CRON - Earnings call transcript Q4 2019

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Operator

Good evening, my name is Ryan and I will be your conference operator today. I'd like to welcome everyone to the Cronos Group 2019 Fourth Quarter and Full Year Earnings Conference Call. Today's call is being recorded.

At this time, I would like to turn the call over to Anna Shlimak, Investor Relations. Please go ahead.

Anna Shlimak

thank XXXX joining year fourth business and review, today financial Ryan, performance. Group's Cronos quarter you, you us for to and Thank and full our President, joined Legal EVP, Affairs. CEO our I’m Regulatory Barbato Chairman, Today, Mike Xiuming by and Gorenstein; CFO, Shum, Jerry and and

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

I a over Form discussion by result company's from in included the are to this forward-looking the the forward-looking company's Before call to remind annual of uncertainties risk could this you on conference entirety. during include risks in like most the Mike, regulatory I'd subject that based including cause qualified factors forward-looking turn the to will and statement call that in the projected are that filings, XX-K during including their statements materially recent statements, actual which on those in as any cautionary statements factors are and differ assumptions made earnings and results release our that described call report to

measure. furnished reported business measures to and certain release call, believe financial addition, during non-GAAP non-GAAP be accepted are resources. discussed forecasting this including our evaluating to that that of recognized measures and In this these measures in SEC. earnings are management measures under GAAP principles planning, and closest as to these We Reconciliations the performance, included financial press Exchange by as their allocating and Commission may referred not non-GAAP accounting generally U.S. the Securities

remote today conducting note like also our respective that to I'd our location. were call we from

during We this such, As and issues understanding. you delays, advance for minor may or thank your call. in be brief technical crosstalk patience there

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

Cronos Group’s over CEO, that, Mike Gorenstein. pass to it I'll With

Mike Gorenstein

situation the afternoon, the is challenges doing face. These time address of adapt make and everyone. and later a staying are will good actions Anna, COVID-XX. you, current line are and I we taking we in and unprecedented healthy, I in safe are the to most the best our our and Thank response little everyone to certainly hope we to

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Board of Cronos of the wholesale recently review a bulk As Group of sales conducted channel. Audit resin the you certain the Committee products purchases BXB through and know, Directors of

the million interim reduced by million. three Following Company months the the restate revenue XXXX, of our quarters second, ended Accordingly, for KPMG, financial completion third and for from March and advice CAD$X.X and to Audit September XXXX. ended statements the and Committee XX, CAD$X.X by XXXX of three XX, the determined Cronos review of auditor, our the upon independent first, unaudited recommendation months the

the we strategic related at We path the part individuals We're a shareholder create to clear. processes want the driver a is and these This pleased our not our our to of as about value. for the look to process We When became be way. of of wholesale few I under channels these talking need take given ability and and initiatives the result do seriously, things channel. big a aware matters concerns, that intended. against core forward, as a long-term growth execute picture worked transactions strategy we you transactions, these make business not raise affect reporting BXB to and to of have our review and for of internal expected are the the transactions the three

to complete, Now strengthen is our that procedures we including these are financial We our taking review comprehensive policies internal take improve several implementation of quarters. reporting. actions anticipate controls, internal to and and steps

of these walk me Let through some actions.

steps First, over duties we are transactions. segregate to purchase sales and taking

extensive internal of and education and vendor revenue databases for and employees these part updating groups. our are for we building supply chain programs launching policies recognition this, sales customer training As departments, and in

transactions, and to business require key develop To from request cases BXB or our will purpose the enhancing to teams end, the non-routine outline Second, controls procedures are transactions. produce we and transaction details, and that transaction, approval that wholesale we of accounting with Jerry myself. either especially know related now memorandums

our these will understand better our we business. We enhancing enhance process impact in also and that quarterly our changes to processes and assessment certification third, risk transactions employees controls are financial reflect our these results. And so how

We and are practices things for reporting. implementing to committed best making right financial

industry, enhance and a taken company internal over of resources across our add the functions strategic our actions in a a rapidly capabilities last number have As growth we growing to evolving initiatives. support year to

and creating tolerate property shareholder do disruptive long-term encourage As developing my iconic focus you focus intellectual not I the on short-termism. value know, and incentivize company's building brands. and long-term or thinking is by

technology our and come strengthen value with branded consumers. breakthroughs relationship Our sales help that from and our will build

company how on results and to the during the unprecedented COVID-XX made we to evolving discuss I'd necessary Before situation like business Group touch has changes our Cronos time. updates, and this

The employees, secure and supply global cross assembled safety led We've a be to has continues chain. our functional force and our the task by me internal consumers, daily. also to our high-quality that base, priority we Company ensuring products top and place health that develop situation produce continuity our of Our business the its the of to meet monitoring closely in continuing while been plans has needs employee consumers. support reliable,

essential. open in as governments our have remain the facilities regions business operate manufacturing we our today, of where As as designated

certain including a travel have and no policy for strict work-from-home our employees We between sites. policies implemented

distancing For enhanced and maintained schedules, hygiene facilities, our manufacturing practices, we modified sanitation protocols. and social

country, to region all we're we additional diligently federal, working applicable accordance act to and per circumstances As from international are operational guidance and adjustments as local, authorities, continue necessary. prepared to governmental and in make with and health vary

the based employees, this We our know time, decisions us we'll on during what continue is efforts, continuity are our see we to we're responsibly consumers business of in make evaluation as on and we company, or customers. and our an relying situation supply and but unfolds, will to delays, the impact as best on Despite capacity for it may such our our our operational certain business challenge. remain vigilant parts chain our rising

