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Good
morning.
My
name
is
Myra,
and
I'll
be
your
conference
operator
today.
I
would now
like
to
welcome
everyone
to
Cronos
Group's
2021
Fourth
Quarter
and
Full-Year
Earnings
Conference
Call.
Today's
call
is
being
recorded.
At
this
time,
I
would
like
to
turn
the
call
over
to
Shayne
Laidlaw,
Investor
Relations.
Sir,
please
go
ahead.
Thank
you,
Myra,
and
thank
you
for
joining
us
today
to
review
Cronos
Group's
2021
fourth
quarter
and
full-year
financial
and
business
performance.
Today,
I
am
joined
by
our
President
and
CEO,
Kurt
Schmidt;
our
CFO,
Bob
Madore;
and
our
Executive
Chairman,
Mike
Gorenstein.
Cronos
Group
issued
a
news
release
announcing
its
financial
results
this
morning,
which
are
filed
on
our
EDGAR
and
SEDAR
profiles.
This
information
as
well
as
the
prepared
remarks
will
also
be
posted
on
our
website
under
Investor
Relations.
Before
I
turn
the
call
over
to
Kurt,
I
would
like
to
remind
you
that
our
discussion
during
this
conference
call
will
include
forward-looking
statements
that
are
based
on
assumptions
that
are
subject
to
risk
and
uncertainties
that
could
cause
the actual
results
to
differ
materially
from
those
projected
in
the
forward-looking
statements,
including
as
a
result
of
the
factors
described
in the
cautionary
statements
and
risk
factors
included
in
the
company's
earnings
release
and
regulatory
filings,
including
the
company's
most
recent
Annual
Report
on
Form
10-K,
by
which
any
forward-looking
statements
made
during
this
call
are
qualified
in
their
entirety.
In
addition,
during
this
during
this
call,
certain
financial
measures
may
be
discussed
that
are
not
recognized
under
the
US
Generally
Accepted
Accounting
Principles
referred
to
by
the
Securities
and
Exchange
Commission
as
non-GAAP
measures.
We
believe
these
non-GAAP
measures
assist
management in
planning,
forecasting
and
evaluating
business
and
financial
performance,
including
allocating
resources.
Reconciliations
of
these
non-GAAP
measures
to
their
most
comparable
reported
GAAP
measures
are
included
in
our
earnings
press
release
furnished
to
the
SEC,
which
is
available
in
the
Press
Room
section
of
our
website,
thecronosgroup.com.
These
non-GAAP
measures
may
not
be
comparable
to
measures
used
by
other
issuers.
I'd
also
like
to
note
that
we
are
conducting
our
call
today
from
our
respective
remote
locations.
As
such,
there
may
be
brief
delays,
crosstalk,
or
minor
technical
issues
during
this
call.
We
thank
you
in
advance for
your
patience
and
understanding.
We
will
now
make
prepared
remarks
and
then
we'll
move
on
to
a
question-and-answer
session.
With
that,
I'll
pass
it over
to Cronos
Group's
President
and
CEO,
Kurt
Schmidt.
Thank
you,
Shayne,
and
good
morning,
everyone.
We
appreciate
your
patience
and
for
joining
us
for
the
second
time
in
about
two
weeks.
We
are
pleased
to
share
our
2021
fourth
quarter
and
full-year
results
and
business
updates
with
you.
As
I
touched
on
during
our
call
on
February
18, we've
started
this
year
by
undertaking
a
realignment
of
the
business
to
position
Cronos
to
drive
profitable
and
sustainable
long-term
growth.
This
realignment
puts
our
products
and
agility
at
the
focal
point.
I
view
the
realignment
in
three
distinct
pillars.
First,
we
have
realigned
the
organization,
removing
redundancy
and
centralizing
functions
under
common
leadership.
Second,
we
are
reducing
complexity
and
continuing
our
asset
light
model.
As
part
of
that,
we've
decided
to
exit
the
Peace
Naturals
Campus.
I'll
elaborate
more
on
these
plans
in
a
minute.
We're
also
continuing
to
perform
product
reviews
and
pricing
optimization
scenarios
across
our
brands
and
products.
And
finally,
we
have
implemented
a
cost
reduction
initiative,
expected
to reduce
operating
expenses
by
approximately
$20 million
to
$25
million
in
2022.
When
we spoke
two
weeks
ago,
we
brought
you
updates
primarily
on
the
first
and
third
pillars
of
our
realignment initiative.
Today,
we'd
like
to
provide
a
further
development
on
the
second
pillar.
This
morning,
we
announced
in our
earnings
release
that
we
are
exiting
our
Peace
Naturals
Campus
in
Stayner,
Ontario.
Extensive
analysis
went
into
this
decision.
And
while
we
know
this
will
mean
transition
and
change,
we
also
know
this
is
the
right
decision
to
help
ensure
Cronos'
long-term
growth.
Our
goal
has
always
been to
operate
an
asset-light
business,
focused
on
brands
and
R&D.
This
transition
aligns
us
to
that
vision.
We
have always
maintained
that
cultivation
will
shift
to
large-scale
agricultural
specialists
as
the
industry
matures,
which
is
why
we
focused
on
building
joint
ventures
and
partnerships
around
the
world
with
best-in-class
offerings.
We
now
feel
confident
that
the
industry
and
our
supply
chain
in
Canada
are
at
a
maturity
level,
where
we
can
implement
this
approach.
