CRON - Earnings call transcript Q1 2020

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Operator

Good morning. My name is Natalia, and I will be your conference operator today. I would like to welcome everyone to the Cronos Group's First Quarter 2020 Earnings Conference Call. Today's call is being recorded.

At this time, I would like to turn the call over to Shayne Laidlaw, Investor Relations. sir. ahead go Please

Shayne Laidlaw

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

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

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

of website business may measures performance, Principles non-GAAP that are planning, these allocating discussed conducting call release as to the also evaluating by are and U.S. Accounting to respective These believe we issuers. available measures are our thecronosgroup.com. note, financial not be measures Exchange Accepted comparable non-GAAP by Reconciliations like earnings which today furnished our referred including to locations. management used In non-GAAP non-GAAP our room measures their press reported addition GAAP our the certain financial in is included We resources. section may this during under Generally Securities forecasting, these measures measures. remote to call, be in assist of that closest not to measures in Commission recognized and the other SEC, from press I'd

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

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

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

Mike Gorenstein

you, Thank morning good Shayne, and everyone.

is this how markets As world, by around global to we adapting call pandemic we staying to and that would this COVID-XX time. like is affect and a everyone during us the the company this as COVID-XX time. continues start hope affected safe and people are We how addressing well during

our the ensuring Our supply chain. top safety as our that priority continues as to employees of we and secure consumers, and be our health well

by we task cross-functional led call, assembled on As a global force we mentioned internal most have our recent me.

order daily consumers. We continuity been in and its business monitoring implemented exceed have evolves. has situation as employee modifications of meet needs and to plans support develop products while the continuing implement the base, company that reliable high-quality produce to situation the The to

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

maintaining manufacturing our protocols. our In schedules between are sites, including which modified and have deemed We practices no-travel strict until and further social-distancing policy, certain essential. we have hygiene for sanitation and our notice we a work-from-home are policies enhanced employees facilities, maintained

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

Collingwood Natural and replacements face hospitals. Campus from the We our have mounts donated and surplus to shield NXX masks, head Area shield Berry Peace goggles, face

York, Miami, skincare working in Houston. Additionally, hospitals distributed and nurses Orleans to has Lord New products the Jones in doctors and team New

fortunate of contribute to feel patients. efforts our support we take to to in them communities care care health are their company, workers to back COVID-XX and honored and a give frontline to As

will opening our to employees chain. We monitor different continue as impact situation the of how closely supply business, consumers, the will and regions our the COVID-XX well as rapidly evolving

the As you be for disruptive shareholder company's focus on need environment property long-term know, developing building are my brands. long-term intellectual especially by in I today's encourage future. the focus we value planning and creating and and iconic to thinking,

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

way We to the farmers by with believe in support working global capacity create suppliers needs value best supply contract chain our to that and the markets. is to

venture XXXX, of manufacturing quarter milestones. operational joint America, Group's Natuera contract first Latin the During in Cronos achieved significant

As multi-generational expertise a AGI, with export agricultural XX-XX scale Natuera company joint from is a between in and venture Colombia. a for Group reminder, industrial operations managing Cronos

construction with preferential to of Colombian completed its extraction facility to gaining cultivars standards. registered the Natuera GMP Institute. also four state-of-the-art designed access Natuera Agricultural

of April. coming With also has facility by distillate, completed One planted available streamlining export R&D and Control export. at extraction first harvest of strains was CBD and the first its granted online, hemp its end in process substance and Narcotics test non-controlled to is department developed United the efficient March. a in the for its processing commercially mid-February Natuera's Columbia's which early ruling States Board, successfully NatuEra hemp-derived

bulk to globally. building with venture supply Group Cronos low-cost other America and product very hemp-derived a world-class offerings geographies small business being and positions partners solutions. markets chain focused like on including shipment, and and with develop hemp-derived new CBD and developing water-soluble pleased accessing approach of this Despite markets a CBD this trade distillate channels in is scalable to our JV believe NatuEra additional test The expansion, new we're Latin like joint

Israeli market. NATURALS medical and products build cannabis Group will brand Cronos Cronos this branded to rapidly its latest April distribution market. to to turn its dried now distribution for completed in to the sell Israel in in discuss flower this Israel. quarter begin PEACE Let's Cronos XXXX, in medical growing network bulk developments Israel, presence Subsequent export order first of our in to

JV become a we Gan growth presence, to back our brand that online. the onward. Kibbutz of our Shmuel will with operation And encouraged our partners the Israel are building XXXX driver worked Cronos for half we this bring business in and at facility have with Concurrently

