Cronos Group, Inc. Q3 FY2024 earnings call

• Flower supply-demand: Over the past year, there's been a rapid increase in demand for flower products. GrowCo's expansion was announced with an additional ~$51 million credit facility, and GrowCo's results were consolidated this quarter. • Brand updates: In Q3, Spinach became the #1 ranked cannabis brand in Canada with 4.8% market share, SOURZ by Spinach captured 17.2% of the edibles market share. Lord Jones edibles are doing well in the chocolate category. Spinach was #1 in the flower category with 6% market share. Vape category: Spinach maintained #4 position with 6.4% market share. Pre-roll category: Saw improvement in market share. • Israel: Team showed remarkable performance with record volumes sold and best revenue quarter in two years. • International: Peace Naturals brand is growing in Germany and UK, with confidence in momentum.

Cronos Group reported consolidated net revenue of $34.3 million for the 2024 Third Quarter, a 38% increase from the prior year period. Net revenue excluding GrowCo was $30 million, representing a 21% year-over-year growth on a stand-alone basis, while GrowCo net revenue was $4.3 million. Gross profit in the third quarter was $3.6 million with an 11% gross margin. Adjusted gross profit was $10.7 million, equating to a 31% adjusted gross margin. Consolidated adjusted EBITDA was negative $6 million, an improvement of $9.2 million from the prior year period. The company ended the quarter with $862 million in cash and cash equivalents. Cash flow from operations was positive $11.6 million compared to negative $0.2 million in the prior year period, and free cash flow was positive $5 million compared to negative $0.5 million in the prior year period.

• 2024 goal: Disciplined approach to OpEx controls is on track to save an incremental $5 million to $10 million for Cronos on a stand-alone basis, tracking toward the high end of that range. However, GrowCo OpEx is expected to offset these savings next year. • Continue to drive top-line growth, improve margins, and expand international presence.

• Policy uncertainties, such as potential changes in US cannabis regulations and geopolitical factors affecting international markets.

Q: Matt Bottomley asked about thoughts on the US market post-election and potential opportunities.

A: Mike Gorenstein said there's still uncertainty with the transition team, expected rescheduling effort to restart, and mentioned being in a good position not relying on US regulatory change due to growth in Canada, Israel, and Europe.

Q: Bill Kirk asked about GrowCo seasonality, resource allocation, and CapEx.

A: Mike Gorenstein said there's little top-line seasonality due to the high-tech nature of the greenhouse. James Holm said CapEx was driven by GrowCo Phase 2 expansion, spent ~$6.5 million, and expected increased CapEx until Phase 2 completion, with a ~$51 million credit facility, semi-even spending over the next few quarters and Phase 2 biomass expected to be online in the second half.