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Cronos Group Inc. – ‘6-K’ for 5/9/19 – ‘EX-99.1’

On:  Thursday, 5/9/19, at 7:02am ET   ·   For:  5/9/19   ·   Accession #:  1564590-19-17561   ·   File #:  1-38403

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 5/09/19  Cronos Group Inc.                 6-K         5/09/19    5:5.0M                                   ActiveDisclosure/FA

Current Report by a Foreign Private Issuer   —   Form 6-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 6-K         Current Report by a Foreign Private Issuer          HTML     16K 
 2: EX-99.1     Miscellaneous Exhibit                               HTML    883K 
 3: EX-99.2     Miscellaneous Exhibit                               HTML    397K 
 4: EX-99.3     Miscellaneous Exhibit                               HTML     11K 
 5: EX-99.4     Miscellaneous Exhibit                               HTML     12K 


‘EX-99.1’   —   Miscellaneous Exhibit
Exhibit Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Unaudited Condensed Interim Consolidated Statements of Financial Position
"Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Income (Loss
"Unaudited Condensed Interim Consolidated Statements of Changes in Equity
"Unaudited Condensed Interim Consolidated Statements of Cash Flows
"Notes to the Unaudited Condensed Interim Consolidated Financial Statements

This Exhibit is an HTML Document rendered as filed.  [ Alternative Formats ]



 <!   C: 

 

Exhibit 99.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRONOS GROUP INC.

 

Unaudited Condensed Interim Consolidated Financial Statements

 

For the Three Months Ended March 31, 2019 and March 31, 2018

 

(in thousands of Canadian dollars)

 

 

 

 

 

 


 

 

Cronos Group Inc.

Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

 

Table of Contents

 

Unaudited Condensed Interim Consolidated Statements of Financial Position

1

Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Income (Loss)

2

Unaudited Condensed Interim Consolidated Statements of Changes in Equity

3

Unaudited Condensed Interim Consolidated Statements of Cash Flows

4

Notes to the Unaudited Condensed Interim Consolidated Financial Statements

5

 

 

 

 


  

Cronos Group Inc.

Unaudited Condensed Interim Consolidated Statements of Financial Position

As at March 31, 2019 and December 31, 2018

(in thousands of CDN $)

 

 

 

Notes

 

As at

March 31,

2019

 

 

As at

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

22(a)

 

$

2,418,277

 

 

$

32,634

 

Interest receivable

 

22(a)

 

 

3,130

 

 

 

-

 

Accounts receivable

 

22(a)

 

 

5,559

 

 

 

4,163

 

Sales taxes receivable

 

 

 

 

5,594

 

 

 

3,419

 

Prepaid expenses and other assets

 

 

 

 

5,092

 

 

 

4,190

 

Biological assets

 

5

 

 

11,506

 

 

 

9,074

 

Inventory

 

5

 

 

25,150

 

 

 

11,584

 

Total current assets

 

 

 

 

2,474,308

 

 

 

65,064

 

Advances to joint ventures

 

6(a)

 

 

21,920

 

 

 

6,395

 

Net investments in equity accounted investees

 

6(b)

 

 

2,185

 

 

 

4,038

 

Other investments

 

7,22(c)

 

 

300

 

 

 

705

 

Property, plant and equipment

 

8

 

 

184,570

 

 

 

171,720

 

Right-of-use assets

 

3(a),11(a)

 

 

1,875

 

 

 

171

 

Intangible assets

 

9(a)

 

 

11,087

 

 

 

11,234

 

Goodwill

 

9(b)

 

 

1,792

 

 

 

1,792

 

Total assets

 

 

 

$

2,698,037

 

 

$

261,119

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

Bank indebtedness

 

22(b)

 

$

422

 

 

$

-

 

Accounts payable and other liabilities

 

22(b)

 

 

45,016

 

 

 

15,372

 

Holdbacks payable

 

22(b)

 

 

8,482

 

 

 

7,887

 

Government remittances payable

 

22(b)

 

 

1,313

 

 

 

1,123

 

Current portion of lease obligations

 

11,22(b)

 

 

134

 

 

 

41

 

Derivative liabilities

 

13,22(b)

 

 

1,664,275

 

 

 

-

 

Construction loan payable

 

12,22(b)

 

 

-

 

 

 

20,951

 

Total current liabilities

 

 

 

 

1,719,642

 

 

 

45,374

 

Lease obligations

 

11,22(b)

 

 

1,827

 

 

 

119

 

Due to non-controlling interests

 

10,22(b)

 

 

2,247

 

 

 

2,136

 

Deferred income tax liability

 

20

 

 

4,371

 

 

 

1,850

 

Total liabilities

 

 

 

 

1,728,087

 

 

 

49,479

 

Shareholders' equity

 

 

 

 

 

 

 

 

 

 

Share capital

 

14(a)

 

 

556,930

 

 

 

225,500

 

Warrants

 

15(a)

 

 

845

 

 

 

1,548

 

Stock options

 

15(b)

 

 

6,631

 

 

 

6,241

 

Retained earnings (accumulated deficit)

 

 

 

 

404,499

 

 

 

(22,715

)

Accumulated other comprehensive income

 

 

 

 

1,049

 

 

 

930

 

Total equity attributable to shareholders of Cronos Group

 

 

 

 

969,954

 

 

 

211,504

 

Non-controlling interests

 

10

 

 

(4

)

 

 

136

 

Total shareholders' equity

 

 

 

 

969,950

 

 

 

211,640

 

Total liabilities and shareholders' equity

 

 

 

$

2,698,037

 

 

$

261,119

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

19

 

 

 

 

 

 

 

 

Subsequent events

 

25

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements

 

 

 

Approved on behalf of the Board of Directors:

 

 

 

"Michael Gorenstein"

 

"James Rudyk"

 

Director

 

Director

 

 

   

 

1


 

  

Cronos Group Inc.

Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Income (Loss)

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except share and per share amounts)

 

 

 

 

 

Three Months Ended March 31,

 

 

 

Notes

 

2019

 

 

2018

 

Gross revenue

 

16

 

$

6,985

 

 

$

2,945

 

Excise taxes

 

 

 

 

(515

)

 

 

-

 

Net revenue

 

 

 

 

6,470

 

 

 

2,945

 

Cost of sales

 

 

 

 

 

 

 

 

 

 

Cost of sales before fair value adjustments

 

4(b)

 

 

2,984

 

 

 

1,567

 

Gross profit before fair value adjustments

 

 

 

 

3,486

 

 

 

1,378

 

Fair value adjustments

 

 

 

 

 

 

 

 

 

 

Unrealized change in fair value of biological assets

 

4(b)

 

 

(13,553

)

 

 

(2,744

)

Realized fair value adjustments on inventory sold in the period

 

4(b)

 

 

3,722

 

 

 

2,194

 

Total fair value adjustments

 

 

 

 

(9,831

)

 

 

(550

)

Gross profit

 

 

 

 

13,317

 

 

 

1,928

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

 

 

1,500

 

 

 

586

 

Research and development

 

 

 

 

1,557

 

 

 

-

 

General and administrative

 

 

 

 

9,611

 

 

 

2,461

 

Share-based payments

 

15(b),18

 

 

737

 

 

 

774

 

Depreciation and amortization

 

8,9(a),11(a)

 

 

470

 

 

 

285

 

Total operating expenses

 

 

 

 

13,875

 

 

 

4,106

 

Operating loss

 

 

 

 

(558

)

 

 

(2,178

)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

Interest income (expense)

 

 

 

 

2,720

 

 

 

(22

)

Financing costs

 

12,13

 

 

(29,561

)

 

 

-

 

Gain on revaluation of derivative liabilities

 

13

 

 

436,383

 

 

 

-

 

Share of income (loss) from investments in equity accounted investees

 

6

 

 

(264

)

 

 

41

 

Gain on disposal of Whistler

 

6

 

 

20,606

 

 

 

-

 

Gain on other investments

 

7

 

 

924

 

 

 

221

 

Total other income

 

 

 

 

430,808

 

 

 

240

 

Income (loss) before income taxes

 

 

 

 

430,250

 

 

 

(1,938

)

Deferred income tax expense (recovery)

 

20

 

 

2,557

 

 

 

(888

)

Net income (loss)

 

 

 

$

427,693

 

 

$

(1,050

)

Net income (loss) attributable to:

 

 

 

 

 

 

 

 

 

 

Cronos Group

 

 

 

$

427,829

 

 

$

(1,050

)

Non-controlling interests

 

10

 

 

(136

)

 

 

-

 

 

 

 

 

$

427,693

 

 

$

(1,050

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

Gain (loss) on revaluation and disposal of other investments, net of tax

 

7,20

 

$

103

 

 

$

(35

)

Foreign exchange gain on translation of foreign operations

 

2(d),10

 

 

16

 

 

 

-

 

Total other comprehensive income (loss)

 

 

 

 

119

 

 

 

(35

)

Comprehensive income (loss)

 

 

 

$

427,812

 

 

$

(1,085

)

Comprehensive income (loss) attributable to:

 

 

 

 

 

 

 

 

 

 

Cronos Group

 

 

 

$

427,948

 

 

$

(1,085

)

Non-controlling interests

 

10

 

 

(136

)

 

 

-

 

 

 

 

 

$

427,812

 

 

$

(1,085

)

Earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

Basic

 

17

 

$

1.95

 

 

$

(0.01

)

Diluted

 

17

 

$

0.48

 

 

$

(0.01

)

Weighted average number of outstanding shares

 

 

 

 

 

 

 

 

 

 

Basic

 

17

 

 

218,949,590

 

 

 

157,054,891

 

Diluted

 

17

 

 

271,086,575

 

 

 

157,054,891

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements

 

 

 

 

2


 

  

Cronos Group Inc.

Unaudited Condensed Interim Consolidated Statements of Changes in Equity

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except number of share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based reserve

 

 

Retained earnings

 

 

Accumulated other

 

 

Non-

 

 

 

 

 

 

 

Notes

 

Number of shares

 

 

Share capital

 

 

Shares to be issued

 

 

Warrants

 

 

Stock options

 

 

(accumulated deficit)

 

 

comprehensive income

 

 

controlling interests

 

 

Total

 

Balance at January 1, 2019 as previously reported

 

 

 

 

178,720,022

 

 

$

225,500

 

 

$

-

 

 

$

1,548

 

 

$

6,241

 

 

$

(22,715

)

 

$

930

 

 

$

136

 

 

$

211,640

 

Adoption of IFRS 16

 

3(a)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(68

)

 

 

-

 

 

 

(4

)

 

 

(72

)

Balance at January 1, 2019 as restated

 

 

 

 

178,720,022

 

 

 

225,500

 

 

 

-

 

 

 

1,548

 

 

 

6,241

 

 

 

(22,783

)

 

 

930

 

 

 

132

 

 

 

211,568

 

Shares issued

 

14(a)

 

 

149,831,154

 

 

 

334,099

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

334,099

 

Share issuance costs

 

 

 

 

-

 

 

 

(4,901

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,901

)

Warrants exercised

 

15(a)

 

 

4,390,961

 

 

 

1,884

 

 

 

-

 

 

 

(703

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,181

 

Vesting of options

 

15(b)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

737

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

737

 

Options exercised

 

15(b)

 

 

375

 

 

 

2

 

 

 

-

 

 

 

-

 

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

Share appreciation rights exercised

 

15(b)

 

 

77,865

 

 

 

346

 

 

 

-

 

 

 

-

 

 

 

(346

)

 

 

(547

)

 

 

-

 

 

 

-

 

 

 

(547

)

Net income (loss)

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

427,829

 

 

 

-

 

 

 

(136

)

 

 

427,693

 

Other comprehensive income

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

119

 

 

 

-

 

 

 

119

 

Balance at March 31, 2019

 

 

 

 

333,020,377

 

 

$

556,930

 

 

$

-

 

 

$

845

 

 

$

6,631

 

 

$

404,499

 

 

$

1,049

 

 

$

(4

)

 

$

969,950

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2018

 

 

 

 

149,360,603

 

 

$

83,559

 

 

$

-

 

 

$

3,364

 

 

$

2,289

 

 

$

(3,724

)

 

$

880

 

 

$

-

 

 

$

86,368

 

Shares issued

 

14(a)

 

 

5,257,143

 

 

 

46,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

46,000

 

Share issuance costs

 

 

 

 

-

 

 

 

(3,081

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,081

)

Shares to be issued

 

14(b)

 

 

 

 

 

 

-

 

 

 

961

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

961

 

Warrants exercised

 

15(a)

 

 

6,972,479

 

 

 

1,966

 

 

 

-

 

 

 

(686

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,280

 

Vesting of options

 

15(b)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

774

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

774

 

Options exercised

 

15(b)

 

 

42,256

 

 

 

106

 

 

 

-

 

 

 

-

 

 

 

(33

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

73

 

Net loss

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,050

)

 

 

-

 

 

 

-

 

 

 

(1,050

)

Other comprehensive loss

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(35

)

 

 

-

 

 

 

(35

)

Balance at March 31, 2018

 

 

 

 

161,632,481

 

 

$

128,550

 

 

$

961

 

 

$

2,678

 

 

$

3,030

 

 

$

(4,774

)

 

$

845

 

 

$

-

 

 

$

131,290

 

 

 

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements

 

 

 

 

3


 

 

Cronos Group Inc.

