Cronos Q2 Net Revenue Declines 11.9% YoY, Provides Outlook

Cronos Group Inc. CRON CRON released its 2023 second quarter business results, revealing net revenue of $19.0 million, a decrease of 11.9% compared to $21.6 million in Q2 2022. The decrease was primarily due to lower cannabis flower sales in Israel due to competitive activity, the slowdown in patient permit authorizations and political unrest, and an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percent of revenue. Furthermore, the weakened Canadian dollar and Israeli shekel against the U.S. dollar during the current period adversely impacted results. In the second quarter of 2023, the company exited its U.S. hemp-derived CBD operations.

Q2 2023 Financial Highlights

• Gross profit of $3.1 million, a decrease of 28.3% compared to $4.3 million in Q2 2022. The decrease was primarily driven by lower cannabis flower sales in Israel, and an adverse price/mix shift in cannabis flower sales in Canada.

• Gross margin of 16% compared to 20% in Q2 2022.

• Net loss was $8.5 million, compared to $20.3 million in Q2 2022.

• Adjusted EBITDA was negative $15.9 million, compared to negative $16.6 million in Q2 2022.

Guidance and Outlook

The company has decided to discontinue providing net revenue guidance and to withdraw its net revenue target of $100 to $110 million for full-year 2023.

The company announced 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 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.

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.

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