Cronos Group Inc. (NASDAQ: CRON) reported that its third-quarter net revenue of $11.4 million increased by $5.6 million from the third quarter in 2019. The stock was moving higher by over 7% in early trading as the earnings per share of $0.19 beat the analyst estimates by $0.25. In addition to the earnings, Kurt Schmidt was named President and Chief Executive Officer.
The company said the increase was due to continued growth in the adult-use Canadian cannabis market, the inclusion of the Redwood acquisition in its financial results and growth in the Israeli medical cannabis market. However, Cronos also said that the revenue increase was partially offset by non-recurring wholesale revenue in the Canadian market in the third quarter in 2019 and strategic price reductions on various adult-use cannabis products in certain Canadian provinces in the 2020 third quarter.
Despite the increased revenue, Cronos still delivered an operating loss of $41.2 million in the third quarter which was $10.5 million higher than the third quarter in 2019. The company attributed the increase in losses to higher share-based payments related to separation agreements with certain Redwood employees, increased general and administrative expenses inclusive of review costs and costs related to the previously disclosed restatement of the company’s 2019 interim financial statements, higher sales and marketing costs related to brand development, and R&D spending, partially offset by a decrease in gross loss. A gain on the revaluation of derivative liabilities resulted in $105 million, which led to a net income figure of $68 million. A currency translation boosted this to a comprehensive net income of $$94 million.
The company continues to lose money, albeit less than in 2019, as the gross loss of $1.5 million in the third quarter decreased by $1.6 million from last year’s $3.1 million. The company attributed the decrease in losses to an increase in net revenue and the gross profit contribution of the U.S. business segment. This was offset by an increase in the cost of sales primarily driven by a higher volume of adult-use sales and the associated third-party purchased flower and a decline in wholesale sales.
“The opportunities before Cronos Group are more exciting than ever and I am honored to have brought the company to this important inflection point as we bring on Kurt Schmidt to serve as our new President and CEO,” said Mike Gorenstein, Executive Chairman of Cronos Group. “We look forward to continuing to launch innovative cannabinoid products in Canada and to expand our portfolio of U.S. hemp-derived CBD brands. Internationally, we’re pleased with the progress we have made in Israel and as regulations continue to evolve, we will look to establish ourselves as a leader in the markets in which we operate.”
Cronos Group’s U.S. segment launched a new hemp-derived CBD skincare and personal care brand called Happy Dance, in partnership with actress Kristen Bell. Happy Dance products are made with CBD from premium full-spectrum hemp extract and provide consumers with high-quality skincare at an accessible price point. Happy Dance launched with three product offerings: All-Over Whipped Body Butter +CBD, Head-To-Toe Coconut Melt +CBD and Stress Away Bath Bomb +CBD, all of which are currently available online, with intentions to enter the brick and mortar channel in the future.
In October 2020, the U.S. segment also launched new full-spectrum tinctures under its hemp-derived CBD brand, Lord Jones. The full-spectrum tinctures are available in two flavors, peppermint, and orange. The U.S. segment anticipates launching a Lord Jones branded hemp-derived CBD infused Lip Balm in November 2020.
“In such a short period of time, Mike and the Cronos team have achieved several impressive milestones,” said Kurt Schmidt, President and CEO of Cronos Group. “From being the first pure-play cannabis company to list on the NASDAQ, to scaling operations worldwide, Cronos Group is well-positioned to continue to thrive.” Schmidt previously served as Director and Chief Executive Officer of Blue Buffalo Company, Ltd. from 2012 through 2016. Prior to joining Blue Buffalo, Mr. Schmidt was Deputy Executive Vice President at Nestlé S.A., where he was responsible for Nestlé Nutrition, including several science-oriented and heavily regulated businesses. He also served as a member of Nestlé’s Executive Committee.