Cronos Group Archives - Green Market Report

Debra BorchardtDebra BorchardtNovember 12, 2019
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4min1690

Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) reported that its third-quarter net revenue increased 238% in Canadian dollars to $12.7 million versus last year’s $3.8 million for the same time period. Cronos attributed the gain to the launch of the adult-use market in Canada and the inclusion of Redwood from the date of closing on September 5, 2019, to the end of the quarter. Sequentially, net revenue rose 24% from $10.2 million in the second quarter as the company said that improvement was due to increased sales in domestic dried cannabis and the inclusion of Redwood.

“As demonstrated by our progress in the third quarter, we are making great strides to advance the development and diversity of our portfolio and to expand our manufacturing capabilities,” said Mike Gorenstein, CEO of Cronos Group. “We are confident that our platform strategy and focus on consumer-driven innovation will continue to differentiate Cronos Group and drive growth and value creation over the long-term.”

Another area that saw a large increase was the operating expenses which came in at a loss of $54 million. Had the company not reported a ‘Gain on revaluation of derivative liabilities’ of $835 million the company wouldn’t have turned in a net income of $787 million. Still, the company is sitting on a war chest of $1.4 billion in cash and cash equivalents.

KG Sold Jumps 511%

Cronos also reported that it sold 3,142 kilograms in Canada during the third quarter, representing a 511% increase from 514 kilograms sold in 2018 for the same quarter. Kilograms sold increased by 98% sequentially, driven by increased domestic wholesale sales. The cost of sales before fair value adjustments per gram sold for the non-U.S. market was $2.27 in Q3 2019, representing a 31% decrease from $3.28 in Q3 2018 and a 25% decrease from $3.01 in Q2 2019. The decrease quarter-over-quarter was driven by lower production costs on a per gram basis.

Looking Ahead

Cronos Group announced the introduction of PEACE+, a new hemp-derived CBD brand in the U.S. PEACE+ is about more than making a better, high-quality hemp-derived CBD product; it stems from the belief that well-being can lead to a better world, full of positivity and possibility. It’s a belief that extends beyond the products and into everything the brand seeks to do and stand for. PEACE+™ will sell hemp-derived CBD tincture products through a test market of approximately 1,000 retail stores in the U.S. The company intends to utilize Altria Group, Inc.’s sales and distribution network to access the U.S. convenience store retail channel in order to gain consumer insights prior to expanding distribution more broadly.

With the completion of the Redwood acquisition, Robert Rosenheck, the co-founder and CEO of Redwood and the Lord Jones brand, will also assume responsibility for Cronos Group’s operations, marketing, and brand strategy in the U.S. hemp-derived CBD market.


Debra BorchardtDebra BorchardtSeptember 23, 2019
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14min4540

This interview was conducted between Green Market Report’s Editor-In-Chief Debra Borchardt and Cronos Group CEO Mike Gorenstein in New York on September 17, 2019. It has been edited for purposes of length.

Green Market Report:
One of the big negatives happening right now in the cannabis industry obviously is the vaping issue. Do you think that the cannabis industry needs to do more to fight that battle? Or what can the cannabis industry do?

Mike Gorenstein, CEO Cronos Group:
This is a big reason why legalization can help, when you think about the markets we’re in, right? If you look at Canada and the big question we get is, what’s happening with your vape products? We actually haven’t been able to launch because we only operate in fully legal markets. I think what’s happening is even as we have a lot of consumers aren’t sure whether there’s something legal or not when they are going into dispensaries and they’re expecting a regulated product. This is why we need to have strictly regulated products. You can usually have safety standards, but I think that’s the argument. Why we need to have as an industry and to go toe to toe with regulators. We should all collaborate in nature. We have the right standards and we can make sure we transparently have regulated products on shelf.

Green Market Report:
I had heard that the vape sales for cannabis hadn’t been affected yet though. That the consumer, the cannabis consumer is already making that differentiation, that it’s more of a PR issue versus an actual consumer issue at the consumption level.

Mike Gorenstein:
Seeing the exact data that would say one way or another. I think it’s an opportunity for responsible companies. Like the work that we do with Cronos device labs in Israel. We’re going through all types of different safety checks. When you know the heating coil and making sure that you have the right heating coil and looking at the ingredients that would be vaporized. Making sure that the way that they interact is safe. Making sure that we have data there and then going always through the supply chain, making sure that we know that nothing is being swapped out with no impurities. And those are the important things to do so that when consumers are going to the store, you can maintain that trust. That says, here’s that transparent data. What we’ve done is to make sure that this is the safest product that you can get on the market and people are going to be using these products. We should make sure we get them the safest possible product.

