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(Globe Newswire) Toronto – Cronos Group Inc. today announced its 2024 third quarter business results.
“Our results this quarter demonstrate that our long-term strategy is working. With record net revenue and a disciplined approach to operating expenses, Cronos operates more efficiently and effectively than ever before, and we anticipate long-term margin improvement. Our consolidation of Cronos Growing Company has further strengthened our supply chain, which we anticipate will lead to improved margins and allow us to meet the increasing global demand for high-quality cannabis. With an industry-leading balance sheet, we are well-positioned to expand into new legal markets and drive future growth opportunities,” said Mike Gorenstein, Chairman, President and CEO, Cronos.
“As international demand continues to rise, particularly in markets like Germany, the UK, and Australia, the investments we’ve made in our infrastructure and global partnerships are paying off,” continued Mr. Gorenstein. “In the third quarter, our award-winning Spinach® brand rose to become the best-selling cannabis brand in the Canadian adult-use market and our Peace Naturals® brand held a top spot in the Israeli medical market. Our brands’ market share out-performance represents our relentless commitment to quality, innovation, and bringing differentiated products to the global cannabis market. The progress we’ve made reinforces our leadership in key categories and markets, and we remain focused on continuing to innovate and bring premium products to consumers.”
1 Hifyre Retail Analytics – National Retail Dollar Sales by Brand in Canada – August 2024.
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Consolidated Financial Results
On June 20, 2024 the Company made an additional investment in Cronos Growing Company (” Cronos GrowCo”) to fund the expansion of cultivation operations. Cronos also obtained majority control of the board of directors of Cronos GrowCo and began consolidating Cronos GrowCo’s results as of July 1, 2024. Prior to this date, the Company’s investment in Cronos GrowCo consisted of an investment accounted for under the equity method and loans receivable from Cronos GrowCo.
In the second quarter of 2023, the Company exited its U.S. hemp-derived CBD operations. The exit of the U.S. operations represented a strategic shift, and as such, qualifies for reporting as discontinued operations in the condensed consolidated statements of net income (loss) and comprehensive income (loss). Prior period amounts have been reclassified to reflect the discontinued operations classification of the U.S. operations.
The tables below set forth our condensed consolidated results of continuing operations, expressed in thousands of U.S. dollars for the periods presented. Our condensed consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods.
| (in thousands of USD) | Three months ended September 30, | Change | Nine months ended September 30, | Change | ||||||||||||||||||||||||||
| 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | |||||||||||||||||||||||
| Cronos net revenue, excluding Cronos GrowCo net revenue(i) | $ | 29,996 | $ | 24,810 | $ | 5,186 | 21 | % | $ | 83,046 | $ | 63,326 | $ | 19,720 | 31 | % | ||||||||||||||
| Cronos GrowCo net revenue(ii) | 4,268 | — | 4,268 | N/A | 4,268 | — | 4,268 | N/A | ||||||||||||||||||||||
| Net revenue | $ | 34,264 | $ | 24,810 | $ | 9,454 | 38 | % | $ | 87,314 | $ | 63,326 | $ | 23,988 | 38 | % | ||||||||||||||
| Cost of sales | 30,341 | 20,124 | 10,217 | 51 | % | 72,216 | 52,614 | 19,602 | 37 | % | ||||||||||||||||||||
| Inventory write-down | 312 | 716 | (404 | ) | (56 | )% | 707 | 716 | (9 | ) | (1 | )% | ||||||||||||||||||
| Gross profit | $ | 3,611 | $ | 3,970 | $ | (359 | ) | (9 | )% | $ | 14,391 | $ | 9,996 | $ | 4,395 | 44 | % | |||||||||||||
| Gross margin(iii) | 11 | % | 16 | % | N/A | (5) pp | 16 | % | 16 | % | N/A | —pp | ||||||||||||||||||
| Inventory step-up recorded to cost of sales | 7,116 | — | 7,116 | N/A | 7,116 | — | 7,116 | N/A | ||||||||||||||||||||||
| Adjusted Gross Profit(iv) | $ | 10,727 | $ | 3,970 | $ | 6,757 | 170 | % | $ | 21,507 | $ | 9,996 | $ | 11,511 | 115 | % | ||||||||||||||
