Cronos Group Inc. Announces Second Quarter and First-Half 2019 Results
Opened Cronos Device Labs, New Global R&D Center in Israel
Appointed Dr. Todd Abraham as Chief Innovation Officer
Announced Agreement to Acquire State-of-the-Art Fermentation Facility
Established New Growth Opportunity in the United States with Acquisition of Hemp-Based Products Platform
Cronos Group Inc. (NASDAQ:CRON) (TSX:CRON.TO) ("Cronos Group" or the "Company"), today announced financial results and business highlights for the second quarter and first-half ended June 30, 2019.
"During the second quarter, Cronos Group expanded its R&D capabilities, innovation expertise and global infrastructure network in what has been a year of tremendous growth," said Mike Gorenstein, CEO of Cronos Group. "We opened Cronos Device Labs, our new global R&D center in Israel, announced the acquisition of our new state-of-the-art fermentation facility and added Dr. Todd Abraham as Chief Innovation Officer to our executive leadership team."
"We also took steps to enter the U.S. market with our recent acquisition of Redwood Holding's hemp-based CBD platform. As we look ahead, we will continue to capitalize on this momentum by building on our partnerships with Altria and Gingko Bioworks and leveraging our collective resources and expertise to realize the significant potential in the growing cannabis industry."
Financial Results Second Quarter 2019
($ in 000s, except where noted otherwise) Three Months Ended Six Months Ended June 30, Change June 30, Change 2019 2018 $ % 2019 2018 $ % Financial Results Net Revenue $ 10,237 $ 3,394 $ 6,843 202 % $ 16,707 $ 6,339 $ 10,368 164 % Gross Margin before Fair Value Adjustments 53 % 63 % -- -- 54 % 55 % -- -- Adjusted EBITDA $ (17,772 ) $ (2,396 ) $ (15,376 ) 642 % $ (26,719 ) $ (3,896 ) $ (22,823 ) 586 % Extract Sales (% of Net Product Revenue) 20 % 19 % -- -- 21 % 14 % -- -- Operating Results Kilograms Sold 1,584 477 1,107 232 % 2,695 978 1,717 176 % Net Product Revenue / Gram Sold $ 6.44 $ 7.03 $ (0.59 ) (8 %) $ 6.15 $ 6.37 $ (0.22 ) (3 %) Cost of Sales before Fair Value Adj. / Gram Sold 3.01 2.63 0.38 14 % 2.87 2.88 (0.01 ) (0 %) Balance Sheet Cash and Cash Equivalents $ 1,579,231 $ 89,609 $ 1,489,622 1,662 % $ 1,579,231 $ 89,609 $ 1,489,622 1,662 % Short-Term Investments 744,936 -- 744,936 NA 744,936 -- 744,936 NA Derivative Liabilities 1,399,594 -- 1,399,594 NA 1,399,594 -- 1,399,594 NA
See "General Matters - Non-IFRS Measures" for information related to Adjusted EBITDA.
Dollar amounts are as of the last day of the period indicated.
-- Net revenue was $10.2 million in Q2 2019, representing a 202% increase from $3.4 million in Q2 2018, primarily driven by the launch of the adult-use market in Canada. Net revenue increased 58% quarter-over-quarter from $6.5 million in the first quarter of 2019, primarily driven by increased sales in CBD oil, which carries no excise tax reduction and increased sales of dry flower.
-- 1,584 kilograms were sold in Q2 2019, representing a 232% increase from 477 kilograms sold in Q2 2018, primarily driven by increased cannabis production and the launch of the adult-use market in Canada. Kilograms sold increased 43% quarter-over-quarter from 1,111 kilograms sold in the first quarter of 2019, primarily driven by increased cannabis production.
-- Cost of sales before fair value adjustments per gram sold was $3.01 in Q2 2019, representing a 14% increase from $2.63 in Q2 2018 and a 12% increase from $2.69 in the first quarter of 2019. The increase quarter-over-quarter was driven by higher processing cost on a per gram basis.
-- The Company experienced continued growth in cannabis oil sales, which represented 20% of net product revenue in Q2 2019 compared to 19% in Q2 2018.
