Cronos Group Q2 Revenue Decreases 8% Sequentially to $23.1 Million

Cronos Group Reports 2022 Second Quarter Results
  • Consolidated net revenue increased by 48% year-over-year to $23.1 million in Q2 2022
  • Israel net revenue increased by 212% year-over-year to $7.2 million in Q2 2022
  • Announced achievement of THCV equity milestone

TORONTO, Aug. 09, 2022 (GLOBE NEWSWIRE) — Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) (“Cronos” or the “Company”), today announces its 2022 second quarter business results.

I am encouraged by the progress we are making to realign our business around our brands to become more efficient in our decision making and agile throughout our supply chain.

Mike Gorenstein, Chairman, President and CEO, Cronos

Our supply chain transformation in Canada is going very well, with GrowCo achieving profitability in the year-to-date period, and the operational efficiencies we envisioned when we embarked on this initiative are starting to be realized. We are also refocusing the U.S. business to prioritize hero SKUs while leaning into adult-use product formats and concentrating on the direct-to-consumer channel.

Gorenstein added, “Although early in the repositioning of our U.S. business, we are confident the new strategy will improve our bottom-line while maintaining brand equity that we can leverage into cannabinoids beyond CBD, and in the U.S. THC market once regulations permit.”

“As we realign our business, we remain focused on what we know will drive differentiation: product development and long-term focused innovation. We continue to expand our borderless cannabinoid product portfolio with the recent launch of a CBN vape and gummy in select markets in Canada, and we achieved the THCV equity milestone in partnership with Ginkgo. Continuing to hit these productivity milestones fuels our innovation pipeline focused on creating borderless products with rare cannabinoids that amplify and differentiate the consumer experience. With a focus on utilizing rare cannabinoids, you have seen the success of our approach in the gummy category in Canada. We intend to apply this same strategy to win in other categories such as vapes and pre-rolls.”

Second Quarter 2022

  • Net revenue of $23.1 million in Q2 2022 increased by $7.4 million from Q2 2021. The increase year-over-year was primarily driven by an increase in net revenue in the Rest of World (“ROW”) segment driven by growth in the Israeli medical market and the Canadian adult-use market.
  • Gross profit of $4.1 million in Q2 2022 improved by $19.9 million from Q2 2021. The improvement year-over-year was primarily driven by the absence of inventory write-downs in the current period, increased revenue in the ROW segment driven mainly by sales of cannabis flower, a favorable mix of cannabis extract products that carry a higher gross profit and gross margin than other product categories, and lower cannabis biomass costs. Partially offset by lower fixed cost absorption due to the timing of wind down activities associated with the exit of the Peace Naturals Campus.
  • Adjusted EBITDA of $(18.8) million in Q2 2022 improved by $31.0 million from Q2 2021. The improvement year-over-year was primarily driven by the improvement in gross profit and a decrease in sales and marketing, and general and administrative expenses as a result of the Company’s strategic realignment (the “Realignment”).
  • Capital expenditures of $1.9 million were essentially unchanged.

Business Updates

Strategic and Organizational Update

In the second quarter of 2022, following an evaluation of the U.S. business as part of the Company’s Realignment, the Company began a phased exit of the wholesale beauty category to focus the portfolio on adult-use product formats within the direct-to-consumer channel. As a result, the Company reduced sales and marketing headcount in the U.S. to better align the business structure with the new strategy. Due to the restructuring of the U.S. business and other newly identified cost savings opportunities, the Company now expects to incur approximately $6.4 million in expenses in connection with the Realignment, an increase from the previously stated $5.8 million.

In addition, the Company anticipates capital expenditures as a result of the Realignment of approximately $2.2 million to modernize information technology systems and build distribution capabilities. As of June 30, 2022, related capital expenditures were $0.3 million. As the Company continues with its transition through the second half of 2022, it anticipates that it will begin to incur the majority of the expected capital expenditures as part of the Realignment.

Brand and Product Portfolio

In the second quarter of 2022, Spinach® continued to organically expand market share in the edibles category in Canada. According to Hifyre data, Spinach® held an approximate 14.3% market share in the edibles category across Canada, which expands to approximately 18.6% within the gummy category during Q2 2022. Furthermore, three out of four SOURZ by Spinach™ gummies ranked in the top-10 for market share in Canada in Q2 2022 and all five of our gummy products across SOURZ by Spinach™ and Spinach FEELZ™ were in the top-15 for the same period.

The strong growth and demand for the products in the second quarter culminated in the SOURZ by Spinach™ brand winning ‘Favorite Edible Product’, in the People’s Choice category at the O’Cannabiz Conference & Expo.

