--------------------------------------------------------------------------------
John Zamparo, CIBC Capital Markets, Research Division - Associate [28]
--------------------------------------------------------------------------------
Okay, that's helpful. Thanks. And my follow-up is on Cronos Device Labs, I just want to make sure we're right to interpret this move as Cronos being interested in not just the vaporizer space, but technology that focuses on the rare cannabinoids that you're looking to generate with Ginkgo, is that fair?
--------------------------------------------------------------------------------
Michael Gorenstein, Cronos Group Inc. - Chairman, President & CEO [29]
--------------------------------------------------------------------------------
That's 100% fair. I think, again, whether it's edibles, whether it's capsules or vaporizers, depending on the cannabinoid, you really want to tailor the delivery system to the experience you're trying to create. So we put so much time and effort and thought into how to combine different cannabinoids and Terpenes to create experiences. And in order to maximize that effort, it's important that the delivery system fits in with the cannabinoid formulation that we put in. Also on that is, I think from a brand perspective and as we gain insights from ethnography studies, ultimately, what that device could be maybe very different depending on the cannabinoid formulation just in terms of form factor. And when you compare cannabis vaporizers to, say, tobacco vaporizers, you have a much bigger range of what consumers want. So one vaporizer may score very high in a focus group for adult males, but score very low for adult females. And then you'll see something that's completely reversed. And I think it's important to have a suite of products that address different consumer needs versus trying to have one-size-fits-all.
--------------------------------------------------------------------------------
John Zamparo, CIBC Capital Markets, Research Division - Associate [30]
--------------------------------------------------------------------------------
Okay, that's great color. Thank you very much.
--------------------------------------------------------------------------------
Operator [31]
--------------------------------------------------------------------------------
Your next question comes from the line of Matt Bottomley with Canaccord Genuity. Your line is now open.
--------------------------------------------------------------------------------
Matt Bottomley, Canaccord Genuity Limited, Research Division - Analyst [32]
--------------------------------------------------------------------------------
Good morning, everyone. Just wanted to touch briefly on the strategy for launching derivative products. Hopefully, industry-wide by Q4, we'll start seeing those rollouts. Just going back to your inventory balance not to beat a dead horse, but how should we look at your strategy with respect to kind of selling everything you can, given that there's a bit of a product shortage countrywide versus stockpiling a bit for a Q4 rollout. Do you think it's important to hit the ground running in the vape and edibles or whatever the categories are, or are you kind of playing it purchase order by purchase order now as the market evolves?
--------------------------------------------------------------------------------
Michael Gorenstein, Cronos Group Inc. - Chairman, President & CEO [33]
--------------------------------------------------------------------------------
Thanks. I think right now it's certainly a balance between selling everything you have and making sure that you can load for launch. But a lot of the work that we've done, a lot of the data we've been collecting over the last few years has to do with post-processing and one of the reasons that we've been hesitant to accelerate third-party purchasing and contract growing for flower-based products is it's really difficult to get a consistent product, if it's not the same genetic or grown in-house. For vapes, there is a lot of we can do to bring in biomass or third-party extracted products and then re-inject or recombine different terpenes and cannabonoid mixtures to have something that's actually standardized and then release. So given that, I think it allows us to actually accelerate and be a little bit more aggressive and we think vapes, the category is very important to us and making sure we're able to launch with significant inventory is something that we are continuing to prioritize. So I think that when we think of the categories, we're certainly hoping by June we're going to have the REGS publish and go final and assuming that's the case, we will start to be quite aggressive in making sure that we have a pipeline of products.
--------------------------------------------------------------------------------
Matt Bottomley, Canaccord Genuity Limited, Research Division - Analyst [34]
--------------------------------------------------------------------------------
Great. Thanks. And then on the other side of things just on the retail side. Just wondering if there's any highlights or updates on your relationship with MedMen or even outside of that, how that tender process might be going if there's certain provinces, maybe Alberta, where you think you might have stores open?
--------------------------------------------------------------------------------
Michael Gorenstein, Cronos Group Inc. - Chairman, President & CEO [35]
--------------------------------------------------------------------------------
Sure. So it's still an extremely strong relationship. I think at the end of the day, the cannabis business is a relationship business. And we've looked at the relationship with MedMen always as something that would start in Canada and expand globally. So we still continue to work with them. What we've seen and this is certainly no secret to any industry observers is that right now, retail licenses certainly have slowed down. We do sort of have and it's a little bit chicken and egg problem. But as infrastructure needs to come online, it's important to watch how licenses are handed out. We're hopeful that by the start of next year, we'll start to see more licenses in Ontario. One of the benefits of the MedMen partnership versus us starting a new brand is, we don't feel that the same urgency to try to get brands on shelf to create brand awareness is something that we face with MedMen. We still look at it as the most established retail cannabis brand really by far and so we feel that we can wait until we can deliver a customer experience that's close to the customer experience you'd have in a MedMen versus Hollywood store. And I think being able to do that once value-add products are online, once supply starts to catch up, we don't feel that there's any disadvantage by not having one of the earliest license given how strong the brand continues to be.
