Cronos Group Finally Files Q3 Results, Announces Business Realignment

It may be more than three months later than initially expected, but Cronos Group (TSX: CRON) this morning finally released its third quarter financial results. The firm reported net revenues of $20.4 million, as well as significant impairments that were amended to the firms second quarter results.

Starting at the top, the company amended its second quarter financial results this morning as following an audit conducted by KPMG. Impairment charges of $236.1 million were recorded for the three month period, related to goodwill and indefinite-lived intangible assets related to its US assets.

Revenues for the third quarter surprisingly marked an improvement on a quarter over quarter basis, climbing from $15.6 million in Q2 to $20.4 million in Q3. Improvements were seen in Rest of World, which includes its Canadian cannabis operations, where revenue of $18.3 million was recorded, while revenues in its US operations declined from $2.2 million to $2.1 million on a quarterly basis.

The company however still appears to have little control over its costs, with cost of sales coming in at $21.1 million, resulting in negative gross margins of $0.7 million. Operating expenses on a quarterly basis improved materially as well quarter over quarter, climbing from $44.4 million in Q2 to $55.7 million in Q3. Expenses were lead by $32.5 million in general and administrative expenses, with the firm overall posting an operating loss of $56.4 million.

Other income meanwhile had a positive effect on the firms earnings as a result of a cratering share price, which lead to a gain on revaluation of derivative liabilities of $132.9 million, which ultimately lead to the company posting a positive net income of $77.9 million for the quarter. Adjusted EBITDA meanwhile came in at negative $46.8 million.

Looking to the balance sheet, the company has seen its cash position fall from $895.2 million to $842.6 million, while total current assets overall fell from $1,162.1 million to $1,103.9 million. Total current liabilities meanwhile fell from $200.6 million to $69.6 million, largely due to the aforementioned change in derivative liabilities.

The firm this morning also announced that after burning through a large portion of its significant cash position that it is finally time to realign its business around its brands as it looks to drive towards profitability. Effectively the firm plans to centralize functions under common leadership, which basically means layoffs are coming, as well as “evaluate [Crono’s] global supply chain and performing product reviews,” as a means of reducing fixed costs where possible. The firm is also putting into place operating expense targets as it gears for entry into the adult-use market in the US. Savings are expected to amount to between $20 million and $25 million on an annual basis initially, with further updates presumably to follow.

A timeline for the release of the firms annual results was not provided.

Cronos Group last traded at $4.78 on the TSX.

Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization unless otherwise mentioned. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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