Subsequent to the second quarter, in July and August 2022, the Company launched two rare cannabinoid products featuring cannabinol (“CBN”) across select markets in Canada with intentions to expand across Canada over time. The first was a gummy featuring CBN under the Spinach FEELZ™ brand, Deep Dreamz Blueberry Pomegranate (2:1 THC|CBN), featuring 2 gummies per pack with 10mg THC and 5mg CBN per pack. The addition of a CBN-focused gummy further builds on our borderless rare cannabinoid portfolio and award-winning gummy platform. Additionally, the Company complemented the CBN gummy launch with an offering in the vape category, the Spinach FEELZ™ Deep Dreamz Blackberry Kush (7:1 THC|CBN) 1-gram vape.

Intellectual Property Initiatives

In June 2022, Cronos announced the achievement of the final productivity target for tetrahydrocannabivarin (“THCV”) under its strategic partnership (the “Ginkgo Strategic Partnership”) with Ginkgo Bioworks Holdings, Inc. (NYSE:DNA) (“Ginkgo”). THCV is hypothesized to reduce the appetite-enhancing property of THC. The Company is excited about the possibilities THCV is expected to provide and looks forward to getting more products with rare cannabinoids into market.

Global Supply Chain

In the second quarter of 2022, Cronos Growing Company Inc. (“Cronos GrowCo”) reported to the Company preliminary unaudited net revenue of approximately $5.2 million to licensed producers excluding sales to the Company. According to preliminary unaudited year-to-date results as of June 30, 2022, Cronos GrowCo has achieved profitability, and continues to build its wholesale customer base and is becoming a meaningful contributor to the Canadian cannabis supply chain. It was always Cronos’ belief that large-scale agricultural producers would be the winners in cultivation and we are seeing early signs of this coming to fruition.

Appointments

In August 2022, the Company appointed Arye Weigensberg as Senior Vice President, Head of Research & Development, after serving in an interim capacity since November 2021. Prior to serving as interim Head of Research and Development, Mr. Weigensberg was the General Manager and Vice President of Research and Technology at Cronos Research Labs. Before joining the Company, Mr. Weigensberg was the CEO of Altria Israel Ltd (an Altria research and development hub). Since joining Cronos, Mr. Weigensberg has played a foundational role developing the scope of our rare cannabinoid work, while advancing our research capabilities to forge new strategies for differentiated cannabis products.

Rest of World Results

Cronos’ ROW reporting segment includes results of the Company’s operations for all markets outside of the U.S.

Second Quarter 2022

  • Net revenue of $21.6 million in Q2 2022 increased by $8.2 million from Q2 2021. The increase year-over-year 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 extract products.
  • Gross profit of $4.3 million in Q2 2022 improved by $20.8 million from Q2 2021. The improvement year-over-year was primarily driven by the absence of inventory write-downs in the current period, increased cannabis flower revenue, the introduction of additional cannabis extract products that carry a higher gross profit and gross margin than other product categories, and lower cannabis biomass costs as we further leverage our joint venture with Cronos GrowCo. Partially offset by lower fixed cost absorption due to the timing of wind down activities associated with the exit of the Peace Naturals Campus.

United States Results

Cronos’ U.S. reporting segment includes results of the Company’s operations for all brands and products in the U.S.

Second Quarter 2022

  • Net revenue of $1.5 million in Q2 2022 decreased by $0.8 million from Q2 2021. The decrease year-over-year was primarily driven by a reduction in volume as a result of a decrease in promotional spending and SKU rationalization efforts as the Company implements the Realignment with respect to the U.S. segment.
  • Gross profit of $(0.2) million in Q2 2022 decreased by $0.8 million from Q2 2021. The decrease year-over-year was primarily due to lower sales volumes and increased inventory reserves.

Conference Call

The Company will host a conference call and live audio webcast on Tuesday, August 9, 2022, at 8:30 a.m. ET to discuss 2022 Second Quarter business results. An audio replay of the call will be archived on the Company’s website for replay. Instructions for the live audio webcast are provided on the Company’s website at https://ir.thecronosgroup.com/events-presentations.

About Cronos

Cronos is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product development. With a passion to responsibly elevate the consumer experience, Cronos is building an iconic brand portfolio. Cronos’ diverse international brand portfolio includes Spinach®, PEACE NATURALS®, Lord Jones®, Happy Dance® and PEACE+®. For more information about Cronos and its brands, please visit: thecronosgroup.com.

Non-GAAP Measures

Cronos reports its financial results in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). This press release refers to measures not recognized under U.S. GAAP (“non-GAAP measures”). These non-GAAP measures do not have a standardized meaning prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these non-GAAP measures are provided as a supplement to corresponding U.S. GAAP measures to provide additional information regarding the results of operations from management’s perspective. Accordingly, non-GAAP measures should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. All non-GAAP measures presented in this press release are reconciled to their closest reported U.S. GAAP measure. Reconciliations of historical adjusted financial measures to corresponding U.S. GAAP measures are provided below.

