Cronos Group Archives - Green Market Report

Debra BorchardtDebra BorchardtNovember 5, 2020
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5min1120

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.”

New Products

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.


Debra BorchardtDebra BorchardtOctober 30, 2020
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4min2880

Altria Group (NYSE: MO) reported its third-quarter earnings as regular smokers seem to be holding steady, but its stake in the vape company Juul Labs and cannabis company Cronos Group (CRON) didn’t fare as well.

Altria took another massive writedown on its investment in Jull Labs. The original 38% stake in the e-cigarette company was $12.8 billion it has now been marked down to just $1.6 billion. That’s a drop of 88% devaluation. On top of all that, Altria wrote off another $2.6 billion and took $1.40 per share in charges to earnings.

With regards to Cronos, the company has this to say in its filing:

Altria has considered the impact of COVID-19 on the business of Cronos, including its sales, distribution, operations, supply chain and liquidity. Cronos continues to be impacted by COVID-19, due in part to government action requiring closures or limited occupancy of retail stores in the United States. During the second quarter of 2020, Cronos recorded an impairment charge on goodwill and intangible assets as a result of the impact of COVID-19 (which Altria recorded in the third quarter of 2020 due to its one-quarter lag in reporting Cronos’s results). In addition, the fair value of Altria’s investment in Cronos was approximately 20% less than its carrying value of $1.0 billion at September 30, 2020. While Altria believes that this decline in fair value is temporary, it will continue to monitor its investment in Cronos, including the impact of COVID-19 on Cronos’s business and market valuation.

 

The company reported the loss on the Cronos financial instruments for the quarter was $105 million, for the past nine months $202 million. For the last 12 months ending in September, Altria reported a loss on Cronos-related financial instruments of $317 million.

“Altria continued to demonstrate its resilience during the third quarter while navigating the challenges presented by the COVID-19 pandemic,” said Billy Gifford, Altria’s Chief Executive Officer. “In the third quarter, our tobacco businesses delivered strong financial performance once again and we continued to make progress against our 10-year Vision.”

Altria gave the following guidance:

Altria narrows its 2020 full-year adjusted diluted earnings guidance based on year-to-date performance and insight into an additional quarter of ABI earnings contributions. Altria now expects its 2020 full-year adjusted diluted EPS to be in a range of $4.30 to $4.38, representing a growth rate of 2% to 4% from an adjusted diluted EPS base of $4.21 in 2019. Altria also narrows its expectation for its 2020 full-year adjusted effective tax rate to be in a range of 24.5% to 25.5%.
 
While the 2020 full-year adjusted diluted EPS guidance accounts for a range of scenarios, the external environment remains dynamic. Altria will continue to monitor conditions for ATCs, including unemployment rates, disposable income (which may be impacted by potential future changes in government stimulus and federal unemployment benefit payments), mobility and purchasing behaviors.
 
Altria revises its estimates for 2020 full-year domestic cigarette industry volumes to be in a range of unchanged versus the prior year to down 1.5% based on better year-to-date industry performance and expectations for continued category resilience. This range replaces Altria’s previous estimates of down 2% to 3.5% versus the prior year.

Debra BorchardtDebra BorchardtAugust 6, 2020
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6min5900

Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) stock fell over 13% to lately trade at $6.03 after the company reported a net loss for the second quarter of $107 million versus last year’s earnings of $185 million for the same time period. The loss of $0.31 cents per share was worse than the FactSet estimate for a loss of $0.07 per share.

Cronos Group delivered net revenue of $9.9 million in the quarter for an increase of $2.2 million over last year’s $7.6 million. The company said that the increase year-over-year was primarily driven by continued growth in the adult-use Canadian cannabis market, sales resulting from the launch of cannabis vaporizers in the Canadian market, including both adult-use and direct-to-consumer, and the inclusion of the Redwood acquisition in its financial results, partially offset by non-recurring wholesale revenue in the Canadian market in Q2 2019.