($ in 000s, except where noted otherwise) Second First Quarter Quarter Change 2019 2019 $ % Financial Results Net Revenue $ 10,237 $ 6,470 $ 3,767 58 % Gross Margin before Fair Value Adjustments 53 % 54 % -- -- Adjusted EBITDA $ (17,772 ) $ (8,947 ) $ (8,825 ) 99 % Extract Sales (% of Net Product Revenue) 20 % 23 % -- -- Operating Results Kilograms Sold 1,584 1,111 473 43 % Net Product Revenue / Gram Sold $ 6.44 $ 5.73 $ 0.71 12 % Cost of Sales before Fair Value Adj. / Gram Sold 3.01 2.69 0.32 12 % Balance Sheet Cash and Cash Equivalents $ 1,579,231 $ 2,418,277 $ (839,046 ) (35 %) Short-Term Investment 744,936 -- 744,936 NA Derivative Liabilities 1,399,594 1,664,275 (264,681 ) (16 %)
See "General Matters - Non-IFRS Measures" for information related to Adjusted EBITDA.
Dollar amounts are as of the last day of the period indicated.
Global Supply Chain
Cronos Group is transitioning its current production footprint towards an efficient global supply chain model, which is expected to employ a combination of wholly-owned production facilities, third-party suppliers and global production partnerships, all of which is anticipated to support the manufacturing of the Company's adult consumer goods. The Company remains focused on establishing industry-leading methodologies and best practices at Peace Naturals, the Company's center of excellence, and leveraging expertise to create high quality domestic and international products that resonate with consumers.
In anticipation of the derivative market launching in Canada this fall, Cronos Group expanded its Canadian footprint with a cannabis concentrate supply agreement with MediPharm Labs Corp. ("MediPharm Labs") in May 2019. MediPharm Labs will supply Cronos Group with approximately $30 million of cannabis concentrate over 18-months, and, subject to certain renewal and purchase options, potentially up to $60 million over 24-months. Additionally, Cronos Group and MediPharm Labs have entered into a tolling agreement, where Cronos Group may supply bulk cannabis to MediPharm Labs extraction facility to fulfill certain additional processing needs of the Company.
In July 2019, subsequent to the end of the second quarter, the Company entered into a contract manufacturing agreement with Heritage Cannabis Holdings Corp. ("Heritage"), a cannabis producer based in British Columbia. Heritage will be providing cannabis extract and services related to the filling and packaging of vaporizer devices for the Canadian cannabis adult-use and medical markets. The agreement has a two-year term with an option to extend upon agreement by both parties, at an annual potential contract value of $35 million, based on current projections.
Global Sales and Distribution
Cronos Group remains committed to leading the industry forward responsibly as derivative products are introduced to the Canadian marketplace this fall. Along with Cronos Group's internal capabilities, the Company has partnered with third-party producers to support the Company's entry into the vaporizer category in Canada. Both aforementioned third-party suppliers are expected to utilize the Company's proprietary formulations for production.
Intellectual Property Initiatives
In May 2019, Cronos Group established Cronos Device Labs, a global research and development ("R&D") center for vaporizer innovation. Cronos Device Labs' advanced facility is based in Israel, a leader in cannabis R&D, and supports Cronos Group's efforts to develop next-generation vaporizer products that are designed specifically for cannabinoid applications.
Cronos Device Labs, which is equipped with an experienced team of product development talent, advanced vaporizer technology and analytical testing infrastructure, serves as the global center of R&D for the Company's vaporizer devices.
The 23-member team at Cronos Device Labs, which brings to Cronos Group over 80 years of combined expertise in vaporizer development, is comprised of product designers, mechanical, electrical and software engineers, and analytical and formulation scientists. Cronos Device Labs significantly enhances Cronos Group's technology and development capabilities and is expected to enable the Company to deliver expanded product offerings to customers that are specially tailored to cannabinoid use.
Subsequent to the end of the second quarter, Cronos Group closed the previously announced acquisition of an 84,000 square foot GMP compliant fermentation and manufacturing facility in Winnipeg, Manitoba from Apotex Fermentation Inc. ("AFI") on July 31, 2019. The state-of-the-art facility, which will operate as "Cronos Fermentation", includes fully equipped laboratories covering microbiology, organic and analytical chemistry, quality control and method development as well as two large scale microbial fermentation production areas with a combined production capacity of 102,000L, three downstream processing plants, and bulk product and packaging capabilities.
