Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) (“Cronos” or the
“Company”) today announced its 2024 second quarter business
results.
“Cronos achieved its highest quarterly net
revenue on record in Q2 2024 at $27.8 million, up 46%
year-over-year. The top line was propelled by 46% growth
year-over-year in Canada, 27% growth year-over-year in Israel,
growth in Germany and the initiation of sales in the United
Kingdom. These results reflect the hard work and dedication of our
entire team, reinforcing our confidence in sustained growth and
success,” said Mike Gorenstein, Chairman, President and CEO,
Cronos.
“Our recent investment in our joint venture,
Cronos GrowCo, is intended to ensure consistent supply of
high-quality cannabis biomass, fueling our global growth
initiatives. Cronos will consolidate the results of Cronos GrowCo's
operations in Q3 2024, which will show the value that Cronos GrowCo
provides to our supply chain,” continued Mr. Gorenstein. “The
Spinach® brand continues to lead in Canada, with new introductions
like Spinach Grindz™ and SOURZ Fully Blasted 10mg THC gummies
contributing to revenue growth in Q2. The Lord Jones® brand also
enhanced its offerings with new vape and pre-roll products,
strengthening our market presence. Internationally, our leading
medical brand, PEACE NATURALS®, successfully expanded into the UK
and continues to solidify top-tier positioning in the German
market. In Israel, our team continues to focus on bringing new
high-quality strains to market under the PEACE NATURALS® brand to
complement our popular hero strains, GMO and Wedding Cake, which
have driven significant volume growth. At Cronos we continue to
focus on quality and innovation at every turn, all while
maintaining a strong balance sheet, positioning the company for
growth.”
Consolidated Financial Results
In the second quarter of 2023, the Company
exited its U.S. hemp-derived CBD operations. The exit of the U.S.
operations represented a strategic shift, and as such, qualifies
for reporting as discontinued operations in our condensed
consolidated statements of net loss and comprehensive income
(loss). Prior period amounts have been reclassified to reflect the
discontinued operations classification of the U.S. operations.
The tables below set forth our condensed
consolidated results of continuing operations, expressed in
thousands of U.S. dollars for the periods presented. Our condensed
consolidated financial results for these periods are not
necessarily indicative of the consolidated financial results that
we will achieve in future periods.
(in thousands of USD) |
|
Three months ended June 30, |
|
Change |
|
Six months ended June 30, |
|
Change |
|
|
|
2024 |
|
|
|
2023 |
|
|
$ |
|
% |
|
|
2024 |
|
|
|
2023 |
|
|
$ |
|
% |
Consolidated net revenue |
|
$ |
27,762 |
|
|
$ |
19,021 |
|
|
$ |
8,741 |
|
|
46 |
% |
|
$ |
53,050 |
|
|
$ |
38,516 |
|
|
$ |
14,534 |
|
|
38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
21,070 |
|
|
|
15,922 |
|
|
|
5,148 |
|
|
32 |
% |
|
|
41,875 |
|
|
|
32,490 |
|
|
|
9,385 |
|
|
29 |
% |
Inventory write-down |
|
|
395 |
|
|
|
— |
|
|
|
395 |
|
|
N/A |
|
|
|
395 |
|
|
|
— |
|
|
|
395 |
|
|
N/A |
|
Gross profit |
|
$ |
6,297 |
|
|
$ |
3,099 |
|
|
$ |
3,198 |
|
|
103 |
% |
|
$ |
10,780 |
|
|
$ |
6,026 |
|
|
$ |
4,754 |
|
|
79 |
% |
Gross margin(i) |
|
|
23 |
% |
|
|
16 |
% |
|
N/A |
|
7 |
pp |
|
|
20 |
% |
|
|
16 |
% |
|
|
N/A |
|
|
4 |
pp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss(ii) |
|
$ |
(8,759 |
) |
|
$ |
(5,663 |
) |
|
$ |
(3,096 |
) |
|
(55 |
)% |
|
$ |
(11,243 |
) |
|
$ |
(23,698 |
) |
|
$ |
12,455 |
|
|
53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(iii) |
|
$ |
(11,051 |
) |
|
$ |
(15,905 |
) |
|
$ |
4,854 |
|
|
31 |
% |
|
$ |
(21,720 |
) |
|
$ |
(31,587 |
) |
|
$ |
9,867 |
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents(iv) |
|
$ |
848,189 |
|
|
$ |
409,428 |
|
|
$ |
438,761 |
|
|
107 |
% |
|
|
|
|
|
|
|
|
Short-term
investments(iv) |
|
|
— |
|
|
|
431,510 |
|
|
|
(431,510 |
) |
|
(100 |
)% |
|
|
|
|
|
|
|
|
Capital expenditures(v) |
|
|
916 |
|
|
|
502 |
|
|
|
414 |
|
|
82 |
% |
|
|
2,910 |
|
|
|
1,306 |
|
|
|
1,604 |
|
|
123 |
% |
(i) Gross margin is defined as gross profit
divided by net revenue.(ii) The increase year-over-year in
quarterly net loss was primarily driven by an impairment loss on
other investments in Q2 2024.(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 represent component
information of investing activities and is defined as the sum of
purchase of property, plant and equipment, and purchase of
intangible assets.
Second Quarter 2024
- Net revenue of $27.8 million in Q2
2024 increased by $8.7 million from Q2 2023. The increase was
primarily due to higher cannabis flower and cannabis extract sales
in Canada, higher cannabis flower sales in Israel, and sales to
other international markets consisting of Germany and the United
Kingdom (the "UK").
- Gross profit of $6.3 million in Q2
2024 increased by $3.2 million from Q2 2023. The increase was
primarily due to higher cannabis flower and extract sales in
Canada, higher cannabis flower sales in Israel and sales in other
international markets consisting of Germany and the UK.
- Adjusted EBITDA of $(11.1) million
in Q2 2024 improved by $4.9 million from Q2 2023. The improvement
year-over-year was driven by an increase in gross profit and
decreases in sales and marketing and general and administrative
expenses.
Business Updates
Transaction with Cronos
GrowCo
On June 20, 2024, Cronos announced an expansion
of Cronos Growing Company Inc. ("Cronos GrowCo"). The investment
will be funded by an additional credit facility provided by Cronos
and is intended to assist GrowCo’s expansion of its purpose-built
cannabis facility to address the increased global market demand for
high-quality cannabis flower.
Key highlights of the
investment:
-
Investment in Expansion: Cronos provided an
approximately $51 million ($70 million CAD) secured non-revolving
credit facility to Cronos GrowCo to fund facility expansion,
enabling growth opportunities in the markets Cronos operates in
today as well as potentially enabling future growth into new
markets that open.
-
Enhanced Governance: As of July 1, 2024, the
Cronos GrowCo board of directors expanded to five members, three of
whom were appointed by Cronos.
- New Supply
Agreement: Prior to the commencement of sales from the
expanded facility, Cronos will have the option to purchase up to
80% of Cronos GrowCo’s total production. Thereafter, Cronos will
have the option to purchase up to 70% of the total production from
the expanded facility.
-
Financial Consolidation: Cronos will consolidate
Cronos GrowCo’s results in its financial statements beginning in
the third quarter of 2024.
The Canadian cannabis market has a shortage of
high-quality biomass and we anticipate the expansion will aid our
ability to supply markets we operate in, while also supporting the
potential for additional expansion.
Brand and Product Portfolio
Spinach®Spinach® has solidified
itself as the go-to brand for a wide array of products featuring
different cannabinoid combinations, potency ranges and flavor
profiles. In the edibles category, the Spinach® brand held a 15.6%
market share in Q2 2024, according to Hifyre. We are continuously
evolving the product offerings and bringing new strategies to
market that have contributed to this success. A key addition to our
product lineup is the 1-piece 10mg THC edible called Fully Blasted
under the SOURZ by Spinach® brand, which hit select markets in
March and debuted in Ontario, Canada's largest market, in July. In
Q2 2024, we also launched a mixed flavor pack, the SOURZ by
Spinach® Tropical Party Pack, which introduces new gummies with
bold tropical flavors: Peach Passionfruit, Pineapple Coconut and
Strawberry Guava.