Unaudited Condensed Interim Consolidated Statements of Cash Flows

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $)

 

 

 

 

 

Three Months Ended March 31,

 

 

 

Notes

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

$

427,693

 

 

$

(1,050

)

Items not affecting cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

Unrealized change in fair value of biological assets

 

4(b)

 

 

(13,553

)

 

 

(2,744

)

Realized fair value adjustments on inventory sold in the period

 

4(b)

 

 

3,722

 

 

 

2,194

 

Share-based payments

 

15(b),18

 

 

737

 

 

 

774

 

Depreciation and amortization

 

8,9(a),11(a)

 

 

470

 

 

 

285

 

Depreciation relieved on inventory sold

 

 

 

 

235

 

 

 

169

 

Share of loss (income) from investments in equity accounted investees

 

6

 

 

264

 

 

 

(41

)

Gain on disposal of Whistler

 

6

 

 

(20,606

)

 

 

-

 

Gain on other investments

 

7

 

 

(924

)

 

 

(221

)

Gain on revaluation of derivative liabilities

 

13

 

 

(436,383

)

 

 

-

 

Deferred income tax expense (recovery)

 

20

 

 

2,557

 

 

 

(888

)

Foreign exchange loss (gain)

 

 

 

 

67

 

 

 

(16

)

Net changes in non-cash working capital

 

21

 

 

17,320

 

 

 

(12,212

)

Cash and cash equivalents used in operating activities

 

 

 

 

(18,401

)

 

 

(13,750

)

Investing activities

 

 

 

 

 

 

 

 

 

 

Investments in equity accounted investees

 

6

 

 

(2,200

)

 

 

-

 

Advances to joint ventures

 

6

 

 

(15,812

)

 

 

-

 

Proceeds from sale of other investments

 

7

 

 

26,078

 

 

 

687

 

Payment to exercise ABcann warrants

 

7

 

 

-

 

 

 

(113

)

Purchase of property, plant and equipment

 

8

 

 

(13,454

)

 

 

(7,642

)

Purchase of intangible assets

 

9(a)

 

 

(51

)

 

 

(131

)

Advance to Cronos Israel

 

2(a),10

 

 

-

 

 

 

(926

)

Cash and cash equivalents used in investing activities

 

 

 

 

(5,439

)

 

 

(8,125

)

Financing activities

 

 

 

 

 

 

 

 

 

 

Increase in bank indebtedness

 

 

 

 

422

 

 

 

-

 

Advance from non-controlling interests

 

10

 

 

111

 

 

 

-

 

Repayment of lease obligations

 

11

 

 

(32

)

 

 

(13

)

Repayment of construction loan payable

 

12

 

 

(21,311

)

 

 

-

 

Payment of accrued interest on construction loan payable

 

12

 

 

(121

)

 

 

(185

)

Advance under Credit Facility

 

12

 

 

65,000

 

 

 

-

 

Repayment of Credit Facility

 

12

 

 

(65,000

)

 

 

-

 

Proceeds from Altria Investment

 

13,14(a)

 

 

2,434,757

 

 

 

-

 

Proceeds from share issuance

 

14(a)

 

 

-

 

 

 

46,000

 

Share issuance costs

 

 

 

 

(4,901

)

 

 

(3,081

)

Proceeds from shares to be issued

 

14(b)

 

 

-

 

 

 

961

 

Proceeds from exercise of warrants and options

 

15(a),(b)

 

 

1,182

 

 

 

1,353

 

Withholding taxes paid on share appreciation rights

 

15(b)

 

 

(547

)

 

 

-

 

Cash and cash equivalents provided by financing activities

 

 

 

 

2,409,560

 

 

 

45,035

 

Net change in cash and cash equivalents

 

 

 

 

2,385,720

 

 

 

23,160

 

Cash and cash equivalents - beginning of period

 

 

 

 

32,634

 

 

 

9,208

 

Effects of foreign exchange on cash

 

 

 

 

(77

)

 

 

-

 

Cash and cash equivalents - end of period

 

 

 

$

2,418,277

 

 

$

32,368

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

 

 

Interest paid

 

 

 

$

675

 

 

$

307

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements

 

 

 

 

4


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

 

1.

Nature of business

 

Cronos Group Inc. ("Cronos Group" or the "Company") was incorporated under the Business Corporations Act (Ontario). Cronos Group is a public corporation, with its head office located at 720 King Street West, Suite 320, Toronto, Ontario, M5V 2T3. The Company's common shares are listed on the Nasdaq Global Market and on the Toronto Stock Exchange ("TSX") under the ticker symbol ("CRON").

 

Cronos Group is an innovative global cannabinoid company, with international production and distribution across five continents. The Company is engaged in the cultivation, manufacturing, and marketing of cannabis and cannabis-derived products for the medical and adult-use markets. Cronos Group is committed to building disruptive intellectual property by advancing cannabis research, technology and product development. With a passion to responsibly elevate the consumer experience, Cronos Group is building an iconic brand portfolio. Cronos Group’s brand portfolio includes PEACE NATURALS™, a global health and wellness brand, and two adult-use brands, COVE™ and Spinach™. The Company operates two wholly-owned license holders ("License Holders") under the Cannabis Act (Canada) and its relevant regulations (the "Cannabis Act"). The Company's License Holders are Peace Naturals Project Inc. ("Peace Naturals"), which has production facilities near Stayner, Ontario, and Original BC Ltd. ("OGBC"), which has a production facility in Armstrong, British Columbia.

 

Cronos Group has also established five strategic joint ventures in Canada, Israel, Australia, and Colombia, and holds minority interests in cannabis-related companies and License Holders. One of these strategic joint ventures is considered a subsidiary for financial reporting purposes, refer to Note 2(a).

 

2.

Basis of presentation

 

 

 

 

These unaudited condensed interim consolidated financial statements for the three months ended March 31, 2019 and March 31, 2018 have been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting. The accounting policies adopted in the preparation of the unaudited condensed interim consolidated financial statements are consistent with those followed in the preparation of the Company's audited annual consolidated financial statements for the year ended December 31, 2018, except for the adoption of new standards effective as of January 1, 2019. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. The Company applied, as of January 1, 2019, International Financial Reporting Standard ("IFRS") 16, Leases and Interpretation of the IFRS Interpretations Committee ("IFRIC") 23, Uncertainty over income tax treatments. As required by IAS 34, the nature and effect of these changes are disclosed in Note 3.

 

 

 

 

These unaudited condensed interim consolidated financial statements do not conform in all respects to the requirements of IFRS as issued by the International Accounting Standards Board for annual financial statements. Accordingly, these unaudited condensed interim consolidated financial statements should be read in conjunction with the Company's December 31, 2018 audited annual consolidated financial statements and notes.

 

 

 

 

These unaudited condensed interim consolidated financial statements were approved by the Board of Directors (the "Board") on May 8, 2019.

 

 

 

 

 


5


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

 

2.

Basis of presentation (continued)

 

(a)

Basis of consolidation

 

 

 

 

 

 

These unaudited condensed interim consolidated financial statements include the accounts of Cronos Group Inc. and its subsidiaries, summarized in the following chart:

 

Subsidiaries

Jurisdiction of incorporation

Incorporation date

Ownership interest

 

Hortican Inc. ("Hortican")

Canada

January 17, 2013

100%

 

Peace Naturals

Canada

November 21, 2012

100%

 

OGBC

Canada

March 15, 2013

100%

 

Cronos Canada Holdings Inc.

Canada

March 13, 2018

100%

 

Cronos Global Holdings Inc.

Canada

April 25, 2017

100%

 

Cronos Israel G.S. Cultivations Ltd. (i)

Israel

February 4, 2018

70%

 

Cronos Israel G.S. Manufacturing Ltd. (i)

Israel

September 4, 2018

90%

 

Cronos Israel G.S. Store Ltd. (i)

Israel

June 28, 2018

90%

 

Cronos Israel G.S. Pharmacies Ltd. (i)

Israel

February 15, 2018

90%

 

Cronos Labs Ltd. ("Cronos Device Labs")

Israel

March 14, 2019

100%

 

Cronos Group Celtic Holdings Ltd.

Ireland

February 6, 2018

100%

 

Cronos Malta Holdings Ltd.

Malta

October 25, 2018

100%

 

 

 

 

 

 

 

 

 

 

 

(i)

These Israeli entities are collectively referred to as "Cronos Israel".

 

 

In the unaudited condensed interim consolidated statements of operations and comprehensive income (loss), net income (loss) and other comprehensive income (loss) are attributed to the equity holders of the Company and to the non-controlling interests. Non-controlling interests in the equity of Cronos Israel are presented separately in the shareholders' equity section of the unaudited condensed interim consolidated statements of financial position and the unaudited condensed interim consolidated statements of changes in equity.

 

 

 

 

 

 

(b)

Investments in equity accounted investees

 

Investees in which the Company has significant influence or joint control are accounted for using the equity method. The Company's interests in equity accounted investees as at March 31, 2019 are summarized in the following chart.

 

Equity accounted investees

Jurisdiction of incorporation

Ownership interest

 

Cronos Australia Limited ("Cronos Australia")

Australia

50%

 

MedMen Canada Inc. ("MedMen Canada")

Canada

50%

 

Cronos Growing Company Inc. ("Cronos GrowCo")

Canada

50%

 

NatuEra S.à r.l

Luxembourg

50%

 

 

As at December 31, 2018, the Company held a 19% ownership interest in Whistler Medical Marijuana Company ("Whistler"). During the three months ended March 31, 2019, the Company divested of its investment in Whistler.

 

 

 

 

 

 

(c)

Basis of measurement

 

 

 

 

Apart from biological assets, other investments, and derivative liabilities, which are measured at fair value, the unaudited condensed interim consolidated financial statements have been presented and prepared on the basis of historical cost.

 


6


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

2.

Basis of presentation (continued)

 

(d)

Functional and presentation currency

 

These unaudited condensed interim consolidated financial statements are presented in Canadian dollars, which is the functional currency of the Company. The functional currency of all subsidiaries is the national currency of the respective jurisdiction of incorporation. Refer to Note 2(a).

 

3.

Adoption of new accounting pronouncements

 

(a)

IFRS 16, Leases

 

IFRS 16 was issued in January 2016 and replaces the previous guidance on leases, predominantly IAS 17, Leases. The Company has applied IFRS 16 with an initial application date of January 1, 2019, in accordance with the transitional provisions specified in IFRS 16. As a result, the Company has changed its accounting policy for lease contracts as detailed below. The Company has applied the following practical expedients:

 

 

 

 

 

 

 

 

(i)

The Company applied the simplified transition approach and did not restate comparative information. As a result, the Company recognized the cumulative effect of initially applying IFRS 16 as an adjustment to the accumulated deficit as at January 1, 2019.

 

 

 

 

 

 

 

 

(ii)

On transition to IFRS 16, the Company elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Company applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17, and IFRIC 4, Determining whether an arrangement contains a lease, were not reassessed for whether there is a lease. The Company applied the definition of a lease under IFRS 16 to contracts entered into or changed on or after January 1, 2019.

 

 

 

 

 

 

 

 

In accordance with the practical expedients applied, the Company has recognized lease liabilities and right-of-use assets at the date of initial application for leases previously classified as operating leases in accordance with IAS 17. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases (lease term of 12 months or less) and leases for which the underlying asset is of low value. The Company has elected to measure the right-of-use assets at the carrying amount as if IFRS 16 had been applied since the commencement date, discounted using the Company's incremental borrowing rate at the date of initial application. For the lease previously classified as a finance lease under IAS 17, the carrying amount of the right-of-use asset and the lease liability at the date of initial application is equal to the carrying amount of the leased asset and lease liability immediately before the date of initial application.

 

The following table summarizes the impacts of adopting IFRS 16 on the Company's unaudited condensed interim consolidated financial statements as at the date of initial application:

 

 

 

 

 

 

 

 

 

As at January 1, 2019

 

As previously reported

under IAS 17

 

 

Adjustments (i)

 

 

As restated

under IFRS 16

 

Right-of-use assets

 

$

217

 

 

$

1,890

 

 

$

2,107

 

Accumulated depreciation

 

 

46

 

 

 

144

 

 

 

190

 

Current lease liabilities

 

 

41

 

 

 

303

 

 

 

344

 

Non-current lease liabilities

 

 

119

 

 

 

1,515

 

 

 

1,634

 

Accumulated deficit

 

 

(22,715

)

 

 

(68

)

 

 

(22,783

)

Non-controlling interests

 

 

136

 

 

 

(4

)

 

 

132

 

 

 

 

 

 

 

 

 

 

(i)

The adjustments are due to the recognition of right-of-use assets and lease obligations for lease contracts previously classified as operating leases under IAS 17 prior to the date of initial application. The weighted average incremental borrowing rate applied to the lease liabilities recognized at the date of initial application is 12%. There would be no difference between the discounted value of the operating lease commitments disclosed at December 31, 2018 and the adjustments above. Furthermore, there were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.

 

7


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

 

3.