We products, regulatory and dried to pre-rolls have received we awaiting sell are expected are which oil produce, manufacture approvals receive and XXXX. for flower cannabis approvals the necessary and to throughout

for in optimize become to excited and products this we're regulated the and I cannabis several color a Israel taken access this expected second thriving has market market. are the to of sometime why the on patient want year. quarter process to we medical steps bit patients, are provide expedite join bringing and PEACE forward of which NATURALS' to Israel to to medical available looking branded

to The in Health information is and rapidly, includes in and Israeli booklet the which and an the rate medical published for excellent our among business Israel cannabis usage in the methodology count of cannabis. medical for is the assist expected patient this Israel This which represents treatment a guide, XXXX, grow with opportunity to in highest grow cannabis. market. world Ministry medical doctors intended to a prescribe meant customizing guide to cannabis In in has

for methodology, patients conditions. prescriptions provide been systems personal through medical medical treatment Israeli using and treat patients' currently And possession of cannabis medical doctors licenses trained and clinical The the program, prescriptions this to Many certified cannabis the pharmacies. cannabis. patients fill enables to use Canadian and medical which and have cannabis of them agency unlike healthcare a issue permits Israeli directly grants medical to variety in

Israel exciting collaborative makes medical a The Israel's an developing sophisticated testing a entered cannabis intends with stringent existing coupled Israel. on-site commercial Group. framework controls, technologies. Cronos cannabis cannabis to analytical for market and due less agreement border opportunity scientific laboratory property, at Israel, Cronos a lucrative Cannasoul a and into develop Cronos legal in for established April, research Under dedicated company, medical with Analytics, black intellectual In to products agreement, Cannasoul our potentially to

market gap analytical accurate Dedi Cannasoul in labs for anticipated Technion-Israel and address by testing, export for from the researcher Israel the Meiri intends third-party operational, markets. laboratory to sales both Cronos and is the cannabis established led current end-to-end analytical and Professor commercial for are in-house international Technology. Professor testing Once the need the domestic capabilities cannabis to of and certain Israeli conduct to operate clients. Institute Meiri

to with expertise Meiri to Dr. Israeli and again bring partner this market. to are the delighted We

we remain cutting-edge in is investing about our technologies closer cannabinoid to to breakthrough creating scale, work commitment fermentation. our Another and intellectual Every excited using initiative Bioworks day property of our innovation. cultured with one at in step Ginkgo cannabinoids vision move we

patent filed have which the this of order to already applications, fermentation to-date Gingko work we the intellectual cannabinoids, partnership. property through to protect pertain developed has in

with applications target Gingko. covered for global are licensee perpetual cannabinoids of in As our outlined agreement we the previously noted, by exclusive eight the patent the intellectual property, the

and in which in In cannabinoid license of commercialization. Cronos strains receiving Ginkgo procedures, will and of advance scale final labs. of Health processing cannabinoids to fermented Fermentation our license, R&D initial cannabinoid producing processing CBGA, strains Fermentation Cronos our the using these end, one of from first and quarter Canada up received quarter for continue Fermentation Cronos the Subsequent target Bioworks. R&D XXXX, successfully both commercial Winnipeg from received optimize using to the downstream an the are trains strains required

work and the of This has variety business in our ability the ways. groundbreaking to industry a transform disrupt

we roll be competitive, products. allow First, as to will it us more cost out derivative

will become derivative to shifts critical products, in compete our effectively lowering demand ingredients the peers cost consumer to As illicit active flower the of from market. against

is same will consumer interacts Second, consumers, that good it each trusted the order packaged cannabis companies, experience critical products. resonate Like time fermented in other more products. we the our that deliver brands consumer cannabinoids develop with deliver consistent with to

to the the We us consistent precision and products. with cannabinoid provide fermentation platform deliver expect blends to manufacturing

differentiated margin products rare growth and in will cannabinoids to plan consumers market run, in products categories. new we enable third, us product our become leverage durability long categories. distinguish differentiated to cannabinoids products will leader the the And where In share drive existing a to and of provide to

market. as cannabinoids rare will the the allow leveraging product ingredient expand to categories in addressable Additionally, primary us new

confident successfully at line to previously will cannabinoid heights. cannabinoids under innovation but XXXX. day supply to commercially at potential R&D of Having our not reach accomplished brand also one our facility, ferment new milestone September an of our cannabinoids our these help chain, cultured anticipate We be the formenting time ability a our continue disclosed we scale of be in integral part only

market This innovative to to quarter, products our continue portfolio. bring brand further establish we and new

while to approach and high-quality category. products to consumers Our goal is how the within cannabinoid the consistent deliver market shop expanding

new CBD Jones and rebalance The brand, the brand innovative quarter, launching mantle hemp-derived facial appearance maintain continues the this CBD U.S. soothing This to Repair acid Moisturizer and consumers skin's help authenticity moisturizer the products. of launched market. luxury to to the skin. its promise skincare Lord deliver is stress Early formulated Lord our Jones Mantle of to Acid on while

the Towards to as luxury Lord end online retailers sales online the partner have closed brick-and-mortar the due through orders. of well as COVID-XX shift saw to Jones to a as quarter, direct sites consumer first distancing social channel subsequent and its most

the Jones products. As CBD hemp-derived Lord an existing online-first place has infrastructure online business, demand for in to the meet

to changing trials readiness have adapt long-term, lingering like skin always the before near behavior it believe could buy. shifted category consumer consumers care to category our to the product they easily. as beauty try Despite retail impacts typically to and not does both and landscape, purchasing the in and We regard in

launched X.X market our in the quarter. Peace Naturals new brand Canadian medicinal devices first the cannabis In vaporizer direct-to-consumer

vaporizer holds has top true Our quality quality as Peace always devices. priority kept Naturals new to a this and with our brand commitment

aromatic devices terpene uses using to has profiles and all-natural cannabis rich levels consumers each aim for flavors. The product for a a These terpene extract cannabinoid premium extraction consistent deliver blend, and extracts made experience. a COX processes and concentration precise with which unique are premium

are feedback Naturals batteries rigorously sale received and products Peace we before to and Our on the cartridges tested date. positive

is everything proud at to of do. we our of approach are uncompromising which quality heart We the