Cronos' strong cannabis cultivar breeding
program and portfolio of genetics continued to drive growth,
propelling the Spinach® brand to become the number one flower brand
in Canada, with a 6.2% market share in Q2 2024, according to
Hifyre. In Q2 2024, we introduced Spinach Grindz™, a milled flower
offering utilizing our Citrus Crush and Cookie Dough strains,
designed for convenient use in pre-rolls or vaporizers. Our
proprietary genetics breeding program continues to provide our
portfolio with winning cultivars that allow us to launch
differentiated products across markets.
The Spinach® brand was ranked fourth in the vape
category in Q2 2024, holding a 6.8% market share, according to
Hifyre. Our performance in the vape category is led by top selling
products Pink Lemonade 1.2g, Blueberry Dynamite 1g, Strawberry
Slurricane 1.2g and Rocket Icicle 1.2g. We continue to develop this
portfolio to bring a variety of flavor and cannabinoid combinations
to market in formats and sizes consumers’ desire.
In Q2 2024, Spinach® was ranked ninth in the
pre-roll category with 2.5% market share, according to Hifyre. In
Q2 2024, Spinach® outpaced category growth, growing +17%
year-over-year vs. category growth of +9% year-over-year, according
to Hifyre. We expect this category to be key to future growth which
is why we are committed to our pursuit of evolving and innovating
within our pre-roll portfolio. Our top priority is to continue to
utilize our robust product development capabilities to formulate
winning products for consumers.
Lord
Jones®Following a successful launch late
last year, our Lord Jones® Hash Fusions pre-rolls rose to be the
number one hash infused pre-roll in Q2 2024, according to Hifyre.
To build on that lead, in April we expanded the offering by
launching Sour Blueberry and Snow Lotus strains within our infused
pre-roll lineup. These infused pre-rolls were designed with an
optimized ratio of ice water hash to flower, meticulously
researched and sensory-tested to drive a smoother consumption
experience and preserve the flowers' terpene-rich, bold
flavors.
In April 2024, Cronos expanded the Lord Jones®
live resin vape portfolio with the introduction of Gorilla Z. The
Lord Jones® vapes feature sought-after cultivars that deliver a
true-to-plant flavorful full-spectrum live resin experience.
Crafted with the discerning cannabis consumer in mind, these
products embody a commitment to excellence, offering a combination
of curated strains, pure live resin, and elegant, high-quality
hardware.
Our Lord Jones® products across pre-rolls,
vapes, and edibles continue to gain traction in their respective
categories, and we are excited about the growth we are seeing from
this brand.
PEACE
NATURALS®In Israel, we continue to drive
strong performance powered by our advanced genetic breeding program
and high-quality cultivation capabilities. Global genetics such as
Wedding Cake and GMO lead our portfolio in Israel and have helped
to maintain and grow share for the PEACE NATURALS® brand. In Q2 the
team continued to bring new and exciting strains to market
launching four new cultivars, GG4, Key Limez Punch, Pink Sherb and
GMO Lite, providing consumers with additional variety and
excitement as part of the PEACE NATURALS® flower portfolio.
In Germany and the UK, we are experiencing
strong traction with our proprietary genetics, such as GMO and
Wedding Cake, under the PEACE NATURALS® brand. The expansion of
Cronos GrowCo will help enable Cronos to execute on these growth
opportunities and others as they become available.
Global Supply Chain
Cronos GrowCo reported to the Company
preliminary unaudited net revenue to third parties, excluding sales
to the Company, of approximately $2.7 million in the second quarter
of 2024. Cronos previously provided Cronos GrowCo with a senior
secured credit facility and combined with the new credit facility
to fund the expansion project, the total outstanding balance is
approximately $74 million as of June 30, 2024, following a
principal repayment on the original credit facility of $1.2 million
by Cronos GrowCo in Q2 2024. In addition to principal repayment,
Cronos also received $1.4 million in interest payments from Cronos
GrowCo, totaling approximately $2.6 million in cash payments to
Cronos in Q2 2024. For additional information, refer to
"Transaction with Cronos GrowCo" above.
Guidance and Outlook
The Company reiterates its previously announced
operating expense savings target of $5 to $10 million on a
standalone basis in 2024 primarily driven by savings in general and
administrative, sales and marketing and research and development.
The organizational and cost savings initiatives are intended to
position the Company to drive profitable and sustainable growth
over time. The operating expense savings target excludes the impact
of the consolidation of Cronos GrowCo's results into the Company's
financial statements.
Due to the additional $51 million ($70 million
CAD) investment in Cronos GrowCo and resulting facility expansion,
we no longer anticipate that our net change in cash, defined as the
sum of cash and cash equivalents and short-term investments will be
positive in 2024. We expect the investment to expand Cronos
GrowCo's purpose-built cannabis facility will aid our ability to
service existing markets and potentially take advantage of
additional growth opportunities.
Cronos continues to monitor the conflict
involving Israel, Hamas, Iran and other stakeholders in the region
(the "Middle East Conflict") and the potential impacts the conflict
could have on the Company’s personnel and business in Israel and
the recorded amounts of assets and liabilities related to the
Company’s operations in Israel. The extent to which the Middle East
Conflict may impact the Company’s personnel, business and
activities will depend on future developments which remain highly
uncertain and cannot be predicted. It is possible that the recorded
amounts of assets and liabilities related to the Company’s
operations in Israel could change materially in the near term.
These statements are forward-looking and actual
results may differ materially. Refer to “Forward-Looking
Statements” below for information on the factors that could cause
our actual results to differ materially from these forward-looking
statements.
Conference CallThe Company will host a
conference call and live audio webcast on Thursday, August 8, 2024,
at 8:30 a.m. ET to discuss 2024 Second Quarter business results. An
audio replay of the call will be archived on the Company’s website
for replay. Instructions for the live audio webcast are provided on
the Company's website at
https://ir.thecronosgroup.com/events-presentations.