Adoption of new accounting pronouncements (continued)

 

(a)

IFRS 16, Leases (continued)

 

The following is the Company's policy for accounting for lease contracts in accordance with IFRS 16:

 

 

 

 

 

 

 

 

At the inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company recognizes a right-of-use asset and a lease liability at the commencement date of the lease. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. In addition, the right-of-use assets are adjusted for impairment losses, if any. The estimated useful lives and recoverable amounts of right-of-use assets are determined on the same basis as those of property and equipment. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. The lease liability is subsequently measured at amortized cost using the effective interest method. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases (lease term of 12 months or less) and leases for which the underlying asset is of low value. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

 

 

(b)

IFRIC 23, Uncertainty over income tax treatments

 

IFRIC 23 clarifies the application of recognition and measurement requirements in IAS 12, Income taxes, when there is uncertainty over income tax treatments. It specifically addresses whether an entity considers each tax treatment independently or collectively, the assumptions an entity makes about the examination of tax treatments by taxation authorities, how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, and how an entity considers changes in facts and circumstances. IFRIC 23 became effective for fiscal years beginning on or after January 1, 2019, with earlier application permitted. The Company has adopted this interpretation as of its effective date and has assessed no significant impact as a result of the adoption of this interpretation.

 

 

4.

Accounting changes

 

 

 

 

 

 

 

 

(a)

Change in estimate

 

During the three months ended March 31, 2018, the Company revised its estimate of the useful life of the Health Canada licenses, and assessed that the licenses have an estimated useful life equal to the remaining useful life of the corresponding facilities described in Note 9(a). Previously, the Company estimated that the Health Canada Licenses had an indefinite life. The change in estimate was accounted for prospectively.

 

(b)

Change in accounting policy

 

During the three months ended June 30, 2018, the Company made a voluntary change in accounting policy to capitalize the direct and indirect costs attributable to the biological asset transformation. The previous accounting policy was to expense these costs as period costs.

 


8


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

4.

Accounting changes (continued)

 

 

 

 

 

 

 

 

(b)

Change in accounting policy (continued)

 

The new accounting policy provides more reliable and relevant information to users as the gross profit before fair value adjustments only considers the costs incurred on inventory sold during the period, and excludes costs incurred on the biological transformation until the related harvest is sold. The following demonstrates the change for each prior period presented. There is no impact of this policy change on gross profit, net income (loss), basic and diluted earnings per share, the unaudited condensed interim consolidated statement of financial position, or the unaudited condensed interim consolidated statement of changes in equity on the current or any prior period, upon retrospective application.

 

 

Three Months Ended

March 31, 2019

 

 

Three Months Ended

March 31, 2018

 

 

Original

accounting

policy

 

 

New

accounting

policy

 

 

Original

accounting

policy

 

 

New

accounting

policy

 

Unaudited condensed interim consolidated statement of operations and comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales before fair value adjustments

$

1,684

 

 

$

2,984

 

 

$

521

 

 

$

1,567

 

Production costs

 

3,338

 

 

 

-

 

 

 

1,714

 

 

 

-

 

Total cost of sales

 

5,022

 

 

 

2,984

 

 

 

2,235

 

 

 

1,567

 

Gross profit before fair value adjustments

 

1,448

 

 

 

3,486

 

 

 

710

 

 

 

1,378

 

Fair value adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized change in fair value of biological assets

 

(16,891

)

 

 

(13,553

)

 

 

(4,458

)

 

 

(2,744

)

Realized fair value adjustments on inventory sold in the period

 

5,022

 

 

 

3,722

 

 

 

3,240

 

 

 

2,194

 

Total fair value adjustments

 

(11,869

)

 

 

(9,831

)

 

 

(1,218

)

 

 

(550

)

Gross profit

$

13,317

 

 

$

13,317

 

 

$

1,928

 

 

$

1,928

 

 

 

Three Months Ended

March 31, 2019

 

 

Three Months Ended

March 31, 2018

 

 

Original

accounting

policy

 

 

New

accounting

policy

 

 

Original

accounting

policy

 

 

New

accounting

policy

 

Unaudited condensed interim consolidated statement of cash flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Items not affecting cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized change in fair value of biological assets

$

(16,891

)

 

$

(13,553

)

 

$

(4,458

)

 

$

(2,744

)

Realized fair value adjustments on inventory sold in the period

 

5,022

 

 

 

3,722

 

 

 

3,240

 

 

 

2,194

 

Net changes in non-cash working capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Biological assets

 

15,033

 

 

 

11,695

 

 

 

3,740

 

 

 

2,026

 

Inventory

 

(18,501

)

 

 

(17,201

)

 

 

(3,802

)

 

 

(2,756

)

Net effect on cash flows used in operating activities

$

(15,337

)

 

$

(15,337

)

 

$

(1,280

)

 

$

(1,280

)

 


9


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

 

5.

Biological assets and inventory

 

 

 

 

 

(a)

Biological assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company's biological assets consist of cannabis plants. The changes in the carrying amounts of the biological assets are as follows:

 

 

Three Months Ended March 31,

 

 

 

 

2019

(Note 4)

 

 

2018

(Note 4)

 

Biological assets - beginning of period

 

$

9,074

 

 

$

3,722

 

Capitalization of production costs

 

 

3,338

 

 

 

1,714

 

Unrealized change in fair value of biological assets

 

 

13,553

 

 

 

2,744

 

Transferred to inventory upon harvest

 

 

(14,459

)

 

 

(3,690

)

Biological assets - end of period

 

$

11,506

 

 

$

4,490

 

 

As at March 31, 2019, the Company has 67,635 plants classified as biological assets which are expected to ultimately yield 6,155 kg of dry cannabis (December 31, 2018 - 46,004 plants which were expected to ultimately yield 6,303 kg of dry cannabis).

 

The Company measures its biological assets at fair value less costs to sell. This valuation is based on the expected harvest yield (on a grams per plant basis) for plants currently being cultivated, adjusted for the expected net selling price less post-harvest costs attributable to bringing a harvested gram of cannabis to a saleable condition and ultimate sale (on a per gram basis). The Company accretes the fair value of each cannabis plant on a straight-line basis over the expected growing cycle. As at March 31, 2019, the plants were on average 5 weeks into the growing cycle, 38% complete, and were ascribed approximately 38% (December 31, 2018 - 6 weeks, 37%, and 37%, respectively) of their expected fair value at harvest date.

 

(b)

Inventory

 

Inventory consisted of the following:

 

 

As at March 31, 2019

 

 

As at December 31, 2018

 

Dry cannabis

 

 

 

 

 

 

 

 

 

 

 

Finished goods

181 kg

 

$

1,014

 

 

187 kg

 

$

972

 

Work-in-process

3,261 kg

 

 

16,222

 

 

1,789 kg

 

 

7,733

 

 

 

 

 

17,236

 

 

 

 

 

8,705

 

 

 

 

 

 

 

 

 

 

 

 

 

Cannabis oils (i)

 

 

 

 

 

 

 

 

 

 

 

Finished goods

200 kg

 

 

1,054

 

 

115 kg

 

 

656

 

Work-in-process

1,175 kg

 

 

5,372

 

 

220 kg

 

 

1,250

 

 

 

 

 

6,426

 

 

 

 

 

1,906

 

 

 

 

 

 

 

 

 

 

 

 

 

Raw materials

(ii)

 

 

169

 

 

(ii)

 

 

171

 

Supplies and consumables

 

 

 

1,319

 

 

 

 

 

802

 

 

 

 

$

25,150

 

 

 

 

$

11,584

 

 

(i)

Cannabis oils are expressed in dry cannabis gram equivalents. Refer to Note 5(d) for the equivalency factor applied.

 

 

 

 

 

 

 

 

 

 

 

 

 

(ii)

As at March 31, 2019 and December 31, 2018, raw materials consisted of 0.267 kg of seeds held by the Company.

 

 

 

 

 

 

 

 

 

 

 

 

 

As at March 31, 2019, the Company held 40 kg (December 31, 2018 - 29 kg) of dry cannabis and 5 kg (December 31, 2018 - 4 kg) of cannabis oils as retention samples, which are valued at $nil.

 

10


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

5.

Biological assets and inventory (continued)

 

(c)

Direct and indirect cost allocations

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs incurred to transform biological assets up to the point of harvest ("production costs") are capitalized as they are incurred, which become the cost basis of the biological assets. These costs include direct costs such as nutrients, soil, and seeds, as well as other indirect costs such as utilities, an allocation of indirect labour, property taxes, and depreciation of equipment used in the growing process. The biological assets are then revalued to fair value less costs to sell immediately prior to harvest and at the end of each reporting period. Gains or losses arising from changes in fair value less costs to sell, excluding capitalized production costs, are presented as unrealized change in fair value of biological assets. At the point of harvest, agricultural produce consisting of cannabis is considered inventory. The fair value less costs to sell becomes the cost base of inventory. Any subsequent post-harvest costs ("processing costs"), including direct costs attributable to processing and related overhead, are capitalized to inventory as they are incurred. Upon ultimate sale of inventory, the associated production and processing costs are presented as cost of sales before fair value adjustments; the remaining cost of inventory, associated with fair value less costs to sell prior to harvest, is presented as realized fair value adjustments on inventory sold in the period.

 

The direct and indirect costs related to biological assets and inventory are allocated as follows. The allocation basis was consistent for the three months ended March 31, 2019 and 2018, unless otherwise specified.

 

 

 

 

 

 

Nature of cost

Allocation basis

Consumables (insect control, fertilizers, soil)

100% allocated to production costs because these costs are incurred to support plant growth

Labour costs (including salaries and benefits)

Allocated based on job descriptions of various personnel

40% allocated to processing costs; 40% allocated to production costs; 20% allocated to operating expenses (2018 - 20%; 60%; and 20%; respectively)

Supplies and small tools

80% allocated to production costs; 20% allocated to processing costs

Utilities

Allocated based on estimates of usage

10% allocated to processing costs; 90% allocated to production costs

Property taxes, depreciation, security

Allocated based on estimates of square footage

20% allocated to processing costs; 50% allocated to production costs; 30% allocated to operating expenses

Packaging costs

100% allocated to processing costs

 

 

(d)

Significant inputs and sensitivity analyses

 

 

 

 

 

The Company has made the following estimates related to significant inputs in the valuation model:

 

Significant inputs

Definition

Net selling price per gram

Estimated net selling price per gram of dry cannabis based on historical sales and anticipated prices, after adjustment for excise taxes

Harvest yield per plant

Expected grams of dry cannabis to be harvested from a cannabis plant, based on the weighted average historical yields by plant strain

Stage of growth

Weighted average plant age (in weeks) out of the 14 week (December 31, 2018 - 16 week) growing cycle as of the period end date

Processing costs per gram

Estimated post-harvest costs per gram to bring a gram of harvested cannabis to its saleable condition, including drying, curing, testing and packaging, and overhead allocation; estimated based on post-harvest costs incurred during the period divided by number of grams processed during the period

Selling costs per gram

Estimated shipping, order fulfillment, and labelling costs per gram; calculated as selling costs incurred during the period divided by number of grams sold during the period

Equivalency factor

Estimated grams of dry cannabis required to produce one millilitre of cannabis oil; estimated based on historical conversion results

Mass multipliers

Estimated multiples of crude extract and isolate mass in diluted cannabis oil products

11


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

5.

Biological assets and inventory (continued)

 

(d)

Significant inputs and sensitivity analyses (continued)

 

These inputs are level 3 on the fair value hierarchy, and are subject to volatility and several uncontrollable factors, which could significantly affect the fair value of biological assets and inventory in future periods.

 

The following table quantifies each of the significant unobservable inputs described above and provides a sensitivity analysis of the impact on the reported values of biological assets and inventory. The sensitivity analysis for each significant input is performed by assuming a 5% decrease in the input while other significant inputs remain constant at management's best estimate as of the period end date.

 

 

 

 

 

Increase (decrease) as at

March 31, 2019

 

 

 

 

Increase (decrease) as at

December 31, 2018

 

 

As at

March 31,

2019

 

Biological assets

 

 

Inventory

 

 

As at

December 31, 2018

 

Biological assets

 

 

Inventory

 

Net selling price per gram

$5.97/g

 

$

(708

)

 

$

(705

)

 

$5.58/g

 

$

(673

)

 

$

(640

)

Harvest yield per plant

91 g

 

 

(572

)

 

 

-

 

 

137 g

 

 

(446

)

 

 

-

 

Stage of growth

5 weeks

 

 

(572

)

 

 

-

 

 

6 weeks

 

 

(446

)

 

 

-

 

Processing costs per gram

$0.76/g

 

 

90

 

 

 

83

 

 

$1.98/g

 

 

175

 

 

 

65

 

Selling costs per gram

$0.40/g

 

 

47

 

 

 

47

 

 

$0.43/g

 

 

52

 

 

 

50

 

Equivalency factor

0.3 g/mL

 

 

(48

)

 

 

(138

)

 

0.3 g/mL

 

 

(45

)

 

 

(104

)

Mass multipliers

35x - 50x

 

 

(35

)

 

 

(222

)

 

30x - 50x

 

 

(5

)

 

 

(24

)

 

 

6.

Equity accounted investees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Advances to joint ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advances to joint ventures are unsecured, non-interest bearing, and have no terms of repayment, unless otherwise specified. The joint ventures are solely funded by their shareholders and the advances are considered an extension of the Company's investments therein. As such, losses recognized in excess of the Company's capital contributions are applied against the respective advances.