--------------------------------------------------------------------------------
Matt Bottomley, Canaccord Genuity Limited, Research Division - Analyst [36]
--------------------------------------------------------------------------------
Great, thanks. I know there's only two questions, if I can just put a housekeeping item in there very quickly, are you able to disclose your percentage of revenues this quarter that were to Germany versus Canada?
--------------------------------------------------------------------------------
Michael Gorenstein, Cronos Group Inc. - Chairman, President & CEO [37]
--------------------------------------------------------------------------------
Yes, I think you should have seven international broken out, it should be in the financials.
--------------------------------------------------------------------------------
Matt Bottomley, Canaccord Genuity Limited, Research Division - Analyst [38]
--------------------------------------------------------------------------------
Okay, apologies. I'll look there.
--------------------------------------------------------------------------------
Michael Gorenstein, Cronos Group Inc. - Chairman, President & CEO [39]
--------------------------------------------------------------------------------
All right, thanks.
--------------------------------------------------------------------------------
Operator [40]
--------------------------------------------------------------------------------
Your next question comes from the line of Graeme Kreindler with Eight Capital. Your line is now open.
--------------------------------------------------------------------------------
Graeme Kreindler, Eight Capital, Research Division - Research Analyst [41]
--------------------------------------------------------------------------------
Yes, hi, good morning, and thanks for taking my questions here. The first question I had I just wanted to get an update on progress at GroCo and considering the announcements out of Health Canada yesterday and changing in the licensing, if that would have any effect on the timeline?
--------------------------------------------------------------------------------
Michael Gorenstein, Cronos Group Inc. - Chairman, President & CEO [42]
--------------------------------------------------------------------------------
Sure. Yes, progressing quite well, I think it's a large enough structure that it's certainly quite public as to where it is progress wise. As far as the announcements yesterday, it's something that we already have a application in for, so we don't know that it would have much of an effect one way or the other, we're hopeful that not just for GroCo, but also for other initiatives we have that this will have the effect of streamlining the licensing process. I think that there were a lot of applications going in and we think that anything that would -- anything that suggests service standards or kind of reallocating resources and prioritizing applications that Health Canada believes will imminently lead to more supply would be something that's more of a benefit to us. So we're certainly optimistic and we're really pleased to see that there is a conscious effort being made to make sure that the program runs smoothly in Canada.
--------------------------------------------------------------------------------
Graeme Kreindler, Eight Capital, Research Division - Research Analyst [43]
--------------------------------------------------------------------------------
Okay. Great, thanks. And just another question here, I wanted to follow-up on the Colombia assets and with respect to growing more hemp there. Just wanted to get a bit more clarity, from my understanding there's a lot of supply of hemp biomass available in Canada and that continues to increase in the United States. So with respect to the amount of supply that's out there in the market and focusing on growing that in Colombia, is there a significant cost advantage that you're expecting by focusing on the cultivation there?
--------------------------------------------------------------------------------
Michael Gorenstein, Cronos Group Inc. - Chairman, President & CEO [44]
--------------------------------------------------------------------------------
Thanks. Yes, I think there is and it's not unique to hemp, it's really to generally just agricultural products, labor, climate, the number of cycles you can get per year, you've got a pretty big advantage in Colombia overall. So I think that's certainly a driver. And when you start looking internationally and again for the deregulated space, we do see that having a low cost of production is going to be something that's going to be really important to drive margins long-term.
--------------------------------------------------------------------------------
Graeme Kreindler, Eight Capital, Research Division - Research Analyst [45]
--------------------------------------------------------------------------------
Okay, great. That's it from me. Thank you very much.
--------------------------------------------------------------------------------
Operator [46]
--------------------------------------------------------------------------------
Your next question comes from the line of Robert Wertheimer with Melius Research. Your line is now open.
--------------------------------------------------------------------------------
Robert Cameron Wertheimer, Melius Research LLC - Founding Partner, Director of Research & Research Analyst of Global Machinery [47]
--------------------------------------------------------------------------------
Hi, this is Rob Wertheimer. Is this me?
