CRON - Earnings call transcript Q3 2019

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Operator

Good morning. My name is Jay and I'll be your conference operator for today. I would like to welcome everyone to the Cronos Group Third Quarter 2019 Earnings Conference Call. Today's call is being recorded.

At this time, I would like to turn the call over to Ann Shlimak, Investor Relations. ahead. go please Ma'am,

Anna Shlimak

Mike and Group's for and third by and I'm Jay, Barbato. CFO, to business us review joined CEO, President Chairman Cronos quarter our and thank you, our joining Jerry you today performance. Gorenstein; Thank XXXX financial

are Cronos information which Relations. as also the remarks on this well financial morning release be our EDGAR will our Investor issued as had Earlier SEDAR website posted news and a announcing results filed This under on profile. prepared

actual the call Before Mike, will are like forward-looking turn risks correct. are no to I can call discussion materially to I'd give that differ projected that prove that statements. to and cause from forward-looking over our subject any to Management that uncertainties during statements to assurance based assumptions remind will that be statement you on results this in could conference those the include forward-looking

this this law. of the except call revise of any required speak these as we Forward-looking to or obligation applicable by by and qualified statements no you as any call during during cautionary statement update and only form company's of most Management statements date original statements risk forward-looking refers in are recent their MD&A to entirety. this annual information included call in made and factors the the which undertake

session. We will now make prepared we'll move remarks a question-and-answer and to then

call turn to Mike. the I'll over With that,

Mike Gorenstein

we of our growth you, to everyone. and Anna quarter on staying the Cronos XXXX, by focused initiatives. core continue Thank Group's and morning for success good strengthen third strategic foundation long-term In

the a additional Redwood the such In brand expanding brands closed progress you and excited and acquisition the Cronos made we adult quarter the resonate creative of We family. to from join third product by and the and like see third in have in very talented in team launches that portfolio future. with developments are quarter, consumers. in to include to expect begin both to I'd us can our what sharing our significant brand

These manufacturers brand. sold partner Redwood and care premium skin products. through products are hemp-derived Jones personal care the hospitality distributes and online Lord and markets CBD-infused channels under and other retail

the the several balm Lord melts to blend salts Himalayan unique which We nourishing bath salt, small new the calendula made Jones introduced magnesium-rich with salts, the Jones formula essential body CBD market. and Heavy Epsom bath to a salts leaving help U.S. launched terpenes from pink Lord chill batch and and skin on finish Lord arnica, oils petals, relaxation. support balm third During CBD Duty a contact quarter, Jones products are a that velveteen of

Jones collaborated Footwear with after formula Stiletto Tamra Departments wearing Jimmy Lord Luxury Luxury cream and application brand of Tamara before Co-Founder develop a hemp-derived Choo to shoes. brand foot Mellon and CBD shoe for Mellon,

that care of U.S. retail products as personal including new Jones Lord Neiman portfolio These the product well the the in Sephora, be are brands such found broader website. XXX can Marcus, in over other part direct-to-consumer, boutiques stores and as as SoulCycle, premium

pipeline. Jones' to support products innovation hemp-derived continuing look forward Lord CBD We and to best-in-class

to is additional the Jones of products. hemp-derived to Lord preserve with integrity brand, while providing goal CBD capitalize Our resources the the for demand significant on

about U.S. and products. the introduce excited making high-quality are mind hemp-derived better philosophy in more PEACE+ hemp-derived to brand very Today, just positivity produce market with a in launching -- than CBD developed new also CBD we was the brand to is PEACE+.

the and The beyond Add group This PEACE+ belief in brand belief to ethos positivity new Life extends motto a and to well-being stems stands brand the for we're lead can is a with of The from do share that everything is the possibility. and seeks and products world better brand consumers to excited this to both the for. U.S.

tincture CBD Altria's products to quarter, X,XXX to This hemp-derived and manage the sales PEACE+ launch stores product test access will the distribution through begin market insights consumer and to broadly. store distribution Redwood the prior of expanding retail feedback convenience leveraging more U.S. approximately a channel order to in gain network in intends selling retail

to brand excited underserved channel very be We're to respect able been quality products. to established an CBD with this has that bring retail traditional to hemp-derived

we brands, the in to geographies, fully new As product new responsibility. remain to formats launch move with leadership trade and channels, industry we committed

governments and internationally. standards to advancement of to for welcome and look with reasonable science, and and we regulation elevation both regulators peers', consumer products, education, always, forward of cannabis open to consumer domestically prevail dialogue ensure allow As working the industry for and research

retailers we Turning dry to products. sells Scotia its flower through Canadian distribution of Cove private in oils to and cannabis pre-rolls Finish our authorities the sector Nova network Columbia, brands and domestic to Prince In Alberta adult-use the adult-use Saskatchewan. control in province currently cannabis and as Cronos market, distribution. well Island, Ontario, recently the as added British for Edward

the together of population, the six its adult-use XX% still market slowly is Canadian for developed. provinces these being infrastructure approximately While and cannabis represent in is the infancy