“In the second quarter of 2020, we continued our progress despite unprecedented shifts in our industry and the global economy. We officially entered the Israeli medical cannabis market, with Cronos Israel commencing the sale of PEACE NATURALS branded dried flower products to medical patients. During these extraordinary times, it is very encouraging to see that we are making progress against our strategy across our global footprint,” said Mike Gorenstein, CEO of Cronos Group.

The company’s gross (loss) was $(3.0) million in the quarter versus $4.1 million for the same time period last year. The decrease year-over-year was primarily driven by an increase in cost of sales driven by a higher volume of adult-use sales and the lack of wholesale revenue, as well as an inventory write-down of $3.1 million on dried cannabis and cannabis extracts.

COVID Problems

Cronos Group said that the ongoing restrictions and closures experienced by retail stores in the U.S. as a result of the COVID-19 pandemic had negatively impacted sales and demand which has resulted in slower than expected. The company said it expects the revenue growth and operating results in the U.S. reporting unit to continue to be
negatively impacted as the decrease in customer demand and retail closures are expected to continue as a result of the pandemic.  The company reassessed the valuations on the U.S. and the Lord Jones brand and lowered those amounts. The company said it does not believe the declines in fair values are temporary. Cronos recorded $35.0 million of impairment charges on the U.S. reporting unit and $5.0 million on the Lord Jones brand for the three and six months ended June 30, 2020.

Litigation

On June 16, 2020, an alleged consumer filed a Statement of Claim on behalf of a class in the Court of Queen’s Bench of Alberta in Alberta, Canada, against the Company and other Canadian cannabis manufacturers and/or distributors. The Statement of Claim alleges claims related to the defendants’ advertised content of cannabinoids in cannabis products for medicinal use on or after June 16, 2010 and cannabis products for adult use on or after October 17, 2018. The Statement of Claim seeks a total of C$500 million for breach of contract, compensatory damages, and unjust enrichment or such other amount as may be proven in trial and C$5 million in punitive
damages against each defendant, including the Company. The Company has not responded to the Statement of the Claim.

A number of claims, including purported class actions, have been brought in the U.S. against companies engaged in the U.S. hemp business alleging, among other things, violations of state consumer protection, health and advertising laws. On April 8, 2020, a putative class action complaint was filed in the U.S. District Court for the Central District of California against Redwood, alleging violations of California’s Unfair Competition Law, False Advertising Law, Consumers Legal Remedies Act, and breaches of the California Commercial Code for breach of express warranties and implied warranty of merchantability with respect to Redwood’s marketing and sale of U.S. hemp products. The complaint does not quantify a damage request. On April 14, 2020, the class action complaint was dismissed for certain pleading deficiencies and the plaintiff was granted leave until April 24, 2020 to amend the complaint to establish federal subject matter jurisdiction. As of the date of this Quarterly Report, the plaintiff has not refiled the
complaint and the complaint has been dismissed without prejudice. The company said it expects litigation and regulatory proceedings relating to the marketing, distribution and sale of its products to increase.


StaffStaffJuly 1, 2020
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8min17470

Editors Note: This is a guest post.

More and more countries decide to legalize cannabis and give entrepreneurs a chance to make money and keep the economy. 

In 2019, the marihuana stocks were supposed to prove their worth on Wall Street by generating steady profits. However, things didn’t go according to the plan. Many investors missed opportunities due to high tax rates and supply issues in the United States and Canada. These obstacles helped the black market to thrive and left marijuana stock investors just heart-broken – no one could predict the government’s roadblocks. 

Despite all these setbacks, some pot stocks still have good market value. Do you want to learn how entrepreneurs legally make money on selling cannabis these days? Just keep reading:

Canopy Growth And Its Bright Start

Canopy Growth Corporation (NYSE: CGC) (also known as Tweed Marijuana) was founded by two friends – Chuck Rifici and Bruce Linton, in 2013. 

