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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Cronos Group Inc | NASDAQ:CRON | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.04 | 1.50% | 2.70 | 2.59 | 7.00 | 2.7652 | 2.64 | 2.70 | 2,528,486 | 05:00:04 |
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Ontario, Canada
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N/A
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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720 King St. W., Suite 320
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Toronto, Ontario
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M5V 2T3
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(Address of principal executive offices)
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(Zip Code)
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Title of Each Class
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Trading Symbol
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Name of Each Exchange on Which Registered
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Common Shares, no par value
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CRON
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The Nasdaq Stock Market LLC
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Large accelerated filer
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x
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Accelerated filer
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o
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Non-accelerated filer
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o
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Smaller reporting company
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o
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Emerging growth company
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o
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Table of Contents
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PART I
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Item 1.
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||||
Item 1A.
|
||||
Item 1B.
|
||||
Item 2.
|
||||
Item 3.
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||||
Item 4.
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||||
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PART II
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Item 5.
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||||
Item 6.
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||||
Item 7.
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||||
Item 7A.
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||||
Item 8.
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||||
Item 9.
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||||
Item 9A.
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||||
Item 9B.
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||||
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PART III
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Item 10.
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||||
Item 11.
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||||
Item 12.
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||||
Item 13.
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||||
Item 14.
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||||
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PART IV
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Item 15.
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•
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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 U.S. hemp (including CBD) products and the scope of any regulations by the U.S. Federal Drug Administration (the “FDA”), the U.S. Federal Trade Commission (the “FTC”), the U.S. Patent and Trademark Office (the “PTO”) and any state equivalent regulatory agencies over U.S. hemp (including CBD) products;
|
•
|
expectations regarding the regulation of the U.S. hemp industry in the U.S., including the promulgation of regulations for the U.S. hemp industry by the U.S. Department of Agriculture (the “USDA”);
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•
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the grant, renewal and impact of any license or supplemental license to conduct activities with cannabis or any amendments thereof;
|
•
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our international activities and joint venture interests, including required regulatory approvals and licensing, anticipated costs and timing, and expected impact;
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•
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the ability to successfully create and launch brands and further create, launch and scale U.S. hemp-derived consumer products, including through the Redwood Acquisition (as defined herein), and cannabis products in jurisdictions where such products are legal and that we currently operate in;
|
•
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the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, including CBD and other cannabinoids;
|
•
|
the anticipated benefits and impact of the Altria Investment (as defined herein);
|
•
|
the potential exercise of the Altria Warrant (as defined herein), pre-emptive rights and/or top-up rights in connection with the Altria Investment, including proceeds to us that may result therefrom;
|
•
|
expectations regarding the use of proceeds of equity financings, including the proceeds from the Altria Investment;
|
•
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the legalization of the use of cannabis for medical or adult-use in jurisdictions outside of Canada, the related timing and impact thereof and our intentions to participate in such markets, if and when such use is legalized;
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•
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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 (the “Ginkgo Strategic Partnership”) with Ginkgo Bioworks, Inc. (“Ginkgo”);
|
•
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our ability to execute on our strategy and the anticipated benefits of such strategy;
|
•
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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;
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•
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the future performance of our business and operations;
|
•
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our competitive advantages and business strategies;
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•
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the competitive conditions of the industry;
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•
|
the expected growth in the number of customers using our products;
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•
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our ability or plans to identify, develop, commercialize or expand our technology and research and development (“R&D”) initiatives in cannabinoids, or the success thereof;
|
•
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expectations regarding acquisitions and the anticipated benefits therefrom, including the Redwood Acquisition and the acquisition of certain assets from AFI (as defined herein);
|
•
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expectations regarding revenues, expenses and anticipated cash needs;
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•
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expectations regarding cash flow, liquidity and sources of funding;
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•
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expectations regarding capital expenditures;
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•
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the expansion of our production and manufacturing, the costs and timing associated therewith and the receipt of applicable production and sale licenses;
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•
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the expected growth in our growing, production and supply chain capacities;
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•
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expectations regarding the resolution of litigation and other legal proceedings;
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•
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expectations with respect to future production costs;
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•
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expectations with respect to future sales and distribution channels;
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•
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the expected methods to be used to distribute and sell our products;
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•
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our future product offerings;
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•
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the anticipated future gross margins of our operations;
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•
|
accounting standards and estimates;
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•
|
expectations regarding our distribution network; and
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•
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expectations regarding the costs and benefits associated with our contracts and agreements with third parties, including under our third-party supply and manufacturing agreements.
|
•
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growing a portfolio of iconic brands that resonate with consumers;
|
•
|
developing a diversified global sales and distribution network;
|
•
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establishing an efficient global supply chain; and
|
•
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creating and monetizing disruptive intellectual property in the industries in which we operate.
|
Joint Venture
|
Jurisdiction
|
Ownership Interest(i)
|
Cronos Israel (ii)
|
Israel
|
70%/90%
|
Cronos Growing Company Inc. (“Cronos GrowCo”) (iii)
|
Canada
|
50%
|
NatuEra S.à.r.l. (“NatuEra”) (iv)
|
Colombia
|
50%
|
MedMen Canada Inc. (“MedMen Canada”) (v)
|
Canada
|
50%
|
(i)
|
We define ownership interest as the proportionate share of net income to which we are entitled; equity interest may differ from ownership interest shown above. We consolidate the financial results of Cronos Israel and account for our other joint ventures under the equity method of accounting. See Notes 2 and 6 of our audited consolidated financial statements included in Item 8 of this Annual Report.
|
(ii)
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A strategic joint venture with Kibbutz Gan Shmuel (“Gan Shmuel”), an Israeli agricultural collective settlement, for the production, manufacture and global distribution of medical cannabis, consisting of a cultivation company (Cronos Israel G.S. Cultivations Ltd.), a manufacturing company (Cronos Israel G.S. Manufacturing Ltd.), a distribution company (Cronos Israel G.S. Store Ltd.) and a pharmacies company (Cronos Israel G.S. Pharmacies Ltd., collectively, “Cronos Israel”). We hold a 70% equity interest in the cultivation company and a 90% equity interest in each of the manufacturing, distribution and pharmacies companies.
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(iii)
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A strategic joint venture with a group of investors led by Bert Mucci (the “Greenhouse Partners”), a Canadian large-scale greenhouse operator. Each of Cronos Group and the Greenhouse Partners owns a 50% equity interest in the joint venture, Cronos GrowCo, and has equal representation on its board of directors.
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(iv)
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A strategic joint venture with an affiliate of Agroidea SAS (“AGI”), a Colombian agricultural services provider. Each of the Company and AGI owns a 50% equity interest in the joint venture, NatuEra. Cronos Group has three manager nominees on the board of managers of NatuEra, while AGI has four manager nominees on the board of managers. NatuEra intends to develop, cultivate, manufacture, and export cannabis-based medical and consumer products for the Latin American and global markets.
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(v)
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A strategic joint venture with MedMen Enterprises USA, LLC (“MedMen”) for retail in provinces in Canada that permit private retail. Each of the Company and MedMen owns a 50% equity interest in the joint venture, MedMen Canada, and has equal representation on the board of directors of MedMen Canada.
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•
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production, distribution, sales and marketing outside of the geographic markets that we currently participate in (in jurisdictions which have passed legislation to legalize the production, distribution and possession of cannabis and cannabis products at all relevant levels of government); and
|
•
|
the export of cannabis and cannabis products to third parties outside of the geographic markets that we currently participate in that permit the import of such products.
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Brand Positioning
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Wellness
|
Premium Adult-Use, Terpene-Rich
|
Mainstream Adult-Use
|
Luxury Adult Consumer Goods
|
Mass Market
|
Product Offering
|
Dried Cannabis, Cannabis Tinctures
|
Dried Cannabis, Cannabis Tinctures, Pre-Rolls, Vaporizers
|
Dried Cannabis, Pre-Rolls, Vaporizers
|
U.S. hemp-derived Supplements, Cosmetics
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In Development (not yet offered for sale)
|
Geographic Availability
|
Canada, Germany and Australia
|
Canada
|
Canada
|
U.S.
|
Anticipated U.S.
|
•
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consolidate or merge into or with another person or enter into any similar business combination;
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•
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acquire any shares or similar equity interests, instruments convertible into or exchangeable for shares or similar equity interests, assets, business or operations with an aggregate value of more than C$100,000,000, in a single transaction or a series of related transactions;
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•
|
subject to certain exceptions, adopt any plan or proposal for a complete or partial liquidation, dissolution or winding up of the Company or any of our significant subsidiaries, or any reorganization or recapitalization of the Company or any of our significant subsidiaries, or commence any claim seeking relief under any applicable laws relating to bankruptcy, insolvency, conservatorship or relief of debtors;
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•
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sell, transfer, cause to be transferred, exclusively license, lease, pledge or otherwise dispose of any of our or any of our significant subsidiaries’ assets, business or operations in the aggregate with a value of more than C$60,000,000;
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•
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except as required by applicable law, make any changes to our policy with respect to the declaration and payment of any dividends on our common shares;
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•
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subject to certain exceptions, enter into any contract or other agreement, arrangement, or understanding with respect to, or consummate, any transaction or series of related transactions between us or any of our subsidiaries, on the one hand, and any related parties, on the other hand, involving consideration or any other transfer of value required to be disclosed pursuant to Item 404 of Regulation S-K promulgated pursuant to the United States Securities Act of 1933, as amended (the “Securities Act”);
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•
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enter into any contract or other agreement, arrangement or understanding with respect to, or consummate, any transaction or series of related transactions between us or any of our subsidiaries, on the one hand, and certain specified persons; or
|
•
|
engage in the production, cultivation, advertisement, marketing, promotion, sale or distribution of cannabis or any Related Products and Services (as defined herein) in any jurisdiction, including the U.S., where such activity is prohibited by applicable law as of the date of the Investor Rights Agreement (subject to certain limitations).
|
•
|
develop, produce, manufacture, cultivate, advertise, market, promote, sell or distribute any cannabis or products derived from or intended to be used in connection with cannabis or services intended to relate to cannabis (such products and services, collectively, “Related Products and Services”) anywhere in the world, other than (A) pursuant to any Commercial Arrangement (as defined under “- Commercial Arrangements” below), or (B) pursuant to a contract approved by an independent committee of our Board (or, at any time when Altria Nominees do not represent a majority of the Board, if fully disclosed to and approved by a majority of the independent members of the Board), entered into by and among or by and between, us and/or one or more of our subsidiaries, on the one hand, and any one or more members of the Altria Group, on the other hand (such other contract, an “Approved Company Agreement”);
|
•
|
acquire or make any investment in or otherwise beneficially own any interests in, or lend any money or provide any guarantee to, any person that develops, produces, manufactures, cultivates, advertises, markets, promotes, sells and/or distributes cannabis or any Related Products and Services, other than (A) pursuant to any Commercial Arrangement, on the terms and subject to the conditions of the Investor Rights Agreement, Subscription Agreement and the Altria Warrant Certificate, or (B) to us and/or any of our subsidiaries, so long as any such acquisition or investment is pursuant to an Approved Company Agreement;
|
•
|
use or allow the use of any of their respective trade names, trademarks, trade secrets or other intellectual property rights in connection with any person that develops, produces, manufactures, cultivates, advertises, markets, promotes, sells and/or distributes cannabis or any Related Products and Services, other than (A) pursuant to any Commercial Arrangement, or on the terms and subject to the conditions of the Investor Rights Agreement, Subscription Agreement, the Altria Warrant Certificate and the Commercial Arrangement, or (B) to us and/or any of our subsidiaries, so long as any such use of trade names, trademarks, trade secrets or other intellectual property rights with us and/or any of our subsidiaries is pursuant to an Approved Company Agreement; or
|
•
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contract with or arrange for any third-party (other than us or any of our subsidiaries) to do any of the foregoing.
|
•
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on the exercise, conversion or exchange of our convertible securities issued prior to the date of the Investor Rights Agreement or on the exercise, conversion or exchange of our convertible securities issued after the date of the Investor Rights Agreement in compliance with the terms of the Investor Rights Agreement, in each case, excluding any of our convertible securities owned by any member of the Altria Group;
|
•
|
pursuant to any share incentive plan of the Company;
|
•
|
on the exercise of any right granted by us pro rata to all shareholders to purchase additional common shares and/or other securities of the Company (other than a right issued in a rights offering in which Altria had the right to participate);
|
•
|
in connection with bona fide bank debt, equipment financing or non-equity interim financing transactions with our lenders, in each case, with an equity component; or
|
•
|
in connection with bona fide acquisitions (including acquisitions of assets or rights under a license or otherwise), mergers or similar business combination transactions or joint ventures undertaken and completed by us,
|
•
|
the Company may be subject to “Warning Letters,” fines, penalties, administrative sanctions, settlements, injunctions, product recalls and/or other enforcement actions arising from civil, administrative or other proceedings initiated that could adversely affect the Company’s business, financial condition, operating results, liquidity, cash flow and operational performance;
|
•
|
the profits or revenues derived therefrom could be subject to money laundering statutes, including the Money Laundering Control Act, which could result in significant disruption to our U.S. hemp business operations and involve significant costs, expenses or other penalties; and
|
•
|
the Company’s suppliers, service providers and distributors may elect, at any time, to breach or otherwise cease to participate in supply, service or distribution agreements, or other relationships, on which the Company’s operations rely.
|
•
|
lack of effectiveness of any formulation or delivery system during clinical trials;
|
•
|
discovery of serious or unexpected toxicities or side effects experienced by trial participants or other safety issues;
|
•
|
slower than expected subject recruitment and enrollment rates in clinical trials;
|
•
|
delays or inability in manufacturing or in obtaining sufficient quantities of materials for use in clinical trials due to regulatory and manufacturing constraints;
|
•
|
delays in obtaining regulatory authorization to commence a trial, including licenses required for obtaining and using cannabis for research, either before or after a trial is commenced;
|
•
|
unfavorable results from ongoing pre-clinical studies and clinical trials;
|
•
|
patients or investigators failing to comply with study protocols;
|
•
|
patients failing to return for post-treatment follow-up at the expected rate;
|
•
|
sites participating in an ongoing clinical study withdraw, requiring us to engage new sites; and
|
•
|
third-party clinical investigators declining to participate in our clinical studies, not performing the clinical studies on the anticipated schedule, or acting in ways inconsistent with the established investigator agreement, clinical study protocol or good clinical practices.
|
•
|
actual or anticipated fluctuations in our results of operations;
|
•
|
changes in estimates of our future results of operations by us or securities research analysts;
|
•
|
changes in the economic performance or market valuations of other companies that investors deem comparable to us;
|
•
|
additions or departures of our executive officers and other key personnel;
|
•
|
transfer restrictions on outstanding common shares;
|
•
|
sales of additional common shares or the perception in the market that such sales might occur;
|
•
|
significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;
|
•
|
news reports relating to trends, concerns or competitive developments, regulatory changes or enforcement actions and other related issues in our industry or target markets;
|
•
|
investors’ general perception of us and the public’s reaction to our press releases, our other public announcements and our filings with the SEC and Canadian securities regulators;
|
•
|
reports by industry analysts, investor perceptions, and market rumors or speculation; and
|
•
|
negative announcements by our customers, competitors or suppliers regarding their own performance.
|
Date
|
Cronos Group Inc.