--------------------------------------------------------------------------------
Michael Gorenstein, Cronos Group Inc. - Chairman, President & CEO [48]
--------------------------------------------------------------------------------
Yes.
--------------------------------------------------------------------------------
Robert Cameron Wertheimer, Melius Research LLC - Founding Partner, Director of Research & Research Analyst of Global Machinery [49]
--------------------------------------------------------------------------------
I'm sorry, the intro was confusing. So just a couple -- Rob Wertheimer, Melius Research. Just a couple questions on your comments on vapes, I just wanted to understand the timeframe a bit, the ability to sort of buy in biomass and tailor or recombine, is that a statement that applies in the near term to 4Q, 1Q, 2Q kind of thing or would that take longer to do? And then maybe just commenting on the timeframe on differentiated devices in the same vein?
--------------------------------------------------------------------------------
Michael Gorenstein, Cronos Group Inc. - Chairman, President & CEO [50]
--------------------------------------------------------------------------------
Sure. Yes, I think that certainly does apply. Assuming again this is really, let's say, all plans are contingent on how regulations develop, but assuming that we're able to have the derivative market open up, we think that there is a secondary market that's starting to develop and that there is availability. As far as -- we look at that like other -- now if you think of generally how consumer hardware works, it's really iterative. So it's not something where we're going to wait, wait years to have the end product. And it's something that we want to continually iterate and make sure that we're constantly improving. So you'll see l think multiple product lines but that is a long-term ongoing initiative where we think that the device market will become increasingly competitive and being able to iterate is going to be important. And I would contrast that with what you see in the nicotine device market. And it's important to remember that it's very difficult to launch new nicotine based devices because of the FDA restrictions and needing to apply for approval. So we think that because of using that as sort of one device being locked in, isn't necessarily going to be applicable and a good comp for how things will develop in the cannabis-based market.
--------------------------------------------------------------------------------
Robert Cameron Wertheimer, Melius Research LLC - Founding Partner, Director of Research & Research Analyst of Global Machinery [51]
--------------------------------------------------------------------------------
That's very helpful, thank you. And if I may just a follow-up on dry flower, is it the same kind of timeframe as you get into more harvest coming out in 4Q or shortly thereafter. Market's been in shortage. Maybe there's less of a shortage by then who knows. Are you confident that you have the customer base and shelf space for distribution, whatever you want to call it, to sell through all the increased production, is that obvious to you or will it be a competitive fight at that time?
--------------------------------------------------------------------------------
Michael Gorenstein, Cronos Group Inc. - Chairman, President & CEO [52]
--------------------------------------------------------------------------------
It's certainly hard to predict. But I would say that 4Q we think we're still extremely confident. We do believe though that the principles of supply and demand will 100% apply to Canada, whether it's talked about or not, it is inevitable. I think our model certainly being a little more asset light and not focusing on trying to be vertically integrated does rely on the assumption that supply will catch up with demand and we do expect that competition. As that continues to happen in the flower category, one of the things that we would expect will happen in terms of differentiation is understanding, how to still change format. So being able to have unique pre-rolls and make sure that you have some brand element being able to work on standardization and consistency there and genetics will really be, I think, what wins. We're also seeing a lot of the brand selection right now based off of strain, which again supports the importance of genetics. So it's really a long way of saying in the short-term, absolutely. But there is demand and there is still a shortage but there's been a lot of capital, that's important, there is A lot of planned projects and we do think that it will become competitive, but it's contingent upon execution across the industry, which is always hard to predict.
--------------------------------------------------------------------------------
Robert Cameron Wertheimer, Melius Research LLC - Founding Partner, Director of Research & Research Analyst of Global Machinery [53]
--------------------------------------------------------------------------------
Thanks so much.
--------------------------------------------------------------------------------
Operator [54]
--------------------------------------------------------------------------------
Your next question comes from the line of Ryan Tomkins with Jefferies. Your line is now open.
--------------------------------------------------------------------------------
Ryan Tomkins, [55]
--------------------------------------------------------------------------------
Yes, I was just looking to ask a little bit around the derivatives side of things. I know it's been asked about but in terms of actual facilities or processes, I'm just on that whether Israel would be up and running, and contributing to any sort of products that may be on the market come October or whether that will be after that? Thanks very much.
--------------------------------------------------------------------------------
Michael Gorenstein, Cronos Group Inc. - Chairman, President & CEO [56]
--------------------------------------------------------------------------------
I think there is a number of different products that will be released, and we wouldn't expect the full suite to be something that's released Q4. I think a lot of the formats we're still trying to understand what the final regulations will be in terms of packaging specifically for edibles. So we do still have facility space that is allocated that will allow us to enter certain categories, but as we see the market and regulations develop, we expect to be able to continue adding to the product line.
