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,” said 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. 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.”
Financial Results
| (in thousands of USD) | Three months ended June 30, | Change | Six months ended June 30, | Change | |||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||||||||||
| Net revenue | |||||||||||||||||||||||||||||
| United States | $ | 1,459 | $ | 2,227 | $ | (768 | ) | (34 | )% | $ | 3,787 | $ | 4,668 | $ | (881 | ) | (19 | )% | |||||||||||
| Rest of World | 21,602 | 13,395 | 8,207 | 61 | % | 44,307 | 23,565 | 20,742 | 88 | % | |||||||||||||||||||
| Consolidated net revenue | 23,061 | 15,622 | 7,439 | 48 | % | 48,094 | 28,233 | 19,861 | 70 | % | |||||||||||||||||||
| Cost of sales | 18,941 | 19,445 | (504 | ) | (3 | )% | 37,048 | 35,019 | 2,029 | 6 | % | ||||||||||||||||||
| Inventory write-down | — | 11,961 | (11,961 | ) | (100 | )% | — | 11,961 | (11,961 | ) | (100 | )% | |||||||||||||||||
| Gross profit | $ | 4,120 | $ | (15,784 | ) | $ | 19,904 | 126 | % | $ | 11,046 | $ | (18,747 | ) | $ | 29,793 | 159 | % | |||||||||||
| Gross margin(i) | 18 | % | (101 | )% | N/A | 119 | pp | 23 | % | (66 | )% | N/A | 89 | pp | |||||||||||||||
| Net loss(ii) | $ | (20,338 | ) | $ | (179,353 | ) | $ | 159,015 | 89 | % | $ | (52,991 | ) | $ | (340,978 | ) | $ | 287,987 | 84 | % | |||||||||
| Adjusted EBITDA(iii) | $ | (18,799 | ) | $ | (49,759 | ) | $ | 30,960 | 62 | % | $ | (37,699 | ) | $ | (86,333 | ) | $ | 48,634 | 56 | % | |||||||||
| Other Data | |||||||||||||||||||||||||||||
| Cash and cash equivalents(iv) | $ | 789,543 | $ | 895,181 | $ | (105,638 | ) | (12 | )% | ||||||||||||||||||||
| Short-term investments(iv) | 155,352 | 201,699 | (46,347 | ) | (23 | )% | |||||||||||||||||||||||
| Capital expenditures(v) | 1,905 | 2,118 | (213 | ) | (10 | )% | 2,639 | 9,190 | (6,551 | ) | (71 | )% |
(i) Gross margin is defined as gross profit divided by net revenue.
(ii) Net loss of $20.3 million in Q2 2022 improved by $159.0 million from Q2 2021. The improvement year-over-year was primarily driven by the reduction in the non-cash impairment loss on goodwill and indefinite-lived intangible assets and 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.
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.
| (in thousands of USD) | Three months ended June 30, | Change | Six months ended June 30, | Change | |||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||||||||||
| Cannabis flower | $ | 15,739 | $ | 11,597 | $ | 4,142 | 36 | % | $ | 34,364 | $ | 21,031 | $ | 13,333 | 63 | % | |||||||||||||
| Cannabis extracts | 5,582 | 1,531 | 4,051 | 265 | % | 9,570 | 2,234 | 7,336 | 328 | % | |||||||||||||||||||
| Other | 281 | 267 | 14 | 5 | % | 373 | 300 | 73 | 24 | % | |||||||||||||||||||
| Net revenue | 21,602 | 13,395 | 8,207 | 61 | % | 44,307 | 23,565 | 20,742 | 88 | % | |||||||||||||||||||
| Cost of sales | 17,280 | 17,862 | (582 | ) | (3 | )% | 33,275 | 32,171 | 1,104 | 3 | % | ||||||||||||||||||
| Inventory write-down | — | 11,961 | (11,961 | ) | (100 | )% | — | 11,961 | (11,961 | ) | (100 | )% | |||||||||||||||||
| Gross profit | $ | 4,322 | $ | (16,428 | ) | $ | 20,750 | 126 | % | $ | 11,032 | $ | (20,567 | ) | $ | 31,599 | 154 | % | |||||||||||
| Gross margin | 20 | % | (123 | )% | N/A | 143 | pp | 25 | % | (87 | )% | N/A | 112 | pp |
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.
| (in thousands of USD) | Three months ended June 30, | Change | Six months ended June 30, | Change | |||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||||||||||
| Net revenue | $ | 1,459 | $ | 2,227 | $ | (768 | ) | (34 | )% | $ | 3,787 | $ | 4,668 | $ | (881 | ) | (19 | )% | |||||||||||
| Cost of sales | 1,661 | 1,583 | 78 | 5 | % | 3,773 | 2,848 | 925 | 32 | % | |||||||||||||||||||
| Gross profit | $ | (202 | ) | $ | 644 | $ | (846 | ) | (131 | )% | $ | 14 | $ | 1,820 | $ | (1,806 | ) | (99 | )% | ||||||||||
| Gross margin | (14 | )% | 29 | % | N/A | (43 | )pp | — | % | 39 | % | N/A | (39 | )pp |
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.