In 2019, the company became the largest cannabis company in the world thanks to its value of shares and market capitalization. The company has even survived all challenges in 2019 without losing a single employee. During the crisis, there were 3200 employees in Canopy Growth. 

These days, Canopy Growth is legally selling their products to 16 other countries (Spain, Germany, Australia, Canada, Jamaica, Czech Republic, Chile, etc.). At the end of 2019, the company set up a partnership with a UK-based think-tank called Beckley Foundations, which will allow them to start selling medical cannabis all around the UK as well.

David Klei, the new CEO of Canopy Growth Corporation, says that it is only the beginning of their company. In 2019, they also announced the release of edible cannabis products such as chocolates and beverages. The company might show even more surprises at the end of 2020. Mr. Klei has a point – it is only the beginning.

Curaleaf Holdings and its Cannabis King named Boris 

Curaleaf Holdings (CURLF) is a Canadian company that produces and distributes cannabis-based products around the world. There is one special thing about the company. As the owners of the company state on their website and in numerous interviews, research and advocacy help them to become leaders in the competitive industry.

In 2020, Curaleaf operated more than 57 dispensaries around the US and Canada. No wonder, Boris Jordan, the chairman of Curaleaf, is called a Cannabis King in the American mass media. 

GW Pharmaceuticals 

GW Pharmaceuticals (NASDAQ:GWPH) is a pharmaceutical company based in the UK. It helps to treat patients with multiple sclerosis with the help of natural cannabis. 

In 2018, their cannabis-based products such as Sativex and Epidiolex were approved by the US Food and Drug Administration. We can find their products in London, Prague, and Las Vegas dispensaries

In 2020, the net worth of the company is $3.21 billion. At the moment, the company has its branches in Germany, France, Spain, Italy, and the US. 

Cronos Group

Cronos Group (CRON) is an innovative global cannabinoid company with an office in New York. In 2019, the company received a $2.4 billion equity investment from Altria Group ( the largest producer of tobacco).

Investors consider Cronos Group one of the most cash-rich pot stock in the industry. The company was founded in 2016 and was run by only 2o employees at the beginning. Right now, there are almost 1000 employees in Cronos Group. Mike Gorenstein, CEO of the company, says that they have even more ambitious plans for the future. 

Tilray 

Tilray (TLRY) is another cannabis company that has a great place in the stock market. Tilray is a Canadian pharmaceutical company that has operations in the unites States, New Zeland, Portugal, Australia, Germany, and Latin America. 

All you need to know about Tilray is that it is one of the first medical cannabis producers in North America. 

Once marijuana was legalized in the United States, Tilray was the first cannabis company legally exporting their products to Americans. The company debuted on the Nasqad Stock Market with $17 per share.

In 2018, the price increased to $214 per share. However, the crisis in August 2019 brought Tilray’s founder Brendan Kennedy back to Earth – the price crashed to $29 per share. Despite such a failure, the company is still afloat, with the capital of $1.18 billion. 

The Bottom Line 

The cannabis industry is growing rapidly around the world. We might expect even more companies on the market in the near future. However, at this point, entrepreneurs need more support from the government. 

Politicians might not be interested in helping the pot business. On the other hand, they should be the ones wanting to fight the illegal drug trade. Supporting local cannabis companies will not only help to generate the requisite public revenues and provide jobs but will also help to protect users from poor quality cannabis-based products. 

 


Debra BorchardtDebra BorchardtMay 8, 2020
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5min5870

Cronos Group Inc. (NASDAQ: CRON) announced that its 2020 first-quarter net revenue rose to $8.4 million versus last’s year’s $5.4 million for the same time period. Cronos stock was lifted in early trading as the company beat revenue estimates by $0.25, but despite revenue rising 181% year-over-year, it missed estimates by $0.89 million.

Cronos said that the increase was primarily driven by continued growth in the adult-use Canadian cannabis market, sales resulting from the launch of cannabis vaporizers, and the inclusion of the Redwood acquisition in our financial results. The company reported a net income of $75.6 million, which was helped by a $113 million pre-tax unrealized gain resulting from the non-cash change in the fair value of financial derivative liabilities associated with the investment by Altria.

