Cronos Group Inc. (CRON) reported its first-quarter 2025 earnings, revealing an earnings per share (EPS) of $0.02, surpassing the forecast of $0.01. Despite missing revenue expectations with $32.26 million against a projected $34.86 million, the company’s stock climbed 7.57% in pre-market trading, reaching $1.99. According to InvestingPro analysis, Cronos currently appears undervalued, with a "GREAT" overall financial health score of 3.38 out of 5. This mixed performance reflects strong cost management and operational efficiencies, countering concerns over revenue shortfalls.
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Key Takeaways
- Cronos achieved a 100% EPS beat, signaling effective cost control.
- Revenue grew 28% year-over-year but missed forecasts by 7.5%.
- Pre-market stock rose 7.57% amid positive investor sentiment.
- Operational improvements highlighted by a significant gross margin increase.
- Market supply constraints remain a challenge for future growth.
Company Performance
Cronos Group demonstrated robust financial performance in Q1 2025, with a 28% year-over-year increase in net revenue to $32.3 million. The company’s 5-year revenue CAGR stands at an impressive 38%, while maintaining a moderate P/E ratio of 16.86. The company’s focus on operational efficiencies resulted in a gross margin improvement to 43%, up from 18% in the same quarter last year. Despite missing revenue expectations, the EPS beat indicates strong cost management and strategic execution.
Financial Highlights
- Revenue: $32.3 million, up 28% YoY
- Earnings per share: $0.02, beating forecasts by 100%
- Gross profit: $13.7 million, with a 43% gross margin
- Adjusted EBITDA: $2.3 million, a $13 million improvement from the prior year
Earnings vs. Forecast
Cronos exceeded EPS expectations, reporting $0.02 against a forecast of $0.01, marking a 100% beat. However, the company missed its revenue forecast of $34.86 million, achieving $32.26 million, a shortfall of approximately 7.5%.
Market Reaction
Cronos’ stock experienced a 7.57% increase in pre-market trading, closing at $1.99. This positive movement reflects investor confidence in the company’s operational improvements, despite revenue shortfalls. With a beta of 1.53, the stock shows higher volatility than the market average, while analyst targets range from $1.69 to $2.18. The stock remains closer to its 52-week low, suggesting potential for further recovery.
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Outlook & Guidance
Cronos is focused on expanding its Groco facility and increasing operational efficiencies. The company anticipates continued revenue growth and margin improvements through strategic initiatives and international market expansion.
Executive Commentary
CEO Mike Gorenstein remarked, "We remain focused on leading the market in product innovation, quality, and distribution." He emphasized the company’s readiness to navigate the evolving global cannabis industry. CFO Anna Schleimack highlighted, "We’re seeing a shortage of good product in market," pointing to supply constraints.
Risks and Challenges
- Supply chain issues could impact product availability and revenue growth.
- Market saturation in key regions may limit expansion opportunities.
- Macroeconomic pressures could affect consumer spending and demand.
- Regulatory changes in international markets pose potential challenges.
- Dependence on a few key products might affect revenue diversification.
Q&A
Analysts inquired about product shortages and gross margin expectations. The management clarified that the Groco expansion is expected to be neutral to accretive to gross margins, addressing concerns about future profitability.
Full transcript - Cronos Group Inc (CRON) Q1 2025:
Jacinda, Conference Operator: Good morning. My name is Jacinda, and I will be your conference operator for today. I would like to welcome everyone to the Cronos Group twenty twenty five First Quarter Earnings Conference Call. Today’s call is being recorded. At this time, I would like to turn the call over to Terry Doucette, Cronos General Counsel and Corporate Secretary.
Please go ahead.
Terry Doucette, General Counsel and Corporate Secretary, Cronos Group: Thank you, Gisenda, and thank you for joining us today to review Cronos’ twenty twenty five first quarter financial and business performance. Today, I’m joined by our chairman, president, and CEO, Mike Gorenstein, and our CFO, Anna Schleimack. Cronos issued a news release announcing our financial results this morning, which is filed on our EDGAR and SEDAR profiles. This information and the prepared remarks will also be posted on our website under Investor Relations. Before I turn the call over to Mike, let me remind you that we may make forward looking statements and refer to non GAAP financial measures during this call.