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

during private retailers the supply adult-use market. working Canadian meet with we QX, time. demand provinces distribution to this to in and market, to continue In Turning the

either various As global in to are industries has closed they in and chains, supply forced or as are demand markets changes begun COVID-XX stores and see how operate. been a in through cannabis have to have going various impacted contraction we provinces

fulfillment. consumers. cannabis measures reduced retailers additional operations, in posed similarly designated to have reduction have at on-site time staff challenges slots delivery limiting purchase and essential implemented Collect order purchasers & additional online measures cannabis Several been implemented Canada, while of health including and Click certain and and to permit in products which delivery provincial new created safety a business In logistical has were

access which in of measures and outside also to channel. consumers demand uncertainty change will restrictions, in faced sales addition These could continue the the The is quarantine consumer products online velocity. to forecasting to travel disruptions creates readily slowdown which evolve by impact retailers restrictions ability in our and of and

beauty As mentioned, their boutiques. closed sales continued, in and have online the luxury temporary brick-and-mortar most U.S. while stores retailers and

However, Jones sales to this during modifications in adapted and demand online has make this Lord has will the and meet continue time environment. made to

our our modify Through these from challenges, networks and we and to consumers impacting with with level We products that to committed but is from they quality market brands come to of we are continue consistency this disruption to the our understand have us. unprecedented our products everyone, to monitor during bring distribution expect stability that this time. and providing

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

Jerry Barbato

Thanks, morning, Mike, and everyone. good

primarily company financial from our Revenue revenue a was prior million, by year. market the of quarter The financial Canadian acquired CBD driven U.S. was business the products reported to period. XXXX in of of in year consolidated results our of hemp-derived increased of the distribution inclusion net XXX% September and results. Redwood in Turning last growth the $X.X cannabis first that increase of year-over-year

in Peace of cannabis cannabis and the the as inventory profit an the extracts after quarter was of the decline marginal $X an from an was dynamics dry costs XXXX that market by prior million Rest the gross capacity World at operating continue full observed repurposing negative XXXX. $X driven unfavorable million, working as Canadian for quarter increase in primarily segment, led at to well of the within pricing $X.X write-down million the of the quarter XXXX. of the Campus versus first decrease as production on Naturals in fourth The year Consolidated facility we first towards

of we been If in profit the the exclude have quarter were million, gross gross write-down a XX%. representing first million, of $X.X inventory to of margin $X would XXXX

noted anticipate the we As pricing quarter short-term to to inventory we due XXXX marketplace. earnings, in in write-downs our in the fourth pressures continue

due decline costs XXXX. Reported the including million was Development a marketing R&D result was representing partnership brands, expenses increased new Gingko the associated a first $XX.X spending $XX.X operating headcount, quarter from XXXX innovation million, a of to with as of of to Labs existing first loss factors, costs general negative Cronos for due loss the development at The the administrative combination of to quarter and on Center. and our of sales related and Device expenses mainly the and Research and

review costs to G&A XXXX of related in our $X.X internal million, was statements. financial restatement of included which Additionally the

million. first loss the for was which excludes one-time consolidated operating Our the adjusted review $XX.X negative of quarter costs internal XXXX,

by driven the of distribution both increase increased Turning vaporizers a year-over-year of Revenue World of to XXX% Canadian our quarter including The million, the reporting Rest revenue segment launch products primarily in growth the market and prior adult-use cannabis net segments. categories. the direct-to-consumer was period. reported in cannabis year up from in $X.X first the XXXX, of

$X for million quarter World the a If representing on $X.X $X.X was dry of inventory profit margin. the Peace from were million, exclude, driven gross decrease XXXX. The primarily the to profit million as was inventory would write-down down, a well decline cannabis negative increased Rest at point. been and first we as X% production first Campus, in cannabis Gross marginal costs an gross by million, write have the the the segment of $X.X year-over-year Naturals quarter

segment. gross of want moment the take World the a to I Rest in address margin to

pressure. from in also chain up through realize to as vault As Campus we have R&D We and repurposed due the continue is our of of the Rest producers and will facilities warehousing activities, World being that model that are supply we underway to cultivation This of is manufacturing the Naturals previously provide for the to from experience pressures partially to increased teams continuing continue been Separately derivative ramp operational global our repurposed third-party purchases these and that current to are cannabis space streamline an as create Canadian fully asset-light we chain. efficient will progress Peace of to make third-party order areas. and manufacturing purchasing XXXX facilities our anticipate work still benefits well as our work ease anticipate margins to biomass fluctuate for additional our products, in at as certain segment, beyond certain, gross supply manufacturing to discussed underutilization capacity. and these