We
have
consistently
focused
on
having
a
diverse
supply
chain,
aided
by
contract
manufacturers
and
third-party
producers
to
supplement
our
cultivation
and
manufacturing
needs.
In
addition to
building
those
relationships
over
many
years,
we
have
the
development
capabilities
with
our
JV
partner,
Cronos
GrowCo,
in
order
to
execute
this
move.
We
are
very
pleased
with
their
premium
flower
cultivation,
which
has
increasingly
become
an
important
component
to
our
biomass
supply.
And
we
know
their
capabilities
in
efficient
downstream
processing
will
enable
our
goal
of
improved
profitability.
Protecting
top
line
growth
and
continued
momentum
on
R&D
is
of
the utmost
importance
for
our
go-forward
strategy,
and
they
are
top
priorities
for
the
transition.
To
ensure
smooth
execution,
Cronos
will
continue
to
operate
the
Peace
Naturals
Campus
with
a
phased
reduction
and
transition
of
activities
throughout
2022
with
a
planned
exit
by
the
end
of
2022.
In
addition,
we
are
focused
on
maintaining
our
relationship
with
our
Canadian
customers.
We
intend
to
obtain
a
sales
license
from
Health
Canada
at
GrowCo's
facility
to
ensure
that
continuity.
Regarding
our
R&D
efforts,
all
initiatives will continue
as planned
across our
various
facilities. There
will
be
many
moving
pieces
and
complexity
to
manage
during
this
transition,
but
we're
focused
on
staying
as
close
to
our
timeline
as
possible
while
maintaining
our
eye
on
growing
revenue
and
bringing
innovative
products
to
market.
We
are
grateful
to
our
Stayner
associates
for
their
hard
work
and
contributions
to
Cronos
Group.
And
we
appreciate
those
associates
who
continue
to
work
at
our
Peace
Naturals
Campus
to
provide
a
seamless
transition
out
of
the
facility
throughout
this
year.
I
now
want
to turn
to our
business
and
walk
you
through
some
highlights
from
the
fourth
quarter
and
full-year
2021.
While
this
year
had
its
challenges,
it's
also
important to
note
our
wins.
All
the
fundamental
work
we
have
put
into
making
our
brand
successful
and
win
with
the
consumer
is
starting
to
shine
through
in
our
results.
The
Spinach
brand
continues
to
win
in
the
Canadian
market.
In
the
fourth
quarter,
SOURZ
by
Spinach
gummies
continue
to
strengthen
its
double-digit
market
share
in
the
category.
All
three
SOURZ
by
Spinach
flavors
were
in
the
top
10 in
the
edibles
category
nationally.
And
within
Ontario,
Blue
Raspberry
holds
the
number
one
spot.
Our
market
share
for
Spinach
in
the
flower
category
ended
the
quarter
in
the
high-single
digits.
The
strength
in
the
flower
category
is
a
result
of
years
of
R&D
work
in
breeding
and
genetics.
Importantly,
we
have
shared
a
lot
of
the
[ph]
genetics
profile (00:07:24)
and
look
forward
to
continuing
to
help
them
elevate
their
flower
portfolio
over
time.
We
also
launched
our
sub-brand,
SPINACH
FEELZ,
a
brand
designed
to
deliver
unique
and
enhanced
experiences,
made
possible
through
proprietary
blends
of
rare
cannabinoids
alongside
more
common
cannabinoids
like
THC and
CBD
with
a
wide
variety
of
products
and
formats.
In
October
2021,
we
launched
our
first
cultured
cannabinoid
product
under
SPINACH
FEELZ
Chill
Bliss
gummies,
which
is
making
significant
inroads
within
the edibles
category.
And
although
our
base
launch
utilizing
cultured
CPG
is
early,
we
are
happy
with
the
trends.
The
success
of
our
Spinach
brands
and
products
to-date
is
a
testament
to
getting
the
fundamentals
right.
We
will
continue
to
invest
in
our
innovation
to
bring
consumers
the
products
they
want
and
other
products
that
haven't even
thought
of.
We're
starting
to
see
success
in
the
Canadian
market
with
Spinach
while
[ph]
waiting (00:08:24)
ourselves
to
utilize
our
innovation
and
key
market
learnings
in
other
markets
as
they
emerge.
As
we
restructure
the
organization
to
match
our
go-forward
strategy,
the
primary
focus
of
our
energy
will
be
towards
elevating
our
brands
by
utilizing
rare
cannabinoids
and
focusing
on
adult
use
products.
We
have
always
viewed
the
Canadian
market
as
a
region
of
fine
tune
our
innovation
and
product
development
initiatives.
We
bring
most
of
our
adult
use
products
to
consumers
in
Canada,
but
we
continue
to
conduct
extensive
consumer
insights
work
in
all
the
regions
we
operate
in,
with
an
eye
towards
adult
use
in
the
United
States.
The
United
States
remains
a
great
place
to
learn
more
about
the
evolution
of
consumer
preferences
while
we
focus
on
creating
those
turnkey
solutions
within
the
markets
we
operate
in
today.
Turning
to
Israel,
we
continue
to be
delighted
with
the
results
of
our
medical
business.
We
started
selling
our
PEACE
NATURALS
brand
to
medical
patients
through
participating
pharmacy
in
the
second
quarter
of
2020. We
have
increased
our
distribution
to
participating
pharmacies
to
nearly
all
pharmacies
that
sell
medical
cannabis.