Green Market Report:
Are you engaging in any of these kinds of codes that can be put on the packaging so you can be sure that it is the right product that it hasn’t been counterfeited? Will Cronos be working with any of those companies?

Mike Gorenstein:
I think we’re in a unique situation because the market that we’ll be launching in is Canada, You’re actually wholesaling into the government and the government is distributed. So because you have one point for each province and distribution. For example, in Ontario, we ship everything to the province and then all the retail store’s purchase product from the province and with uniform packaging. So it’s less than I think of a risk of counterfeit because there’s one source the retailers purchase from.

Green Market Report:
Let’s talk about Altria (NYSE: MO). They have taken a fairly big position in your company. Any concern about that?

Mike Gorenstein:
For them having too large of a position? No, no, we look at it as a partnership. I think that they’re great partners to have. I think that there’s a lot they can help us with. They’ve seen just about everything over the last hundred years, but from distribution, marketing, manufacturing, and it gets it all. As a young company that is great for us to get and we can focus on innovation, focus on the consumer, on a cannabis consumer, and then we can leverage a lot of that expertise. So having them is really helpful for us.

Green Market Report:
The only comparison I see is the Constellation Brands (NYSE: STZ) and Canopy Growth (NYSE: CGC) relationship. It looked like a good deal in the beginning and now everybody feels it’s really not Canopy Growth anymore. It’s really Constellation Brands. How can you as Cronos Group protect yourself from that happening?

Mike Gorenstein:
Just becoming a branch of Altria? My job as CEO and chairman is to do its best for shareholders. And I think one of the reasons you have corporate governance is making sure that ultimately I shouldn’t be the only person that can make every decision. You know, it’s good to have experts across the whole board. They can bet certain decisions. So it’s not about protecting ourselves, it’s about protecting shareholders and making sure that you get the best possible outcome. You know, I think one, one key difference when you look at the industry is you’re coming from, there’s not a risk of cannabis cannibalizing the tobacco industry.

Mike Gorenstein:
Yeah. I think all is a company that’s, you know, the last, the last few decades of focus has really been how do we reduce risk and increase new choices and new opportunities. And I think that this is an avenue in part of that diversification. You know, seeing an opportunity to invest in a business that’s different than tobacco.

Green Market Report:

What is the relationship between you and Gotham Green at this time?

Mike Gorenstein:
I spend my time on Cronos. I don’t have any operational or any other responsibilities at Gotham Green.

Green Market Report:

What is the current status on the joint venture with MedMen (OTC:MMNFF)?

Mike Gorenstein:
Yeah, we still have a joint venture in Canada and I think a lot of what’s, what’s changed is the regulatory environment. So we’ve had a few changes in provincial licensing for the retail stores. We’ve had a quite a bit of evolved changes and it hasn’t made economic sense for us to actually pursue a license given the lottery dynamics and the supply dynamic. So it’s still something that we have open. We still communicate frequently and the idea behind it still fits the Cronos model, which is being very focused, staying in our lane, part of building that ecosystem is bringing a best in class retailer. Having them be able to manage retail stores around them and us going and building out our own retail stores is still there.

I think it’s still a great brand and it’s a great operation. The challenge is just, we don’t know how the licenses are going to be issued and given the lottery system and the limits on LP control right now, it hasn’t made sense. As things open up and the market matures, I think that’s when we can get a little more visibility and be able to build the business case specifically to open the stores and where it opens stores.

Green Market Report:
You just recently closed on the Lord Jones acquisition. How do you plan to grow the market share?

Mike Gorenstein:
We feel like it’s pretty differentiated where it’s at. And I think one of the things we’re excited about.  We look at it as a, as a premium CBD brand. And when we think of the skincare opportunity being in Sephora, being in Soul Cycle and the unique distribution channels – it allows it to be a separate differentiated product. We don’t think of it as a state by state cannabis market. We think of it as a national marketing global CBD opportunity.

In the brick and mortar,  their biggest distribution is really their skincare. And that’s the thing we see as a pretty differentiated opportunity there. That’s one of the things that was very exciting for us. You haven’t seen a lot of companies build brand equity and in that area and I think it’s an area that will grow and it’s pretty exciting.

Green Market Report:

You recently inked a deal with MediPharm Labs. Was scale the reason behind that?

Mike Gorenstein:
Yes. As we scale and get to market, then we’ll use multiple contract manufacturers and we take a very similar strategy to CPG companies where we want to make sure that we can focus on the consumer demands focused on getting the products right and rather than trying to build all the infrastructure upfront and ourselves, we’ll leverage sharing partners to be able to get products in the market.

Are you able to keep your standards by using these different providers? So we have very strict quality agreements. We dictate the standard operating procedures and where the actual cannabis is coming in. What we’re doing is standardizing a extracted crude oil.