to With our progress that, last foundation on our long-term growth. we've closer strategy for look let's a take the to at continue over quarter the build made

start progress the I'll in First, made establishing we and with our growing portfolio. brand

approach cannabinoid high how to consistent while consumers the Our goal category. bring market, is the shop products to expanding and for quality,

of talented we products Sephora, the brand, retail fall hemp-derived, our Cronos in creative the Under XXXX, manufacture, to welcomed and in the SoulCycle, team brand Lord and CBD-infused e-commerce such to care Lord and other In personal Marcus. and skincare Jones as luxury distribute added we market and U.S. Neiman the the outlets now and market, hemp-derived portfolio, brand CBD Jones family. the

more to at forward season, larger could pop-up We learned season. with in holiday by were during skincare the the and products bringing this concept brands to able how habits During consumers about and Lord work retail markets. see brand We're experimented Jones its retail Westfield own consumer the activating holiday looking a shops holiday and three other holiday to XXXX.

U.S. Last quarter, the of announced new in we the a PEACE+, CBD also brand launch hemp-derived

very To the decision meeting demands for decided believe this the of pause sales and that suitable network, Now evolving we information end, the to tinctures of Cronos PEACE+ we and evaluate we to to adult a formats to evolving collect that hemp-derived tinctures product excited in environment. the climate. brand to while more be and committed distribution remains are distribution we categories line. current We've the distribution made market. continue may to measured to and bring PEACE+ the more product CBD CBD assess hemp-derived through brand take approach Altria of the will consumers other and

remain launch the the set short-term, we standard doing to position the approach responsible To that of formats move decisions believe a channels, we to way. in brands, so in leadership, As but a in trade take and this difficult new product and markets, as long-term. committed fully make us we new we position market will sometimes will leader

industry We forward working peers, regulators prevail. collaboration and continue to regulation for to with to and governments reasonable allow open to welcome dialogue, look

of in committed of all research consumer we advancement serve. are education, for the markets of to consumer the and products cannabis elevation We standards science, ensuring

launched of brand consumer of we trial Spinach December did work hit inspired market we in A for purposely, last launched to brands, terpene we and after into phase, adult-use non-proprietary late the our when while In a know consumers year. although launch strain Canadian vaporizer use COVE our pen, market, market, and went our products, sought insight elegant Canadian products. within work line in are new COVE, start premium so vaporizer the begins. by lot hardware new Spinach because market a formed X.X profiles the vaporizer was by specific both and an

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suppliers Our in resistant. diligence launch. with on components, our months were cartridges quality and grade the are market products to the properly doing our released silicone We tamper with tested made ensure before boots spent stainless-steel food our ground with

Our have prevent of of are And is the premium do. we We're all-natural include formulations quality, which cannabis uncompromising flavors. overheating. to with approach contemporary proud terpene-rich mechanisms and at heart and extract rechargeable intuitive to everything draw our our made batteries designs

our meet the needs look continue we glean into the exceed of differentiated Canadian products consumer to insights As market, we and that to innovative consumers. the and expectations developing more forward

private-sector selling Turning and oils authorities to in Manitoba, Scotia, cannabis New and adult-use the brands, cannabis COVE control Alberta, and QX, expanded we and as Nova to its dry Saskatchewan. and to Cronos to authority Edward flower, Spinach, cannabis sells British distribution, pre-rolls, network in retailers cannabis Ontario, in distribution Columbia, began through products as Island, in currently market, in well our Quebec. Brunswick Prince control Canadian vapes

way out is suppliers best those chain the for and our believe our capacity value working through needs versus supply own that the to by farmers support create to needs. with firmly contract cultivation We building

supply the partners. of with first-class goal create contract and chain mind to We continue with and operating a farming co-manufacturing our structure in and flexibility of our with global network business the to efficiency best interests

and production and the pride products. certain the transition campus for end, and the manufacturing build out R&D derivative at this to we of to facilities continue Naturals in activities To more fourth quarter, Peace and

are We drive our were pleased natural facilities. we as the evolve at believe look with our business, redesign with is making and the for we this and a progress evolution to efficiencies

also international continue in we to to at move and our production manufacturing make Israel, operational We as progress readiness. closer facility

able For are at agricultural only this labor facility, Kibbutz Gan their our to and and with but more. and closely including leverage Shmuel also utilities skilled not work warehousing, pool extensive partners we infrastructure much expertise their

Good flower, in and for certifications market this for for successfully Practices Peace to the In Distribution phases the the official manufacture as for propagation GMP as inspections Israel. forward occur Good and and to products waiting oil. to towards full getting pre-rolls which manufacturing passed Practices the We in our later year. licenses working is for GMP December of certification of distribution cultivate, allow and process throughout We're products XXXX, look well Naturals and facilities. medical XXXX cultivation, facility, Cronos to These GMP in Israeli expected Israel and audits sell us Agricultural

the cutting made in reflect to we intellectual we as When commitment technologies have edge, one on of I on is property spaces to our initiatives that think breakthrough disrupt exciting well progress think and will XXXX, our our industry we've potential the others. investing as

pleased which our us cannabinoids making at will produce scale. collaboration with with in research Ginkgo, allow the to are were progress commercial we We cultured

to patent pertaining under engineers, progressing partnership. employed research protect production applications previously team developed Group of include fermentation applications cannabinoids. the the Ginkgo the intellectual cannabinoids intellectual of personnel licensee has we November, assurance the of which quality by property to as is exclusive part filed employees the partnership, Fermentation. patent of Apotex of Fermentation, the certain target In property the Cronos Under the welcome Cronos scientists, by a for and covered our

will Cronos the allow We believe commercial our manufacturing that us in breakthrough by rollout. advance to technology cannabinoid accelerate Fermentation scale optimizing of fermentation a process initiative

will while Fermentation, production the developing cannabinoids, learnings parameters, processes parallel, and for in up applied on at producing to processes as work downstream develops to We will our commenced the these have and of scale Ginkgo Cronos Cronos strains be facility. develops for cultured the microorganisms commercial received of cannabinoids. which Cronos the R&D be Fermentation utilized the receive required waiting and for that of cannabinoids licenses, at cultured is is commercialization license has production