These forward looking statements are based on management’s current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward looking statements. Factors that could cause actual results to differ materially from expectations are detailed in our earnings materials and our SEC filings that are available on our website, by which any forward looking statements made during this call are qualified in their entirety. Information about non GAAP financial measures, including reconciliations to U. S. GAAP, can also be found in the earnings materials that are available on our website.
Lastly, we’ll be making statements regarding market share information throughout this conference call, and unless otherwise stated, all market share data is provided by Hifyre. We will now make prepared remarks, and then we’ll move to a question and answer session. With that, I’ll pass it over to Cronos’ chairman, president, and CEO, Mike Orenstein.
Mike Gorenstein, Chairman, President, and CEO, Cronos Group: Thank you, Terry, and good morning, everyone. Our goals for 2025 remain unchanged from the strategic objectives that have always guided Kronos. We remain focused on leading the market in product innovation, quality, and distribution, and then leveraging these strengths into leading positions in cannabis markets globally. As we look ahead, we see opportunity for continued strong revenue growth, and we aim to deliver additional margin improvement over time through operating leverage and continued cost discipline. Now turning to brand updates.
Our spinach brand ended the quarter as the second most popular brand in Canada with 4.6% market share, demonstrating category leading performance across multiple formats. In the flower category, spinach slipped to the number three spot with market share of 5.1. Strong and growing consumer demand for our flower products have led to supply constraints that have restricted growth for that spinach brand, but we believe this restricted growth to be temporary. These shortages reflect the exceptional popularity of our flower offerings. And while this pent up demand presents a near term challenge, we are taking deliberate steps to ensure we meet it swiftly.
Our team is carefully allocating existing inventory to maintain the availability of our most sought after products across markets. The upcoming completion of our Groco expansion will mark a pivotal moment, unlocking significant additional capacity in the second half of twenty twenty five that will allow us to capitalize on this demand. We remain steadfast in our commitment to deliver the cannabis industry’s best flower products, and our strategic investment in Groco positions us to strengthen our market share as supply becomes available. Our lead in edibles remain strong, where we hold the number one position with 20.7% market share. The Sours by Spinach line continues to set the standard, capturing over 23% of the gummy category.
We’ve strengthened this lead with new innovative offerings, fully blasted gummies featuring 10 THC and rare cannabinoids, including three new standout flavors, mango lime with CBC, peach passion fruit, CBN and CBD, and strawberry watermelon with CBG. In the vape category, we’ve achieved the number four position overall with 5.7% share, while our vape cartridges specifically rank even higher at number three with 7% share. We successfully extended our winning sours flavor profiles into the vape category with three new rare cannabinoid infused offerings. Mango kiwi haze with CBC, peach passion fruit kush with CBN, and strawberry watermelon with CBG. Our premium Lord Jones brand continues to demonstrate the category specific strengths across the Canadian market.
The brand maintains its position as the number three chocolate brand with 9.6% market share, solidifying its status as a leader in the confectionery space, and recently expanded its lineup in January with the launch of a fudge brownie bite featuring a THC, CBN, and CBD ratio. The Lord Jones brand is the category leader in the hash infused pre roll segment with an outstanding 30.1% market share. This number one position highlights our ability to create differentiated high quality products that resonate with discerning cannabis consumers. The performance across multiple categories demonstrates Lord Jones’ ability to achieve premium positioning while delivering strong results in specialized market segments. Moving to the international side of the business, the Peace Naturals brand and product portfolio continues to grow.
The Peace Naturals portfolio in Israel was overhauled with a revised pricing strategy with focused cultivars that meet the needs of our patient base. Peace Naturals ended the quarter as the number one flower brand in Israel with well over 20% market share according to pharmacy data collected by Kronos. New launches in q one included two new PEACE Naturals strain specific cannabis oils designed to deliver the full benefits and essence of each strain. We’ve been investing in building our team and business in Israel since 2017, and through consistent delivery of high quality products that leverage our extensive investments in genetics, breeding, cultivation, and R and D, we’ve earned the trust of Israeli patients and pharmacies, and attained the leading share position in the market. The Cronos Israel team performed remarkably in Q1, with the business growing revenue by over 40% year over year and gaining significant share within a market that remains highly competitive and dynamic.
