Cronos Group Inc.

Good morning. My name is Polly, and I will be your conference operator today. I would like to welcome everyone to the Kronos Group 2020 First Quarter Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Shane Lethlaw, Investor Relations. Please go ahead, sir.

Thank you, Polly, and thank you for joining us today to review Kronos Group's 2021 First Quarter Financial and Business Performance. Today, I am joined by our President and CEO, Kurt Schmidt. our CFO, Jerry Barbato, our Executive Chairman, Mike Gornstein, and our EVP of Legal and Regulatory Affairs, Su Ming Shun. Kronos Group issued a news release announcing these financial results this morning, which are filed on our EDGAR and CDAR 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 risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements, including as a result of the factors described in the cautionary statement 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, and quarterly reports on Form 10Q, by which any forward-looking statements made during this call are qualified in their entirety. In addition, during this call, certain financial measures may be discussed that are not recognized under the U.S. 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 closest 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, thechronosgroup.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 will move to a question and answer session. With that, I'll pass it over to Kronos Group's President and CEO, Kurt Schmidt.

Thank you, Shane. I want to open the call up by saying thank you to our global team for their continued and relentless effort to help Kronos become a leader in the markets we operate in. Despite not being quite at the end of the fight against COVID-19 and varying degrees of vaccine availability across the markets we operate in, I'm hopeful we can find a path towards a more normal life in the near future. We are grateful to our team for their creativity and ingenuity in growing our business and pushing forward no matter the circumstances. Turning to our first quarter results, I will start by reflecting on a few highlights from the quarter, which underline Kronos' commitment to building disruptive technology and innovation and strengthening our ability to compete, two of my key areas of focus for this year. On the innovation front, Kronos and Ginkgo Bioworks were named as one of the winners of Fast Company's prestigious 2021 Most Innovative Companies Award in the joint ventures category. This is a respected award that acknowledges the significant and innovative work we are accomplishing with our partners at Ginkgo. We are humbled by the acknowledgement of the incredible work we are doing together. Our partnership with Ginkgo is a core component of our innovation story. Together, we have successfully fermented one of our target cannabinoids, CBG, at research scale. And we continue to look forward to leveraging our R&D, innovation, and consumer insight team to drive the creation of differentiated product offerings. Most recently, in April, we received our processing license for fermented cannabinoids at our Winnipeg Manitoba facility from Health Canada, making a significant achievement for Kronos. which highlights the strength of our organization across all functions. The receipt of this license at this time was built into our product calendar, and we remain on track for previously disclosed timing for commercialization. We look forward to advancing the cannabis industry with this technology and our world-class R&D and innovation teams in an effort to elevate the consumer experience responsibly. This week, we released an important commitment our marketing code of conduct. As a company, we believe that those below the legal age of consumption should not be targeted in adult use cannabis market. We recognize there is a clear need for standards, which is why we proactively created our own marketing code as a resource for the industry and policymakers. The principles outlined in our marketing code apply to all marketing activities for all our brands globally. The code represents Cronus's commitment to responsible marketing standards. From our leadership team to our external agencies, Kronos expects such individuals to understand and follow these principles. Our marketing code is an important step toward elevating industry practices. We hope that others within the industry will embrace similar commitments. As policymakers consider how best to regulate a federally legal U.S. cannabis market, we believe these principles reflect the sort of policies necessary for our industry. Last month, we set a new milestone for the industry by launching our Kronos Group Employees Pack. Our pack was established to support and educate legislators who are open to responsibly advancing legislation and regulation for CBD products, as well as those taking steps towards a well-regulated, safe, and legal federal cannabis market in the U.S. We firmly believe that policymakers and regulators must invest in approaches that support responsible adult consumption. limit harm from consumers by curtailing the illicit market, and create a legal and well-regulated federal framework for the cannabis industry in the U.S. Establishing this path is one step towards achieving that vision. As legalization efforts continue across the U.S., we remain committed to being an integral part of the conversation. Our government affairs work strengthens our ability to compete on a global scale. And we believe cannabis should be legal at the federal level and that a comprehensive and reasonable federal regulatory framework should be put in place for the industry. With our PAC donations and the release of our marketing code, we're proud to be on the record supporting responsible legalization efforts in the United States. While we are doing what we can from the corporate side to support federal legalization in the U.S., Mike Gorenstein, in his