In about all that just are to that to to close and We and but bringing short, on incredible progress year my our look think achieve we we it's time, reflecting bring able a the to are where our forward us of important don't of often in very remember speed when short to the technology we were pleased amount to this with was disruptive sheer like available. by had. I'd market remarks everything growth today. to accomplished we

tapping We closed $X.X much more. investment to with the as develop Altria’s continuing cannabinoid charge Cronos initiative, in to talented is significant experience expertise forward we work We to vaporizer do from began generation an team build research manufacturing, look next development the some leading the product that vaporizer We R&D and Labs, are industry billion together. Here which key Altria development products. XXXX. in and into with accomplishments they product Altria of Device opened focused and how

We over and product in experience R&D facility Ginkgo acquiring the brings hemp-derived pharmaceutical premium the brand, CBD our Dr. Innovation XX and advance research the at of hired commercial to Abraham, eventually research to with Officer, years welcome their by cannabinoid consumer entered Jones Lord innovation. to a who acquired We market fermentation Chief for U.S. and Canadian manufacturer Cronos of we a cultured team talented And family. market. cannabinoids scale Todd

the for innovation, positioning Overall, by we and investing brands. are success in believe we company long-term that R&D

shareholder strategy are we long-term growth sustainable generate Our building we believe is focused what will and on value.

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

Jerry Barbato

entire year everyone. figures fourth Group in review I key found is the the and quarter Thanks, provide restatement. regarding and be Mike, first and the XXXX. want Mike Board hello the filed very I a specific with details will that XX-K I results matter can Directors But seriously. full will for on that the SEC. management of some to our the All provided This the team the Cronos of take points earlier reiterate at today

work finance to grateful a our internal hard in and financials complete team controls. the completed thorough a of We review timely and manner. review I'm to our who advisors, incredibly

comprehensive strengthen reporting are procedures to internal We taking improve committed action and are best policies and and financial practices. internal controls, to including

steps. following the implementing includes This

First, over and we segregation duties are ensuring the transactions. sales purchase of

risk enhancing Second, and reflect to are sales business. especially we are our purchases. and quarterly procedures our to third, wholesale non-routine we in transactions, related controls assessment processes changes enhancing And our controls and

continue will right initiatives do fortify to our the our last attracting one of areas, have infrastructure. will right We prepare consistently over the is year to we said future which retaining biggest and the that priorities growth our and help in talent for us, so

reporting undertaking. and These underway a internal efforts stronger already priority will top to controls as our is even practices. we confident, financial and enhance are I’m of result be this Our

financial to we Before performance, a then comments U.S. business. our including make discussing do our transition like press few reporting, about our to how our release filing GAAP generally the and I'd

XXXX and GAAP currently SEC which a last information EDGAR dollar quarter, our financial X, as January included and our available are in of now As my with remarks results reporting I on Cronos in filing, domestic U.S. started U.S. report mentioned is currency. reported filing in is XX-K Historical as financial the SEDAR.

less or which the We've cost of is U.S. U.S. Under financial asset GAAP. related and business. not at for value managing are sheet disclosures the from to products accounts reflect selling the U.S. the IFRS balance we agricultural our net these accounting, realizable to as on reporting biological value, to products to opposed valued are fair also change under costs. does how at updated IFRS conversion most estimated exist structure GAAP, the which lower Regarding GAAP, significant

will World. segments, Rest with we forward, of U.S. discuss Going our two business and

business evaluate performance across operating resources we now our to allocate and using Lastly, are income segments.

is income and used industries across the many Operating including staples. consumer CPG metric

loss know may like other this I why including we operating performance. income this impact you defined of performance metric or to useful the measure Operating it of income At our of not and do by profit. revenue or is as directly business less segment. names net cost the corporate explaining the operating sales spend a expenses. segment which Some operating level, operations in and moment from excludes find underlying expenses, income understanding

with generating business results that does assets core us performance of income provides clearest amortization a are compared measuring and other have excludes performance depreciation which reflective of revenue segments’ view revenue business of it or cost exclude business items the assets. metrics, We not These our through believe as EBITDA, real operating because economic generating not underlying these represents the which the performance.