Q1 was a record for for Cronos Israel from a sales volume, revenue, and margin perspective, with Israel sales contributing nearly 30% of our consolidated net revenue Following investigation into anti dumping allegations, which Cronos strongly believes to be baseless and firmly disputes, on April 10, Israel’s ministry minister of economy and industry announced that Israel would impose tariffs of up to a 65% on Canadian cannabis, which would include Cronos’ imports. The proposed tariffs were opposed by the Ministry of Health and the Competition Authority, and on April 25 were vetoed by Israel’s Minister Of Finance. Despite the veto, on April 29, the Minister of Economy and Industry publicly stated that he would move forward to seek final approval for the tariff. This is without precedent and contrary to the law, and it risks severely impacting patients and IDF veterans by raising prices, limiting choices for patients, and reducing quality.
We are committed to Israel, which we have been investing and operating in for almost a decade, building a robust supply chain in a competitive medical market. As the top medical provider in Israel, this was a record quarter across the P and L, which stands in sharp contrast with allegations that we are dumping. At Kronos, we believe in a fair and equitable market structure that benefits Israel’s Medical Cannabis patients, and we will continue to advocate for them in opposing these tariffs as patients are counting on us and our products. Our international expansion continues to gain traction across key markets. In Germany, we expect to see further growth as our Groco capacity expansion comes online, and we continue to build demand and momentum in The UK market.
Looking ahead to the remainder of 2025, we’re focused on successfully bringing the Groco expansion online to address current supply constraints, continuing to realize operational efficiencies and operating leverage, pursuing international expansion in markets offering the strongest ROI, and maintaining our disciplined approach to cost management. Cronos maintains the strongest balance sheet in the industry with no debt and cash equivalents and short term investments of $838,000,000 reinforcing our ability to invest in growth, innovation and global expansion. And today, we announced our Board’s authorization of a $50,000,000 share repurchase program. Now I’ll turn it over to Anna to walk you through the first quarter financials.
Anna Schleimack, CFO, Cronos Group: Thanks, Mike, and good morning, everyone. I will now review our first quarter twenty twenty five results, which include the consolidation of Groco’s financials. The company reported consolidated net revenue of $32,300,000 a 28% increase from the prior year period with constant currency net revenue growth higher at 33% year over year. Net revenue for Cronos excluding Groco was $29,400,000 representing a 16% growth year over year or 21% year over year growth on a constant currency basis. Groco’s net revenue was $2,900,000 for Q1 twenty twenty five.
Overall, the consolidated net revenue increase was driven by higher flower sales in Israel, higher flower sales internationally and higher extract sales in Canada. Gross profit in the first quarter was $13,700,000 equating to a 43% gross margin. Adjusting for the impact of the inventory step up from the Groco transaction that was recorded into cost of sales, Our adjusted gross profit was $14,300,000 equating to a 44% adjusted gross margin. During Q1 twenty twenty five, we sold through the last of the inventory that was stepped up to fair market value through the purchase accounting adjustment. So gross profit in future quarters will not be impacted by this adjustment.
The 44% adjusted gross margin in Q1 twenty twenty five is a significant improvement from 18% in Q1 twenty twenty four. This improvement is driven by regional mix shift, lower direct costs and production efficiencies as well as by timing benefits which flattered Q1 twenty twenty five gross margin. Given these timing benefits, we would view the blended adjusted gross margin over Q4 twenty twenty four and Q1 twenty twenty five as more indicative of the current underlying margins of the business. Operating expenses excluding restructuring costs and impairment charges were $17,300,000 in the quarter, a year over year decline of nearly $1,000,000 primarily due to lower sales and marketing costs. A reversal in previously accrued bonuses benefited reporting operating expenses in the quarter and a portion of the OpEx reduction was timing related due to the cadence of sales and marketing activations and R and D activities.