stores, of meet and of demand consumers. the The up in logistics catching as well are as to number warehousing retail needs of the process

population. a the As able we result, reach to by are not long-term, total market, still this addressable represented fully

of raising holds the On Cronos IPO, Cronos an stake completed the Australia approximately front, international XX% million. ownership previously announced $XX Australia. now has Cronos recently

we Australia previous cannabis products to products. medicinal own the developing branded also on the branded to Natural also its Cronos expect will and adopt our asset-light distribute while market, and Australian call, As Peace mentioned import model

to in market as The Cronos Cronos continue Asia works the medicinal Cronos to IPO to growth, cannabis Australia Pacific enables the Group for leader region. participate in become Australia's it

across IPO to that sheet. created value of often to our verticals value will Cronos an our a many assets believe this model has the is way us, asset-light unlock not cannabis farmer. also hidden in We the be we on heard balance maintained there demonstrates production feel you've can And We always capacity. Group business the say be that approach industry.

and areas development products. the and long-term branded However, value marketing see we innovative sustainable, of research in

that our full and support capacity firmly chain to with to integration. the versus way We believe create to working contract supply suppliers, needs, by the best value is farmers vertical

comes have chain supply flexibility both ventures But meet are for also joint products efficiency CBD. cannabis with first-class needs. the online, to supply drive producers co-manufacturing mind, global U.S. partners supplement a procuring and we the We with of company's network and and chain and cannabis-derived as in to creating production in hemp-derived our our operating from in efficiencies third-party supply Canada by structured

changed categories regulations As new domestically product and markets come internationally. online, opened new

branded and warehousing our our for partially assets, vault ensure increased Naturals owned as mix Certain wholly are activities, expect and products to and for packaging being at Peace be products. from facilities cultivation achieving manufacturing R&D to more see for We facilities to natural our of we transitioned our and used repurposed there will of progresses have evolution fermentation, to manufacturing space. production allow a is will goals. to we This derivative update are business for and provide times,

now beginning for in bottled XXXX, to manufacturing facility oil. progress continue Israel, is the in Management relation which international was the in of completed pre-rolls half GMP expected for to production to at also throughout occur flower, was as Construction while Israel's and XXXX. in to we our We the of processes facility manufacturing Cronos phases in the completed facility, third and is certification first process Greenhouse make closer XXXX manufacturing of operational the been readiness. quarter the

laboratories, equipped and to As capabilities and capitalize large-scale include provide is diversify on the analytical microbiology, we method progress continue quality to and we well Ginkgo Bioworks. with acquisition underway fully pleased chemistry, covering as Fermentation. as Fermentation expected chain, two This Cronos organic manufacturing development supply production are facility we fermentation of areas. facilities the fermentation control to our also to close Cronos need the advanced

month, includes and Fermentation, experienced this Cronos pleased the facility. welcome to quality assurance Earlier production and support at to to production from breakthrough were commercial engineers', research personnel development that scientists we this team and an plan Apotex and

Ginkgo be continue partnership. We with to our pleased

market. to and good progress ensuring licensed will the accelerate technology track we have We commercial manufacturing on ready fermentation scale a infrastructure the optimizing feel go. that of and this industrial that that rollout to we by to are and are disruptive bring Fermentation advance progress us allow process fermentation making Cronos to cannabinoid And and

close to drive strategies discussing the our expanding by and is priorities, on I'd value. execute remarks business like which innovative highest to shareholder my aligning to our organization

Last level leadership put our realignment into of and added a to our senior month member we at place Directors. organizational the new Board of a structure

we product it business to categories, markets that way critical a the is the As evolving that we company manage meets needs. in and enter continue new

been responsible former with knowledge We will operations taken for who market. cross-functional for company announced since will us general Naturals Sales territory this manufacturing and role be markets. in Jeff JJ's has development and and manager be for specific a the operations, Canadian Peace and European and accountable sales Business the -- Canada in on Head of new Canadian XXXX Jacobson, will the the and now in and Europe. European scale help sales

the Co-founder Rob pipeline strategy of CBD assume including and and brands Lord of will the Jones, Redwood. of hemp-derived development and will for Redwood in Lord products Rosenheck, Redwood marketing the brand brand U.S., operations, U.S. Cronos space and CEO responsibility and the In at Jones under also remain Group's PEACE+

the business we the will Hilson, extend Billy hard shift influence wouldn't dedication. from service will pivotal find resources the at in the across This team, we our of and Officer David our William efficiencies we Chief for company. and end played new priorities and role our ideas their to foster Chief without and of creation to a today and gratitude of Group responsibility, and They realignment company transitioning be the year. and company and deepest work On we focus behalf and how myself in entire contributions Officer; Hsu, organization. this the growth where the examine their and David are With Operating be Commercial Cronos and

who we development. and he in as Altria's Begley of product replaces In serves President businesses currently member Board of Begley K.C. Group, a new Altria for one engineering, Jody from core designee, Products Vice as Crosthwaite. Senior welcomed Mr. their as addition, previous tobacco Altra's which Tobacco oversees well director a Altria, quality

and believe ultimately our investing in business. company success Overall, that the we we in are responsibility for positioning innovation and long-term by

consumers value. building to Our and with strategy and is we will believe -- will are long-term long-term continue resonate generate on that shareholder focused growth we sustainable