|
S&P 500
|
Peer Group
|
||||||
February 27, 2018
|
$
|
100.00
|
|
$
|
100.00
|
|
$
|
100.00
|
|
March 2018
|
$
|
88.32
|
|
$
|
97.46
|
|
$
|
105.23
|
|
June 2018
|
$
|
85.56
|
|
$
|
100.81
|
|
$
|
116.32
|
|
September 2018
|
$
|
145.93
|
|
$
|
108.58
|
|
$
|
171.53
|
|
December 2018
|
$
|
136.35
|
|
$
|
93.90
|
|
$
|
88.95
|
|
March 2019
|
$
|
241.86
|
|
$
|
106.71
|
|
$
|
137.15
|
|
June 2019
|
$
|
209.71
|
|
$
|
111.31
|
|
$
|
119.16
|
|
September 2019
|
$
|
118.77
|
|
$
|
113.20
|
|
$
|
70.01
|
|
December 2019
|
$
|
100.66
|
|
$
|
123.46
|
|
$
|
56.05
|
|
Date
|
Cronos Group Inc.
|
S&P 500
|
Peer Group
|
||||||
December 16, 2014
|
$
|
100.00
|
|
$
|
100.00
|
|
$
|
100.00
|
|
December 2014
|
$
|
100.00
|
|
$
|
99.75
|
|
$
|
100.05
|
|
December 2015
|
$
|
39.38
|
|
$
|
101.13
|
|
$
|
107.88
|
|
December 2016
|
$
|
185.00
|
|
$
|
113.22
|
|
$
|
214.34
|
|
December 2017
|
$
|
1,217.50
|
|
$
|
137.94
|
|
$
|
502.14
|
|
December 2018
|
$
|
1,797.50
|
|
$
|
131.89
|
|
$
|
390.70
|
|
December 2019
|
$
|
1,246.25
|
|
$
|
173.42
|
|
$
|
246.19
|
|
|
|
As of February 27, 2020
|
|
Issued and outstanding shares
|
|
|
|
Common shares
|
|
348,817,472
|
|
Potentially issuable shares
|
|
|
|
Stock options
|
|
14,149,502
|
|
Warrants
|
|
18,066,662
|
|
Restricted stock units
|
|
732,972
|
|
Altria Warrant
|
|
77,514,993
|
|
Exercisable Top-up Rights
|
|
716,956
|
|
Total potentially issuable shares
|
|
111,181,085
|
|
|
|
|
|
Total outstanding and potentially issuable shares
|
|
459,998,557
|
|
(In thousands of $, except per share amounts)
|
Year ended December 31,
|
||||||||||||||||||
|
2019 (i)
|
|
2018
|
|
2017
|
|
2016
|
|
2015
|
||||||||||
Income Statement Data
|
|
|
|
|
|
|
|
|
|
||||||||||
Net revenue
|
$
|
23,750
|
|
|
$
|
12,121
|
|
|
$
|
3,147
|
|
|
$
|
419
|
|
|
$
|
—
|
|
Net income (loss)
|
1,165,574
|
|
|
(21,817
|
)
|
|
(1,483
|
)
|
|
(899
|
)
|
|
303
|
|
|||||
Comprehensive income (loss)
|
1,203,261
|
|
|
(34,151
|
)
|
|
1,376
|
|
|
298
|
|
|
303
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic earnings per share
|
$
|
3.76
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
Diluted earnings per share
|
3.33
|
|
|
(0.13
|
)
|
|
(0.01
|
)
|
|
(0.02
|
)
|
|
0.01
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
||||||||||
Current assets
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
1,199,693
|
|
|
$
|
23,927
|
|
|
$
|
7,315
|
|
|
$
|
2,578
|
|
|
$
|
814
|
|
Short-term investments
|
306,347
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Other current assets
|
63,972
|
|
|
16,017
|
|
|
8,057
|
|
|
3,439
|
|
|
71
|
|
|||||
Total current assets
|
1,570,012
|
|
|
39,944
|
|
|
15,372
|
|
|
6,017
|
|
|
885
|
|
|||||
Non-current assets
|
520,430
|
|
|
143,527
|
|
|
58,887
|
|
|
25,905
|
|
|
9,756
|
|
|||||
Total assets
|
2,090,442
|
|
|
183,471
|
|
|
74,259
|
|
|
31,922
|
|
|
10,641
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Current liabilities
|
|
|
|
|
|
|
|
|
|
||||||||||
Derivative liabilities
|
297,160
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Other current liabilities
|
35,728
|
|
|
33,269
|
|
|
6,266
|
|
|
5,779
|
|
|
1,682
|
|
|||||
Total current liabilities
|
332,888
|
|
|
33,269
|
|
|
6,266
|
|
|
5,779
|
|
|
1,682
|
|
|||||
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
||||||||||
Long-term debt
|
—
|
|
|
—
|
|
|
4,269
|
|
|
—
|
|
|
361
|
|
|||||
Other non-current liabilities
|
8,524
|
|
|
1,653
|
|
|
—
|
|
|
1,084
|
|
|
141
|
|
|||||
Total non-current liabilities
|
8,524
|
|
|
1,653
|
|
|
4,269
|
|
|
1,084
|
|
|
502
|
|
|||||
Total liabilities
|
341,412
|
|
|
34,922
|
|
|
10,535
|
|
|
6,863
|
|
|
2,184
|
|
|||||
Shareholders’ equity
|
$
|
1,749,030
|
|
|
$
|
148,549
|
|
|
$
|
63,724
|
|
|
$
|
25,059
|
|
|
$
|
8,457
|
|
•
|
growing a portfolio of iconic brands that resonate with consumers;
|
•
|
developing a diversified global sales and distribution network;
|
•
|
establishing an efficient global supply chain; and
|
•
|
creating and monetizing disruptive intellectual property in the industries in which we operate.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||||||
|
2019
|
|
2018
|
|
$
|
|
%
|
|||||||
Net revenue
|
$
|
23,750
|
|
|
$
|
12,121
|
|
|
$
|
11,629
|
|
|
96
|
%
|
|
|
|
|
|
|
|
|
|||||||
Gross profit (loss)
|
(17,864
|
)
|
|
6,213
|
|
|
(24,077
|
)
|
|
(388
|
)%
|
|||
Gross margin
|
(75
|
)%
|
|
51
|
%
|
|
—
|
|
|
(126)pp
|
|
|||
|
|
|
|
|
|
|
|
|||||||
Reported operating loss
|
$
|
(121,484
|
)
|
|
$
|
(21,341
|
)
|
|
$
|
(100,143
|
)
|
|
469
|
%
|
Adjusted operating loss (i)
|
(114,216
|
)
|
|
(21,341
|
)
|
|
(92,875
|
)
|
|
435
|
%
|
(i)
|
See “Non-GAAP Measures” for information related to Non-GAAP Measures.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||||||
|
2019
|
|
2018
|
|
$
|
|
%
|
|||||||
Net revenue, before excise taxes (i)
|
$
|
25,639
|
|
|
$
|
13,234
|
|
|
$
|
12,405
|
|
|
94
|
%
|
Excise taxes
|
(1,889
|
)
|
|
(1,113
|
)
|
|
(776
|
)
|
|
70
|
%
|
|||
Net revenue
|
23,750
|
|
|
12,121
|
|
|
11,629
|
|
|
96
|
%
|
(i)
|
Net revenue, before excise taxes, is calculated net of sales returns and discounts.
|
•
|
A higher volume of wholesale sales in FY 2019 from FY 2018, which were sold at a lower price relative to other channels.
|
•
|
An increase in the volume of products sold in the Rest of World segment from FY 2018, primarily driven by increased production, as well as the launch and continued growth of the adult-use market in Canada.
|
•
|
The Redwood Acquisition on September 5, 2019, resulted in an increase in net revenue of $3.4 million in FY 2019, driven by expanded distribution of Lord JonesTM branded products through online sales and an increased retail channel footprint.
|
•
|
The launch, in December 2019, of packaged cannabis vaporizer devices for the Canadian adult-use-markets, resulting in net revenue within the cannabis extracts and other categories, which was not present within the product mix in FY 2018.
|
•
|
A partially offsetting decrease in the price of products sold in the Rest of World segment from FY 2018, primarily driven by downward pressure in Canadian market prices of cannabis flower and cannabis extracts during the year due to broader trends of oversupply in the industry, which we expect to continue in 2020.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||||||
|
2019
|
|
2018
|
|
$
|
|
%
|
|||||||
Cost of sales
|
$
|
12,174
|
|
|
$
|
5,908
|
|
|
$
|
6,266
|
|
|
106
|
%
|
Inventory write-down
|
29,440
|
|
|
—
|
|
|
29,440
|
|
|
N/A
|
|
|||
|
|
|
|
|
|
|
|
|||||||
Gross profit (loss)
|
(17,864
|
)
|
|
6,213
|
|
|
(24,077
|
)
|
|
(388
|
)%
|
|||
Gross margin
|
(75
|
)%
|
|
51
|
%
|
|
—
|
|
|
(126
|
)pp
|
•
|
An inventory write-down of $29.4 million on cannabis oil and dried cannabis, which includes $1.9 million relating to dried cannabis written down as part of the repurposing of certain facilities at the Peace Naturals Campus.
|
•
|
If we were to adjust for the effects of the inventory write down of $29.4 million, gross profit for FY 2019 would have been $11.6 million, representing gross margins of 49%.
|
•
|
An increase in cost of sales of 106% from FY 2018, primarily driven by increased production in the Rest of World segment.
|
•
|
The Redwood Acquisition on September 5, 2019, resulted in an increase in cost of sales by $1.5 million and an increase in gross profit by $1.9 million, driven by strong sales prices and brand equity.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||||||
|
2019
|
|
2018
|
|
$
|
|
%
|
|||||||
Sales and marketing
|
$
|
23,045
|
|
|
$
|
3,173
|
|
|
$
|
19,872
|
|
|
626
|
%
|
Research and development
|
12,155
|
|
|
1,814
|
|
|
10,341
|
|
|
570
|
%
|
|||
General and administrative
|
49,372
|
|
|
13,447
|
|
|
35,925
|
|
|
267
|
%
|
|||
Share-based payments
|
11,619
|
|
|
8,151
|
|
|
3,468
|
|
|
43
|
%
|
|||
Depreciation and amortization
|
2,101
|
|
|
969
|
|
|
1,132
|
|
|
117
|
%
|
|||
Repurposing charges
|
5,328
|
|
|
—
|
|
|
5,328
|
|
|
N/A
|
|
|||
Operating expenses
|
103,620
|
|
|
27,554
|
|
|
76,066
|
|
|
276
|
%
|
|||
|
|
|
|
|
|
|
|
|||||||
Reported operating loss
|
(121,484
|
)
|
|
(21,341
|
)
|
|
(100,143
|
)
|
|
469
|
%
|
|||
Adjusted operating loss (i)
|
(114,216
|
)
|
|
(21,341
|
)
|
|
(92,875
|
)
|
|
435
|
%
|
(i)
|
See “Non-GAAP Measures” for information related to Non-GAAP Measures.
|
•
|
A decrease in gross profit (loss) of 388% from FY 2018, as described above.
|
•
|
An increase in general and administrative costs of 267% from FY2018, in order to support our growth strategy through increased staffing levels and services rendered in connection with various strategic initiatives.
|
•
|
An increase in sales and marketing costs of 626%, in order to create, build and develop our brands for the first full year of the Canadian adult-use market.
|
•
|
An increase in R&D costs of 570%, primarily related to the Ginkgo Strategic Partnership and the Technion - Israel Institute of Technology (“Technion”) Research Agreement.
|
•
|
The Redwood Acquisition on September 5, 2019, resulted in an increase in operating loss of $2.8 million, driven by increased investments in sales and marketing and general and administrative expenses as the business focuses on growth prospects and developing new brands and products.
|
•
|
A charge in FY 2019 of $5.3 million within operating expenses, as well as the inventory write-down of $1.9 million within gross profit (loss) related to the repurposing of certain facilities at the Peace Naturals Campus, which make up the total adjustment between reported and adjusted operating loss.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||||||
|
2019
|
|
2018
|
|
$
|
|
%
|
|||||||
Net revenue
|
$
|
20,386
|
|
|
$
|
12,121
|
|
|
$
|
8,265
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
|||||||
Gross profit (loss)
|
(19,737
|
)
|
|
6,213
|
|
|
(25,950
|
)
|
|
(418
|
)%
|
|||
Gross margin
|
(97
|
)%
|
|
51
|
%
|
|
—
|
|
|
(148
|
)pp
|
|||
|
|
|
|
|
|
|
|
|||||||
Reported operating loss
|
$
|
(106,928
|
)
|
|
$
|
(21,341
|
)
|
|
$
|
(85,587
|
)
|
|
401
|
%
|
Adjusted operating loss (i)
|
(99,660
|
)
|
|
(21,341
|
)
|
|
(78,319
|
)
|
|
367
|
%
|
(i)
|
See “Non-GAAP Measures” for information related to Non-GAAP Measures.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||||||
|
2019
|
|
2018
|
|
$
|
|
%
|
|||||||
Cannabis flower
|
$
|
15,020
|
|
|
$
|
9,210
|
|
|
$
|
5,810
|
|
|
63
|
%
|
Cannabis extracts
|
5,338
|
|
|
2,732
|
|
|
2,606
|
|
|
95
|
%
|
|||
Other
|
28
|
|
|
179
|
|
|
(151
|
)
|
|
(84
|
)%
|
|||
Net revenue
|
20,386
|
|
|
12,121
|
|
|
8,265
|
|
|
68
|
%
|
•
|
A higher volume of wholesale sales in FY 2019, which were sold at a lower price relative to other channels.
|
•
|
An increase in the volume of products sold from FY 2018, primarily driven by increased production, as well as the launch and continued growth of the adult-use market in Canada.
|
•
|
The launch in December 2019 of packaged cannabis vaporizer devices for the Canadian adult-use market resulting in net revenue within the cannabis extracts and other categories, which was not present within the product mix in FY 2018.
|
•
|
A partially offsetting decrease in the price of products sold from FY 2018, primarily driven by downward pressure in Canadian market prices of cannabis flower and cannabis extracts during the year due to broader trends of oversupply in the market, which we expect to continue in 2020.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||||||
|
2019
|
|
2018
|
|
$
|
|
%
|
|||||||
Cost of sales
|
$
|
10,683
|
|
|
$
|
5,908
|
|
|
$
|
4,775
|
|
|
81
|
%
|
Inventory write-down
|
29,440
|
|
|
—
|
|
|
29,440
|
|
|
N/A
|
|
|||
|
|
|
|
|
|
|
|
|||||||
Gross profit (loss)
|
(19,737
|
)
|
|
6,213
|
|
|
(25,950
|
)
|
|
(418
|
)%
|
|||
Gross margin
|
(97
|
)%
|
|
51
|
%
|
|
—
|
|
|
(148)pp
|
|
(i)
|
See “Non-GAAP Measures” for information related to Non-GAAP Measures.
|
•
|
An inventory write-down of $29.4 million on cannabis oil and dried cannabis, which includes $1.9 million relating to dried cannabis at the Peace Naturals Campus as a part of the repurposing efforts.
|
•
|
If we were to adjust for the effects of the inventory write downs, gross profit for FY 2019 would have been $9.7 million, representing gross margins of 48%.
|
•
|
An increase in cost of sales of 81% from FY2018, primarily driven by increased production.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||||||
|
2019
|
|
2018
|
|
$
|
|
%
|
|||||||
Reported operating loss
|
$
|
(106,928
|
)
|
|
$
|
(21,341
|
)
|
|
$
|
(85,587
|
)
|
|
401
|
%
|
Adjusted operating loss (i)
|
$
|
(99,660
|
)
|
|
$
|
(21,341
|
)
|
|
$
|
(78,319
|
)
|
|
367
|
%
|
(i)
|
See “Non-GAAP Measures” for information related to Non-GAAP Measures.
|
•
|
A decrease in gross profit (loss) of 418% from FY 2018, as described above.
|
•
|
An increase in general and administration costs in order to support our growth strategy through increased staffing levels and for services rendered in connection with various strategic initiatives.
