Cronos Group (TSX: CRON) (NASDAQ: CRON) released Q2 and first-half 2019 financial results on Thursday morning. The company saw net revenue jump 202% year-over-year and even reported a surprise 2nd quarter profit. The company was able to beat analyst estimates in a few metrics but its 2nd half spending forecast caused shares to drop over the past two trading sessions.
CRON Earnings Highlights:
- Q2 2019 net revenue increased 202% year-over-year to $10.2 million.
- Net revenue for Q2 2018 was $3.4 million.
- Revenue increase was driven by the launch of the recreational market in Canada.
- Net revenue increases 58% quarter-over-quarter.
- Q1 2019 net revenue was $6.5 million.
- Revenue increase was driven by strong CBD oil and dry flower sales.
- Cronos sold 1,584 kgs of cannabis in Q2, an increase of 232% year-over-year.
- The company sold 477 kgs in Q2 2018.
- The primary driver was Cronos’ increased cannabis products and the launch of the adult-use market in Canada.
- Kgs sold increased 43% quarter-over-quarter from 1,111 kgs in Q1 2019.
- Cost of sales per gram before fair value adjustments was $3.01 in Q2 2019. A 14% increase from Q2 2018’s $2.63.
- Cost of sales per gram before fair value adjustments increased 12% from Q1 2019.
- Quarter-over-quarter Cronos experienced a higher processeing per gram.
- Cronos Group saw growth in cannabis oil sales in Q2 2019.
- Cannabis oil sales made up 20% of the company’s net product revenue in Q2 2019.
- Cannabis oil sales made up 19% of the company’s net product revenue in Q2 2018.
Consensus analyst estimates had Cronos reporting a $0.03 per share loss on revenue $7.9 million CDN. The company’s Q1 2019 revenue was $6.5 million CDN. In actuality, Cronos posted a Q2 2019 profit of $0.22 per share.
According to Refinitiv IBES data, the average of six analysts estimates had Cronos losing roughly $15.8 million in the first half of 2019. Cronos Group reported an adjusted core loss of $26.7 million in the first half of 2019.
Q2 2019’s adjusted core loss increased to $17.8 million from $2.4 million in the Q2 2018. The company cited an increase in expenses related to marketing and sales, R&D, salaries and hiring.
“During the second quarter, Cronos Group expanded its R&D capabilities, innovation expertise and global infrastructure network in what has been a year of tremendous growth. We opened Cronos Device Labs, our new global R&D center in Israel, announced the acquisition of our new state-of-the-art fermentation facility and added Dr. Todd Abraham as Chief Innovation Officer to our executive leadership team,” said Cronos Group CEO Mike Gorenstein.
Cronos Group saw strong growth in its top-line numbers but it wasn’t enough to move share prices higher. Investors have been worried about sector-wide spending on new markets, new product lines and M&A.
Cronos provided a 2nd half 2019 forecast on its spending and informed investors it expected to see an increase on the $28.5 million UDS it forecasted in Q1 2019. The company plans to allocate more dollars to its Israel research facility in addition to boosting production for its Peace Naturals cannabis brand.
Cronos Group also expects to see an increase in its vaporizer innovation costs as well as an increase in its U.S. spending as the company executes on the launch and expansion of CBD products in the United States.
The company announced its $300 million acquisition of U.S. based Redwood and its Lord Jones CBD brand late last week. Cronos will fund a large portion of the acquisition with cash on hand.
“We also took steps to enter the U.S. market with our recent acquisition of Redwood Holding’s hemp-based CBD platform. As we look ahead, we will continue to capitalize on this momentum by building on our partnerships with Altria and Gingko Bioworks and leveraging our collective resources and expertise to realize the significant potential in the growing cannabis industry.” added Gorenstein.
The surprise Q2 profit caused shares of CRON to surge nearly 9% in early trading on Thursday morning. However, those gains were short-lived as traders quickly faded the attempted breakout and Cronos stock ultimately ended yesterday’s trading session down roughly 3.5%. CRON stock closed trading today down another 3.91%.
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