and Our strategy vigilant By that are capital believe performance terms asset-light expenditures. and which our results. we segment we on an regarding and and be which accountable financially these and the their demands income, their in in to certain may underlying discussing strategy. frequent investments of ever We our measuring holding business operating be disciplined managers highly adjusted or variable, accurately expense managers segment basis, special merits asset-light trends reflecting that and our unusual, for can income review of items, distort excludes our results

to for segments. and tables for our special of that we've release adjusted the and press items a the and that press loss reconciliation included this Also, We've details for loss information reported XX-K included release bridged quarter each our periods year-end GAAP provides in XXXX. section in on a operating operating the comparison

that a of the the the the fourth Revenue from results for focus distribution net financial quarter comments slight in of is of which growth my most company on of a million quarter change of reported from versus of for quarter's discussion $X.X inclusion XX% quarters. year. performance to was quarter, the Turning prior fourth vaporizer XXXX, sequential the revenue acquisition. will fourth in increase results, primarily products prior in The QX by Redwood and Canada the driven I

quarter in of of was the XXXX. net of an primarily growth vaporizer the segment, $X.X quarter introduction by from expansion reported the of X% quarter of fourth in Rest of fourth is This continued for adult-use driven revenue in the the products fourth business increase million, XXXX. the In of World the Canada and XXXX

million World for approximately in fourth quarter, margins Gross of the to a of at XXXX, certain Campus of million by Peace fourth a Rest repurposing related quarter, the the of quarter made in of one-time and negative oil driven incurred $XX.X up were of segment $XX write-downs an XXXX. write-down on charge inventory Naturals flower. the from the write-down fourth decrease in a million $X.X facilities primarily We and the inventory cannabis

QX gross pressures We of term inventory effects for repurposing due Peace the do of been to in short Naturals to If company however XX%. Campus. operational the margins in we were pricing write-downs $X.X have adjust gross write-downs, the its million, of inventory and anticipate the the would representing profit while for executes marketplace the

of million adult-use costs and of markets. segment XXXX, in in market the of associated primarily sales with to expenses fourth marketing fourth by driven fees XXX% totaled This higher Operating connected from is an increase Rest the XXXX. the representing increase research and agency World of $XX.X quarter quarter the

loss from increase Ginkgo. costs to Campus increased fourth partially growth costs loss and World for of XXXX, write-down an as cost an of million due by well by inventory increase The million as professional higher revenue. due expenses Naturals accounts reported R&D fourth $XX.X XXXX. of primarily Rest of the repurposing quarter significantly the various to with in the of fees. The increased operating quarter an and driven segment mainly adjusted offset The in net operating $X.X associated the consulting headcount Peace the was in and at growth G&A

million, was e-commerce by Redwood super retail fourth as for strong In products Lord the net reported of margin distribution position to through the channels. the driven of in in quarter, CBD luxury Gross expand at and the $X.X Lord U.S. continues segment premium XX% segment the category. Jones Jones revenue

investment, fourth launches. The segment XXXX. change primarily prior which of from year, reported driven in products the continued the of loss in of was associated $X.X described in This in expansion higher increase the detail the XX-K. upcoming million derivative products value and fair reported income loss at Cronos brand Lord due by costs net financial Jones the new and associated in adjusted liability marketing Overall, an of Altria's with the more quarter operating that's is to primarily with

quarter, fair reported fourth liabilities. there the of recorded earnings the to non-cash Group’s financial derivative value the related may driven to stock of related continues by value In price. be company in to the the these change adjustments quarterly primarily gain a million fair of movement of significant volatility, $XXX.X Cronos expect Cronos

Naturals Peace capital were balance ways innovation our unchanged Labs. and to with strategic full a our and Fermentation, This Cronos that technology disciplined focused priorities. only third remain with manner essentially in Turning the deploying the investments, our spending facility sheet, align Cronos in and approximately in on quarter Israeli at device We the Capital Device short-term Campus, cash company year in investments expenditures the million. for billion quarter. includes from $X.X $XX ended the

have I'd Peace We last at our product optimize we our uses the from Campus our rooms Peace manufacturing. removed number Campus also like the for and cultivation a Campus R&D Naturals to derivative last began space Since the provide at transition we for of an and Naturals call, that the in derivative announced Peace redesign of earnings Naturals as such update alternative R&D and facilities quarter. manufacturing. on buildings

an pre-tax operating of associated million write-down efforts with to impairment with to Campus, related of inventory Peace million Naturals million related the a $X.X the recorded primarily one-time $X.X at we costs. repurposing total During and the fourth expenses, quarter, charge $X.X

long-term and achieving made It our progress we significant a Overall, year investment in are XXXX. goals. strategic of business pleased transition this the with toward was

behind the and won't both of Rest strategic long-term it We know U.S. that initiatives I'm in optimistic cannabis for invest space. about to our to We beyond leadership and World to be but plans XXXX segments. the our expect in easy, achieve continue

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

Mike Gorenstein

Thank potential front of you, industry young a of opportunities Jerry. Cannabis lot with it. is in a

and few available as as adding been last require capital the XXXX In widespread really distribution continued formats For year years, another was that product assets well business. limited. the expensive that cheap, and the adversity. has been with headwinds adjustments the have trend one to around macroeconomic XXXX industry world the first was of has way people interact do

in capital expensive though industry for today, sale. to is more is are Now new open and product assets beginning and cheaper, becoming distribution available even our are up formats

with cannabis on believe has be and thesis seize the well sheet, the are and our model, balance we changed. we investments our by in on intellectual long to asset-light medium long-term property not positioned provided opportunistic strong disruptive and term. flexibility aggressively Our And in opportunities near,

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

Operator

line first the our in coming Zamparo from of from have John do we CIBC. question And

John Zamparo

on to disruption like on there and wanted Lord at you. across Jones closed. U.S. Sephora Lord the seems be it I Thank But Good website. may the afternoon. SoulCycle are touch business locations presumably some restrictions Jones,

business large in place rules shelter-in stores? So will is just about effect at place how Lord DTC brick-and-mortar the in as Jones can And versus California? just as long in talk you that the broadly wondering, are be

