Cronos Group Inc. (NASDAQ: CRON) reported that its 2021 third quarter jumped by 80% over last year to $20.4 million. However, the strong increase in earnings was overshadowed by the company’s restatement of earnings from the second quarter and a whopping charge of $235 million. In addition to that, Cronos said it was restructuring the company to cut costs.
First up, the net revenue rose year-over-year and it also rose sequentially from the second quarter’s revenue of $15.6 million. The company attributed the increase year-over-year to continued growth in the adult-use market in Canada, increased sales in the Israeli medical cannabis market, and increased sales in the U.S. segment.
Next, those expenses. The operating expenses for the quarter were $55 .6 million with an operating loss of $56 million. The bulk of the expenses were in general and administrative, but $10 million alone was spent on sales and marketing. The cost of sales in the quarter was $21 million vs. revenue of $20 million. The company also reported a net income of $77 million, but this was mostly achieved through a gain on the revaluation of derivatives.
The Audit Committee and KPMG LLP, and the company’s Board decided that Cronos Group should restate its unaudited interim financial statements for the second quarter of 2021. Cronos also said it was recording “an impairment charge of $236.1 million on goodwill and indefinite-lived intangible assets and on long-lived assets in its U.S. reporting unit for the three and six months ended June 30, 2021.” The impairment charges are to have no impact on cash and cash equivalents or revenues.
“We are pleased that the Audit Committee has completed its evaluation and that Cronos Group is now current with the filing of our financial reports. As we move forward, we are committed to improving our internal controls and financial reporting practices, maintaining the highest standards of transparency and accountability, and enhancing our capabilities and resources across functions to support our strategy,” said Kurt Schmidt, President, and CEO, Cronos Group.
Cronos Group also decided that it would realign its businesses and that organizational and cost initiatives were being taken “to drive profitable and sustainable growth over time.” The restructuring is expected to bring $20-$25 million in savings in 2022. The company outlined in a statement the following steps it planned to take:
- Centralizing functions under common leadership to increase efficient distribution of resources, improve strategic alignment and eliminate duplicative roles and costs;
- Evaluating the Company’s global supply chain and performing product reviews, and pricing and distribution optimization in order to reduce fixed expenses and reduce complexity; and
- Implementing an operating expense target to optimize cash deployment for activities such as margin accretive innovation and U.S. adult-use market entry.
“As Cronos Group advances its strategy to build disruptive intellectual property by advancing cannabis research, technology and product development, we have determined that now is the right time to realign the business around our brands by centralizing functions under common leadership, managing expenses and prioritizing our investments in innovation. Through this realignment, our goal is to position Cronos Group to be able to successfully assemble a portfolio of best-in-class brands, products and intellectual property, while preserving the financial flexibility to make additional strategic investments in our R&D and brand pipeline as we innovate and evolve with our consumers’ wants and needs,” said Kurt Schmidt, President and CEO, Cronos Group.