Losses though remain elevated as the company delivered an operating loss of $45.1 million in the record, which was also higher than last year’s operating loss of $34.9 million. The company said that it was due to increased headcount, internal review costs of $4.4 million related to the restatement of our 2019 interim financial statements, higher sales, and marketing costs related to brand development, and research and development costs related to our Ginkgo partnership, activities at Cronos Fermentation, and spending on vaporizer innovation at the Cronos Device Labs research and development center.

“Cronos Group started 2020 energized and determined to continue to see through our core strategic initiatives to drive long-term and sustainable growth. This quarter, we moved closer to officially entering the Israeli medical cannabis market with our Cronos Israel operations preparing to sell PEACE NATURALS™ branded dried flower products to medical patients. The Israeli medical market is a growing channel, and we look forward to serving this market in 2020 and beyond,” said Mike Gorenstein, CEO of Cronos Group.

Write-downs

Cronos said that it wrote-down $8 million on dried cannabis and cannabis extracts, primarily driven by fixed-price contracts negotiated prior to cannabis product price compression due to broader trends of oversupply in the Canadian market. The company said in a statement, “If we were to adjust for the effects of the inventory write-downs, gross profit in Q1 2020, would have been $1.5 million, representing a gross margin of 18%.” Cronos said it expects to incur more inventory write-downs as a result of pricing pressures and the repurposing of the Peace Naturals Campus.

COVID-19

Like most companies, Crons has also been affected by the pandemic. The company said that its distribution channels continue to see disruptions globally.  “Many brick-and-mortar retailers in the U.S., where Lord Jones products are distributed, have closed, although some retail partners continue to operate through their online sites.” The company noted that in Canada, brick-and-mortar cannabis retailers in certain provinces have mandated curbside click-and-collect models, reduced store opening hours, or have closed retail entirely. “Provincial purchasers and private retailers have also reduced staff on-site, which has led to a decrease in delivery availability and a reduction in the frequency and/or size of purchase orders.” The company also stated that it continues to have increased uncertainty in forecasting customer demand and sales velocity.

Gorenstein added, “Despite the challenges and uncertainty posed by the COVID-19 pandemic, we remain agile and focused as a business. Our brand portfolio continues to launch innovative products to consumers as we adapt to an online-first distribution model in both the U.S. and Canada. We continue to reach our stakeholders and consumers through creative digital marketing. And our product innovation and R&D projects continue to progress.”


Debra BorchardtDebra BorchardtMarch 30, 2020
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4min4130

Good luck making sense of Cronos Group Inc. (CRON.TO) (CRON.TO) 2019 fourth quarter and full-year business results. The company said it will restate its unaudited interim financial statements for the first, second and third quarters of 2019. The icing on the earnings cake was that it will also reduce revenue for the three months ending March 31, 2019, by C$2.5 million and the three months ended September 30, 2019, by C$5.1 million.

“We are pleased that the Audit Committee has completed its review 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 Mike Gorenstein, CEO of Cronos Group.

Fourth Quarter

Despite the restatements, the company reported net revenue of $7.3 million in the fourth quarter that topped last year’s fourth quarter by $3.0 million. The kicker is that the quarterly expenses were $43 million. The company spent $13 million in sales and marketing and another $14 million in general and administrative expenses. This is in one quarter for $7 million in revenue.

The company attributed the increase to a rise in the volume of products sold in the Rest of World segment and the Redwood acquisition, but that this was partially offset by a decrease in the price of products sold in the Rest of World segment.

Cronos also deliver an operating loss of ($63.9) million in the quarter driven by the inventory write-down of one-time charges related to the repurposing of certain facilities at the Peace Naturals Campus, an increase in general and administrative expenses in order to support Cronos Group’s growth strategy, an increase in sales and marketing in order to create, build and develop brands and an increase in R&D costs.

