- Establishing low-cost capacity through joint venture in Israel
- Strengthened liquidity position by $72.3 million since the start of Q3 2017
- Positive cash flow from operations in the quarter ended September 30, 2017
Cronos Group Inc. (TSX-V: MJN) (OTC Nasdaq International Designation: PRMCF) today reported financial results for the third quarter ended September 30, 2017. Financial results and the management discussion and analysis are available on the Company's website (www.thecronosgroup.com) and SEDAR (www.sedar.com).
"We have successfully transformed the Company over the past year and a half. We are now focused on executing our strategy to generate accelerated revenue growth and create long term shareholder value," says Mike Gorenstein, CEO of Cronos Group.
QUARTERLY BUSINESS HIGHLIGHTS AND RECENT DEVELOPMENTS POST QUARTER-END
Substantial increase in revenue
The Company generated $1.3 million in revenue during the three-month period ended September 30, 2017, an increase of 104% quarter-over-quarter and an increase of 962% year-over-year.
Expanding capacity and establishing a low-cost, global production footprint
In September 2017, the Company announced a joint venture with Israeli agricultural collective settlement Gan Shmuel ("Gan Shmuel") to produce and distribute medical cannabis in Israel. Israel has an ideal growing climate for cannabis with abundant sunlight to support year-round greenhouse cultivation without the need for supplemental lighting. Cronos Israel anticipates producing high quality cannabis at significantly lower production costs than production costs in Canada due to Israel's favorable growing climate and Gan Shmuel's skilled labor force, existing manufacturing infrastructure, and ample on-site water access. In addition, Gan Shmuel is situated on over 4,900 acres of mixed-use agricultural / industrial land, which allows Cronos Israel to significantly expand production capacity beyond the phase I facility.
Peace Naturals Capacity Expansion
The Company is constructing additional capacity at Peace Naturals Project, Inc. ("Peace Naturals") via a 286,000 sq. ft. production facility ("Building 4") and a 28,000 sq. ft. greenhouse (the "Peace Naturals Greenhouse"). Construction of Building 4 is on schedule. The steel superstructure is complete, and the Company is now working on completing the interiors of the facility. Production from Building 4 is expected to commence in the second half of 2018. The Peace Naturals Greenhouse is expected to be operational in Q4 2017 and fully-operational for production in the first half of 2018.
Increasing oil sales and formulation capabilities with a state-of-the-art oil extraction lab
In November 2017, Health Canada approved the Company's state-of-the-art, custom extraction laboratory at Peace Naturals, which uses supercritical and subcritical CO2 and commercial oil production methodologies. The resulting increased oil production will facilitate the introduction of new formulations, such as capsules, tinctures, and ointments. Subsequent to quarter-end, the Company released a number of new strain-specific cannabis oils that have been received favorably by patients. Unlike most alternatives on the market, these new cannabis oils do not require any secondary refinement using harsh solvents like ethanol, which means that the natural balance of the plant is kept intact. This is important because of the "entourage effect," or the concept that all cannabis compounds work together synergistically to yield the desired therapeutic effect. As Cronos continues to place an emphasis on product quality, this production methodology for extracted products is expected to create an ongoing competitive advantage in the marketplace.
Augmented global sales and distribution network with additions in Germany
In October 2017, Cronos Group entered into a strategic partnership and five-year exclusive distribution agreement with G. Pohl-Boskamp GmbH & Co. KG to distribute Peace Naturals branded cannabis products within Germany in up to 12,000 pharmacies. With a population of over 82 million people, Germany is currently one of the largest legal cannabis markets in the world and serves as the Company's gateway to cannabis markets in the European Union.
Preparing for the launch of the Canadian recreational market
Cronos Group is preparing for the anticipated legalization of the Canadian recreational market, currently expected to occur in July 2018. In October 2017, the Company rebranded its wholly-owned subsidiary and licensed producer In The Zone Ltd. to Original BC Ltd ("OGBC"). OGBC will serve as the Company's recreational cannabis platform from which it will launch its recreational brand portfolio.
Launched marketing upgrades to the medical cannabis platform
Peace Naturals seeks to offer accessible, high-quality products, building sincere relationships with patients while supporting them with medications that can be life-changing. As a result, the Company redesigned the Peace Naturals packaging to better reflect the licensed producer's identity as a trusted and dependable unisex medicinal cannabis brand. Concurrent with this transition, Peace Naturals is updating its entire patient shopping experience and marketing materials to reflect the brand's goal of improving the lives of others, one patient at a time. This transition began in October and is expected to be completed in the first quarter of 2018.
Update on Production Operations
The Company is now growing cannabis in all of Buildings 2 and 3. Once a full cycle of harvests has been completed, the Company expects significantly more capacity than what has been historically produced (operating out of just Building 2). In addition, the Company has commenced production in newly renovated rooms in Building 1. The new Building 1 production methodology utilizes two-tier hydroponic rolling benches and full spectrum LED lighting. Similar to the existing operational production facility at OGBC, the Company will use Building 1 to grow cultivars that have non-standard flower cycles which the Company anticipates will fulfil niche market needs.
Strengthened liquidity position while minimizing equity dilution
Since the beginning of Q3 2017, the Company has raised $72.3 million to fund its operations and capacity expansion plans. Total capital raised includes: (i) a $40.0mm senior secured credit facility, the largest straight debt offering in the cannabis industry to date, based on publicly available information, and (ii) several equity raises at increasing share price levels. In order to minimize equity dilution, the company did not issue convertible notes or warrants in connection with these financings.
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