Last week, Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) released first quarter financial results and the numbers came in lower than we expected
During the quarter, Cronos reported an adjusted EBITDA loss of $37.1 million on $12.6 million of revenue. When compared to the same quarter last year, the size of the adjusted EBITDA loss increased and the company attributed it to higher sales and marketing costs due to the focus on brand development in the US as well as an increase in R&D spending due to product development and developing cannabinoid intellectual property (IP).
Another important comparison to the same period last year is related to a $4.2 million increase in the amount of revenue that was generated. When compared to other large (from a market cap standpoint) Canadian Licensed Producers (LPs), Cronos is reporting much lower revenues and this is a trend that we will monitor on a going forward basis.
The higher revenues can be attributed to higher recreational cannabis sales in Canada, medical cannabis sales in Israel, and higher sales in the US (from its hemp-derived CBD products introductions). Revenue growth was partially impacted by strategic price reductions on various recreational cannabis products in the second half of 2020 and we will monitor how the business is able to capture additional market share in Canada.
Cronos Group CEO and President Kurt Schmidt said that first quarter financial results were impacted by the COVID-19 pandemic. Going forward, he seems confident on how the business with fare in future quarters and we will monitor how he able to execute on previously announced growth initiatives.
In the coming weeks, Cronos Group intends to launch an cannabis infused edible product line for the Canadian recreational market. This product was developed by the company’s innovation and R&D teams and the product is expected to be differentiated from what is currently on the market. Cronos’ new edible capabilities will serve as a platform for future innovation that is expected to provide the business with a new revenue stream.
During the first quarter, Cronos successfully launched PEACE NATURALS™ branded pre-rolls into the Israeli medical cannabis market. This launch follows the successful launch of dried flower and oils in Israeli in 2020 and we are favorable on how Cronos continues to execute on Israel’s rapidly growing market.
Going forward, we will monitor how Cronos is able to record strong revenue growth while operating in a cost efficient manner. Due to a prior investment from Altria (MO), the company’s balance sheet is strong and we find this to be an important aspect of the story.
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