Full Year

For the full year of 2019, the company reported a net revenue of $23.8 million and an operating loss of ($121.5) million primarily driven by inventory write-downs in 2019. Cronos wrote down $29.4 million, made up of a one-time charge of $1.9 million, related to the repurposing of certain facilities at the Peace Naturals Campus, and a $27.5 million write-down on cannabis plants, based on the estimated market value of the specific strains previously in production, and cannabis oil, primarily driven by downward pressure in market prices during the year.

However, due to a $118 million unrealized gain on the revaluation of financial liabilities, primarily resulting from the non-cash change in the fair value of financial derivative liabilities associated with the investment by Altria Group, Inc. Cronos Group recorded a pre-tax unrealized gain of $1.2 billion.

 


Debra BorchardtDebra BorchardtFebruary 24, 2020
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3min6080

Cronos Group’s (NASDAQ: CRON) (TSX: CRON) decision to delay its earnings release makes it the latest cannabis company to unsettle the market just as it is trying to crawl out of a bear market. On Monday the company stated it would delay its 2019 fourth quarter and full-year earnings release and conference call, previously scheduled for Thursday, February 27, 2020. According to the company statement, Cronos “has had a delay in the completion of its financial statements and will make a further announcement in a subsequent press release to schedule the date and time of the earnings conference call.”

This follows one month after the company’s Chief Operating Officer David Hsu resigned from his position and no successor was named. Hsu had joined the company in 2016 and oversaw all of Cronos Group’s operations including construction, cultivation, and manufacturing as Chief Operating Officer. Prior to joining Cronos Group, David spent over ten years consulting with Deloitte and CRG Partners, a premier turnaround consulting firm, where he operated and managed distressed companies with revenues of more than $500.

Stock Performance

The stock has taken a tumble along with most cannabis stocks over the past year. Cronos’ 52-week high was C$32 and the low was $7. The stock was lately trading at C$9.44 and seemed to be slowly building its way back up the charts.

Last Quarter Was Good

If Cronos is signaling that this quarter’s numbers will be disappointing, it will surprise investors. Last November, the company 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.

Overall figures form Canada point to a strong end of 2019. Statistics Canada data showed cannabis sales in December climbed 8.1% sequentially to $146 million. This was the third straight month in a row sales have increased with the biggest increases coming from Ontario, Quebec and Alberta.


StaffStaffJanuary 23, 2020
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3min28760

After the market close on Wednesday, Cronos Group Inc. (NASDAQ: CRON) entered into a separation agreement On January 15, 2020, with David Hsu, who resigned from his position as the Company’s Chief Operating Officer effective as of the close of business on December 31, 2019. A successor was not named.

Hsu joined the company in 2016 and oversaw all of Cronos Group’s operations including construction, cultivation, and manufacturing as Chief Operating Officer. Prior to joining Cronos Group, David spent over ten years consulting with Deloitte and CRG Partners, a premier turnaround consulting firm, where he operated and managed distressed companies with revenues of more than $500.

On January 17, 2020, Cronos also entered into a separation agreement with William Hilson, who resigned from his position as the company’s Chief Commercial Officer.

Severance Payments

According to the filing, Hsu will receive cash severance in an aggregate amount equal to C$400,000 and Mr. Hilson will receive cash severance in an aggregate amount equal to C$167,500, less, in each case, applicable statutory deductions and withholdings, payable within 60 days after the Separation Date; and each executive will be entitled to subsidized life insurance, medical and dental benefits until the earlier of June 30, 2020, and the date on which such executive obtains alternate benefit coverage. Outstanding unvested Company options held by each executive as of the
Separation Date vest on an accelerated basis as of the Separation Date and each executive’s vested options may be exercised, in accordance with the terms of the applicable award agreements, by the earlier of the date on which such options’ original exercise term expires and June 30, 2020.

Recent Earnings

In November, the company 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


Debra BorchardtDebra BorchardtNovember 12, 2019
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4min13520

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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14min23190

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.



About Us

The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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