And
we will
continue
to
expand
as
more
pharmacies
come
on
line.
Total
patient
count
in
Israel
has
also
increased
substantially
to
approximately
190,000, which
is
up
40%
versus
the
same
period
last
year
with
a
long
runway
for
continued
growth.
As
of
a
recent
survey
conducted
by
cannabis
magazine
naming
PEACE
NATURALS
as the
most
recognized
cannabis
brand
in
Israel.
We
have
a
lot
to
look
forward
to
as
we
work
towards
meeting
our
patient
demand
in
this
market.
Given
the
growth
of
our
business,
we
thought
we'd
take
some
time
to dive more
into
the
Israeli
market
and
how
we
positioned
ourselves
as
a
leader there.
Israel
has a
population
of
just
over
9
million
people
and
boasts
one
of the
world's
highest
cannabis
usage
rates.
Unlike
the
North
American
cannabis
market,
Israel
is
much
less
competitive
illicit
market
given
Israel's
stringent
border
controls
and
security
infrastructure.
The
rapid
growth
in
Israeli
medical
market
reminds
us
of
the
early
days
in
cannabis
medical
market,
with
demand
outpacing
supply
and
the
stigma
associated
with
the
product
quickly
fading
away.
With
our
manufacturing
footprint,
established
local
team,
strong
brand
and
product
portfolio,
we
are
very
well
positioned
to
succeed
in
the
Israeli
market.
As
we
realign
the
organization
to
match
our
go-forward
strategy,
the
primary
focus
of
our
energy
will
be
towards
elevating
our
brands
by
utilizing
rare
cannabinoids
and
focusing
on
adult
use
products.
I
want
to
conclude
by
outlining
our
four
core
business
priorities,
all
of which
are
focused
on
driving
initiatives
aligned
with
our
vision
and
designed
to
deliver
sustainable
growth.
In
2022,
we
look
to,
one,
accelerate
growth
by
focusing
on
the
core
business,
leveraging
our
top
selling
products
to
deliver
on
each
brand's
potential,
while
maintaining
a
disciplined
approach
to
investing
our
time
and
resources
and
the
opportunities
we
believe
will
provide
the
most
significant
returns.
Two,
diligently
evaluate
our
manufacturing
strategies
to
ensure
that
we
only
move
forward
with
new
products
and
processes that
add
incremental
value
and
contribute
to
our
strategic
vision.
Three,
creating
a
robust
platform
for
innovation
across
Cronos'
group
portfolio
of
global
brands,
supported
by
our
belief
that
rare
cannabinoids
will
drive
differentiation.
Four,
keep
US
market
entry
as
our
north
star
by
managing
our
internal
capital
spend
and
external
capital
allocation
to
maintain
the
flexibility
to
capitalize
on
opportunities
that
will
position
Cronos
as
a
leader
in
the
US
market.
We have
a
lot
of
work
ahead
of
us,
but
I
feel
confident
that
the
actions
we've
outlined
today
will
improve
our
business
and
set
us
up
for
success
in
the
long
term.
With
that,
I
would
like
to
pass
it
to
our
CFO,
Bob
Madore.
Thanks, Kurt,
and
good
morning,
everyone.
Before
getting
into
financial
results,
allow
me
to
provide
further
details
on
our
planned
exit
from
our
Peace
Naturals
Campus.
As
a
result
of
the
company's
planned
exit
from
the
Peace
Naturals
Campus,
the
company
has
incurred
a
$119.9
million
noncash
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.
Cronos
Group
looks
forward
to
leveraging
GrowCo's
capabilities
in
premium
flower
cultivation,
an
efficient
downstream
processing
with
the
intention
to
improve
profitability
of
the
company's
Canadian
operations.
In addition
to
further
leveraging
its
joint
venture
with
GrowCo,
Cronos
Group
will
continue
to
maintain
a
network
of
third-party
licensed
processors
to
supplement
cultivation
and
manufacturing
needs.
Now,
getting
into
the financial
results
filed
today.
In
2021,
on
a
consolidated
basis,
we
increased
revenue
59%
year-over-year
to
$74.4
million
with
strong
performance
in
the
rest
of the
world
segment
highlighted
by
Canada
and
Israel.
Our
rest
of
the
world
segment
recorded
net
revenue
in
2021
of
$64.6
million,
representing
a
73%
increase
year-over-year.
The
United
States
segment
increased
4%
year-over-year
to
$9.9
million.
In
light
of
slower
growth
in
the
US,
we're
committed
to
rightsizing
the
US
segment
to
realign
it
with
our
go-forward
strategy
with
a
focus
on
improving
profitability.
Now,
turning to
the
fourth
quarter
of
2021
results.
The
company
reported
consolidated
net
revenue
in
the
fourth
quarter
of
2021
of
$25.8
million,
a
51%
increase
from
the
prior
year
period.
Revenue
growth
year-over-year
was
primarily
driven
by
the
continued
growth
in
the
adult
use
Canadian
market
and
increased
sales
in
the
Israeli
medical
market.
Consolidated
gross
profit
for
the
fourth
quarter
of
2021
was
$1.9
million,
representing
a
$16.8
million
improvement
from
the
fourth
quarter
of
2020.
