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Cronos Group Inc. (Nasdaq: CRON) (TSX: CRON) announced its Q2 2023 business results today for the period ending June 30th, 2023. All financial information is provided in U.S. dollars in comparison to the preceding quarter.

Q2 Financial Highlights

• Net Revenue: DOWN 2.4% to $19.0M
  • Canada: $13.6M 
  • Israel: $5.4M 
• Cost of Sales: DOWN 3.9% to $15.9M
• Gross Profit (S): UP 5.9% to $3.1M
• Gross Margin (%): Unchanged @ 16%
• Net Loss: DOWN 68.6% to $(5.7)M
• Adj. EBITDA: UP 1.4% to $(15.9)M
• Cash on Hand: $409.4M

Q2 Operational Highlights

• According to Hifyre data, the Spinach^® brand:
  • continued to hold its #1 market share position in the edibles category in Canada with an approximate 14.5% market share,
  • has a 21.8% market share within the gummy category in the SOURZ by Spinach^® and Spinach FEELZ™ sub-brands.
  • is ranked #8 in the pre-rolls category, up from number 14 in Q4 2022,
  • has become the #2 flower brand in Canada with a 6.0% market share,
  • is ranked the #7 vape brand with a 4.2% market share and 
    •  is the number one rare cannabinoid vape brand, with our SKUs that feature cannabinol (CBN), cannabigerol (CBG), and cannabichromene (CBC), holding the top three spots. 

Management Commentary

Mike Gorenstein, Chairman, President, and CEO, said:

• “...Our teams in Canada continued to push forward in the edibles category, maintaining our number one market share position while bringing innovation to our pre-roll and vape portfolios.
• In Israel, despite the slowdown in patient growth and political unrest, our team stayed focused on successfully maintaining one of the top positions in the market, driven by our high-quality flower offerings and distribution in nearly all pharmacies and, with the new regulations intended to create more accessibility for patients set to go into effect in Israel in December 2023, we continue to be excited about the runway for growth in that market.
• While we execute on product innovation and revenue growth, we are simultaneously laser-focused on reducing costs across our organization. Our cost reduction efforts and improved balance sheet management continue to yield an improvement in cash flow.
• Having the best balance sheet in the industry allows us to be patient and selective with our growth initiatives, and you will continue to see a methodical approach to growth. We will continue to push forward on new market growth opportunities and expand our portfolio of borderless products to be ready for new markets as they open.”

Guidance and Outlook

• The Company has decided to discontinue providing net revenue guidance and to withdraw its previously announced net revenue target of $100 to $110 million for full-year 2023. The discontinuance of providing net revenue guidance reflects turbulent market conditions beyond previous expectations in the markets in which they operate, specifically,
  • increasing political unrest and stagnant patient growth in Israel,
  • the decision to exit the U.S. business,
  • competitive activity in Canada and foreign exchange rates have had unfavorable impact on their net revenue.
• The Company announced today the planned wind-down of the Cronos Fermentation facility in Winnipeg, Manitoba, Canada, with intentions to list the facility for sale. Cronos expects to continue to operate the Cronos Fermentation facility with a phased reduction and planned exit by the end of 2023.
• The Company previously increased its operating expense savings target for 2023 from $10 to $20 million to a new range of $20 to $25 million, primarily driven by savings in sales and marketing, general and administrative, and research and development.
• The Company announced today incremental operating expense reductions across the organization. The Company anticipates that the exit of the Cronos Fermentation facility and the additional operating expense reductions announced today will capture an incremental $10 to $15 million in full-year savings in 2024. The organizational and cost savings initiatives are intended to position the Company to drive profitable and sustainable growth over time.
• Cronos anticipates that the net change in cash, defined as the sum of cash and cash equivalents and short-term investments, for the last six months of fiscal year 2023 will decline by less than $5 to $10 million. This is an improvement to the previous guidance of declining less than $25 million in the remaining nine months of fiscal year 2023. The Company maintains its expectation that the net change in cash will be positive in 2024.
• The fiscal year 2023 guidance assumes:
  • the Company will experience relatively consistent foreign exchange and interest rates;
  • the general economic conditions and regulatory environment in the markets in which Cronos participates will not materially change;
  • timely receipt of interest and principal payments on the GrowCo senior secured credit facility; 
  • anticipated interest income of approximately $20 to $25 million for the last six months of fiscal year 2023;
  • steady gross margin profile; and
  • meeting its target for reducing operating expenses by $20 to $25 million.

Stock Performance

Cronos Group's stock price was UP 1.5% during the Q2 period (April, May, June) but declined a further 10.7% to $1.76 at the close yesterday, August 9th.

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