|
•
|
An increase in sales and marketing costs in order to create, build and develop our brands for the first full year of the Canadian adult-use market.
|
•
|
An increase in R&D costs primarily related to the Ginkgo Strategic Partnership and Technion Research Agreement.
|
•
|
A charge in FY 2019 of $5.3 million within operating expenses, as well as the $1.9 million within gross profit (loss) related to the repurposing of certain facilities at the Peace Naturals Campus, which make up the total adjustment between reported and adjusted operating loss.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||
|
2019
|
|
2018
|
|
$
|
|
%
|
|||
Net revenue
|
$
|
3,364
|
|
|
—
|
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|||
Gross profit
|
1,873
|
|
|
—
|
|
|
N/A
|
|
N/A
|
|
Gross margin
|
56
|
%
|
|
—
|
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|||
Reported and adjusted operating loss (i)
|
$
|
(2,777
|
)
|
|
—
|
|
|
N/A
|
|
N/A
|
(i)
|
See “Non-GAAP Measures” for information related to Non-GAAP Measures.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||
|
2019
|
|
2018
|
|
$
|
|
%
|
|||
Net revenue
|
$
|
3,364
|
|
|
—
|
|
|
N/A
|
|
N/A
|
•
|
The Redwood Acquisition on September 5, 2019, resulted in an increase in net revenue of $3.4 million in FY 2019, driven by expanded distribution of Lord JonesTM branded products through e-commerce sales and an increased retail channel footprint.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||
|
2019
|
|
2018
|
|
$
|
|
%
|
|||
Cost of sales
|
$
|
1,491
|
|
|
—
|
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|||
Gross profit
|
$
|
1,873
|
|
|
—
|
|
|
N/A
|
|
N/A
|
Gross margin
|
56
|
%
|
|
—
|
|
|
N/A
|
|
N/A
|
•
|
The net revenue, as described above.
|
•
|
The Redwood Acquisition on September 5, 2019, resulted in an increase in cost of sales by $1.5 million and an increase in gross profit by $1.9 million, driven by strong sales prices and brand equity.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||
|
2019
|
|
2018
|
|
$
|
|
%
|
|||
Reported and adjusted operating loss (i)
|
$
|
(2,777
|
)
|
|
—
|
|
|
N/A
|
|
N/A
|
(i)
|
See “Non-GAAP Measures” for information related to Non-GAAP Measures.
|
•
|
The Redwood Acquisition on September 5, 2019, resulting in an operating loss of $2.8 million.
|
•
|
Sales and marketing costs incurred were in relation to the preparation for the launch of the PEACE+™ U.S hemp-derived CBD brand, as well as the introduction of several new U.S. hemp-derived CBD products under the Lord Jones™ brand, including Lord Jones™ CBD Formula Heavy Duty Chill Balm, Lord Jones™ High CBD Formula, Bath Salts and Lord Jones + Tamara Mellon CBD Formula Stiletto Cream.
|
•
|
Salaries and wages costs of $1.4 million, incurred in order to support our growth strategy through increased staffing levels across a variety of functions.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||||||
|
2018
|
|
2017
|
|
$
|
|
%
|
|||||||
Net revenue
|
$
|
12,121
|
|
|
$
|
3,147
|
|
|
$
|
8,974
|
|
|
285
|
%
|
|
|
|
|
|
|
|
|
|||||||
Gross profit
|
6,213
|
|
|
1,574
|
|
|
4,639
|
|
|
295
|
%
|
|||
Gross margin
|
51
|
%
|
|
50
|
%
|
|
—
|
|
|
1
|
pp
|
|||
|
|
|
|
|
|
|
|
|||||||
Reported and adjusted operating loss (i)
|
$
|
(21,341
|
)
|
|
$
|
(6,121
|
)
|
|
$
|
(15,220
|
)
|
|
249
|
%
|
(i)
|
See “Non-GAAP Measures” for information related to Non-GAAP Measures.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||||||
|
2018
|
|
2017
|
|
$
|
|
%
|
|||||||
Net revenue, before excise taxes (i)
|
$
|
13,234
|
|
|
$
|
3,147
|
|
|
$
|
10,087
|
|
|
321
|
%
|
Excise taxes
|
(1,113
|
)
|
|
—
|
|
|
(1,113
|
)
|
|
N/A
|
|
|||
Net revenue
|
$
|
12,121
|
|
|
$
|
3,147
|
|
|
$
|
8,974
|
|
|
285
|
%
|
(1)
|
Net revenue, before excise taxes is calculated net of sales returns and discounts.
|
•
|
An increase in the volume of products sold from FY 2017, primarily driven by the commencement of shipments into the adult-use market in Canada, as well as growth of our medical client base, growth in cannabis oil revenue, and increased production.
|
•
|
Offset by a decrease in the price of products sold from FY 2017, primarily driven by lower margins available in the adult-use market in Canada.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||||||
|
2018
|
|
2017
|
|
$
|
|
%
|
|||||||
Cost of sales
|
$
|
5,908
|
|
|
$
|
1,573
|
|
|
$
|
4,335
|
|
|
276
|
%
|
|
|
|
|
|
|
|
|
|||||||
Gross profit
|
$
|
6,213
|
|
|
$
|
1,574
|
|
|
$
|
4,639
|
|
|
295
|
%
|
Gross margin
|
51
|
%
|
|
50
|
%
|
|
—
|
|
|
1
|
pp
|
•
|
An increase in the volume of products sold from FY 2017, resulting in an increase in gross profit.
|
•
|
An increase in cost of sales of 276% from FY 2017, primarily driven by increased production.
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
|
Change
|
|||||||||||
|
2018
|
|
2017
|
|
$
|
|
%
|
|||||||
Sales and marketing
|
$
|
3,173
|
|
|
$
|
443
|
|
|
$
|
2,730
|
|
|
616
|
%
|
Research and development
|
1,814
|
|
|
—
|
|
|
1,814
|
|
|
N/A
|
|
|||
General and administrative
|
13,447
|
|
|
4,904
|
|
|
8,543
|
|
|
174
|
%
|
|||
Share-based payments
|
8,151
|
|
|
1,931
|
|
|
6,220
|
|
|
322
|
%
|
|||
Depreciation and amortization
|
969
|
|
|
417
|
|
|
552
|
|
|
132
|
%
|
|||
Operating expenses
|
27,554
|
|
|
7,695
|
|
|
19,859
|
|
|
258
|
%
|
|||
|
|
|
|
|
|
|
|
|||||||
Reported and adjusted operating loss
|
$
|
(21,341
|
)
|
|
$
|
(6,121
|
)
|
|
$
|
(15,220
|
)
|
|
249
|
%
|
(i)
|
See”Non-GAAP Measures” for information related to Non-GAAP Measures.
|
•
|
An increase in gross profit of 295% from FY 2017, as described above.
|
•
|
An increase in sales and marketing costs of 616% from FY 2017, in order to build and develop our brands.
|
•
|
An increase in R&D costs of $1.8 million, primarily related to the Ginkgo Strategic Partnership and the Technion Research Agreement, which both began in FY 2018.
|
•
|
An increase in general and administrative costs of 174% from FY 2017, primarily related to an increase in salaries and wages related to growing the business.
|
(In thousands of U.S. dollars)
|
Year ended December 31, 2019
|
||||||||||||||||||
|
US
|
|
RoW
|
|
Total Segments
|
|
Corporate Expenses
|
|
Total
|
||||||||||
Reported operating loss
|
$
|
(2,777
|
)
|
|
$
|
(106,928
|
)
|
|
$
|
(109,705
|
)
|
|
$
|
(11,779
|
)
|
|
$
|
(121,484
|
)
|
Adjustments
|
|
|
|
|
|
|
|
|
|
||||||||||
Repurposing charges
|
—
|
|
|
7,268
|
|
|
7,268
|
|
|
—
|
|
|
7,268
|
|
|||||
Adjusted operating loss
|
(2,777
|
)
|
|
(99,660
|
)
|
|
(102,437
|
)
|
|
(11,779
|
)
|
|
(114,216
|
)
|
(In thousands of U.S. dollars)
|
Year ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
Cash provided (used) in operating activities
|
$
|
(130,007
|
)
|
|
$
|
(7,517
|
)
|
|
$
|
(4,278
|
)
|
Cash used in investing activities
|
(603,539
|
)
|
|
(93,908
|
)
|
|
(29,897
|
)
|
|||
Cash provided by financing activities
|
1,856,941
|
|
|
122,112
|
|
|
39,074
|
|
|||
Effect of foreign currency translation on cash and cash equivalents
|
52,371
|
|
|
(4,085
|
)
|
|
(152
|
)
|
|||
Net change in cash
|
1,175,766
|
|
|
16,602
|
|
|
4,747
|
|
(In thousands of U.S. dollars)
|
Payments Due by Period
|
||||||||||||||||||
|
Total
|
|
Less Than 1 Year
|
|
1-3 Years
|
|
4-5 Years
|
|
After 5 Years
|
||||||||||
Long-term debt obligations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Capital (finance) lease obligations
|
101
|
|
|
41
|
|
|
60
|
|
|
—
|
|
|
—
|
|
|||||
Operating lease obligations
|
7,966
|
|
|
1,240
|
|
|
2,453
|
|
|
2,103
|
|
|
2,170
|
|
|||||
Purchase obligations
|
16,814
|
|
|
13,051
|
|
|
3,015
|
|
|
748
|
|
|
—
|
|
|||||
Other long-term liabilities
|
10,593
|
|
|
4,533
|
|
|
6,060
|
|
|
—
|
|
|
—
|
|
|||||
Total contractual obligations
|
35,474
|
|
|
18,865
|
|
|
11,588
|
|
|
2,851
|
|
|
2,170
|
|
•
|
The closing of the Altria Investment, wherein we issued 149,831,154 common shares to Altria at a price of C$16.25 per common share and the Altria Warrant for aggregate gross proceeds of approximately C$2.4 billion (approximately $1.8 billion), before taking into account any commissions, fees or expenses.
|
•
|
Pursuant to the Altria Investment, we incurred transaction costs of $26.1 million, of which $3.7 million was allocated to share capital and $22.4 million to the derivative liabilities based on the relative values assigned to the respective components. During the year ended December 31, 2019, we issued 6,742,383 common shares upon Altria’s exercise of Top-up Rights for gross cash proceeds of $67.1 million, in addition to the $16.0 million partial extinguishment of derivative liability.
|
•
|
The issuance on September 5, 2019, in connection with the acquisition of Redwood of 5,086,586 common shares as part of the purchase consideration paid.
|
•
|
The issuance, on December 23, 2019, of 856,017 of our common shares in connection with the use of certain publicity rights in brand development.
|
Table of Contents
|
|
|
|
Reports of KPMG LLP, Independent Registered Public Accounting Firm
|
|
Consolidated Balance Sheets
|
|
Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)
|
|
Consolidated Statements of Changes in Shareholders’ Equity (Deficit)
|
|
Consolidated Statements of Cash Flows
|
|
Notes to Consolidated Financial Statements
|
•
|
evaluating the discount rate, by comparing it against the internal rate of return, and weighted average cost of capital, and to a range that was independently developed using publicly available market data for comparable entities.
|
•
|
evaluating the royalty rate, which was applied against forecasted revenues to calculate forecasted royalty income, using industry knowledge, qualitative factors specific to the brand and through consideration of the comparable entities used by the Company to determine the royalty rate.
|
•
|
Risk Assessment: The Company did not appropriately design controls to monitor and respond to changes in its business in relation to our transactions in the wholesale market.
|
•
|
Segregation of Duties: The Company did not maintain adequately designed controls on segregation of purchase and sale responsibilities to ensure accurate recognition of revenue in accordance with GAAP; and
|
•
|
Non-Routine Transactions: The Company’s controls were not effective to ensure that non-routine transactions, including deviations from contractually established sales terms were authorized, communicated, identified and evaluated for their potential effect on revenue recognition.
