10 Nov

Cronos Group’s Q3 Earnings: What to Expect

WRITTEN BY Margaret Patrick

Canada-based global cannabis company, Cronos Group (CRON) is set to report its fiscal Q3 2019 results on November 12. Several problems including global uncertainty, vaping crisis, black market sales, and pricing pressures continue to hurt the cannabis sector.

CDC looks into vaping crisis, but Cronos stock rises

The CDC’s (Centers for Disease Control and Prevention) latest announcement may shed some light on the sector decline. On November 8, the agency found vitamin E acetate in all the tested samples of e-cigarettes. The agency collected BAL (bronchoalveolar lavage) fluid samples of 29 patients. All of them confirmed to be suffering from EVALI (e-cigarette, or vaping, product use associated with lung injury). The agency labeled Vitamin E acetate as a potential cause of the vaping crisis. According to GLJ Research analyst Gordon Johnson, as reported by The Fly, the regulated cannabis sector seem to be relieved, since vitamin E acetate is usually not used in their products.

Subsequent to the news, Cronos rallied by 7.65%. The stock closed at $11.26 Canadian dollars on the TSE (Toronto Stock Exchange) on November 8. Also, Cronos jumped by 7.44% and closed at $8.52 on Nasdaq. Will the company’s coming results help continue the uptrend or will it push down the stock?

Analysts’ estimates for Cronos Group’s earnings

Analysts expect Cronos Group to report revenue of $14.62 million Canadian dollars in fiscal Q3 2019. This implies a YoY (year-over-year) rise of 288.74%. Previously, analysts projected the company’s third-quarter revenues to be $14.0 million Canadian dollars, a YoY rise of 275.6%. Also, they expect the company to report revenue of $55.16 million Canadian dollars in fiscal 2019. This implies a YoY rise of 251.27%.

Analysts expect Cronos to report adjusted EBITDA of -$19.80 million Canadian dollars in the fiscal Q3 2019. This implies a YoY decline of 367.87%. Also, analysts expect the company to report adjusted EBITDA of -$61.28 million Canadian dollars in fiscal 2019. Again, this is a YoY decline of 292.90%.

How did Cronos Group do in Q2?

In the second quarter, Cronos Group reported net revenues of $10.24 million Canadian dollars, a YoY rise of 53%. Revenues beat the consensus estimate of $7.4 million Canadian dollars. The company reported a gross margin of 53% in the second quarter. This is higher than the consensus estimate of 50.7%. The company’s reported adjusted Ebitda of -$17.77 million Canadian dollars. This was a lot lower than the consensus estimate of -$10 million Canadian dollars.

At the end of the second quarter, Cronos Group had cash and cash equivalents of $1.58 billion Canadian dollars. The company had short-term investments of $744.94 million Canadian dollars on its balance sheet. A major portion of the company’s cash asset is attributable to Altria Group’s (MO) $2.4 billion Canadian dollar equity investment in Cronos. In return, Altria has a 45% ownership stake in Cronos. Also, the company holds a warrant to raise its ownership stake by up to 55% in Cronos in the next four years. In such a scenario, Cronos may get more payments up to $1.4 billion Canadian dollars.

Cronos targets the US and Australian markets

On August 8, Cronos Group announced an inorganic entry in the US hemp-derived CBD (cannabidiol) market. The company announced the completion of the acquisition of Redwood Holding Group’s four operating subsidiaries for $300 million. Cronos will pay $225 million in cash and the remaining in newly issued shares.

On October 25, Cronos Group announced the closing of Cronos Australia’s IPO (initial public offering) of $20 million Australian dollars. Previously, Cronos and NewSouthern Capital had an equal stake in Cronos Australia. Also, after the IPO, Cronos owns 31% of Cronos Australia’s issued capital.

According to the World Law Group, the total market size of the Australian cannabis market is $3.89 billion. In “The Oceania Cannabis Report, 2018 Industry Outlook,” NewFrontier data provided estimates for Australia’s cannabis market. The research firm estimated the size of Australia’s legal medical marijuana market as $17.7 million in 2018. Also, the firm expects the market opportunity to rise to $3.0 billion by 2028.

What are analysts projecting for peers?

Analysts expect Aurora Cannabis (ACB) to report revenue of $94.97 million Canadian dollars in the fiscal Q1 2020. This implies a YoY rise of 220.04%. Analysts projected the company’s first-quarter EBITDA to be -$18.83 million Canadian dollars, a YoY rise of 72.26%.

Further, Wall Street expects Canopy Growth (WEED) (CGC) to report revenue of $109.46 million Canadian dollars in the second quarter of fiscal 2020. This implies a YoY rise of 369.25%. Also, they expect the company’s second-quarter EBITDA to be -$91.76 million Canadian dollars. Also, this is a YoY rise of 54.35%.

How did peers perform in earnings results?

Aphria (APHA) reported revenues of $126.11 million Canadian dollars in the fiscal Q1 2020. Also, this implies a YoY rise of 848.78%. But, the revenues missed the consensus estimate of $132.2 million Canadian dollars. Also, the company reported an EBITDA of $1.0 million Canadian dollars. This was higher than the consensus estimate of -$2.2 million Canadian dollars.

Hexo (HEXO) reported revenues of $15.42 million Canadian dollars in the fiscal Q4 2019. This implies a YoY rise of 993.90%. However, these revenues missed the consensus estimate of $16.04 million Canadian dollars. Also, the company’s EBITDA of -$35.10 million Canadian dollars was a YoY decline of 249.56%.

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