Cronos (CRON) 8 Aug 232023 Q2 Earnings call transcript

Good morning. My name is Victor, and I'll be your conference operator today. I would like to welcome everyone to Cronos' 2023 Second Quarter Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Shayne Laidlaw, Investor Relations. Please go ahead.

thank second joining performance. quarter and review today Victor, XXXX Cronos' financial you, you us for to Thank and business I'm Holm. Chairman, and our joined CEO, Today, Gorenstein; Mike President our and James CFO, by morning, Cronos issued announcing profiles. filed release a SEDAR our and which results EDGAR our on is financial news this under the well This will be Relations. information as as posted Investor also remarks prepared on our website

projected non-GAAP our results detailed call you statements current be from made the to the statements. Factors materials are including turn our based over measures U.S. entirety. financial measures, which any to that and also are results uncertainties and materially in may GAAP, I let are our forward-looking materials the remind available to could to subject call. earnings reconciliations about Before me to are expectations forward-looking this cause to forward-looking we our that make in non-GAAP by refer statements website. could those during that SEC These actual call on differ that earnings financial that actual during website, materially Mike, differ risks that and forward-looking assumptions management's on from expectations found filings statements in qualified can cause are this are Information in on available their and

by data provided throughout call, and conference is this unless will we information all regarding making be market stated, share Lastly, share market statements otherwise Hifyre.

move a pass over President it will Mike and Chairman, now remarks, I'll that, We question-and-answer to session. With we prepared then Gorenstein. to make and Cronos' will CEO,

everyone. morning, good and Shayne, you, Thank

end efficiency driving a cannabis and focus in our costs to and additional priorities. In to anticipate of of drive allowed quarter realign business which which markets. Manitoba plans We to strategic us the launch XXXX, cash common improvements of reduce gross the flow several second adult-use pursue operating U.S. our are expenses, exited announced our on to Our core margin borderless COGS innovative Today, continuing greater exit we in Winnipeg, to focus products, measures medical areas this goal initiated savings generation. in and we and consistent XXXX. in and culminating we XXXX by improving year, OpEx our CBD efficiencies operations, will and in facility

As reductions. a announced, anticipate to we we capturing XXXX, saving in $XX exit in million anticipate $XX $XX additional result million facility operating of implement announcements our million previously savings to of expense today and and XXXX our we operating as to incremental in million expenses, $XX Winnipeg

execute we in initiatives, laser-focused are efficiency-focused winning we While these on market.

year. Our Spinach top edibles vapes, all categories a top remain XX the with are is In categories Naturals with driven lastly, flower. our of pre-rolls the genetics of rank the U.S. edible brand Jones adult-use brand relaunch teams in it cultivation only which of in the its Spinach powerful this And is includes share in our as QX Canada in market introduction on that Peace be the by capabilities. into continue and working in, Israel, anticipated Canada, program exit, #X in brand to Lord edibles, and in participates Canada June.

in each business elements dive our these I'll more detail. of Now of into

of putting hard balance greater to OpEx savings off. million decisions, million, anticipated with cost operating our expense flow the paying will The achieve reductions reductions work driving work savings quarter this sheet $XX to driven our the this XXXX, industry-leading The the cash have increased $XX today Following overachievement business. XXXX, benefit, in primarily announced we hit to by additional full $XX million incremental timing U.S. partly of and of of in in-year improvement million. our ROI continued given $XX free our to year some savings year exit will target improves the to in

Today, scale facility. of we facility the We Manitoba purchased originally our exit development this our to fermentation announced also cannabinoid up IP. the of highly Winnipeg, planned specialized cultured

While can do first asset-light ferment were company an and with utilize Canada. them we rare the in to still now continue IP and We approach. cannabinoids, and so to we'll only the this commercialize cannabinoids

As effects strategy, COGS change of our part drive utilizing drive on material anticipated XXXX. consumers. portfolio to will winning continue This and focus savings cannabinoids branded in to is we our products to rare differentiated developing OpEx for

intended will adult-use facility The on yield cash the industry-leading cash is us balance. preserving additional eventual to business We our maintaining our in sale, but a of one enables for We that most CBD are already of part the of U.S. believe longer products for be U.S. important cash for CBD no plan. to is the while also preparing business world, U.S. entry. focus one exit which markets day, our the our cannabis

to adult-use under brand. year. roots the with refreshed Along borderless spent driving launching to cost later in best staying new legal cash visual can identity market to is Jones excited to create this be back process are on Lord products and know a we're and by there's laser-focused markets suite by our of that resources products Lord goal Lord flow this and savings bring value its Our adult-use the sell in positive. We Jones ultimate that for THC-focused adult-use brand, products the the in efficiencies Jones, Canadian borderless we

