Cronos Group Reports 2022 Third Quarter Results
Reported consolidated net revenue increased 3% year-over-year to $20.9 million; on a constant currency basis, consolidated net revenue increased 7% year-over-year to $21.8 million
Reported net revenue in Israel increased 88% year-over-year to $7.0 million; on a constant currency basis, net revenue in Israel increased 98% year-over-year to $7.4 million
SOURZ by Spinach™ Blue-Raspberry Watermelon was the #1 Edible in Canada
Announces launch of Spinach® Infused pre-rolls
Jeff Jacobson appointed Chief Growth Officer
TORONTO, Nov. 07, 2022 (GLOBE NEWSWIRE) -- Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) (“Cronos” or the “Company”) today announces its 2022 third quarter business results.
“Market share gains through borderless innovation and cost rationalization were key drivers to this quarter's success,” said Mike Gorenstein, Chairman, President and CEO, Cronos. “Our award-winning Spinach gummy lineup, such as our SOURZ by Spinach™ Blue-Raspberry Watermelon gummy and new additions to the portfolio including our Spinach FEELZ™ DEEP DREAMZ THC:CBN gummy, continue to win in the category. Beyond edibles, we achieved new product launches in the vape category powered by rare cannabinoids like CBG and CBN, and in Israel, we continued to grow the PEACE NATURALS® brand with medical patients while expanding our leading position in the country. Looking further ahead, we expect pre-roll innovation to drive our recovery in the category in the fourth quarter and 2023.”
“While executing on our innovation pipeline, we also remain on track for the previously announced $20 to $25 million in operating expense savings for 2022,” continued Mr. Gorenstein. “Importantly, we will seek additional opportunities to deliver more efficiencies in 2023. I am proud and grateful for the efforts our global team has put in this year and believe our leaner and more nimble organization provides a strong foundation for us to capitalize on the many growth opportunities ahead.”
Financial Results
(in thousands of USD) | Three months ended September 30, | Change | Nine months ended September 30, | Change | ||||||||||||||||||||||||||
2022 | 2021 | $ | % | 2022 | 2021 | $ | % | |||||||||||||||||||||||
Net revenue | ||||||||||||||||||||||||||||||
United States | $ | 514 | $ | 2,100 | $ | (1,586 | ) | (76 | )% | $ | 4,301 | $ | 6,768 | $ | (2,467 | ) | (36 | )% | ||||||||||||
Rest of World | 20,409 | 18,307 | 2,102 | 11 | % | 64,716 | 41,872 | 22,844 | 55 | % | ||||||||||||||||||||
Consolidated net revenue | 20,923 | 20,407 | 516 | 3 | % | 69,017 | 48,640 | 20,377 | 42 | % | ||||||||||||||||||||
Cost of sales | 19,766 | 21,137 | (1,371 | ) | (6 | )% | 56,814 | 56,156 | 658 | 1 | % | |||||||||||||||||||
Inventory write-down | — | — | — | N/A | — | 11,961 | (11,961 | ) | (100 | )% | ||||||||||||||||||||
Gross profit | $ | 1,157 | $ | (730 | ) | $ | 1,887 | 258 | % | $ | 12,203 | $ | (19,477 | ) | $ | 31,680 | 163 | % | ||||||||||||
Gross margin(i) | 6 | % | (4 | )% | N/A | 10 | pp | 18 | % | (40 | )% | N/A | 58 | pp | ||||||||||||||||
Net income (loss)(ii) | $ | (36,886 | ) | $ | 77,666 | $ | (114,552 | ) | (147 | )% | $ | (89,877 | ) | $ | (263,312 | ) | $ | 173,435 | 66 | % | ||||||||||
Adjusted EBITDA(iii) | $ | (21,697 | ) | $ | (46,773 | ) | $ | 25,076 | 54 | % | $ | (59,396 | ) | $ | (133,106 | ) | $ | 73,710 | 55 | % | ||||||||||
Other Data | ||||||||||||||||||||||||||||||
Cash and cash equivalents(iv) | $ | 633,296 | $ | 842,567 | $ | (209,271 | ) | (25 | )% | |||||||||||||||||||||
Short-term investments(iv) | 255,452 | 197,161 | 58,291 | 30 | % | |||||||||||||||||||||||||
Capital expenditures(v) | 1,625 | 2,505 | (880 | ) | (35 | )% | 4,264 | 11,695 | (7,431 | ) | (64 | )% |
(i) Gross margin is defined as gross profit divided by net revenue.
(ii) Net income (loss) of $(36.9) million in Q3 2022 declined by $114.6 million from Q3 2021. The decline year-over-year was primarily driven by the fluctuation in the non-cash gain on revaluation of derivative liabilities.
(iii) See “Non-GAAP Measures” for more information, including a reconciliation of adjusted earnings (loss) before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) to net income (loss).
(iv) Dollar amounts are as of the last day of the period indicated.
(v) Capital expenditures represent component information of investing activities and is defined as the sum of purchase of property, plant and equipment, and purchase of intangible assets.