With that, discussion over quarter's to turn provide I'll on financial to results. this it a Jerry

Jerry Barbato

good of our our same financials the and comparisons release Thanks, MD&A press morning, XXXX. for period in Mike includes Both and everyone.

versus performance prior last environment. As operating I my sequential comparison quarter, industry to second third quarter not will as best to of the comparison of shared current basis do we regulatory we the comments the or evaluate and is of majority way XXXX. the focus our quarter's the that reflect business discussing quarter the year on believe a the the

opportunistic The quarter Revenue of million Turning driven of reported to third XX% increase revenue QX into wholesale the for company quarter, second was results. and primarily from for the by net acquisition. sales a inclusion Redwood $XX.X in quarter. results the the the financial channel the

inventory ensuring remain meet for while efficient we the available the We today management in and coming future derivative shortly. on can online products focused products an demand the

growth, evolves not use the further. As the for capacity own revenue products quarter. We before utilized wholesale The channel opportunistically wholesale an into would compress sell be ASPs prices industry channel that overall for the wholesale will saw commercial market the cultivation Cronos. decreased by opportunity and the to be used across our the

require $X.XX markets was packaging, wholesale total per due a nor sales XX%. goods sold non-U.S. for ASPs lower before excise adjustments XX% incur of cost Although at fair taxes. at grams of sold, value post-processing margin in this maintain healthy to we is quarter-over-quarter This lower our gross and doesn't still that does channel net

Turning due XX% primarily to second third Canada, operating the shipments. to sold kilograms performance cannabis kilograms in quarter of of metrics. wholesale to X,XXX XXXX In from the increased quarter,

expenses Operating preparation of for R&D XXXX the in Canadian fees strategic in launches. third quarter services G&A initiatives, headcount product million, the to an quarter. the increase higher professional and higher various expenses for second expenses, $XX.X XX% marketing spending primarily with and connection for and driven increased higher tied This by derivatives increase from totaled of representing U.S. is upcoming

quarter and third from company The due loss offset by higher is operating in increase XXXX. by associated second increased adjusted XX% an net to EBITDA marketing This of The sales, partially revenue. with primarily increase costs the reported loss in R&D, an $XX.X million the quarter. of

Altria's the invest company associated investment, in to the which in capabilities primarily financial to continue reported The of statements. and support more from liability with derivative the We the in financial MD&A increase in will infrastructure, growth. an net in change third detail value people income and is due future fair the quarter, to described

Cronos change movement Group related recorded price. of value quarter, non-cash of million to reported a third the value gain financial million in of expect $XXX the compared to of derivative $XXX gain fair the the earnings second volatility, the these to primarily a non-cash liabilities there Cronos In continues driven fair significant related quarter. maybe quarterly Cronos by to Group's stock adjustments in

The the approximately company investments, the of $X Redwood billion ended million, quarter the in by driven in cash decrease balance of sheet. Turning with to a approximately facility. and the $XXX primarily acquisitions Cronos Fermentation short-term

purposes. quarter, it previously term entered million facility of custom loan credit greenhouse for $XXX had operating credit fund into the announced the also for agreement that Cronos with construction announced During build the general to and a GrowCo

XX. the a one which we our aligned focused our business $XX.X million makes for strategic is drawn and manner We September sense and priorities. has capital, GrowCo disciplined remain in balanced of term how loan having as on deploy down with against

innovation Capital first Cronos months $XX.X of device our facility Cronos expenditures the Fermentation, year for technology Labs. and Device at Israeli nine were million. Campus spending Peace investments our the in Naturals includes This

our provide like capacity update to an I'd on disclosures.

an mentioned, on strategy. we Mike focused asset-light remain As

third-parties the ability our Cronos cannabis We with needs GrowCo the going disclosed quarter. how have how on-ramp business and parties. production. current our at own and more business with and the starting future, third facilities to potential of will we and for third And the disclosures table all our cultivation derived capacity from our MD&A own we capacity the from real reflect facilities, is removed buying is evolving balancing we've accurately products are our balance to source running continue the with our with capacity by our sourcing forward, own our in Historically, cannabis

the evaluating assets best our facilities. We and constantly of are own use

At Campus we estimate optimizing asset Peace than more downs. we one-time product morning, charge you and pre-tax the updates our this As saw primarily this alternative million, facilities us to derivative are no write to like manufacturing. $XX R&D announced uses Naturals for related additional these of time, be

as the I'd from like continuing to quarter by my about last CFO. discussion wrap-up priorities

have First, we to a in an last mentioned business the as support call, system industry. on global need I an ERP can ever-changing that

have actively scope will who upgraded the believe the Tier system. continue requirements solution working on business best us status of the before ERP full and to We I are on provide can implementation selected as provide the vendor, this we and the right updates implementing we X progress.