big to to as driven market will We other sheet, the our balance go the excited financial offerings and this by balance short-term and QX future investment wins to will from in industry-leading more win robust continues strategy product complementary was highly on line, cash are differentiated want increasing by to given a from approximately during pay the into we $X our as million it improved million XXXX. $XX.X XX.X%, income interest by capital an and in the portfolio with This detail realize the working further headwinds to achievement this and our you today. James top efficiencies OpEx and impressive second brands margins share remarks, further his macro our I sequentially lower and this the points quarter. on the driven investments. in be margin, P&L Spinach basis investment quarter. interest half interest gross to on income management. Gross intend in We XXX back income but from We dividends, momentum our the results and improved cash short-term additional improved build in comment on resulting in expanded

second to of create borderless to quarter, launches. Canada, business. during the by robust highlighted to our the offering continued a new execute Turning plan we In products,

'XX. Spinach #X in products participates all in in top in XX.X% only second edibles includes the edibles. in, that the XX categories in June brand brand edibles #X the remaining leader is category of XXXX, the currently which of Canada the for it quarter is the June, Spinach ranked cannabis As the accounted market and cannabis ranking market during of is

incredible in of to the flavor to chewable of extracts. new profiles launch scalable now the edibles cannabis blends, borderless We category a that have continues residual continues perfect in a an cannabinoid example impact banned feel product product. The

improvement anticipate As banned up overall these and since share sales products from recovery seeing we removed already be are market the XX% June. weekly an retail with a continue our in to market,

share. is May, drink lemonade, gained SOURZ new summer refreshing rising. Having new position. by Pink product excited to category, we the share a try adult #X launched #X flavors. market June, flavor raspberry our market share and in summer. In X.X% timeless and with Lemonade We're we quarter, keeps this portfolio for vape already in this held consumers infused on a Spinach has just lemonade in our pink quickly This late the take a flavor, market this launched maintaining

in from flavoring including QX, format pre-rolls Slurricane. of Spinach portfolio. Lemon These offerings pre-rolls, while on back the to that Pink the bolster share the the in Lemonade, our market and know with In the momentum gram innovation consumers improvement winning continued #XX formulation flavor vapes new a new that in the were Spinach launched we come July, new and forward pre-roll a brand half driving Strawberry on and cannabinoids build X in infused profile of love Sonic significant to #X will Peach we our In QX. pre-roll under vapes across in and include X we offerings. Punch new in offerings the push We launched XXXX several portfolio. In rare QX, Fuel base, leaning brand. in X.X

we expect these new with further that improve pipe, and this We can on launches position. the the ones coming down additional

in We flower propelled 'XX, the gram of million a had X.X capabilities the Our and the quarter. of XX brand. be gram. GrowCo's cultivation to preliminary $X.X SKUs in X be by XX the and second in and continues performance to in our genetics revenue continues Cookies Cronos performance the best-in-class in as XX Cake, to X robust quarter: customers top Wedding at our flower we #X approximately are grams, strong. reported GrowCo and program cultivation June unaudited second GrowCo, GMO

previously million currently the principal GrowCo QX. GrowCo the in repayment million Additionally, by $X.X has that Cronos credit provided $XX.X outstanding, facility of following

addition, a vital our $X.X a financial In financial yielding Cronos component in The overall QX. to of pickup, interest payment loan payments interest and million picture. equity performance made solid GrowCo is GrowCo payback of

regulations regulations are some Turning to it Israel. The easier Knesset patients XXXX. to new Health 'XX, in changed make the scheduled begin Committee obtain the for cannabis In to June prescription. December to

health conditions, medical obtain from a license be required ministry. with no to certain the longer patients For approval will

and This change towards world's customers simplifies potential. market of to to process Now, programs. I'm increase I We've in and market potential patients the regulators, the expected contribute confidence growth doctors position the can they it's my largest that one and the still doctors, and as and count. Shortly long-term change this the share Israeli patient cannabis directly the is that in Israeli patients, after patients. always realizing the with met prescribe medical our of and happy the about announcement, those excitement should for had progress potential in access

in Israeli to still X Rolls new Naturals to Wedding Pre-rolls products, part of pre-roll Cocoa Canada, substantial market, growing is Peace a and launched which quarter. have innovation dominated primarily market brand excited we're Our last bring the become the by Bomba, this and and flower.

flower in ad pre-roll reacclimate with and veterans life TV launched for to Peace local support addition launch military social Cake on In the with an again. consumers appeared proud Life, also Space dried is organization Israel, has organization we're works a This that service, issue one launches, resonated collaboration Naturals to in to our fundraising Israeli with to campaign Israel. after this that In Fighters and once we civilian offering. partnered that media a to