Third Quarter 2022
- Net revenue of $20.9 million in Q3 2022 increased by $0.5 million from Q3 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 higher extract sales in the Canadian adult-use market, partially offset by a reduction in revenue in the U.S. segment, lower cannabis flower sales in the Canadian adult-use market driven by an adverse price/mix shift and the impact of the weakening Canadian dollar against the U.S. dollar during the current period.
- Gross profit of $1.2 million in Q3 2022 improved by $1.9 million from Q3 2021. The improvement year-over-year was primarily driven by increased revenue in the ROW segment, mainly driven by sales of cannabis flower in Israel, a favorable mix of cannabis extract products that carry a higher margin profile than other product categories, and lower cannabis biomass costs. The increases were partially offset by lower fixed cost absorption due to the timing of wind-down activities associated with our planned exit of the Peace Naturals Campus and lower revenue in the U.S. segment.
- Adjusted EBITDA of $(21.7) million in Q3 2022 improved by $25.1 million from Q3 2021. The improvement year-over-year was primarily driven by decreases in general and administrative expenses, sales and marketing expenses, and research and development expenses as a result of the Company's strategic realignment (the “Realignment”) and an improvement in gross profit.
- Capital expenditures of $1.6 million in Q3 2022 decreased by $0.9 million from Q3 2021.
Business Updates
Strategic and Organizational Update
Following the decision to begin a phased exit of the wholesale beauty category in the U.S. business in the second quarter of 2022, the Company continued to reduce operating expenses in the U.S. to better align the business structure with the new strategy to focus on adult-use product formats in the direct-to-consumer channel.
The Company remains on track to achieve the previously identified $20 to $25 million in operating expense savings for 2022, primarily driven by savings in sales and marketing, general and administrative, and research and development.
Brand and Product Portfolio
In the third quarter of 2022 the Spinach® brand continued to organically expand market share in the edibles category in Canada. According to Hifyre data, Spinach® products held an approximate 15.3% market share in the edibles category across Canada, which expands to approximately 19.8% within the gummy category alone during Q3 2022. Furthermore, all four SOURZ by Spinach™ gummies ranked in the top-10 for market share in Canada in Q3 2022 and five out of six of our gummy products available during the quarter across the SOURZ by Spinach™ and Spinach FEELZ™ brands were in the top-15 for the same period.
In the third quarter of 2022, Cronos Israel was awarded a prestigious Clio Award in the Social Good category for the PEACE NATURALS® brand campaign in partnership with the Warriors for Life Association in Israel. The campaign called on mayors to restrict or stop traditional fireworks shows that cause distress and anxiety to medical patients and those with PTSD as a result of conflict and war. The Company is committed supporting and improving the lives of medical patients and veterans utilizing our high-quality differentiated products.
In October, the Company continued to expand its award winning gummy offering with the launch of SOURZ by Spinach™ Tropical Triple Berry 2:1 CBD:THC. This marks Cronos' first high CBD concentration edible in the Canadian adult-use market for those looking for a more mellow low-dose experience.
In November, Cronos will launch two infused pre-rolls in Canada. The first, under the Spinach® brand is, Fully Charged Atomic GMO, which will be offered in a 5-pack with 0.5 grams per pre-roll. Second, Cronos is launching a CBG-infused pre-roll under the Spinach FEELZ™ brand called, Tropical Diesel CBG, which will be offered in a 3-pack with 0.5 grams per pre-roll.
Global Supply Chain
Cronos Growing Company Inc. (“Cronos GrowCo”) reported to the Company preliminary unaudited net revenue of approximately $5.8 million to licensed producers excluding sales to the Company. Cronos GrowCo continues to build its wholesale customer base and is becoming a meaningful contributor to the Canadian cannabis supply chain.
Cronos Australia declared a one Australian cent per share dividend that resulted in a cash inflow to Cronos of $390,000 in October 2022. Cronos Australia continues to execute against its growth initiatives and we are pleased to see this investment bring cash back to Cronos.
Appointments
In October, Jeff Jacobson was appointed Chief Growth Officer. Mr. Jacobson previously served as the Company's Senior Vice President, Head of Growth (North America). Mr. Jacobson has been with Cronos since December 2016 and was a co-founder of Peace Naturals Project Inc. Mr. Jacobson's expertise and experience in licensing and compliance, new business development, project management and resource management assist Cronos in developing and penetrating domestic and international markets.
Rest of World Results
Cronos’ ROW reporting segment includes results of the Company’s operations for all markets outside of the U.S.
(in thousands of USD) | Three months ended September 30, | Change | Nine months ended September 30, | Change | ||||||||||||||||||||||||||
2022 | 2021 | $ | % | 2022 | 2021 | $ | % | |||||||||||||||||||||||
Cannabis flower | $ | 13,674 | $ | 15,306 | $ | (1,632 | ) | (11 | )% | $ | 48,038 | $ | 36,337 | $ | 11,701 | 32 | % | |||||||||||||
Cannabis extracts | 6,627 | 2,786 | 3,841 | 138 |
By: GlobeNewswire
- 07 Nov 2022
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