--------------------------------------------------------------------------------
Ryan Tomkins, [57]
--------------------------------------------------------------------------------
Okay. Thank you.
--------------------------------------------------------------------------------
Operator [58]
--------------------------------------------------------------------------------
Your next question comes from the line of Shayne Laidlaw with Hedgeye Risk Management. Your line is now open.
--------------------------------------------------------------------------------
Shayne Laidlaw, [59]
--------------------------------------------------------------------------------
Hey, good morning guys. Thank you very much for the question. I don't mean to beat a dead horse here on the derivative products front within the Canadian market, but just want to ask kind of a follow-up question on, if you could add a little bit more color, you just mentioned you have facility space, could you add more color on kind of what additional investments from a kind of manufacturing process and machinery perspective that needs to happen and maybe if you're thinking about any specific categories that you're more focused on than others, whether it be beverages, edibles or the like, that would be very helpful?
--------------------------------------------------------------------------------
Michael Gorenstein, Cronos Group Inc. - Chairman, President & CEO [60]
--------------------------------------------------------------------------------
Sure. So to be more direct, I think you could expect us to in the early days prioritize vaporizers first. I think that the regulations around vaporizers are we feel that those are much more likely to stay the way that they are today versus sort of iterate and change over time. Edibles for us it's really about understanding what those final regulations are and how we launch products, and specifically in what categories. Outside of Canada and thinking longer term, you'll see it in a lot of different categories of oral ingestibles. I'd also say topical is an area that we're focused on even sooner than just the research we're doing on skin in Israel. But Canada specifically, the regulations at least were proposed were different than what we've seen and we've been able to pull data from the US, packaging sizes, how that affects pricing overall demand. So before we put a significant amount of capital investment into unique packaging automation, we want to make sure that we know what the final regulations are, so that we're not taking up space and commissioning equipment that is for single-serve packaging only to find a few months later that that changes over to something that we're more used to in terms of multi-pack. But again, prioritizing vape we feel there's more certainty and continuing to have a platform technology that allows us to move quickly and be flexible as we see the edible regulations publishes is what we're working on.
--------------------------------------------------------------------------------
Shayne Laidlaw, [61]
--------------------------------------------------------------------------------
Okay, thank you for that. And then just moving to Ginkgo Bioworks and biosynthesis more broadly, and if there's any kind of color you can share on progress being made there? And also thinking about kind of the broader market and how biosynthesis is, the space in general is being more talked about, I think more accepted over time kind of versus last summer where no one was really thinking, it was like a viable solution longer term. So, if you could just talk about kind of how that space has evolved, and your mindset from a competitive standpoint and if you have any color on the progress at Ginkgo, that would be helpful? Thank you.
--------------------------------------------------------------------------------
Michael Gorenstein, Cronos Group Inc. - Chairman, President & CEO [62]
--------------------------------------------------------------------------------
Yes. So, I think of all the initiatives we have, we still continue to be extremely bullish about the partnership and working closely with Ginkgo. We won't go into specific details on the technical milestones we've hit. You can see the R&D payments in the financials. We've been hitting milestones and continue to be extremely impressed, and with what Ginkgo has been able to do, how quickly they're able to do it, and generally just the breadth and depth of their platform. As far as competition and things heating up, I can say that we again feel very fortunate that we were sort of looking at this very early compared to the competitive set and we're able to have our first choice of partner. It's really not a surprise. I think that if you looked back a few years, people thought of biosynthesis as futuristic Star Trek-like idea, where, oh, it'll happen in five or 10 years, and we'll figure it out. And I think now the entire cannabis industry is accelerating, and people are starting to look for how will cannabis be disrupted, not just how will cannabis disrupt other industries. And as that happens, companies start turning towards biosynthesis. So it does in some ways validate thesis. We feel that we have a very strong advantage with Ginkgo being by far and away the leader in synthetic biology. So overall confident, but we do expect that this space will increasingly have focus as the science is more and more understood.
--------------------------------------------------------------------------------
Shayne Laidlaw, [63]
--------------------------------------------------------------------------------
Great. Thanks very much.
--------------------------------------------------------------------------------
Operator [64]
--------------------------------------------------------------------------------
We have no further question at this time. I will now turn the call back to the presenters.
--------------------------------------------------------------------------------
Michael Gorenstein, Cronos Group Inc. - Chairman, President & CEO [65]
--------------------------------------------------------------------------------
Thank you everyone, and have a good morning.
--------------------------------------------------------------------------------
Operator [66]
--------------------------------------------------------------------------------
Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day.