Good morning. My name is Kelly, and I will be your conference operator today. I would like to welcome everyone to the Cronos Group’s Second Quarter 2018 Earnings Conference Call. Today’s call is being recorded. At this time, I would like to turn the call over to Anna Shlimak, Investor Relations and Communications. Please go ahead.

Thank you, Kelly. And thank you for joining us today to review Cronos Group’s second quarter 2018 performance. I am joined by our Chairman, CEO and President Mike Gorenstein and our CFO, William Hilson. Earlier this morning, Cronos Group issued a new release announcing our financial results which are all filed on our SEDAR and EDGAR profile. This information as well as the prepared remarks will also be posted on our website at www.thecronosgroup.com under Investor Relations. Before I turn the call over to Mike, 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. Management can give no assurance that any forward-looking statements will prove to be correct. Forward-looking statements during this call speak only as of the original date of this call, and we undertake no obligations to update or revise any of these statements except as required by applicable law. Management refer due to the cautionary statement and risk factors included in the Company’s most recent MD&A and Annual Information Form by which any forward-looking statements made during this call are qualified in their entirety. We will now make prepared remarks and then we will move to a question-and-answer session. With that, I will turn the call over to Mike.

Thank you, Anna, and good morning, everyone. During my remarks, I will review Cronos’ Company milestones during the quarter, provide an overview of the Company's strategy and discuss the progress we are making across our strategic priority. I will also discuss the steps we're taking to prepare the Company to accelerate our growth in the future. We started the second quarter by closing our $100 million bought deal and continue to sit in a comfortable cash position. In Canada, we up-listed to the TSX from the Venture Exchange, so I think we're all set on the listing front for years to come. We continue to strengthen our corporate governance in the quarter. We appointed a Lead Director to our Board of Directors, Jim Rudyk, who is the current CFO of Roots, an iconic Canadian brand. He has great experience and wisdom with omni-channel retail, managing rapid growth and lifestyle brand building. We also added Mike Coates to our Board in Audit Committee. Mike was the Former President and CEO of Hill+Knowlton, one of the largest PR and government relations firms in the world. He has a ton of insight into government relations globally and domestically and recently he was one of the four members of the newly elected Ontario Premier Doug Ford’s transition team. We're very lucky to have Mike join the Cronos family. Cronos is committed to being one of the world's leading global cannabis companies. And in achieving that goal, we seek to create value for shareholders by focusing on four core strategic priorities. I want to take some time now to provide color on each pillar and set the stage for how we think about our business. First is capacity. Capacity is necessary to get us where we're going, but it's not our end game. There is…

Thanks, Mike, and good morning, everyone. The figures that I’m reviewing today can be found in our financial statements. We continue to see healthy revenue growth. In the second quarter ended June 30, 2018 revenue up $3.4 million versus $0.6 million in the same quarter in fiscal 2017, represented a 428% increase. The main drivers associated with the increase in revenue are an expansion in our patient onboarding and acquisition, as domestic medical patients sales through 81% quarter-over-quarter, a 21% increase in average selling price quarter-over-quarter and a continued strong growth in our cannabis oil which went from 29% of domestic medical revenues in the previous quarter to 40% this quarter. We are pleased with the demand and uptake of our strain-specific oil offering, a patient see it at a differentiated in premium product. Total cost of sales was a recovery of $3 million in Q2 2018 as compared to $0.5 million in Q2 2017, representing a decrease in expenses of $2.5 million. The change was largely driven by an increase in the number of kilograms sold during the period and increased during cost related to the addition of new production facilities. But just the PEACE NATURALS screen has, which is also used for developing best practices and as engineered to replicate different growing environments in climates around the world. And lastly, an offset from our overall growing cost on a per gram basis. Inventory expenses the cost of sales before fair value adjustment represents the actual growing and processing costs associated with cannabis sold during the period, including labor material, consumable, supplies, utilities, overhead allocation and amortization of production equipment and facilities. In May, we bolstered our corporate assurance program by appointing the big four full service accounting firm KPMG as independent auditors of the Company. In parallel, we…

Thanks, Billy. I would like to now open up the lines for questions. Let's try and stick with one question per caller please. If it's a two part question, we can potentially let that slide.

[Operator Instructions] Your first question comes from the line of Martin Landry from GMP Securities. Please go ahead.

Good morning.

Yes. I would like to talk about the topic of the day, the retail networks. And wondering if you can discuss in a little bit more details as your plans to rollout a retail network with MedMen in Canada? How many stores do you expect to have open by year-end?

Sure. So a lot of this obviously depends on the provinces and how thing open up. As I'm sure you can imagine for Ontario, we do not expect any stores to be open. We do have real estate secured in Western provinces. But how the licensing regime rolled out and when licenses are issued, it is really something that that will determine when the stores are open. So we really do look at the world here though we would rather have say five to 10 premium location, high foot traffic, kind of flagship that stores rather than opening 50. So for us it's – we’d rather have one store similar to what MedMen’s done in New York and L.A. and Vegas. We think that will drive more traffic and say 10 stores spread out. But overall our number is looking at five to 10. We would be ready to open up to five before year-end. The question is just when is the actual – one of the license is issued, and another point here is how much supply would there be before year-end to be able to stock the stores. It seems like most of the supply across the industry is going to be coming on more in the first quarter or second quarter of 2019.