role as executive chairman, continues to work with the Kronos team internally to evaluate various opportunities in the market. While our global organization parallel paths on an organic entry strategy, given the robust suite of innovations we are building at our Peace Naturals Center of Excellence in Stainer, Ontario, and deep cannabinoid learnings gained by our research teams in Israel. We are confident that with our balance sheet, existing CBD infrastructure, and our strategic investors, We will be a best-in-class cannabis company in the U.S. Turning to the U.S. segment, towards the end of the first quarter, we began selling our Happy Dance brand at over 550 Ulta beauty locations throughout the U.S., as well as on Ulta.com. We're pleased with the response as we've gained traction and mindshare from Ulta consumers. Broadening our distribution capabilities is an essential next step in the evolution of this brand. with additional product launches expected to follow in order to expand variety for consumers throughout the year. In April, we announced an exciting update for our Lord Jones brand. For the first time in the brand's history, Lord Jones has launched a robust marketing campaign with a mix of market activations, including out-of-home advertising and television spots in various test markets in the US. Lord Jones is a strong brand in its corner of the world. but this campaign and the muscle we're putting behind it is going to make the brand's voice even louder, greatly expanding awareness among adult consumers. Early feedback and reactions from our consumers and retail partners have been positive, and I'm excited to see how well the marketing campaign does for the brand throughout 2021 and beyond. I have built a few brands in my career. It starts with authenticity and a high-quality product, and we certainly have those. Now we need to make sure people know about it, and that's where the marketing effort comes in. Our investment reaffirms our commitment to support the marketing efforts of our core brand across all regions. As I mentioned on our previous call, one of my goals this year is to build great cannabis brands here at Kronos. We're excited about this robust marketing plan for Lord Jones and look forward to bringing this beloved brand to more consumers across the U.S. We are fortunate to have the resources to build Lord Jones into a strong brand within the CBD market, building brand awareness for future line extensions into other segments of the cannabis industry. Our results in the rest of world segments, specifically Canada, were impacted by market dynamics due to ongoing COVID-19 restrictions and logistics issues brought on by stay-at-home orders and resulting restrictions throughout the country. Some provincial stores saw extended lockdown measures and the return to curbside pickup and delivery, which has affected sales growth. As the weather in Canada becomes warmer, curbside pickup becomes less of an inhibitor of growth as it is in the colder months. As recent data shows, the cannabis industry in Canada is recovering from the lows of the first calendar quarter, which is an encouraging sign for the growth going forward. With that being said, as the Canadian market continues to be affected by the COVID-19 pandemic, We remain focused on execution and innovation in this important market despite challenges. In the past quarter, our Canadian innovation and marketing teams have been busy bringing our pipeline to life by developing and commercializing new products planned for the release in the coming weeks and months. We take a methodical approach to product development, understanding consumer needs, and bringing products of the future to market. We are not necessarily concerned about being the first. We are focused on being the best. I'm excited to share that we will release a new edible product under the Spinach brand in the coming weeks. During the development of this product, we let deep consumer insights drive our decision-making while leveraging our robust R&D innovation teams to bring this product to life. Our innovation, which consists of scientists, engineers, and experts from the CPG world, has invested an incredible amount of time into this new product, which we think can be a leader in the edible segment in the Canadian market. By taking a thoughtful, insights-first approach to this new product, we believe we'll deliver a truly unique and quality brand. As I mentioned at the beginning of the year, building disruptive technology and innovation is vital for Kronos. We continue to believe that investing in innovation and research will unlock the full potential of cannabis, helping us create standout products and provide us with a long-term competitive advantage. Turning to Israel, The Israeli medical cannabis market continues to grow, both with patient count numbers steadily increasing, which have now surpassed 88,000 registered medical patients, and the expansion of distribution, where more and more pharmacies are interested in selling medical cannabis to patients in Israel. Following the signing of the agreement with Superpharm in February, the largest pharmacy chain in Israel with over 250 branches, We're very excited about our growth in this rapidly evolving market. Our Peace Naturals brand continues to gain traction in the flour and oil categories within Israel. And we recently launched pre-rolls under the Peace Natural brands into the market from which we have experienced strong early results. I continue to be impressed with the strength of our Israeli based team and look forward to seeing what they will accomplish in the balance of 2021. Despite being faced with a challenging macro environment, I'm incredibly proud of how our team persevered in the first quarter. As I look at the balance of 2021, I'm excited about our plans and what we are setting out to accomplish together as a global team. With that, I'll turn the call over to our CFO, Jerry Barbato.