 

As at March 31, 2019

Natuera Colombia (v)

 

 

MedMen Canada (ii)

 

 

Cronos

GrowCo (iii)

 

 

Cronos Australia (iv)

 

 

Total

 

Gross advances to joint ventures

$

302

 

 

$

1,856

 

 

$

19,115

 

 

$

1,480

 

 

$

22,753

 

Less: advances to joint ventures applied to carrying amount of investments

 

-

 

 

 

(167

)

 

 

-

 

 

 

(666

)

 

 

(833

)

Advances to joint ventures

$

302

 

 

$

1,689

 

 

$

19,115

 

 

$

814

 

 

$

21,920

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at December 31, 2018

Natuera Colombia (v)

 

 

MedMen Canada (ii)

 

 

Cronos

GrowCo (iii)

 

 

Cronos Australia (iv)

 

 

Total

 

Gross advances to joint ventures

$

-

 

 

$

1,871

 

 

$

4,080

 

 

$

990

 

 

$

6,941

 

Less: advances to joint ventures applied to carrying amount of investments

 

-

 

 

 

(175

)

 

 

(29

)

 

 

(342

)

 

 

(546

)

Advances to joint ventures

$

-

 

 

$

1,696

 

 

$

4,051

 

 

$

648

 

 

$

6,395

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company did not make any advances to its joint ventures during the three months ended March 31, 2018.

 


12


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

6.

Equity accounted investees (continued)

 

(b)

Net investment in equity accounted investees

 

 

 

 

 

 

 

 

 

 

 

 

A reconciliation of the carrying amount of the investments in associates and joint ventures is as follows:

 

 

 

 

Whistler (i)

 

 

MedMen Canada (ii)

 

 

Cronos

GrowCo (iii)

 

 

Cronos Australia (iv)

 

 

Total

 

As at January 1, 2019

 

$

4,038

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

4,038

 

Share of net income (loss)

 

 

38

 

 

 

8

 

 

 

14

 

 

 

(324

)

 

 

(264

)

Contribution to (disposal of) investment

 

 

(4,076

)

 

 

-

 

 

 

2,200

 

 

 

-

 

 

 

(1,876

)

Advances to joint ventures applied to (transferred from) carrying amount of investments

 

 

-

 

 

 

(8

)

 

 

(29

)

 

 

324

 

 

 

287

 

As at March 31, 2019

 

$

-

 

 

$

-

 

 

$

2,185

 

 

$

-

 

 

$

2,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whistler (i)

 

 

MedMen Canada (ii)

 

 

Cronos

GrowCo (iii)

 

 

Cronos Australia (iv)

 

 

Total

 

As at January 1, 2018

 

$

3,807

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

3,807

 

Share of net income

 

 

41

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

41

 

As at March 31, 2018

 

$

3,848

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

3,848

 

 

 

(i)

Whistler was incorporated in British Columbia, Canada and is a License Holder with production facilities in British Columbia, Canada. Although the Company held less than 20% of the ownership interest and voting control of Whistler as at December 31, 2018, the Company had the ability to exercise significant influence through both its power to elect board members, and aggregately, with affiliated shareholders, the Company held over 20% of the voting control of Whistler.

 

 

 

 

 

 

 

 

 

 

 

 

 

On March 4, 2019, the Company sold all 2,563 shares of Whistler, representing approximately 19.0% of Whistler's issued and outstanding common shares, to Aurora Cannabis Inc. ("Aurora"), in connection with Aurora's acquisition of Whistler (the "Whistler Transaction"). As a result of the closing of the Whistler Transaction, the Company received 2,524,341 Aurora common shares with an aggregate value of approximately $24,682. The closing of the Whistler Transaction resulted in a gain of $20,606 recognized in net income, with the Aurora common shares received being measured at fair value through profit or loss. Refer to Note 7. In addition, the Company expects to further receive Aurora common shares valued at an aggregate of approximately $7,600 upon the satisfaction of certain specified milestones, which has not been recognized in these unaudited condensed interim consolidated financial statements. The exact number of Aurora common shares to be issued to the Company following the satisfaction of each such milestone will be determined in reference to the five-day volume weighted average price of Aurora common shares immediately prior to the achievement of the applicable milestone.

 

 

 

(ii)

MedMen Canada was incorporated under the Canada Business Corporations Act ("CBCA") on March 13, 2018, with the objective of distribution, sale, and marketing of cannabis products in Canada. MedMen Canada holds the exclusive license to the MedMen brand in Canada for a minimum term of 20 years, commencing from 2018.

 

 

 

 

 

 

 

 

 

 

 

 

(iii)

Cronos GrowCo was incorporated under the CBCA on June 14, 2018, with the objective of building a cannabis production greenhouse, applying for cannabis licenses under the Cannabis Act, and growing, cultivating, extracting, producing, selling, and distributing cannabis in accordance with such licenses.

 

 


13


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

6.

Equity accounted investees (continued)

 

(iv)

Cronos Australia Pty. Ltd. was incorporated under the Corporations Act 2001 (Australia) on December 6, 2016. On September 27, 2018, Cronos Australia Pty. Ltd. underwent a restructuring, resulting in the incorporation of Cronos Australia Limited on that date, which became the ultimate holding company of the group, owning 100% of Cronos Australia Group Pty. Ltd., which in turn owns 100% of Cronos Australia - Marketing & Distribution Pty. Ltd., Cronos Australia - Operations Pty. Ltd, and Cronos Australia – New Zealand Ltd. Cronos Group has committed to provide 50% of the capital expenditure and operating expense funding requirements, amounting to approximately $10,000. The timing of these funding obligations has not been determined as of March 31, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

Advances are denominated in Australian dollars ("AUD"). $1,480 ($1,500 AUD) (December 31, 2018 - $940 ($1,000 AUD)) is governed by an unsecured loan bearing interest at a rate of 12% per annum, calculated and compounded daily, in arrears, on the amounts advanced from the date of each advance. The loan is due at the earlier of Cronos Australia's initial public offering date and December 1, 2020. If the loan is overdue, the outstanding amount bears interest at an additional 2% per annum.

 

 

 

 

 

 

 

 

 

 

 

 

(v)

The Company indirectly holds a 50% interest in NatuEra Colombia S.A.S. ("NatuEra Colombia") through the Company's joint venture, NatuEra S.à r.l. NatuEra Colombia is a wholly owned subsidiary of NatuEra S.à r.l., incorporated in Colombia. Advances are denominated in United States dollars ("USD"). $302 ($226 USD) (December 31, 2018 - $nil) is governed by an unsecured promissory note bearing interest at a rate of 1% per annum. The loan is due January 25, 2020.

 

 

7.

Other investments

 

Other investments consist of investments in common shares and warrants of companies in the cannabis industry. These investments, with the exception of shares of Evergreen Medicinal Supply Inc. ("Evergreen") and warrants of ABcann Global Corporation (now known as "VIVO Cannabis Inc.") ("ABcann"), were quoted in an active market as of the relevant period end date and, as a result, had a reliably measurable fair value as of such period end dates.

 

 

 

 

 

As at

March 31, 2019

 

 

As at

December 31, 2018

 

Fair value through other comprehensive income investments

 

 

 

 

 

 

 

Canopy Growth Corporation ("Canopy") (i)

$

-

 

 

$

405

 

Evergreen (ii)

 

300

 

 

 

300

 

 

$

300

 

 

$

705

 

 

 

Three Months Ended March 31,

 

 

2019

 

 

2018

 

Gain recognized in net income (loss)

 

 

 

 

 

 

 

Aurora (iii)

$

924

 

 

$

-

 

ABcann - share warrants (iv)

 

-

 

 

 

221

 

 

$

924

 

 

$

221

 

 

 

Three Months Ended March 31,

 

 

2019

 

 

2018

 

Gain (loss) recognized in other comprehensive income (loss) before taxes

 

 

 

 

 

 

 

Canopy (i)

$

67

 

 

$

182

 

ABcann - shares (iv)

 

-

 

 

 

(190

)

 

$

67

 

 

$

(8

)

14


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

7.

Other investments (continued)

 

(i)

During the three months ended March 31, 2019, the Company sold all remaining 11,062 common shares of Canopy for gross proceeds of $472 (2018 - 18,436 shares for gross proceeds of $687).

 

 

 

 

 

 

 

(ii)

On March 16, 2017, Evergreen received a cultivation license under the Cannabis Act. As a result, the Company completed its subscription for a second tranche of common shares of Evergreen for $100 and exercised its option to acquire an additional 5% of the equity of Evergreen for $500, for a total additional investment of $600. However, Evergreen, through its counsel, has indicated that the Company is not entitled to any interest in Evergreen and has rejected the payment. The Company filed a statement of claim in the Supreme Court of British Columbia and Evergreen has filed a statement of defence. The Company intends to vigorously pursue the enforcement of its rights to acquire equity in Evergreen.

 

(iii)

In connection with the Whistler Transaction described in Note 6, the Company received 2,524,341 common shares of Aurora. During the three months ended March 31, 2019, the Company sold all 2,524,341 common shares of Aurora, for gross proceeds of $25,606.

 

 

 

 

 

 

 

(iv)

During the three months ended March 31, 2018, the Company exercised 182,927 share warrants for aggregate consideration of $113, for additional common shares of ABcann. Prior to the exercise, the share warrants were revalued to fair value using the Black-Scholes option pricing model. These ABcann shares were revalued to their fair value at the end of the period.

 

 

8.

Property, plant and equipment

 

 

Cost

As at

January 1, 2019

 

 

Additions (i)

 

 

Transfers

 

 

As at

March 31, 2019

 

Land

$

3,207

 

 

$

28

 

 

$

-

 

 

$

3,235

 

Building structures

 

21,652

 

 

 

9,394

 

 

 

106,766

 

 

 

137,812

 

Furniture and equipment

 

676

 

 

 

143

 

 

 

-

 

 

 

819

 

Computer equipment

 

464

 

 

 

227

 

 

 

-

 

 

 

691

 

Security equipment

 

985

 

 

 

117

 

 

 

-

 

 

 

1,102

 

Production equipment

 

4,823

 

 

 

222

 

 

 

-

 

 

 

5,045

 

Road

 

137

 

 

 

-

 

 

 

-

 

 

 

137

 

Leasehold improvements

 

1,584

 

 

 

165

 

 

 

-

 

 

 

1,749

 

Construction in progress

 

141,473

 

 

 

3,665

 

 

 

(106,766

)

 

 

38,372

 

 

$

175,001

 

 

$

13,961

 

 

$

-

 

 

$

188,962

 

 

 

Accumulated depreciation

As at

January 1, 2019

 

 

Additions (ii)

 

 

Transfers

 

 

As at

March 31, 2019

 

Building structures

$

1,184

 

 

$

745

 

 

$

-

 

 

$

1,929

 

Furniture and equipment

 

121

 

 

 

35

 

 

 

-

 

 

156

 

Computer equipment

 

169

 

 

 

53

 

 

 

-

 

 

 

222

 

Security equipment

 

384

 

 

 

54

 

 

 

-

 

 

 

438

 

Production equipment

 

896

 

 

 

173

 

 

 

-

 

 

 

1,069

 

Road

 

17

 

 

 

1

 

 

 

-

 

 

 

18

 

Leasehold improvements

 

510

 

 

 

50

 

 

 

-

 

 

 

560

 

 

$

3,281

 

 

$

1,111

 

 

$

-

 

 

$

4,392

 

Net book value

$

171,720

 

 

 

 

 

 

 

 

 

 

$

184,570

 

15


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

8.

Property, plant and equipment (continued)

 

Cost

As at

January 1, 2018

 

 

Additions (i)

 

 

Transfers

 

 

As at

March 31, 2018

 

Land

$

1,558

 

 

$

19

 

 

$

-

 

 

$

1,577

 

Building structures

 

11,518

 

 

 

1,134

 

 

 

-

 

 

 

12,652

 

Furniture and equipment

 

134

 

 

 

229

 

 

 

-

 

 

 

363

 

Computer equipment

 

148

 

 

 

57

 

 

 

-

 

 

 

205

 

Security equipment

 

886

 

 

 

10

 

 

 

-

 

 

 

896

 

Production equipment

 

2,481

 

 

 

181

 

 

 

-

 

 

 

2,662

 

Road

 

137

 

 

 

-

 

 

 

-

 

 

 

137

 

Leasehold improvements

 

1,497

 

 

 

49

 

 

 

-

 

 

 

1,546

 

Construction in progress

 

39,337

 

 

 

6,186

 

 

 

-

 

 

 

45,523

 

 

$

57,696

 

 

$

7,865

 

 

$

-

 

 

$

65,561

 

 

Accumulated depreciation

As at

January 1, 2018

 

 

Additions (ii)

 

 

Transfers

 

 

As at

March 31, 2018

 

Building structures

$

433

 

 

$

152

 

 

$

-

 

 

$

585

 

Furniture and equipment

 

43

 

 

 

13

 

 

 

-

 

 

 

56

 

Computer equipment

 

75

 

 

 

13

 

 

 

-

 

 

 

88

 

Security equipment

 

196

 

 

 

45

 

 

 

-

 

 

 

241

 

Production equipment

 

431

 

 

 

104

 

 

 

-

 

 

 

535

 

Road

 

10

 

 

 

1

 

 

 

-

 

 

 

11

 

Leasehold improvements

 

336

 

 

 

41

 

 

 

-

 

 

 

377

 

 

$

1,524

 

 

$

369

 

 

$

-

 

 

$

1,893

 

Net book value

$

56,172

 

 

 

 

 

 

 

 

 

 

$

63,668

 

 

(i)

During the three months ended March 31, 2019, there were non-cash additions from the amortization of capitalized transaction costs and the capitalization of accrued interest to construction in progress and building structures amounting to $481 (2018 - $223). Refer to Note 12. In addition, advances from non-controlling interests accrued interest of $26 (2018 - $nil) which was capitalized to construction in progress during the three months ended March 31, 2019. Refer to Note 10.