About Cronos
Cronos 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 is building an iconic brand portfolio. Cronos’ diverse
international brand portfolio includes Spinach®, PEACE NATURALS®
and Lord Jones®. For more information about Cronos 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 and
court decisions (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 ongoing impact of the public
investigation into Canadian licensed producers of alleged dumping
of medical cannabis imports from Canada into Israel by the Israel
Trade Levies Commissioner of the Israel Ministry of Economy and
Industry (the “Anti-Dumping Investigation”);
- expectations related to the Middle
East Conflict and its impact on our operations in Israel, the
supply of product in the market and the demand for product by
medical patients in Israel, as well as any regional or global
escalations and their impact to global commerce and stability;
- expectations related to the German,
Australian and UK markets, including our strategic partnerships
with Cansativa GmbH (“Cansativa”), Vitura Health Limited (“Vitura”)
and GROW® Pharma, respectively, and our plans to distribute the
PEACE NATURALS® brand in Germany and the UK;
- our ability to successfully and
profitably sell our products in Germany and the UK;
- expectations related to our
announcement of cost-cutting measures, including our decision to
wind-down operations at our Winnipeg, Manitoba facility and list
the facility for sale, the expected costs and benefits from the
wind-down of production activities at the facility, challenges and
effects related thereto as well as changes in strategy, metrics,
investments, costs, operating expenses, employee turnover and other
changes with respect thereto;
- expectations related to the impact
of our decision to exit our U.S. hemp-derived cannabinoid product
operations, including the costs, expenses and write-offs associated
therewith, the impact on our operations and our financial
statements and any future plans to re-enter the U.S. market;
- expectations related to our
announced realignment (the “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 the change in the
nature of operations at our facility in Stayner, Ontario (the
“Peace Naturals Campus”);
- our ability to acquire raw
materials from suppliers, including Cronos GrowCo, and the costs
and timing associated therewith;
- expectations regarding the
potential success of, and the costs and benefits associated with,
our joint ventures, strategic alliances and equity investments,
including the strategic partnership with Ginkgo Bioworks Holdings,
Inc. (“Ginkgo”);
- expectations related to the
expansion of Cronos GrowCo’s purpose-built cannabis facility;
- our ability or plans to identify,
develop, commercialize or expand our technology and research and
development initiatives in cannabinoids, or the success
thereof;
- expectations regarding revenues,
expenses, gross margins and 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;
- 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 legalization of the use of
cannabis for medical or adult-use in jurisdictions outside of
Canada, including the United States and Germany, the related timing
and impact thereof and our intentions to participate in such
markets, if and when such use is legalized;
- the grant, renewal, withdrawal,
suspension, delay and impact of any license or supplemental license
to conduct activities with cannabis or any amendments thereof;
- our ability to successfully create
and launch brands and cannabis products;
- our ability to anticipate and meet
market demand;
- expectations related to the
differentiation of our products, including through the utilization
of rare cannabinoids;
- the benefits, viability, safety,
efficacy, dosing and social acceptance of cannabis, including CBD
and other cannabinoids;
- laws and regulations and any
amendments thereto applicable to our business and the impact
thereof, including uncertainty regarding the application of United
States (“U.S.”) state and federal law to cannabis and 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 cannabis and U.S.
hemp (including CBD and other U.S. hemp-derived cannabinoids)
products, including the possibility marijuana is moved from
Schedule I to Schedule III under the U.S. Controlled Substances
Act;
- 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;
- uncertainties as to our ability to
exercise our option (the “PharmaCann Option”) in PharmaCann Inc.
(“PharmaCann”), 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;
- expectations regarding the
implementation and effectiveness of key personnel changes;
- expectations regarding acquisitions
and dispositions and the anticipated benefits therefrom;
- expectations of the amount or
frequency of impairment losses, including as a result of the
write-down of intangible assets, including goodwill;
- 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;
- our compliance with the terms of
the settlement with the SEC (the “Settlement Order”) and the
settlement agreement with the Ontario Securities Commission;
and
- the impact of the loss of our
ability to rely on private offering exemptions under Regulation D
of the Securities Act of 1933, as amended, and the loss of our
status as a well-known seasoned issuer, each as a result of the
Settlement Order.
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 inability to achieve our target cash and cash equivalents
and short-term investment balances for 2024; (ii) our ability to
effectively navigate developments related to the Anti-Dumping
Investigation and its impact on our operations in Israel; (iii) our
ability to effectively navigate developments related to the Middle
East Conflict and its impact on our employees and operations in
Israel, the supply of product in the market and demand for product
by medical patients in Israel; (iv) our ability to efficiently and
effectively distribute our PEACE NATURALS® brand in Germany with
our strategic partner Cansativa and in the UK with our strategic
partner GROW® Pharma and our ability to efficiently and effectively
distribute products in Australia with our strategic partner Vitura;
(v) our ability to realize the expected cost-savings and other
benefits related to the wind-down of our operations at our
Winnipeg, Manitoba facility, (vi) our ability to realize the
expected cost-savings, efficiencies and other benefits of our
Realignment and other announced cost-cutting measures and employee
turnover related thereto; (vii) our ability to efficiently and
effectively wind down certain production activities at the Peace
Naturals Campus, receive the benefits of the change in the nature
of our operations at our Peace Naturals Campus and acquire raw
materials on a timely and cost-effective basis from third parties,
including Cronos GrowCo; (viii) the timely completion of the
expansion of Cronos GrowCo’s purpose-built cannabis facility and
the ability of Cronos GrowCo to repay the Term Loan B; (ix) our
ability to realize anticipated benefits, synergies or generate
revenue, profits or value from our acquisitions and strategic
investments; (x) the production and manufacturing capabilities and
output from our facilities and our joint ventures, strategic
alliances and equity investments; (xi) government regulation of our
activities and products including, but not limited to, the areas of
cannabis taxation and environmental protection; (xii) the timely
receipt of any required regulatory authorizations, approvals,
consents, permits and/or licenses; (xiii) consumer interest in our
products and brands; (xiv) our ability to accurately forecast
consumer demand and supply such demand; (xv) our ability to
differentiate our products, including through the utilization of
rare cannabinoids; (xvi) competition; (xvii) anticipated and
unanticipated costs; (xviii) our ability to generate cash flow from
operations; (xix) our ability to conduct operations in a safe,
efficient and effective manner; (xx) our ability to hire and retain
qualified staff, and acquire equipment and services in a timely and
cost-efficient manner; (xxi) our ability to exercise the PharmaCann
Option and realize the anticipated benefits of the transaction with
PharmaCann; (xxii) our ability to complete planned dispositions,
and, if completed, obtain our anticipated sales price; (xxiii)
general economic, financial market, regulatory and political
conditions in which we operate; (xxiv) management’s perceptions of
historical trends, current conditions and expected future
developments; and (xxv) other considerations that management
believes to be appropriate in the circumstances. While our
management considers these assumptions to be reasonable based on
information currently available to management, there is no
assurance that such expectations will prove to be correct.