Germany. to Moving

to as excited a we that significant look agreement Germany Germany. signed milestone forward third the in are in a cannabis cannabis to Reentering medical similar We is quarter. proposed We and brand recently in brand establish our announce reschedule in and growth of intend medical one to market, shipments and as cannabis, regulatory reach a significant of no labeling distribution expanding narcotic, Cronos, the in The top anticipate is we Israel. with commencing Naturals to a expected leading awareness. execution brand, distributors Peace the for change longer we July our to to our unlock

better take in pass and financials. sheet efforts sets portfolio to strategic you these assemble and global borderless This an I'd savings resulted have up us it combination market. With that, and The positioned cost pivots well any in us like our infrastructure quarter's to balance of to with successes through to in to products a James partnerships. on execute of industry-leading

tax company revenue in everyone. from competitive review cannabis in The primarily mix in weakened the a adverse $X.X were representing operations offset from period. year. against the adverse driving reported lower in to in by activity, sales revenue quarter to cannabis Canadian $XX second excise revenue year of dollar shift impacted shift X% was year. was an morning, political Consolidated margin in flower Canada due decrease consolidated million, to sales XX% slowdown Canada. prior due quarter good flower due revenue. Consolidated unrest; the of decline to and patient to shekel a mix These price as and was second million. the profit decline lower during change prior costs. flower U.S. sales The by by Mike, the category, price Israeli biomass currency million, equating a for XXXX permit cannabis additionally second million decreased Constant current prior in gross continuing the dollar and results and cannabis percent $X.X will authorizations quarter increased driven by The net flower payments net the consolidated in now relation in the results period. the were primarily gross to partially results our Thanks, in XX.X% $XX.X lower Israel I and a the Israel

million, you margin, representing adjusted throughout research looking quarter-to-quarter of prior gross full improvement and gross year. stability, results intend the in the $XX.X and administrative on business, line in XXXX was $X.X mind, comparison by makes With both realignment which quarterly driven improvement off that a primarily were XXXX. Consolidated XX.X% and quarter difficult. margin positive a the this negative million progression driven Our decline XX.X% EBITDA from volatile see the positive the our can at to year XXXX had development QX signs margin sequential at gross we XXXX, QX a general second at a the The and by encouraging to was and expenses. improvement build where the where into and XXXX and in from we QX margin gross in had momentum we XX% XXXX of and X.X% XXXX,

increased $XX million we million. mentioned, a range of million to $XX previously to to savings cost XXXX expected target $XX million in $XX from our new As

of Fermentation to in As the XXXX. additional announced expense and we million that the year in a today $XX full incremental program, of anticipate reductions the an operating continuation savings exit this the $XX will million savings facility capture Cronos

from balance sheet. The short-term and quarter million cash the $XXX with approximately the Turning to up approximately which investments, ended in million quarter. is first the company $X.X

QX. addition In million, senior our secured on and in best sheet burn. the the balance Cronos by the $X.X enables steadfastly total partners remain cannabis bets in paid cash, on us we Mucci strategic to million million payments payment calculated for received return $X.X our $X.X JV reducing $X.X on an maximizing of take in GrowCo a loan note of our to payment promissory the principal while Having cash on industry million we of and GrowCo focused cash interest to

improvement cash income XXXX $XX.X as Moving was the XX%. cash next taxes free the recouping associated improvement X the operating onetime negative the sequential payable associated year-over-year. payment less out warrant defined in free the was CapEx, most representing flow relinquishment a cash XX% warrant Altria flow to flow, Backing tax million, onetime QX over the in with QX, of We years. anticipate with Altria relinquishment

cash guidance. the equivalents XXXX cash, less million. of anticipate sum million $X investments, less million of Lastly, will is be the million in months operating still cash as income expense to $XX and million XXXX. change than improvement, year gross the cash to moving and remainder to other the of than outlook fiscal XXXX. short-term The net reduction will fiscal X year defined continued in margin the remainder year also of $XX an for This among in company The driven positive and for of declining be expects net trajectory by of fiscal the We will change anticipated improved efforts remaining $XX interest cash $XX guidance the and decline by, improvement previous XXXX. to flow items, in

we made of lingering guidance announced and cash operating providing guidance market decision revenue in effects conditions and beyond continue driven business in of revenue flow to year to operate previously for the expectations increasing $XXX Canada, extracts. management, revenue full unrest to net and to million the withdraw markets turbulent $XXX by and the edible previous net quarter to expense the stagnant specifically in discontinue The on providing the our competitive the XXXX. target discontinuance U.S. we patient decision political we in, reductions Israel, execute growth activity million While this exit reflects of