|
|
As of December 31,
|
||||||
|
2019
|
|
2018
|
||||
Assets
|
|
|
|
|
|||
Current assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
1,199,693
|
|
|
$
|
23,927
|
|
Short-term investments
|
306,347
|
|
|
—
|
|
||
Accounts receivable, net of current expected credit loss ("CECL") of $136 and $37 as of December 31, 2019 and 2018, respectively
|
4,638
|
|
|
3,052
|
|
||
Other receivables
|
7,232
|
|
|
2,507
|
|
||
Current portion of loans receivable
|
4,664
|
|
|
230
|
|
||
Prepaids and other assets
|
9,395
|
|
|
2,842
|
|
||
Inventory
|
38,043
|
|
|
7,386
|
|
||
Total current assets
|
1,570,012
|
|
|
39,944
|
|
||
Investments in equity accounted investees
|
557
|
|
|
2,960
|
|
||
Advances to joint ventures
|
19,437
|
|
|
4,689
|
|
||
Other investments
|
—
|
|
|
297
|
|
||
Loan receivable
|
44,967
|
|
|
—
|
|
||
Property, plant and equipment
|
161,809
|
|
|
125,905
|
|
||
Right-of-use assets
|
6,546
|
|
|
125
|
|
||
Intangible assets
|
72,320
|
|
|
8,237
|
|
||
Goodwill
|
214,794
|
|
|
1,314
|
|
||
Total assets
|
$
|
2,090,442
|
|
|
$
|
183,471
|
|
|
|
|
|
||||
Liabilities
|
|
|
|
||||
Current liabilities
|
|
|
|
||||
Accounts payable and other liabilities
|
$
|
35,301
|
|
|
$
|
33,239
|
|
Current portion of lease obligation
|
427
|
|
|
30
|
|
||
Derivative liabilities (Note 28)
|
297,160
|
|
|
—
|
|
||
Total current liabilities
|
332,888
|
|
|
33,269
|
|
||
Due to non-controlling interests
|
1,844
|
|
|
1,566
|
|
||
Lease obligation
|
6,680
|
|
|
87
|
|
||
Total liabilities
|
$
|
341,412
|
|
|
$
|
34,922
|
|
Commitments and contingencies (Note 21 & 22)
|
|
|
|
||||
Shareholders’ equity
|
|
|
|
||||
Share capital (authorized: 2019 and 2018 – unlimited; issued: 2019 – 348,817,472; 2018 – 178,720,022)
|
$
|
561,165
|
|
|
$
|
175,001
|
|
Additional paid-in capital
|
23,234
|
|
|
11,263
|
|
||
Retained earnings (accumulated deficit)
|
1,137,646
|
|
|
(27,945
|
)
|
||
Accumulated other comprehensive income (loss)
|
27,838
|
|
|
(9,870
|
)
|
||
Total equity attributable to shareholders of Cronos Group
|
1,749,883
|
|
|
148,449
|
|
||
Non-controlling interests
|
(853
|
)
|
|
100
|
|
||
Total shareholders' equity
|
1,749,030
|
|
|
148,549
|
|
||
Total liabilities and shareholders' equity
|
$
|
2,090,442
|
|
|
$
|
183,471
|
|
|
Year ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
Net revenue, before excise taxes
|
$
|
25,639
|
|
|
$
|
13,234
|
|
|
$
|
3,147
|
|
Excise taxes
|
(1,889
|
)
|
|
(1,113
|
)
|
|
—
|
|
|||
Net revenue
|
23,750
|
|
|
12,121
|
|
|
3,147
|
|
|||
Cost of sales
|
12,174
|
|
|
5,908
|
|
|
1,573
|
|
|||
Inventory write-down
|
29,440
|
|
|
—
|
|
|
—
|
|
|||
Gross profit (loss)
|
(17,864
|
)
|
|
6,213
|
|
|
1,574
|
|
|||
Operating expenses
|
|
|
|
|
|
||||||
Sales and marketing
|
23,045
|
|
|
3,173
|
|
|
443
|
|
|||
Research and development
|
12,155
|
|
|
1,814
|
|
|
—
|
|
|||
General and administrative
|
49,372
|
|
|
13,447
|
|
|
4,904
|
|
|||
Share-based payments
|
11,619
|
|
|
8,151
|
|
|
1,931
|
|
|||
Depreciation and amortization
|
2,101
|
|
|
969
|
|
|
417
|
|
|||
Repurposing charges
|
5,328
|
|
|
—
|
|
|
—
|
|
|||
Total operating expenses
|
103,620
|
|
|
27,554
|
|
|
7,695
|
|
|||
Operating loss
|
(121,484
|
)
|
|
(21,341
|
)
|
|
(6,121
|
)
|
|||
Other income (expense)
|
|
|
|
|
|
||||||
Interest income (expense)
|
27,982
|
|
|
83
|
|
|
(97
|
)
|
|||
Financing and transaction costs
|
(32,208
|
)
|
|
—
|
|
|
—
|
|
|||
Gain on revaluation of derivative liabilities (Note 28)
|
1,276,819
|
|
|
—
|
|
|
—
|
|
|||
Gain on revaluation of financial liabilities
|
197
|
|
|
—
|
|
|
—
|
|
|||
Gain on disposal of Whistler Medical Marijuana Company ("Whistler")
|
15,530
|
|
|
—
|
|
|
—
|
|
|||
Gain on other investments
|
747
|
|
|
164
|
|
|
3,746
|
|
|||
Share of income (loss) from investments in equity accounted investees
|
(2,009
|
)
|
|
(723
|
)
|
|
127
|
|
|||
Total other income (expense)
|
1,287,058
|
|
|
(476
|
)
|
|
3,776
|
|
|||
Income (loss) before income taxes
|
1,165,574
|
|
|
(21,817
|
)
|
|
(2,345
|
)
|
|||
Income tax recovery
|
—
|
|
|
—
|
|
|
(862
|
)
|
|||
Net income (loss)
|
$
|
1,165,574
|
|
|
$
|
(21,817
|
)
|
|
$
|
(1,483
|
)
|
Net income (loss) attributable to:
|
|
|
|
|
|
||||||
Cronos Group
|
$
|
1,166,506
|
|
|
$
|
(21,636
|
)
|
|
$
|
(1,483
|
)
|
Non-controlling interests
|
(932
|
)
|
|
(181
|
)
|
|
—
|
|
|||
|
$
|
1,165,574
|
|
|
$
|
(21,817
|
)
|
|
$
|
(1,483
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
||||||
Foreign exchange gain (loss) on translation
|
$
|
37,687
|
|
|
$
|
(12,337
|
)
|
|
$
|
2,456
|
|
Gain on revaluation and disposal of other investments, net of tax
|
—
|
|
|
3
|
|
|
415
|
|
|||
Unrealized gains reclassified to net income
|
—
|
|
|
—
|
|
|
(12
|
)
|
|||
Total other comprehensive income (loss)
|
37,687
|
|
|
(12,334
|
)
|
|
2,859
|
|
|||
Comprehensive income (loss)
|
$
|
1,203,261
|
|
|
$
|
(34,151
|
)
|
|
$
|
1,376
|
|
Comprehensive income (loss) attributable to:
|
|
|
|
|
|
||||||
Cronos Group
|
$
|
1,204,214
|
|
|
$
|
(33,964
|
)
|
|
$
|
1,376
|
|
Non-controlling interests
|
(953
|
)
|
|
(187
|
)
|
|
—
|
|
|||
|
$
|
1,203,261
|
|
|
$
|
(34,151
|
)
|
|
$
|
1,376
|
|
Net income (loss) per share
|
|
|
|
|
|
||||||
Basic
|
$
|
3.76
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.01
|
)
|
Diluted
|
3.33
|
|
|
(0.13
|
)
|
|
(0.01
|
)
|
|||
Weighted average number of outstanding shares
|
|
|
|
|
|
||||||
Basic
|
310,067,179
|
|
|
172,269,170
|
|
|
134,803,542
|
|
|||
Diluted
|
342,811,992
|
|
|
172,269,170
|
|
|
176,789,161
|
|
|||
See notes to consolidated financial statements.
|
|
Number of shares
|
|
Share capital
|
|
Additional Paid-In Capital
|
|
Retained earnings (accumulated deficit)
|
|
Accumulated other comprehensive income (loss)
|
|
Cronos Group shareholders' equity (deficit)
|
|
Non-controlling interests
|
|
Total shareholders' equity (deficit)
|
|||||||||||||||||||||
Balance at January 1, 2017
|
121,725,748
|
|
|
$
|
24,002
|
|
|
$
|
3,510
|
|
|
$
|
(5,254
|
)
|
|
$
|
43
|
|
|
$
|
22,301
|
|
|
$
|
—
|
|
|
$
|
22,301
|
|
||||||
Shares issued
|
19,852,301
|
|
|
38,542
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38,542
|
|
|
—
|
|
|
38,542
|
|
|||||||||||||
Share issuance costs
|
—
|
|
|
(2,114
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,114
|
)
|
|
—
|
|
|
(2,114
|
)
|
|||||||||||||
Employee stock option plans
|
—
|
|
|
—
|
|
|
1,931
|
|
|
—
|
|
|
—
|
|
|
1,931
|
|
|
—
|
|
|
1,931
|
|
|||||||||||||
Options exercised
|
571,246
|
|
|
680
|
|
|
(233
|
)
|
|
—
|
|
|
—
|
|
|
447
|
|
|
—
|
|
|
447
|
|
|||||||||||||
Warrants exercised
|
7,211,308
|
|
|
1,724
|
|
|
(474
|
)
|
|
—
|
|
|
—
|
|
|
1,250
|
|
|
—
|
|
|
1,250
|
|
|||||||||||||
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,483
|
)
|
|
—
|
|
|
(1,483
|
)
|
|
—
|
|
|
(1,483
|
)
|
|||||||||||||
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,859
|
|
|
2,859
|
|
|
—
|
|
|
2,859
|
|
|||||||||||||
Balance at December 31, 2017
|
149,360,603
|
|
|
$
|
62,834
|
|
|
$
|
4,734
|
|
|
$
|
(6,737
|
)
|
|
$
|
2,902
|
|
|
$
|
63,733
|
|
|
$
|
—
|
|
|
$
|
63,733
|
|
||||||
Cumulative effect from adoption of ASU 2016-01
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
444
|
|
|
$
|
(444
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
||||||
Shares issued
|
15,677,143
|
|
|
115,510
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
115,510
|
|
|
—
|
|
|
115,510
|
|
|||||||||||||
Share issuance costs
|
—
|
|
|
(7,577
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,577
|
)
|
|
—
|
|
|
(7,577
|
)
|
|||||||||||||
Employee stock option plans
|
—
|
|
|
—
|
|
|
8,151
|
|
|
—
|
|
|
—
|
|
|
8,151
|
|
|
—
|
|
|
8,151
|
|
|||||||||||||
Options exercised
|
377,698
|
|
|
576
|
|
|
(125
|
)
|
|
—
|
|
|
—
|
|
|
451
|
|
|
—
|
|
|
451
|
|
|||||||||||||
Warrants exercised
|
13,114,336
|
|
|
3,563
|
|
|
(1,402
|
)
|
|
—
|
|
|
—
|
|
|
2,161
|
|
|
—
|
|
|
2,161
|
|
|||||||||||||
Share appreciation rights exercised
|
190,242
|
|
|
95
|
|
|
(95
|
)
|
|
(16
|
)
|
|
—
|
|
|
(16
|
)
|
|
—
|
|
|
(16
|
)
|
|||||||||||||
Contribution by non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
287
|
|
|
287
|
|
|||||||||||||
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,636
|
)
|
|
—
|
|
|
(21,636
|
)
|
|
(181
|
)
|
|
(21,817
|
)
|
|||||||||||||
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,328
|
)
|
|
(12,328
|
)
|
|
(6
|
)
|
|
(12,334
|
)
|
|||||||||||||
Balance at December 31, 2018
|
178,720,022
|
|
|
$
|
175,001
|
|
|
$
|
11,263
|
|
|
$
|
(27,945
|
)
|
|
$
|
(9,870
|
)
|
|
$
|
148,449
|
|
|
$
|
100
|
|
|
$
|
148,549
|
|
||||||
Shares issued
|
155,773,757
|
|
|
$
|
304,411
|
|
|
$
|
410
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
304,821
|
|
|
$
|
—
|
|
|
$
|
304,821
|
|
||||||
Share issuance costs
|
—
|
|
|
(3,722
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,722
|
)
|
|
—
|
|
|
(3,722
|
)
|
|||||||||||||
Employee stock option plans
|
—
|
|
|
—
|
|
|
11,619
|
|
|
—
|
|
|
—
|
|
|
11,619
|
|
|
—
|
|
|
11,619
|
|
|||||||||||||
Options exercised
|
8,467
|
|
|
26
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
17
|
|
|||||||||||||
Warrants exercised
|
7,390,961
|
|
|
2,034
|
|
|
(596
|
)
|
|
—
|
|
|
—
|
|
|
1,438
|
|
|
—
|
|
|
1,438
|
|
|||||||||||||
Share appreciation rights exercised
|
181,882
|
|
|
342
|
|
|
(342
|
)
|
|
(915
|
)
|
|
—
|
|
|
(915
|
)
|
|
—
|
|
|
(915
|
)
|
|||||||||||||
Vesting of restricted share units
|
—
|
|
|
—
|
|
|
889
|
|
|
—
|
|
|
—
|
|
|
889
|
|
|
—
|
|
|
889
|
|
|||||||||||||
Top-up Rights exercised (Note 28)
|
6,742,383
|
|
|
83,073
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
83,073
|
|
|
—
|
|
|
83,073
|
|
|||||||||||||
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
1,166,506
|
|
|
—
|
|
|
1,166,506
|
|
|
(932
|
)
|
|
1,165,574
|
|
|||||||||||||
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,708
|
|
|
37,708
|
|
|
(21
|
)
|
|
37,687
|
|
|||||||||||||
Balance at December 31, 2019
|
348,817,472
|
|
|
$
|
561,165
|
|
|
$
|
23,234
|
|
|
$
|
1,137,646
|
|
|
$
|
27,838
|
|
|
$
|
1,749,883
|
|
|
$
|
(853
|
)
|
|
$
|
1,749,030
|
|
|
|
Year ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
|||||||
Operating activities
|
|
|
|
|
|
|||||||
Net income (loss)
|
$
|
1,165,574
|
|
|
$
|
(21,817
|
)
|
|
$
|
(1,483
|
)
|
|
Items not affecting cash:
|
|
|
|
|
|
|||||||
Inventory write-down
|
29,440
|
|
|
—
|
|
|
—
|
|
||||
Share-based payments
|
11,619
|
|
|
8,151
|
|
|
1,931
|
|
||||
Depreciation and amortization
|
3,913
|
|
|
1,937
|
|
|
768
|
|
||||
Share of loss (income) from investments in equity accounted investees
|
2,009
|
|
|
723
|
|
|
(127
|
)
|
||||
Non-cash repurposing costs
|
4,439
|
|
|
—
|
|
|
—
|
|
||||
Gain on disposal of Whistler
|
(15,530
|
)
|
|
—
|
|
|
—
|
|
||||
Gain on revaluation of derivative liabilities (Note 28)
|
(1,276,819
|
)
|
|
—
|
|
|
—
|
|
||||
Gain on revaluation of financial liabilities
|
(197
|
)
|
|
—
|
|
|
—
|
|
||||
Gain on other investments
|
(747
|
)
|
|
(164
|
)
|
|
(3,746
|
)
|
||||
Income tax expense (recovery)
|
—
|
|
|
—
|
|
|
(862
|
)
|
||||
Foreign exchange gain
|
115
|
|
|
(9
|
)
|
|
—
|
|
||||
Non-cash sales and marketing
|
410
|
|
|
—
|
|
|
—
|
|
||||
Non-cash interest
|
(25
|
)
|
|
—
|
|
|
—
|
|
||||
Net changes in non-cash working capital
|
(54,208
|
)
|
|
3,662
|
|
|
(759
|
)
|
||||
Cash flows used in operating activities
|
(130,007
|
)
|
|
(7,517
|
)
|
|
(4,278
|
)
|
||||
Investing activities
|
|
|
|
|
|
|||||||
Purchase of short-term investments, net
|
(299,923
|
)
|
|
—
|
|
|
—
|
|
||||
Repayment of purchase price liability
|
—
|
|
|
—
|
|
|
(1,997
|
)
|
||||
Investments in equity accounted investees
|
(1,658
|
)
|
|
(480
|
)
|
|
(830
|
)
|
||||
Investment in Vivo Cannabis ("Vivo")
|
—
|
|
|
—
|
|
|
(783
|
)
|
||||
Proceeds from sale of other investments
|
19,614
|
|
|
747
|
|
|
8,388
|
|
||||
Payment to exercise Vivo warrants
|
—
|
|
|
(88
|
)
|
|
(1,749
|
)
|
||||
Advances to joint ventures
|
(15,135
|
)
|
|
(5,358
|
)
|
|
—
|
|
||||
Purchase of property, plant and equipment, net of disposals
|
(38,664
|
)
|
|
(88,308
|
)
|
|
(32,926
|
)
|
||||
Payment of accrued interest on construction loan payable
|
(89
|
)
|
|
(143
|
)
|
|
—
|
|
||||
Purchase of intangible assets
|
(289
|
)
|
|
(278
|
)
|
|
—
|
|
||||
Acquisition of Redwood
|
(224,295
|
)
|
|
—
|
|
|
—
|
|
||||
Advances on loans receivable
|
(43,337
|
)
|
|
—
|
|
|
—
|
|
||||
Proceeds from repayment of loans receivable
|
237
|
|
|
—
|
|
|
—
|
|
||||
Cash flows used in investing activities
|
(603,539
|
)
|
|
(93,908
|
)
|
|
(29,897
|
)
|
||||
Financing activities
|
|
|
|
|
|
|||||||
Repayment of lease obligations
|
(919
|
)
|
|
—
|
|
|
—
|
|
||||
Proceeds from Altria Investment
|
1,809,556
|
|
|
—
|
|
|
—
|
|
||||
Proceeds from exercise of Top-up Rights
|
67,051
|
|
|
—
|
|
|
—
|
|
||||
Proceeds from exercise of warrants and options
|
1,455
|
|
|
2,612
|
|
|
1,697
|
|
||||
Withholding taxes paid on share appreciation rights
|
(915
|
)
|
|
(16
|
)
|
|
—
|
|
||||
Proceeds from share issuance
|
—
|
|
|
115,510
|
|
|
38,542
|
|
||||
Share issuance costs
|
(3,722
|
)
|
|
(7,577
|
)
|
|
(2,114
|
)
|
||||
Proceeds from construction loan payable
|
—
|
|
|
11,583
|
|
|
5,022
|
|
||||
Repayment of construction loan payable
|
(15,971
|
)
|
|
—
|
|
|
—
|
|
||||
Advance under Credit Facility
|
48,715
|
|
|
—
|
|
|
—
|
|
||||
Repayment of Credit Facility
|
(48,309
|
)
|
|
—
|
|
|
—
|
|
||||
Repayment of mortgage payable
|
—
|
|
|
—
|
|
|
(3,084
|
)
|
||||
Transaction costs paid on construction loan payable
|
—
|
|
|
—
|
|
|
(989
|
)
|
||||
Cash flows provided by financing activities
|
1,856,941
|
|
|
122,112
|
|
|
39,074
|
|
||||
Effect of foreign currency translation on cash and cash equivalents
|
52,371
|
|
|
(4,085
|
)
|
|
(152
|
)
|
||||
Increase in cash and cash equivalents
|
1,175,766
|
|
|
16,602
|
|
|
4,747
|
|
||||
Cash and cash equivalents, beginning of period
|
23,927
|
|
|
7,325
|
|
|
2,578
|
|
||||
Cash and cash equivalents, end of period
|
$
|
1,199,693
|
|
|
$
|
23,927
|
|
|
$
|
7,325
|
|
Subsidiaries
|
|
Jurisdiction of Incorporation
|
|
Incorporation Date
|
|
Ownership Interest (ii)
|
Cronos Israel G.S. Cultivations Ltd. (i)
|
|
Israel
|
|
February 4, 2018
|
|
70%
|
Cronos Israel G.S. Manufacturing Ltd. (i)
|
|
Israel
|
|
September 4, 2018
|
|
90%
|
Cronos Israel G.S. Store Ltd. (i)
|
|
Israel
|
|
June 28, 2018
|
|
90%
|
Cronos Israel G.S. Pharmacies Ltd. (i)
|
|
Israel
|
|
February 15, 2018
|
|
90%
|
(i)
|
These Israeli entities are collectively referred to as “Cronos Israel.”
