"We have successfully transformed the Company over the past year and a half. We are now focused on executing our strategy to generate accelerated revenue growth and create long term shareholder value," says Mike Gorenstein, CEO of Cronos Group.
QUARTERLY BUSINESS HIGHLIGHTS AND RECENT DEVELOPMENTS POST QUARTER-END
Substantial increase in revenue
The Company generated $1.3 million in revenue during the three-month period ended September 30, 2017, an increase of 104% quarter-over-quarter and an increase of 962% year-over-year.
Expanding capacity and establishing a low-cost, global production footprint
Cronos Israel In September 2017, the Company announced a joint venture with Israeli agricultural collective settlement Gan Shmuel ("Gan Shmuel") to produce and distribute medical cannabis in Israel. Israel has an ideal growing climate for cannabis with abundant sunlight to support year-round greenhouse cultivation without the need for supplemental lighting. Cronos Israel anticipates producing high quality cannabis at significantly lower production costs than production costs in Canada due to Israel's favorable growing climate and Gan Shmuel's skilled labor force, existing manufacturing infrastructure, and ample on-site water access. In addition, Gan Shmuel is situated on over 4,900 acres of mixed-use agricultural / industrial land, which allows Cronos Israel to significantly expand production capacity beyond the phase I facility.
Peace Naturals Capacity Expansion The Company is constructing additional capacity at Peace Naturals Project, Inc. ("Peace Naturals") via a 286,000 sq. ft. production facility ("Building 4") and a 28,000 sq. ft. greenhouse (the "Peace Naturals Greenhouse"). Construction of Building 4 is on schedule. The steel superstructure is complete, and the Company is now working on completing the interiors of the facility. Production from Building 4 is expected to commence in the second half of 2018. The Peace Naturals Greenhouse is expected to be operational in Q4 2017 and fully-operational for production in the first half of 2018.
Increasing oil sales and formulation capabilities with a state-of-the-art oil extraction lab In November 2017, Health Canada approved the Company's state-of-the-art, custom extraction laboratory at Peace Naturals, which uses supercritical and subcritical CO2 and commercial oil production methodologies. The resulting increased oil production will facilitate the introduction of new formulations, such as capsules, tinctures, and ointments. Subsequent to quarter-end, the Company released a number of new strain-specific cannabis oils that have been received favorably by patients. Unlike most alternatives on the market, these new cannabis oils do not require any secondary refinement using harsh solvents like ethanol, which means that the natural balance of the plant is kept intact. This is important because of the "entourage effect," or the concept that all cannabis compounds work together synergistically to yield the desired therapeutic effect. As Cronos continues to place an emphasis on product quality, this production methodology for extracted products is expected to create an ongoing competitive advantage in the marketplace.
Augmented global sales and distribution network with additions in Germany In October 2017, Cronos Group entered into a strategic partnership and five-year exclusive distribution agreement with G. Pohl-Boskamp GmbH & Co. KG to distribute Peace Naturals branded cannabis products within Germany in up to 12,000 pharmacies. With a population of over 82 million people, Germany is currently one of the largest legal cannabis markets in the world and serves as the Company's gateway to cannabis markets in the European Union.
Preparing for the launch of the Canadian recreational market Cronos Group is preparing for the anticipated legalization of the Canadian recreational market, currently expected to occur in July 2018. In October 2017, the Company rebranded its wholly-owned subsidiary and licensed producer In The Zone Ltd. to Original BC Ltd ("OGBC"). OGBC will serve as the Company's recreational cannabis platform from which it will launch its recreational brand portfolio.
Launched marketing upgrades to the medical cannabis platform Peace Naturals seeks to offer accessible, high-quality products, building sincere relationships with patients while supporting them with medications that can be life-changing. As a result, the Company redesigned the Peace Naturals packaging to better reflect the licensed producer's identity as a trusted and dependable unisex medicinal cannabis brand. Concurrent with this transition, Peace Naturals is updating its entire patient shopping experience and marketing materials to reflect the brand's goal of improving the lives of others, one patient at a time. This transition began in October and is expected to be completed in the first quarter of 2018.
Update on Production Operations The Company is now growing cannabis in all of Buildings 2 and 3. Once a full cycle of harvests has been completed, the Company expects significantly more capacity than what has been historically produced (operating out of just Building 2). In addition, the Company has commenced production in newly renovated rooms in Building 1. The new Building 1 production methodology utilizes two-tier hydroponic rolling benches and full spectrum LED lighting. Similar to the existing operational production facility at OGBC, the Company will use Building 1 to grow cultivars that have non-standard flower cycles which the Company anticipates will fulfil niche market needs.
Strengthened liquidity position while minimizing equity dilution Since the beginning of Q3 2017, the Company has raised $72.3 million to fund its operations and capacity expansion plans. Total capital raised includes: (i) a $40.0mm senior secured credit facility, the largest straight debt offering in the cannabis industry to date, based on publicly available information, and (ii) several equity raises at increasing share price levels. In order to minimize equity dilution, the company did not issue convertible notes or warrants in connection with these financings.
CONFERENCE CALL Cronos Group will host its third quarter conference call on Wednesday, November 29, 2017 at 8:00 a.m. Eastern Time. The call will last approximately one hour. Instructions for the conference call are provided below:
Conference ID: 8776138 Topic: Cronos Group Inc. Q3 2017 Financial Results Toll-free dial-in number: (888) 231-8191 International dial-in number: (647) 427-7450
Additionally, an audio replay of the conference call will be available two hours after the call's completion and until 11:59 p.m. Eastern Time on December 13, 2017. Instructions for the audio replay are provided below:
ABOUT CRONOS GROUP INC. Cronos Group is a geographically-diversified and vertically-integrated cannabis company that operates two wholly-owned Licensed Producers ("LPs") regulated within Health Canada's Access to Cannabis for Medical Purposes Regulations (the "ACMPR") and holds a portfolio of minority investments in other Licensed Producers. The Company's flagship LPs, Peace Naturals Project Inc. (Ontario) and Original BC Ltd. (British Columbia), are collectively situated on over 125 acres of agricultural, licensed land. Cronos Group is focused on building an international iconic brand portfolio, providing patients with personalized care, and creating value for our shareholders.
FORWARD-LOOKING STATEMENTS This news release may contain "forward-looking information" and "forward-looking statements" within the meaning of applicable Canadian securities legislation. All information contained herein that is not clearly historical in nature may constitute forward-looking information. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies that may cause actual financial results, performance or achievements to be materially different from the estimated future results, performance or achievements expressed or implied by those forward-looking statements and the forward-looking statements are not guarantees of future performance. Except as required by law, Cronos Group disclaims any obligation to update or revise any forward-looking statements. Readers are cautioned not to put undue reliance on these forward-looking statements. This news release contains information obtained by Cronos Group from third parties. Cronos Group believes such information to be accurate but has not independently verified such information. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.