By their nature, Forward-Looking Statements are
subject to inherent risks and uncertainties that may be general or
specific and which give rise to the possibility that expectations,
forecasts, predictions, projections or conclusions will not prove
to be accurate, that assumptions may not be correct, and that
objectives, strategic goals and priorities will not be achieved. A
variety of factors, including known and unknown risks, many of
which are beyond our control, could cause actual results to differ
materially from the Forward-Looking Statements in this press
release and other reports we file with, or furnish to, the SEC and
other regulatory agencies and made by our directors, officers,
other employees and other persons authorized to speak on our
behalf. Such factors include, without limitation, negative impacts
on our business and operations in Israel due to the Anti-Dumping
Investigation, including that we may not be able to produce, import
or sell our products in Israel as a result thereof; negative
impacts on our employees, business and operations in Israel due to
the Middle East Conflict, including that we may not be able to
produce, import or sell our products or protect our people or
facilities in Israel during the Middle East Conflict, the supply of
product in the market and the demand for product by medical
patients in Israel; that we may not be able to successfully
continue to distribute our products in Germany, Australia and the
UK or generate material revenue from sales in those markets; that
we may not be able to achieve the anticipated benefits of the
wind-down of our operations at our Winnipeg, Manitoba facility or
be able to access raw materials on a timely and cost-effective
basis from third-parties; that we may be unable to further
streamline our operations and reduce expenses; that we may not be
able to effectively and efficiently re-enter the U.S. market in the
future; that we may not be able to access raw materials on a timely
and cost-effective basis from third-parties, including Cronos
GrowCo; that Cronos GrowCo may not be able to complete the
expansion of its purpose-built cannabis facility within a
reasonable time or repay its borrowings under Term Loan B; 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; failure to execute key personnel changes; the risks
that our Realignment, the change in the nature of our operations at
the Peace Naturals Campus 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; lower levels of
revenues; the lack of consumer demand for our products; our
inability to accurately forecast consumer demand; our inability to
reduce expenses at the level needed to meet our projections; our
inability to manage disruptions in credit markets; unanticipated
future levels of capital, environmental or maintenance
expenditures, general and administrative and other expenses; growth
opportunities not turning out as expected; the lack of cash flow
necessary to execute our business plan (either within the expected
timeframe or at all); difficulty raising capital; the potential
adverse 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 unexpected 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; adverse 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 realize 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 failure to improve our
internal control environment and our systems, processes and
procedures; and the factors discussed under Part I, Item 1A “Risk
Factors” of the Annual Report on Form 10-K for the year ended
December 31, 2023 and under Part II, Item 1A “Risk Factors” in our
Quarterly Reports. 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, unaudited) |
|
As of June 30, 2024 |
|
As of December 31, 2023 |
Assets |
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
$ |
848,189 |
|
|
$ |
669,291 |
|
Short-term investments |
|
— |
|
|
|
192,237 |
|
Accounts receivable, net |
|
16,179 |
|
|
|
13,984 |
|
Interest receivable |
|
5,183 |
|
|
|
10,012 |
|
Other receivables |
|
7,227 |
|
|
|
6,341 |
|
Current portion of loans receivable, net |
|
4,875 |
|
|
|
5,541 |
|
Inventory, net |
|
29,182 |
|
|
|
30,495 |
|
Prepaids and other current assets |
|
5,246 |
|
|
|
5,405 |
|
Held-for-sale assets |
|
19,197 |
|
|
|
— |
|
Total current assets |
|
935,278 |
|
|
|
933,306 |
|
Equity
method investments, net |
|
21,226 |
|
|
|
19,488 |
|
Other
investments |
|
3,168 |
|
|
|
35,251 |
|
Non-current portion of loans receivable, net |
|
73,165 |
|
|
|
69,036 |
|
Property, plant and equipment, net |
|
36,964 |
|
|
|
59,468 |
|
Right-of-use assets |
|
1,079 |
|
|
|
1,356 |
|
Goodwill |
|
1,024 |
|
|
|
1,057 |
|
Intangible assets, net |
|
19,103 |
|
|
|
21,078 |
|
Other
assets |
|
41 |
|
|
|
45 |
|
Total assets |
$ |
1,091,048 |
|
|
$ |
1,140,085 |
|
|
|
|
|
Liabilities |
|
|
|
Current
liabilities |
|
|
|
Accounts payable |
$ |
7,840 |
|
|
$ |
12,130 |
|
Income taxes payable |
|
61 |
|
|
|
64 |
|
Accrued liabilities |
|
23,846 |
|
|
|
27,736 |
|
Current portion of lease obligation |
|
931 |
|
|
|
994 |
|
Derivative liabilities |
|
21 |
|
|
|
102 |
|
Current portion due to non-controlling interests |
|
358 |
|
|
|
373 |
|
Total current liabilities |
|
33,057 |
|
|
|
41,399 |
|
Non-current portion due to non-controlling interests |
|
1,137 |
|
|
|
1,003 |
|
Non-current portion of lease obligation |
|
1,062 |
|
|
|
1,559 |
|
Total liabilities |
|
35,256 |
|
|
|
43,961 |
|
|
|
|
|
Shareholders’ equity |
|
|
|
Share
capital |
|
616,379 |
|
|
|
613,725 |
|
Additional paid-in capital |
|
49,298 |
|
|
|
48,449 |
|
Retained earnings |
|
405,650 |
|
|
|
416,719 |
|
Accumulated other comprehensive gain (loss) |
|
(12,013 |
) |
|
|
20,678 |
|
Total equity attributable to shareholders of Cronos Group |
|
1,059,314 |
|
|
|
1,099,571 |
|
Non-controlling interests |
|
(3,522 |
) |
|
|
(3,447 |
) |
Total shareholders’ equity |
|
1,055,792 |
|
|
|
1,096,124 |
|
Total liabilities and shareholders’ equity |
$ |
1,091,048 |
|
|
$ |
1,140,085 |
|
|
Cronos Group Inc. |
|
|
|
Condensed
Consolidated Statements of Net Loss and Comprehensive Income
(Loss) |
|
Three months ended June 30, |
|
Six months ended June 30, |
(In thousands of U.S. dollars, except share and per share amounts,
unaudited) |
|
2024 |
|
|
|
2023 |
|
|
|
2024 |
|
|
|
2023 |
|
Net revenue, before excise taxes |
$ |
38,678 |
|
|
$ |
25,798 |
|
|
$ |
74,045 |
|
|
$ |
52,352 |
|
Excise taxes |
|
(10,916 |
) |
|
|
(6,777 |
) |
|
|
(20,995 |
) |
|
|
(13,836 |
) |
Net revenue |
|
27,762 |
|
|
|
19,021 |
|
|
|
53,050 |
|
|
|
38,516 |
|
Cost of sales |
|
21,070 |
|
|
|
15,922 |
|
|
|
41,875 |
|
|
|
32,490 |
|
Inventory write-down |
|
395 |
|
|
|
— |
|
|
|
395 |
|
|
|
— |
|
Gross profit |
|
6,297 |
|
|
|
3,099 |
|
|
|
10,780 |
|
|
|
6,026 |
|
Operating expenses |
|
|
|
|
|
|
|
Sales and marketing |
|
4,330 |
|
|
|
5,297 |
|
|
|
9,662 |
|
|
|
11,038 |
|
Research and development |
|
962 |
|
|
|
1,107 |
|
|
|
1,959 |
|
|
|
3,146 |