Adjusted EBITDA

Management reviews Adjusted EBITDA, a non-GAAP measure, which excludes non-cash items and items that do not reflect management’s assessment of ongoing business performance of our operating segments. Management defines Adjusted EBITDA as net income (loss) before interest, tax expense (benefit), depreciation and amortization adjusted for: share of income (loss) from equity method investments; impairment loss on goodwill and intangible assets; impairment loss on long-lived assets; (gain) loss on revaluation of derivative liabilities; (gain) loss on revaluation of financial instruments; transaction costs related to strategic projects; impairment loss on other investments; foreign currency transaction loss; other, net; loss from discontinued operations; restructuring costs; share-based compensation; and financial statement review costs (and reserves) related to the restatements of the Company’s 2019 and 2021 interim financial statements, including the costs related to the Company’s responses to the reviews of such interim financial statements by various regulatory authorities and legal costs defending shareholder class action complaints brought against the Company as a result of the 2019 restatement.

Management believes that Adjusted EBITDA provides the most useful insight into underlying business trends and results and provides a more meaningful comparison of period-over-period results. Management uses Adjusted EBITDA for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets.

The following tables set forth a reconciliation of Net income (loss) as determined in accordance with U.S. GAAP to Adjusted EBITDA for the periods indicated:

(i) For the three and six months ended June 30, 2021, impairment on goodwill and indefinite-lived intangible assets relates to impairment on goodwill and indefinite-lived intangible assets related to the Company’s U.S. segment.
(ii) For the six months ended June 30, 2022, impairment loss on long-lived assets related to the Company’s decision to seek a sublease for leased office space in Toronto, Ontario, Canada during the first quarter of 2022. For the three months ended June 30, 2021, impairment loss on long-lived assets relates to an impairment on property, plant and equipment in the U.S. segment. For the six months ended June 30, 2021, impairment loss on long-lived assets relates to the aforementioned impairment loss on property, plant and equipment as well as an impairment loss on leased premises in the U.S. segment from the first quarter of 2021.
(iii) For the three and six months ended June 30, 2022 and 2021, (gain) loss on revaluation of derivative liabilities represents the fair value changes on the derivative liabilities.
(iv) For the three and six months ended June 30, 2021, transaction costs represent legal, financial and other advisory fees and expenses incurred in connection with various strategic investments. These costs are included in general and administrative expenses on the condensed consolidated statements of net loss and comprehensive loss.
(v) For the three and six months ended June 30, 2022, (gain) loss on revaluation of financial instruments related primarily to the Company’s equity securities in Cronos Australia. For three and six months ended June 30, 2021, (gain) loss on revaluation of financial instruments related primarily to revaluations of financial liabilities resulting from the Company’s deferred share units issued to certain non-employee directors.
(vi) For the six months ended June 30, 2022, impairment loss on other investments related to the PharmaCann Option for the difference between its fair value and carrying amount.
(vii) For the three and six months ended June 30, 2022, other, net related (gain) loss on disposal of assets. For the three and six months ended June 30, 2021, other, net primarily related to the gain recorded on sale of the Company’s Winnipeg facility previously designated as held-for-sale in the first quarter of 2021.
(viii) For the three and six months ended June 30, 2021, loss from discontinued operations related to the discontinuance of Original B.C. Ltd.
(ix) For the three and six months ended June 30, 2022, restructuring costs related to the employee-related severance costs and other restructuring costs associated with the Realignment, including the planned exit of the Stayner facility.
(x) For the three and six months ended June 30, 2022 and 2021, share-based compensation related to the vesting expenses of share-based compensation awarded to employees under the Company’s share-based award plans.
(xi) For the three and six months ended June 30, 2022 and 2021, financial statement review costs include costs and reserves taken related to the restatements of the Company’s 2019 and second quarter 2021 interim financial statements, costs related to the Company’s responses to requests for information from various regulatory authorities relating to such restatements and legal costs defending shareholder class action complaints brought against the Company as a result of the 2019 restatement.

Foreign currency exchange rates

All currency amounts in this press release are stated in U.S. dollars (“USD”), which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to USD. The assets and liabilities of the Company’s foreign operations are translated into USD at the exchange rate in effect as of June 30, 2022, June 30, 2021 and December 31, 2021. Transactions affecting shareholders’ equity are translated at historical foreign exchange rates. The consolidated statements of net income (loss) and comprehensive income (loss) and the consolidated statements of cash flows of the Company’s foreign operations are translated into USD by applying the average foreign exchange rate in effect for the reporting period using Bloomberg.

The exchange rates used to translate from USD to Canadian dollars (“C$”) is shown below:

Original Press Release

Get ahead of the crowd by signing up for 420 Investor, the largest & most comprehensive premium subscription service for cannabis traders and investors since 2013.

Published by NCV Newswire
NCV Newswire
The NCV Newswire by New Cannabis Ventures aims to curate high quality content and information about leading cannabis companies to help our readers filter out the noise and to stay on top of the most important cannabis business news. The NCV Newswire is hand-curated by an editor and not automated in anyway. Have a confidential news tip? Get in touch.

Get Our Sunday Newsletter