|
(ii)
|
“Ownership interest” is defined as the proportionate share of net income to which the Company is entitled; equity interest may differ from ownership interest as described herein.
|
|
Method
|
|
Rate
|
Enterprise software
|
Double declining
|
|
50%
|
Health Canada licenses
|
Straight-line
|
|
Useful life of corresponding facilities
|
Israeli codes (i)
|
Straight-line
|
|
Useful life of corresponding facilities
|
(i)
|
The preliminary licenses granted to Cronos Israel by the Medical Cannabis Unit of the Israeli Ministry of Health in early 2017 (the “Israeli Codes”) were transferred by non-controlling interests to Cronos Israel in exchange for their equity interests in the Cronos Israel entities specified above.
|
•
|
Level 2 – valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
|
(i)
|
The Company used hindsight in determining the lease terms and assessing impairment of right-of-use assets when transitioning to ASU No. 2016-02 using its actual knowledge and current expectation as of the effective date.
|
(ii)
|
The Company has elected not to assess whether any land easements existing or entered into prior to the adoption of ASU No. 2016-02 are, or contain, leases in accordance with ASU No. 2016-02.
|
(iii)
|
On transition to ASU No. 2016-02, the Company elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Company applied ASU No. 2016-02 only to contracts that were previously identified as leases. Contracts that were not identified as leases previously were not reassessed for whether there is a lease. The Company applied the definition of a lease under ASU No. 2016-02 to contracts entered into or changed on or after January 1, 2019.
|
As of January 1, 2019
|
|
As previously reported
|
|
Adjustments
|
|
As restated under ASU No. 2016-02
|
||||||
Right-of-use assets
|
|
$
|
159
|
|
|
$
|
1,333
|
|
|
$
|
1,492
|
|
Current lease liabilities
|
|
30
|
|
|
222
|
|
|
252
|
|
|||
Non-current lease liabilities
|
|
87
|
|
|
1,111
|
|
|
1,198
|
|
|
|
As of December 31,
|
||||||
|
|
2019
|
|
2018
|
||||
Raw materials
|
|
$
|
995
|
|
|
$
|
2,577
|
|
Work-in-progress – dry cannabis
|
|
|
11,538
|
|
|
|
1,596
|
|
Work-in-progress – cannabis extracts
|
|
|
17,975
|
|
|
|
—
|
|
Finished goods – dry cannabis
|
|
|
1,798
|
|
|
|
1,502
|
|
Finished goods – cannabis extracts
|
|
|
2,624
|
|
|
|
1,123
|
|
Supplies and consumables
|
|
|
3,113
|
|
|
|
588
|
|
Total
|
|
$
|
38,043
|
|
|
$
|
7,386
|
|
|
|
Other Net Assets (Liabilities)
|
|
|
Maximum Exposure to Loss
|
||
Cronos Australia
|
$
|
10,900
|
|
|
$
|
1,355
|
|
Cronos GrowCo
|
|
3,091
|
|
|
|
20,700
|
|
MedMen Canada
|
|
(199
|
)
|
|
|
642
|
|
NatuEra
|
|
(358
|
)
|
|
|
4,888
|
|
Balance at December 31, 2019
|
$
|
13,434
|
|
|
$
|
27,585
|
|
|
|
|
|
|
|
||
Cronos Australia
|
$
|
(737
|
)
|
|
$
|
1,051
|
|
Cronos GrowCo
|
|
(50
|
)
|
|
|
3,068
|
|
MedMen Canada
|
|
(257
|
)
|
|
|
1,450
|
|
Balance at December 31, 2018
|
$
|
(1,044
|
)
|
|
$
|
5,569
|
|
|
|
Whistler (i)
|
|
|
MedMen Canada
|
|
|
Cronos GrowCo
|
|
|
Cronos Australia (ii)
|
|
|
NatuEra
|
|
|
Total
|
||||||
As of January 1, 2018
|
$
|
3,028
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,028
|
|
Capital contributions
|
|
—
|
|
|
|
78
|
|
|
|
77
|
|
|
|
325
|
|
|
|
—
|
|
|
|
480
|
|
Share of net income (loss)
|
|
178
|
|
|
|
(213
|
)
|
|
|
(100
|
)
|
|
|
(588
|
)
|
|
|
—
|
|
|
|
(723
|
)
|
Advances to joint ventures applied to (recovered from) carrying amount of investments
|
|
—
|
|
|
|
128
|
|
|
|
21
|
|
|
|
251
|
|
|
|
—
|
|
|
|
400
|
|
Change due to currency translation
|
|
(246
|
)
|
|
|
7
|
|
|
|
2
|
|
|
|
12
|
|
|
|
—
|
|
|
|
(225
|
)
|
As of December 31, 2018
|
$
|
2,960
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,960
|
|
Capital contributions (disposals)
|
$
|
(3,073
|
)
|
|
$
|
—
|
|
|
$
|
1,658
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,415
|
)
|
Share of net income (loss)
|
|
29
|
|
|
|
35
|
|
|
|
(167
|
)
|
|
|
(1,101
|
)
|
|
|
(805
|
)
|
|
|
(2,009
|
)
|
Advances to joint ventures applied to (recovered from) carrying amount of investments
|
|
—
|
|
|
|
(35
|
)
|
|
|
(22
|
)
|
|
|
779
|
|
|
|
224
|
|
|
|
946
|
|
Change due to currency translation
|
|
84
|
|
|
|
—
|
|
|
|
32
|
|
|
|
(24
|
)
|
|
|
(17
|
)
|
|
|
75
|
|
As of December 31, 2019
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,501
|
|
|
$
|
(346
|
)
|
|
$
|
(598
|
)
|
|
$
|
557
|
|
(i)
|
Whistler was incorporated in British Columbia, Canada and is a license holder under the Cannabis Act (Canada) with production facilities in British Columbia, Canada. Although the Company held less than 20% of the ownership interest and voting control of Whistler, the Company had the ability to exercise significant influence through its power to elect board members. The Company fully divested its investment in Whistler during the three months ended March 31, 2019. See Note 9.
|
(ii)
|
Cronos Australia was a joint venture incorporated under the Corporations Act 2001 (Australia) on December 6, 2016 and was an unconsolidated VIE upon initial recognition. On October 25, 2019, Cronos Australia issued 40 million new shares in an initial public offering at an offering price of A$0.50 per share. Cronos’ ownership in Cronos Australia decreased from 50% to 31% on November 7, 2019 when Cronos Australia began trading on the Australian Securities Exchange. This resulted in a reconsideration event, which required the reassessment of the Company’s VIE conclusion. Upon reconsideration, the Company determined that the entity was no longer a VIE as of December 31, 2019 and is now reported under the equity method.
|
|
2019
|
|
2018
|
||||
Current assets
|
$
|
23,200
|
|
|
$
|
7,121
|
|
Non-current assets
|
76,212
|
|
|
27,129
|
|
||
Current liabilities
|
52,796
|
|
|
3,746
|
|
||
Non-current liabilities
|
33,189
|
|
|
13,201
|
|
||
|
|
|
|
||||
Revenue
|
52
|
|
|
5,344
|
|
||
Gross profit
|
—
|
|
|
—
|
|
||
Net income (loss)
|
(2,048
|
)
|
|
(874
|
)
|
|
MedMen Canada(i)
|
|
Cronos GrowCo
|
|
Cronos Australia(ii)
|
|
NatuEra
|
|
Total
|
||||||||||
As of January 1, 2018
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Advances (repayments)
|
1,309
|
|
|
3,127
|
|
|
500
|
|
|
—
|
|
|
4,936
|
|
|||||
Advances to joint ventures recovered from (applied to) carrying amount of investments
|
(128
|
)
|
|
(21
|
)
|
|
(251
|
)
|
|
—
|
|
|
(400
|
)
|
|||||
Changes due to currency translation
|
63
|
|
|
(136
|
)
|
|
226
|
|
|
—
|
|
|
153
|
|
|||||
As of December 31, 2018
|
$
|
1,244
|
|
|
$
|
2,970
|
|
|
$
|
475
|
|
|
$
|
—
|
|
|
$
|
4,689
|
|
Advances (repayments)
|
$
|
(852
|
)
|
|
$
|
15,494
|
|
|
$
|
274
|
|
|
$
|
219
|
|
|
$
|
15,135
|
|
Advances to joint ventures recovered from (applied to) carrying amount of investments
|
35
|
|
|
22
|
|
|
(779
|
)
|
|
(224
|
)
|
|
(946
|
)
|
|||||
Changes due to currency translation
|
44
|
|
|
480
|
|
|
30
|
|
|
5
|
|
|
559
|
|
|||||
As of December 31, 2019
|
$
|
471
|
|
|
$
|
18,966
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,437
|
|
(i)
|
Advance is unsecured, non-interest bearing, and there are no terms of repayment. Refer to Note 6 for details regarding the Company’s investments in MedMen.
|
(ii)
|
A$1,500 is governed by an unsecured loan bearing interest at a rate of 12% per annum, calculated and compounded daily, in arrears, on the amounts advanced from the date of each advance. The loan is due on January 1, 2022. If the loan is overdue, the outstanding amount bears interest at an additional 2% per annum. Refer to Note 6 for details regarding the Company’s investment in Cronos Australia.
|
|
|
As of December 31,
|
||||||
|
2019
|
|
2018
|
|||||
Current portion
|
|
|
|
|
|
|||
NatuEra series A loan (i)
|
$
|
4,575
|
|
|
$
|
—
|
|
|
Evergreen loan (ii)
|
|
—
|
|
|
|
194
|
|
|
Add: Accrued interest
|
|
89
|
|
|
|
36
|
|
|
Total current portion of loans receivable
|
|
4,664
|
|
|
|
230
|
|
|
Long term portion
|
|
|
|
|
|
|||
Cronos GrowCo credit facility (iii)
|
|
31,678
|
|
|
|
—
|
|
|
2645485 Ontario Inc. (“Mucci”) promissary note (iv)
|
|
12,587
|
|
|
|
—
|
|
|
Add: Accrued interest
|
|
702
|
|
|
|
—
|
|
|
Total long term portion of loans receivable
|
|
44,967
|
|
|
|
—
|
|
|
Total loans receivable
|
$
|
49,631
|
|
|
$
|
230
|
|
(i)
|
On September 27, 2019, the Company entered into a master loan agreement (the “Series A Loan”) for $4,575 with NatuEra with effect as of August 29, 2019. The total aggregate principal amount of the Series A Loan is $9,150, of which the Company has committed to fund 50% and its joint venture partner has committed to fund the remaining 50%. Outstanding principal amounts bear interest at a fixed annual rate of 5.67% with a maturity date of August 29, 2020.
|
|
|
(ii)
|
On June 9, 2014, the Company entered into a general service agreement with Evergreen Medicinal Supply Inc. (“Evergreen”) for $194. The loan is due on demand and accrued interest at a fixed annual rate of 8%, up to March 31, 2017, calculated and payable annually in arrears. During the twelve months ended December 31, 2019, the Company received cash repayment of $230 on the outstanding balance from Evergreen, net of $36 of accrued interest.
|
|
|
(iii)
|
On August 23, 2019, the Company entered into a credit agreement with Cronos GrowCo in respect of a C$100,000 secured non-revolving term loan credit facility (the “GrowCo Credit Facility”). The GrowCo Credit Facility will mature on March 31, 2031 and will bear interest at varying rates based on the Canadian prime rate as announced by the Bank of Montreal. Interest began to accrue as of the closing date of the GrowCo Credit Facility and is payable on a quarterly basis until maturity, except that any interest accrued prior to March 31, 2021 will be payable not later than December 31, 2021. Repayment of principal will be made on a quarterly basis commencing on March 31, 2021. The credit facility is secured by substantially all present and after acquired property of Cronos GrowCo and its subsidiaries. Mucci, the other 50% shareholder of Cronos GrowCo, has provided a limited recourse guarantee in favour of Cronos GrowCo, secured by Mucci's shares in Cronos GrowCo. As at December 31, 2019, Cronos GrowCo Credit Facility had drawn $31,678 from the credit facility.
|
|
|
(iv)
|
On June 28, 2019, the Company entered into a promissory note receivable agreement (the “Mucci Promissory Note”) for C$16,350 with Mucci. The outstanding principal amount of the Mucci Promissory Note bears interest at 3.95% annually and is due within 90 days of demand. The Company does not intend to demand the loan within 12 months. Interest accrued under the Mucci Promissory Note until July 1, 2021 is payable by way of capitalization on the principal amount and interest thereafter must be paid in cash on a quarterly basis. The Mucci Promissary Note is secured by a general security agreement covering all the assets of Mucci.
|
|
|
Year ended December 31,
|
||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||
Gain recognized in other comprehensive income (loss) before taxes
|
|
|
|
|
|
|
||||||
Canopy Growth Corporation (“Canopy”) (i)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
469
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
469
|
|
|
|
As of December 31,
|
||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||
Fair value through profit or loss investment
|
|
|
|
|
|
|
||||||
Canopy (i)
|
|
$
|
—
|
|
|
$
|
297
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
297
|
|
|
$
|
—
|
|
|
|
Year ended December 31,
|
||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||
Gain recognized in net income (loss)
|
|
|
|
|
|
|
||||||
Canopy (i)
|
|
$
|
51
|
|
|
$
|
166
|
|
|
$
|
27
|
|
Vivo Cannabis - shares (ii)
|
|
—
|
|
|
(173
|
)
|
|
3,208
|
|
|||
Vivo Cannabis - share warrants (ii)
|
|
—
|
|
|
171
|
|
|
4
|
|
|||
The Hydropothecary Corporation (“Hydropothecary”) (iii)
|
|
—
|
|
|
—
|
|
|
507
|
|
|||
Aurora Cannabis Inc. (“Aurora”) (iv)
|
|
696
|
|
|
—
|
|
|
—
|
|
|||
|
|
$
|
747
|
|
|
$
|
164
|
|
|
$
|
3,746
|
|
(i)
|
During the year ended December 31, 2019, the Company sold all of its shares of Canopy (2018 – 18,436,000 and 2017 – 7,374,000) for proceeds of $355 (2018 – $530; 2017 – $68). Upon adoption of ASU 2016-01 during the year ended December 31, 2018, the gains and losses on the Canopy investment were reclassified from fair value through other comprehensive income to fair value through net income.