our will issuer Second, process. Cronos I continue to Effective XXXX remain longer private focused on and XX, a domestic foreign reporting a as SEC with issuer. financial no qualify become improving the December will

XXXX U.S. we the As dollar currency. will in the and full as U.S. results fourth a our year quarter GAAP, with report reporting result,

process GAAP the We U.S. are migrating through to currently working reporting. of

provide While in Rest U.S. will GAAP time, also purposes. our reportable over and for anticipate we our financial historical currently two results segments may next comparative States change United having segments, of we When we file the World. quarter, business information

progress that are with develop changes continuing the achieve goals we in of a in third of to the months and the order nine that do we first long-term to business. and in us reporting flexible a My our focus the pleased incorporate process significant to financial realized quarter the generally ability future year, gives strategies. body robust on and our while work Overall, is we to have

before I'll over turn that, Q&A. closing it to for Mike remarks With

Mike Gorenstein

Jerry. you, Thank

build that the plan other available to those property, team, time, are fuel we to to U.S. a turnkey an For for iconic deploy can when in always intellectual following a us. that brands Cronos to that they and long develop from markets create solution like know learn Canada, elite you'll have been has been our to

distribution huge. and developing channels industry immediately using run CBD all distribute We market the existing know the where Canada opened open. through we we're the real can believe new infrastructure, one the market can't hemp-derived channels we force the opportunity the cannabis is is Unlike U.S. no move channels. at be faster market, we without in rate But can in and full than established to

it new market to take new and new in products time switch the for existing will for consumers adopt new consumers ways to illegal marketing and to from We're consumers products.

invest that So believe globally that to continue ever strongly we needs in those consumer needs allocate the and and we as to R&D to developing researching now continue time capital to meet development. as products brand is and

They we continue success. to mover want will be first to long-term which a position us in for innovation believe

and to strategy industry this value excited it the the will change about our phase of flexibility are industry and business. by thing to disciplined, next term. long create One We that succeed this and that energized know take is in continue we of and won't

We the in market Canadian opportunities are the way. prospects are the derivative by and U.S. large excited the meaningful market believe and of a CBD hemp-derived entering

open line now let's that, for With the questions.

Operator

Instructions] [Operator Michael Jaffray. from Our of comes first Sir. question Piper you, Thank the line Lavery of

open. is line Your

Michael Lavery

morning. Good

Mike Gorenstein

Good morning.

Michael Lavery

just taking side? buyer from little be would growing where a you margin want and You purchases had also again cost the margin talked look of as And on quarter. model of course, us those? you and getting the you of mentioned in what when transition you of the point -- timing a as to a lower turning a be about relatively you can sense wholesale give you or your terms in give really sense advantage a magnitude just to give might Maybe what then in some ahead, inputs a asset-light you that. of of Can expect expect are sense stage to have you benefit as the

Mike Gorenstein

the form cultivation and inventory capacity adult-use more hemp-derived Most less demand. in align wholesale as in and be to over better consumer across utilized new sales market the the opportunistic factors in lower result and will channel. which the our went these sales channel will U.S., through adult-use in resulted quarter the a our evolves growths, time I with the wholesale industry towards with Sure. sales Canada wholesale stream opportunistically CBD And the weighted think And sales in believe products ASP. we towards from mix through sales this

And I we supply more otherwise to down we're as getting think what oil as inputs based see those products. more to will flower to stores more is The more of supply you see allowed derivative or of and launch and and crude cost continue and more inputs going comes online. is come there's

And so certainly where we be. where that we move And ones ones to that. transition chain between pretty want being we're able to transition over being we that And the parties produce improvement. margin our on Cronos ingredients quite rapidly supply that producing as GrowCo, third don't want expect sourcing being are year a fermentation Cronos well are think to things as the I towards through and from the will to within that next

down CBD and I derivative again, also in coming we're well, certainly is we're think cost us. run but down. products We're those already we looking And on course more work come And And can to I to market in optimize improve. will more in the think ingredients to for continue cost-effective its seeing available still there's the for become to hemp-derived that. be will for – depends Canada not the the us. inputs think U.S. other certainly and side, I price make But to do

Michael Lavery

stores what opportunity, Can of side, trajectory expect are. from how helpful. on give expectations from too on just do? Alberta we launching where a all a sense you get some should the but not And a might that you're the to maybe sense line the us also of follow-up both That's That's there. top Thanks. revenue high obviously what then

Jerry Barbato

Yeah.

heard time. an shifts to us it's in I from don't over months of difficult end long say considering play the how quarters, guidance we product this but predict. of appropriate lot a know few think to have term, idea few you've things where And is difficult things derivative that are There's at a out next month the last for away first as we're assess. about launch, will really the we

we're comment specifically excited further I'll think be. for new numbers on off on will what the hold I But So opportunity. overall,

Michael Lavery

very you much. Thank Okay.

