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Friday, Jul 1, 2022
Mugglehead Magazine
Alternative investment news based in Vancouver, B.C.

Industry update

Cronos stock drops on US$111.7M Q4 loss

Despite continued cash burn, the Canadian pot firm remains bullish on its Kristen Bell-partnered US CBD brand Happy Dance

Cronos Group Inc. (TSX: CRON) (Nasdaq: CRON) stock fell 2 per cent Friday after the Canadian cannabis producer revealed a far bigger fourth-quarter loss than expected.

In total, the Ontario-based company reported a US$111.7 million net loss on net sales of US$17 million for the three months ended Dec. 31.

Cronos lost 31 cents a share in the quarter, far more than the six cents forecast by Zacks Equity Research.

Since receiving a $2.4 billion investment from Marlboro cigarette maker Altria in 2018, Cronos has continued to burn cash in every following fiscal period.

In the fourth quarter, Cronos operated at a reported annualized cash burn rate of around US$162 million. Sales, general and administrative costs, along with research and development costs rose 31 per cent to a reported $40.4 million, pushing losses higher.

The firm also took a US$15 million write-down on dried cannabis and extracts, “primarily driven by cannabis product price compression in the Canadian market.”

Cronos warned that it “may incur further inventory write-downs due to pricing pressures in the marketplace.”

Lower weed prices in Canada have hurt the bottom lines of many large publicly-traded producers since the start of 2020.

Read more: Cronos stock pops despite rising losses

But revenues were up on a quarterly basis for Cronos, growing 50 per cent from US$11.4 million to US$17 million.

Sales in the U.S., where Cronos owns and operates the CBD brand Lord Jones, rebounded 119 per cent to a reported US$3.5 million.

The company’s “rest of world” segment, which includes sales in Canada and Israel, saw a 193 per cent sales gain to US$13.5 million.

CEO Kurt Schmidt, who was appointed in September, says his goals for 2021 is to continue to focus on growing brands at Cronos while creating new disruptive technologies.

Read more: Crumbling Cronos enlists CPG CEO

The firm noted that it secured its first major U.S. retailer with ULTA Beauty for its Happy Dance CBD brand, which was co-founded by actor Kristen Bell.

Cronos said it received all licences required for the cultivation, production and marketing of dried flower, pre-rolls and oils in Israel. The company currently sells its Peace Natural dried flower and oil products there.

However, the firm didn’t provide any updates on its capital-intensive partnership with U.S. biotech firm Ginkgo BioWorks to develop rare cannabinoids.

With approximately US$1.3 billion in cash and short-term investments at the end of 2020, Cronos says its robust balance sheet will help drive the business this year.

Shares in Cronos closed at $13.30 Friday on Toronto Stock Exchange.

Top image via Happy Dance


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