Okay. And just a follow-up to that, what would be the CapEx per store that you would expect to incur – to build these stores?

It's something that we aren’t disclosing because it really depends on location and what the size of the store is. That’s not a uniform size. One of the stores we’re looking at building out is double the size of another store. So I think that there is some variance there, but if you look at the – just to get a benchmark, you could probably look at the MedMen data from the different stores they've built out just to get a rough idea of how it looked.

Okay. And just – maybe just sort of follow-up to that. How fast you expect them to be profitable?

I don't really have a projection on that yet. I think there's still a lot of details we need to have to come on line before we can give that projection. I think it will certainly depend on each province.

Okay. Thank you.

Thank you.

Your next question comes from line of Jason Zandberg from PI Financial. Please go ahead.

Hi, guys. Good morning.

Hi, good morning.

Just noticed that you did – you built up your inventory nicely during Q2. Just wanted to find out whether you can sort of put a number on where you expect your inventories would be by sort of October 17 sort of right before rec?

It's something that's really tough to do. As you could tell sort of just based on trajectory, we're certainly and kind of heading into more of a inventory build focus right now, but a lot of that depend on medical sales and certain timing, but we are on track to fill everything that we've committed, so I think we’re in good shape and we also expect that this idea that the October 17 date is sort of the end of be all we expect that there is a gradual ramp which we're very fortunate is sort of aligned with the way that our production comes on line. We’re always headed into kind of mortgage or future to have the capacity day one. And I think that paid off by being conservative and focusing on quality and we're very, very happy about that.

Okay. Fair enough. And just a follow-up question, you mentioned that you're expecting cultivation license imminently for B4. Just want to get an idea in terms of – there's a fair amount of production capacity in that building. How would you expect production to come on line? Do you expect to stage it sort of how would you expect say if you got a production or a cultivation license tomorrow? A quarter of it gets planted and then every couple months you build out or sort of what's that production profile look like for B4?

The way our production methodology works, we've separated out propagation veg and flower, we populate in the earlier stages, and as if it was one of our other fully operational, the plant sort of sell populate, so we're not saying quarter, quarter, quarter, it goes to get planted, and then as of our first harvest, we have each subsequent harvest on time as if the building have been planted for six months. So it ramps up so that your first harvest is kind of at your run rate.

Okay. All right, great. Thanks.

Sure. And it might be helpful to think of it more like a manufacturing plant than a growth facility.

Your next question comes from the line of Matt Bottomley from Canaccord Genuity. Please go ahead.

Good morning. Hi, guys. Just wondering if you can expand a little on where in your minds are you allocating a lot of the capacity that will come on line from GrowCo. So the 70,000 kilograms later in 2019 is it more for international, is it more for other endeavors? Just wondering how that lines up with respect to the fairly substantial amount of capacity you are building out at PEACE already?

Sure. Thanks. So obviously 20,000 a year and we've thought this is a minimum is going to Cura. I wouldn't be surprised if certainly more than that is allocated to them. But really the way we've thought of this is we want to have premium indoor flower starting from PEACE NATURALS, and then as we grow into the value add products next October, this is where most of that product will likely feed into. I think that we will allocate a portion of the product coming from PEACE and Cronos GrowCo to go international, but long-term the way we think of it is in Canada production it's fundable, it can either go to international markets or it can go into the domestic recreational market. Production outside of Canada can only go to international markets. So we do look at using all this production in Canada to sort of speed and open up distribution channels, but long-term we think of it mostly meant for Canada. I’m going to say whether that directly through our brands to the provinces or helping to bring on line and supplies strategic partners. And I think that that will evolve over time and you'll see more details on that from us.

Okay. Thank you. And just one quick follow-up on the 20,000 kilograms earmarked for Cura. I guess it’s not overly relevant as it take or pay, but in your mind where do you see them distributing that product you’re considering, I know October 17, as you said to be end all, but considering as the dynamic process with provincial distribution agreements. Just curious on their strategy of where they're going to deployed that their capacity to buy from you?

I don't want to steal their thunder and I'm sure that they will be communicating that in the near future. I will say that they – from what we've seen in the U.S., they've been able to really gain the largest market share for extraction companies in Oregon, California, they are extremely talented sales and marketing group. But I think for them it's really the Canadian recreational and medical market and international markets and I think the Bill have more details on that when they're ready.

Okay. Thanks Mike.

Sure.

[Operator Instructions] Your next question comes from the line of Martin Landry from GMP Securities. Please go ahead.

Hi, just a couple of follow-up if I can, your sales price this quarter at $7.12 was a little bit lower than I expected. Wondering did you sell to other LPs during the quarter?