Operator

you. Thank

from Markets. CIBC John question the Next comes of Zamparo line of Capital

Your line is open.

John Zamparo

And but perhaps talk Good profile ask been you to directional Thanks. any what Lord I the and existing is growing how versus wanted can Thanks. helpful? share Jones. the Lord Can morning. about exact has test commentary portfolio? your on if I'm would not products margin seasonality on be or these Jones about sure you details, PEACE+

Mike Gorenstein

Sure.

wide comparing be range speak I the would specifics. really so difficult think products, we to quite to a it have

I margin think is premium, see the hard among I I skews, portfolio. to the it's different product higher in ultra-premium going the That different of think our generally lower points. Jones price so say volume be different generalize, would but brand to they're Lord that is you'll than rest and

do the constrained see benefits given in we're PEACE+, stronger less much consumer in do is community than a we We a the our to But just have to consumers way a with build communicate ability opportunity. process environment the of launching. that in Canada.

able to So for for to be that. excited we're coming out excited with. we're where you see And

John Zamparo

Thanks. then follow-ups Okay. That's on And Europe. helpful. my

an You've XXXX, in material in your And expectations look you you countries you've attractiveness with spoken about the now particular executive find got do out that that market. further the or Europe. it for region? about you in of other Is talk attractive? Mike, Can oversight

Mike Gorenstein

may down and product what regulated slow side. THC seems more opening to similar seeing Yeah. comment by seeing but towards guidance medicinal we're things we're still to that hasn’t the what of of driven regulations, goes respect at up the restrictions guidance it on and seeing we're Europe, lot lot and provide this U.S. non-intoxicating in and there's cannabinoids back this is the -- cannabinoids certainly think trend a my we for to the and why to are that being mix I again, A be that with point.

So and is from be to expect we non-intoxicating meaningful growth more that would intoxicating. likely

John Zamparo

Okay. Thank you very much.

Operator

Thank you.

of Stifel. Next question comes Carter Andrew from of line the

line is open. Your

Andrew Carter

Good thanks. Hey, morning.

you what of Jones quarter. of is or to really stay the Can a $X.X kind give in that that the of indication channels distribution First should in from XXXX? an of how million to in kind sales question, expect its came more step-up of us the terms of business in it in that of for meaningfully representative is we the contribution step-up Lord fourth quarter, the

Mike Gorenstein

Yes.

took So that's the place Redwood September acquisition X.

much a of I the will think of going it's too fair and month month forward. partial read revenue. into has don't what So partial rate it I be run wouldn't a assessment the

Andrew Carter

Okay.

Just kind question second of new you a thinking, the of kind mentioned products.

of So I where today as of products quarter? possible we Is you new stand into understand will calendar December, in terms to of of see a kind expectation your soon to wanted the submitted products to as first Health Canada? those more or get kind wait

Jerry Barbato

Yeah.

they as is the soon tends in out focus Our market as getting possible.

we of to that again it's January. tough of predict because submitted of December. timing, hoping But end whether for something So we're and the beginning December, it's, have

edibles. But, in, topicals see really to that products. what specifically formulations edibles, we and are We single-serve, around start consumers. going rules with to able out to is our focus specifically haven't is have versus around rolling multi-packs, product IP other how with and But certainly packaging resonate then, been phasing derivative the

data that we want little tested, successful needs. to sell market on of consumers sure launch how and formulations, a best can consumer multi-packs. have that to have where tried satisfy we We that, have and very and bit before we you markets make with But been

Andrew Carter

thanks, it, pass I'll it Got on.

Operator

Thank you.

of Bank America. Next the Chris Carey comes question from of of line

open. is line Your

Chris Carey

Hi. guys. Good morning,

Mike Gorenstein

morning. Good

Chris Carey

And said run really guess, XXXX? go that bigger the on large going be in just you I cannabis, fully the you appreciating forward. could on call, than, CBD Canadian sales that, that's to ones U.S. be last taking And your instructive typical that, rate. not said So, the

guidance still seen for FDA. we haven't But

out in intentions the on context reporting report what clearly, especially increased rest going peer it's world, clear was a But last the had are? week versus and pretty calling You of segments your that GAAP U.S. competition. U.S. of

wonder how tea next can that the really shape you at over it's reading the few And leaves kind XXXX's form just address on might months? the how up looking the guidance maybe takes of But you've the things just all. puts I of mix so, And not on, developments, if how look? for seen over some past And might year? and

Mike Gorenstein

I about we're a certainly months only starting comparing just when and the into entrance few off that say, test to I'd example, we're thinking a we're that an Sure. illustrate But, as one Canada. announcing the with CBD into today mean, just we're market. brand market. And PEACE+ our

a CVD there Canada, brand are our in the test stores Ontario. of market stores. for XX total In And launch, X,XXX is

So think, scale, about a we're the competition, is huge distribution our ability I talk to the think, able very that Altria's we being in -- leverage, opportunity we is advantage, free when to and strongly.