| Adjusted Gross Margin(v) | 31 | % | 16 | % | N/A | 15pp | 25 | % | 16 | % | N/A | 9pp | ||||||||||||||||||
| Net income (loss) | $ | 7,324 | $ | (1,590 | ) | $ | 8,914 | N/M | $ | (3,919 | ) | $ | (25,288 | ) | $ | 21,369 | 85 | % | ||||||||||||
| Adjusted EBITDA(iv) | $ | (6,019 | ) | $ | (15,187 | ) | $ | 9,168 | 60 | % | $ | (27,739 | ) | $ | (46,774 | ) | $ | 19,035 | 41 | % | ||||||||||
| Other Data | ||||||||||||||||||||||||||||||
| Cash and cash equivalents(vi) | $ | 862,034 | $ | 571,656 | $ | 290,378 | 51 | % | ||||||||||||||||||||||
| Short-term investments(vi) | — | 267,905 | (267,905 | ) | (100 | )% | ||||||||||||||||||||||||
| Capital expenditures(vii) | 6,536 | 325 | 6,211 | 1,911 | % | 9,446 | 1,631 | 7,815 | 479 | % |
(i) Cronos net revenue, excluding Cronos GrowCo net revenue is Net revenue less Cronos GrowCo net revenue and is after intercompany eliminations.
(ii) Cronos GrowCo net revenue is Cronos GrowCo’s net revenue after intercompany eliminations.
(iii) Gross margin is defined as gross profit divided by net revenue.
(iv) See “Non-GAAP Measures” for more information, including a reconciliation of adjusted earnings (loss) before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) to net income (loss) and a reconciliation of Adjusted Gross Profit to gross profit.
(v) Adjusted Gross Margin is defined as Adjusted Gross Profit divided by net revenue.
(vi) Dollar amounts are as of the last day of the period indicated.
(vii) Capital expenditures represent component information of investing activities and is defined as the sum of purchase of property, plant and equipment, and purchase of intangible assets.
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Third Quarter 2024
- Net revenue of $34.3 million in Q3 2024 increased by $9.5 million from Q3 2023. The increase was primarily due to higher cannabis flower and extract sales in the Canadian market, higher cannabis flower sales in Israel, and sales to other international markets consisting of Australia, Germany and the United Kingdom (the “UK”). Cronos GrowCo contributed $4.3 million of cannabis flower sales in both the three and nine months ended September 30, 2024.
- Gross profit of $3.6 million in Q3 2024 decreased by $0.4 million from Q3 2023. The decrease was primarily due to the impact on cost of sales from the inventory-related purchase accounting adjustments resulting from the Cronos GrowCo transaction on July 1, 2024, partially offset by higher cannabis flower and extract sales in the Canadian market, higher cannabis flower sales in Israel, and higher cannabis flower sales in other countries.
- Adjusted Gross Profit of $10.7 million in Q3 2024 increased by $6.8 million from Q3 2023. Adjusted Gross Profit and Adjusted Gross Margin provide insight into underlying business trends to facilitate comparisons of period-over-period results by removing the impacts of inventory-related purchase accounting adjustments resulting from the Cronos GrowCo transaction, which reflect a one-time event and do not reflect management’s assessment of ongoing performance. The increase in Adjusted Gross Profit was driven by higher cannabis flower and extract sales in the Canadian market, higher cannabis flower sales in Israel, and higher cannabis flower sales in other countries.
- Adjusted EBITDA of $(6.0) million in Q3 2024 improved by $9.2 million from Q3 2023. The improvement year-over-year was primarily driven by higher net revenue, improved Adjusted Gross Profit and a decrease in general and administrative expenses.
Business Updates
Transaction with Cronos GrowCo
The global cannabis market continues to expand as international markets fuel an increasing demand for high-quality products. The investment in Cronos GrowCo’s facility expansion enables Cronos to increase supply of Cronos’ unique portfolio of genetics which has helped the Company win in the highly competitive Canadian market, as well as expand Cronos’ international footprint with distribution to the growing markets in Australia, Germany, and the UK.
Key highlights of the transaction:
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- Increased Board Representation: As of July 1, 2024, the Cronos GrowCo board of directors expanded to five members, three of whom are appointed by Cronos.