Turning legalization. cannabis onset trends that to the launch and contract we asset-light our responsive the X.X manufacturing our be to speed-to-market to also Canadian made increase to we while contract with with our of aligning at manufacturers to more marketplace strategic believe us decision allows utilize vaporizers model. in Further, the flexible Cannabis

continue to we streamline work continued throughout anticipate and manufacturers to gross XXXX. improvements margins inventory contract to base the We our with of reduce costs movement and

driven Reported existing negative World general R&D costs for and expenses sales loss administrative Rest pursuit building $XX.X by of decline and primarily marketing quarter expenses developing higher result The quarter strategy. related representing $XX.X segment of and our increased first of first the as million XXXX was in million, increased was the of operating loss in a higher headcount, brands, to and the of a XXXX. from

Our work cannabinoid our configure day teams in chain. Canada each to supply diligently enhanced properly and

an strategy simultaneously from creating differs industry that peers. a industry executing are We while our

believe value in for creation. and our to long-term strategy continue merits We its

was of $X.X net million. a revenue XX%. was the representing gross for Gross to margin the in US segment. U.S. Turning profit million, segment quarter Reported of $X.X first the XXXX

an $X.X relation CBD hemp-derived new first of marketing the year, primarily the and the sales from quarter driven described more of and introduction XX-Q. several is increased incurred due financial reported The for the in in U.S. to the in prior to in Cronos to loss brand initiatives. decrease increase products a segment with derivative XXXX under income in negative headcount was Lord Jones the primarily by Altria's Overall, of which a change costs operating in loss value investment net support Reported Group million. the growth detail the liability in U.S. associated was fair

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

to to approximately company with of the and Turning since the in and the of the of dollar the against million $XXX sheet. the U.S. volatility XXXX. dollar decline decline The at The XX the quarter December balance cash $X.XX year investments, ended short-term of The XXXX. billion $X.X impact Canadian in significantly rates. at fourth from XX March the was from exchange $X.XX to due representing strengthened majority quarter beginning

to Campus, short-term forward. This that strategic Naturals a the device meaningful the on Fermentation, remain ways spending in Cronos our Capital deploying generally in innovation this million. and focused includes term, expenditures Peace align going and our We were not only is with investments Device quarter currency fluctuations In our our we and in in in at to disciplined business Israeli manner for Labs. $X.X long Cronos priorities. facility have the and technology can capital expect

are as in a company instituting remediation an you last weaknesses relation best to practices material quarter. on we that committed financial We, provide efforts our the to like would I Lastly, for to update reporting. disclosed

over are the which with XXXX. course phase diligently to we the of in oversight Audit working plan, from has Committee management, a initiated Our

of last now detail weaknesses each material some I take quarter. through we our you additional disclosed for plan the of three will remediation

of controlled on a a risk we to review will our risk basis. making First, risk establishing risk and also enhancements the quarterly matrices, the assessment while committee that review considerable model are quarterly assessment

define entities the We're review Secondly, and that identify implementing memo we sales and of non-routine process that of lastly, also number delegation customers the a And non-routine an completion require policies limit or that of can with process and CFO are groups inventory. establishing vendors enhancing creating our in of company. to approval. CEO database authority accounting are authorize will purchases are transactions internal to the a prior the policy and both transactions and will we clearly of

required non-routine Business to objectives quarterly operators company. of These cases alignment will and all cases business-to-business reviewed formal the business for unbranded purchases. provide the ensure to will with be business sales be

also accounted will members to certification be additional are that expanding process for. We to ensure the of transactions non-routine and sub management identified correctly

As rigorously will they to these internally auditor correctly. ensure working our tested controls, independent they and are by we implement be

We in expect In plan are a stronger plans of and near-term in in we we company our invest space. cannabis remediation to long-term closing, the leadership implementing optimistic about we strategic undertaking. believe confident to initiatives a that will result we continue be are to this achieve as the and remain our

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

Mike Gorenstein

energized value. Crono Jerry. our strategic and required challenges long-term a we started sustainable and XXXX to and the drive remain less homes. you, Thank against pandemic, by uncertainty leave our COVID-XX as growth to business and determined initiatives posed execute focused and to Despite off continue agile to the

brand portfolio Canada. distribution online-first we continues to model and to adapt Our to the products consumers, U.S. both an innovative in as launch

XXXX mission very through well provide with to creative for stakeholders be of our remain for confident to marketing. and to improve positioned able and lives and our We fortunate year believe a company consumers products these feel successful We times. continue and cannabinoid our will the we committed shareholders We value are long-term to be through well resonates building to especially digital during consumers sustainable reach Cronos. innovation, generating

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

Operator

first The is Stifel. from [Operator Carter the Instructions] of line with Andrew question

