Cronos Group Announces Expansion of GrowCo to Fuel Global Growth
Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) (“Cronos” or the “Company”), an innovative global cannabinoid company, announced an expansion of Cronos Growing Company (“GrowCo”). GrowCo is a leading cannabis cultivation company that Cronos owns 50% of. The investment will be funded by an additional credit facility provided by Cronos and is intended to assist GrowCo’s expansion of its purpose-built cannabis facility to address the increased global market demand for high-quality cannabis flower.
Key Highlights of the Investment:
Investment in Expansion: Cronos will provide an approximately $51 million ($70 million CAD) secured non-revolving credit facility to GrowCo to fund facility expansion, enabling growth opportunities in the markets Cronos operates in today as well as enabling future growth into new markets that open.
Enhanced Governance: On July 1, 2024, the GrowCo board of directors will expand to five members, three of whom will be appointed by Cronos.
New Supply Agreement: Cronos will have the option to purchase up to 70% of the total production from the expanded facility.
Financial Consolidation: Cronos will be consolidating the joint venture’s results in its financial statements beginning in the third quarter of 2024.
GrowCo has consistently demonstrated exceptional cultivation performance, contributing significantly to Cronos’ portfolio. In 2023 Cronos purchased approximately $21 million of biomass from GrowCo, and GrowCo sold approximately $20 million to third parties. GrowCo has strong gross margins that the Company expects to be accretive on a consolidated basis and delivered positive net income and positive cash flow in 2023. This success underscores GrowCo’s ability to produce premium cannabis at scale, meeting our stringent quality standards and market demands. The expansion will aid our ability to supply markets we operate in, which include Canada, Israel, Germany, the United Kingdom, and Australia, while also fueling the potential for international expansion.
“This investment enables GrowCo to increase its production of high-quality cannabis which supports our ambition to expand across the markets we operate in, and add new international growth opportunities where they arise,” said Mike Gorenstein, Chairman, President, and CEO of Cronos. “At the onset of cannabis legalization, we deliberately chose not to overbuild our facilities, focusing instead on quality and meeting consumer needs first and scaling later. With the Spinach® brand achieving the number one flower brand in Canada1, strong international demand for Peace Naturals®, and GrowCo’s proven track record of success – now is the right time to expand as there is a clear need for high-quality flower. This investment sets us up well to meet the increasing demand and seize the right opportunities as they arise.”
Transaction Details
Cronos will provide an approximately $51 million ($70 million CAD) secured non-revolving credit facility to GrowCo. GrowCo intends to use the credit facility to fund the construction of an expansion to its existing purpose-built cannabis facility in Leamington, Ontario. The interest rate under the credit facility is equal to the Canadian Prime Rate plus 1.25% and is payable quarterly. However, GrowCo is not required to begin repaying the $51 million principal until the quarter after the commencement of sales from the newly constructed area, at which point principal repayment will be made quarterly. The credit facility will mature 10 years after the commencement of sales from the newly constructed area, which are anticipated to begin in the second half of 2025. The credit facility is secured by all present and after-acquired property of GrowCo and its subsidiaries. The terms of the $105 million CAD credit facility that Cronos previously made available to GrowCo remain unchanged.
The credit facility contains customary representations and warranties and operating covenants. Advances under the credit facility are subject to customary conditions.
Pursuant to a supply agreement between Cronos and GrowCo, prior to the first sale of products from the newly constructed area, Cronos will have the option, but not the obligation, to purchase approximately 80% of GrowCo’s production. Following first sales from the newly constructed area, Cronos will have the option, but not the obligation, to purchase 70% of all GrowCo’s supply on an annual basis. The supply agreement will remain in place for four years.
Completion of construction of the facility expansion is subject to obtaining the relevant building and occupancy permits and other customary approvals. Commencement of operations in the additional areas at GrowCo will be subject to obtaining the appropriate licenses under applicable law.
1HiFyre POS Retail Dollar Sales Data P12M June 2023 – May 2024, Ending May 31, 2024. Accessed June 19, 2024.
About Cronos
Cronos 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 is building an iconic brand portfolio. Cronos’ diverse international brand portfolio includes Spinach®, PEACE NATURALS® and Lord Jones®. For more information about Cronos and its brands, please visit: thecronosgroup.com.
Forward-looking Statements
This press release may contain information that may constitute “forward-looking information” or “forward-looking statements” within the meaning of applicable Canadian and U.S. securities laws and court decisions (collectively, “Forward-looking Statements”). All information contained herein that is not clearly historical in nature may constitute Forward-looking Statements. In some cases, Forward-looking Statements can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “plan”, “anticipate”, “intend”, “potential”, “estimate”, “believe” or the negative of these terms, or other similar expressions intended to identify Forward-looking Statements. Some of the Forward-looking Statements contained in this press release include statements about the Company’s future plans and relationship with GrowCo, the changing size of the GrowCo board of directors, expectations around GrowCo’s supplying of products to Cronos, the expected consolidation of GrowCo’s results of operations in Cronos’ publicly reported financial statements, the expansion of Cronos’ ability to supply markets it operates in as well as new markets in the future, increasing demand for cannabis, conditions to the completion of the construction of the new facility and the commencement of operations and Cronos’ intention to build an international iconic brand portfolio and develop disruptive intellectual property. Forward-looking Statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive risks, financial results, results, performance or achievements expressed or implied by those Forward-looking Statements and the Forward-looking Statements are not guarantees of future performance. A discussion of some of the material risks applicable to the Company can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, each of which has been filed on SEDAR+ and EDGAR and can be accessed at www.sedarplus.ca and www.sec.gov/edgar, respectively. Any Forward-looking Statement included in this press release is made as of the date of this press release and, except as required by law, Cronos disclaims any obligation to update or revise any Forward-looking Statement. Readers are cautioned not to put undue reliance on any Forward-looking Statement.
For further information, please contact:
Investor Relations Contact:
Shayne Laidlaw
Investor Relations
Tel: (416) 504-0004
investor.relations@thecronosgroup.com
Media Relations Contact:
Emily Whalen
Communications
Tel: (416) 504-0004
media.relations@thecronosgroup.com
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