Mike Gorenstein

It’s Thanks. as great a declared business question. has Sure. our essential. Recently, been

to able still we're things perspective, open. chain supply a keep from those So

out something getting right develop. we of to things how now, monitor it's how shipped. and need as But potentially roll they course, to continue and we're made that product Of able

is to sustained also we purchases. too sales be versus and that and shift probably in changes think categories being seeing. are to able consumers are of or making way DTC conclude it’s self-quarantined. as, it’s anything versus these people off, whether closed far pretty really are retail, retail determine unprecedented early from some data to there Obviously actually from trends – As to the the what just times lot as pantry be we’re seeing any able retail, with a to DTC loading we’re early but

be the versus as it’s So, think purchasing do to that that likely long we’ve online brick-and-mortar. I something continue nationwide we that to expect monitor, as continue more we’ll shift to seen trends there’s but a

John Zamparo

then environment front? now? And any can regulatory about was thanks. is that’s have final you there the like December, products to or or potency outcome FDA right but allow Have Thank whether the conversations commentary to signs CBD you PEACE+, on any what you its It in Okay, statement great. be any any led would the conclusions seen for seems certain pretty you my the with encouraging might on cautious preference maximum on be talk had just in you. follow-up FDA here, it’s that

Mike Gorenstein

Sure.

governments I for CBD reasonable think and our to regulation collaboration, that we stance FDA dialog, monitor, we prevail. regulators, to a environment, we’re is any and with providing to and sure open something look continue and the regulatory as make welcome U.S. and forward working with industry peers,

of need has -- think be how COVID government that and where feel is which depending attention. recent COVID are, on as with with that on think of as focused the certainly the I we I focus from there shift way lot a developments events a regulations were they some been have trends changed, going, regulators many dealt so where to to organizations changed lot of their far

Operator

this question from of time, is Tamy the Capital do the line. Markets. from BMO At This on Chen we have line another

Tamy Chen

thanks. Yes,

in just the is time still things U.S. think away meaningfully? respect about it understand given It to begin it? some the seems be wanted just question like may to grow to do how with regulation. you First When will revenues,

Canada, sense we better So, of issue to so supply pick like what a there’s up I’m understand just specifically think seem about when anymore, start just a doesn’t to wanted Thanks. the really in will trying to revenues challenges may there. it be, get should

Mike Gorenstein

believe Canada that Yes. in sales mix products towards sales as believe U.S. form and vape hemp-derived X.X in in growth will launched we and Canada. sales products factors had late we and this we With new And in will the adult-use in towards our more accelerate help we a weighted XXXX, from U.S., that launch in result Canada. CBD sales less opportunistic

Jerry Barbato

Yes.

of But think we’re an I have Ontario, to recent have also be and growth sales. other headwinds. impact like But essential the COVID really be affected the been important. business call by seen looking during store But or impacts. on we’ve don’t macroeconomic new continue COVID going also, think pace big – that’s growth to think dispensaries in are visibility is online have In open Canada, store how even I cannabis I obviously, Era. when may it from counterbalanced not might Ontario, trades deemed what while X.X specific in cannabis potential dispensaries to we the increase delays or by future may

the way growing we think the open at we think we us again, and business. to time points be you’ve they pantry due there’s and need consumers consolidate Ontario loading more the to that about for much provides think sustained habits when is we that still up, shopping aggressive we to though evaluate competition it self-quarantine. Overall versus in and continuing that I that be will how environment, in able though, the changes I to data just seen purchasing to will distribution expect think discuss more as macroeconomic position we’re how and look is, in be opportunities

Tamy Chen

it. Got

Okay. is with follow Ginkgo. to And my respect up

confirm to just Mike, comments earlier. you I wanted So, the of one made

into receive point, can the and you license facility has this commercialization more you still is there? formulation waiting to just done to the done the work R&D there’s work? Are for production at move formulation, part be the So, its or then Thanks. Ginkgo largely

Mike Gorenstein

Sure.

is giving that cannabinoids. it’s Cronos, course are and at those is the commercial in-house from but combine we what’s specific going between cultivate able way – the doing breeding cannabinoids, up while then cultivation, to designing Cronos which for a be work them work the grow Ginkgo, fermentation. we Fermentation Is are we’re any you and at to those cannabinoids supply THC at the that we products how in get of from being work So, difference Cronos the we formulate what Ginkgo type how and how you same separation at cultivation the cannabinoid will that a genetics helpful? putting a and just CBD, processes the is at rare extraction the fermentation, doing we’re work ginkgo quantity cultivation getting of harvest, we into, it’s same would would genetics, to through Cronos consumer the we is something about product, example, that of Cronos that of care. essentially developed with or that being we could type Essentially, be you difficult, you strains in breed ferment comparable setting – able was with think processes you us ferment that’s as if how and done would plant of is -- strain. facility that those versus do how strains the to put formulation today. what those new you ultimately of think

Operator

seems Our last have do caller question we of from line Carter the to another the on fallen but have Stifel. Andrew from line time, off

Andrew Carter

afternoon. Good thanks. Hey,

of Canada, have you an right help kind an shakeout at kind we that of obviously How ask you’re in kind now, accelerated portfolio? how mentioned Just in about landscape now will – and your you’ve will. of starting historically and market invest growth XXXX were any and it challenges now? you that the opportunity are you it mentioned to in accelerate to in looking how versus to the thought Is this if now? Is more meaningfully unveiled wanted Canada you kind about –is an Just there of thinking acquisitions? there