|
(ii)
|
During the year ended December 31, 2017, ABcann completed a reverse takeover with Panda Capital Inc. As a result of this transaction, ABcann began trading on the TSX. The Company subscribed for additional shares of ABcann of $808 and sold 8,770,001 shares of ABcann for proceeds of $7,602 during the year ended December 31, 2017.
|
(iii)
|
During the year ended December 31, 2017, BFK Capital Corp. acquired all of the outstanding shares of Hydropothecary (currently operating as HEXO Corp. and trading as TSX: HEXO). As a result of this transaction, Hydropothecary executed a 6:1 stock split. During the year ended December 31, 2017, the Company sold all 550,002 shares of Hydropothecary for proceeds of $719. The cumulative gain previously recognized as other comprehensive income on these shares was reclassified to income during 2017.
|
(iv)
|
In connection with the Company’s investment in Whistler transaction described in Note 6, the Company received 2,524,341 common shares of Aurora. During the year ended December 31, 2019, the Company sold all 2,524,341 common shares of Aurora, for gross proceeds of $19,299.
|
|
2019
|
|
2018
|
|
2017
|
||||||
Net unrealized gain (loss) on revaluation and disposal of other investments
|
|
|
|
|
|
||||||
Balance at January 1
|
$
|
5
|
|
|
$
|
446
|
|
|
$
|
43
|
|
Cumulative effect from adoption of ASU 2016-01
|
—
|
|
|
(444
|
)
|
|
—
|
|
|||
Net unrealized (loss) gain
|
—
|
|
|
3
|
|
|
415
|
|
|||
Reclassification of net (gain) loss to net income
|
—
|
|
|
—
|
|
|
(12
|
)
|
|||
Balance at December 31
|
5
|
|
|
5
|
|
|
446
|
|
|||
|
|
|
|
|
|
||||||
Net foreign exchange gain (loss) on translation of foreign operations
|
|
|
|
|
|
||||||
Balance at January 1
|
(9,875
|
)
|
|
2,456
|
|
|
—
|
|
|||
Net unrealized (loss) gain
|
37,708
|
|
|
(12,331
|
)
|
|
2,456
|
|
|||
Balance at December 31
|
27,833
|
|
|
(9,875
|
)
|
|
2,456
|
|
|||
Total other comprehensive income (loss)
|
$
|
27,838
|
|
|
$
|
(9,870
|
)
|
|
$
|
2,902
|
|
|
Year ending December 31, 2019
|
||
Lease cost
|
|
|
|
Operating lease cost
|
$
|
760
|
|
Short-term lease cost
|
|
373
|
|
Total lease cost
|
$
|
1,133
|
|
|
|
|
|
Weighted-average remaining lease term – operating leases
|
|
5
|
|
Weighted-average discount rate – operating leases
|
|
12
|
%
|
|
As of December 31,
|
||||||
|
2019
|
|
2018
|
||||
Cost
|
|
|
|
|
|
||
Land
|
$
|
3,727
|
|
|
$
|
2,451
|
|
Building
|
|
150,324
|
|
|
|
15,875
|
|
Furniture and equipment
|
|
10,156
|
|
|
|
4,788
|
|
Computer equipment
|
|
687
|
|
|
|
340
|
|
Leasehold improvements
|
|
2,789
|
|
|
|
1,161
|
|
Construction in progress
|
|
3,569
|
|
|
|
103,728
|
|
Less: accumulated depreciation and amortization
|
|
(9,443
|
)
|
|
|
(2,438
|
)
|
Balance at December 31
|
$
|
161,809
|
|
|
$
|
125,905
|
|
|
Weighted Average Amortization Period (in years)
|
As of December 31,
|
||||||||||||||||||||||
2019
|
|
2018
|
||||||||||||||||||||||
Cost
|
|
Accumulated Amortization
|
|
Net
|
|
Cost
|
|
Accumulated Amortization
|
|
Net
|
||||||||||||||
Software
|
N/A
|
$
|
541
|
|
|
$
|
202
|
|
|
$
|
339
|
|
|
$
|
264
|
|
|
$
|
53
|
|
|
$
|
211
|
|
Health Canada licenses
|
17
|
|
8,627
|
|
|
|
976
|
|
|
|
7,651
|
|
|
|
8,217
|
|
|
|
465
|
|
|
|
7,752
|
|
Lord JonesTM brand
|
N/A
|
|
64,000
|
|
|
|
—
|
|
|
|
64,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Trademarks
|
N/A
|
|
36
|
|
|
|
—
|
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Israeli Codes (i)
|
25
|
|
298
|
|
|
|
4
|
|
|
|
294
|
|
|
|
274
|
|
|
|
—
|
|
|
|
274
|
|
|
|
$
|
73,502
|
|
|
$
|
1,182
|
|
|
$
|
72,320
|
|
|
$
|
8,755
|
|
|
$
|
518
|
|
|
$
|
8,237
|
|
(i)
|
The preliminary licenses granted to Kibbutz Gan Shmuel (the Cronos Israel joint venture partner) by the Medical Cannabis Unit of the Israeli Ministry of Health in early 2017 (the “Israeli Codes”) were transferred by non-controlling interests to Cronos Israel in exchange for their equity interests in the Cronos Israel entities specified above.
|
|
As of January 1, 2018
|
|
Additions
|
|
Effect of CTA
|
|
As of December 31, 2018
|
|
Additions
|
|
Effect of CTA
|
|
As of
December 31, 2019 |
||||||||||||||
OGBC
|
$
|
312
|
|
|
$
|
—
|
|
|
$
|
(25
|
)
|
|
$
|
287
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
302
|
|
Peace Naturals
|
1,114
|
|
|
—
|
|
|
(87
|
)
|
|
1,027
|
|
|
—
|
|
|
51
|
|
|
1,078
|
|
|||||||
Redwood
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
213,414
|
|
|
—
|
|
|
213,414
|
|
|||||||
|
$
|
1,426
|
|
|
$
|
—
|
|
|
$
|
(112
|
)
|
|
$
|
1,314
|
|
|
$
|
213,414
|
|
|
$
|
66
|
|
|
$
|
214,794
|
|
|
2019
|
|
2018
|
|
2017
|
|||
Bought deal offering
|
—
|
|
|
15,677,143
|
|
|
13,181,190
|
|
Private placement – 2017
|
—
|
|
|
—
|
|
|
6,671,111
|
|
Altria investment
|
149,831,154
|
|
|
—
|
|
|
—
|
|
Redwood acquisition
|
5,086,586
|
|
|
—
|
|
|
—
|
|
Private placement – 2019
|
856,017
|
|
|
—
|
|
|
—
|
|
|
155,773,757
|
|
|
15,677,143
|
|
|
19,852,301
|
|
|
|
Year ended December 31,
|
||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||
Salaries and wages
|
|
$
|
17,829
|
|
|
$
|
4,294
|
|
|
$
|
989
|
|
Professional and consulting
|
|
15,369
|
|
|
5,242
|
|
|
2,197
|
|
|||
Office and general
|
|
13,407
|
|
|
3,713
|
|
|
1,236
|
|
|||
Other
|
|
2,767
|
|
|
198
|
|
|
482
|
|
|||
Total
|
|
$
|
49,372
|
|
|
$
|
13,447
|
|
|
$
|
4,904
|
|
|
Weighted average exercise price (C$)
|
|
Number of warrants
|
||||
Balance at January 1, 2017
|
$
|
0.24
|
|
|
45,885,172
|
|
|
Exercise of warrants
|
0.23
|
|
|
(7,211,308
|
)
|
||
Expiry of warrants
|
0.70
|
|
|
$
|
(19,210
|
)
|
|
Balance at December 31, 2017
|
$
|
0.24
|
|
|
$
|
38,654,654
|
|
Exercise of warrants
|
0.14
|
|
|
$
|
(13,114,336
|
)
|
|
Expiry of warrants
|
0.08
|
|
|
$
|
(82,695
|
)
|
|
Balance at December 31, 2018
|
$
|
0.26
|
|
|
$
|
25,457,623
|
|
Exercise of warrants
|
$
|
0.26
|
|
|
(7,390,961
|
)
|
|
Balance at December 31, 2019
|
$
|
0.26
|
|
|
18,066,662
|
|
Grant Date
|
|
Expiry date
|
|
Number of warrants
|
|
Weighted average exercise price (C$)
|
|||
October 8 – 28, 2015
|
|
October 8 – 28, 2020
|
|
2,976,610
|
|
|
$
|
0.31
|
|
May 13 – 27, 2016
|
|
May 13 – 27, 2021
|
|
15,090,052
|
|
|
0.25
|
|
|
|
|
|
|
18,066,662
|
|
|
$
|
0.26
|
|
(i)
|
Stock option plans
|
(ii)
|
Summary of changes
|
|
Weighted average exercise price (C$)
|
|
Number of options
|
|||
Balance at January 1, 2017
|
$
|
1.10
|
|
|
6,177,594
|
|
Issuance of options
|
2.82
|
|
|
6,402,000
|
|
|
Exercise of options
|
1.03
|
|
|
(571,246
|
)
|
|
Cancellation of options
|
1.15
|
|
|
(404,598
|
)
|
|
Balance at December 31, 2017
|
$
|
2.05
|
|
|
11,603,750
|
|
Issuance of options
|
$
|
8.23
|
|
|
1,910,000
|
|
Exercise of options
|
1.41
|
|
|
(597,379
|
)
|
|
Cancellation of options
|
2.43
|
|
|
(13,376
|
)
|
|
Balance at December 31, 2018
|
$
|
2.99
|
|
|
12,902,995
|
|
Issuance of options
|
$
|
20.08
|
|
|
1,534,162
|
|
Exercise of options
|
3.48
|
|
|
(282,572
|
)
|
|
Cancellation of options
|
2.27
|
|
|
(5,083
|
)
|
|
Balance at December 31, 2019
|
$
|
4.84
|
|
|
14,149,502
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|||||
Grant date
|
|
Vesting terms
|
|
Expiry date
|
|
Number of options
|
|
Exercise price (C$)
|
|
Remaining contractual life (in years)
|
|||
August 5, 2016
|
|
Evenly over 48 months
|
|
August 5, 2021
|
|
1,058,334
|
|
|
$
|
0.50
|
|
|
1.60
|
October 6, 2016
|
|
Evenly over 48 months
|
|
October 6, 2021
|
|
3,242,542
|
|
|
1.23
|
|
|
1.77
|
|
November 21, 2016
|
|
Evenly over 48 months
|
|
November 21, 2021
|
|
182,000
|
|
|
1.84
|
|
|
1.89
|
|
April 12, 2017
|
|
Evenly over 48 months
|
|
April 12, 2022
|
|
3,255,009
|
|
|
3.14
|
|
|
2.28
|
|
August 24, 2017
|
|
Evenly over 48 months
|
|
August 24, 2022
|
|
2,853,288
|
|
|
2.42
|
|
|
2.65
|
|
November 9, 2017
|
|
Evenly over 48 months
|
|
November 9, 2022
|
|
200,000
|
|
|
3.32
|
|
|
2.86
|
|
January 30, 2018
|
|
Evenly over 48 months
|
|
January 30, 2023
|
|
267,917
|
|
|
8.40
|
|
|
3.08
|
|
January 31, 2018
|
|
Evenly over 48 months
|
|
January 31, 2023
|
|
109,375
|
|
|
9.00
|
|
|
3.09
|
|
May 17, 2018
|
|
Evenly over 48 months
|
|
May 17, 2023
|
|
1,163,750
|
|
|
7.57
|
|
|
3.38
|
|
June 28, 2018
|
|
Evenly over 20 quarters
|
|
June 28, 2023
|
|
180,000
|
|
|
8.22
|
|
|
3.49
|
|
September 13, 2018
|
|
Evenly over 16 quarters
|
|
September 13, 2023
|
|
25,000
|
|
|
14.70
|
|
|
3.70
|
|
October 12, 2018
|
|
Evenly over 16 quarters
|
|
October 12, 2023
|
|
28,125
|
|
|
11.80
|
|
|
3.78
|
|
December 14, 2018
|
|
Evenly over 20 quarters
|
|
December 14, 2023
|
|
50,000
|
|
|
15.29
|
|
|
3.96
|
|
March 28, 2019
|
|
Evenly over 16 quarters
|
|
March 28, 2024
|
|
51,830
|
|
|
24.75
|
|
|
4.24
|
|
May 11, 2019
|
|
Evenly over 16 quarters
|
|
May 11, 2024
|
|
1,263,957
|
|
|
20.65
|
|
|
4.36
|
|
August 12, 2019
|
|
Evenly over 16 quarters
|
|
August 12, 2024
|
|
31,115
|
|
|
17.68
|
|
|
4.62
|
|
September 5, 2019
|
|
Evenly over 16 quarters
|
|
September 5, 2024
|
|
187,260
|
|
|
15.34
|
|
|
4.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Outstanding at December 31, 2019
|
|
14,149,502
|
|
|
$
|
4.84
|
|
|
2.56
|
||||
Exercisable at December 31, 2019
|
|
9,034,714
|
|
|
$
|
2.93
|
|
|
2.27
|
(iii)
|
Fair value of options issued
|
|
2019
|
|
2018
|
|
2017
|
||||||
Share price at grant date (per share)
|
C$15.34 – 24.75
|
|
|
C$7.57 – $15.29
|
|
|
C$2.42 – $3.27
|
|
|||
Exercise price (per option)
|
C$15.34 – 24.75
|
|
|
C$7.57 – $15.29
|
|
|
C$2.42 – $3.32
|
|
|||
Risk-free interest rate
|
1.39% – 1.62%
|
|
|
1.93% – 2.45%
|
|
|
0.96% – 1.59%
|
|
|||
Expected life of options (in years)
|
5
|
|
|
5 – 7
|
|
|
5
|
|
|||
Expected annualized volatility
|
82
|
%
|
|
55
|
%
|
|
55
|
%
|
|||
Expected dividend yield
|
—
|
|
|
—
|
|
|
—
|
|
|||
Weighted average Black-Scholes value at grant date (per option)
|
$
|
13.03
|
|
|
$
|
4.09
|
|
|
$
|
1.39
|
|
Forfeiture rate
|
—
|
|
|
—
|
|
|
—
|
|
|
Number of RSUs
|
|
Share-based reserve
|
|||
Balance at January 1, 2019
|
—
|
|
|
$
|
—
|
|
Issuance of RSUs
|
732,972
|
|
|
—
|
|
|
Vesting of issued RSUs
|
—
|
|
|
889
|
|
|
Balance at December 31, 2019
|
732,972
|
|
|
$
|
889
|
|
|
Number of DSUs
|
|
Financial liability
|
|||
Balance at January 1, 2019
|
—
|
|
|
$
|
—
|
|
Granting and vesting of DSUs
|
33,397
|
|
|
452
|
|
|
Gain on revaluation
|
—
|
|
|
(197
|
)
|
|
Balance at December 31, 2019
|
33,397
|
|
|
$
|
255
|
|
|
|
2019
|
|
2018
|
|
2017
|
||||||
Basic earnings (loss) per share computation
|
|
|
|
|
|
|
||||||
Net income (loss) attributable to common shareholders of Cronos Group
|
|
$
|
1,166,506
|
|
|
$
|
(21,636
|
)
|
|
$
|
(1,483
|
)
|
Weighted average number of common shares outstanding
|
|
310,067,179
|
|
|
172,269,170
|
|
|
134,803,542
|
|
|||
Basic earnings (loss) per share
|
|
$
|
3.76
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.01
|
)
|
Diluted earnings (loss) per share computation
|
|
|
|
|
|
|
||||||
Net income (loss) used in the computation of basic earnings (loss) per share
|
|
$
|
1,166,506
|
|
|
$
|
(21,636
|
)
|
|
$
|
(1,483
|
)
|
Adjustment for gain on revaluation of derivative liabilities
|
|
(24,416
|
)
|
|
—
|
|
|
—
|
|
|||
Net income (loss) used in the computation of diluted income (loss) per share
|
|
$
|
1,142,090
|
|
|
$
|
(21,636
|
)
|
|
$
|
(1,483
|
)
|
|
|
|
|
|
|
|
||||||
Weighted average number of common shares outstanding used in the computation of basic earnings (loss) per share
|
|
310,067,179
|
|
|
172,269,170
|
|
|
134,803,542
|
|
|||
Dilutive effect of warrants
|
|
19,481,352
|
|
|
—
|
|
|
38,378,288
|
|
|||
Dilutive effect of stock options and share appreciation rights
|
|
10,649,487
|
|
|
—
|
|
|
3,607,331
|
|
|||
Dilutive effect of restricted share units
|
|
732,972
|
|
|
—
|
|
|
—
|
|
|||
Dilutive effect of Altria Warrant
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Dilutive effect of Top-up Rights - exercised and exercisable fixed price
|
|
1,881,002
|
|
|
—
|
|
|
—
|
|
|||
Weighted average number of common shares for computation of diluted income (loss) per share
|
|
342,811,992
|
|
|
172,269,170
|
|
|
176,789,161
|
|
|||
Diluted earnings (loss) per share
|
|
$
|
3.33
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.01
|
)
|
|
|
2019
|
|
2018
|
|
2017
|
|||
Ginkgo Equity Milestones
|
|
14,674,904
|
|
|
—
|
|
|
—
|
|
Pre-emptive Rights
|
|
12,006,740
|
|
|
—
|
|
|
—
|
|
Altria Warrant
|
|
77,514,993
|
|
|
—
|
|
|
—
|
|
Top-up Rights - fixed price
|
|
25,103,456
|
|
|
—
|
|
|
—
|
|
Top-up Rights - market price
|
|
1,255,223
|
|
|
—
|
|
|
—
|
|
Stock options
|
|
1,315,787
|
|
|
12,902,995
|
|
|
—
|
|
Warrants
|
|
—
|
|
|
25,457,623
|
|
|
—
|
|
Total anti-dilutive securities
|
|
131,871,103
|
|
|
38,360,618
|
|
|
—
|
|
|
September 5, 2019
|
||||
Fair value of net assets acquired
|
|
|
|||
Cash
|
$
|
2,896
|
|
||
Accounts receivable (i)
|
|
647
|
|
||
Prepaid expenses and other assets
|
|
265
|
|
||
Inventory
|
|
2,806
|
|
||
Property and equipment
|
|
1,890
|
|
||
Right-of-use assets
|
|
3,533
|
|
||
Intangible assets (ii)
|
|
64,037
|
|
||
Goodwill
|
|
213,414
|
|
||
Accounts payable and accrued liabilities
|
|
(2,688
|
)
|
||
Lease obligations
|
|
(3,500
|
)
|
||
|
$
|
283,300
|
|
(i)
|
The fair value of acquired accounts receivable is $647. No loss allowance has been recognized on acquisition.
