Cronos to convert some cultivation space, reports revenue growth

Ontario-based Cronos Group reported quarterly revenue of 12.7 million Canadian dollars ($9.6 million), an improvement over the previous quarter’s CA$10.2 million but slightly lower than consensus estimates.

The cannabinoid company’s adjusted EBITDA loss widened quarter-over-quarter to CA$24 million.

Cronos said it shipped 3,142 kilograms (6,927 pounds) of cannabis in the third quarter, double the amount moved in the second quarter.

However, most of the company’s sales came in the licensed producer-to-licensed producer market.

Cronos also announced the conversion of some cultivation space to allow for the production and sale of extracts, edibles and topicals.

The move is part of a realignment of its key performance indicators.

“Certain facilities at the Peace Naturals Campus will be partially repurposed from cultivation to provide for additional R&D activities, production and manufacturing of derivative products, and will allow for increased vault and warehousing capabilities,” the company noted.

Cronos also said “its strategy of establishing an efficient global supply chain has grown to include a number of third-party supply, tolling and contract manufacturing arrangements.”

However, the company said it will no longer disclose its estimated cultivation capacity by facility.

“Cronos has always maintained an asset-light approach to production capacity, and you’ve often heard us say our business model is not to be the farmer,” CEO Mike Gorenstein said in a conference call with investors.

“We see sustainable long-term value in the areas of research and development and the marketing of innovative branded products. We firmly believe the best way to create value to the supply chain is by working with contract farmers and suppliers to support our capacity needs, versus full vertical integration.”

The company announced that it intends to launch hemp-derived CBD tincture products under the brand Peace+ in about 1,000 retail stores in the United States.

Redwood Holding Group, recently acquired by Cronos, will manage the launch using Altria’s sales network before expanding distribution more broadly.

The company also said that construction of Cronos Israel’s greenhouse was completed in the first half of this year, and a manufacturing facility was completed in the third quarter.

The subsidiary is beginning the process to become Good Manufacturing Process (GMP) certified, which would allow for exports to the European Union. That process is expected to last throughout 2020.

Earlier this month, Cronos Australia went public on the Australian Securities Exchange (ASX: CAU). Cronos Group still controls about 31% of the Australian company.

Cronos Group trades as CRON on the Toronto Stock Exchange and the Nasdaq
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