Cronos Group Inc. had an increase in their fourth-quarter income which was bolstered by the legalization of cannabis last year, but according to analysts, the Toronto based company missed its estimates and has returned with a quarterly net loss.
Though the licensed cannabis producer has its revenue multiplied to almost $5.6 million in the three month period which culminated with Dec.31, the operating expenses were equally high in magnitude.
Cronos has attributed the soaring expenses to indulging in high-end research and development along with talent accretion and costs of professional and consultation fees.
Mike Gorenstein, chief executive of Cronos, had stated that the company was focusing on developing branded products and intellectual property which would look into the long term value of the company than laying scope on immediate benefits like concentrating on cultivation and manufacturing aspects.
He notes that this focus model has worked in other similar industries like pharmaceuticals and is optimistic it would be a fitting model for the cannabis industry too. In other terms, he breaks down that the company is looking to make cheese rather than nurturing and milking their cows.
The stock of the company in the Toronto Stock Exchange registered $25.85 in trading which is about 5 percent lower than their previous trading of $27.36. But by afternoon, it had picked up to $26.92.
It is also to note that it was the first quarterly earnings of Cronos in the aftermath of cannabis legalization in Canada that had captured sales. Even with cannabis companies trying to cope with the demands of the consumers following its legalization, cannabis products are still coming up short with many shops in the city running out of stock.
Economists and analysts note that Cronos’ revenue for the quarter, which was $5.6 million, is still short of the expected number which was around $10.44 million.
Owen Bennett, an analyst with Jefferies, notes that the income figures were also lower than its counterpart in the last quarter. To illustrate, Canopy Growth Corp. posted quarterly revenues of $83 million while Aurora Cannabis and Hexo Corp. had quarterly revenues of $54 million and $13 million respectively.
He also remarked that even with the recent $2.4 billion equity investment by Altria Group Inc. which aided the valuation of Cronos, the outcome hasn’t been entirely satisfactory. And though Cronos did not vouch for any recreational sales, $2.3 million registered by the company during the quarter is still comparatively lower than the adult use sales slated by its other peers.
“With capacity remaining limiting (in our view), its main recreational brand still receiving muted reviews, and unclear derivative infrastructure, we struggle to see how sales will materially pick up throughout 2019,” Bennett was quoted as saying.
The company posted a net loss of $11.6 million during the three month period, contrasting to the profit of $2.1 million reported one year prior. It is also interesting to note that the operating expenses were $12.4 million which is $2.9 million more than what it posted in the fourth quarter of 2017.
Taking a year in review, Cronos posted net revenue of $15.7 million which is $11.6 million more than their revenue for the year 2017.
Finalizing a $2.4 billion equity investment with Cronos, Altria, a Marlboro maker and the biggest tobacco company, has attained a 45 percent stake of the registered cannabis producer. Under the contract, they can increase their stake to 55 percent by investing another $1.4 billion within the time frame of 4 years.
With this partnership of Altria, Gorenstein reinstates that Cronos’ key vision lays at talent acquirement, product expansion, and research.
Enquired if the investment by Altria puts the idea of developing a cannabis Vape-device in question given the latter’s stake in e-cigarette maker, Juul, Gorenstein stated that cannabinoids were way different from nicotine, but added that Cronos actively looks forward to procuring new advanced ideas and expertise from Altria, which, in turn, can be collaborated with technology of cannabis.
Concluding, Gorenstein stated that apart from the financial support, Cronos would benefit from Altria in accelerating and enhancing product development and commercialization in the global scale.