Cronos Group(CRON) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net revenue of $10.2 million in Q2 2019, a 58% increase from Q1 2019, primarily due to increased sales in CBD oil and dry flower [38] - Adjusted EBITDA loss was $17.8 million in Q2 2019, an increase of 99% from Q1 2019, driven by higher operating costs related to sales, marketing, R&D, and hiring [38][39] - Gross profit before fair value adjustments was $5.5 million for Q2 2019, a 57% increase from Q1 2019 [42] - Operating expenses totaled $26.3 million in Q2 2019, an increase of 89% from Q1 2019, primarily due to higher R&D and marketing expenses [43] Business Line Data and Key Metrics Changes - Kilograms of cannabis sold increased by 43% to 1,584 kilograms in Q2 2019 from Q1 2019, attributed to more production rooms coming online [40] - Average selling price for Q2 2019 increased by 12% to $6.44 from Q1 2019, driven by a favorable mix of pre-rolls and CBD products [41] Market Data and Key Metrics Changes - The company is preparing for the launch of derivative products in Canada, with expectations for significant demand as regulations evolve [54][56] - The U.S. market for hemp-derived CBD is seen as a significant opportunity, with the company acquiring Redwood Holding Group to enhance its presence [31][34] Company Strategy and Development Direction - The company is focused on establishing an efficient global supply chain, developing a diversified sales network, creating disruptive intellectual property, and growing a portfolio of brands [9][11] - The acquisition of a GMP compliant fermentation and manufacturing facility is expected to enhance capabilities for producing cultured cannabinoids [17][20] - The company aims to leverage partnerships, such as with Altria, to enhance brand building and distribution capabilities in the U.S. market [34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term growth potential of the cannabis industry, emphasizing the importance of innovation and responsible marketing [35][68] - The company anticipates that adjusted EBITDA losses will increase in the second half of the year due to ongoing investments in infrastructure and capabilities [39] - Management highlighted the importance of consumer safety and quality in product offerings, particularly in the vaporizer category [90] Other Important Information - The company ended the quarter with approximately $2.3 billion in cash and short-term investments, focusing on scaling the business and evaluating growth opportunities [46] - Capital expenditures for the first half of the year were $28.5 million, with expectations to exceed that amount in the second half [47] Q&A Session Summary Question: Revenue acceleration opportunities and impediments - Management indicated that increased production capacity from Peace Naturals and third-party supply agreements will support revenue growth, with a larger launch of derivative products expected in Q4 [54] Question: Outlook for sub-segments and regulatory approvals - Management expressed excitement about the vaporizer category and anticipated that regulatory clarity would facilitate product launches, although timing may vary [56] Question: Guidance on adjusted EBITDA and spending areas - Increased spending on R&D and marketing in preparation for future growth was highlighted as a key factor impacting adjusted EBITDA [60] Question: Redwood deal and distribution expansion - Management discussed the potential for expanding the Lord Jones brand and the importance of distribution channels, with significant opportunities in Europe [65] Question: FDA regulations and product compliance - Management emphasized confidence in the CBD industry's future and the company's commitment to quality and responsible marketing [68] Question: Pricing expectations and cost of goods sold - Management noted that while unit costs may vary, they expect costs to decrease over time as production methods are optimized [69] Question: Differentiation in the vaporizer market - Management highlighted safety, consistent formulations, and quality materials as key differentiators in the vaporizer category [90]