Our whole model is about being able to standardize what the formulations are and we need to be able to do the same thing in Canada. This is typical across all CPGs, these are the standards you operate. So pick any pharmaceutical, which is about the most standardized industry yet and Pfizer is using co-manufacturers to make their, their pharmaceuticals.

If you look at our history of how we’ve grown. We’ve been very careful about the way that we’ve done this stage in the company’s growth, if there’s not a culture fit, if there’s not an alignment of vision and strategy, it can be very difficult. I have a background as a corporate M&A lawyer and I think a lot about how all these pieces fit together. Integration is a very key focus and it needs to fit the things we’re doing.

Green Market Report:

The cannabis group is as a whole, stock wise, been down. Do you think that the group is going to need some kind of green swan event to bring things back?

Mike Gorenstein:
It’s a very young industry and it is going to be very volatile. So it’s understandable. I think we’re also in a fortunate position where the capital markets don’t favor cannabis. We ultimately believe that the macro outlook is still great, and we’re in a great cash position that we can be opportunistic.


William SumnerWilliam SumnerAugust 8, 2019
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5min5350

It’s time for your Daily Hit of cannabis financial news for August 7, 2019.

On the Site

Cronos Group

Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) reported financial results in Canadian dollars for the second quarter and first-half ending June 30, 2019, with net revenue climbing 202% to $10.2 million over last year’s $3.4 million. The revenue increased 58% sequentially from $6.5 million in the first quarter of 2019. The company attributed the increase to sales in CBD oil, which carries no excise tax reduction and increased sales of dry flower.

GrowGeneration

Today, GrowGeneration Corp. (OTCQX: GRWG) announced the release of the financial results for the fiscal quarter ending on June 30, 2019. Net revenue for the quarter was $19.48 million, up from $7.15 million in the same period of the previous year. The company attributes the increase in revenue to the addition of 14 new retail stores

SOL Global

SOL Global Investments (CSE: SOL)(OTCPK: SOLCF) is changing from an international cannabis investment company to a U.S. multi-state cannabis operator (MSO) under the Life Sciences category of the Canadian Securities Exchange. In addition to the business designation change, the company is also changing its name to Bluma Wellness.

In Other News

Diego Pellicer

Diego Pellicer Worldwide, Inc. (OTCQB: DPWW) announced that its Denver licensee reported record sales for the month of July and that its sales average has risen by 8.56%. “Diego Pellicer – Colorado has clearly proven that premium products plus outstanding customer service and a world-class shopping experience is a winning formula for success,” said Diego Pellicer CEO Ron Throgmartin.

Planet 13

Planet 13 Holdings Inc. (CSE: PLTH) (OTCQX: PLNHF) announced that in July it served on average 1,937 customers per day with an average sale of $90.41 from the Planet 13 Las Vegas Cannabis Entertainment Complex. In May, the company accounted for roughly 10% of all cannabis sales in the state of Nevada, with a customer conversion rate of 60%. “We continue to drive impressive results from the SuperStore’s original 16,000 sq. ft. dispensary footprint in advance of the Phase II,” said Larry Scheffler, Co-CEO of Planet 13. “In May we reached an impressive milestone, the SuperStore accounted for 10% of all dispensary sales in Nevada. I’m optimistic we will see this trend continue once the department of taxation releases June and July numbers.”

C21 Investments

C21 Investments Inc. (CSE: CXXI) (OTC: CXXIF) released its unaudited financial results for the quarter ending on July 31, 2019. Unaudited revenue grew from $7.7 million to $9.8 million, representing a quarter-over-quarter increase of 27%. The unaudited gross margin rose from 43% to 49%. The company will release its certified financial results on or around September 12, 2019.

Cresco Labs

Cresco Labs Inc. (CSE: CL) (OTCQX: CRLBF) announced that it has received approval to acquire 100% 100% of the membership interests of Gloucester Street Capital, LLC, the parent company of Valley Agriceuticals (Valley AG). Valley AG is one of ten vertically integrated medical cannabis license holders in the state of New York. The license will give Cresco the right to operate one cultivation facility and four dispensaries in the state. The acquisition is expected to close by the end of the August.


Debra BorchardtDebra BorchardtAugust 8, 2019
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3min7182

Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) reported financial results in Canadian dollars for the second quarter and first-half ending June 30, 2019, with net revenue climbing 202% to $10.2 million over last year’s $3.4 million. The revenue increased 58% sequentially from $6.5 million in the first quarter of 2019. The company attributed the increase to sales in CBD oil, which carries no excise tax reduction and increased sales of dry flower.