|
General and administrative |
|
12,767 |
|
|
|
13,451 |
|
|
|
21,674 |
|
|
|
25,307 |
|
Restructuring costs |
|
547 |
|
|
|
— |
|
|
|
630 |
|
|
|
— |
|
Share-based compensation |
|
2,236 |
|
|
|
2,331 |
|
|
|
4,251 |
|
|
|
4,866 |
|
Depreciation and amortization |
|
1,016 |
|
|
|
1,533 |
|
|
|
2,139 |
|
|
|
3,058 |
|
Impairment loss on long-lived assets |
|
— |
|
|
|
— |
|
|
|
1,974 |
|
|
|
— |
|
Total operating expenses |
|
21,858 |
|
|
|
23,719 |
|
|
|
42,289 |
|
|
|
47,415 |
|
Operating loss |
|
(15,561 |
) |
|
|
(20,620 |
) |
|
|
(31,509 |
) |
|
|
(41,389 |
) |
Other income |
|
|
|
|
|
|
|
Interest income, net |
|
13,451 |
|
|
|
12,471 |
|
|
|
27,696 |
|
|
|
23,646 |
|
Share of income (loss) from equity method investments |
|
917 |
|
|
|
270 |
|
|
|
2,365 |
|
|
|
(226 |
) |
Gain (loss) on revaluation of financial instruments |
|
(3,615 |
) |
|
|
5,193 |
|
|
|
(6,257 |
) |
|
|
(2,565 |
) |
Impairment loss on other investments |
|
(12,916 |
) |
|
|
— |
|
|
|
(25,650 |
) |
|
|
— |
|
Foreign currency transaction gain (loss) |
|
6,543 |
|
|
|
(3,174 |
) |
|
|
19,802 |
|
|
|
(4,817 |
) |
Other, net |
|
248 |
|
|
|
17 |
|
|
|
(422 |
) |
|
|
37 |
|
Total other income |
|
4,628 |
|
|
|
14,777 |
|
|
|
17,534 |
|
|
|
16,075 |
|
Loss
before income taxes |
|
(10,933 |
) |
|
|
(5,843 |
) |
|
|
(13,975 |
) |
|
|
(25,314 |
) |
Income
tax benefit |
|
(2,174 |
) |
|
|
(180 |
) |
|
|
(2,732 |
) |
|
|
(1,616 |
) |
Loss
from continuing operations |
|
(8,759 |
) |
|
|
(5,663 |
) |
|
|
(11,243 |
) |
|
|
(23,698 |
) |
Loss
from discontinued operations |
|
— |
|
|
|
(2,834 |
) |
|
|
— |
|
|
|
(4,056 |
) |
Net loss |
|
(8,759 |
) |
|
|
(8,497 |
) |
|
|
(11,243 |
) |
|
|
(27,754 |
) |
Net loss
attributable to non-controlling interest |
|
(2 |
) |
|
|
(137 |
) |
|
|
(245 |
) |
|
|
(225 |
) |
Net loss attributable to Cronos Group |
$ |
(8,757 |
) |
|
$ |
(8,360 |
) |
|
$ |
(10,998 |
) |
|
$ |
(27,529 |
) |
Comprehensive income (loss) |
|
|
|
|
|
|
|
Net loss |
$ |
(8,759 |
) |
|
$ |
(8,497 |
) |
|
$ |
(11,243 |
) |
|
$ |
(27,754 |
) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
Foreign exchange gain (loss) on translation |
|
(10,160 |
) |
|
|
16,580 |
|
|
|
(32,521 |
) |
|
|
18,994 |
|
Comprehensive income (loss) |
|
(18,919 |
) |
|
|
8,083 |
|
|
|
(43,764 |
) |
|
|
(8,760 |
) |
Comprehensive income (loss) attributable to non-controlling
interests |
|
58 |
|
|
|
(87 |
) |
|
|
(75 |
) |
|
|
(95 |
) |
Comprehensive income (loss) attributable to Cronos
Group |
$ |
(18,977 |
) |
|
$ |
8,170 |
|
|
$ |
(43,689 |
) |
|
$ |
(8,665 |
) |
Net loss per share |
|
|
|
|
|
|
|
Basic
and diluted - continuing operations |
$ |
(0.02 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.06 |
) |
Basic
and diluted - discontinued operations |
|
— |
|
|
|
(0.01 |
) |
|
|
— |
|
|
|
(0.01 |
) |
Basic
and diluted - total |
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.07 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cronos Group Inc. |
|
Condensed
Consolidated Statements of Cash Flows |
(In thousands of
U.S. dollars, except share amounts, unaudited) |
|
Six months ended June 30, |
|
|
2024 |
|
|
|
2023 |
|
Operating
activities |
|
|
|
Net loss |
$ |
(11,243 |
) |
|
$ |
(27,754 |
) |
Adjustments to reconcile net
loss to cash used in operating activities: |
|
|
|
Share-based compensation |
|
4,251 |
|
|
|
4,887 |
|
Depreciation and amortization |
|
3,244 |
|
|
|
4,785 |
|
Impairment loss on long-lived assets |
|
1,974 |
|
|
|
205 |
|
Impairment loss on other investments |
|
25,650 |
|
|
|
— |
|
Loss from investments |
|
3,732 |
|
|
|
2,955 |
|
Changes in expected credit losses on long-term financial
assets |
|
1,021 |
|
|
|
(1,146 |
) |
Foreign currency transaction (gain) loss |
|
(19,802 |
) |
|
|
4,817 |
|
Other non-cash operating activities, net |
|
829 |
|
|
|
(554 |
) |
Changes in operating assets
and liabilities: |
|
|
|
Accounts receivable, net |
|
(2,723 |
) |
|
|
10,623 |
|
Interest receivable |
|
1,174 |
|
|
|
(10,243 |
) |
Other receivables |
|
(1,009 |
) |
|
|
(200 |
) |
Prepaids and other current assets |
|
(5 |
) |
|
|
480 |
|
Inventory |
|
292 |
|
|
|
(7,259 |
) |
Accounts payable |
|
(4,482 |
) |
|
|
(2,478 |
) |
Income taxes payable |
|
(47 |
) |
|
|
(32,801 |
) |
Accrued liabilities |
|
(3,316 |
) |
|
|
(5,784 |
) |
Cash flows used in operating
activities |
|
(460 |
) |
|
|
(59,467 |
) |
Investing
activities |
|
|
|
Purchase of short-term investments |
|
— |
|
|
|
(479,763 |
) |
Proceeds from short-term investments |
|
187,447 |
|
|
|
169,418 |
|
Dividends received from equity method investment |
|
— |
|
|
|
1,299 |
|
Advances on loans receivable |
|
(8,836 |
) |
|
|
— |
|
Proceeds from repayment on loans receivable |
|
5,298 |
|
|
|
11,388 |
|
Purchase of property, plant and equipment |
|
(2,453 |
) |
|
|
(1,298 |
) |
Purchase of intangible assets |
|
(457 |
) |
|
|
(8 |
) |
Cash flows provided by (used in) investing activities |
|
180,999 |
|
|
|
(298,964 |
) |
Financing
activities |
|
|
|
Withholding taxes paid on share-based awards |
|
(905 |
) |
|
|
(782 |
) |
Cash flows used in financing activities |
|
(905 |
) |
|
|
(782 |
) |
Effect of foreign currency
translation on cash and cash equivalents |
|
(736 |
) |
|
|
3,997 |
|
Net change in cash and cash equivalents |
|
178,898 |
|
|
|
(355,216 |
) |
Cash and cash equivalents,
beginning of period |
|
669,291 |
|
|
|
764,644 |
|
Cash and cash equivalents, end of period |
$ |
848,189 |
|
|
$ |
409,428 |
|
Supplemental cash flow
information |
|
|
|
Interest paid |
$ |
— |
|
|
$ |
— |
|
Interest received |
$ |
28,291 |
|
|
$ |
13,385 |
|
Income taxes paid |
$ |
614 |
|
|
$ |
32,995 |
|
|
|
|
|
|
|
|
|
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.
Management defines Adjusted EBITDA as net income (loss) before
interest, tax expense (benefit), depreciation and amortization
adjusted for: share of (income) loss from equity method
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; restructuring costs; inventory write-downs
resulting from restructuring actions; share-based compensation; and
financial statement review costs and reserves related to the
restatements of our 2019 and 2021 interim financial statements (the
“Restatements”), including the costs related to the settlement of
the Securities and Exchange Commission's ("SEC") and the Ontario
Securities Commission's ("OSC") investigation of the Restatements
and legal costs of defending shareholder class action complaints
brought against us as a result of the 2019 restatement (see Part
II, Item 1 “Legal Proceedings” of our Quarterly Report on Form 10-Q
for the period ended June 30, 2024 for a discussion of the
shareholder class action complaints relating to the restatement of
the 2019 interim financial statements and the settlement of the
SEC's and the OSC's investigations of the Restatements). Results
are reported as total consolidated results, reflecting our
reporting structure of one reportable segment.
