Cronos Group Reports 2021 Fourth Quarter and Full-Year Results
- Consolidated net revenue increased 59% in Full Year 2021 compared to Full Year 2020
- Announces the planned exit of its Peace Naturals Campus in Stayner, Ontario to streamline supply chain and improve profitability
TORONTO, March 01, 2022 (GLOBE NEWSWIRE) — Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) (“Cronos Group” or the “Company”), today announces its 2021 fourth quarter and full-year business results.
“I am proud of the dedication and resilience our team has shown throughout the past year as we navigated through a dynamic market environment,” said Kurt Schmidt, President and CEO, Cronos Group.
Our fourth quarter 2021 results indicate positive momentum, which we will look to carry forward as we begin to implement our strategic and operational realignment initiatives. As we look to 2022, we will continue to realign Cronos Group’s organizational structure to match our strategy, with a primary focus on adult-use products and elevating our brands through rare cannabinoids.
Kurt Schmidt, President and CEO, Cronos Group
We also remain intensely focused on positioning ourselves for long-term opportunities by continuing to invest in our brands, creating and supporting an efficient manufacturing strategy, investing in rare cannabinoids and innovation, and readying Cronos Group for entry into the U.S. cannabis market once federally permitted. We are optimistic about the future of the Company and the year ahead.
“In addition to the results we are announcing today and in line with our focus on enhancing agility and fostering long-term growth, we have made the decision to exit our Peace Naturals Campus in Stayner, Ontario. As we continue to execute our asset-light approach and focus on brands and R&D, we will continue to leverage our joint venture with Cronos GrowCo and other contract manufacturing partnerships moving forward. We are grateful to our Stayner associates for their hard work and the contributions they have made to Cronos Group, and appreciate their ongoing support in helping to provide a seamless transition out of the facility throughout 2022.”
Financial Results
Fourth Quarter 2021
- Net revenue of $25.8 million in Q4 2021 increased by $8.7 million from Q4 2020. The increase year-over-year was primarily driven by continued growth in the adult-use market in Canada and increased sales in the Israeli medical market.
- Gross profit of $1.9 million in Q4 2021 improved by $16.8 million from Q4 2020. The improvement year-over-year was primarily driven by increased gross profit in the Rest of World (“ROW”) segment as well as a decline in inventory write-downs.
- Adjusted EBITDA of $(27.4) million in Q4 2021 improved by $25.8 million from Q4 2020. The improvement year-over-year was primarily driven by the improvement in gross profit and a decrease in sales and marketing and research and development expenses.
- Capital expenditures of $0.6 million in Q4 2021 decreased by $10.4 million from Q4 2020. The decrease year-over-year was primarily driven by a reduction in construction costs in the ROW segment and a decrease in costs related to the implementation of the Company’s enterprise resource planning (“ERP”) system.
Full-Year 2021
- Net revenue of $74.4 million in Full-Year 2021 increased by $27.7 million from Full-Year 2020. The increase year-over-year was primarily driven by continued growth in the adult-use market in Canada and increased sales in the Israeli medical market
- Gross profit of $(17.5) million in Full-Year 2021 improved by $8.3 million from Full-Year 2020. The improvement year-over-year was primarily driven by a reduction in inventory write-downs and favorable sales mix of our cannabis extract products in the ROW segment.
- Adjusted EBITDA of $(160.5) million in Full-Year 2021 decreased by $13.2 million from Full-Year 2020. The decrease year-over-year was primarily driven by an increase in sales and marketing expenses, general and administrative expenses, which were primarily due to an increase in the allowance for expected credit losses of $12.0 million, and research and development expenses.
- Capital expenditures of $12.3 million in Full-Year 2021 decreased by $23.1 million from Full-Year 2020. The decrease year-over-year was primarily driven by a reduction in construction costs in the ROW segment and a decrease in costs related to the implementation of the Company’s ERP system.
Business Updates
Strategic and Organizational Update
Following a careful evaluation of the Company’s global supply chain, the Company has announced today the planned exit of its Peace Naturals Campus in Stayner, Ontario, Canada.
Cronos Group will continue to operate the Peace Naturals Campus with a phased reduction and transition of activities with a planned exit by the end of 2022. Various research and development initiatives, inclusive of cannabinoid formulation, product development, tissue culture and micropropagation will continue across multiple facilities available to Cronos Group.
Continuing to optimize and maintain an agile supply chain is a core element of Cronos Group’s strategy. Importantly, Cronos Group has focused on building joint ventures and partnerships around the world with best-in-class operators, such as Cronos GrowCo (“GrowCo”) the Company’s joint venture with leading Canadian large-scale greenhouse operators. As GrowCo has developed its capabilities, it has become an important component of the Company’s biomass supply. Cronos Group looks forward to leveraging GrowCo’s capabilities in premium flower cultivation and efficient downstream processing, with the intention to improve profitability of the Company’s Canadian operations. Cronos Group intends to obtain a sales license from Health Canada at GrowCo’s facility to maintain the Company’s customer relationships and ability to continue supplying the Canadian market. In addition to further leveraging its joint venture with GrowCo, Cronos Group will continue to maintain a network of third-party licensed producers to supplement its cultivation and manufacturing needs.
As a result of the Company’s planned exit from the Peace Naturals Campus, the Company has incurred a $119.9 million non-cash impairment charge on long-lived assets in the fourth quarter of 2021. In addition, the Company expects to incur charges of approximately $4.5 million in connection with the planned exit, all of which impact the ROW segment. These charges include employee-related costs, such as severance, relocation and other termination benefits, as well as contract termination and other related costs, which are expected to be incurred primarily in the second half of 2022. In addition, the Company anticipates capital expenditures of approximately $2.5 million to modernize information technology systems and build distribution capabilities.