“During the second quarter, Cronos Group expanded its R&D capabilities, innovation expertise and global infrastructure network in what has been a year of tremendous growth,” said Mike Gorenstein, CEO of Cronos Group. “We opened Cronos Device Labs, our new global R&D center in Israel, announced the acquisition of our new state-of-the-art fermentation facility and added Dr. Todd Abraham as Chief Innovation Officer to our executive leadership team.”

The stock though slid by over 3% to lately trade at $13.96 as shareholders showed their displeasure with the company only selling 1,584 kilograms of cannabis during the quarter. For example, HEXO Corp. (NYSE: HEXO) reported that it sold 2904 kilograms in its last quarter. Still, it was an increase of 232% over the 477 kilograms sold in last year for the same time period.

The company also reported that its cost of sales before fair value adjustments per gram sold increased 14% to $3.01 in the quarter over last year’s $2.6. This was an increase of 12% sequentially over the first quarter’s cost of $2.69. Cronos Group said that the increased costs were due to higher processing cost on a per gram basis.

The company also reported a gain on the revaluation of derivative liabilities of $263 million that resulted in a net income of $250 million.

Abraham added, “We also took steps to enter the U.S. market with our recent acquisition of Redwood Holding’s hemp-based CBD platform. As we look ahead, we will continue to capitalize on this momentum by building on our partnerships with Altria and Gingko Bioworks and leveraging our collective resources and expertise to realize the significant potential in the growing cannabis industry.”


StaffStaffMay 10, 2019
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10min3830

A 6.0% dividend yield tells you all you need to know

By Will Ashworth, InvestorPlace Contributor May 3, 2019, 2:07 pm EDT

It’s been almost two months since Altria (NYSE:MO) closed its deal to buy 45% of Cronos Group (NASDAQ:CRON) for C$2.4 billion. And the cigarette maker’s latest earnings disappointment would suggest Cronos Group stock is the better buy of the two if you’re looking to make a play on marijuana stocks.

However, before you jump on your discount broker’s website to buy some CRON stock, you might want to consider the argument for considering MO instead.

Earnings in Transition

In my opinion, free cash flow is the metric that rules most, if not all, investment decisions. That’s because if you’re a company with minimal debt and growing free cash flow, it’s pretty hard to get into too much trouble in an economic downturn.

And while an economic downturn doesn’t appear to be imminent here in the U.S., economies have a way of turning sour in a hurry. Donald Trump’s economic policies are all the rage right now with (a whopping 56% of ) Americans, but when the benefits of his tax cuts wear off and the country’s debt problem worsens, you better own companies whose financials are rock solid.

Altria reported Q1 2019 results April 25. On the top line, revenues net of excise taxes fell 6.0% year over year to $4.4 billion. On the bottom line, adjusted earnings per share decreased 5.3% to $0.90.

As if that wasn’t bad enough, Altria missed the analyst estimate for earnings by two cents and revenues by $200 million.

Ouch.

Free Cash Flow Set to Grow

However, the company is in the early stages of a cost reduction program that should generate significant savings over the next year. In addition, investments such as Cronos and Juul should change the company’s growth trajectory in the years to come. A short-term decline in earnings isn’t a big deal.

From a free cash flow perspective, despite the downturn in earnings, Altria still managed to generate $2.25 billion in the first quarter. On a trailing 12-month basis, it’s free cash flow is $7.6 billion providing CEO Howard Willard with plenty of cash to pay down the $16.3 billion in 4.1% unsecured debt it issued in February to pay for Juul and Cronos along with general corporate purposes.

As long as it can commit to paying down a billion a year over the next five years, the increased cash flow from Juul along with gains from its Cronos investment should bring the total debt down to close to two times EBITDA from 2.8 after the first quarter.

Willard put it best in the company’s Q1 2019 press release

“After taking steps to position Altria for long-term success at the end of 2018, we entered 2019 with an evolved business platform that includes our strong core tobacco businesses and new strategic investments with tremendous potential for growth,” Willard stated.

With 2019 adjusted earnings expected to grow by 4%-7%, there’s an excellent possibility that free cash flow could surprise in 2019.

Cronos Stake Worth Less

Since Altria closed its deal in early March, Cronos Group stock has fallen in value by 23%. That’s prompted InvestorPlace contributor Luce Emerson to suggest Altria overpaid.

“With CGC and TLRY already off the market, Altria jumped for CRON,” Emerson wrote April 11. “There are certainly synergies across Altria’s core business with cannabis than with beer. Still, it is hard to justify paying a price to sales multiple of 267x (compare that to CGC’s 86x).

She goes on to suggest that if you compare Canopy Growth’s (NYSE:CGC) market cap to kilograms sold with Cronos Group’s, you’ll see that Altria paid approximately $1.8 million per kilogram of cannabis sold or three times as much as investors pay for Canopy Growth.