 

 

 

 

 

 

 

 

 

 

 

(ii)

During the three months ended March 31, 2019, $3 (2018 - $nil) of the current period's depreciation expense was recorded as part of cost of sales. An additional $892 (2018 - $255) of depreciation expense was capitalized to biological assets and inventory.

 


16


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

 

9.

Intangible assets and goodwill

 

 

 

 

 

 

 

 

(a)

Intangible assets

 

 

Cost

As at

January 1, 2019

 

 

Additions

 

 

As at

March 31, 2019

 

Software

$

360

 

 

$

51

 

 

$

411

 

Health Canada Licenses - OGBC

 

1,611

 

 

 

-

 

 

 

1,611

 

Health Canada Licenses - Peace Naturals

 

9,596

 

 

 

-

 

 

 

9,596

 

Israeli Cannabis Code - Cronos Israel G.S. Cultivations Ltd. (i)

 

156

 

 

 

-

 

 

 

156

 

Israeli Cannabis Code - Cronos Israel G.S. Manufacturing Ltd. (i)

 

218

 

 

 

-

 

 

 

218

 

 

$

11,941

 

 

$

51

 

 

$

11,992

 

 

(i)

The Israeli Cannabis Codes were transferred by non-controlling interests to Cronos Israel in exchange for their equity interests in the Cronos Israel entities specified above. Refer to Note 10. The corresponding facilities are currently under construction. Amortization will begin when the facilities are available for use.

 

 

 

 

 

 

 

 

 

Accumulated amortization

As at

January 1, 2019

 

 

Additions

 

 

As at

March 31, 2019

 

Software

$

73

 

 

$

40

 

 

$

113

 

Health Canada Licenses - OGBC

 

101

 

 

 

25

 

 

 

126

 

Health Canada Licenses - Peace Naturals

 

533

 

 

 

133

 

 

 

666

 

 

$

707

 

 

$

198

 

 

$

905

 

Net book value

$

11,234

 

 

 

 

 

 

$

11,087

 

 

Cost

As at

January 1, 2018

 

 

Additions

 

 

As at

March 31, 2018

 

Software

$

-

 

 

$

131

 

 

$

131

 

Health Canada Licenses - OGBC

 

1,611

 

 

 

-

 

 

 

1,611

 

Health Canada Licenses - Peace Naturals

 

9,596

 

 

 

-

 

 

 

9,596

 

 

$

11,207

 

 

$

131

 

 

$

11,338

 

 

Accumulated amortization

As at

January 1, 2018

 

 

Additions

 

 

As at

March 31, 2018

 

Software

$

-

 

 

$

8

 

 

$

8

 

Health Canada Licenses - OGBC

 

-

 

 

 

20

 

 

 

20

 

Health Canada Licenses - Peace Naturals

 

-

 

 

 

120

 

 

 

120

 

 

$

-

 

 

$

148

 

 

$

148

 

Net book value

$

11,207

 

 

 

 

 

 

$

11,190

 

 


17


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

 

9.

Intangible assets and goodwill (continued)

 

(b)

Goodwill

 

 

 

As at

January 1, 2019

 

 

Additions

 

 

As at

March 31, 2019

 

OGBC

$

392

 

 

$

-

 

 

$

392

 

Peace Naturals

 

1,400

 

 

 

-

 

 

 

1,400

 

 

$

1,792

 

 

$

-

 

 

$

1,792

 

 

 

As at

January 1, 2018

 

 

Additions

 

 

As at

March 31, 2018

 

OGBC

$

392

 

 

$

-

 

 

$

392

 

Peace Naturals

 

1,400

 

 

 

-

 

 

 

1,400

 

 

$

1,792

 

 

$

-

 

 

$

1,792

 

 

10.

Subsidiaries with non-controlling interests

 

 

 

 

 

In September 2018, the Company subscribed for its equity interest in a strategic joint venture in Israel, consisting of four legal entities, with the Israeli agricultural collective settlement Kibbutz Gan Shmuel ("Gan Shmuel"), for the production, manufacturing and distribution of medical cannabis. The Company's equity interest subscription in all four of the Israeli entities comprising Cronos Israel, was accounted for as an asset acquisition as the Israeli entities did not meet the definition of a business at the respective dates Cronos Group acquired control. During the three months ended March 31, 2018, the Company advanced $926 to Cronos Israel under a promissory note, reflected in cash used in the Company's investing activities. As at March 31, 2019 and December 31, 2018, Cronos Israel has been included in these consolidated financial statements.

 

 

 

 

 

Financial information of significant subsidiaries with non-controlling interests are as follows:

 

 

Cronos Israel G.S. Cultivations Ltd.

 

 

Cronos Israel G.S. Manufacturing Ltd.

 

 

As at

March 31,

2019

 

 

As at

December 31, 2018

 

Percentage interest held

by non-controlling interests

 

30%

 

 

 

10%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

$

786

 

 

$

802

 

 

$

1,588

 

 

$

1,403

 

Non-current assets

 

6,189

 

 

 

10,772

 

 

 

16,961

 

 

 

11,050

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

963

 

 

 

228

 

 

 

1,191

 

 

 

401

 

Non-current liabilities (i)

 

6,450

 

 

 

10,074

 

 

 

16,524

 

 

 

10,601

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

(438

)

 

 

1,272

 

 

 

834

 

 

 

1,451

 

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cronos Group

 

(307

)

 

 

1,145

 

 

 

838

 

 

 

1,315

 

Non-controlling interests

 

(131

)

 

 

127

 

 

 

(4

)

 

 

136

 

 

(i)

Non-current liabilities include advances from non-controlling interests, in the amount of $2,176 (December 31, 2018 - $2,092) plus cumulative accrued interest of $71 (December 31, 2018 - $44). These advances are denominated in Israeli Shekels ("ILS"), are unsecured, bear interest at 5%, and have no fixed terms of repayment. Refer to Note 22(d).

 

 

 

 

 

 

 

 

 

The above information represents amounts before intercompany eliminations.

 

 

 

18


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

11.

Leases

 

 

 

 

 

 

 

 

 

 

Information about leases for which the Company is a lessee is presented below.

 

 

 

 

 

 

 

 

 

 

(a)

Right-of-use assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company's leasing activities include the lease of land-use rights, office premises, and equipment used in the production of cannabis and related products.

 

Cost

 

As at

January 1, 2019

(Note 3)

 

 

Foreign exchange translation

 

 

As at

March 31, 2019

 

 

Land-use rights

 

$

884

 

 

$

14

 

 

$

898

 

Building

 

 

1,006

 

 

 

-

 

 

 

1,006

 

Production equipment

 

 

217

 

 

 

-

 

 

 

217

 

 

 

 

 

 

$

2,107

 

 

$

14

 

 

$

2,121

 

 

Accumulated depreciation

 

As at

January 1, 2019

(Note 3)

 

 

Additions

 

 

As at

March 31, 2019

 

 

Land-use rights

 

$

40

 

 

$

15

 

 

$

55

 

Building

 

 

104

 

 

 

33

 

 

 

137

 

Production equipment

 

 

46

 

 

 

8

 

 

 

54

 

 

 

 

$

190

 

 

$

56

 

 

$

246

 

Net book value

 

$

1,917

 

 

 

 

 

 

$

1,875

 

 

Production equipment

 

As at

January 1, 2018

 

 

Additions

 

 

As at

March 31, 2018

 

Cost

 

$

-

 

 

$

217

 

 

$

217

 

Accumulated depreciation

 

 

-

 

 

 

(23

)

 

 

(23

)

Net book value

 

$

-

 

 

$

194

 

 

$

194

 

 

(b)

Maturity analysis of lease obligations

 

 

 

 

 

 

 

 

 

 

The following represents a maturity analysis of the Company's undiscounted contractual lease obligations and potential exposures as at March 31, 2019.

 

 

 

 

Less than one year

 

 

One to five years

 

 

More than five years

 

 

Total

 

Contractual obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease obligations recognized

 

$

379

 

 

$

1,350

 

 

$

1,766

 

 

$

3,495

 

Short-term leases not recognized (i)

 

 

351

 

 

 

-

 

 

 

-

 

 

 

351

 

 

 

 

 

730

 

 

 

1,350

 

 

 

1,766

 

 

 

3,846

 

Potential exposures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Extension options

 

 

-

 

 

 

-

 

 

 

4,049

 

 

 

4,049

 

Lease not yet commenced to which the Company is committed

 

 

98

 

 

 

1,211

 

 

 

827

 

 

 

2,136

 

 

 

$

828

 

 

$

2,561

 

 

$

6,642

 

 

$

10,031

 

 

(i)

The Company has applied the recognition exemption to short-term leases, which are therefore not recognized in the unaudited condensed interim consolidated statements of financial position.

 

19


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

11.

Leases (continued)

 

(c)

Supplemental disclosure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March 31, 2019, the Company recognized $15 of interest expense on lease obligations and $117 of lease payments associated with short-term leases in the unaudited condensed interim consolidated statements of operations and comprehensive income (loss). For the three months ended March 31, 2019, the total cash outflow relating to leases amounted to $164.

 

12.

Construction loan payable

 

 

 

As at

March 31,

2019

 

 

As at

December 31,

2018

 

Aggregate advances

$

-

 

 

$

21,311

 

Less: transaction costs (net of amortization)

 

-

 

 

 

(481

)

Add: accrued interest

 

-

 

 

 

121

 

 

$

-

 

 

$

20,951

 

 

On August 23, 2017, Peace Naturals, as borrower, signed a construction loan agreement with Romspen Investment Corporation as lender, to borrow $40,000, to be funded by way of multiple advances. The aggregate advances were limited to $35,000 until the lender received an appraisal valuing the property in British Columbia at an amount of not less than $8,000. The loan bore interest at a rate of 12% per annum, calculated and compounded monthly, in arrears, on the amounts advanced from the date of each advance. The term of the loan was two years, with the borrower's option to extend for another twelve months. The loan was guaranteed by Cronos Group, Hortican, OGBC, the responsible-person-in-charge and the senior-person-in-charge of OGBC and Peace Naturals.

 

 

 

 

 

 

 

On January 23, 2019, the Company entered into a credit agreement with Canadian Imperial Bank of Commerce, as administrative agent and lender, and the Bank of Montreal, as lender, in respect of a $65,000 secured non-revolving term loan credit facility (the "Credit Facility"). The Company used the funds available under the Credit Facility to fully repay the construction loan payable, consisting of $21,311 in loan principal and $275 in accrued interest and fees, calculated for the period from January 1, 2019 to January 22, 2019. On March 8, 2019, the Credit Facility was fully repaid. In connection to the Credit Facility, the Company incurred financing costs of $523 which were expensed upon repayment of the Credit Facility.

 

 

 

13.

Derivative liabilities

 

On March 8, 2019, the Company closed the previously announced investment in the Company (the "Altria Investment") by Altria Group, Inc. ("Altria"), pursuant to a subscription agreement dated December 7, 2018. The Altria Investment consists of 149,831,154 common shares of the Company, refer to Note 14(a), and one warrant of the Company (the "Altria Warrant"), refer to Note 13(a), issued to a wholly owned subsidiary of Altria. As of the closing date, Altria beneficially held an approximate 45% ownership interest in the Company (calculated on a non-diluted basis). As summarized in this note, if exercised in full on such date, the exercise of the Altria Warrant would result in Altria holding a total ownership interest in the Company of approximately 55% (calculated on a non-diluted basis). Pursuant to the investor rights agreement between the Company and Altria, entered into in connection with the closing of the Altria Investment (the "Agreement"), the Company granted Altria certain rights, among others, summarized in this note.

 


20


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

13.