the and they I'll revenue. Despite to headwinds, new of into the impact I lot to, an to on business In have for trajectory preparedness addition, we of that, the and Mike's our exchange rates available. With line point Mike. entry our confidence wins markets foreign become top in back share as unfavorable net have turn had a it

you, James. Thank

to We from winning Israel market. products are to our best-in-class hard thanks in Canada borderless bring work the and to all employees

all share which categories Our XX only base position edibles. Spinach market in, are in flower, and brand the brand that holds top a pre-rolled, it participates is

companies change, confident among be additional are share the will as that any regulations to in best-positioned market. We market we capture cannabis

is level X $XX an to million in income in and interest umbrella to with we and want $XXX what additional I the questions, in debt, set generated $XX.X million anticipation with the into under closed cash things million today. and of through and an Cronos remainder to where QX in getting QX We stand $XX million Before income equivalents generate interest XXXX.

in overall, Our Spinach is vape edibles, #X and the Spinach taking has brand XXXX: cannabis #X and in and June #X gaining #X range flower, in in brand, share quickly share; market ground. pre-rolled also for #X the following

Israel, medical which QX. brand, in Naturals, a $X.X revenue net Peace leading posted in in We have million

We MSOs million. books, for one PharmaCann, of currently in $XX on stake U.S. X.X% private have the a largest our

market Altria yesterday, and $XX estate cap partnership to our of facilities an GrowCo, the own million. global $XXX free Cronos Australian in million We not million multiple and traded the worth basis. At QX. interest any they approximately of last which own equity close provider, a and We certainly approximate profitable, encumbrances, leading have $X.X from an as and the negative license $XX.X XX% of payments cannabis we with approximately principal our value in approximately of approximately the on GrowCo medical the paid an of publicly-traded a in have real on million ended XX% of is least, million and end combined a at exclusive with its and quarter GrowCo us stake Cronos balance Vitura, market $XXX We and remaining partners. and QX. a We JV of enterprise in loans between partner,

we king. I'll common have I questions. earnings quarter. that is from more believe had what cash Cronos quarters, last cannabis we cash there's line the the line Xx this competitor, for closest one the theme net While top of the of is achieving, more with than If quarter's quarter wears last short ended given fell few that calls more And that, it's Cronos than than cash open we crown. With the capable

Our line come Azer of [Operator question the from Instructions] Vivien will from Cowen. first

around most we was your could if in about wondering light the of Mike, the the Canadian talk So premium the bit Jones particular, positioning marketplace. I I'm in Canada, Lord little thinking in just a given legacy commentary launch reflecting in of the challenges in market. more anticipated the the positioning you're volatility about brand's Canada, end U.S. how of at and it in on just

great It's Vivien. a question. Thanks, Sure.

So we Jones, we've position end, Lord liked specifically about when the premium think always historical its in at edibles.

well when where look we've knowledge development we -- I few what launch. had think a but being But you and launch. And there's might we've with we with trade a able when job think there generally we to premium to Lord we are edible at do for portfolio, do do together relationships the those are do that careful work be really good fits that done with very being Spinach, with the especially that you're strength of we've overall we little we the decide done, Flower still think in it's with lot tie partners, brand of that the sort to that able incremental We're a We incremental. opportunity, to that over in think the last an see completely spaces years, that opportunity. overall our type Jones difficult, our see the product differentiate, a really given distribution, on category. the look if had differentiating. I have we've leverage also more you of at of that a product sitting the products with

isn't to idea gross products brand the it. Obviously, better don't the would when Spinach good your and a be, U.S. So something launch size tune to like about you trying really products think fine I'm of fit like. what future the at really a in looks premium, going be necessarily perspective, and a excited look profit to where in we place but to the it's from state have pretty market margin that

a to view good of Sure. standpoint, full taking That equity to is a there sure that. of discrete going that preserving distribution makes brand that up make kind From national any more distribution distribution? follow logic just rather on you're sense. And than to

great a question. It's

be provinces a launch. that and like some lot setup there by that I how you think would focus. think more put major same deep and given a it still makes the would that the think you demand each in on still selling when do are end. But right make we've that, of positioning. of the the different of we, that a provinces, I tend you'll the expect better will as the see Obviously, of depend maybe to premium But look know, what amount you province. rollout at to you the on look would sure But got national I population, sense the phased do stores

right. All Instructions] [Operator

This conference As Thank call. there further queue. today's are questions no in concludes the for participating. you

now Everyone, may a great You day. disconnect. have