COMPARE BROKERS

I’m as big a fan of unconventional metrics as anyone. However, in this case, I don’t think we’re talking about an apples-to-apples comparison.

The fact is, we’re not talking about mature companies here, such as Altria or Philip Morris International (NYSE:PM), where the price-to-sales comparison is a perfectly logical metric. Comparing P/S ratios at this point in the game when it comes to cannabis makes less sense than it did during the dot.com boom.

Emerson is right about one thing.

Altria knew it had to act sooner rather than later because it needed to have a place in line once the U.S. government legalized cannabis federally.

Why?

To show that the company and its partners are experienced in the production of cannabis and worthy of licenses in all 50 states.

As I stated in December, compared to the price Altria paid for its 35% stake in Juul, its C$2.4 billion investment in Cronos Group was a steal given the long-term prognosis for cannabis in its various forms including edibles and infused drinks.

Sometimes you have to pay a little more to gain entry to an exclusive club. Altria’s now a member in full standing.

For safety reasons, I’d buy Altria over Cronos Group stock.

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


William SumnerWilliam SumnerMay 9, 2019
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6min5920

It’s time for your Daily Hit of cannabis financial news for May 9, 2019.

On the Site

Cronos Group

Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) reported financial results in Canadian dollars for the first quarter ending March 31, 2019, with net revenue rising 129% to $6.5 million from $2.9 million for the same time period in 2018. The rise in revenue was due to the addition of adult use sales in Canada. Net revenue increased 15% sequentially from $5.6 million in the fourth quarter of 2018.

3 Ways to Buy Into Marijuana Stocks Without the Risk

Sure, these stocks won’t rise as much as some of the pure marijuana stocks. But, you know what? They won’t fall as much either and they’ll still be able to reap potential billions in revenues derived from cannabis. With that, here are the 3 top partners of the marijuana stocks and why you should focus on them.

Arcadia Biosciences

Just two months after announcing the launch of Arcadia Specialty Genomics™, a new cannabis-dedicated division of agricultural crop improvement, the company has released images of its first crop of sun-grown, Hawaiian hemp. Arcadia’s new cannabis unit, cultivates six Hawaiian hemp strains on its 10-acre Hawaiian facility.

In Other News

Charlotte’s Web Holdings

Charlotte’s Web Holdings, Inc. (CSE: CWEB) (OTCQX: CWBHF) announced the pricing of its previously announced underwritten public offering 7 million common shares at C$20 per share. The offering should raise approximately C$140 million. As the shares are being sold by current shareholders, the company will not receive the proceeds from the offering. The selling shareholders have additionally granted underwriters a 30-day option to purchase another 15% of the common shares offered in the proposed public offering. Canaccord Genuity Corp. will act as the sole bookrunner for the offering.

Alternate Health

Alternate Health Corp., (CSE: AHG) (OTCQB: AHGIF) is looking to expand into Latin America. Today the company announced that it has entered into a joint venture agreement with Oltecate Enterprises, a COFEPRIS-licensed Mexican CBD distributor. Under the agreement the parties will establish a Mexican corporation with the name of Alternate Health Latin America S. de. R. L. de. C.V. (“AHLA”). Alternate Health will own 55% of the company and Oltecate will own 45%. Upon closing, Federico Cabo, owner of Oltecate Enterprises, will receive 1,500,000 common shares of Alternate Health.

Terra Tech

Terra Tech Corp. (OTCQX: TRTC) announced its financial results for the third quarter ending on March 31, 2019. Year-over-year, revenue for the quarter declined from $8.6 million in 2018 to $7.4 million. Management credited the decline in revenue to higher tax levels in the state of California, which depressed sales figures. Nevertheless, the company’s net loss for the quarter also declined, falling from $12.2 million in the first quarter of 2018 to $5.1 million. Likewise, the gross margin grew from 36.2% to 54.4%.

Neptune Wellness Solutions

Neptune Wellness Solutions Inc. (NASDAQ: NEPT) (TSX: NEPT) has signed a definitive agreement to acquire all of the assets of SugarLeaf Labs, LLC and Forest Remedies LLC, a registered North Carolina-based commercial hemp company providing extraction services and formulated products, for $150 million. Included in the acquisition is a 24,000 square foot hemp production facility capable of producing 1.5 million kilograms of hemp annually. Under the agreement, Neptune will pay $12 million in cash and $6 million in common shares upon closing. Depending on the fulfillment of certain milestones, Neptune will pay an additional $132 million over the next three years in a combination of cash and common shares. The transaction is expected to close on or around July 31, 2019.


Debra BorchardtDebra BorchardtMay 9, 2019
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3min5540

Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) reported financial results in Canadian dollars for the first quarter ending March 31, 2019, with net revenue rising 129% to $6.5 million from $2.9 million for the same time period in 2018. The rise in revenue was due to the addition of adult use sales in Canada. Net revenue increased 15% sequentially from $5.6 million in the fourth quarter of 2018.

