Cronos Group delivers solid quarter despite Israeli-Hamas war pressure

Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) announced its 2023 fourth quarter and full-year results. In the fourth quarter, net revenue rose slightly to $23.9 million from $22 million in the fourth quarter of 2022. It missed Yahoo Finance’s average analyst estimate for revenue of $25 million.

Cronos attributed the increase to higher cannabis flower sales in Canada and sales to Germany and Australia, partially offset by lower cannabis flower sales in Israel driven by the war involving Israel and Hamas.

Plus, the company cited pricing pressure as a result of competitive activity and an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue. These results were additionally impacted by the weakened Canadian dollar and New Israeli Shekel against the U.S. dollar.

Cronos Group also reported that its net losses fell 41% to $45 million from $76 million for the fourth quarter of 2022. The company’s cash and cash equivalents fell by 12% and are still at a hefty $669 million.

“In 2023, we significantly improved our cash flow from operations driven primarily by operating expense savings, while simultaneously expanding our portfolio of borderless products in Canada and Israel and entering two international markets, Germany and Australia,” said Mike Gorenstein, Chairman, President and CEO of Cronos.

Full-year results

Total revenue increased to $120 million for the full year of 2023 from $109 million in 2022. The net loss dropped dramatically to $70 million from a net loss of $155 million in 2022. The company also noted that in the second quarter of 2023, it dropped its U.S. hemp-derived CBD operations. The exit of these operations qualified for reporting as discontinued operations in the condensed consolidated statements of net loss and comprehensive loss.

“The operating expense savings combined with robust interest income and improved working capital management in the fourth quarter aided in increasing our cash balance by $22 million from the third quarter to a total cash and short-term investments balance of approximately $862 million,” continued Mr. Gorenstein. “In 2023, the Spinach brand became the number two overall brand in Canada, propelled by number one market share rankings in the flower and edibles categories, according to Hifyre. We also launched the Lord Jones brand in the Canadian market in 2023; this new line-up of products is off to an impressive start, and we are excited to bring new category-defining products to market under this brand in 2024. In Israel, despite the war, the country has shown incredible resilience.”

Looking ahead

Due to capturing operating expense savings earlier than anticipated, the company said it now expects an incremental $5 to $10 million in operating expense savings in 2024, compared to the previous target of $10 to $15 million. Cronos said that savings in 2024 will be primarily driven by savings in general administrative, and research and development. Cronos said it expects that the net change in cash will be positive in 2024.

Israel-Hamas war

Cronos Group said it hoped for limited impacts to its operations, facilities, and business in Israel due to the Israel-Hamas War; along with limited deterioration in foreign exchange rates due to the Israel-Hamas War. The company said it continues to monitor the Israel-Hamas War and the potential impacts the conflict could have on its personnel and business in Israel and the recorded amounts of assets and liabilities related to the company’s operations in Israel. The company’s statement read, “The extent to which the Israel-Hamas War may impact the Company’s personnel, business and activities will depend on future developments which remain highly uncertain and cannot be predicted. It is possible that the recorded amounts of assets and liabilities related to the Company’s operations in Israel could change materially in the near term.”

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