- Financial Consolidation: Cronos now consolidates Cronos GrowCo’s results in its financial statements beginning in the third quarter of 2024.
- Investment in Expansion: Cronos provided an approximately $51 million ($70 million CAD) secured non-revolving credit facility to Cronos GrowCo to fund the expansion of Cronos GrowCo’s cultivation and processing facilities, enabling growth opportunities in the markets Cronos operates in today as well as enabling Cronos to take advantage of future growth into new markets that open.
- New Supply Agreement: Prior to the commencement of sales from the expanded facility, Cronos will have the option to purchase up to 80% of Cronos GrowCo’s total production. Thereafter, Cronos will have the option to purchase up to 70% of the total production from the expanded facility.
Brand and Product Portfolio
Spinach®
In Q3 2024, Spinach® was the top-selling cannabis brand in Canada according to Hifyre. This market share success highlights Cronos’ unwavering dedication to quality, innovation, and delivering distinctive products to the competitive Canadian adult-use market.
Spinach® has solidified itself as the go-to brand for a wide array of products featuring different cannabinoid combinations, potency ranges and flavor profiles. In the edibles category, the Spinach® brand held the number one position with a 17.2% market share in Q3 2024, according to Hifyre.
In Q3 2024, the Spinach® brand launched three new edible SKUs, which included the SOURZ by Spinach® Strawberry Watermelon 4:1 CBG|THC gummies, SOURZ by Spinach® Peach Passionfruit 1:1:1 CBN | CBD | THC gummies, and the brand’s first limited edition SOURZ by Spinach® Caramel Green Apple gummies.
Cronos’ strong cannabis cultivar breeding program and portfolio of genetics continued to drive growth, propelling the Spinach®brand to become the number one flower brand in Canada, with a 6.0% market share in Q3 2024, according to Hifyre.
The Spinach® brand was ranked fourth in the vape category in Q3 2024, holding a 6.4% market share, according to Hifyre. This performance was driven by popular products such as Spinach HITZ™, which introduced new Pink Lemonade and Rocket Icicle flavors, alongside line extensions in Spinach® 1.2g Vapes.
In Q3 2024, Spinach® was ranked eighth in the pre-roll category with 2.7% market share, according to Hifyre. In the sub-category of infused pre-rolls, the Spinach® Fully Charged infused pre-rolls have begun to make their mark and are trending towards becoming a top selling product. The infused pre-roll category is continuing to grow and we expect this category to be key to future growth for both Cronos and the industry, which is why we are committed to evolution and innovation of the pre-roll portfolio.
PEACE NATURALS®
In Israel, PEACE NATURALS® continues to be a top-performing brand with a record volume of sales in Q3 2024, powered by Cronos’ advanced genetic breeding program and high-quality cultivation capabilities. Despite the conflict involving Israel, Hamas, Iran and other stakeholders in the region, an incredibly competitive market and declining patient counts due to regulatory market structure shifts, the brand continues to out-perform in the Israeli cannabis market.
In Germany and the UK, we are experiencing strong traction with Cronos’ proprietary genetics, such as GMO and Wedding Cake, under the PEACE NATURALS® brand. The expansion of Cronos GrowCo will help enable Cronos to execute on these growth opportunities and others as they become available.
Guidance and Outlook
The Company reiterates its previously announced operating expense savings target of $5 to $10 million on a standalone basis in 2024 primarily driven by savings in general and administrative, sales and marketing and research and development (“R&D”). The organizational and cost savings initiatives are intended to position the Company to drive profitable and sustainable growth over time. The operating expense savings target excludes the impact of the consolidation of Cronos GrowCo’s results into the Company’s financial statements.
These statements are forward-looking and actual results may differ materially. Refer to “Forward-Looking Statements” below for information on the factors that could cause actual results to differ materially from these forward-looking statements.
Conference Call
The Company will host a conference call and live audio webcast on Tuesday, November 12, 2024, at 8:30 a.m. ET to discuss 2024 Third Quarter business results. An audio replay of the call will be archived on the Company’s website for replay. Instructions for the live audio webcast are provided on the Company’s website at https://ir.thecronosgroup.com/events-presentations.
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