Derivative liabilities (continued)

 

The summaries below are qualified entirely by the terms and conditions fully set out in the Agreement and the Altria Warrant, as applicable.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

The Altria Warrant entitles the holder, subject to certain qualifications and limitations, to subscribe for and purchase up to 73,990,693 common shares at the exercise price of $19.00 per common share, until expiry on March 8, 2023. The number of common shares of the Company to which the holder is entitled, and the corresponding exercise price, is subject to adjustment pursuant to a share dividend, share issuance, distribution, or share subdivision, split or other division, share consolidation, reverse-split or other aggregation, share reclassification, a capital reorganization, consolidation, amalgamation, arrangement, binding share exchange, merger or other combination, certain securities issuances, redemptions or certain other actions that would result in a reduction in the number of common shares of the Company outstanding, in each case, executed by the Company. If and whenever there is a reclassification of the common shares or a capital reorganization of the Company, or a consolidation, amalgamation, arrangement, binding share exchange or merger of the Company, in each case executed by the Company and pursuant to which (i) in the event the consideration received by the Company's shareholders is exclusively cash, the Company or the successor entity is required to purchase the Altria Warrant in cash equal to the amount by which the purchase price per share paid for the common shares acquired exceeds the exercise price of the Altria Warrant multiplied by the number of common shares that would be issuable upon exercise of the Altria Warrant, and (ii) in the event the consideration received by the Company's shareholders is not exclusively cash, the Altria Warrant shall remain outstanding in accordance with its terms.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b)

The Company granted to Altria, subject to certain qualifications and limitations, upon the occurrence of certain issuances of common shares of the Company executed by the Company (including issuances pursuant to the research and development partnership with Ginkgo Bioworks Inc. (the "Ginkgo Agreement"), refer to Note 19(a)(i)), the right to purchase up to such number of common shares of the Company in order to maintain their ownership percentage of issued and outstanding common shares of the Company immediately preceding any shares so issued by the Company ("Pre-emptive Rights"), at the same price per common share of the Company at which the common shares of the Company are sold in the relevant issuance; provided that the price per common share of the Company to be paid pursuant to its exercise of its Pre-emptive Rights related to the Ginkgo Agreement will be $16.25 per common share of the Company. These rights may not be exercised if Altria's ownership percentage of the issued and outstanding shares of the Company falls below 20%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(c)

In addition to (and without duplication of) the Pre-emptive Rights, the Company granted to Altria, subject to certain qualifications and limitations, the right to subscribe for common shares of the Company issuable in connection with the exercise, conversion or exchange of convertible securities of the Company issued prior to March 8, 2019 or thereafter, a share incentive plan of the Company, the exercise of any right granted by the Company pro rata to all shareholders of the Company to purchase additional common shares and/or securities of the Company, bona fide bank debt, equipment financing or non-equity interim financing transactions that contemplates an equity component or bona fide acquisitions, mergers or similar business combination transactions or joint ventures involving the Company in order to maintain their ownership percentage of issued and outstanding common shares of the Company immediately preceding any such transactions ("Top-up Rights"). The price per common share to be paid by Altria pursuant to the exercise of its Top-up Rights will be, subject to certain limited exceptions, the 10-day volume-weighted average price of the common shares of the Company on the TSX at the time of exercise; provided that the per price per common share of the Company to be paid by Altria pursuant to the exercise of its Top-up Rights in connection with the issuance of common shares of the Company pursuant to the exercise of options or warrants that are outstanding as of March 8, 2019 will be $16.25 per common share. These rights may not be exercised if Altria's ownership percentage of the issued and outstanding shares of the Company falls below 20%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company’s policy for accounting for its derivative liabilities is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities are initially recognized at fair value at the date on which the derivative contract is entered into. Any attributable transaction costs are recognized in net income (loss) as incurred. Subsequent to initial recognition, derivative liabilities are measured at fair value, and changes are recognized immediately in net income (loss).

 


21


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

13.

Derivative liabilities (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Altria Warrant, Pre-emptive Rights, and fixed price Top-up Rights have been classified as derivative liabilities; related transaction costs of $29,038 have been expensed as financing costs. A reconciliation of the carrying amounts from the date of initial recognition, March 8, 2019, to March 31, 2019 is presented below:

 

 

 

 

 

As at

March 8, 2019

 

 

Gain on revaluation

 

 

As at

March 31, 2019

 

(a)

Altria Warrant

$

1,458,366

 

 

$

(298,510

)

 

$

1,159,856

 

(b)

Pre-emptive Rights

 

124,176

 

 

 

(27,792

)

 

 

96,384

 

(c)

Top-up Rights

 

518,116

 

 

 

(110,081

)

 

 

408,035

 

 

 

 

 

$

2,100,658

 

 

$

(436,383

)

 

$

1,664,275

 

 

The fair values of the derivative liabilities were determined using the Black-Scholes pricing model as at March 8, 2019 and March 31, 2019, applying the following inputs:

 

 

 

 

 

As at March 8, 2019

 

 

As at March 31, 2019

 

 

 

 

 

Altria Warrant

 

 

Pre-emptive Rights

 

 

Top-up

Rights

 

 

Altria Warrant

 

 

Pre-emptive Rights

 

 

Top-up

Rights

 

 

Share price at grant date (per share)

 

$29.15

 

 

$29.15

 

 

$29.15

 

 

$24.55

 

 

$24.55

 

 

$24.55

 

 

Subscription price (per share)

 

$19.00

 

 

$16.25

 

 

$16.25

 

 

$19.00

 

 

$16.25

 

 

$16.25

 

(i)

Weighted average risk-free interest rate

 

1.65%

 

 

1.64%

 

 

1.64%

 

 

1.53%

 

 

1.54%

 

 

1.53%

 

(ii)

Weighted average expected life (in years)

 

 

4.00

 

 

 

2.00

 

 

 

2.68

 

 

 

3.94

 

 

 

2.00

 

 

 

2.68

 

(iii)

Expected annualized volatility

 

80%

 

 

80%

 

 

80%

 

 

80%

 

 

80%

 

 

80%

 

 

Expected dividend yield

 

0%

 

 

0%

 

 

0%

 

 

0%

 

 

0%

 

 

0%

 

 

(i)

The risk-free interest rate was based on Bank of Canada government treasury bills and bonds with a remaining term equal to the expected life of the derivative liabilities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(ii)

The expected life in years represents the period of time that the derivative liabilities are expected to be outstanding. The expected life of the Pre-emptive Rights and Top-up Rights is determined based on the expected term of the underlying options, warrants, and shares, to which the Pre-emptive Rights and Top-up Rights are linked.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(iii)

Volatility was estimated by taking the average historical volatility of the Company and its peer group.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table quantifies each of the significant unobservable inputs described above and provides a sensitivity analysis of the impact on the reported values of the derivative liabilities. The sensitivity analysis for each significant input is performed by assuming a 10% decrease in the input while other significant inputs remain constant at management's best estimate as of the respective dates. As at March 8, 2019, there would be an equal but opposite impact on share capital, refer to Note 14(a), and as at March 31, 2019, there would be an equal but opposite impact on net income (loss).

 

 

 

 

Decrease as at March 8, 2019

 

 

Decrease as at March 31, 2019

 

Unobservable inputs

 

Altria
Warrant

 

 

Pre-emptive Rights

 

 

Top-up

Rights

 

 

Altria Warrant

 

 

Pre-emptive Rights

 

 

Top-up Rights

 

Share price at grant date (per share)

 

$

185,292

 

 

$

17,688

 

 

$

69,922

 

 

$

151,052

 

 

$

14,243

 

 

$

56,714

 

Weighted average expected life

 

 

41,622

 

 

 

3,477

 

 

 

12,998

 

 

 

38,935

 

 

 

3,388

 

 

 

12,529

 

Expected annualized volatility

 

 

76,423

 

 

 

5,022

 

 

 

22,130

 

 

 

72,295

 

 

 

4,997

 

 

 

21,654

 

 

These inputs are level 3 on the fair value hierarchy, and are subject to volatility and several uncontrollable factors, which could significantly affect the fair value of these derivative liabilities in future periods.

 

 

22


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

14.

Share capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Common shares

 

 

 

 

 

 

 

 

 

 

The Company is authorized to issue an unlimited number of no par value common shares.

 

 

 

 

 

 

 

 

 

 

The holders of the common shares are entitled to receive dividends which may be declared from time to time, and are entitled to one vote per share at shareholder meetings of the Company. All common shares are ranked equally with regards to the Company's residual assets.

 

 

 

 

 

 

 

 

 

 

During the three months ended March 31, 2019, the Company issued 149,831,154 common shares in connection with the Altria Investment. The total gross proceeds received by the Company were $2,434,757, which was first allocated to the derivatives liabilities issued in connection with the Altria Investment, refer to Note 13, and the residual of $334,099 was allocated to share capital. Pursuant to the Altria Investment, the Company incurred transaction costs of $33,939, of which $4,901 was allocated to share capital and $29,038 to the derivative liabilities based on the relative values assigned to the respective components.

 

 

 

 

 

 

 

 

 

 

During the three months ended March 31, 2018, the Company issued 5,257,143 common shares for aggregate gross proceeds of $46,000 through a bought deal offering.

 

(b)

Shares to be issued

 

 

 

 

 

 

 

 

 

 

For the three months ended March 31, 2018, the Company received cash of $961 for the exercise of options and warrants, for which common shares were not yet issued as of March 31, 2018. Refer to Note 15(a) and (b). There were no shares to be issued as of March 31, 2019.

 

 

15.

Share-based payments

 

 

(a)

Warrants

 

 

 

 

 

 

 

 

 

 

 

The following is a summary of the changes in warrants from January 1, 2019 to March 31, 2019:

 

 

 

 

 

Weighted average exercise price

 

 

Number of warrants

 

 

Share-based reserve

 

Balance at January 1, 2019

 

$

0.26

 

 

 

25,457,623

 

 

$

1,548

 

Exercise of warrants

 

 

0.27

 

 

 

(4,390,961

)

 

 

(703

)

Balance at March 31, 2019

 

$

0.25

 

 

 

21,066,662

 

 

$

845

 

 

 

 

 

 

 

 

 

 

 

 

 

The following is a summary of the changes in warrants from January 1, 2018 to March 31, 2018:

 

 

 

 

 

Weighted average exercise price

 

 

Number of warrants

 

 

Share-based reserve

 

Balance at January 1, 2018

 

$

0.24

 

 

 

38,654,654

 

 

$

3,364

 

Exercise of warrants

 

 

0.18

 

 

 

(6,972,479

)

 

 

(686

)

Expiry of warrants

 

 

0.08

 

 

 

(82,695

)

 

 

-

 

Balance at March 31, 2018

 

$

0.25

 

 

 

31,599,480

 

 

$

2,678

 

23


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

15.

Share-based payments (continued)

 

(a)

Warrants (continued)

 

As at March 31, 2019, the Company had outstanding warrants as follows:

 

Grant date

Expiry date

 

Number of warrants

 

 

Weighted average exercise price

 

October 8, 2015 - October 28, 2015

October 8, 2020 - October 28, 2020

 

 

2,976,610

 

 

$

0.31

 

May 13, 2016 - May 27, 2016

May 13, 2021 - May 27, 2021

 

 

18,090,052

 

 

 

0.25

 

 

 

 

 

 

 

 

21,066,662

 

 

$

0.25

 

 

 

(b)

Stock options

 

(i)

Stock option plans

 

The Company had adopted an amended and restated stock option plan dated May 26, 2015 (the "2015 Stock Option Plan") which was approved by shareholders of the Company at the annual and general meeting of shareholders held on June 28, 2017. The 2015 Stock Option Plan allowed the Board to award options to purchase shares to certain directors, officers, key employees and service providers of the Company.

 

On June 28, 2018, the shareholders of the Company approved a new stock option plan (the "2018 Stock Option Plan") which superseded the 2015 Stock Option Plan. The 2018 Stock Option Plan was amended by the Board in May 2019 to provide for certain provisions relevant to the treatment of options that may be issued from time to time to participants resident in Israel, in order to reflect the requirements of certain Israeli tax laws. No further awards will be granted under the 2015 Stock Option Plan; however, shares may be purchased via option exercise by the holders of any outstanding stock options previously issued under the 2015 Stock Option Plan.

 

 

Participants under the 2018 Option Plan are eligible to be granted options to purchase shares at an exercise price established upon approval of the grant by the Board. When options are granted, the exercise price is, with respect to a particular date, the closing price as reported by the TSX on the immediately preceding trading day (the "Fair Market Value"). The 2018 Option Plan does not authorize grants of options with an exercise price below the Fair Market Value.

 

Vesting conditions for grants of options are determined by the Board. The typical vesting for employee grants is quarterly vesting over four to five years, and the typical vesting for directors and executive officers is quarterly vesting over three to five years. The term of the options is established by the Board, provided that the term of an option may not exceed seven years from the date of the grant.

 

 

 

 

 

 

 

 

 

 

 

The 2018 Option Plan also provides for the issuance of share appreciation rights ("SARs") in tandem with options. Each SAR entitles the holder to surrender to the Company, unexercised, the right to subscribe for shares pursuant to the related option and to receive from the Company a number of shares, rounded down to the next whole share, with a Fair Market Value on the date of exercise of each such SAR that is equal to the difference between such Fair Market Value and the exercise price under the related option, multiplied by the number of shares that cease to be available under the option as a result of the exercise of the SAR, subject to satisfaction of applicable withholding taxes and other source deductions. Each unexercised SAR terminates when the related option is exercised or the option terminates, including upon a change in control. Upon each exercise of a SAR, in respect of a share covered by an option, such option is cancelled and is of no further force or effect in respect of such share.

 


24


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

15.

Share-based payments (continued)

 

 

(b)

Stock options (continued)

 

(ii)

Summary of changes

 

The following is a summary of the changes in options from January 1, 2019 to March 31, 2019:

 

 

 

 

Weighted average exercise price

 

 

Number of options

 

 

Share-based reserve

 

Balance at January 1, 2019

 

 

$

2.99

 

 

 

12,902,995

 

 

$

6,241

 

Issuance of options

 

 

24.75

 

 

 

51,830

 

 

 

-

 

Exercise of options and SARs

 

 

5.60

 

 

 

(125,715

)

 

 

(347

)

Cancellation of options

 

 

1.40

 

 

 

(2,500

)

 

 

-

 

Vesting of issued options

 

 

-

 

 

 

-

 

 

 

737

 

Balance at March 31, 2019

 

$

3.06

 

 

 

12,826,610

 

 

$

6,631

 

 

The following is a summary of the changes in options from January 1, 2018 to March 31, 2018:

 

 

 

 

Weighted average exercise price

 

 

Number of options

 

 

Share-based reserve

 

Balance at January 1, 2018

 

 

$

2.05

 

 

 

11,603,750

 

 

$

2,289

 

Issuance of options

 

 

8.61

 

 

 

430,000

 

 

 

-

 

Exercise of options

 

 

1.72

 

 

 

(42,256

)

 

 

(33

)

Vesting of issued options

 

-

 

 

 

-

 

 

 

774

 

Balance at March 31, 2018

 

$

2.29

 

 

 

11,991,494

 

 

$

3,030

 

 

The weighted average share price at the dates the options were exercised during the three months ended March 31, 2019 was $26.12 per share (2018 - $9.58 per share).

