Investments and Advances to Joint Ventures

6 Months Ended

Jun. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

Investments and Advances to Joint Ventures

Variable Interest Entities

The Company holds variable interests in Cronos Growing Company Inc. (“Cronos GrowCo”), Natuera S.à.r.l (“Natuera”), MedMen Canada Inc. (“MedMen Canada”) and Cannasoul Lab Services Ltd. (“CLS”).

Cronos GrowCo is a joint venture incorporated under the Canada Business Corporations Act (“CBCA”) on June 14, 2018 with the objective of building a cannabis production greenhouse, applying for cannabis licenses under the Cannabis Act (Canada), and growing, cultivating, extracting, producing and selling cannabis in accordance with such licenses. Cronos Group holds variable interests in Cronos GrowCo through its ownership of 50% of Cronos GrowCo’s common shares and senior secured debt in Cronos GrowCo. The Company has also agreed to purchase a minimum amount of Cronos GrowCo’s cannabis product annually, subject to Cronos GrowCo’s receipt of all applicable licenses and permits. Cronos GrowCo’s economic performance is driven by the quantity and strains of cannabis grown. The joint venture partners mutually determine the quantity and strains of cannabis grown.

Natuera is a joint venture registered in Luxembourg with the objective of cultivating and commercializing medical cannabis to serve the export market. Cronos holds variable interests in Natuera through its ownership of 50% of Natuera’s common shares and other debt in the entity. Natuera’s economic performance is driven by the quantity and strains of cannabis to be grown. The joint venture partners mutually determine the quantity and strains of cannabis grown.

MedMen Canada is a joint venture incorporated under the CBCA on March 13, 2018, with the objective of the retail sale and marketing of cannabis products in Canada. MedMen Canada holds the exclusive license to the MedMen brand in Canada for a minimum term of 20 years. Cronos holds variable interests in MedMen Canada through its ownership of 50% of MedMen Canada’s common shares and other subordinated debt in the entity. MedMen Canada’s economic performance is driven by the quantity and strains of cannabis sold. Subject to applicable law, the joint venture partners mutually determine the quantity and strains of cannabis to be sold in MedMen Canada’s retail stores, if and when stores are opened.

The Company’s investments in Cronos GrowCo, Natuera and MedMen Canada are exposed to economic variability from each entity’s performance, however the Company does not consolidate the entities as it does not have the power to direct the activities that most significantly impact the joint ventures’ economic performance. Thus, Cronos Group is not considered the primary beneficiary of the entity. These investments are accounted for as equity method investments classified as “Investments in equity accounted investees” in the consolidated balance sheets.

CLS is a wholly owned subsidiary of Cannasoul Analytics Ltd., incorporated with the purpose of establishing a commercial cannabis analytical testing laboratory located on the premises of Cronos Israel (the “Cannasoul Collaboration”). Cronos Israel will advance ILS 8,297 (approximately $2,446) by a non-recourse loan to CLS over a period of two years from April 1, 2020 for the capital and operating expenditures of the laboratory. The loan will bear interest at 3.5% annually. Cronos Israel will receive 70% of the profits of the laboratory until such time as it has recovered 150% of the amounts advanced to CLS, after which time it will receive 50% of the laboratory profits. As a result, the Company is exposed to economic variability from CLS’s performance. The Company does not consolidate CLS as it does not have the power to direct the activities that most significantly impact the entity’s economic performance; thus, the Company is not considered the primary beneficiary of the entity. The carrying amount of the non-recourse loan is recorded under loans receivable and the full loan amount, ILS 8,297, represents the Company’s maximum potential exposure to losses through the Cannasoul Collaboration. See Note 10 for further information regarding loans receivable.

(a)Net investment in equity accounted investees

A reconciliation of the carrying amount of the investments in associates and joint ventures is as follows:


		Carrying Amount
	Ownership %	June 30, 2020		December 31, 2019

Cronos Australia⁽ⁱ⁾	31%	$	—	$	(346)
Cronos GrowCo	50%	933		1,501
MedMen Canada	50%	—		—
Natuera	50%	—		(598)

		$	933	$	557

⁽ⁱ⁾On October 25, 2019, Cronos Australia issued 40 million new shares in an initial public offering at an offering price of A$0.50 per share. The Company’s ownership in Cronos Australia decreased from 50% to 31% on November 7, 2019 when Cronos Australia began trading on the Australian Securities Exchange. This resulted in a reconsideration event, which required the reassessment of the Company’s VIE conclusion. Upon reconsideration, the Company determined that the entity was no longer a VIE as of December 31, 2019 and is now reported under the equity method.

The Company’s share of net earnings (losses) from equity investments accounted for under the equity method of accounting:


	For the three months ended June 30,						For the six months ended June 30,
	2020		2019		2020		2019
Whistler Medicinal Marijuana Company (“Whistler”)	$	—	$	—	$	—	$	29
Cronos Australia⁽ⁱ⁾	(235)		(397)		(235)		(641)
Cronos GrowCo	(190)		(38)		(501)		(27)
MedMen Canada	—		(2)		—		4
Natuera⁽ⁱⁱ⁾	(369)		(304)		(1,230)		(304)

	$	(794)	$	(741)	$	(1,966)	$	(939)

⁽ⁱ⁾The Company’s share of accumulated net losses in excess of its equity investment and advances in Cronos Australia was $512 for the six months ended June 30, 2020 (June 30, 2019 – $nil).

⁽ⁱⁱ⁾The Company’s share of accumulated net losses in excess of its equity investment in Natuera has been applied as a loss allowance on the loan receivable. See Note 6(b) and Note 10.

(b)Advances to Joint Venture


	MedMen Canada⁽ⁱ⁾		Cronos GrowCo		Cronos Australia ⁽ⁱⁱ⁾		Natuera		Total
As of January 1, 2020	$	471	$	18,966	$	—	$	—	$	19,437
Credit loss allowance ⁽ⁱⁱⁱ⁾	—		—		—		—		—



Effect from foreign exchange	(20)		(819)		—		—		(839)
As of June 30, 2020	$	451	$	18,147	$	—	$	—	$	18,598


As of January 1, 2019	$	1,244	$	2,970	$	475	$	—	$	4,689
Advances (repayment)	(852)		15,494		274		219		15,135
Advances to joint ventures recovered from (applied to) carrying amount of investments	35		22		(779)		(224)		(946)
Effect from foreign exchange	44		480		30		5		559
As of December 31, 2019	$	471	$	18,966	$	—	$	—	$	19,437

⁽ⁱ⁾Advance is unsecured, non-interest bearing, and there are no terms of repayment.

⁽ⁱⁱ⁾A$1,500 is governed by an unsecured loan bearing interest at a rate of 12% per annum, calculated and compounded daily, in arrears, on the amounts advanced from the date of each advance. The loan is due on January 1, 2022. If the loan is overdue, the outstanding amount bears interest at an additional 2% per annum.

⁽ⁱⁱⁱ⁾For the three months ended June 30, 2020, a reversal of $917 related to the credit loss allowance for Cronos GrowCo was recorded as the Company assessed its recoverability. As of June 30, 2020, total credit losses were $nil.