



     Purchase of property, plant and equipment                                      11                   (34,229)                    (11,571)                (71,896)          (17,101)



     Purchase of intangible assets                                                  12                      (125)                                               (294)




     Cash flows used in investing activities                                                            (35,925)                    (11,747)                (74,211)          (18,897)



     
                Financing activities



     Proceeds from exercise of warrants                                
       17(a)                             444                          720                    1,856              1,533



     Proceeds received for shares to be issued                         
       16(b)                                                                                 961                 76



     Proceeds from exercise of options                                 
       17(b)                              27                           43                      567                485



     Proceeds from share issuance                                      
       16(a)                                                      15,010                  146,032             32,346



     Share issuance costs                                                                                   (35)                        (29)                 (9,479)           (1,350)



     Increase in indebtedness                                                                                                            869                                        869



     Proceeds from construction loan payable                                        15                                                  5,022                                      5,022



     Payment of accrued interest on construction loan                               15                                                                          (185)



     Repayment of mortgage payable                                                                                                                                             (4,000)




     Cash flows provided by financing activities                                                             436                       21,635                  139,752             34,981




     Net change in cash                                                                                 (48,127)                      12,129                   32,274             13,071



     Cash - beginning of period                                                                           89,609                        4,406                    9,208              3,464




     
                Cash - end of period                                                            $
          41,482              $
           16,535         $
            41,482  $
             16,535




     
                Supplemental cash flow information



     Interest paid                                                                                   $
          189                 $
            22            $
            684     $
             222

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SOURCE Cronos Group Inc.