 

As at March 31, 2019, the Company had outstanding and exercisable options as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average

 

Grant date

Vesting terms

Expiry date

 

Number of options

 

 

 

Exercise price

 

 

Remaining contractual life

(in years)

 

August 5, 2016

Evenly over 48 months

August 5, 2021

 

 

1,058,334

 

 

 

$

0.50

 

 

 

2.35

 

October 6, 2016

Evenly over 48 months

October 6, 2021

 

 

3,366,372

 

 

 

 

1.23

 

 

 

2.52

 

November 21, 2016

Evenly over 48 months

November 21, 2021

 

 

182,000

 

 

 

 

1.84

 

 

 

2.65

 

April 12, 2017

Evenly over 48 months

April 12, 2022

 

 

3,269,258

 

 

 

 

3.14

 

 

 

3.04

 

August 23, 2017

Evenly over 48 months

August 23, 2022

 

 

2,869,649

 

 

 

 

2.42

 

 

 

3.40

 

November 9, 2017

Evenly over 48 months

November 9, 2022

 

 

200,000

 

 

 

 

3.32

 

 

 

3.61

 

January 30, 2018

Evenly over 48 months

January 30, 2023

 

 

272,917

 

 

 

 

8.40

 

 

 

3.84

 

January 31, 2018

Evenly over 48 months

January 31, 2023

 

 

109,375

 

 

 

 

9.00

 

 

 

3.84

 

May 18, 2018

Evenly over 48 months

May 18, 2023

 

 

1,163,750

 

 

 

 

7.57

 

 

 

4.13

 

June 28, 2018

Evenly over 20 quarters

June 28, 2023

 

 

180,000

 

 

 

 

8.22

 

 

 

4.25

 

September 13, 2018

Evenly over 16 quarters

September 13, 2025

 

 

25,000

 

 

 

 

14.70

 

 

 

6.46

 

October 12, 2018

Evenly over 16 quarters

October 12, 2025

 

 

28,125

 

 

 

 

11.80

 

 

 

6.54

 

December 14, 2018

Evenly over 20 quarters

December 14, 2025

 

 

50,000

 

 

 

 

15.29

 

 

 

6.71

 

March 28, 2019

Evenly over 16 quarters

March 28, 2024

 

 

51,830

 

 

 

 

24.75

 

 

 

5.00

 

Outstanding at March 31, 2019

 

 

12,826,610

 

 

 

$

3.06

 

 

 

3.11

 

Exercisable at March 31, 2019

 

 

5,868,386

 

 

 

$

2.28

 

 

 

2.91

 

25


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

15.

Share-based payments (continued)

 

 

(b)

Stock options (continued)

 

(ii)

Summary of changes (continued)

 

These options expire at the earlier of 180 days of the death, disability or incapacity of the holder or specified expiry date, and can only be settled in common shares.

 

As at March 31, 2019, the weighted average exercise price of options outstanding was $3.06 per option (December 31, 2018 - $2.99 per option). The weighted average exercise price of options exercisable was $2.28 per option (December 31, 2018 - $2.28 per option).

 

(iii)

Fair value of options issued

 

The fair value of the options issued during the period was determined using the Black-Scholes option pricing model, using the following inputs:

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Share price at grant date (per share)

$24.75

 

 

$8.40 - $9.00

 

 

Exercise price (per option)

$24.75

 

 

$8.40 - $9.00

 

(i)

Risk-free interest rate

1.51%

 

 

2.01%

 

(ii)

Expected life of options (in years)

5

 

 

5

 

(iii)

Expected annualized volatility

80%

 

 

55%

 

 

Expected dividend yield

0%

 

 

0%

 

 

Weighted average Black-Scholes value at grant date (per option)

$15.91

 

 

$4.20

 

 

(i)

The risk-free interest rate was based on Bank of Canada government bonds with a term equal to the expected life of the options.

 

 

 

 

 

 

 

 

 

 

 

(ii)

The expected life in years represents the period of time that the options granted are expected to be outstanding.

 

 

 

 

 

 

 

 

 

 

 

(iii)

Volatility was estimated by taking the average historical volatility of the Company and its peer group.

 


26


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

 

 

 

 

 

 

 

 

 

 

16.

Revenue from contracts with customers

 

The Company derives revenue from the following major product lines and geographical regions:

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Canadian

 

 

 

 

 

 

 

 

Dry cannabis

 

$

5,327

 

 

$

2,420

 

Cannabis oils

 

 

1,527

 

 

 

255

 

Other

 

 

103

 

 

 

105

 

 

 

 

 

 

6,957

 

 

 

2,780

 

International

 

 

 

 

 

 

 

 

Dry cannabis

 

 

28

 

 

 

165

 

Total gross revenue from contracts with customers

 

$

6,985

 

 

$

2,945

 

 

During the three months ended March 31, 2019, the Company earned gross revenue of $3,775 from 2 major customers (2018 - $1,575 from 1 major customer). During the three months ended March 31, 2019, $172 (2018 - $nil) in expected credit losses were recognized on receivables from contracts with customers in net income (loss). Refer to Note 22(a)(i).

 

17.

Earnings (loss) per share

 

Basic and diluted earnings (loss) per share are calculated using the following numerators and denominators:

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2019

 

 

2018

 

Basic earnings (loss) per share computation

 

 

 

 

 

 

 

 

Net income (loss) attributable to common shareholders of Cronos Group

 

$

427,829

 

 

$

(1,050

)

Weighted average number of common shares outstanding

 

 

218,949,590

 

 

 

157,054,891

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

1.95

 

 

$

(0.01

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share computation

 

 

 

 

 

 

 

 

Net income (loss) used in the computation of basic earnings (loss) per share

 

$

427,829

 

 

$

(1,050

)

Adjustment for gain on revaluation of derivative liabilities

 

 

(298,786

)

 

 

-

 

Net income (loss) used in the computation of diluted income (loss) per share

 

$

129,043

 

 

$

(1,050

)

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding used in the computation of basic earnings (loss) per share

 

 

218,949,590

 

 

 

157,054,891

 

Dilutive effect of warrants

 

 

23,294,663

 

 

 

-

 

Dilutive effect of stock options and share appreciation rights

 

 

11,351,671

 

 

 

-

 

Dilutive effect of Altria Warrant

 

 

17,472,990

 

 

 

-

 

Dilutive effect of Top-up Rights

 

 

17,661

 

 

 

-

 

Weighted average number of common shares outstanding used in the computation of diluted earnings (loss) per share

 

 

271,086,575

 

 

 

157,054,891

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share

 

$

0.48

 

 

$

(0.01

)

 


27


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

17.

Earnings (loss) per share (continued)

 

The following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive or because conditions for contingently issuable shares were not satisfied at the end of the reporting period.

 

 

 

Three Months Ended March 31,

 

 

 

 

 

Notes

 

2019

 

 

2018

 

Ginkgo Equity Milestones

19(a)

 

 

14,674,903

 

 

 

-

 

Pre-emptive Rights

13(b)

 

 

12,006,739

 

 

 

-

 

Top-up Rights

13(c)

 

 

27,730,859

 

 

 

-

 

Warrants

15(a)

 

 

-

 

 

 

31,599,480

 

Stock options

15(b)

 

 

-

 

 

 

11,991,494

 

 

 

 

 

 

 

 

54,412,501

 

 

 

43,590,974

 

 

 

 

18.

Related party transactions

 

The following is a summary of the Company's related party transactions during the period:

 

(a)

Key management compensation

 

Key management personnel are persons responsible for planning, directing and controlling activities of the entity, and include executive and non-executive directors. Compensation provided to key management is as follows:

 

 

Three Months Ended March 31,

 

 

2019

 

 

2018

 

Short-term employee benefits, including salaries and fees

$

104

 

 

$

109

 

Professional fees

 

96

 

 

 

58

 

Share-based payments

 

226

 

 

 

339

 

 

$

426

 

 

$

506

 

 

During the three months ended March 31, 2019 and 2018, there were no options issued to key management. As at March 31, 2019 and December 31, 2018, there were no amounts owing to members of key management.

 

 

 

 

 

 

(b)

Director compensation

 

 

 

 

 

 

During the period ended March 31, 2019, there were no options (2018 - 150,000 options) issued to directors of the Company and share-based payments of $214 (2018 - $239) were recognized. Refer to Note 15(b).

 


28


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

 

 

19.

Commitments and contingencies

 

(a)

The Company has committed funding to the following R&D projects:

 

(i)

Ginkgo. On September 4, 2018, the Company announced a research and development partnership with Ginkgo Bioworks Inc. ("Ginkgo") to develop scalable and consistent production of a wide range of cannabinoids, including THC, CBD and a variety of other lesser known and rarer cannabinoids. As part of this partnership, Cronos Group has agreed to issue up to 14,674,903 common shares of the Company (aggregate value of approximately $100,000 USD as of July 17, 2018 assuming all milestones are met) ("Ginkgo Equity Milestones") in tranches and $22,000 USD in cash subject to Ginkgo's achievement of certain milestones ("Ginkgo Research and Development Milestones") and to fund certain R&D expenses, including foundry access fees. From September 4, 2018 to March 31, 2019, the Company paid a total of $2,000 USD in foundry access fees. Subsequent to March 31, 2019, the Company and Ginkgo agreed to the provision of certain development, scale up, and manufacturing services by Ginkgo to the Company related to deployment and commercialization of developed products, for approximately $2,598 USD over the remaining current fiscal year. Subsequent to March 31, 2019, two Ginkgo Research and Development Milestones were achieved, refer to Note 25(a).

 

(ii)

Technion. On October 15, 2018, the Company announced a sponsored research agreement with the Technion Research and Development Foundation of the Technion – Israel Institute of Technology ("Technion"). Research will be focused on the use of cannabinoids and their role in regulating skin health and skin disorders. The Company has committed to $1,784 USD of research funding over a period of three years. From October 9, 2018 to March 31, 2019, the Company paid a total of $598 USD in research funding. An additional $4,900 USD of cash payments will be paid to Technion upon the achievement of certain milestones.

 

(b)

Altria Services. On February 18, 2019, the Company entered into an agreement with Altria Ventures Inc. ("Altria Ventures"), a wholly-owned subsidiary of Altria, to receive strategic advisory and project management services from Altria Ventures (the "Services Agreement"). Pursuant to the Services Agreement, the Company will pay Altria Ventures a monthly fee equal to the product of one hundred and five percent (105%) and the sum of: (i) all costs directly associated with the services incurred during the monthly period, and (ii) a reasonable and appropriate allocation of indirect costs incurred during the monthly period. The Company will also pay all third party direct charges incurred during the monthly period in connection with the services, including any reasonable and documented costs, fees and expenses associated with obtaining any consent, license or permit. The Services Agreement will remain in effect until terminated by either party.

 

(c)

The following contingencies are related to Peace Naturals:

 

 

(i)

MedCann Access Acquisition Claim. On July 31, 2015, 8437718 Canada Inc., 8437726 Canada Inc., Michael Blaine Dowdle, Rade Kovacevic, Kevin Furet and 9388036 Canada Inc. (collectively, the "Plaintiffs") commenced a claim against Peace Naturals and a number of other parties, for $15,000 in damages allegedly resulting from the termination of a share purchase transaction for the acquisition of the Plaintiffs' company, MedCann Access. The Company believes that the allegations contained in the statement of claim are without merit and plans to vigorously defend itself; accordingly, no provision for loss has been recognized. On February 21, 2018, the parties began the discovery phase of the proceedings, which is ongoing.

 

 

(ii)

Warrants Claim. Jeffrey Gobuty, brother to Mark Gobuty, former CEO of Peace Naturals, brought a claim against Peace Naturals for $300 and for warrants valued at $125 that were purportedly issued by Mark Gobuty, the former CEO of Peace Naturals. This matter remains in the early stages of litigation and has not yet advanced to the discovery phase. The Company believes that the allegations contained in the statement of claim are without merit and plans to vigorously defend itself; accordingly, no provision for loss has been recognized.

 

 

 

 

 

 

 

 

 

(iii)

Former Employees' Unlawful Termination Claims. Peace Naturals and Cronos Group were served with claims by Jennifer Caldwell, a former employee, for damages of $580 and 30,000 options of the Company, in connection with claims of alleged wrongful termination. The Company believes that the allegations contained in the statement of claim are without merit and plans to vigorously defend itself; accordingly, no provision for loss has been recognized.

 


29


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

19.

Commitments and contingencies (continued)

 

(d)

The following contingencies were resolved during the three months ended March 31, 2019:

 

 

 

 

 

 

 

 

(i)

U.S. Securities Class Action Claims. Two purported shareholders of Cronos Group each filed a putative class action in the United States District Court for the Southern District of New York against the Company and its CEO, alleging that the Company's continuous disclosure omitted material information with respect to matters raised in a document published on a short-seller's website, thus rendering the Company's disclosure false and misleading in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder. The complaints purport to seek, among other things, compensatory damages and a reasonable allowance for plaintiff attorneys' and experts' fees. On January 28, 2019, the U.S. Securities Class Action Claims relating to Cronos Group and its CEO were voluntarily discontinued.