The
improvement
versus
prior
year
was
primarily
driven
by
a
decrease
in
inventory
write-downs
and
increased
gross
profit
in
the
rest
of
the
world
segment.
Consolidated
adjusted
EBITDA
in
the
fourth
quarter
of
2021
was
negative
$27.4
million,
representing
a
$25.8
million
improvement
from
the
fourth
quarter
of
2020.
The
improvement
versus
prior
year
was
primarily
driven
by
an
improvement
in gross
profit
and
a
decline
in
sales
and
marketing
and
research
and
development
expenses.
Turning
to
our
reporting
segments.
In
the
rest
of
the
world
segment,
we
reported
net
revenue
in
the
fourth
quarter
of
2021
of
$22.7
million,
a
68%
increase
from
the
prior
year
period.
Revenue
growth
year-over-year
was
primarily
driven
by
growth
in
both
the
adult
use
extracts
and
flower
categories
in
Canada
and
sales
in
the
Israeli
medical
market.
Gross
profit
for
the
rest
of the
world
segment
for
the
fourth
quarter
of
2021
was
$2.4
million,
representing
a
$19.1
million
improvement
from
the
fourth
quarter
of
2020.
The
improvement
versus
prior
year
was
primarily
driven
by
a
reduction
in
inventory
write-downs
and an
increase
in
sales
volume
of
cannabis
extracts
in
the
Canadian
market,
which
carries
a
higher
gross
profit
than
other
product
categories.
Adjusted
EBITDA in
the
rest
of the
world
segment
for
the
fourth
quarter
of
2021
was
negative
$14.6
million,
representing
a
$21.8
million
improvement
from
the
fourth
quarter
of
2020. The
improvement
versus
prior
year
was
primarily
driven
by
an
improvement
in
gross
profit
and
a
decrease
in
research
and
development
expenses.
Turning
to
the
US
segment.
We
reported
net
revenue
in
the
fourth
quarter
of
2021
of
$3.1
million,
an
11%
decrease
from
the
prior
year
period.
The
decline
year-over-year
was
driven
by
a
reduction
in
volume
due
to
competitive
pressures.
We
spoke
at
length
approximately
two
weeks
ago
that
the
US
CBD
business
is
not
where
we
want
it
to
be.
The
strategic
review
of
this
business
including
the
potential
for
price
optimization,
SKU
rationalization
and
modification
in
the
distribution
channels,
remain
top
of
mind
and
we
intend
to
share
material
updates
with
you
at
the
appropriate
time.
Gross
profit
for
the
US
segment
for
the
fourth
quarter
of
2021
was
negative
$0.5
million,
representing
a
$2.3
million
decline
from
the
fourth
quarter
of
2020.
The
decline
year-over-year
was
primarily
due
to
increased
production
costs
and
increased
inventory
valuation
adjustments
to
reflect
net
realizable
value.
Adjusted
EBITDA
in
the
US
segment
for
the
fourth
quarter
of
2021
was
negative
$8.3
million,
representing
a
$3.5
million
improvement
from
the
fourth
quarter
of
2020.
The
improvement
versus
[audio gap]
(00:19:18)
primarily
driven by
an
increase
sales
and
marketing
and
general
and
administrative
expenses.
Now,
turning
to
the
balance
sheet.
The
company
ended
the
quarter
with
approximately
$1
billion
in
cash
and
short-term
investments,
which
is
down
approximately
$35
million
from
the
third
quarter
of
2021.
Capital
expenditures
for
the
quarter
were
$0.6
million
with
the
spending
focused
across
our
global
strategic
priorities.
Capital
expenditures
are
down
approximately
95%
year-over-year,
driven
by
reduced
spending
on
enterprise
resource
planning
implementation
and
capital
improvements
across
our
facilities.
We
remain
committed
to
deploying
capital
in
a
disciplined
manner
and
only
in
ways
that
align
with
our
strategic
priorities.
Lastly,
I
would like
to
provide
you
with an
update
on
our
remediation
efforts
in
relation
to
the
material
weakness
that
we
disclosed
last
quarter.
We
as
a
company
are
committed
to
instituting
best
practices
for
financial
reporting.
Our
management
with
oversight
from
the
Audit
Committee
has
initiated
a
plan
which
we
are
working
diligently
to
phase
in
over
the
course
of
2022.
In
addition,
I'm
happy
to
state
that
the
material
weaknesses
previously
disclosed
related
to
inventory
verification
have
been
remediated.
With that, I'll turn it back to Kurt.
Thank
you,
Bob.
It's
not
lost
on
us
that
our
recent
challenges
are
overshadowing
our
results.
But
I
want –
what
I
want
to
leave
you
with
today
is
that
despite
of
all
that,
you
are
starting
to
see
the
strategy
and
execution
show
up
in
our
results.
We
are
building
a
great
brand
in
Canada
from
Spinach
and
have
demonstrated
sustainable
market
share
gains.
We
are
seeing
incredible
growth
in
Israel,
a
robust
medical
market
we
worked
hard
to
win
it.
We
are
making
decisions
to
realign
our
organization
and
move
quickly
to
help
our
business
improve
[ph]
efficiently (00:21:24)
and
profitably
in
rapidly
changing
markets.
We
are
the
first
company
to
release
a
cultured
cannabinoid
product
using
breakthrough
science
and
technology,
and
we're
the
leading
company
to
market
rare
cannabinoids
in
a
way
that
resonates
with
consumers.