Andrew Carter

There's existing kind shipments or in what Lord essentially flat it's quarter third platform. came Obviously to from last from was the it the some kind brand and there's kind Hey, evidence Jones as or some the sequentially of in launches down closing. offer of kind in I quarter. parts. to offer are of – that in of what down of is moving off your are back in of customers It focus thanks. kind morning. U.S. Good channel, the on can just what well, lot kind from want that a and of new can Thanks. growing? of anything you direct-to-consumer growth the that and of resonating to terms product you stores But some

Jerry Barbato

Thank you, Andrew.

of decline business, disappointing but the confident a we awareness in has it limited existing the our U.S. Although, Mike products, business mentioned second in half new see feel and launch Acid such trajectory the to of the brand Jones additional remarks, CBD Mantle that to the the prepared bit consumer Lord not in coming plans as pipe Moisturizing Cream correct the was in an and the including building to XXXX. down

sharing The of a to us look big pipeline opportunity we the and U.S. for time. and over we have with forward in consumers is CBD what our market more

I talk The to want is the impact. other about thing COVID-XX

are that online a DXC has partners, to big some a right many shifted of don't of a And we that have now. While while some those lot do platform. we business, closed online are have retail platforms, these have over boutiques and of an XXX lot

there be pressure, what definitely and QX QX in looks and see in we'll some forward pressure So could QX.

Andrew Carter

also year? decline kind delayed your about about kind thinking you are mean And a the your just business. about positioning restriction year? we six it indicating impacts, you're months Is channels, If to the are about short-term maybe or some business outlook Canada, over key from how closures how kind next sales channel once thinking should for about is of quick lifted, you recovery but you development Thanks. obviously the very then and think just some of I rollout, I'm it term. a and pressure near this Thanks. for the Canada some the opportunity understanding positioning to for retail think do – of talk the kind of other lingering

Jerry Barbato

Sure.

anything given our out Part a choppy. look approaches, distribution COVID. be changes And to difficult sudden I and next brush six all is will have seen term we how with the pretty things I changes to to will of months like. long province seen of we've in things paint it's different a and market will year So think responding just view the of that what think broad haven't roll to Canada the the

think and in about when I changes we can occasions And to we the mind consumers mix sizes. just that think they're going pack more some that So at keeping in product be see for home. purchasing,

formats something so that is a think I flower. will shift less of more towards be maybe priority a of convenience So

we're be still think the in while it's growth less continue some-stores see I expecting but what conservative actually just maybe year. think growth. I to And we store going forecasting in – some and were Ontario declines this seen We've of would

that have things running to I think growth strategy think to that back we I start as the opening likely it's not right the up. and we'll But be think I be it's ready the it model able there. just may ground we're flexibility hit and confident be be would soon as the given expected – asset-light that the is still

Operator

Your Piper is next Michael question with of from Sandler. Lavery line the

Michael Lavery

Good morning. Thank you.

Jerry Barbato

Good morning.

Michael Lavery

you of it? differentiate about teaser how talk things of want how understand And any bit would CBG CPGA? with and that the Can mentioned look be little can give maybe positioned might the some different other that what differentiated products or you more a consumer cannabinoids? just maybe And on us you how specifically, you from to partly are to to educate

Mike Gorenstein

will purchasing think more needed making I think specific claims. CBD. CBG It's research similar great before CBD still certainly habits consumer that's have any question. We there's Thanks. a Like to Sure.

reasons CBG. of that consumers for be find a CBD. purchasing we'll We'll the need might maybe specific we'll what a think lot I find better get that is from experience a from

also I be of of consumers' needs. CBD But element some think fulfilling I addressable what today there the better will market. some a to So opportunity there's expand is think still

on kind So not from whereas side. the be would to of formats just similar be the the of other you generally that's being could anything – intoxicating think cannabinoid THC

So we've small strong being some U.S. seen CBG quantities then actually in available and in the demand

a that higher have real before pricing able being it have think more just the ways a to But there's mix seen dynamics but price And being and we in part think predict CPG two I using is need of other given unique to at to we we cannabinoid, One lead supply with scarcity cannabinoids. a it being as is including highlighting product differentiator. to category as market. CBG and other bring point. the

Michael Lavery

was quick some similar less? And you it sense you helpful. of Can order risk? more of of can of in or write-down for what any to give -- you come. it magnitude inventory follow-up, foresee a still that what us That's Is mentioned a Is you give Okay. the this sense to just quarter?

Jerry Barbato

forward-looking don't We give guidance. Yeah.

depends happens so lot in the And with what a fair marketplace on value. of Canadian it

Operator

Our of Vivien Cowen. the is from next Azer question with line

Vivien Azer

you. Good Thank morning. Hi.