|
(ii)
|
Intangible assets include the fair value of brand name of $64,000, the remaining balance relates to software.
|
|
|
December 31,
|
||||||
|
|
2019
|
2018
|
|||||
2020
|
|
$
|
1,644
|
|
|
$
|
426
|
|
2021
|
|
1,668
|
|
|
430
|
|
||
2022
|
|
1,666
|
|
|
434
|
|
||
2023
|
|
1,651
|
|
|
479
|
|
||
2024 and thereafter
|
|
4,017
|
|
|
2,000
|
|
(i)
|
Ginkgo. On September 4, 2018, the Company announced a R&D partnership with Ginkgo Bioworks Inc. (“Ginkgo”) to develop scalable and consistent production of a wide range of cannabinoids, including THC, CBD and a variety of other lesser known and rarer cannabinoids. As part of this partnership, Cronos Group has agreed to issue up to 14,674,903 common shares of the Company (aggregate value of approximately $100,000 as of July 17, 2018 assuming all milestones are met, collectively the “Ginkgo Equity Milestones”) in tranches and $22,000 in cash subject to Ginkgo’s achievement of certain milestones and to fund certain R&D expenses, including foundry access fees.
|
(ii)
|
Technion. On October 15, 2018, the Company announced a sponsored research agreement with the Technion Research and Development Foundation of the Technion – Israel Institute of Technology (“Technion”). Research will be focused on the use of cannabinoids and their role in regulating skin health and skin disorders. The Company has committed to $1,784 of research funding over a period of 3 years. An additional $4,900 of cash payments will be paid to Technion upon the achievement of certain milestones.
|
(iii)
|
Altria Services. On February 18, 2019, the Company entered into an agreement with a wholly owned subsidiary of Altria (which agreement was subsequently amended and restated to substitute Altria Pinnacle as a party thererto), to receive strategic advisory and project management services from Altria Pinnacle (the “Services Agreement”). Pursuant to the Services Agreement, the Company will pay Altria Pinnacle a monthly fee equal to the product of one hundred and five percent (105%) and the sum of: (i) all costs directly associated with the services incurred during the monthly period, and (ii) a reasonable and appropriate allocation of indirect costs incurred during the monthly period. The Company will also pay all third-party direct charges incurred during the monthly period in connection with the services, including any reasonable and documented costs, fees and expenses associated with obtaining any consent, license or permit. The Services Agreement will remain in effect until terminated by either party. See Note 19.
|
|
Year ended December 31, 2019
|
||
Employee termination benefits
|
$
|
889
|
|
Impairment costs associated with plan
|
4,439
|
|
|
|
$
|
5,328
|
|
|
|
Liability as of December 31, 2018
|
|
Charges
|
|
Payments/Utilization
|
|
Effect of CTA
|
|
Liability as of December 31, 2019
|
||||||||||
Employee termination benefits
|
|
$
|
—
|
|
|
$
|
889
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
$
|
907
|
|
|
|
$
|
—
|
|
|
$
|
889
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
$
|
907
|
|
|
|
Year ended December 31,
|
||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||
Rest of World
|
|
$
|
1,168,644
|
|
|
$
|
(21,817
|
)
|
|
$
|
(2,345
|
)
|
United States
|
|
(3,070
|
)
|
|
—
|
|
|
—
|
|
|||
Total
|
|
$
|
1,165,574
|
|
|
$
|
(21,817
|
)
|
|
$
|
(2,345
|
)
|
|
|
Year ended,
|
||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||
Income (loss) before income taxes
|
|
$
|
1,165,574
|
|
|
$
|
(21,817
|
)
|
|
$
|
(2,345
|
)
|
Expected income tax expense (recovery)
|
|
308,877
|
|
|
(5,782
|
)
|
|
(621
|
)
|
|||
Non-taxable income
|
|
(2,156
|
)
|
|
14
|
|
|
(588
|
)
|
|||
Non-deductible expenses
|
|
3,603
|
|
|
2,466
|
|
|
538
|
|
|||
Effect of provincial tax rate difference
|
|
26
|
|
|
(64
|
)
|
|
4
|
|
|||
Non-deductible transaction costs
|
|
1,523
|
|
|
—
|
|
|
—
|
|
|||
Fair value gain on financial liabilities
|
|
(338,409
|
)
|
|
—
|
|
|
—
|
|
|||
Changes in unrecognized deferred tax assets
|
|
25,904
|
|
|
3,674
|
|
|
(429
|
)
|
|||
Other
|
|
632
|
|
|
(308
|
)
|
|
234
|
|
|||
Income tax expense (recovery), net
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(862
|
)
|
|
|
As of
|
||||||
|
|
2019
|
|
2018
|
||||
Deferred assets:
|
|
|
|
|
||||
Tax loss carryforwards – Canada
|
|
$
|
30,908
|
|
|
$
|
8,842
|
|
Deferred financing costs
|
|
5,690
|
|
|
233
|
|
||
Share issuance cost
|
|
2,217
|
|
|
1,841
|
|
||
Finance lease obligation
|
|
1,491
|
|
|
37
|
|
||
Plant and equipment
|
|
871
|
|
|
—
|
|
||
Investment
|
|
395
|
|
|
60
|
|
||
Intangible
|
|
—
|
|
|
1
|
|
||
Reserve
|
|
—
|
|
|
36
|
|
||
Other
|
|
482
|
|
|
40
|
|
||
Total deferred tax assets
|
|
42,054
|
|
|
11,090
|
|
||
Less valuation allowance
|
|
(36,948
|
)
|
|
(7,931
|
)
|
||
Net deferred tax assets
|
|
5,106
|
|
|
3,159
|
|
||
|
|
|
|
|
||||
Deferred tax liabilities:
|
|
|
|
|
||||
Inventory
|
|
(1,227
|
)
|
|
(340
|
)
|
||
Plant and equipment
|
|
—
|
|
|
(729
|
)
|
||
Intangible assets
|
|
(2,126
|
)
|
|
—
|
|
||
Investment
|
|
—
|
|
|
(30
|
)
|
||
License
|
|
(293
|
)
|
|
(2,060
|
)
|
||
Right-of-use assets
|
|
(1,460
|
)
|
|
—
|
|
||
Total deferred tax liabilities
|
|
(5,106
|
)
|
|
(3,159
|
)
|
||
Net deferred tax liability
|
|
$
|
—
|
|
|
$
|
—
|
|
Jurisdiction
|
|
Open Years
|
Canada
|
|
2015 – 2019
|
United States
|
|
2017 – 2019
|
Israel
|
|
2018 – 2019
|
|
Balance at beginning of year
|
|
Change due to expense and foreign exchange
|
|
Deductions
|
|
Balance at end of year
|
||||||||
Year ended December 31, 2019
|
$
|
(7,931
|
)
|
|
$
|
(998
|
)
|
|
$
|
(28,019
|
)
|
|
$
|
(36,948
|
)
|
Year ended December 31, 2018
|
(2,926
|
)
|
|
507
|
|
|
(5,512
|
)
|
|
(7,931
|
)
|
|
Year ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
Accounts receivable
|
$
|
(702
|
)
|
|
$
|
(2,569
|
)
|
|
$
|
(3,198
|
)
|
Prepaids and other receivables
|
(10,509
|
)
|
|
(2,382
|
)
|
|
(221
|
)
|
|||
Current portion of loans receivable
|
(4,585
|
)
|
|
—
|
|
|
—
|
|
|||
Inventory
|
(51,888
|
)
|
|
(4,092
|
)
|
|
(2,504
|
)
|
|||
Accounts payable and other liabilities
|
13,317
|
|
|
12,705
|
|
|
5,164
|
|
|||
Lease obligation
|
159
|
|
|
—
|
|
|
—
|
|
|||
Total
|
$
|
(54,208
|
)
|
|
$
|
3,662
|
|
|
$
|
(759
|
)
|
(i)
|
Accounts receivable
|
|
|
|
As of December 31,
|
||||||
|
Expected credit loss rates
|
|
2019
|
|
2018
|
||||
Less than 30 days past billing date
|
<3%
|
|
$
|
4,401
|
|
|
$
|
2,917
|
|
31 to 60 days past billing date
|
<5%
|
|
|
130
|
|
|
|
100
|
|
61 to 90 days past billing date
|
<8%
|
|
|
49
|
|
|
|
—
|
|
91 to 120 days past billing date
|
<12%
|
|
|
42
|
|
|
|
14
|
|
Over 120 days past billing date
|
<18%
|
|
|
16
|
|
|
|
21
|
|
|
|
$
|
4,638
|
|
|
$
|
3,052
|
|
(ii)
|
Cash and cash equivalents, short-term investments, and other receivables
|
(iii)
|
Advances to joint ventures
|
|
|
As of
|
||||||||||
|
|
2019
|
|
2018
|
||||||||
Less than 30 days past billing date
|
|
$
|
4,551
|
|
|
$
|
881
|
|
||||
31 to 60 days past billing date
|
|
2,162
|
|
|
268
|
|
||||||
61 to 90 days past billing date
|
|
417
|
|
|
21
|
|
||||||
Over 90 days past billing date
|
|
2,064
|
|
|
—
|
|
||||||
|
|
$
|
9,194
|
|
|
$
|
1,170
|
|
a.
|
The Altria Warrant entitles the holder, subject to certain qualifications and limitations, to subscribe for and purchase up to an additional 10% of the common shares of Cronos (77,514,993 common shares at December 31, 2019) at a per share exercise price of C$19.00, which expires at 5:00 p.m. (Toronto time) on March 8, 2023. The number of common shares of the Company to which the holder is entitled, and the corresponding exercise price, is subject to adjustment in the event of a share dividend, share issuance, distribution, or share subdivision, split or other division, share consolidation, reverse-split or other aggregation, share reclassification, a capital reorganization, consolidation, amalgamation, arrangement, binding share exchange, merger or other combination, certain securities issuances, repurchases, redemptions or certain other actions that would result in a reduction in the number of common shares of the Company outstanding, in each case, executed by the Company. If and whenever there is a reclassification of the common shares or a capital reorganization of the Company, or a consolidation, amalgamation, arrangement, binding share exchange or merger of the Company, in each case executed by the Company and pursuant to which (i) in the event the consideration received by the Company’s shareholders is exclusively cash, the Company or the successor entity (as applicable) is required to purchase the Altria Warrant in cash equal to the amount by which the purchase price per share paid for the common shares acquired exceeds the exercise price of the Altria Warrant multiplied by the number of common shares that would have been issuable upon exercise of the Altria Warrant immediately prior to any such transaction, and (ii) in the event the consideration received by the Company’s shareholders is not exclusively cash, the Altria Warrant will remain outstanding in accordance with its terms until any subsequent exercise of the Altria Warrant, at which time the holder thereof will receive in lieu of each share that would have been issuable upon the exercise of the Altria Warrant immediately prior to any such transaction, the kind and amount of cash, the number of shares or other securities or property resulting from any such transaction, that such holder would have been entitled to receive had such holder been the registered holder of such shares that would have been issuable upon the exercise of the Altria Warrant on the record date or effective date of the transaction (as applicable).
|
b.
|
The Company granted to Altria, subject to certain qualifications and limitations, upon the occurrence of certain issuances of common shares of the Company executed by the Company (including issuances pursuant to the R&D partnership with Ginkgo (the “Ginkgo Agreement”), refer to Note 21(b)), the right to purchase up to such number of common shares of the Company in order to maintain their ownership percentage of issued and outstanding common shares of the Company immediately preceding any issuance of shares by the Company (“Pre-emptive Rights”), at the same price per common share of the Company at which the common shares are sold in the relevant issuance; provided that if the consideration paid in connection with any such issuance is non-cash, the price per common share of the Company that would have been received had such common shares been issued for cash consideration will be determined by an independent committee (acting reasonably and in good faith); provided further that the price per common share of the Company to be paid by Altria pursuant to its exercise of its Pre-emptive Rights related to the Ginkgo Agreement will be C$16.25 per common share. These rights may not be exercised if Altria’s ownership percentage of the issued and outstanding shares of the Company falls below 20%.
|
c.
|
In addition to (and without duplication of) the Pre-emptive Rights, the Company granted to Altria, subject to certain qualifications and limitations, the right to subscribe for common shares of the Company issuable in connection with the exercise, conversion or exchange of convertible securities of the Company issued prior to March 8, 2019 or thereafter (excluding any convertible securities of the Company owned by Altria or any of its subsidiaries), a share incentive plan of the Company, the exercise of any right granted by the Company pro rata to all shareholders of the Company to purchase additional common shares and/or securities of the Company, bona fide bank debt, equipment financing or non-equity interim financing transactions that contemplate an equity component or bona fide acquisitions (including acquisitions of assets or rights under a license or otherwise), mergers or similar business combination transactions or joint ventures involving the Company in order to maintain their ownership percentage of issued and outstanding common shares of the Company immediately preceding any such transactions (“Top-up Rights”).