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:
|
Three months ended June 30, 2024 |
|
Continuing Operations |
|
Discontinued Operations |
|
Total |
Net loss |
$ |
(8,759 |
) |
|
$ |
— |
|
|
$ |
(8,759 |
) |
Interest income, net |
|
(13,451 |
) |
|
|
— |
|
|
|
(13,451 |
) |
Income tax benefit |
|
(2,174 |
) |
|
|
— |
|
|
|
(2,174 |
) |
Depreciation and amortization |
|
1,513 |
|
|
|
– |
|
|
|
1,513 |
|
EBITDA |
|
(22,871 |
) |
|
|
— |
|
|
|
(22,871 |
) |
Share of income from equity method investments |
|
(917 |
) |
|
|
— |
|
|
|
(917 |
) |
Loss on revaluation of financial instruments(ii) |
|
3,615 |
|
|
|
— |
|
|
|
3,615 |
|
Impairment loss on other investments(iii) |
|
12,916 |
|
|
|
— |
|
|
|
12,916 |
|
Foreign currency transaction gain |
|
(6,543 |
) |
|
|
— |
|
|
|
(6,543 |
) |
Transaction costs(iv) |
|
196 |
|
|
|
— |
|
|
|
196 |
|
Other, net(v) |
|
(248 |
) |
|
|
— |
|
|
|
(248 |
) |
Restructuring costs(vi) |
|
547 |
|
|
|
— |
|
|
|
547 |
|
Share-based compensation(vii) |
|
2,236 |
|
|
|
— |
|
|
|
2,236 |
|
Financial statement review costs(viii) |
|
18 |
|
|
|
— |
|
|
|
18 |
|
Adjusted EBITDA |
$ |
(11,051 |
) |
|
$ |
— |
|
|
$ |
(11,051 |
) |
|
Three months ended June 30, 2023 |
|
Continuing Operations |
|
Discontinued Operations |
|
Total |
Net loss |
$ |
(5,663 |
) |
|
$ |
(2,834 |
) |
|
$ |
(8,497 |
) |
Interest income, net |
|
(12,471 |
) |
|
|
(3 |
) |
|
|
(12,474 |
) |
Income tax benefit |
|
(180 |
) |
|
|
— |
|
|
|
(180 |
) |
Depreciation and amortization |
|
2,265 |
|
|
|
115 |
|
|
|
2,380 |
|
EBITDA |
|
(16,049 |
) |
|
|
(2,722 |
) |
|
|
(18,771 |
) |
Share of income from equity method investments |
|
(270 |
) |
|
|
— |
|
|
|
(270 |
) |
Impairment loss on long-lived assets(i) |
|
— |
|
|
|
205 |
|
|
|
205 |
|
Gain on revaluation of financial instruments(ii) |
|
(5,193 |
) |
|
|
— |
|
|
|
(5,193 |
) |
Foreign currency transaction loss |
|
3,174 |
|
|
|
— |
|
|
|
3,174 |
|
Other, net(v) |
|
(17 |
) |
|
|
163 |
|
|
|
146 |
|
Restructuring costs(vi) |
|
— |
|
|
|
534 |
|
|
|
534 |
|
Share-based compensation(vii) |
|
2,331 |
|
|
|
5 |
|
|
|
2,336 |
|
Financial statement review costs(viii) |
|
119 |
|
|
|
— |
|
|
|
119 |
|
Inventory write-down(ix) |
|
— |
|
|
|
839 |
|
|
|
839 |
|
Adjusted EBITDA |
$ |
(15,905 |
) |
|
$ |
(976 |
) |
|
$ |
(16,881 |
) |
|
Six months ended June 30, 2024 |
|
Continuing Operations |
|
Discontinued Operations |
|
Total |
Net loss |
$ |
(11,243 |
) |
|
$ |
— |
|
|
$ |
(11,243 |
) |
Interest income, net |
|
(27,696 |
) |
|
|
— |
|
|
|
(27,696 |
) |
Income tax benefit |
|
(2,732 |
) |
|
|
— |
|
|
|
(2,732 |
) |
Depreciation and amortization |
|
3,244 |
|
|
|
— |
|
|
|
3,244 |
|
EBITDA |
|
(38,427 |
) |
|
|
— |
|
|
|
(38,427 |
) |
Share of income from equity method investments |
|
(2,365 |
) |
|
|
— |
|
|
|
(2,365 |
) |
Impairment loss on long-lived assets(i) |
|
1,974 |
|
|
|
— |
|
|
|
1,974 |
|
Loss on revaluation of financial instruments(ii) |
|
6,257 |
|
|
|
— |
|
|
|
6,257 |
|
Impairment loss on other investments(iii) |
|
25,650 |
|
|
|
— |
|
|
|
25,650 |
|
Foreign currency transaction gain |
|
(19,802 |
) |
|
|
— |
|
|
|
(19,802 |
) |
Transaction costs(iv) |
|
196 |
|
|
|
— |
|
|
|
196 |
|
Other, net(v) |
|
422 |
|
|
|
— |
|
|
|
422 |
|
Restructuring costs(vi) |
|
630 |
|
|
|
— |
|
|
|
630 |
|
Share-based compensation(vii) |
|
4,251 |
|
|
|
— |
|
|
|
4,251 |
|
Financial statement review costs(viii) |
|
(506 |
) |
|
|
— |
|
|
|
(506 |
) |
Adjusted EBITDA |
$ |
(21,720 |
) |
|
$ |
— |
|
|
$ |
(21,720 |
) |
|
Six months ended June 30, 2023 |
|
Continuing Operations |
|
Discontinued Operations |
|
Total |
Net loss |
$ |
(23,698 |
) |
|
$ |
(4,056 |
) |
|
$ |
(27,754 |
) |
Interest income, net |
|
(23,646 |
) |
|
|
(8 |
) |
|
|
(23,654 |
) |
Income tax benefit |
|
(1,616 |
) |
|
|
— |
|
|
|
(1,616 |
) |
Depreciation and amortization |
|
4,541 |
|
|
|
244 |
|
|
|
4,785 |
|
EBITDA |
|
(44,419 |
) |
|
|
(3,820 |
) |
|
|
(48,239 |
) |
Share of loss from equity method investments |
|
226 |
|
|
|
— |
|
|
|
226 |
|
Impairment loss on long-lived assets(i) |
|
— |
|
|
|
205 |
|
|
|
205 |
|
Loss on revaluation of financial instruments(ii) |
|
2,565 |
|
|
|
— |
|
|
|
2,565 |
|
Foreign currency transaction loss |
|
4,817 |
|
|
|
— |
|
|
|
4,817 |
|
Other, net(v) |
|
(37 |
) |
|
|
163 |
|
|
|
126 |
|
Restructuring costs(vi) |
|
— |
|
|
|
534 |
|
|
|
534 |
|
Share-based compensation(vii) |
|
4,866 |
|
|
|
21 |
|
|
|
4,887 |
|
Financial statement review costs(viii) |
|
395 |
|
|
|
— |
|
|
|
395 |
|
Inventory write-down(ix) |
|
— |
|
|
|
839 |
|
|
|
839 |
|
Adjusted EBITDA |
$ |
(31,587 |
) |
|
$ |
(2,058 |
) |
|
$ |
(33,645 |
) |
(i) For the
three and six months ended June 30, 2024, impairment loss on
long-lived assets related to the winding down of operations at
Cronos Fermentation. For the three and six months ended
June 30, 2023, impairment loss on long-lived assets related to
certain leased properties associated with the Company’s U.S.
operations.
(ii) For the
three and six months ended June 30, 2024 and 2023, (gain) loss
on revaluation of financial instruments related primarily to the
Company’s equity securities in Vitura.
(iii) For the three
and six months ended June 30, 2024, impairment loss on other
investments represents the fair value change on the PharmaCann
Option.
(iv) For the three
and six months ended June 30, 2024, transactions costs
represent advisory fees associated with the Cronos GrowCo expansion
transaction.
(v) For the
three and six months ended June 30, 2024 and 2023, other, net
related to (gain) loss on disposal of assets and (gain) loss on
revaluation of derivative liabilities.
(vi) For the
three and six months ended June 30, 2024, restructuring costs
from continuing operations related to shutdown costs at the Cronos
Fermentation facility as well as employee-related severance costs
associated with the Realignment. For the three and six months ended
June 30, 2023, restructuring costs related to employee-related
severance costs and other restructuring costs associated with our
U.S. operations.
(vii) For the
three and six months ended June 30, 2024 and 2023, share-based
compensation related to the non-cash expenses of share-based
compensation awarded to employees under the Company’s share-based
award plans.
(viii) For the three
and six months ended June 30, 2024 and 2023, financial
statement review costs include costs and reserves taken related to
the Restatements, costs related to the Company’s responses to
requests for information from various regulatory authorities
relating to the Restatements and legal costs incurred defending
shareholder class action complaints brought against the Company as
a result of the 2019 restatement. For the six months ended
June 30, 2024, a credit balance is presented due to an
insurance recovery.
(ix) For the
three and six months ended June 30, 2023, inventory
write-downs relate to product destruction and obsolescence
associated with the exit of our U.S. operations.