Just a deep competitors or Thanks. of discount introduced on the value-priced landscape, of pricing Canada, given seeing the a activity? What landscape are rates. competitive terms follow-up that off overall you have impact or lot in your in discount

Mike Gorenstein

Sure.

think, something, I price And certainly categories. price and elasticity, flower category. have compression. the we to in in it's continue We always we're do seeing. certain seeing that expected we're We'll see

really value we're be of types a be very with doing continue able and the We have that to be in to price competitive. us a platform think that And fermentation perspective, will well doing lot lead from to those and been generating of segments. innovation from work to position able

think things changes. that there the really driving are I But are two

value. certainly is, one think I

consumers we at have You able the home less sizes. pack when now. into of amount to right But also the you're have are out cost larger fact that spread that, product

a of or in the in prices. of to see shift larger shift -- think you sizes, pack regardless drastic shift sorry would I relevant

tend trend drastic we catching -- we're on. we it's two those other at that changes think to soon. going we don't are And for think So that certainly see anytime When flower, look any U.S. things to the markets and there the a quite price see high in come time. demand low see supply you starts price is, is out to markets, what high. the When down legalized you'll over that

And then operators up at you'll moving certain and price start you'll see coming as a point, the start towards exiting. equilibrium, have back

in up think markets how of reasons that's GrowCo similar thinking I of sort produce ability that with And One we're thrive Canada. Mucci trends. we Group of the flower for there their in the are is Cronos market-shaping partnered other where to

Vivien Azer

follow-up orders that, CPG makes the seeing are other stay But at a place? what home, and the from longest certainly are the at demand to there a you current about, place is of in evolution categories. sense consistent just consumer is That's levels you home shift stay assuming consumption, really we're that pack be mentioned helpful. planning Thank larger thinking you. Mike, in will standpoint, with that demand the sizes And with the of at you How elevated Thanks. backdrop? given in

Mike Gorenstein

to how legal that that. certainly to We enough much us that that would as, predict, listed could And will think, mix the are for possibility. the about. think we a key a factors difficult the is I see have versus purchasing consumption come think product There data and And I substantiate a thing as are such while of from market. also, don't Sure.

flower at where the sustained we're And And just when puck think we do And tax think we're where of long-term. offerings. for. I'll would change say the long where shift large given the is forward to don't kind looking we planning is. since where puck that the size and not is a see in we factor of I value pack time how going in demand towards change going -- sizes know We Canada, that last

an do element of we're around, that very back the that. that understand emphasis. has a of convenience formats pens benefits does from quite excited where I again But edibles, usage, of there convenience some pre-rolls to vape some think, matter think bit lots I going We is and

quality there's planning that be a just So overall our near-term much shift likely product to mix demand an is shift. than more

Operator

next Your with Zamparo John CIBC. from the line is of question

John Zamparo

I to morning. the question on wanted about Good follow-up other CBGA. Yes.

development. it's think interesting an I

let's about achieve you talk faster And even you that you strategy? or biosynthesis milestones referenced Mike than can more say broadly the your expect. So you

you get can Are regulatory steps I work with us approvals, provide soon or there help monetize additional as now if that be and you more anything research? this to products Canacol, frame you strategy guess? need with as you And helpful. or can need them? Just that launch Do would commercialize you requires Technion

Mike Gorenstein

Sure. John. Thanks

could few So think there's a you I about think ways it.

products you to even CBG limited how been CBD the or on see think if THC about data first The are or some used. we've able

today even of launching the fermentation. that we'll out be or we that market have product regardless products For in

cannabinoids. completely It's Anything other cannabinoids, still exact just than flower, from cultivation fungible. molecule the they're able substitute fermentation, we're to same extracted with

can being that So commercial if in for extraction is Canada that processing the for anything outlined that need C-XX go I through cannabinoids to able same the come monetize specifically we process had the processing would out from facility second not we the outside something actually, gate need a third-party biosynthesis. as be to – of we or in site sorry like at think of it's a license the just

and the supply can it see that instantly. as fungible chain we something move So into

we're is cannabinoids that and rare think lead where I as we product. now using the when work further doing think there of is products research a we're

to CBD CBC, THC go there. were still primary So that's be a you'll pen supply THCV we formulation and research and the in into a you today should will see print we're products THCV CBG, on if is out from popular ways cannabis to But about research the actually swapping done lab talk cannabinoid launch Technion, cannabinoids product now. you when primary about The today as work would all that's our leverage that are skincare certainly, the targets go. see cannabis breakdown what to have chain, Gingko at vap where THC were I at say and ingredients of is most down working I look just still two any it we're if while you'll – while new-to-world cannabinoids a the CBDV, to We there, excited to be needed that, it. we still way other rare

sure effect, that I differentiated the and northern turbines And are really say, those you for the when consumers and when white the want entourage of what a that look lights, cannabinoids think each experience. effect the gives provide just deliver able time just consumers us supply unique ability blend that unique in same and that the chain to we And to our that and blend that make experience, widow versus you be it's unique for, want. it driving

perspective changes can continue that pipeline to doing. and test hope years they'll certainly we to aren't So there offerings. we'll be new research we'll I formulations. from role for refine to to as to make, be be we still and and build suspect they're and perfect need And for new There's our able research but innovation that doing world

John Zamparo

on All right. building then And side. follow-up's That's very brand the helpful. my

Just environment. current want to get a sense in of how COVID you brands think about the building