 

 

 

 

 

 

 

 

(ii)

Former Employees' Unlawful Termination Claims. Peace Naturals and Cronos Group were served with claims by Mark Gobuty, the former CEO of Peace Naturals, for approximately $12,682 and a 10% equity interest in Peace Naturals, in connection with alleged claims of wrongful termination. On January 30, 2019, this claim was settled, with total settlement proceeds of $644 payable to Mr. Gobuty and the claim was discontinued. This amount was released from the trust account on January 31, 2019.

 

 

 

 

20.

Income taxes

 

 

 

The Company's combined Canadian federal and provincial statutory income tax rate is 26.5% for the periods ended March 31, 2019 and 2018. The rate is expected to apply for the full year. The effective tax rate differs from the statutory tax rate due to the non-taxable gain on revaluation of derivative liabilities. The Altria Warrant, Pre-emptive Rights and Top-up Rights would currently be settled through the issuance of shares of the Company, if exercised by Altria, which is not expected to result in a taxable gain or loss to the Company.

 

 

 

 

 

 

Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset. The changes in the net deferred tax liability are provided below:

 

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Balance - beginning of period

 

$

1,850

 

 

$

1,416

 

Recognized in net income (loss)

 

 

2,557

 

 

 

(888

)

Recognized in other comprehensive income (loss)

 

 

(36

)

 

 

27

 

Balance - end of period

 

$

4,371

 

 

$

555

 

 

 

 

21.

Supplemental cash flow information

 

 

 

 

 

 

 

 

(a)

The net changes in non-cash working capital items are as follow:

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

Notes

 

2019

 

 

2018

 

Interest receivable

 

 

 

$

(3,130

)

 

$

-

 

Accounts receivable

 

 

 

 

(1,396

)

 

 

(1,386

)

Sales taxes receivable

 

 

 

 

(2,175

)

 

 

(1,152

)

Prepaid expenses and other assets

 

 

 

 

(902

)

 

 

(3,866

)

Biological assets

 

4(b)

 

 

11,695

 

 

 

2,026

 

Inventory

 

4(b)

 

 

(17,201

)

 

 

(2,756

)

Accounts payable and other liabilities

 

 

 

 

29,644

 

 

 

(5,078

)

Holdbacks payable

 

 

 

 

595

 

 

 

-

 

Government remittances payable

 

 

 

 

190

 

 

 

-

 

Net changes in non-cash working capital

 

 

 

$

17,320

 

 

$

(12,212

)

30


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

 

21.

Supplemental cash flow information (continued)

 

(b)

The reconciliation of the cash flows from derivative liabilities, refer to Note 13, is as follows:

 

 

 

 

 

 

 

 

 

Balance - beginning of period

 

 

 

$

-

 

Cash flows from financing activities:

 

 

 

 

 

 

Altria Warrant

 

 

 

 

1,458,366

 

Pre-emptive Rights

 

 

 

 

124,176

 

Top-up Rights

 

 

 

 

518,116

 

Non-cash changes:

 

 

 

 

 

 

Gain on revaluation of derivative liabilities

 

 

 

 

(436,383

)

Balance - end of period

 

 

 

$

1,664,275

 

 

22.

Financial instruments

 

(a)

Credit risk

 

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit risk from its operating activities, primarily accounts receivable, and its investing activities, including cash and cash equivalents held with banks and financial institutions, interest receivable, and advances to joint ventures. The Company's maximum exposure to this risk is equal to the carrying amount of these financial assets.

 

(i)

Accounts receivable

 

 

 

 

 

 

 

 

 

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on the days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money, and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Accounts receivable are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan, and a failure to make contractual payments for a period of greater than 120 days past due. As at March 31, 2019, the Company recognized an approximate expected credit loss allowance of $222 (December 31, 2018 - $50).

 

 

 

 

 

 

 

 

 

Provided below is the information about the credit risk exposure on the Company's accounts receivable using a provision matrix of expected credit loss rates against an analysis of the age of accounts receivable:

 

 

 

 

Expected credit loss rates

 

As at

March 31, 2019

 

 

As at

December 31, 2018

 

 

Less than 30 days past billing date

0% to 3%

 

$

5,374

 

 

$

3,980

 

 

31 to 60 days past billing date

0% to 5%

 

 

100

 

 

 

136

 

 

61 to 90 days past billing date

0% to 8%

 

 

15

 

 

 

-

 

 

91 to 120 days past billing date

0% to 12%

 

 

-

 

 

 

19

 

 

Over 120 days past billing date

0% to 18%

 

 

70

 

 

 

28

 

 

 

 

 

 

$

5,559

 

 

$

4,163

 

 

 

The Company has assessed that there is a concentration of credit risk; 76.9% of the Company's accounts receivable were due from 2 customers as at March 31, 2019 (December 31, 2018 - 87.6% due from 5 customers).

 

 

 

 

 

 

 

 

 


31


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

22.

Financial instruments (continued)

 

(a)

Credit risk (continued)

 

(ii)

Cash and cash equivalents and interest receivable

 

 

 

 

 

 

 

 

 

The Company held cash and cash equivalents amounting to $2,418,277 at March 31, 2019 (December 31, 2018 - $32,634). The interest receivable of $3,130 represents accrued interest recognized on cash equivalents as at March 31, 2019. The cash and cash equivalents are held with central banks and financial institution counterparties that are highly rated. Cash equivalents are highly liquid investments with a maturity of 90 days or less. As such, the Company has assessed an insignificant loss allowance on cash and cash equivalents and interest receivable.

 

(iii)

Advances to joint ventures

 

 

 

 

 

 

 

 

 

The Company has assessed that there has been no significant increase in credit risk of these advances from initial recognition based on the financial position, as well as the regulatory and economic environment of the borrowers. As a result, the loss allowance recognized during the period was limited to 12 month expected credit losses. Based on historical information, and adjusted for forward-looking expectations, the Company has assessed an insignificant loss allowance on these advances as at March 31, 2019 and December 31, 2018.

 

(b)

Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due, and arises principally from the Company's bank indebtedness, accounts payable and other liabilities, holdbacks payable, government remittances payable, construction loan payable, derivative liabilities, lease obligations, and due to non-controlling interests. The Company's policy is to review liquidity resources and ensure that sufficient funds are available to meet financial obligations as they become due. Further, the Company's management is responsible for ensuring funds exist and are readily accessible to support business opportunities as they arise. The Company's funding is primarily provided in the form of capital raised through the issuance of shares and share-based instruments.

 

The following represents an analysis of the age of accounts payable:

 

 

 

 

 

 

As at

March 31, 2019

 

 

As at

December 31, 2018

 

Less than 30 days past billing date

 

$

33,739

 

 

$

1,201

 

31 to 60 days past billing date

 

 

3,847

 

 

 

365

 

61 to 90 days past billing date

 

 

75

 

 

 

29

 

Over 90 days past billing date

 

 

572

 

 

 

-

 

 

 

 

$

38,233

 

 

$

1,595

 

 

As at March 31, 2019, 86% of the Company's payables were due to 2 vendors (December 31, 2018 - 35% due to 1 vendor).

 


32


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

22.

Financial instruments (continued)

 

(c)

Market risk (price risk)

 

Price risk is the risk that the fair value of, or future cash flows from, the Company's financial instruments will significantly fluctuate due to changes in market prices. The value of the financial instruments can be affected by changes in interest rates, market and economic conditions, and equity and commodity prices. The Company is exposed to price risk in divesting its investments, such that, unfavourable market conditions could result in dispositions of investments at less than favourable prices. Further, the revaluation of securities classified as fair value through other comprehensive income, could result in significant write-downs of the Company's investments, which would have an adverse impact on the Company's financial position.

 

The Company previously managed price risk by having a portfolio of securities from multiple issuers, such that the Company was not singularly exposed to any one issuer. During the three months ended March 31, 2019, the Company substantially divested from its investments subject to price risk. Refer to Note 7.

 

(d)

Currency risk

 

Currency risk is the risk that the fair value of, or future cash flows from, the Company's financial instruments will significantly fluctuate due to changes in foreign exchange rates. The Company is exposed to this risk on advances to joint ventures denominated in AUD and USD, refer to Note 6(a). The Company is further exposed to this risk through subsidiaries operating in Israel, refer to Note 2(d). The Company does not currently use foreign exchange contracts to hedge its exposure to currency risk as management has determined that this risk is not significant at this point in time. As such, the Company's financial position and financial results may be adversely affected by the unfavourable fluctuations in currency exchange rates.

 

The following table provides a summary of financial instruments denominated in foreign currency (in thousands):

 

 

 

 

Currency

 

As at

March 31, 2019

 

 

As at

December 31, 2018

 

Advances to joint venture

 

AUD

 

$

1,561

 

 

$

1,029

 

Advances to joint venture

 

USD

 

$

226

 

 

$

-

 

Cash

 

ILS

 

1,798

 

 

840

 

Sales taxes receivable

 

ILS

 

2,492

 

 

2,066

 

Bank indebtedness

 

ILS

 

1,141

 

 

-

 

Accounts payable and other liabilities

 

ILS

 

1,985

 

 

1,083

 

Due to non-controlling interests

 

ILS

 

6,080

 

 

5,878

 

Lease obligations (including current portion)

 

ILS

 

2,374

 

 

-

 

 

A 10% strengthening of the Canadian dollar against the foreign currencies listed above would decrease net income by $162 and increase other comprehensive income by $245 (December 31, 2018 - increase net loss by $90 and decrease other comprehensive income by $326). A 10% weakening of the Canadian dollar against the foreign currencies listed above would result in an equal, but opposite effect.

 

 

 

 

 

 

 

 

(e)

Interest rate risk

 

The Company's exposure to interest rate risk only relates to any investments of surplus cash. The Company invests surplus cash in highly liquid investments with short terms to maturity that would accumulate interest at prevailing rates for such investments. As at March 31, 2019, the Company had cash and cash equivalents amounting to $2,418,277 (December 31, 2018 - $32,634).

 


33


 

 

 

 

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three months ended March 31, 2019 and March 31, 2018

(in thousands of CDN $, except where otherwise noted, and share, per share, weight, volume and plant amounts)

 

 

 

23.

Fair value hierarchy

 

Assets recorded at fair value on the unaudited condensed interim consolidated statements of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

 

Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets and liabilities. In these unaudited condensed interim consolidated financial statements, other investments (Canopy) are included in this category.

 

Level 2 - valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. In these unaudited condensed interim consolidated financial statements, there are no financial instruments included in this category.

 

Level 3 - valuation techniques using the inputs for the asset or liability that are not based on observable market data. In these unaudited condensed interim consolidated financial statements, other investments (Evergreen), biological assets, and derivative liabilities are included in this category.

 

The Company's policy for determining when transfers between levels of the fair value hierarchy occur is based on the date of the event or changes in circumstances that caused the transfer. For the three months ended March 31, 2019 and 2018, there were no transfers between levels.

 

For all financial instruments classified as amortized cost, the carrying value approximated fair value at the reporting dates.

 

24.

Capital management

 

The Company's objectives when managing its capital are to maintain a sufficient capital base to: (i) meet its short-term obligations, (ii) sustain future operations and expansions, (iii) ensure its ability to continue as a going concern, and (iv) retain stakeholder confidence. The Company defines capital as its net assets, total assets less total liabilities. The Company manages its capital structure and adjusts it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its capital structure, the Company may issue new shares, options, or warrants, issue new debt, or acquire or dispose of assets. The Company is not subject to externally imposed capital requirements. Management reviews its capital management approach on an ongoing basis and believes that this approach is reasonable. There have been no changes to the Company's capital management approach in the period.

 

As at March 31, 2019, the Company managed net assets of $969,950 (December 31, 2018 - $211,640).

 

 

25.

Subsequent events

 

 

(a)

On April 9 and 10, 2019, two Ginkgo Research and Development Milestones were reached, respectively, and the Company made cash payments amounting to $650 USD. These milestone achievement payments are in addition to the quarterly $1,000 USD foundry access fees. Refer to Note 19(a)(i).

 

 

(b)

On April 15, 2019, the Company, through Cronos Device Labs, purchased certain assets from a wholly owned subsidiary of Altria, for approximately $1,625 (4,345 ILS) in cash.

 

  

(c)

Subsequent to March 31, 2019, a total of 89,247 share appreciation rights were exercised, in lieu of the associated options, in exchange for 62,524 common shares. Also, subsequent to March 31, 2019, a total of 4,950 options were exercised for $15 in cash. These share appreciation right and stock option exercises had a weighted average exercise price of $1.39 per common share.

 

 

(d)

Subsequent to March 31, 2019, a total of 1,000,000 warrants were exercised in exchange for $245 in cash. These warrants had a weighted average exercise price of $0.25 per common share.

 

34


Dates Referenced Herein   and   Documents Incorporated by Reference

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12/14/25
10/12/25
9/13/25
3/28/24
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3/8/23
1/31/23
1/30/23
11/9/22
8/23/22
4/12/22
11/21/21
10/6/21
8/5/21
5/27/21
5/13/21
12/1/20
10/28/20
10/8/20
1/25/20
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5/8/19
4/15/19
3/31/19
3/28/19
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2/18/19
1/31/19
1/30/19
1/28/19
1/23/196-K
1/22/19
1/1/19
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12/14/18
12/7/186-K
10/25/18
10/15/186-K
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10/9/18
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11/9/17
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6/28/17
4/25/17
4/12/17
3/16/17
12/6/16
11/21/16
10/6/16
8/5/16
5/27/16D
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