Cronos Recovers As Revenue Rises, Losses Trimmed

Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) delivered its 2022 first-quarter business results as revenue jumped by 99% to $25 million versus last year’s $12 million for the same time period. Cronos attributed the increase to its segment in the Israeli medical market and the Canadian adult-use market. Cronos beat the Yahoo Finance average analyst estimate for revenue of $23 million.

Cronos also trimmed its net loss by 80% to $32.7 million from last year’s net loss of $161 million. The improvement year-over-year was primarily driven by the fluctuation in the non-cash gain (loss) on the revaluation of derivative liabilities. The earnings per share were ($0.09), which missed the analyst expectations for earnings per share of ($0.08).

Chairman, President, and CEO Mike Gorenstein said, “The strategic realignment we announced in the first quarter of 2022 reset the organization to this mindset and we are seeing the benefits show through in our performance. Our execution in product development, manufacturing, and go to market strategy resulted in strong growth in both net revenue and gross profit in the first quarter of 2022, proving that we are headed in the right direction. Our Spinach brand is one of the most sought-after brands in the Canadian adult-use market, known for bringing high quality and differentiated products to the consumer. We are also winning with branded products in Israel, with Peace Naturals driving significant revenue growth in the first quarter of 2022. As we execute our strategic realignment, I am encouraged with the progress we are making by increasing our market share in both Canada and Israel and continuing to bring disruptive branded products to market. In combination with our industry-leading balance sheet, our borderless products, such as SOURZ by Spinach winning in Canada, is one of the best ways to be prepared for legalization in the U.S.”

The increase in year-over-year revenue was primarily driven by an increase in net revenue in the Israeli medical market largely attributable to the cannabis flower category and the Canadian adult-use market driven primarily by cannabis extracts used in edibles and vaporizers.

Realignment

In the first quarter of 2022, Cronos announced a strategic plan to realign the business around its brands, centralize functions and evaluate the company’s supply chain. The organizational and cost reduction initiatives undertaken are intended to better position Cronos Group to drive profitable and sustainable growth over time. These activities included the transfer of certain manufacturing equipment to Cronos GrowCo from the Peace Naturals Campus. In April 2022, the company began building dedicated space within Cronos GrowCo for various manufacturing and R&D activities. In the first quarter of 2022, Cronos GrowCo reported preliminary unaudited net revenue of approximately $7.0 million to licensed producers excluding sales to the company.

Analyst Comments

Stifel analyst W. Andrew Carter recently wrote, “We continue with our Hold rating for the shares of Cronos Group and our $4 target price. Our target price reflects an EV/Sales multiple of 3x EV/FY23E sales (a discount to high growth consumer/industrial companies), with the outlook including our estimate for $240 million in cash needs over the next two years. There are points of differentiation for Cronos Group – ROW revenue growth outpacing Canadian peers and the two key end markets (Canada adult use, Israeli medical). Headset data validates the Canadian strength with the early results from innovation suggesting the potential to capture future category growth. Cronos is the only Canadian producer with domestic Israeli operations suggesting the ability to consistently capture growth in the $350 million market while positioning for any favorable developments (expanded products in Israeli medical market, Israeli adult use). The optionality case remains robust here with Cronos touting nearly $1 billion in cash and the vested interest of Altria to capitalize on future category developments. But without clarity around the ongoing investment needs, it is very difficult to outline a constructive case for the shares or fully evaluate the investment case.”

Cronos was lately trading at $2.92 as the stock inches higher in early trading on the positive earnings report.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.


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