We're
on
the
right
path
and
we're
rising
to
the
challenges
in
front
of
us.
With
that,
I'll
open
the
lines
for
questions.
At
this
time,
we
would
like
to
take
any
questions
you
might
have
for
us
today.
[Operator Instructions]
And
please
note
that
participants
are
allowed
one
question
and
one
follow-up
question
only.
Thank
you. Please
stand
by
while
we
compile
the
Q&A
roster.
We
have
our
first
question
comes
from
the
line
of
Andrew
Carter
from
Stifel,
your
line
is
open,
you
may
now
ask
your
question.
Hey,
thanks.
Good
morning.
First
thing
I
wanted to
ask
is,
how
long
has
the
kind
of
exit
of
Stayner
been
contemplated
in
terms
of
an
option
to
kind
of
save
funds
and
also
kind
of
creating
some
of
the
[ph]
redundancy
– the
redundancies
have (00:22:35),
because
I
would
think
like
you
would
not
– you
would
not
want
to put
any
risks
to
slowing
down
the
revenue
momentum.
So,
maybe
if
you
could
just
help
us
with
that.
Thanks.
Yeah.
This
is
Kurt.
This
has
been
ongoing
for
quite
a
while.
Again,
the
whole
idea,
the
whole
GrowCo
initiative
was
all
about
our
belief
that
cultivation
will
move
towards
the
agricultural
sector.
That's
why
we
created
the
GrowCo
JV
initially
and
we're
bearing
that
out.
So,
through
construction,
through
start-up
and
through
follow-up,
we
hit
every
milestone
we
want.
So
that
has
been
ongoing
for
a
while.
And
we're
very
pleased
with
where
we're
at
right
now.
We're
delivering
high
quality
and
well-priced
cannabis
out
of
the
GrowCo
supply
chain.
And
we
have
enough
redundancy
in
our
supply
chain
as
we
talked
about
in
the
upfront
remarks
that
we
feel
very
good
that
this
is
the
right
time
for
this
move.
Okay.
Thanks.
And
then,
just
kind of
second,
speaking
on
kind
of
the revenue
momentum,
great
in
the quarter,
it's
been
a
great
build
for
the
edibles
brand.
Spinach
brand
really
stood
out.
Just
released
the
headset
data
for
February
this
morning,
it's
taken
a
step
back,
both
the
edible
and
the
Spinach.
Is
that
kind
of
a –
do
you
see
that
as
kind
of
a
seasonality?
Anything
you're
seeing
in
kind
of
reduced
shipments?
And
could
kind
of
Canadian
adult-use
revenue
take
a
step
back
sequentially
here
in
the
calendar
first
quarter?
Thanks.
Yeah.
I
think
it's
part
of
a
little
bit
of
that
seasonality
and
some
of
COVID
that
came
roaring
back
temporarily
in
the
first
quarter,
created
some
disruption.
But
again,
I
think
we're
seeing
overall
the
momentum
in
the
first
quarter
to be
quite
positive.
And
the
world's
getting
back
to
normal,
I
think,
in
the
second
quarter
here.
So,
we
think
that
will
ride
itself.
We're
really
confident
about
the
way
Spinach
is
developing
on
the
consumer
side.
Thanks.
I'll
pass
it
on.
Our
next
question
comes
from the
line
of
Rahul
Sarugaser
from
Raymond
James.
Your
line
is
open.
Please
go
ahead.
Hi
there.
Good
morning,
Kurt,
Bob
and
Shayne.
This
is
Michael
Freeman
on
for
Rahul
Sarugaser
this
morning.
I
have
one
question.
My
first
one
is
on
sort
of
the
downstream
effects
of
this
exit
from
the
Peace
Naturals
site,
I
guess.
I
wonder
if
you
could
describe
for
us
the
implications
on
head
count
implications
on
where
your
topnotch
R&D
facilities
might
be
moving
to
with
this
move,
and
then
just
broader
implications
on
cost
structure
as
you
go
through
this
[indiscernible]
(00:25:19)
through
2022.
Thanks
very
much.
Okay.
There's
three
things
to
unpack
there.
The
first
one
is
I
won't
go
in
an
exact
number
of
the
head
count,
but
undoubtedly
as
we
go
to
shut
down
this
facility, there'd
be
changes in
the
size of
the
organization, no doubt
about
that.
But
we're
equally –
we're
really
committed
and
we've
really
planned
this
by
ensuring
that
we're
treating
our
employees
the
right
way
and
we
do
this
in
a
high
quality
fashion
as
we
move
through
this
process.
But
it
will
have
the
effect
of
reducing
the
standard
facility
including
how
many
employees
we
have.
The
second
one
in
R&D,
it's
important
to remember
we
have
multiple
facilities
across
the
supply
chain
that
the
R&D
works are.
Winnipeg
has
a
facility.
We
do
R&D
work
there.
We
will
eventually
move
some
stuff
into
GrowCo.
And
this
has
no
effect
on
our
R&D
scope.
So,
as
we
talked
about,
our
key
driver
is
brands
and
R&D,
and
R&D
is
around
margin
accretive
innovation.
And
winning
in
rares,
we'll
see
no
effect.
It's
going to
have
no
effect
on
the
innovation
we're
developing
and
the
timelines
we
are
driving
towards.
Then
your
third
one
I
think
was
about
margin
profile
in
the
business
process.