|
|
As of March 8, 2019
|
|
Gain on revaluation
|
|
Exercise of Rights
|
|
Effect of CTA
|
|
As of December 31, 2019
|
||||||||||
(a) Altria Warrant
|
$
|
1,086,920
|
|
|
$
|
(869,630
|
)
|
|
$
|
—
|
|
|
$
|
17,138
|
|
|
$
|
234,428
|
|
(b) Pre-emptive Rights
|
92,548
|
|
|
(81,070
|
)
|
|
—
|
|
|
1,309
|
|
|
12,787
|
|
|||||
(c) Top-up Rights
|
386,152
|
|
|
(326,119
|
)
|
|
(15,478
|
)
|
|
5,390
|
|
|
49,945
|
|
|||||
|
$
|
1,565,620
|
|
|
$
|
(1,276,819
|
)
|
|
$
|
(15,478
|
)
|
|
$
|
23,837
|
|
|
$
|
297,160
|
|
|
As of March 8, 2019
|
|
As of December 31, 2019
|
||||||||
|
Altria Warrant
|
|
Pre-emptive Rights
|
|
Top-up Rights
|
|
Altria Warrant
|
|
Pre-emptive Rights
|
|
Top-up Rights
|
Share price at grant date (per share in C$)
|
$29.15
|
|
$29.15
|
|
$29.15
|
|
$9.97
|
|
$9.97
|
|
$9.97
|
Subscription price (per share in C$)
|
$19.00
|
|
$16.25
|
|
$16.25
|
|
$19.00
|
|
$16.25
|
|
$16.25
|
Weighted average risk-free interest rate (i)
|
1.65%
|
|
1.64%
|
|
1.64%
|
|
1.69%
|
|
1.73%
|
|
1.71%
|
Weight average expected life (in years) (ii)
|
4.00
|
|
2.00
|
|
2.68
|
|
3.18
|
|
1.25
|
|
1.66
|
Expected annualized volatility (iii)
|
80%
|
|
80%
|
|
80%
|
|
82%
|
|
82%
|
|
82%
|
Expected dividend yield
|
0%
|
|
0%
|
|
0%
|
|
0%
|
|
0%
|
|
0%
|
(i)
|
The risk-free interest rate was based on Bank of Canada government treasury bills and bonds with a remaining term equal to the expected life of the derivative liabilities.
|
(ii)
|
The expected life in years represents the period of time that the derivative liabilities are expected to be outstanding. The expected life of the Pre-emptive Rights and Top-up Rights is determined based on the expected term of the underlying options, warrants, and shares, to which the Pre-emptive Rights and Top-up Rights are linked.
|
(iii)
|
Volatility was based on the blended historical volatility levels of the Company and peer companies.
|
|
Decrease (Increase) as of March 8, 2019
|
|
Decrease (Increase) as of December 31, 2019
|
|||||||||||||||||||||
|
|
Altria Warrant
|
|
Pre-emptive Rights
|
|
Top-up Rights
|
|
Altria Warrant
|
|
Pre-emptive Rights
|
|
Top-up Rights
|
||||||||||||
Share price at issuance date
|
|
$
|
138,098
|
|
|
$
|
13,183
|
|
|
$
|
52,113
|
|
|
$
|
36,436
|
|
|
$
|
2,743
|
|
|
$
|
9,577
|
|
Weighted average expected life
|
|
31,021
|
|
|
2,591
|
|
|
9,687
|
|
|
17,471
|
|
|
2,366
|
|
|
2,178
|
|
||||||
Expected annualized volatility
|
|
56,958
|
|
|
3,743
|
|
|
16,493
|
|
|
33,343
|
|
|
2,180
|
|
|
7,714
|
|
|
|
United States
|
|
Rest of World
|
|
Corporate
|
|
Total
|
||||||||
Consolidated statements of net income (loss) and comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net revenue
|
|
|
|
|
|
|
|
|
||||||||
Cannabis flower
|
|
$
|
—
|
|
|
$
|
15,020
|
|
|
$
|
—
|
|
|
$
|
15,020
|
|
Cannabis extracts
|
|
—
|
|
|
5,338
|
|
|
—
|
|
|
5,338
|
|
||||
Other
|
|
3,364
|
|
|
28
|
|
|
—
|
|
|
3,392
|
|
||||
Net revenue
|
|
$
|
3,364
|
|
|
$
|
20,386
|
|
|
$
|
—
|
|
|
$
|
23,750
|
|
|
|
|
|
|
|
|
|
|
||||||||
Equity income (loss)
|
|
$
|
—
|
|
|
$
|
(2,009
|
)
|
|
$
|
—
|
|
|
$
|
(2,009
|
)
|
|
|
|
|
|
|
|
|
|
||||||||
Interest revenue
|
|
$
|
6
|
|
|
$
|
29,220
|
|
|
$
|
—
|
|
|
$
|
29,226
|
|
Interest expense
|
|
—
|
|
|
1,244
|
|
|
—
|
|
|
1,244
|
|
||||
Net interest income (expense)
|
|
$
|
6
|
|
|
$
|
27,976
|
|
|
$
|
—
|
|
|
$
|
27,982
|
|
|
|
|
|
|
|
|
|
|
||||||||
Depreciation and amortization
|
|
46
|
|
|
2,055
|
|
|
—
|
|
|
2,101
|
|
||||
Income tax (benefit) expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Net income (loss)
|
|
(3,070
|
)
|
|
1,180,241
|
|
|
(11,597
|
)
|
|
1,165,574
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Consolidated balance sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets
|
|
293,985
|
|
|
309,854
|
|
|
1,486,603
|
|
|
2,090,442
|
|
||||
Investments in equity accounted investees
|
|
—
|
|
|
557
|
|
|
—
|
|
|
557
|
|
||||
Goodwill
|
|
213,414
|
|
|
1,380
|
|
|
—
|
|
|
214,794
|
|
||||
Purchase of property, plant and equipment
|
|
259
|
|
|
38,405
|
|
|
—
|
|
|
38,664
|
|
|
|
United States
|
|
Rest of World
|
|
Corporate
|
|
Total
|
||||||||
Consolidated statements of net income (loss) and comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cannabis flower
|
|
$
|
—
|
|
|
$
|
9,210
|
|
|
$
|
—
|
|
|
$
|
9,210
|
|
Cannabis extracts
|
|
—
|
|
|
2,732
|
|
|
—
|
|
|
2,732
|
|
||||
Other
|
|
—
|
|
|
179
|
|
|
—
|
|
|
179
|
|
||||
Net revenue
|
|
$
|
—
|
|
|
$
|
12,121
|
|
|
$
|
—
|
|
|
$
|
12,121
|
|
|
|
|
|
|
|
|
|
|
||||||||
Equity income (loss)
|
|
$
|
—
|
|
|
$
|
(723
|
)
|
|
$
|
—
|
|
|
$
|
(723
|
)
|
|
|
|
|
|
|
|
|
|
||||||||
Interest revenue
|
|
$
|
—
|
|
|
$
|
222
|
|
|
$
|
—
|
|
|
$
|
222
|
|
Interest expense
|
|
—
|
|
|
139
|
|
|
—
|
|
|
139
|
|
||||
Net interest income (expense)
|
|
$
|
—
|
|
|
$
|
83
|
|
|
$
|
—
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
||||||||
Depreciation and amortization
|
|
—
|
|
|
969
|
|
|
—
|
|
|
969
|
|
||||
Income tax (benefit) expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Net income (loss)
|
|
—
|
|
|
(21,817
|
)
|
|
—
|
|
|
(21,817
|
)
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Consolidated balance sheets
|
|
|
|
|
|
|
|
|
|
|||||||
Total assets
|
|
—
|
|
|
183,471
|
|
|
—
|
|
|
183,471
|
|
||||
Investments in equity accounted investees
|
|
—
|
|
|
2,960
|
|
|
—
|
|
|
2,960
|
|
||||
Goodwill
|
|
—
|
|
|
1,314
|
|
|
—
|
|
|
1,314
|
|
||||
Purchase of property, plant and equipment
|
|
—
|
|
|
88,308
|
|
|
—
|
|
|
88,308
|
|
|
|
United States
|
|
Rest of World
|
|
Corporate
|
|
Total
|
||||||||
Consolidated statements of net income (loss) and comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cannabis flower
|
|
$
|
—
|
|
|
$
|
2,884
|
|
|
$
|
—
|
|
|
$
|
2,884
|
|
Cannabis extracts
|
|
—
|
|
|
113
|
|
|
—
|
|
|
113
|
|
||||
Other
|
|
—
|
|
|
150
|
|
|
—
|
|
|
150
|
|
||||
Net revenue
|
|
$
|
—
|
|
|
$
|
3,147
|
|
|
$
|
—
|
|
|
$
|
3,147
|
|
|
|
|
|
|
|
|
|
|
||||||||
Equity income (loss)
|
|
$
|
—
|
|
|
$
|
127
|
|
|
$
|
—
|
|
|
$
|
127
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest revenue
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
Interest expense
|
|
—
|
|
|
101
|
|
|
—
|
|
|
101
|
|
||||
Net interest income (expense)
|
|
$
|
—
|
|
|
$
|
(97
|
)
|
|
$
|
—
|
|
|
$
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
||||||||
Depreciation and amortization
|
|
—
|
|
|
417
|
|
|
—
|
|
|
417
|
|
||||
Income tax (benefit) expense
|
|
—
|
|
|
(862
|
)
|
|
—
|
|
|
(862
|
)
|
||||
Net income (loss)
|
|
—
|
|
|
(1,483
|
)
|
|
—
|
|
|
(1,483
|
)
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Consolidated balance sheets
|
|
|
|
|
|
|
|
|
|
|
—
|
|
||||
Purchase of property, plant and equipment
|
|
—
|
|
|
32,926
|
|
|
—
|
|
|
32,926
|
|
|
|
As of December 31, 2019
|
|||
Canada
|
|
$
|
141,021
|
|
|
United States
|
|
2,103
|
|
||
Other countries
|
|
18,685
|
|
||
Total
|
|
$
|
161,809
|
|
|
Fiscal Year 2019
|
||||||||||||||
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
||||||||
Net revenue
|
$
|
7,308
|
|
|
$
|
5,785
|
|
|
$
|
7,653
|
|
|
$
|
3,004
|
|
Gross profit (loss)
|
(20,375
|
)
|
|
(3,137
|
)
|
|
4,093
|
|
|
1,555
|
|
||||
Net income (loss)
|
61,569
|
|
|
604,128
|
|
|
185,888
|
|
|
313,989
|
|
||||
Total comprehensive income (loss)
|
89,833
|
|
|
591,706
|
|
|
203,835
|
|
|
317,887
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Basic earnings per share
|
0.18
|
|
|
1.78
|
|
|
0.56
|
|
|
1.43
|
|
||||
Diluted earnings per share
|
0.16
|
|
|
0.42
|
|
|
0.16
|
|
|
0.33
|
|
|
Fiscal Year 2018
|
||||||||||||||
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
||||||||
Net revenue
|
$
|
4,285
|
|
|
$
|
2,877
|
|
|
$
|
2,630
|
|
|
$
|
2,329
|
|
Gross profit
|
1,880
|
|
|
1,585
|
|
|
1,658
|
|
|
1,090
|
|
||||
Net income (loss)
|
(9,692
|
)
|
|
(4,785
|
)
|
|
(4,116
|
)
|
|
(3,224
|
)
|
||||
Total comprehensive income (loss)
|
(18,200
|
)
|
|
(1,967
|
)
|
|
(7,672
|
)
|
|
(6,312
|
)
|
||||
|
|
|
|
|
|
|
|
||||||||
Basic earnings per share
|
(0.05
|
)
|
|
(0.03
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
||||
Diluted earnings per share
|
(0.05
|
)
|
|
(0.03
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
•
|
Risk Assessment: The Company did not appropriately design controls to monitor and respond to changes in our business in relation to our transactions in the wholesale market.
|
•
|
Segregation of Duties: The Company did not maintain adequately designed controls on segregation of purchase and sale responsibilities to ensure accurate recognition of revenue in accordance with GAAP.
|
•
|
Non-Routine Transactions: The Company’s controls were not effective to ensure that non-routine transactions, including deviations from contractually established sales terms, were authorized, communicated, identified and evaluated for their potential effect on revenue recognition.
|
•
|
Risk Assessment: The Company will enhance its process to evaluate on a quarterly basis its risk assessment model and risk control matrices related to any significant changes in its business environment.
|
•
|
Segregation of Duties: We have identified and will be implementing controls and procedures to ensure segregation of duties over sales transactions and purchase transactions to include (i) updating our delegation of authority policy to ensure only individuals in our sales department approve sales to customers, only individuals in our procurement and supply chain departments approve purchases and prevent all other departments from authorizing these transactions; (ii) building and establishing Know Your Customer and Know Your Vendor databases to ensure a higher level of scrutiny for any entity that is both a customer and a vendor; and (iii) building and delivering a training and education program of revenue recognition principles inclusive of non-monetary transactions to all applicable stakeholders.
|
•
|
Non-routine Transactions: We have identified and will be implementing controls and procedures to ensure adequate review and disclosure of non-routine transactions, specifically targeting wholesale sales and purchases to include (i) requiring the preparation of accounting memorandums from the Finance Department on all non-routine transactions which must include all key elements of the transaction and review and approval of either the CEO or CFO prior to any non-routine transactions being executed; (ii) requiring the preparation of business cases for all wholesale sales and purchases to ensure they have legitimate business purposes; and (iii) enhancing our existing sub-certification process, to include all relevant employees to increase vigilance in identifying and understanding non-routine transactions and their impact prior to issuing financial statements.
|
CRONOS GROUP INC. AND SUBSIDIARIES
|
|
Page No.
|
Reports of Independent Registered Public Accounting Firm
|
|
|
Consolidated Balance Sheets as of December 31, 2019 and 2018
|
|
|
Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) for the years ended December 31, 2019, 2018, and 2017
|
|
|
Consolidated Statements of Changes in Shareholders’ (Deficit) Equity for the years ended December 31, 2019, 2018, and 2017
|
|
|
Consolidated Statements of Cash Flows for the years ended December 2019, 2018, and 2017
|
|
|
Notes to Consolidated Financial Statements
|
|
Exhibit Number
|
|
Exhibit Description
|
2.1
|
|
|
3.1
|
|
|
3.2
|
|
|
4.1
|
|
|
4.2
|
|
|
10.1
|
|
|
10.2
|
|
|
10.3
|
|
|
10.4
|
|
|
10.5†
|
|
|
10.6†
|
|
|
10.7†
|
|
10.8†
|
|
|
10.9†
|
|
|
10.10†
|
|
|
10.11†
|
|
|
10.12†
|
|
|
10.13†
|
|
|
10.14†
|
|
|
10.15†
|
|
|
10.16†
|
|
|
10.17†
|
|
|
10.18†
|
|
|
10.19†
|
|
|
10.20†
|
|
|
10.21†
|
|
|
10.22†
|
|
|
10.23†
|
|
|
10.24†
|
|
|
14.1
|
|
|
21.1
|
|
|
23.1*
|
|
|
24.1
|
|
|
31.1*
|
|
|
31.2*
|
|
|
32.1**
|
|
32.2**
|
|
|
101.INS*
|
|
XBRL Instance Document
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document.
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
|
|
|
*
|
Filed herewith.
|
**
|
Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
|
|
CRONOS GROUP INC.
|
|
|
|
|
|
By:
|
/s/ Michael Gorenstein
|
|
|
Michael Gorenstein
President and Chief Executive Officer
|
Date: March 30, 2020
|
|
|
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