Cronos Group Stock Rose despite Missing Estimates


Nov. 12 2019, Updated 9:43 a.m. ET

Today, Cronos Group (CRON) reported its third-quarter earnings, which ended on September 30. The company missed analysts’ revenue and EBITDA estimates during the quarter. The third-quarter revenues were 12.7 million Canadian dollars—lower than analysts’ estimate of 14.14 million Canadian dollars. Cronos Group reported an adjusted EBITDA of 23.9 million Canadian dollars compared to analysts’ estimate of -19.87 million Canadian dollars. Despite missing analysts’ estimates, the company was trading 1.5% higher in the pre-market trading hours today. Cronos Group introduced a new hemp-derived CBD brand PEACE+ in the US market today. Introducing the new CBD brand and the company’s lower cost of sales led to a rise in the stock price.

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Cronos Group’s revenues rose

Year-over-year, Cronos Group’s revenues grew 237.8% from 3.76 million Canadian dollars in the third quarter of fiscal 2018. Sequentially, the company’s revenues increased 24.1% from 10.24 Canadian dollars. The growth in domestic sales and sales from Redwood subsidiaries drove the company’s revenues. In September, Cronos Group closed the acquisition of Redwood subsidiaries.

During the quarter, the company sold 3,142 kilograms of cannabis—a rise of 98% from 1,584 kilograms in the second quarter and 511% from 514 kilograms in the third quarter of fiscal 2018. Cronos Group announced that through its acquisition of Redwood subsidiaries, it introduced several CBD products in the cosmetics and personal care category during the quarter.

Adjusted EBITDA fell

Sequentially, Cronos Group’s EBITDA fell from negative 17.77 million Canadian dollars in the second quarter of fiscal 2019 to negative 23.9 million Canadian dollars. The lower gross margin and higher operating expenses decreased the company’s EBITDA. Cronos Group’s cost of sales before adjustments came in at 2.27 Canadian dollars per gram compared to 3.01 Canadian dollars in the previous quarter. The fall in production costs lowered the company’s cost of sales. Despite the fall in the cost of sales, the company’s gross margin fell from 53% in the second quarter to 41%. The decline was due to higher realized value from inventory adjustments. The increase in sales and marketing, R&D and G&A expenses, and higher stock-based payments increased Cronos Group’s operating expenses during the quarter.

YTD stock performance

This year, Cronos Group stock has been under pressure. The company has lost 25.7% of its stock value as of Monday. Higher operating losses in the second quarter and weakness in the cannabis sector dragged the company’s stock price down. Meanwhile, Aurora Cannabis (ACB), Canopy Growth (CGC) (WEED), and Aphria (APHA) have fallen 29.5%, 26.7%, and 16.7%, YTD, respectively. On Thursday, Aurora Cannabis and Canopy Growth will report their earnings. Read Aurora Cannabis: Can It Boost the Industry in Q1? and Can Canopy Beat Q2 Estimates and Boost the Sector? to learn more.

For more cannabis-related news and update, please check 420 Investor Daily.


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