So yes, one of the things that is, I would say challenging about a shortage and shortages are great. It's always great to have more demand and supply. But part of the kind of black box on channels as we're in these pretty difficult negotiations where we have to tell certain partners that we do not have enough supply for them. So until we're able over the next few quarters to start meeting that demand, we're not going to disclose where we're shipping product whether that’s dramatical channel province to province internationally. We are hoping to open that up to give more segmentation once those negotiations are complete.

Okay. But can you confirm that you had international sales this quarter?

I can confirm we have that international sales.

Okay, because I remember you had a permitting delayed in Q1. So you had international sales. So can you talk a little bit about the puts and takes of your sales price? Just so that we get a bit of a better understanding, because excluding B2B, your sales price was $10 a gram last quarter?

Yes, so I think if you look overall at margin that increased from last quarter, a lot of what we've been doing in terms of the sales that might account for that is because we're getting on these larger contracts. We've got to start sort of cycling through SKUs. We're not just – you can think sort of last six months, our production has really been about developing different genetics trying to research what different SKUs do. It’s why you had so many different SKUs in our store. Now what we've been trying to do now is get ready to fill these large supply agreements, which are pretty focused on a small number of SKUs. So we've had to take sort of smaller batches and be able to allocate them to clear out space to bring in sort of large batches to fill channel.

Okay. And just on your Building 4, just so we're clear, have you submitted your first two harvest to help Canada?

Yes, our package and applications in there. We have occupancy. So we're ready to go and we expect that imminently to be able to start going.

Okay. But do you have plans in growing right now in Building 4?

No, that’s we're waiting to be able to plan. So it is ready to go, but we have not plan it yet. We expect that in – on the coming days or weeks.

Okay. Okay, thank you.

Okay. Thanks.

Your next question comes from line of Matt Bottomley from Canaccord Genuity. Please go ahead.

Hi, guys. Just going back maybe to the provincial ordering right now, I know every province is doing it a bit differently and it’s rather dynamic process. So you guys believe were named in the BC press release, but you mentioned not targeting every marketing Canada, but can you give any sort of color as to what percentage of the market you think you're going to start out? Is it going to be more West Coast and East Coast? Any sort of color on where you might be in that first six months or a year recreationally?

Sure. I think a big thing for us is all of the team at Cronos is really proud of the product we produce and everyone is really excited about the opportunity to be able to walk into a store, when rec opens and purchased the products that they've been a part of. So you could take a guess that we would be looking to focus on provinces where we have presence physically and specifically Ontario and BC will not be limited just to those two, but we do expect that will be the bulk of where the product goes.

Okay. And maybe just speaking to Ontario then just expanding on some of the MedMen commentary you had. How do you – I guess maybe just your takeaway from that press conference yesterday with the Attorney General and the Minister. And then how do you strategize potentially getting a retail footprint on Ontario given a lot of the uncertainty with the licensing? To me it's unclear how much might go toward the LPs being vertically integrated and maybe more traditional retailers such as like a Loblaw that sells beer. What are your thoughts on that and your strategy in order to try and get ahead here in terms of getting a retail store maybe in Toronto or some other large metropolitan area like that?

Sure. So I think starting with the first part of the question, we think it's a huge positive. There has always been this idea people had that there is going to be – everyone is going to open – our province are going to open 50 or 100 stores in a few months. This is a new category. It’s a very, very difficult for anyone to open that many stores in an industry that they've never operated in. So we think that this is a big positive. It also ensures that consumers are able to pick the winning brand. We are very, very pleased with this. Also given the way that we've approached capacity in the way we've expected to come on line. I think this is a lot of validation for our strategy. We never really panicked on trying to accelerate things beyond what we felt would be the most efficient. So the fact that it is sort of a phased onboarding, we think it’s something that's a positive. As far as licenses and how we approach that, I think there's a few things. First, it's going to be really important I believe to demonstrate that you have experience in retail, whether that’s being a traditional retailer like Loblaws or whether that showing that you have a long track record like MedMen. I think that what Ontario is sort of said here is, we want to de-risk this process, we want to make sure that this rollout is smooth. We're willing to take the time to ensure that. So demonstrating that competency is really important. And for us a big part of that is, is being able to point to a model that really all the problems have been to and seen. You'll see a number of different articles and quotes from the different liquor boards, but they actually visited the MedMen store in L.A. to do their diligence. So we think it's a model to a lot of different regulators already comfortable with. And second, it's not just securing real estate. There are different mappings that we do to get an idea of what's around the location, what restrictions there might be, early engagement with municipalities and influencers at the local level. I think all of those are very important, and as with this about anything else in business it's going to be relationship based and making sure that people are comfortable with you. End of Q&A

And there are no further questions at this time. I will now turn the call back to Mike Gorenstein for closing remarks.

Thank you, everyone for taking the time. I know it’s going to be an exciting day with the Ontario and so appreciate you joining.