The company reported net revenue of $6.4 million. The net income was $427,693 on operating expenses of $13.8 million. The earnings per share on a diluted basis were 48 cents.

“In the first quarter of 2019, the business performed in line with our expectations. We continue to stay laser-focused on our strategy of building our supply chain, distribution, intellectual property and brand portfolios,” said Mike Gorenstein, CEO of Cronos Group. “We’re delighted to have officially closed our transaction with Altria and to kick off a relationship we expect to lead to significant growth and value creation. Altria’s investment and the services that Altria will provide to Cronos Group will enhance our financial resources and allow us to expand our product development and commercialization capabilities.”

CBD Oil Sales

Cronos Group said that benefited from increased sales in CBD oil, which carried no excise tax reduction and increased sales of dry flower.  The company reported that 1,111 kilograms were sold in first quarter 2019, representing a 122% increase from 501 kilograms sold in first quarter 2018, primarily driven by increased cannabis production and the launch of the adult-use market in Canada. Kilograms sold increased 7% quarter-over-quarter from 1,040 kilograms sold in fourth quarter 2018, primarily driven by increased cannabis production.

Cronos said that the cost of sales before fair value adjustments per gram sold was $2.69 in first quarter 2019, representing a 14% decrease from $3.13 in first quarter 2018, and an 11% decrease from $3.02 in fourth quarter 2018. The decrease in year-over-year and quarter-over-quarter was driven by increased productivity in its cultivation operations.
Gorenstein added, “Additionally, the launch of Cronos Device Labs announced earlier this week is an exciting next step on our journey to become a leader in cannabinoid innovation. Vaporizers have become one of the most popular forms of cannabis consumption, and we see a clear opportunity for Cronos Group to bring the next-generation of vaporizer products designed specifically for cannabinoids.”

Altria Update

In March 2019, Altria Group completed its investment of $2.4 billion in Cronos Group. The Altria Investment represents a 45% economic and voting interest in Cronos Group and a warrant, which is exercisable over the next four years, to acquire an additional 10% equity stake if exercised in full

 


William SumnerWilliam SumnerMay 8, 2019
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7min4370

It’s time for your Daily Hit of cannabis financial news for May 7, 2019.

On the Site

Investors Are Bullish On Cannabis, According to KCSA Survey

Investors are feeling bullish about the cannabis industry, according to a new survey released by KCSA Strategic Communications. Titled the Cannabis Investor Survey, KCSA polled over 250 retail cannabis investors about their investments and outlook on the legal cannabis industry in the United States.

Illinois Releases Plan For Full Legalization

This past Saturday, Illinois Governor J.B. Pritzker released the plan for full cannabis legalization which is set to begin on January 1, 2020. Companies that currently had medical cannabis licenses would get a jump on other companies with regards to applying for licenses. According to the plan, new licenses for dispensaries would begin on May 1 and processors, craft growers and transporters would begin licensing on July 1. It wouldn’t be until late 2021, that the next round of businesses would receive licenses.

Long-awaited German Tenders Handed to Specialist Trio

White smoke emanating from Germany’s medical agency signals the wait is over to find out which firms have been awarded medicinal cannabis tenders for Europe’s top market. Two Canadian firms, Aphria, and Aurora Cannabis and Germany’s Demecan have won out, it has emerged. The three companies will split a four-year tender to grow 10,400kg between them. Aphria won five of the 13 lots, with Aurora Cannabis and Demecan handed five and three lots respectively.

In Other News

MJardin

MJardin Group, Inc. (CSE: MJAR) (OTCQX: MJARF) today released their fourth quarter and full year financial results for 2018. Revenue for the year was $27.5 million. Adjusted net loss from operations was $27.4 million and adjusted EBITDA was $12.2 million. “2018 was a year of significant change in the company as we expanded in to another US state, entered the Canadian market via acquisition, and became a publicly traded company on both the CSE and OTC,” remarked Adrian Montgomery, MJardin Chairman of the Board and Interim CEO. “In addition, we have restructured our corporate size and organization to better integrate and align with our core business goals in both countries.”

Heritage Cannabis

Heritage Cannabis Holdings Corp. (CSE: CANN) announced that it has closed a $17.3 million bought deal offering, selling approximately 32.6 million units of the company at a price of $0.53 per unit. Each unit consisted of one common share and one-half of one common shar purchase warrant. Proceeds from the offering will be used to increase extraction capacity and follow-on investments in existing portfolio companies, new domestic and international opportunities, working capital and general corporate purposes.

