Oils and New Production Boost Cronos’ Fourth Quarter

As part of its quarterly update to shareholders, Cronos Group (NASDAQ:CRON; TSXV:CRON) reported a growth in sales thanks to cannabis oils and increased production capacities.

On Monday (April 30) the company issued its Q4 and 2017 fiscal financial results which ended on December 31, 2017.

During the quarter, Peace Naturals, Cronos’ wholly owned licensed producer (LP), obtained a dealer’s license, therefore allowing it to export medical cannabis extracts.

Peace Naturals has continued to receive upgrades to its production facilities. A fourth expansion is in the works for Cronos, which the company said it expects to start the work for it in the second half of 2018.

Cronos reported C$1.6 million in sales during the fourth quarter and a total 2017 fiscal year worth C$4.1 million.

The company credited its sales increase during the fourth quarter thanks in part to the bigger production capabilities it now holds, an increase of business-to-business sales to other LPs in Canada and abroad and the increased market share of cannabis oils.

According to Cronos’ documents, cannabis oil sales equaled 21 percent of its domestic sales with consumers. Last December these oils saw a sales growth of 257 percent month-over-month.

The total cost of sales for fiscal 2017 year amounted to a C$1.7 million decrease in expense for the company compared to fiscal 2016. On the other hand, the company’s operating expenses increased to C$9.3 million.

During the quarter, Cronos achieved something no other Canadian licensed producer (LP) had done: the company put its public stock on the Nasdaq Stock Exchange. The announcement caused a new wave of legitimacy to rush across the industry.

Recreational market is on the way and Cronos plans to expand for it

On the Cronos conference call to discuss these results Martin Landry, cannabis analyst with GMP Securities, asked if the company was planning to use that fourth expansion for recreational market purposes and if the company was stashing product to be sold once recreational became available.

Mike Gornstein, CEO of Cronos, answered by first saying most people would like to know when day one of recreational sales will actually be.

“Because of the uncertain timing and because of the need to serve international channels and medical patients we are trying to maintain some level of safety stock,” he explained.

However, Gornstein added the company still wants to guarantee having a turn through of that inventory. “We want to make sure the product is always fresh,” he said.

Gornstein said the fourth building is on track to have plants for July, making it possible for the company to push product in the case legalization in Canada arrives earlier.

“We are not pre-packing inventory when it comes to actually saving because of the lack of clarity on packaging [regulations],” Gornstein explained. The company currently has two iterations of the packaging they expect to use for recreational products and are waiting for Health Canada’s ruling.

As a way to continue its expansion, Cronos raised C$100 million from GMP Securities, BMO Capital Markets and a grouping of Cormark Securities, Beacon Securities Limited, and PI Financial.

Cronos will use C$15 million of the funds for expenses on its international operations and capacity expansion. The rest will be used for the everyday general working purposes.

Investor takeaway

Cannabis analyst Landry issued a report following the capital raised by Cronos earlier this month in which he lowered his target price for the company to C$9 per share.

“With a reinvigorated balance sheet, Cronos has the munitions to increase capacity or make tactical investments,” Landry wrote, according to Cantech Letter.

Landry used this note to upgrade his recommendation on the company from “Hold” to “Buy.” He added Cronos is in a better position in terms of the recreational market in Canada, thanks to a new partnership with US retailer operator MedMen.

Cronos started trading on the Nasdaq on February 27. Since then the stock value has decreased by 10.76 percent. On Monday the company’s American share price closed at US$6.91, representing a 1.62 percent increase from its previous closing price.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

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