Mike Gorenstein

across as trends do far the certainly having setting expect, up and increasing, last for hit. the we I albeit to in So, certainly space way will having least distribution in things opportunities few months consolidation capital are with think near-term, at limited access as the less that

acquisition. a through not capital reserves to expect with looking is – or do view the growth lot I up we different competitiveness growth that’s ultimately intellectual that is really dictate on specifically we that easier organically we’re changed ultimately become think will our relationship with property what the with haven’t How the side something But marketing. M&A; consumers organic building that the competitors, looking for would brand of as for whether side scalable. we or on something or brands Canada be ultimately we’re in going depleted end something for

today revisit more an us it looked may them make to down accretive, would that have help versus be at the it we more and to past in opportunities were look acquisition. ultimately, to really with would So, our with does comes it that it at the certainly look relationship but consumer acquisition organic to accretive through growth

Andrew Carter

you’ve given jumped you wanted supply pretty to Chinese supplies disruption on mentioned lot kind of your out vaporizer a nice questions maybe chain, obviously then And start of you’ve Okay. to a COVID-XX obviously kind business your ask the – just on issues. question, second and of launched, that

you the an question and your accretive they to margin and give first profitability device overall can there, how business? and are idea your sales, of So, Thanks. of kind on these gross us

Mike Gorenstein

Yes, separate that into we I think could categories. there’s, two

then – cartridge, it. device think I battery and has oil the in actual the the cannabis the the meaning actual which

would So, not supposed given in at especially long-term, that the the that more that’s expect I the we that that products. over of do to that’s opportunity, if we take cartridges, pressure and We change really especially, put we accretive think business. batteries something a the into be the is think going we technology it vaporizer side that progress look able with our we margin. the to of But marketing to gross look flower way ginkgo being and drive at think continue

Jerry Barbato

Yes.

margins market pricing. the the the right bringing base manufacturing to CMOs outsource our type healthy have over dial to product in-house, we as it the in terms of to in While well time as and on get that continues improve can before sure format, we we product we fluctuate decided make really to today, it so margins

course plays that XXXX. how see out we’ll so over And the of

Operator

Sarugaser the are is the more line Rahul of This next questions from And there question from on line. Raymond James.

Rahul Sarugaser

evening, Mike questions. Good for taking Jerry. so and much thanks my

question the do get hold expect is is you on at product the all respect to the with to that now first when launching and started So, PEACE+ my brand stores of line thousand is really the first re-launch it?

Mike Gorenstein

I are that but decided there Sure. mean landscape. It pause we did to we the in reassess certainly took, steps and the process not. ultimately,

depend to now, product I return the when gives that on will new retail of do opportunity would of and the thinking and think in to a a I meet we’re be how us into consumer be and a putting something about is different when environment pretty would launched brand think given new supporting in taking but the to that think the landscape as that through when going location, we we a might social brand retail is retail, timing – as we we distancing start in one something world normalcy what needs. think to a it But have of something right start ultimately, things launching product COVID seeing difficult. far new is shelf kind on a is we’re

Rahul Sarugaser

cannabinoids commercial really of tech by helpful. is my of on Winnipeg question those second couple happen Thanks. have first the strains developed production anticipate facility? the when couple And Great. That’s over expect when to Ginkgo any visibility you do do then And transfer to you of the you first happen? to

Mike Gorenstein

Sure.

very can the year. announced we’ll being I be time the that on. we’re say able What deal we that is we of confident think to color gave what it’s as I that in on give timeline I next more can when still goes – September something

Operator

from online. And of America. questions from more there question next Chris Carey are This comes Bank

Chris Carey

Thanks, guys. good evening.

Mike Gorenstein

good evening.

Chris Carey

I’m Cronos The not in close Jones a transaction. picture, year certainly there’s certainly, never improves big U.S. it going from was tag, of for near-term. that there focus And where was It Altria a near So is just a but the a but more now of contribution we’re market a maybe, going seems it’s little like Lord that’s emphasis back over launch small little obviously, is to like be delayed bit medium-term. an maybe, price but repivot adult-use, CBD time, the the a a big to in I getting that over struggling yet. indefinitely. the not given sounds guess there, you potentially the to to Canada understand

long get And this all term of don’t so I’m on is that many year sooner. where or the been talking very understand this commercialized others maybe it to cash we’ve and where I through long-term starts of XXXX those comes if it work works focuses to guess there’s about, the kind while trying fruition swatches some comes story type balance or that another

of talk it me. to if you. near maybe, could helpful are things we medium-term, about where would going be just kind So the Thank for in

Jerry Barbato

Sure.

and Redwood in our So, I’ll to take the relation that first acquisition. part of

the growth and deliver significant very significant the U.S. to anticipate we our to the redwood we’re So, about Rob but for platform, new team talented opportunity across Lord excited value our Jones, strength and U.S. we Redwood cofounders that platform provides believe potential future the that more and selected of redwood to Cronos. U.S. the for We as importantly, assembled. have not Cindy, only

share our redwood shareholders won’t I returns that long-term. deliver Redwood that the resources we medium over team acquisition offices, the existing reasons, will front through the believe to for While significant plans competitive combination of to and the of

Mike Gorenstein

insights to do But see unless And what have a winning feel certainly a research what’s do that and the to that things that but other in at we lead medium being I’ll ultimately, market we long-term, is yes, are that consumer long-term we far products product inform product. Ultimately, ways to value. generate able that rush we to in technology want view we to look product breakthrough our research. Jerry. has to time, from consumer doing a going differentiation there ultimately that changed as winning, lead value Thanks as is to to And development. long-term similar don’t categories. that take takes part. we going us I don’t find what’s think and we

that. first certainly, once And financial of we number and we that a can think follow that’s we are consumer and is there think we ready So, meet the I will the step. product have that initiatives results expectations think

