Cronos Group's Revenue Nearly Triples In Q3

Cronos Group Inc CRON's stock opened lower Tuesday after the company reported third-quarter results. Although the Canadian cannabis company posted big revenue and sales volume increases, investors were disappointed to see a wider-than-expected bottom-line loss.

What Happened

Cronos Group reported revenue of $3.8 million for the quarter, up 186 percent on the year and substantially higher than the consensus estimate of $2.72 million. Cronos said it sold 514 kilograms of marijuana during the quarter, an increase of 213 percent compared to the same period in 2017.

The Toronto company also posted a net loss of 4 cents per diluted share versus a 1-cent profit a year earlier and the 2-cents-per-share loss expected by analysts.  

Highlights in Q3 included the completion of the Building 4 indoor facility with a total area of 286,000 square feet, according to Cronos. Cultivation began at the facility at the end of August, and the first harvest is expected by the end of the year, the company said.

Cronos entered several partnerships in Q3 with Ginkgo Bioworks, Agroidea SAS, and a group of investors led by greenhouse operator Bert Mucci. These tie-ups expand Cronos' operations not just in Canada, but also in the Latin American cannabis market.

Why It's Important

The results do not fully reflect the effect that the legalization of recreational pot had on Cronos Group and cannabis companies in general, since the legalization in Canada took effect Oct. 17.

The report does show that, in anticipation of high demand, Cronos Group — as well as Aurora Cannabis Inc ACB, which posted its results yesterday — is investing a lot of money to boost production.

At the same time, Cronos had to invest in marketing efforts. While revenue grew, marketing and sales expenses also surged by almost 240 percent on the year to the U.S. dollar equivalent of $452,000, and so did general administrative expenses, which jumped from $807,957 a year ago to $3.6 million. 

What's Next

With the legalization of marijuana in Canada bringing high demand that is outstripping supply, and analysts predicting a shortage that could last for up to a year, Cronos is well-positioned to take advantage of the new recreational market. 

Cronos shares were down nearly 5 percent at $8.03 at the time of publication Tuesday. 

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