You've right through about talked past additional asset, restricted in the Redwood family are or partners the now. distribution Redwood your brands but pretty launching

of until the anyway? the launch plan was So that or game brand XXXX, kind defer does this

Mike Gorenstein

with I can might that think, we or certainly can launch deal is for out But are period. long it delays stretch there launch. cause have things a maybe in a to how that this otherwise we optimal an reality

the elements when we have the certainly at able think we just brand of optimal and to be what presence. contingency brands awareness launch we plans. look having think having get So a where portfolio are would we're timing. that in the feel without wouldn't we We There to retail certain without

still are launching situation ways we So, can the us. I stone able being that's and there is only monitoring media, launch avenue to to that lot brand-leveraging DTC digitally native of plan and on social and core a if available DTC think use

Operator

Sarugaser line is Your next Raymond James. with from the of Rahul question

Rahul Sarugaser

so question. and much Mike Jerry. morning, Good for taking my Thanks

to facility seems from Gingko So of strategy. important an congrats evolving course Winnipeg transfer tech and be your the on part is an milestone having to that of

many of I line? cannabinoids tech to next at the XXXX transferred bit So you so do and we're you recognizing and time facility wanted to little pro further over CPGA approach as sort to Winnipeg the that that over the September first expect year à additional into cannabinoid be how

Mike Gorenstein

by into the Sure. year cannabinoids December all been XXXX transferred Yeah, that, many actually tech different the strains. expect in to how I just specifics transferred we date, of in do getting would we say have think next without have of I we would

XXXX. and on potential similar us able expect it's I that are still general the And going the or our difference and that so process. conversion any be. able to is the separation for be just so the similar are thing that think think process to milestone in of able the able are in as – where just most being bring are to strain kinks September if to those timeline-wise see being harvesting to as the broth working get the bottlenecks we scale-up to processes we'll of targets and about start or work from important out downstream strain but things fermenting really what being part you a cannabinoid, the the what to having fermentation molecules don't molecule, processing the But a of the purified the far are to we market important that the how is just cannabinoid

Rahul Sarugaser

you of well And that products color. question follow-up the quick just isolates? using expect then. as for think combination a will Do you'll Thanks some be or be you derived Great. as those formulation purely first-generation some a synthetic synthetic, do botanically

Mike Gorenstein

the will do a could that will for of mix still And there fats by what be there. it's be lot to of are having that ultimately a think terpenes But it Yes. some consumers. the are I products answer to and benefits think product combination. be some and tough I and waxes dictated

to make offerings that balance we sure think being out And consistent. there so we our able benefits are to make and

lot that that a seen necessarily We in something there's isolate haven't products today. interest are consumer of

but combination blend. likely as up cannabinoids more be of a in a think early would fermented efficiencies would that off ramp it and research the more runs we or would So of stages out it and consumer are fermented working off about say run start combination I from run the changing as on botanical, different that and of times cannabinoid and that

Operator

Jefferies. question is Owen with next from Your line of the Bennett

Owen Bennett

reporting first the arguably like take why increased peers the is front all Hope morning now lot more costs. don't in Good your was or you teams your expecting question and And wondering your on is write-downs given a I my you're there well. large on just thinking of be one doing? and you're where just guys. scrutiny what write-down additional

Jerry Barbato

you in near-term I'll stabilization for and improving you Yes. gross as strategy. capacity. Peace industry point back be are being full you've for there's impacted we good the the Essentially chain. Campus biomass And is margins as product purchasing morning. time this can Thank for remarks that the Owen your revenue that as facilities and third-party our you, a see underutilization Naturals and their out this a others not to cover utilized retooling the such products costs to company we're fixed with laid the the facility's our imagine fact third-party X.X goes just expand pretty our on This the biomass dynamic the on. of Canadian year factors our of we supply the Well prepared can as is seen of when in not enough business

Mike Gorenstein

are have to side. And we'll on just in comparing only other that be still also I price being is There mindful it's that just fixed compression to some and are continue that would worked that competitors now. our thing to out add expectation believe is one we one supply price to say. competitor contracts just thing reports the One of see I GAAP when right

-- different we accounting the likely we of that that are the approach that So than I is think way stoners. the competitors majority

Owen Bennett

of through Are where the it's the about compression is expensive the of products of like of and seem and they it there? sell-through flower the come off does Okay. market. ongoing are? from going about spoken value-added in just to start you that they the I lower prices I because your guess keep price when I likelihood flower writing given right to it materialize obviously write-down, you're does former, the you is them them. little if you the appear these what to for my remains a almost now further shift mean wondering the it Are I going that in hope was the sell-through? to revenues there's follow-up business to and of your most value And you've strategy lack then one talk mean,

Mike Gorenstein

we're But in competitive that pricing we just think reasons, consumer fulfilling the I evaluate air not to course what to and we want needs. speak going for be forward. make and No marketplace competitive sure stay Yes. to that going constantly of strategy will our something