Constant Currency
To supplement the consolidated financial
statements presented in accordance with U.S. GAAP, we have
presented constant currency adjusted financial measures for net
revenues, gross profit, gross profit margin, operating expenses,
net income (loss) and Adjusted EBITDA for the six months ended
June 30, 2024, as well as cash and cash equivalents and
short-term investment balances as of June 30, 2024 compared to
December 31, 2023, which are considered non-GAAP financial
measures. We present constant currency information to provide a
framework for assessing how our underlying operations performed
excluding the effect of foreign currency rate fluctuations. To
present this information, current and comparative prior period
income statement results in currencies other than U.S. dollars are
converted into U.S. dollars using the average exchange rates from
the three and six months and comparative periods in 2023 rather
than the actual average exchange rates in effect during the
respective current periods; constant currency current and prior
comparative balance sheet information is translated at the prior
year-end spot rate rather than the current period spot rate. All
growth comparisons relate to the corresponding period in 2023. We
have provided this non-GAAP financial information to aid investors
in better understanding the performance of our operations. The
non-GAAP financial measures presented in this press release should
not be considered as a substitute for, or superior to, the measures
of financial performance prepared in accordance with U.S. GAAP.
The table below sets forth certain measures of
consolidated results from continuing operations on a constant
currency basis for the three and six months ended June 30,
2024 compared to the three and six months ended June 30, 2023
as well as cash and cash equivalents and short-term investments as
of June 30, 2024 and December 31, 2023, both on an as-reported
and constant currency basis (in thousands):
|
As Reported |
|
As Adjusted for Constant Currency |
|
Three months ended June 30, |
|
As Reported Change |
|
Three months ended June 30, |
|
Constant Currency Change |
|
|
2024 |
|
|
|
2023 |
|
|
$ |
|
% |
|
|
2024 |
|
|
$ |
|
% |
Net revenue |
$ |
27,762 |
|
|
$ |
19,021 |
|
|
$ |
8,741 |
|
|
46 |
% |
|
$ |
28,290 |
|
|
$ |
9,269 |
|
|
49 |
% |
Gross
profit |
|
6,297 |
|
|
|
3,099 |
|
|
|
3,198 |
|
|
103 |
% |
|
|
6,434 |
|
|
|
3,335 |
|
|
108 |
% |
Gross
margin |
|
23 |
% |
|
|
16 |
% |
|
|
N/A |
|
|
7 |
pp |
|
|
23 |
% |
|
|
N/A |
|
|
7 |
pp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
21,858 |
|
|
|
23,719 |
|
|
|
(1,861 |
) |
|
(8 |
)% |
|
|
21,861 |
|
|
|
(1,858 |
) |
|
(8 |
)% |
Net loss
from continuing operations |
|
(8,759 |
) |
|
|
(5,663 |
) |
|
|
(3,096 |
) |
|
(55 |
)% |
|
|
(8,162 |
) |
|
|
(2,499 |
) |
|
(44 |
)% |
Adjusted
EBITDA |
|
(11,051 |
) |
|
|
(15,905 |
) |
|
|
4,854 |
|
|
31 |
% |
|
|
(10,863 |
) |
|
|
5,042 |
|
|
32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
As Reported Change |
|
Six months ended June 30, |
|
Constant Currency Change |
|
|
2024 |
|
|
|
2023 |
|
|
$ |
|
% |
|
|
2024 |
|
|
$ |
|
% |
Net
revenue |
$ |
53,050 |
|
|
$ |
38,516 |
|
|
$ |
14,534 |
|
|
38 |
% |
|
$ |
53,795 |
|
|
$ |
15,279 |
|
|
40 |
% |
Gross
profit |
|
10,780 |
|
|
|
6,026 |
|
|
|
4,754 |
|
|
79 |
% |
|
|
10,983 |
|
|
|
4,957 |
|
|
82 |
% |
Gross
margin |
|
20 |
% |
|
|
16 |
% |
|
|
N/A |
|
|
4 |
pp |
|
|
20 |
% |
|
|
N/A |
|
|
4 |
pp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
42,289 |
|
|
|
47,415 |
|
|
|
(5,126 |
) |
|
(11 |
)% |
|
|
42,336 |
|
|
|
(5,079 |
) |
|
(11 |
)% |
Net loss
from continuing operations |
|
(11,243 |
) |
|
|
(23,698 |
) |
|
|
12,455 |
|
|
53 |
% |
|
|
(10,643 |
) |
|
|
13,055 |
|
|
55 |
% |
Adjusted
EBITDA |
|
(21,720 |
) |
|
|
(31,587 |
) |
|
|
9,867 |
|
|
31 |
% |
|
|
(21,508 |
) |
|
|
10,079 |
|
|
32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, |
|
As of December 31, |
|
As Reported Change |
|
As of March 31, |
|
Constant Currency Change |
|
|
2024 |
|
|
|
2023 |
|
|
$ |
|
% |
|
|
2024 |
|
|
$ |
|
% |
Cash and
cash equivalents |
$ |
848,189 |
|
|
$ |
669,291 |
|
|
$ |
178,898 |
|
|
27 |
% |
|
$ |
852,752 |
|
|
$ |
183,461 |
|
|
27 |
% |
Short-term investments |
|
— |
|
|
|
192,237 |
|
|
|
(192,237 |
) |
|
(100 |
)% |
|
|
— |
|
|
|
(192,237 |
) |
|
(100 |
)% |
Total
cash and cash equivalents and short-term investments |
$ |
848,189 |
|
|
$ |
861,528 |
|
|
$ |
(13,339 |
) |
|
(2 |
)% |
|
$ |
852,752 |
|
|
$ |
(8,776 |
) |
|
(1 |
)% |
|
Net revenue
|
As Reported |
|
As Adjusted for Constant Currency |
|
Three months ended June 30, |
|
As Reported Change |
|
Three months ended June 30, |
|
Constant Currency Change |
|
|
2024 |
|
|
|
2023 |
|
|
$ |
|
% |
|
|
2024 |
|
|
$ |
|
% |
Cannabis flower |
$ |
20,661 |
|
|
$ |
14,014 |
|
|
$ |
6,647 |
|
|
47 |
% |
|
$ |
21,058 |
|
|
$ |
7,044 |
|
|
50 |
% |
Cannabis extracts |
|
7,064 |
|
|
|
4,926 |
|
|
|
2,138 |
|
|
43 |
% |
|
|
7,195 |
|
|
|
2,269 |
|
|
46 |
% |
Other |
|
37 |
|
|
|
81 |
|
|
|
(44 |
) |
|
(54 |
)% |
|
|
37 |
|
|
|
(44 |
) |
|
(54 |
)% |
Net revenue |
$ |
27,762 |
|
|
$ |
19,021 |
|
|
$ |
8,741 |
|
|
46 |
% |
|
$ |
28,290 |
|
|
$ |
9,269 |
|
|
49 |
% |
|
As Reported |
|
As Adjusted for Constant Currency |
|
Six months ended June 30, |
|
As Reported Change |
|
Six months ended June 30, |
|
Constant Currency Change |
|
|
2024 |
|
|
|
2023 |
|
|
$ |
|
% |
|
|
2024 |
|
|
$ |
|
% |
Cannabis flower |
$ |
38,186 |
|
|
$ |
27,142 |
|
|
$ |
11,044 |
|
|
41 |
% |
|
$ |
38,812 |
|
|
$ |
11,670 |
|
|
43 |
% |
Cannabis extracts |
|
14,791 |
|
|
|
11,227 |
|
|
|
3,564 |
|
|
32 |
% |
|
|
14,909 |
|
|
|
3,682 |
|
|
33 |
% |
Other |
|
73 |
|
|
|
147 |
|
|
|
(74 |
) |
|
(50 |
)% |
|
|
74 |
|
|
|
(73 |
) |
|
(50 |
)% |
Net revenue |
$ |
53,050 |
|
|
$ |
38,516 |
|
|
$ |
14,534 |
|
|
38 |
% |
|
$ |
53,795 |
|
|
$ |
15,279 |
|
|
40 |
% |
|
As Reported |
|
As Adjusted for Constant Currency |
|
Three months ended June 30, |
|
As Reported Change |
|
Three months ended June 30, |
|
Constant Currency Change |
|
|
2024 |
|
|
|
2023 |
|
|
$ |
|
% |
|
|
2024 |
|
|
$ |
|
% |
Canada |
$ |
19,844 |
|
|
$ |
13,595 |
|
|
$ |
6,249 |
|
|
46 |
% |
|
$ |
20,210 |
|
|
$ |
6,615 |
|
|
49 |
% |
Israel |
|
6,889 |
|
|
|
5,426 |
|
|
|
1,463 |
|
|
27 |
% |
|
|
7,036 |
|
|
|
1,610 |
|
|
30 |
% |
Other countries |
|
1,029 |
|
|
|
— |
|
|
|
1,029 |
|
|
N/M |
|
|
|
1,044 |
|
|
|
1,044 |
|
|
N/M |
|
Net revenue |
$ |
27,762 |
|
|
$ |