We
don't
give
specific
guidance,
but
obviously
making
this
decision
we
obviously
believe
there's
a
significant
opportunity
to
prove
the
profitability
of
our
business.
The
Peace
Naturals
Campus
carries
a
real
heavy
complexity
and
a
heavy
overhead
burden.
So,
removing
that
from
our
cost
structure,
right,
coupled
with
a
lower
cost
of
production
and
the
more
efficient
downstream
processing
at
GrowCo,
which
are
experts
in
cultivation,
we
think
there's
a
significant
opportunity
to
expand
gross
profit
in
both
dollar
and
percentage
terms.
And
remember,
you've
got
to
couple
that
with
the
–
during
our
third
quarter
earnings
call
where
we
announced
the
first
phase
of
the
restructuring,
which
will
reduce
operating
costs
by
between $20
million
and
$25
million.
So,
we
believe
all
these
initiatives
put
us
on
a
really
strong
path
to
improve
profitability
while
maintaining
our
clear
focus
on
two
very
important
things,
which
is
margin
accretive
innovation,
winning
in
rares,
and
of
course,
sustainable
growth
and
building
our
brands,
particularly
Spinach.
That's
very
helpful,
Kurt.
Thank
you
very
much
for that
color.
My
follow-up
is
perhaps
for
Bob,
we
noticed
beginning
in
the
third
quarter
some
impairments
related
to
the
Ginkgo
exclusive
license,
and
we
see
those
again
appearing
on
the
4Q
financials.
I
wonder
if you
could
just
unpack
these
impairments
and
perhaps
relate
them
to
the
way
you're
valuing
this
Ginkgo
exclusive
license.
Thanks.
Yeah.
One
of
the
bigger
challenges
with
going
after
the
rare
cannabinoids
and
developing
the
different
milestones
is
that
under
the
accounting
rules
– and
I
won't
bore
everybody
with
the
rules –
but
with
the
type
of
valuation
methodology,
the
relief
of
royalty
from
royalty
method
in
a
space
where
you
really
don't
have
any
history,
operational
history.
And
from
a
projection
perspective,
you
really
kind
of
limited
a
little
handcuffed
in
the
valuation
exercise
and
the
level
of
growth
you
can
put
in
the
projections.
Just
from
a
valuation
perspective,
that
– these
valuations
are
not
indicative
of
the
commercial
opportunities
that
we
think
these
– development
of
these
rares
has
for
us,
it's
just
an
implication
of
heavily
discounting
future
projections
in
a
space
that
is
very
new
rarefied
air.
Over
time,
as
we
get
more
experience
in
history
around
commercializing
the
opportunities
as
we
developed
additional
rares
with
six
more
milestones
to
go
after
the
two
we've
already
completed,
we
think
that
that
history
of
commercialization
and
what
the
market
represents
and
better
visibility
to
that
will
help
in
that
valuation
exercise.
But
by
no
means
is
it
what
we
think
it's
worth,
what
we
think
we
could
sell
it
to
a
third
party
if
we
wanted
to,
we
don't.
It's
just
an
accounting
valuation
method
implication.
Okay.
Thank
you,
Bob.
I'll
pass
it
on.
Our
next
question
comes
from
the
line
of
John
Zamparo
from
CIBC.
Your
line
is
open.
Please
go
ahead.
Thank
you
very
much.
Good
morning.
I
wanted
to
start
on
GrowCo.
Can
you
say
approximately what
percent
of
your
current
sales,
are
they
Q1
to-date
or
in
the
Q4
being
supplied
by
GrowCo?
And
can
you
remind
us
what
the
terms
are
of
purchasing
from
the
JV?
Are
you
paying
fair
market
value
or
is
there
discount
embedded
in
that?
Yes.
So,
our
initial
GrowCo
purchases,
we
actually
really
started
in
2021
where
a
relatively
small
amount.
Prior to
that,
Stayner,
our
Stayner
facility
could
not
complete
all
of
our
supply
and
demand
requirements.
So,
in
addition
to
GrowCo,
which
has
really
just
been
up
and
running
for
the
last
8
to
12
month
period
of
time,
we
also
utilized
other
third-party
cultivators
to
fulfill
our
biomass
and
dry
flower
needs.
Now,
moving
forward,
we
obviously
are
looking
to
leverage
just
based
on
GrowCo's
success
in
the
harvest
that
they've
already
had
in
sourcing
quite
a
bit
more
from
them.
From
a
pricing
perspective,
it's
a
competitive
market
pricing,
relatively
speaking
but
much
more
efficient,
effective
and
lower
cost
than
what
our
costs
were
to
produce
it
ourselves
internally.
Hence,
the
reason
for
the
announcement
this
morning
around
Stayner.
We
just
think
large
agri
growers
like
GrowCo,
that's
where
we
always
kind
of
thought
the
action
was
going
to
be
and
what
the
future
most
effective
and
efficient
way
of
doing
it.
And
we
felt
we
feel
like
we've
selected
one
of
the
best
partners
out
there.
So,
we're
excited
about
the
opportunity.
Okay.
That's
helpful,
thank
you.
And
then
my
second
question
is
on
the
Israeli
market.
And
I
wonder
when
you
take
a
step
back
how
you
think
this
country
will
evolve
over
time.
Will
it
continue
to
be
served
entirely
by
Canadian
producers
or
do
you
think
it
eventually
shifts
to
a
domestic
supplied
market?