a I'd are We now like it's market. share. right shows to There's where, commanded environment just that, And fragmented into competition. dominating leaders go really going any to open yet, that, we not isn't opportunity. are there That market have not

distribution the and the we that have We contribution. So, Jones, other that, have can you'll hearing be side. And an we between we future, think meaningful on Lord near we're that the think PEACE+ very in advantage brands excited. about

side, built on products need the us point retail shelves. build would CBD again don't them We or infrastructure. for just existing I go out wait to for get be to our And being on to leverage to and -- stores to able

you the is contribution more see So from. you can and can And I think, when us for with there in that showing where little It's comes to have stores years Canada know be open. you comment means or comfortable of we just It's just address it. easier a say, demand the clarity. less It's what three years. that bit a two for of

Chris Carey

Okay. That makes on just then, And sense. a follow-up.

like cash XX which burn quarters. is So you've got right, $X at in billion current cash,

especially be to lot environment think, I my sense math. I of actually, now. makes by right Which raising think the on given a capital measured cash

Rest to segments about, just cash? we reporting Obviously changing here, you as to -- of I forward and World. and come how do back But, U.S. deploying go think that

you investments a right it's again, this approach are. on is just of law, now that quite interesting So this not might off? assets long change patients and where your the having Is and to the Just makes potential U.S. in? stay be any for of are thinking the the you it of function the more hold interested intentions about that sense think how broader geographies or to are perhaps or deployment clear types most you term type sorts of you

Mike Gorenstein

Sure.

about not when little in its first into simply of game today, it's modeling, the comes of some bit think theory think a we're it. markets I financial that you

for so at we develop And how and talk the cash to when being and you look open. wait when timing the able about burn out things come market and to

capital and be the focused on to watching year wait for say things what we I ago patient, happens at whereas speed. think that looked is able a being something having develop

I focus is to position to comes when we survival online. quickly that market in want be advantageous able and capture to to it think to the be an shift going

think As at there there those an and allocated think we you the and and then of into towards picture and as CBD, is global thinking has capital that consumer But of and in it's far that's different you development under actually against about and allocation lot a addressing green most cultivation us. to researching And needs. supply. been typically consumer There's would needs. of research what's been available of capital look capital interesting when poured deployed how

the in part that business infrastructure we've allow sure making in And product portfolio. right open that's that where the are got the that where short-term to shareholder the there translate landscape when are to now mapping margins there's and is and that we can't as we are start sure of and opportunities And what markets exercise is retail look and execute how to addressable biggest capture also best what and that internal opportunity, able address able markets there's that able really to be when the we are be against something durable making see laws to generating best we that the we an now and value. be targets us go long-term

Chris Carey

much. sense. Make Thanks sense. Make so

Operator

Thank you.

the line BMO Next question of Chen comes Capital Tamy from Markets. of

open. is line Your

Tamy Chen

quarter. on question Yeah. Thanks. is past Canadian the My first business this

sales of LP LP that mentioned to You most channel. wholesale from or market the the the came

opportunistic, was the have of but I'm your does alluding that Red may what it consumers seems So say more products or right you maybe mentioned are you that for. channel? You like mix wondering the provinces just were to to this not sell that in the looking ability about

that's this for to something demand until this you a really or be push your onetime mix this is Red you channel. further the LP had align with LP better will sale So that into it more quarter to gradual consumer is big thing, you

Mike Gorenstein

Yes.

our cannabis consumer our and as to and as products enter So here new Canada rapidly in market pool we've consumer that evolving are that what's available as I aligning are market adult-use its in consumers preferences in the production new make the infancy. matching but think we inventory. our collected well means, are legal demand, that And third-party we become still sure

the as this adapting that to equity consumer believe launch brand derivative we their for we're being built roll on is consumers make differentiation ethos to the the that will that products we're quickly ability to quality, to match products out sell. with brand continue demands. sure That brands where Additionally, strategy, to third-party based the be of they product going we and derivative said,

marketplace are that this branding said for to restrictions brand you'll of products flower don't in the the the equity products we that being allow for the reaction where an to so really once right That Unfortunately, it's have the see flower that and contribute derivative marketing we alone. activities and off difficult though, marketing from and consumers. positive have the brand creating that we believe adult strings environment current build executed on

Tamy Chen

Got it.