TerrAscend

TerrAscend Corp. (CSE: TER) announced that it has completed the book-build for its previously announced upsized private placement. The gross proceeds from the offering totaled $52 million. The company is issuing common shares in the private placement at the previously announced price of C$7.64, which is a 5% discount from Monday’s closing price.

Cronos Group

Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) announced that is has opened a cannabinoid device R&D facility in Israel. Dubbed Cronos Device Labs, the facility will feature a 23-member team and is comprised of product designers, mechanical, electrical and software engineers, and analytical and formulation scientists. “The launch of Cronos Device Labs is an exciting next step on our journey to become a leader in cannabinoid innovation,” said Cronos Group Chairman, President and Chief Executive Officer Mike Gorenstein. “Vapor is already one of the most popular forms of cannabis consumption, and we see a clear opportunity for Cronos Group to introduce the next-generation of vaporizer products designed specifically for cannabinoid formulations.”

Canopy Growth

Canopy Growth Corporation (TSX: WEED) (NYSE: CGC) announced the launch of Spectrum Therapeutics, a new global brand that will encompass all of the company’s ongoing commercial medical and clinical research operations including Spectrum Cannabis, Canopy Health Innovations , and Bionorica SE-founded C3 Cannabinoid Compound Company. Spectrum will be involved with the production and distribution of full-spectrum and single cannabinoid medical cannabis products; education, resources and support for patients and healthcare practitioners; as well as pre-clinical and clinical research and the development of cannabinoid-based medicines.


Debra BorchardtDebra BorchardtMarch 26, 2019
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5min5810

Cronos Group Inc. (CRON.TO) (CRON.TO) stock rose over 6% on Monday ahead of the company’s earnings but was falling in pre-market trading once the numbers were released.

The Canadian-based cannabis company reported net revenues of $5.6 million in the fourth quarter of 2018 versus $1.6 million for the fourth quarter of 2017, representing an increase of $4.0 million, or 248%. The increase in revenue was driven by shipments to the Canadian adult-use market and growth in cannabis oil revenue. The company did not report its net profit or loss for the quarter.

Cronos only reported the gross profit for the quarter, but the expenses grew over 300 percent, so since it didn’t make this figure available the only assumption is that the quarter delivered a net loss.

Cronos Group said that its total operating expenses were $12.4 million in the fourth quarter versus $2.9 million for the same time period in 2017, representing an increase of $9.5 million, or 328%. The company attributed the increase in operating expenses to an increase in research and development expenses, talent acquisition and an increase in professional and consulting fees associated with the Altria Investment.

The gross profits were $2.5 million in the fourth quarter versus $0.4 million for the same quarter last year, representing an increase of $2.0 million, or 449%. The increase in gross profit was attributed to an increase in kilograms sold over the comparable prior year period. Gross margin before fair value adjustments was 44% in the fourth quarter of 2018.

“We are proud of all we have accomplished in 2018 and in the fourth quarter. Over the past year, Cronos Group has diligently focused on our strategic objectives, which culminated in our transformative partnership with Altria Group, Inc.,” said Mike Gorenstein, CEO of Cronos Group. “We’ve expanded our production footprint domestically and internationally, developed our distribution with global partnerships, launched iconic brands for the Canadian adult-use market and grown our IP portfolio with landmark research and development initiatives.”

Full Year 2018 Results

For the full year 2018, Cronos delivered net revenue of $15.7 million versus $4.1 million for 2017, an increase of $11.6 million, or 285%. The increase in revenues was driven by increased production capacity, commencement of shipment into the Canadian adult-use market, the growth of Cronos’ medical client base and growth in cannabis oil revenues.

The company reported a net loss of $19.2 million for 2018. For 2018, Cronos had operating expenses of $29.4 million as compared to $9.3 million for 2017, representing an increase of $20.0 million, or 215%.

Financial Moves

In March 2019, Cronos closed on the $2.4 billion equity investment in the company that had been announced with great fanfare in December 2018.  Altria holds an approximately 45% ownership interest in the company.

In 2018, the company raised $100.0 million and $46.0 million through two separate bought deal offerings of common shares in April 2018 and January 2018. In January, the company borrowed money through a credit facility, which was used to pay off $40.0 million senior secured construction loan with Romspen Investment Corporation. It then paid off the credit facility once the Altria Investment closed.

Harvest Time

Peace Naturals Project Inc. yielded its first harvest this past December in the newly completed Building 4, which is the company’s 286,000 sq. ft. indoor production facility, which was built to Good Manufacturing Practice standards. In addition to Peace Naturals, Cronos launched its two adult-use brands COVE and Spinach. Currently, these brands are distributed to the following provinces: Ontario, British Columbia, Nova Scotia, Prince Edward Island and Saskatchewan.