And
I
know
you've
got
some
exposure
through
Cronos
Israel
if
and
when
that
time
comes,
but
I
just
would like
to
get
your
thoughts
on
how
that
market
will
evolve.
Yeah.
Well,
a
lot
of
it
will
depend
on
the
regulatory
market
in
Israel.
So
right
now,
the
way,
again,
like
we
do
everything,
our
cultivation
is,
we
have
a
lot
of
redundancy
built
in.
So
we
import
from
Canada.
We
produce
ourselves
on
our
own
cultivation
with
our
joint
venture
on
the
Kibbutz,
and
we
buy
from
third
parties
from
Israel.
So,
we're
very
well
resourced.
We
think
the
biggest
driver
is
just
going to
be
the
market
as
it
continues
to
grow
and
develop.
Demand
is
certainly
going
up
and
we
feel
fully
–
we
are
well
positioned
to
be
able
to
grow
with
that
demand.
So
we're
in
a
very
good
position
in
our
mind.
Understood.
That's
all
for
me.
Thank
you.
Our
next question
comes
from
the
line
of
Gaurav
Jain
from
Barclays.
Your
line
is
open.
Please
go
ahead.
Hi.
Good
morning. Thank
you
for
taking
my
questions.
So,
here,
you
have
reported
a
$27
million
EBITDA
loss
this
quarter.
Would
it
be
fair
to
assume
that
almost
80%
of
that
losses
in
the
US
segment
and
20%
is
in
the
rest
of
world
segment?
Could
you
– I'm
sorry.
Could
you
repeat
that
last
sentence,
the
percentage
you're
saying?
Of
this
$27
million
loss,
is
it
fair
to
assume
that
approximately
$20 million
of
the
loss
will
be
in
the
US
segment
and
$8 million
will
be in
the
rest
of
the
world
segment?
Yeah.
We
don't
break
down
EBITDA
losses
at
that
level.
Sure.
[indiscernible]
(00:34:55)
on
your
US
business,
so
the
commentary
that
you
had
that
you
are
right-sizing
the
business,
it was
not
at
the
right
place
and
you
have
made
that
comments
number
of
times
over
the
last,
I
would
say,
couple
of
years
and
still
the
business
is
only
$10
million
of
sales.
How
do
you
fix
it?
Its
part
of
the
strategic
alignment.
Well...
Oh,
go
ahead,
Kurt.
Yeah.
I was
just going
to
say,
yeah,
well,
clearly,
we're
unhappy.
We're
looking
at
–
we
still
think
– there's
still
strong
strength
in
those
brands.
One
of
the
things
we're going
to
be
focusing
on
more,
as
we
said
previously,
is
the
adult
use
side
of
the
business.
We're
going
through
that
now.
We
just
announced
new
leadership
at
the
last
earnings
call,
which
was
just
two
weeks
ago.
So,
we're
doing
that.
We're
still
doing
a
strategic
review.
With
that
said,
it's
–
we'll
come
to
the
right
conclusions
as
we
go
forward.
But
again,
there's
still
strength
in
those
brands.
They
still
resonate.
And
that's
what
we're
about.
We're
just
not
ready
to
announce
anything.
We'll
do
that
as
we
get
closer.
Sure,
Kurt.
Here,
my
next question
is
just if
I
look
at
your market
cap,
it's like
$1.3
billion,
your
net
cash
is
about
$1
billion.
So,
how do
you
think
of
Cronos?
Like,
could
you
use
that
$1
billion
to
invest
in
the
spaces
outside
of
cannabis
where
you
could
generate
economic
value?
Because
you and
all
your
peers,
I
think
everybody
is
struggling
with
the
same
issue
that
returns in cannabis
businesses
have
been
pretty
weak.
So,
should we
look
at
something
outside cannabis?
Well,
I'll
let
Mike
chime
in
as
well,
our
Chairman,
because
he's
leading
it.
Well,
what
– all
the
things
we
announced
today
are
focused
on
brands,
are
focused
on
growing
the
business.
It's
been
an
eye
on
the
focus
of
the
US
and
giving
us
the
financial,
you're
right,
we
have
a
pretty
strong
balance
sheet
to
make
those
kinds
of
investments
that
we
want
to make
that
potentially
we
can
make
in
the
US,
which
Mike
actually
has
been
leading
for
us.
A
good
example
is
the
PharmaCann.
They
just
announced
this
morning
that
they
closed
down
their
LivWell
acquisition,
and
the
reason
why
we
invested
in
the PharmaCann
was
the
confidence
we
had
in
their
management
and
their
ability
to
strategically
grow
both
organically
and
M&A,
you're
seeing
that,
and
we
have
a
partnership
with
them.
And
this
is
the
kind
of
investments
with
our
balance
sheet
we
can
make.
Mike,
I
don't know
if
you
want
to add
anything
to
this.
Sure.
Thanks,
Kurt.
Yeah.
Yeah, the
way
we
think
of
it
is
making
investments
that
we
think
can
have
a
really
good
ROI
globally
over
time.
So,
things
like
the
Spinach
SOURZ,
rare
cannabinoids,
the
FEELZ
line,
that
as
markets
open
up,
we'll
be
able to
take
those
products
in
as
adult-use
opens.
So,
things
that
we
invest
in
in
Canada,
we don't
look
at it
as
just
Canada-standalone,
but
how
can
you
take
those.