Chris Carey

is develop the I and I can think can type previously was case the bigger the of here. rollout confirm on the projections wonder and U.S. perhaps, branded from now the as to I’ve collapsed on switched it how Canada and envision bigger, to your just it’s some before, now Mike, and subordinated gets more of thing, business own obviously seems seen your Canadian wholesale I the strategy products that’s the you but sell that U.S. a if where and side. rest again, insight it, under or likely things going be revenue it’s offer you of XXXX the you asked between maybe, quicker, less material you And deploy in in to it’s me really this vape commercialized would this has how Okay. world, pricing of where guess but flower bickering, breakdown raw where

split like course So, of for cadence Thanks what XXXX. geographic like looks the is also maybe, help going that. understand look over the to how and the

Mike Gorenstein

Sure. Yes.

able think, I think be as to rest the shifts still of overall outpacing seeing that take products types expectations the the of the able seen think of I from it them stores the my put online, as sales think CBD being rest to But of the opportunity, we’re shelf. will is October, brick-and-mortar in in world. different of be cadence we’re ultimately, world. while on is the current and environment to time I environment of to going outpace long on but we’ve depend we key access U.S. and market, previous size still to to over So, to really be what better, the the some going given brick-and-mortar difficult can being

not think of across to the we those a think what’s difficult across we bringing the given it’s given able predict, growth that projects able of some COVID Canada, As that competitive of from way a that bring the be it impact but market is could really and because But new little timing the our to we and position of to have with would COVID. changed. way be products based But think ourselves, I to challenges existing there’s specific as continue the is happening think be. be, more likely going growth to timing we that the aggressive invest is opportunities I set in would all we’re for what lot into where structure and A crisis, off when strength just things a few – forward sectors COVID whenever opportunities. bit to be emerge behind far sector, should

Operator

more the from question This of line. and Azer questions next Vivien from have there Cowen. are line is on the comes

Vivien Azer

you. Good Thank evening. Hi.

just in a now. many seen a in the I This place bit on months dig obviously, is write-down. we’ve that phenomenon inventory for broader to little wanted the in So, landscape more

standpoint, introductions XQ so priced how at thinking And kind like price giving that in to least was me guys market, in compression value of about of that’s it a the are from I retail hoping certainly hit you announcements to just a get clear to the really because calendar understanding seems of marketplace. the the only timing the marketplace, the starting of

deflation can So, inventory forward Thank rate be took write-down, underpins the helpful. informs on like the a the of color when deflation is price you. would inventory you offer price what of backwards and kind you write-down the look, a look that any

Jerry Barbato

Sure.

the resins. value So, what both fallen pressure you And the ensure balance trend the and not uncertain. cost I dry we’re net comfortable disclosing balances as notably a or by value. inventory of as with number as we’re U.S. future that quarterly and is was of most pointed and prices in as of our out on bit producing in lower we write-down seeing of the driven Therefore, of cost to marketplace below currently oil cannabis, accurate the a of GAAP write-downs it inventory we’re reflects and line inventory. year standards, in that market dry the that the downward Most valuation end review prices flower the realizable a is well lower reflects think of have on the the the our these sheet

Vivien Azer

helpful. That’s Okay.

if was calendar further to which kind deflation fair price wraps of summarize it in So, just there result would potentially view the more XX, marketplace December as that inventory in of then write-down? tomorrow then, that been in to if that could be XQ, your of the assume marketplace has

Jerry Barbato

Correct.

Vivien Azer

it seems then it CAGNY months Altria at the And from ago you. was with just that follow-up like; me, quick was Thank I Okay. a team.

Willard plus In Mike, the to during CBD further of that U.S., to fact, I one to the the Howard that PEACE+ distribution. I Altria’s in that was appetite was recognize, ago questions only the posed breakout weeks is you of offering wasn’t COVID-XX, really about know to unfortunate sounds wouldn’t do given course, very weeks four that reality big it to that scale that sound ago. want today large what rollout five a consideration, we now, the four a

if you. I follow-up. Thank discussions distribution. with you the Altria any offer That’s So, whether expanding am there been my could about curious had

Mike Gorenstein

the active Sure. remain we’re Yes. and to We partnership. both very an discussion committed

launching find all for thinking lot changes, product from to a ultimately, and environment that making that and long-term just making distribution. of sure taking the and format how can what as comes we we’re think is sure the product discussions all the the and right that our by before a I expanding current given the and ultimately, stakeholders of responsible view the formats proceeds

Operator

next And question line Genuity. comes from our of from the Canaccord Matt Bottomley

Matt Bottomley

Thanks evening. taking Good for questions. Yes. the

with dig go the or lagging a of so. we just viewpoint next quarters your in a has with lot should follow are to could wanted Canadian guys and one versus sort a where of appreciate is Cronos, of step up deeper quarter, judge questions the ago investors having sector sheet of shorter-term capital again, a maybe, allocation Just a But in four how to longer-term a But sort little view. for strategy I sort back you troubling in on two Mike, the from if view a certainly uncertainty. balance times increased X level macro revenue a these in companies Canadian of defensible million of of couple that of on certainly, more in going the Cronos of And respect to obviously, your bit taking the peers, sector.

all that you U.S. very is line things that’s the with the in everything obviously going happening market, Israel, on and top Given the the the Hampton, between Canadian still the fact have Ginkgo modest.