The acquisition was funded using existing cash on hand and is expected to provide the fermentation and manufacturing capabilities the Company needs in order to capitalize on the progress underway with Ginkgo Bioworks, Inc. ("Ginkgo Bioworks"). The Ginkgo Bioworks partnership aims to bring innovation and biological manufacturing to the cannabis industry, which would allow for cannabinoid production at large scale and with greater efficiency compared to traditional cultivation and extraction. Commercial production at the facility is subject to completion of the equipment alignment for cannabinoid-based production, the receipt of the appropriate licenses from Health Canada to produce cultured cannabinoids under the Cannabis Act (Canada) and the achievement of certain milestones under the strategic partnership with Ginkgo Bioworks.
Subsequent to the end of the second quarter, Cronos Group entered into a definitive agreement to acquire four of Redwood Holding Group, LLC's operating subsidiaries (collectively, "Redwood"). Redwood manufactures, markets and distributes hemp-derived CBD infused skincare and other consumer products online and through retail and hospitality partner channels in the United States under the Lord Jones(TM) brand. Redwood's products use pure hemp oil that contains natural phytocannabinoids and terpenes found in the plant.
Under the terms of the agreement, Cronos Group will acquire Redwood for approximately US$300 million, net of Redwood's estimated cash and debt and subject to a customary working capital adjustment. US$225 million of the total consideration (subject to the foregoing adjustments) will be paid in cash with the balance paid in newly issued Cronos Group common shares. Cronos Group will fund the cash portion of the transaction with cash on hand. The acquisition is expected to close in the third quarter of 2019, subject to customary closing conditions and regulatory approvals.
The Company will host a conference call and live audio webcast on Thursday, August 8, 2019 at 8:30 a.m. EST to discuss second quarter 2019 results. The call will last approximately one hour. Instructions for the conference call are provided below:
-- Live audio webcast: https://ir.thecronosgroup.com/events/event-details/second-quarter-2019-earnings-conference-call
-- Toll Free from the U.S. and Canada dial-in: (866) 795-2258
-- International dial-in: (409) 937-8902
-- Conference ID: 3164005
An audio replay of the call will be archived on the Company's website for replay.
About Cronos Group
Cronos Group is an innovative global cannabinoid company with international production and distribution across five continents. Cronos Group is committed to building disruptive intellectual property by advancing cannabis research, technology and product development. With a passion to responsibly elevate the consumer experience, Cronos Group is building an iconic brand portfolio. Cronos Group's portfolio includes PEACE NATURALS(TM), a global health and wellness platform, and two adult-use brands COVE(TM) and Spinach(TM). To learn more about Cronos Group and its brands, please visit:â?¯www.thecronosgroup.com; www.peacenaturals.com; www.covecannabis.ca; www.spinachcannabis.com.
This press release contains "forward-looking information" and "forward-looking statements" within the meaning of applicable securities laws (collectively, "forward-looking statements"), which are based on the Company's current internal expectations, estimates, projections, assumptions and beliefs. 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", "likely", "should", "would", "plan", "anticipate", "intend", "potential", "proposed", "estimate", "believe", or other similar words, expressions, phrases, including negative and grammatical variations thereof, or statements that certain events or conditions "may" or "will" happen, or by discussions of strategy. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of historical fact. Forward-looking statements are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash flows as at and for periods ended on certain dates and to present information about management's current expectations and plans relating to the future and the reader is cautioned that such information may not be appropriate for any other purpose. Some of the forward-looking statements contained in this press release, include, but are not limited to, statements with respect to: the anticipated benefits of our joint ventures, strategic alliances, research and development initiatives, acquisitions and other commercial arrangements, including the ability to produce and distribute the target cannabinoids under our strategic partnership with Ginkgo Bioworks, Inc., the ability to build innovative vaporizer products and expand product offerings through Cronos Device Labs and the ability to further create and scale hemp-derived consumer products through the Company's acquisition of Redwood; expectations regarding the Company's acquisition of Redwood, including anticipated timing of closing of the acquisition and the anticipated benefits therefrom; our ability to execute on our growth strategy, including the construction of production facilities and the commencement of operations by our joint ventures and the timing thereof; the ability of Cronos Group, our joint ventures, strategic partners and commercial counterparties to obtain all necessary licenses, permits and approvals; our ability to expand our distribution network and global footprint; our business and operations; our strategy for future growth; our intention to build an international iconic brand portfolio and develop disruptive intellectual property; and the growth potential of the cannabis industry and our ability to realize such opportunity. No forward-looking statement can be guaranteed and Cronos Group cannot guarantee the forward-looking statements contained herein. Forward-looking statements are based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including management's perceptions of historical trends, current conditions and expected future developments, as well as other considerations that are believed to be appropriate in the circumstances. While we consider these assumptions to be reasonable based on information currently available to management, there is no assurance that such expectations will prove to be correct. By their nature, forward-looking statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of factors, including known and unknown risks, many of which are beyond our control, could cause actual results to differ materially from the forward-looking statements in this press release. Such factors include, without limitation, those discussed in the Company's most recent management's discussion and analysis and the Company's annual information form for the year ended December 31, 2018, both of which have been filed on the Company's profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Readers are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements. Forward-looking statements contained herein are made as of the date of this press release and are based on the beliefs, estimates, expectations and opinions of management on the date such forward-looking statements are made. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such forward-looking statements, except as required by applicable law.