Rest of World Results
Cronos Group’s ROW reporting segment includes results of the Company’s operations for all markets outside of the U.S.
Fourth Quarter 2021
- Net revenue of $22.7 million in Q4 2021 increased by $9.1 million from Q4 2020. The increase year-over-year was primarily driven by growth in the adult-use extracts and flower categories in Canada and sales in the Israeli medical market.
- Gross profit of $2.4 million in Q4 2021 improved by $19.1 million from Q4 2020. The improvement year-over-year was primarily driven by a reduction in inventory write-downs and increased sales of cannabis extracts, which carry higher gross profit and gross margin than other product categories.
Full-Year 2021
- Net revenue of $64.6 million in Full-Year 2021 increased by $27.3 million from Full-Year 2020. The increase year-over-year was primarily driven by growth in the adult-use flower category in Canada and increased sales in the Israeli medical market.
- Gross profit of $(17.6) million in Full-Year 2021 improved by $12.4 million from Full-Year 2020. The improvement year-over-year was primarily driven by a reduction in inventory write-downs and favorable sales mix of cannabis extract products.
United States Results
Cronos Group’s U.S. reporting segment includes results of the Company’s operations for all brands and products in the U.S.
Fourth Quarter 2021
- Net revenue of $3.1 million in Q4 2021 decreased by $0.4 million from Q4 2020. The decrease year-over-year was primarily driven by a reduction in volume due to competitive pressures.
- Gross profit of $(0.5) million in Q4 2021 decreased by $2.3 million from Q4 2020. The decrease year-over-year was primarily due to increased production costs and inventory valuation adjustments to reflect net realizable value.
Full-Year 2021
- Net revenue of $9.9 million in Full-Year 2021 increased by $0.4 million from Full-Year 2020. The increase year-over-year was primarily driven by the introduction of new U.S. hemp-derived CBD products.
- Gross profit of $0.1 million in Full-Year 2021 decreased by $4.1 million from Full-Year 2020. The decrease year-over-year was primarily due to the costs associated with the introduction of new products, inventory valuation adjustments to reflect net realizable value, and increased headcount.
Conference Call
The Company will host a conference call and live audio webcast on Tuesday, March 1, 2022 at 8:30 a.m. EST to discuss 2021 Fourth Quarter and Full-Year business results. An audio replay of the call will be archived on the Company’s website for replay. Instructions for the conference call are provided below:
- Live audio webcast: https://ir.thecronosgroup.com/events-presentations
- Toll Free from the U.S. and Canada dial-in: (866) 795-2258
- International dial-in: (409) 937-8902
- Conference ID: 6599242
About Cronos Group
Cronos Group is an innovative global cannabinoid company 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 diverse international brand portfolio includes Spinach®, PEACE NATURALS®, Lord Jones®, Happy Dance® and PEACE+™. For more information about Cronos Group and its brands, please visit: thecronosgroup.com.
Non-GAAP Measures
Cronos Group reports its financial results in accordance with Generally Accepted Accounting Principles in the U.S. (“U.S. GAAP”). This press release refers to measures not recognized under U.S. GAAP (“non-GAAP measures”). These non-GAAP measures do not have a standardized meaning prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these non-GAAP measures are provided as a supplement to corresponding U.S. GAAP measures to provide additional information regarding our results of operations from management’s perspective. Accordingly, non-GAAP measures should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. All non-GAAP measures presented in this press release are reconciled to their closest reported U.S. GAAP measure.
Adjusted EBITDA
Management reviews Adjusted EBITDA, a non-GAAP measure which excludes non-cash items or items that do not reflect management’s assessment of on-going business performance of our operating segments. Management defines Adjusted EBITDA as net income (loss) before interest, tax expense, depreciation and amortization adjusted for: share of loss from equity accounted investments; impairment loss on goodwill and intangible assets; impairment loss on long-lived assets; gain on revaluation of derivative liabilities; gain on revaluation of financial instruments; transaction costs related to strategic projects; other, net; loss from discontinued operations; share-based payments; and review and investigation costs related to the restatements of the Company’s 2019 and 2021 interim financial statements, including costs related to the Company’s responses to the reviews of such financial statements by various regulatory authorities and legal costs defending shareholder class action complaints brought against the Company as a result of the 2019 restatement.
Management believes that Adjusted EBITDA provides the most useful insight into underlying business trends and results and provides a more meaningful comparison of year-over-year results. Management uses Adjusted EBITDA for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets.
Adjusted EBITDA is reconciled to net income (loss) as follows for the years ended December 31, 2021 and 2020:
Foreign currency exchange rates
All currency amounts in this press release are stated in U.S. dollars (“USD”), which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to USD. The assets and liabilities of the Company’s foreign operations are translated into USD at the exchange rate in effect as of December 31, 2021, December 31, 2020 and December 31, 2019 as reported using Bloomberg. Transactions affecting shareholders’ equity are translated at historical foreign exchange rates. The consolidated statements of net income (loss) and comprehensive income (loss) and the consolidated statements of cash flows of the Company’s foreign operations are translated into USD by applying the average foreign exchange rate in effect for the reporting period as reported using Bloomberg.
The exchange rates used to translate from USD to Canadian dollars (“C$”) is shown below:
