Cronos Exiting U.S. Hemp CBD Market

Toronto-based global cannabis company Cronos Group Inc. (Nasdaq: CRON) (TSX: CRON) on Wednesday announced its departure from the United States hemp CBD industry, saying it plans to refocus on the Canadian marijuana market until cannabis is federally legalized in the U.S.

The company will finish winding down its U.S. presence by the end of the second quarter this year, according to a press release, and said that staying in the U.S. isn’t financially viable.

“Cronos has made this decision to improve its cash flow in the near term and position itself to directly enter the U.S. THC market when the necessary changes in U.S. regulatory conditions occur,” the company said.

Due to the pivot, Cronos expects to save an additional $10 million-$15 million this year, though it does expect write-offs of up to $1.8 million due to the exit.

“We believe that one day, the U.S. will be one of the most important cannabis markets in the world,” Cronos CEO Mike Gorenstein said in a statement. “But we also believe our resources are best spent on staying laser-focused on becoming cash flow positive by driving cost savings and process efficiencies for our borderless adult-use products.”

Gorenstein said that becoming cash flow positive in Canada by reinvesting in its brand presence there “will advance our industry-leading cash balance and put us in the best position to win in the U.S. once regulatory conditions change.”

Cronos will be re-launching its Lord Jones cannabis brand, which it acquired in 2019 for $300 million, in Canada in the fourth quarter this year. In addition, the company said it plans to keep building its “borderless” product portfolio with ongoing research and product development, including with its other two primary brands, Spinach and Peace Naturals.

Cronos faced various headwinds in the U.S. last year, including fraud charges leveled against the business by the U.S. Securities and Exchange Commission for accounting misconduct and improperly reporting millions of dollars in revenue.

And in the most recent quarter, Cronos reported a 20% year-over-year drop in revenue, which it said was partially to blame on harsh market conditions in the U.S. but also on its underperforming international division, particularly in Israel.

John Schroyer

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