Operator

with Your of next Genuity. Matt Canaccord question Bottomley the is line from

Matt Bottomley

morning Good everyone. Yeah. question. Thanks for taking the

domestic dig little quarter in wanted deeper penetration over last. or a the to cannabis Just this sales

had prepared as absolute your product potentially percentage you in bump a still details the would some bump remarks, a introduction. decent but bigger million. I going up to know have some $X.X X.X in a dollars I anticipated had given -- But So the you in

unclear number? can lining maybe with you incremental been some give still sales? what to And might then to growth in on also me happened It's shifted if much international us have have the up in So just vap might color the how pens? the that quarter-over-quarter how much period contribution exports

Mike Gorenstein

Sure.

and much saw thing -- think growth to I So one on that think we penetration. I branded and how is of look sales at

well we X.X X.X a are think that of amount having it's far have consumers included now a both. a up well that did I not are But bit as and that things -- mix throughout going certainly we the think things or little of ramp small pens were to expect year. seen include the or shift and of given I purchases something option -- the received are as how

medical infrastructure. had businesses. that a sure look we've launched, when international, both very growth, have job commercialized think new new Israel think something done we is and making region. where As the It's think we a it's in that's But we despite I patients the market. of It's sort for far of changes exports. any successful a at And have being regulators for haven't for a good medical of really a logistics. something all forward lot scheduling are markets of that as demand different adding I actually you seen when new And

harvest expect to out. Israel, able to from the and But that initially have come exported. with So facility our we up I and flower do say, we've we been have running growth would do starting get

much So fair a given see the be compared having what shortage black market America. to in of there and to a seen North we demand amount what of without we've

coming would to mix cultivation export demand domestic say that an But it will domestic I as market. A and there. on come of levels a from growth purely cultivation. of expect could not export the We that out be where still lot it's come but depending

Matt Bottomley

And to you. just pricing maybe medical you on was the a the in as or very any Thank a had Germany know what in pricing it. dollars just as I Got just favorable. Canadian historically whether market. ratio you follow-up in then color see

that how curious Israel. in just So works

Mike Gorenstein

Yes.

not be high I as Germany. going think as it's to

and the I expect think, a Germany and professor, prices. the is of it like there's I say sound it barrier Germany of, in system there don't that almost when like think but its unique pharmacy economic freed is to pretty you sort unique. not and way would because works of want we I an

early like a we the So there market price, we patients might on leaning on that focused share. have really really consumers getting and be relationship we're It's markets a building market seen into. the in with high shortage a and but this plan of

the I So least, closer to to what going in at would think prices we're are be of way say seeing we Canada, setting prices.

lower we production and in Israel highlighted the expect think given But do of calls the in that previous we've climate. cost be I to just

the see expect what seen Canada opportunity. we to in mix key than it's good because still going margin that a from we've is far expect perspective to -- regulation difference there's a with similar being patient. as rather But similar through would product we So trends over pharmacies direct as time

the is its adult somewhere Germany do market Canada medical out where pharma shape the categories But in is. own traditional will use think it I maybe just given between more model. So the in

Operator

Eight Capital. the Your Graeme line final question Kreindler is of from with

Graeme Kreindler

any my half second of type if headwinds premium to more placed morning. more pipeline has for with or a Thanks been a launch of of taking are Good mainstream wondering Jones as brand. to expected COVID-XX? value wanted there because I Lord Thanks. of the I potential economic U.S. for given was to follow-up XXXX. launches respect CBD the question. for And Hi. product just plans Traditionally,

Jerry Barbato

the Jones, category Thanks Graham. in with Most super a obviously, price. plays premium that Lord definitely. Yes. question, for high

definitely look consumer and segment a our so plans. in about as the mainstream a for launching we brand big that is And opportunity more is definitely us that is much

Graeme Kreindler

a terms helpful. or just the I just was as you. of between during the Altria two be business in develop leadership at color can relationship recent you the bit transitions the developments the there. And given discussions Thank Okay. and that there a provide any, in mix then question here. companies? follow-up had have to wondering Thanks. That would changes continues as And sort of, of

Mike Gorenstein

Sure.

I think the in there haven't really changes any discussions. been

there that's had I there our is since been think relationship. has a that's from the team we've team perspective the

people is uniquely -- So a executives probably Jerry consistency I also with tenure there. there. But connected think think that of lot and I been there's the of with

changes discussions. in we so really haven't many And had

think last thinking focus we months a counterparts. folks manufacturing been dealing. through of COVID lot be can I best and impacts, of and the of procedures to in the from what have there a through on on been we've lot just right is getting thinking employee thinking making through place what help sure potential in now in practice safety few we've focused I'm lot a the

I collaborative been very times, level a been been it's pretty fortunate we've and how and deal high uncertain there with and to discussions expertise any relationship very lean able think I to to So on changes. haven't think be their but

Jerry Barbato

the increasing. I seamless a Yes. group add I think for continues between been probably it's collaboration and us. transition the would quite even And it's

Graeme Kreindler

Okay. Appreciate it. Thank you.

Operator

are There you conclude today's Thank questions. further participation. no for call. This conference does your

may now disconnect. You

Cronos (CRON) 8 May 202020 Q1 Earnings call transcript