All references in this press release to "dollars", "C$" or "$" are to Canadian dollars and all references to "US$" are to United States dollars.
Cronos Group Inc. Unaudited Condensed Interim Consolidated Statements of Financial Position As at June 30, 2019 and December 31, 2018 (in thousands of CDN $) Notes As at As at June 30, December 31, 2019 2018 Assets Current assets Cash and cash equivalents 22(a) $ 1,579,231 $ 32,634 Short-term investments 22(a) 744,936 - Interest receivable 22(a) 5,751 - Accounts receivable 22(a) 11,960 4,163 Sales taxes receivable 7,936 3,419 Prepaid expenses and other assets 7,079 3,876 Biological assets 4 10,032 9,074 Inventory 4 41,667 11,584 Total current assets 2,408,592 64,750 Advances to joint ventures 5,22(a) 26,608 6,395 Net investments in equity accounted investees 5 2,025 4,038 Other investments 6 300 705 Loans receivable 7,22(a) 16,664 314 Property, plant and equipment 8 196,718 171,720 Right-of-use assets 3,11 3,359 171 Intangible assets 9 11,461 11,234 Goodwill 9 1,792 1,792 Total assets $ 2,667,519 $ 261,119 Liabilities Current liabilities Accounts payable and other liabilities 22(b) 30,747 15,372 Holdbacks payable 22(b) 2,274 7,887 Government remittances payable 22(b) 630 1,123 Current portion of lease obligations 3,11,22(b) 417 41 Construction loan payable 12,22(b) - 20,951 Derivative liabilities 13,22(b) 1,399,594 - Total current liabilities 1,433,662 45,374 Lease obligations 3,11,22(b) 3,109 119 Due to non-controlling interests 10,22(b) 2,249 2,136 Deferred income tax liability 20 4,036 1,850 Total liabilities $ 1,443,056 $ 49,479 Shareholders' equity Share capital 14(a) 559,296 225,500 Warrants 15(a) 754 1,548 Stock options 15(b) 8,573 6,241 Retained earnings (accumulated deficit) 655,047 (22,715 Accumulated other comprehensive income 944 930 Total equity attributable to shareholders of Cronos Group 1,224,614 211,504 Non-controlling interests 3,10 (151 ) 136 Total shareholders' equity 1,224,463 211,640 Total liabilities and shareholders' equity $ 2,667,519 $ 261,119 Commitments and contingencies 19 Subsequent events 25 The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
Cronos Group Inc. Three Months Ended Six Months Ended Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Income (Loss) June 30, June 30, For the three and six months ended June 30, 2019 and June 30, 2018 (in thousands of CDN $, except share and per share amounts) Notes 2019 2018 2019 2018 Gross revenue 16 $ 10,787 $ 3,394 $ 17,772 $ 6,339 Excise taxes (550 ) - (1,065 ) - Net revenue 10,237 3,394 16,707 6,339 Cost of sales Cost of sales before fair value adjustments 4,762 1,254 7,746 2,821 Gross profit before fair value adjustments 5,475 2,140 8,961 3,518 Fair value adjustments Unrealized change in fair value of biological assets 4 (4,024 ) (6,831 ) (17,577 ) (9,575 ) Realized fair value adjustments on inventory sold in the period 3,557 2,625 7,279 4,819 Total fair value adjustments (467 ) (4,206 ) (10,298 ) (4,756 ) Gross profit 5,942 6,346 19,259 8,274 Operating expenses Sales and marketing 5,358 364 6,858 950 Research and development 3,076 - 4,633 - General and administrative 15,176 4,219 24,787 6,680 Share-based payments 15(b) 2,002 950 2,739 1,724 Depreciation and amortization 8,9,11 675 323 1,145 608 Total operating expenses 26,287 5,856 40,162 9,962 Operating loss (20,345 ) 490 (20,903 ) (1,688 ) Other income (expense) Interest income (expense) 12,531 (37 ) 15,251 (59 ) Financing and transaction costs 12,13,25 (4,505 ) - (34,066 ) - Gain on revaluation of derivative liabilities 13 263,943 - 700,326 - Share of (loss) income from investments in equity accounted investees 5 (991 ) 3 (1,255 ) 44 Gain on disposal of Whistler 5 - - 20,606 - Gain on other investments 6 - - 924 221 Total other income 270,978 (34 ) 701,786 206 Income (loss) before income taxes 250,633 456 680,883 (1,482 ) Deferred income tax (recovery) expense 20 (335 ) (267 ) 2,222 (1,155 ) Net income (loss) $ 250,968 $ 723 $ 678,661 $ (327 ) Net income (loss) attributable to: Cronos Group $ 251,117 $ 723 $ 678,946 $ (327 ) Non-controlling interests 10 (149 ) - (285 ) - $ 250,968 $ 723 $ 678,661 $ (327 ) Other comprehensive income (loss) Gain on revaluation and disposal of other investments, net of tax 6,20 $ - $ 39 $ 103 $ 4 Foreign exchange loss on translation of foreign operations 2(a),10 (104 ) - (87 ) - Total other comprehensive income (loss) (104 ) 39 16 4 Comprehensive income (loss) $ 250,864 $ 762 $ 678,677 $ (323 ) Comprehensive income (loss) attributable to: Cronos Group $ 251,011 $ 762 $ 678,960 $ (323 ) Non-controlling interests 10 (147 ) - (283 ) - $ 250,864 $ 762 $ 678,677 $ (323 ) Earnings (loss) per share Basic 17 $ 0.75 $ 0.00 $ 2.14 $ (0.00 ) Diluted 17 $ 0.22 $ 0.00 $ 0.58 $ (0.00 ) Weighted average number of outstanding shares Basic 17 334,665,873 175,529,196 317,940,749 166,343,078 Diluted 17 374,676,595 211,524,230 364,872,093 166,343,078 The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
Cronos Group Inc. Unaudited Condensed Interim Consolidated Statements of Cash Flows For the three and six months ended June 30, 2019 and June 30, 2018 (in thousands of CDN $) Three Months Ended Six Months Ended June 30, June 30, Notes 2019 2018 2019 2018 Operating activities Net income (loss) $ 250,968 $ 723 $ 678,661 $ (327 ) Items not affecting cash and cash equivalents: Unrealized change in fair value of biological assets 4 (4,024 ) (6,831 ) (17,577 ) (9,575 ) Realized fair value adjustments on inventory sold in the period 3,557 2,625 7,279 4,819 Share-based payments 15(b) 2,002 950 2,739 1,724 Depreciation and amortization 8,9,11 675 323 1,145 608 Depreciation relieved on inventory sold 21 363 47 598 216 Gain on revaluation of derivative liabilities 13 (263,943 ) - (700,326 ) - Share of loss (income) from investments in equity accounted investees 5 991 (3 ) 1,255 (44 ) Gain on disposal of Whistler 5 - - (20,606 ) - Gain on other investments 6 - - (924 ) (221 ) Deferred income tax (recovery) expense 20 (335 ) (267 ) 2,222 (1,155 ) Foreign exchange loss (gain) 178 4 92 (12 ) Net changes in non-cash working capital 21 (47,860 ) (4,437 ) (30,541 ) (16,662 ) Cash and cash equivalents used in operating activities (57,428 ) (6,866 ) (75,983 ) (20,629 ) Investing activities Purchase of short-term investments (744,936 ) - (744,936 ) - Advances to joint ventures 5 (5,481 ) - (21,293 ) - Investments in equity accounted investees 5 - - (2,200 ) - Proceeds from sale of other investments 6 - 280 26,078 967 Payment to exercise ABcann warrants 6 - - - (113 ) Advances on loans receivable 7 (16,350 ) - (16,350 ) - Purchase of property, plant and equipment 8 (14,445 ) (30,025 ) (27,899 ) (37,667 ) Purchase of intangible assets 9 (577 ) (38 ) (628 ) (169 ) Advance to Cronos Israel 10 - (378 ) - (1,304 ) Cash and cash equivalents used in investing activities (781,789 ) (30,161 ) (787,228 ) (38,286 ) Financing activities Advance from non-controlling interests 10 2 - 113 - Repayment of lease obligations 11 (184 ) - (216 ) - Repayment of construction loan payable 12 - - (21,311 ) - Payment of accrued interest on construction loan payable 12 - - (121 ) (185 ) Advance under Credit Facility 12 - - 65,000 - Repayment of Credit Facility 12 - - (65,000 ) - Proceeds from Altria Investment 13,14(a) - - 2,434,757 - Proceeds from share issuance 14(a) - 100,032 - 146,032 Share issuance costs 14(a) (101 ) (6,363 ) (5,002 ) (9,444 ) Proceeds from exercise of warrants and options 15(a),(b) 750 599 1,932 2,913 Withholding taxes paid on share appreciation rights 15(b) (569 ) - (1,116 ) - Proceeds from exercise of Top-up Rights 13(c),14(b) 828 - 828 - Cash and cash equivalents provided by financing activities 726 94,268 2,409,864 139,316 Net change in cash and cash equivalents (838,491 ) 57,241 1,546,653 80,401 Cash and cash equivalents - beginning of period 2,417,855 32,368 32,634 9,208 Effects of foreign exchange on cash and cash equivalents (133 ) - (56 ) - Cash and cash equivalents - end of period $ 1,579,231 $ 89,609 $ 1,579,231 $ 89,609 Supplemental cash flow information Interest paid $ 77 $ 189 $ 752 $ 496 Interest received 10,054 - 10,054 - The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
The Company uses certain measures that are not recognized under International Financial Reporting Standards ("IFRS"), do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. Rather, these measures are provided as a supplement to those IFRS measures to provide additional information regarding the Company's results of operations from management's perspective. Accordingly, non-IFRS measures should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with IFRS. Each non-IFRS measure is reconciled to its most directly comparable IFRS measure.
Adjusted earnings before interest and tax ("Adjusted EBIT") is used by management as a supplemental measure to review and assess operating performance and trends on a comparable basis. Adjusted EBIT is defined as net income or loss, excluding interest expense, interest income, deferred income tax expense or recovery, share-based payments, unrealized change in the fair value of biological assets, realized fair value adjustments on inventory sold, financing costs, gain on revaluation of derivative liabilities, share of income or loss from investments in equity accounted investees and gain or loss on investments. The Company believes that Adjusted EBIT is useful to compare its operating profitability across periods.
Adjusted earnings before interest, tax, depreciation and amortization ("Adjusted EBITDA") is used by management as a supplemental measure to review and assess operating performance and trends on a comparable basis. Adjusted EBITDA is defined as Adjusted EBIT excluding depreciation and amortization. The Company believes that Adjusted EBITDA is useful to compare its ability to generate cash from operations across periods.
Reconciliation of non-IFRS measures
A reconciliation of Adjusted EBIT and Adjusted EBITDA to net income, the most directly comparable IFRS measure, is presented in the following table.
($ in 000s) Second First Second Quarter Quarter Quarter 2019 2019 2018 Net Income (Loss) $ 250,968 $ 427,693 $ 723 Adjustments Interest (Income) Expense (12,531 ) (2,720 ) 37 Deferred Income Tax Expense (Recovery) (335 ) 2,557 (267 ) Share-Based Payments 2,002 737 950 Unrealized Change in Fair Value of Biological Assets (4,024 ) (13,553 ) (6,831 ) Realized Fair Value Adjustments on Inventory Sold 3,557 3,722 2,625 Financing and Transaction Costs 4,505 29,561 -- Gain on Revaluation of Derivative Liabilities (263,943 ) (436,383 ) -- Share of Loss (Income) from Investments in Equity Accounted Investees 991 264 (3 ) Gain on Disposal of Whistler -- (20,606 ) -- Gain on Other Investments -- (924 ) -- Adjusted EBIT (18,810 ) (9,652 ) (2,766 ) Depreciation and Amortization 1,038 705 370 Adjusted EBITDA (17,772 ) (8,947 ) (2,396 )
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