performance that we be allocate than of definitive in assess things next continued there, near-term capital the can expecting initiatives, unknowns this risks in to although be to long? at can and the Cronos for more more trend longer-term we be as anything towards should there you couple look a So, or there’s quarters that the is

Jerry Barbato

growth the active And level the as very give a don’t reinvestment our appropriate as Holdings, on far would We Redwood continue venture. in our opportunities. our the we fermentation. launched we well that acquired and we’ve revenue products been that March. to relatively last guidance I determine projections short period vaporizers, out Altria time in facility external a acquired considering as We’ve as of to believe we forward-looking have capital credit say for allocation derivative We’ve Yes. business GrowCo allocation; Cronos closed monitor deploying in investment we and our capital including for joint capital

So, success capital. continue business opportunities future and to deploy the evaluate to focused the that on remain external for we growth we’ll scaling

Mike Gorenstein

And thanks Jerry.

think, have a opportunities also we products been is opportunities. things certainly one is in the in as we put what leaning organic continue and category of really we I growth we balance And been that between into market. evaluating vaporizers to other get in of external growth more out can Canada information some received the on sort and data how have from learn formats believe

better product will about leveraging we them. that getting and years IP at talking of I We’re that development before. I and we’re formats other our Redwood got see have in look other and things from lean we some don’t we view start we’re think the months, into we out the accretive. But we’ll do things that think, but were making sure long-term even the next we are I to opportunity or a have past, in doing take than ultimately, we’re they still few that grow revenue over that really that

at industry shifted isn’t started think So, to specific cost us most different But for for long-term of that participants that capital we change move opportunity that opportunity any we picture something value. the will where pricing given feel that on. the near generates because looking to the and of cost pass of that’s and again, revenue assets, medium-term. has to the entering to over It’s something

Matt Bottomley

prior relevant COVE we Got it. very I’ve this or has it’s each much I’ve noticed everyone’s or anything launched the at zero your skew. obviously, every knows to websites, those whether reviewing number been obviously cannabis that of Spinach base the X.X seem more penetration a of And an quarter those and from starting in the follow lunch. of I’ve websites websites a no noticed cannabis just goes something But Thanks. up, one Cronos compared depth there prevalent the noticed into provincial have others. it’s on what but dry for by that products anecdotal, X.X, provincial quick on and supply cannabis behind a us just to websites how overall is lot since read in just quarter, there’s for X.X in into products of next branded been but saw on the uptick a it’s bud number do before more the is a Cronos really

Mike Gorenstein

Sure.

at the I that our I different lot that derivative we think sure what make on in products just you’re We there we which that distribution focus the seeing to in that been really has looking can think want is we’ve products our entered. a support provinces. provinces, and even

just product the supply one we right make sure we’ve that is making to sure and product the one service able have distribution market X.X format we’re something picked and that prioritize we having that in vaporizers amount expanded we and of a reasons the And for properly. mix of so necessary is to

this So now that we I think more stores more priority again, making on looking us, for a are all markets more we at product – with there’s retail organic up the placing year, sure formats. growth opening that and these opportunities think, with

Operator

last have line. from question comes of last question on line one Sandler. Michael the Lavery We do from Piper This the

Michael Lavery

evening. Good you. Thank

Mike Gorenstein

Good evening.

Michael Lavery

model on significant even the some Jones vaporizer bigger Alberta very from But a some adjustment then Obviously, in three then the initial quarter, with decline us on provinces. like Lord to touched then try as sales we obviously being or sounds bigger what maybe, and including sales as one a You in really in drove ahead. a and help launch with well. new – us the and early it has much still positives maybe, understand just changed and on after you the developed can look postmortem XQ, what help that, hasn’t pretty –

Mike Gorenstein

Yes.

restatement had in as not QX terms we So, of versus forward-looking giving and growth revenue. I said and QX guidance some we’re in after before, the

especially play, think at stores. there’s able better could with think open and to the are fair as will able remains, more of changes while at I a beginning done, people how they brick-and-mortar. to I guess and to These up, be going intended things they’ve and environment we’ll a many especially open to questions say still satisfy And stores job get market. lot I be COVID-XX their actually in sense to get a number Ontario, you to see the

Michael Lavery

sure restatement what then I’m numbers not confusing just And maybe, just in was dollars, the U.S. – number? make your revenue the XQ with

Mike Gorenstein

write-down took change in U.S. in QX. dollars or a million we Well, $X.X a

$X.X total million. the change revenue net in the be So, was would or

Michael Lavery

Because okay. –

a I of I guess still share combination from. maybe, it to most both? just So, the of want understand Is pressure? is where pressure or pricing Is

Mike Gorenstein

expectations. sort there’s our things how as in as landed I QX of far things think like versus few a

launch focus vaporizers. the I’ll a example a X.X province. Alberta leaning I an in very that give being and the we had of think certainly on developed given just the you

has Something it growth different that but product were Certainly, were we the seeing then a for there’s be congestion a that was the was peak up things of more how that but and we us. big or temporarily flower, something timing different different to we probably begin vaporizers a is changed, level been pinpoint not the a we clear types – launch, of of do certainly but – changed, of provinces expected format to clear congestion certainly Do And just accepting we timing difficult will with that driver expect product we’ve a that lot from accepted X.X trends less certain it’s exact been and where that we’ve openings expect would that competition? to experiencing store although up, those. for to follow naturally expect formats.

Operator

else And at no this there’s time, one queue. in

Jerry Barbato

talk and If no and healthy everyone there questions, safe, hope stays more soon. are

Cronos (CRON) 31 Mar 202019 Q4 Earnings call transcript