We
see
the
performance
head
to
head
with
the
top
US
brands, with
other
Canadian
brands
in
Canada,
transitioning
those
into
markets
like
Israel
and
US
as
they
open,
and
in
addition,
looking
at
opportunities
for
brands
or
IP
that
we
see
in
other
markets
or
infrastructure
distribution
partners
in
the
US.
Thanks
a
lot,
Mike.
We
have
our
next
question
comes
from
the
line
of
[ph]
Andrew
Bond
(00:38:36) from
Jefferies.
Your
line
is
open.
Please
go
ahead.
Hey,
good
morning.
[ph]
Andrew
Bond (00:38:41)
on the
line
for
Owen
Bennett.
Thanks
for
taking
our
questions.
So,
maybe
just
digging
a
little
bit
into –
deeper
into
Israel,
I
know
we
touched
on
it
before,
but
maybe
closer
to
near
term.
Wanted
to
get
your
expectations
on
how
the
strong
momentum
we
see
in
third
and
fourth
quarter
might
continue,
perhaps
some
stickiness
there
with
the
PEACE
NATURALS
brand.
So,
just
wanted
to get
your
thoughts
on
how
Cronos
might
be
advantaged
versus
other
[ph]
LP (00:39:07)
selling
in
Israel
and
how
we
should
be
thinking
about
the
momentum
moving
forward
as
we
look
into
2022.
Thanks.
Yeah.
Thank
you
for
the
question,
[ph]
Andrew (00:39:14).
Yeah,
I
think
we
have
great
momentum.
There's
the
market,
which,
as
we
talked
about,
is
really
doing
well.
We
see
that
continuing
as
more
pharmacies
come
on
and
more
patients
come
into
medical
cannabis.
So,
that
is
a
strong
carrier.
We
think
we're
competitively
advantaged
because
we
have
great
series
of
brands.
We
cover
all
the
segments
we
need
to
cover.
As
I
said,
we
were
rated
as
the
most
–
the
highest
brand
in
Israel,
and
we
have
a
great
organization
on
the
ground.
So,
we
are
–
we
have
our
own
organization
on
the
ground.
They're
doing
a
great
job
in
terms
of
sales
and
marketing,
customer
relationship,
doctor
relationship
in
the
market.
So,
we
feel
we
have
a
very
strong
organization
on
the
ground
with
great
brands.
And
finally,
we
talked
about
our
ability
to
serve
the
market.
We
are
very
well
placed
to
serve
the
market.
We
use
the
same
kind
of
strategy
we've
used
in
Canada.
And
we
have
the
ability
through
the
Kibbutz
joint
venture
third
parties
in
what
we
do
in
Canada.
So,
we
think
we're
well-placed
on
it.
And
you
know,
again,
this
is
just
going to
be
a
market.
We
see
great
momentum
in
the
start
of
the
new
year
and
we
don't
see
anything
stopping
us.
It's
all
about
being
focused
on
building
great
brands
and
great
products,
which
not
only
for
the
PEACE
NATURALS
brand
highly
rated
but
a
lot
of
our
products
are
highly
rated
in
the
top
prescribed
products.
Great.
Fantastic.
Thanks
for
the
color.
Our next
question
comes
from the
line
of
Michael
Lavery
from
Piper
Sandler.
Your
line
is
open,
please
go
ahead.
Thank
you.
Good
morning.
I
joined
a
little
late,
sorry.
I
hope
this
isn't
repetitive,
but
can
you
just
give
an
update
on
your
relationship
with
Altria
and
how
– if or how
that
can
help
impact
your
US
operations?
Is
there
some
opportunities
there?
Well,
Altria
as
a
strategic
investor in
the
company.
They
have
board
seats
in
there.
They
are
represented
on
the
board.
And
again,
they've
been
great
as
supporting
us
as
we
develop
our
business.
As
far
as
the
US,
one
of
the things
we've
done
is
the
PharmaCann
investment.
So
that
is
–
that's
a
great
example
of
the
strength
we
have
from
the
entire
board,
both
our
independents,
our
representative from
GGP
and
of
course
Altria.
Okay.
Thanks.
And
can
you
just
also
maybe
give
an
update
on
edibles,
how the FEELZ
brand
is
doing?
Oh,
yeah.
We
did
talk
about
that.
Yeah.
The
FEELZ
brad
is
doing
fantastic.
As
we
said,
according
to
the Hifyre
data,
we
achieved
double-digit
market
share
in
edibles
during
the
fourth
quarter
period.
We
see continued
growth
in
2022.
If
you
look
at
our
SOURZ
portfolio,
there's
three
products
in
that
line.
They're
in
the
top
10
according
to
[ph]
LCF
data (00:42:25).
So
we
are
performing
extremely
well.
And
as
we
said
in
October,
we
launched
under
Spinach
we
launched
the
FEELZ
edible,
which
is
our
first
rare
cannabinoid
using
CBG
and
THC
and
the
progress,
early
progress
but
we're
really,
really
pleased the
way
that's
developing.
And
along
with
that,
we
also
launched
our
first
rare
cannabinoid
based
product
with
CBG
that
was
done
in
January.
Okay.
Great.
Thanks
so
much.
And
there
are
no
further
questions.
That
does
conclude
our
conference
for
today.
Thank
you
all
for
participating.
You
may
now
disconnect.
Have
a
great
day.