U.S. is my the And as on you. Thank aspect Okay. follow-up well.

you leverage help taking also are the on distribution. just back, could strategy. parts And CBD you market. so other But I step to wanted whether mentioned to stand to ability given development, Just Altria's as now and U.S. fragmented. speak in this it's will ambiguous right that I believe regulations brand in competitive product the you how understand a hear you M&A, you the out market better

it test the should more you you CBD if all further strategy what understand C-store of think XXXX? past before above of that your to and a specifically I into CBD gradual basically a mentioned for? XXXX learn year we trajectory trying still so very as and the as develop are Just for you Is channel go you test a market, testing just really

Mike Gorenstein

Sure.

learnings that tester consumer all to flavors. learn what retail it's and the expand expansion But here see PEACE+, or for get insights, pricing, gradually we year for and plan the as throughout specifically hoping the we category, testing the for the market to facts for value really think I opportunities. of consumer something for the equation insights we're preference, from partners, merchandising,

because because are logistics from to to planned want think to us is about certainly and of when it's that will brand XXX,XXX expanding what what important. very development we out something to volumes that at understand any the you there's important generally management stores there or what type we make look Like that which simple a other is be go SKUs be around going there. the for consumer to we brand it's XX,XXX to very, find we moving consumers we be that that want. to X,XXX XX,XXX But And need -- get as in just product to lot do category going -- sure X,XXX

a deliver what we want idea consumers have good them. and And to of

differentiated think mentioned standard as its there's I it's and that's aren't to the the Jones other Bath with a we building. in you'll what Lord and that we segments. differentiated that the or think in-store Mellon, I products think target than market like And go -- that I in or lot unique future being to think Sephora brands to can -- see brand the you able different Altria that that Soulcycle channels different like differentiate that of brand ultimately only are about distribution, specific you'll that purchase, more Salt hotel that places of Cream, the CBD very the looks you the the products like just zones products a some see and really Tamara Stiletto go

Tamy Chen

Thank Okay. you.

Operator

you. Thank

comes Matt of Canaccord Next Genuity. of line from Bottomley question the

line is Your open.

Matt Bottomley

morning. Good Yeah.

of in you or your to a Canada? muted oil on of cannabis, in what the broader, attacking province gate we'll touch the at it, X.X, more on its launching sort guess, to you for out strategy X.X Are again in of I of, button saw wanted thinking sort implementation. the planning Just briefly right of similar are a markets breadth by dried we call province level

Mike Gorenstein

Yes.

make sure we've that One the understand we that and of with how work things the logistics a provinces. doing to internally been have trying is to

back. So provinces. a and now it that we've opened see opened us for relationships reverting with we've don't we provinces, We continue but relationship sense expanding makes once with -- among the to going provinces,

satisfying to really and channels is on able focus products. Our deliver being those

the base was wanting at a expanding to and difficult types we then in not We're with layering say way thinking with manage. specifically of products, once it I'd focus SKUs, those that X.X all have to approach So terms on as to go provinces of and of it starting and XX different in. so many it

idea we what can So we little it's still a with making the that than faster But that of focused. X.X. sure we stay disciplined same see did proliferating and in

Matt Bottomley

Great. switching Thanks. And just things. side a to second question CBD just the of

what markets obviously you are Jones in? regions those many the color points give or hemp-derived distribution today? that sales can the How books. Lord including And and Just hits your are any on

Jerry Barbato

I markets a SoulCycle of channels those Jones So specific the bit stores, lot even little think, boutique c-stores. like roughly are I Those than about And Sephora, a XXX to stores. stores. and differently think luxury Lord

the sales the of also a there's -- direct DTC from lot website. A

from where then that to there'll into be more margin, that wholesale retail scale continue think PEACE+ seeing But of certainly in expand. mix the would will more And I continue And a we're we with see to mainstream will online be market. channel, stores. coming meaning a place

channels So that. specialty carry shops convenience like products, stores, they stores, channel and -- grocery more CBD

Matt Bottomley

you. Thank Okay.

Operator

Thank you.

the Next Graeme Kreindler question Capital. line from comes Eight of of

Your line is open.

Graeme Kreindler

the model. capacity to that the comments taking removing Good understanding wanted the asset-light follow-up questions. assets. I you're of morning. various Yes. And at Hi. Thanks the on disclosures my for with respect to

As what the dynamics. supply it in demand we've GrowCo, relates and given to seen

mentioned that wholesale going capacity was discussion was you are to Has the market. expected ultimately get from last GrowCo to substantial? because expected facility And -- or be you think disclosed that any view the right-size quite earlier it to in there inputs cheaper been

Mike Gorenstein

whole and discussions had go to GrowCo. we've I'll maybe concept When the back Sure. behind originally

of form and we the prices there's what's for inputs, you With across in there the compression be comp a drop that some on belief price plant successful. can and be you and commoditization that to be Canada would looked going grow said,

at [ph] of at we move than is our rather two dominate waiting, back And Canada, knew all what really went tomatoes, groups. cannabis pick. sitting would or and in any those ventures. lettuce, and there we them is, cucumbers, And we It of three one favorite you find agricultural some are of those Moochies group simply first and they was point. And groups recruited strawberries. into looked And really our and that

about not it's so, And simply supply-demand.

being close to the that important. able I for think products and driving to of make relationship are able some a to in produced are compete to necessary to being right is efficiencies have us the going be sure able that and the be market being

the point they I have haven't And about commodity certainly, competitive, agricultural to or hypercompetitive we consistently while the that addressable and greenhouse efficiency. at another it's every seen, cucumber seen grow, market year succeed ability But almost strawberry had it's we've but have seen thrive think, this Moochies markets. in tomato market and built market driving we've or the