19,021 |
|
|
$ |
8,741 |
|
|
46 |
% |
|
$ |
28,290 |
|
|
$ |
9,269 |
|
|
49 |
% |
|
As Reported |
|
As Adjusted for Constant Currency |
|
Six months ended June 30, |
|
As Reported Change |
|
Six months ended June 30, |
|
Constant Currency Change |
|
|
2024 |
|
|
|
2023 |
|
|
$ |
|
% |
|
|
2024 |
|
|
$ |
|
% |
Canada |
$ |
38,715 |
|
|
$ |
28,029 |
|
|
$ |
10,686 |
|
|
38 |
% |
|
$ |
39,044 |
|
|
$ |
11,015 |
|
|
39 |
% |
Israel |
|
13,306 |
|
|
|
10,487 |
|
|
|
2,819 |
|
|
27 |
% |
|
|
13,707 |
|
|
|
3,220 |
|
|
31 |
% |
Other
countries |
|
1,029 |
|
|
|
— |
|
|
|
1,029 |
|
|
N/M |
|
|
|
1,044 |
|
|
|
1,044 |
|
|
N/M |
|
Net revenue |
$ |
53,050 |
|
|
$ |
38,516 |
|
|
$ |
14,534 |
|
|
38 |
% |
|
$ |
53,795 |
|
|
$ |
15,279 |
|
|
40 |
% |
|
For the three months ended June 30, 2024,
net revenue on a constant currency basis was $28.3 million,
representing a 49% increase from the three months ended
June 30, 2023. For the six months ended June 30, 2024,
net revenue on a constant currency basis was $53.8 million,
representing a 40% increase from the six months ended June 30,
2023. On a constant currency basis, net revenue increased for the
three and six months ended June 30, 2024, primarily due to
higher cannabis flower and extract sales in the Canadian adult-use
market, higher cannabis flower sales in Israel and higher cannabis
flower sales in other countries, partially offset by an adverse
price/mix in the Canadian cannabis flower category driving
increased excise tax payments as a percentage of revenue.
Gross profit
For the three months ended June 30, 2024,
gross profit on a constant currency basis was $6.4 million,
representing a 108% increase from the three months ended
June 30, 2023. For the six months ended June 30, 2024,
gross profit on a constant currency basis was $11.0 million,
representing a 82% increase from the six months ended June 30,
2023. On a constant currency basis, gross profit increased for the
three and six months ended June 30, 2024, primarily due to
higher cannabis flower and extract sales in the Canadian adult-use
market, higher cannabis flower sales in Israel and higher cannabis
flower sales in other countries, partially offset by an adverse
price/mix in the Canadian cannabis flower category driving
increased excise tax payments as a percentage of revenue and higher
inventory write-downs.
Operating expenses
For the three months ended June 30, 2024,
operating expenses on a constant currency basis were $21.9 million,
representing an 8% decrease from the three months ended
June 30, 2023. For the six months ended June 30, 2024,
operating expenses on a constant currency basis was $42.3 million,
representing an 11% decrease from the six months ended
June 30, 2023. On a constant currency basis, operating
expenses decreased for the three and six months ended June 30,
2024, primarily due to lower advertising and marketing spend, lower
costs associated with the achievement of Ginkgo milestones, lower
professional fees, largely related to financial statement review
costs, and lower salaries and benefits and insurance costs.
Net loss from continuing operations
For the three months ended June 30, 2024,
net loss from continuing operations on a constant currency basis
was $8.2 million, representing an increased loss of $2.5 million
from the three months ended June 30, 2023. For the six months
ended June 30, 2024, net loss from continuing operations on a
constant currency basis was $10.6 million, representing an
improvement of $13.1 million from the six months ended
June 30, 2023.
Adjusted EBITDA
For the three months ended June 30, 2024,
Adjusted EBITDA on a constant currency basis was $(10.9) million,
representing a 32% improvement from the three months ended
June 30, 2023. For the six months ended June 30, 2024,
Adjusted EBITDA on a constant currency basis was $(21.5) million,
representing a 32% improvement from the six months ended
June 30, 2023. The improvement in Adjusted EBITDA for the
three and six months ended June 30, 2024 on a constant
currency basis was driven by higher cannabis flower and extract
sales in the Canadian adult-use market, higher cannabis flower
sales in Israel, decreases in general and administrative expenses
and lower costs associated with the achievement of Ginkgo
milestones, partially offset by an adverse price/mix in Canada in
the cannabis flower category driving increased excise tax payments
as a percentage of revenue.
Cash and cash equivalents & short-term
investments
Cash and cash equivalents and short-term
investments on a constant currency basis decreased 1% to $852.8
million as of June 30, 2024 from $861.5 million as of December
31, 2023. The decrease in cash and cash equivalents and short-term
investments is primarily due to advances of loans receivable and
purchases of property, plant and equipment in the six months ended
June 30, 2024.
Foreign currency exchange
rates
All currency amounts in this press release are
stated in U.S. dollars, which is our reporting currency, unless
otherwise noted. All references to “dollars” or “$” are to U.S.
dollars. The assets and liabilities of our foreign operations are
translated into dollars at the exchange rate in effect as of
June 30, 2024, June 30, 2023, and December 31, 2023.
Transactions affecting the shareholders’ equity (deficit) are
translated at historical foreign exchange rates. The condensed
consolidated statements of net loss and comprehensive income (loss)
and condensed consolidated statements of cash flows of our foreign
operations are translated into dollars by applying the average
foreign exchange rate in effect for the reporting period as
reported on Bloomberg. The exchange rates used to translate from
USD to Canadian dollars (“C$”) and Israeli New Shekels
("ILS") are shown below:
(Exchange rates are shown as
C$ per $) |
As of |
|
|
June 30, 2024 |
|
|
|
June 30, 2023 |
|
|
|
December 31, 2023 |
|
Spot rate |
|
1.3674 |
|
|
|
1.3242 |
|
|
|
1.3243 |
|
Year-to-date average rate |
|
1.3581 |
|
|
|
1.3474 |
|
|
|
N/A |
|
(Exchange rates are shown as
ILS per $) |
As of |
|
|
June 30, 2024 |
|
|
|
June 30, 2023 |
|
|
|
December 31, 2023 |
|
Spot rate |
|
3.7742 |
|
|
|
3.7051 |
|
|
|
3.6163 |
|
Year-to-date average rate |
|
3.6950 |
|
|
|
3.5892 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
For further information, please
contact:Shayne LaidlawInvestor RelationsTel: (416)
504-0004investor.relations@thecronosgroup.com
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