In March 2018, Cronos Group announced a joint venture with MedMen Enterprises USA, LLC., At this time,  the venture is only in the process of reviewing and analyzing the evolving regulatory retail landscape in provinces where private retail is permitted under applicable law.

 


StaffStaffMarch 25, 2019
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9min4900

Strong sales help the case for CRON stock, but industry concerns may impose a technical risk

By JOSH ENOMOTO, InvestorPlace Contributor

I can’t think of a more exciting sector than legal marijuana. But like every industry, a fresh response is necessary following the honeymoon phase. For Cronos Group (NASDAQ: CRON), the company faces a critical earnings report for its fourth quarter. Although CRON stock has gained 70% this year, shares have traded flat since late January.

Not only that, the company has incurred heavy volatility heading into fourth-quarter earnings. Further, significant movement in the options market suggests that traders anticipate a big move. Considering that technical momentum has dried up for nearly two months and that analysts are skeptical of the sector’s production capabilities, it’s critical that CRON delivers the goods.

On paper, the bar is set low. For earnings per share, covering analysts expect CRON stock to “break even” at 0 cents. Estimates range between a loss of a penny to a high of 1 cent. In Q4 2017, Cronos delivered EPS of a penny.

But the revenue picture is likely what most investors will focus on. Sales estimates range from $6.5 million to $6.6 million, with consensus averaging $6.5 million. If management hits this target, it would represent over a 300% lift year-over-year. That’s an ambitious goal, but reaching it could do a lot of good for Cronos Group stock.

Of course, with such a dynamic industry, investors should be prepared for anything. Here are three key considerations for CRON stock ahead of its anticipated Q4 earnings release:

Revenue Growth Remains a Strong Point for CRON Stock

Although aiming for a record-breaking $6.5 million sales haul in the upcoming quarter appears aggressive, it’s actually quite reasonable. Going back to almost two years ago, Cronos has forwarded bonkers numbers. That’s one of the reasons why CRON stock historically is such an outperformer.


Since Q3 2017, Cronos revenue growth on a YOY basis average 434%. Taking away this quarter’s ridiculous 963% growth, we still have an average of just under 333%. Therefore, a 303% growth target for Q4 2018 is well within established trends.

That said, legal marijuana understandably has viability and practicality concerns. If CRON fails to hit its revenue forecast, that could send a ripple effect into Cronos Group stock. Wall Street may perceive such a miss as an underlying sector problem that could also affect rivals like Tilray(NASDAQ: TLRY) and Canopy Growth (NYSE: CGC).

Thus, Q4’s revenue target presents a tricky situation. Yes, Cronos should reasonably attain this goal based on historical performance. But if it doesn’t, the penalty will likely be severe.

Inventory Concerns casts Cloud on CRON stock

Among the litany of criticisms against the cannabis industry, a common criticism is capacity. Several players have invested considerable funds acquiring marijuana production facilities. But analysts have voiced concerns that some of these buyouts don’t make economic sense. For example, consider the hoopla surrounding Aurora Cannabis’ (NYSE: ACB) acquisition of Whistler Medical Marijuana.

This goes to show that capacity will always remain a highly-scrutinized metric. After all, a marijuana producer’s viability is directly correlated to how much agricultural goods it can produce. However, another important and related figure to watch is inventory.

When people talk capacity, they’re talking about processed and packaged goods. It doesn’t do Cronos Group stock any good if the underlying firm sits on an un-shippable supply glut. Looking at days inventory, though, management must reign this number in.

It’s not just the fact that the company reported over 748 days inventory in Q3 2018; this metric has risen uncomfortably high in recent quarters.

Again, management must trim this trend. If not, I’m not sure if a good narrative can save CRON stock in the nearer-term.

What’s CRON Doing with their Money?

Last year, tobacco giant Altria Group (NYSE: MO) made headlines when it announced a $1.8 billion equity investment in CRON. Naturally, Cronos Group stock launched into orbit after the disclosure.

But it wasn’t just about the money. Instead, Altria gave Cronos and the entire marijuana industry a credibility boost. If a big company like Altria was willing to stick its neck out, it must recognize the sector’s true potential.

Specifically for CRON stock, Altria represented money growing on trees. With its massive partner’s support, Cronos can embark on its expansionary ambitions.

That’s the good part. However, stakeholders don’t want to listen to bedtime stories indefinitely. At some point, they want results. Inevitably, we have the obvious question: what’s Cronos doing with the money?

Boosting sales is one thing. However, shareholders also want efficient production, and eventually, a feasible roadmap to consistent profitability.

Unfortunately, I’m not entirely convinced that CRON will give analysts what they’re seeking in the nearer-term. Therefore, I’d take a cautious approach to Cronos Group stock heading into Q4.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.



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