Cronos Q2 results; setting the stage for future growth

Cronos Group Inc. announces second quarter 2018 results:

  • Increased Sales 428% Year-over-Year
  • Signed 5 Year Exclusive Distribution Agreement for Poland
  • Launched Premium Recreational Brand COVE™
  • Added 70,000 KG of Additional Capacity through Cronos GrowCo JV
  • Signed 5 Year Take-or-Pay Supply Agreement for 100,000 KG

This year and subsequently, this quarter is about setting the stage and establishing Cronos Group’s strategy for future growth.

“Cronos Group delivered encouraging results across the company in the second quarter with sales growing among all of our products and channels, impressive improvements in cultivation yields since the start of the year, and continued business development success in penetrating new markets and establishing new partnerships for expansion,” the company said in a news release.

Mike Gorenstein, CEO of Cronos Group

“We pushed the business forward while achieving great milestones for the Company and this is only the beginning.

Cronos Group is prepared for the domestic recreational market with the launch of our first premium-focused brand COVE™ and is applying a thoughtful approach to our supply and inventory build.

Simultaneously, we are working to advance the operations within our current global footprint and bring new partnerships and distribution relationships to the table. We are excited by the progress we are making to execute against our strategy,” concluded Mike Gorenstein.

Second Quarter 2018 Business Highlights

  • Construction of Building 4, Cronos Group’s 286,000 sq. ft. purpose-built indoor production facility located in Stayner, Ontario remains on schedule. Building 4 is ready to commence cultivation upon receipt of the Health Canada license which the Company expects imminently. The state-of-the-art facility is built to GMP standards and has the latest in cutting-edge automation technology.
  • Cronos Australia was granted a medicinal cannabis Manufacture License by the Australian Office of Drug Control in June 2018. This license permits manufacturing of cannabinoid based products in Australia and is required for all forms of extraction, refining, concentration and transformation of the cannabis plant. This license rounds out the licenses for domestic production, which includes the medicinal cannabis cultivation license and research license and brings Cronos Group one step closer to full scale operations in Australia.
  • In June 2018, Cronos entered into a strategic distribution partnership with Delfarma Sp. Zo.o (“Delfarma”). Delfarma is a pharmaceutical wholesaler with a distribution network of over 5,000 pharmacies and more than 200 hospitals that collectively reaches approximately 40% of the Polish domestic market. Under the five-year exclusive distribution agreement, Cronos will supply PEACE NATURALS™ branded cannabis products to Delfarma for distribution within Poland.
  • Cronos Group previewed its premium recreational brand COVE™ at the May 2018 LIFT Conference. COVE™ was born in the Okanagan Valley in British Columbia, which is known for producing some of the world’s finest cannabis. COVE™ products are non-irradiated and hand-trimmed using only the best result of each harvest. By avoiding shortcuts like harsh refining processes, COVE™ is able to maintain the natural balance of the plant across all of the brand’s terpene rich cannabis extracts and brings the highest quality products to its consumers.
  • On May 23, 2018 the trading of Cronos Group’s common shares in Canada were up-listed from the TSX Venture Exchange to the Toronto Stock Exchange (“TSX”). Cronos Group’s common shares are listed under the symbol “CRON” on both the NASDAQ Global Market and the TSX.
  • In May 2018, the board of directors approved the appointment of KPMG LLP as independent auditor of the Company, which was subsequently approved by a majority of votes cast by shareholders at the Company’s Annual and Special Meeting of Shareholders on June 28, 2018.
  • Cronos Group bolstered its board of directors with the appointment of Michael Coates. Mr. Coates was elected to the board of directors by a majority of votes cast by shareholders at the Company’s Annual and Special Meeting of Shareholders. Michael Coates was President and Chief Executive Officer, Americas Region of Hill+Knowlton Strategies (“H+K”), a global public relations and integrated communications agency, from 2014 to 2016 and retired as Global Vice Chairman of H+K in 2017. In June 2018, Michael served as a member of the Premier of Ontario’s transition team.

Business Highlights Subsequent to Second Quarter 2018

  • In July 2018, Cronos Group announced a 50/50 strategic joint venture with a group of investors led by Bert Mucci, a leading Canadian large-scale greenhouse operator. The entity created by this new partnership, Cronos Growing Company Inc. (“Cronos GrowCo”), expects to construct an 850,000 square foot, purpose-built, GMP certified greenhouse for cannabis production on approximately 100 acres of land owned by Cronos GrowCo in Kingsville, Ontario. Once fully operational, the greenhouse is expected to produce up to 70,000 kilograms of cannabis annually.
  • Cronos Group entered into a supply agreement with one of the largest cannabis companies in the world by revenues in the first quarter of 2018, Cura Cannabis Solutions (“Cura”). Cura signed a five year take-or-pay supply agreement to purchase a minimum of 20,000 kilograms of cannabis per annum from Cronos GrowCo starting from the date Cura receives its production and sales licenses from Health Canada. Cura also expects to build its proprietary, state-of-the-art extraction facility on a parcel of land owned by Cronos Group in the heart of Okanagan Valley, British Columbia.

Second Quarter 2018 Financial Results

  • Cronos strengthened liquidity by raising $100.0 million of gross proceeds through a bought deal offering of common shares in April 2018. As of June 30, 2018, total liquidity was $118.0 million, which provides Cronos Group significant runway to execute on its strategic priorities.
  • Second quarter 2018 revenues totaled $3.4 million, as compared to $0.6 million for the second quarter 2017, representing an increase of $2.8 million, or 428%. The main drivers associated with the increase in revenues are an expansion in patient onboarding, an increase in average sales price and the continued strong growth in our cannabis oil offering.
  • Second quarter 2018 cannabis oil sales accounted for 40% of domestic medical sales.
  • Finished goods inventory and biological assets increased by 46% quarter-over-quarter to 2,451 kilograms as the Company focuses on building inventory for the adult-use market.

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