Graeme Kreindler

color -- read-through there higher at demand products respect to with wholesale this brands in respect to quarter. a the allocating what wholesale follow-up, then, period market. respect quarter, understand into the was is with the the there sell-in what largely products of in proportion Cronos' higher Okay. that I any -- as popular? during with retail? What or been has Thanks. of provide been And can have the proportion like, any the you I But to Given wondering, is challenged

Mike Gorenstein

there's that one about thing when being think opportunistic. know we there. read-through talked don't And much I I

little certainly more I there. prices, bit changes think coming sort in terms to the of drove in ability to what a see was proactive of be us

doing. you look for awareness third-party look gives how good you studies you that and aided of When can idea brands at aid lot awareness, of a are there's a

I read-through think our that very something that is positive is brands. for

that work to But able and to of certainly with production others. than planning align early way and directly SKUs the there the off works essentially out of the and quickly were producing ultimately adapt find we when SKUs. on, being with that, to SKUs we more without some are in were based listings system it launched because and is the element popular When we an are listings timing of SKUs, retailer takes which demand

based was it don't brand. of off or off the We're a based rather go store I than in still point in a really I think of are necessarily brands. think where, you when picking a into strain consumers SKU industry

just some that to, some much of we way to made think, faster and when be production, had production more for to we reallocate for. then more I other off than based say, had SKUs turn planned SKUs there it able over inventory that the our supply us SKUs some move the So sense depth in of would was demand

of the is, address territory. one a can make forward sure we this that for ways having the to everything And GM by think I roll in we going accountable

think I will meet all planning faster rolling have than into much production demand to smooth the your demand. with cultivation. And think that ability pivot that that manufacturing to same a It's shifting planning We the going derivative sales, also cycle something plus function. help and products, and with operations I And that's forward.

Graeme Kreindler

Thank very much guys. you Great.

Operator

[Operator comes you. question Instructions] line from the Thank Laidlaw of Hedgeye Risk of Shayne Next Management.

Your line is open.

Shayne Laidlaw

Thank morning. very you question. Good Hey. much for

I the to brand, or this be bit the the was on what that's say by to something going going completely brand be? hoping Lord color is positioning Is of brand get on to back little something powered PEACE+ more effect it separate own? Jones, will to kind its to a turning Just of a

Mike Gorenstein

its certainly targeted its get own really to And halo but positioning, effect is we to Jones, it's that a brand. formulations I own and channel. expect It's it's completely Yeah. Lord there think specific got separate from a a

behind what other consumers brands companies the more might are think but are and increasingly Jones, we of the consumers than just Lord of not produced. the but it different So be aware brand,

some website we different product for do read-through and able what them we're be to probably think having look and lot take So, and preparing think from look we're you'll quite of what you'll understand under on what get of is we formats. expanding that in benefits terms up, that platform. there's that positioning. the other a I see the in so same And a get like look will But, those

Shayne Laidlaw

just provinces? of reaction then be Cronos by facility, kind on repurposing a much of was this retail to more the to And of kind driven to of the turning derivative below Great. by in Peace how R&D Naturals a change the focused a of cultivation some heavily philosophy global locations a rollout products versus and environment, and of more competitive the view of the some of in par portion

Mike Gorenstein

a -- philosophy. certainly change would in not was this I Yeah.

I this think pacing. timing, are that things how and more was of of a recognition

like having we the ability manufacturing. optionality reasons the is pivot facility of to to an indoor the large One first downstream being as to we've cultivation facility, from built, have and able

there and due opportunity oversupply. sense derivative in-house to we retail we for now the the I begin us for number of our that of been in headwind to or stores, think products. right fact that really philosophy. -- with manufacturing It converting think when terms from makes a take always this perfect that more really forward, It's there's to look is a

more going fully that timing, that that's to at one of and And oversupply we've think choppy been seemed had on, And We bit I had. a fermentation against come just I GrowCo come able then it's little now will point to the we would we're we were certainly do. lower here terms we're think executing that and we later. -- it plans once earlier to cost consistent that in inputs, something until wait think I we up thought get always is believe

Shayne Laidlaw

one could will the you there more the estimated be just share of I million. there, And kind Is percentage be in space if way more than of that saw $XX I no any what cost squeeze could you converted? to cultivation

Jerry Barbato

We're still that. working through Yeah.

in and team And spirit more transparency, company currently write-down. of on it's the the that that a charge preliminary no a million. diligently the assets based be identify we have to all be subject So completed to pre-tax working than onetime estimates $XX date we've work to to the that will

year full additional provide fourth we'll and results. color in So, quarter the

Shayne Laidlaw

Okay. Thank you so much.

Operator

Ladies participating. call. conference for and concludes Thank today's this you gentlemen,

day. disconnect. a You may Have now great

Cronos (CRON) 12 Nov 192019 Q3 Earnings call transcript