As a result, for the balance of 2025, we expect quarterly operating expenses to be higher than Q1 twenty twenty five levels, but to remain relatively flat on a year over year basis. Adjusted EBITDA in the first quarter was $2,300,000 representing a $13,000,000 improvement from the prior year period. The improvement was driven by increased revenue, significantly higher adjusted gross margins and reductions in operating expenses. While a portion of the gross margin improvement in the quarter was related to the underlying business improvements, a portion was timing related. Reduced operating expenses are partly due to our ongoing efficiency measures, but also partly a reflection of the expense timing benefits and the bonus accrual reversal.
Turning to the balance sheet and cash flow statement. The company ended the quarter with $838,000,000 in cash and cash equivalents and short term investments, down 21,000,000 from Q4 twenty twenty four, driven primarily by an approximately $50,000,000 net working capital outflow and CapEx spend of approximately $50,000,000 partially offset by positive cash flow from operations before changes in working capital of approximately $12,000,000 The majority of CapEx is related to the previously announced facility expansion at Groco. CapEx spend will remain elevated for the next couple of quarters as the Groco expansion continues and is completed, after which CapEx levels are expected to normalize lower. In summary, we posted a strong quarter and with our large scale capacity expansion at Groco, we are well positioned for continued medium and long term improvement in our operating fundamentals, notwithstanding shorter term headwinds due to supply constraints and gross margin and OpEx normalization over the next couple of quarters. With that, I would like to hand it back to Mike for a brief comment before going into Q and A.
Mike Gorenstein, Chairman, President, and CEO, Cronos Group: Thanks, Anna. As we look ahead, we remain relentlessly focused on three strategic pillars: groundbreaking innovation, operational excellence, and disciplined global expansion. Our core business is performing well, with market and category leadership positions that demonstrate the strength of our brands and execution, and our team has built incredible momentum going into 2025. As we move through this year, we’re particularly excited about several catalysts. Our upcoming capacity expansion, new product launches, and growth in international markets.
With our best in class balance sheet and market leading products, we have the pieces in place to navigate and succeed within the rapidly evolving global cannabis industry. With that, I’ll open the line for questions.
Jacinda, Conference Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. I’m showing no questions at this time. Thank you for your participation in today’s conference.
Oh, I see a participant has now entered into the queue. Bill Kirk at Roth, your line is open.
Bill Kirk, Analyst, Roth: Hey, thank you. Good morning, everybody. Mike, you talked a bit about product shortages and that’s not an idea we’ve had to think about much in the years since Canada legalized adult use. So I guess my question is, is the shortage more specific to Kronos product and demand? Or is it a broader industry wide phenomenon right now as well?
Anna Schleimack, CFO, Cronos Group: Hi, Bill. Apologies. I think Mike accidentally dropped the call. Hopefully, he’ll dial back in. But I think it’s really about having the right product to supply the market.
And you’re I think you’re seeing a shortage of good product in market. And that’s something, you know, we’re dealing with and one of the biggest reasons for investing in the Groco expansion. And those leading genetics, leading products that we have in Canada and Israel, we’d like to supply more of globally.
Bill Kirk, Analyst, Roth: Okay. And then Anna, I think you said that underlying gross margin is more likely a blend of 1Q and How does underlying gross margin change maybe when the GroCo expansion is complete?
Anna Schleimack, CFO, Cronos Group: Yes, that’s correct. So blended rate between Q4 and Q1 is what we expect to see for the rest of the year. I think all else being equal, expansion of Cronos GrowCo is expected to be neutral to accretive to gross margins as the expanded cultivation area, we’re incrementally going be able to better leverage fixed costs at the facility. But, you know, it will take us, you know, time to ramp and kind of hit our stride there as well.
Bill Kirk, Analyst, Roth: Okay, perfect. Thank you.
Anna Schleimack, CFO, Cronos Group: Thanks, Al.
Jacinda, Conference Operator: Thank you. This concludes the question and answer session.
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