Cronos Group (NASDAQ: CRON) issued its fourth-quarter report before the market opened on Tuesday, but it seemed like the company didn't want to highlight those results.
The first reference to any financial numbers didn't come until the 28th paragraph in Cronos Group's press release announcing its Q4 results. And that press release didn't even include the company's net loss for the quarter. You had to go to page 18 of Cronos Group's regulatory filing to find that it lost 11.8 million Canadian dollars in Q4.
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While it might have required a little digging, we know that Cronos Group's Q4 revenue soared (up 248% to CA$5.6 million) and its bottom line deteriorated because of major spending increases. However, there are still four big questions for Cronos Group that remain unanswered.
1. What additional moves will Cronos make to expand its production capacity?
CEO Mike Gorenstein attempted to downplay the importance of production capacity to his company's success in Q4 conference call. He said that "our business model is not to be a farmer," and added that Cronos prefers making the cheese rather than milking the cows.
Of course, the problem in the cannabis industry right now, to use Gorenstein's analogy, is that there's not enough milk to make all the cheese customers want. Sales for the major Canadian marijuana producers are constrained by their production capacity. That's why most of Cronos Group's peers highlight their ongoing efforts to boost production.
Cronos can currently grow around 40,000 kilograms of cannabis on an annualized basis. The company's biggest initiative to increase its capacity is its Cronos GrowCo joint venture, which is expected to produce around 70,000 kilograms per year, but that added production won't be available until 2020.
The company's acquisition of Colombia-based NatuEra should also increase its capacity, but plans for the greenhouse aren't finalized yet.
When Cronos Group announced its partnership with Altria in December, it mentioned increasing production capacity as one of the key benefits of the deal. So far, though, it's unknown what additional moves the company might make to achieve that goal.
2. How much is the company actually selling in the recreational and international markets?
Unsurprisingly, Cronos Group attributed much of its revenue growth in the fourth quarter to the Canadian adult-use recreational marijuana market. But the company didn't provide any details on exactly what its sales were in that market.
Cronos also has a partnership with Pohl-Boskamp to distribute medical cannabis products in Germany. The company didn't reveal any details about its international sales for the fourth quarter, either.
Why didn't Cronos provide the sales breakdowns for the recreational vs. medical markets in Canada and international sales? When directly asked about this in the Q4 conference call, Gorenstein replied that the company might provide more details in the future but wouldn't do so for now. Of the four other largest Canadian marijuana producers by market cap, only Tilray chose to not disclose its recreational marijuana and international sales results.
3. What are Cronos Group's plans for the U.S. hemp market?
Canopy Growth announced in January that it is building a large-scale hemp production facility in New York state. Tilray recently acquired Manitoba Harvest, the world's largest hemp food company that boasts a major U.S. presence. We still don't know what Cronos Group's plans are for the U.S. hemp market.
Gorenstein faced a question on this subject in the Q4 conference call, too. He first reminded listeners about Cronos Group's original strategy to enter the U.S. market when marijuana is legal at the federal level and then talked about how the passage of the farm bill in the U.S. would translate to new opportunities. Ultimately, though, Gorenstein revealed only that Cronos would closely watch the U.S. hemp market but wouldn't "telegraph our strategy."
4. Is it ready for the Canadian cannabis edibles market?
Many investors eagerly await the opening of the Canadian market for cannabis edibles, beverages, and concentrates used in vaping, which is expected to happen in October 2019. Gorenstein was asked by an analyst during the conference call about the company's readiness to enter the cannabis edibles market later this year. His response: "We are hopeful."
Gorenstein did go on to elaborate that exactly how the regulations are finalized and implemented are out of Cronos Group's control, and noted that there are often delays when new regulatory framework is rolled out quickly.
Contrast that to Aurora Cannabis CEO Terry Booth, who stated recently that his company would be a first-mover in launching new products for the edibles market. Canopy Growth co-CEO Bruce Linton expressed similar confidence in his company's latest conference call, stating: "If it's legal, we'll have it." Their responses make Gorenstein's "hopeful" comment seem at least a little unsettling.
One exclamation point
While there are definitely several question marks for Cronos Group after its quarterly update, there's also at least one big exclamation point. The closing of the Altria investment in March gives Cronos a huge cash stockpile of around $1.8 billion, putting it in a strong position for the future.
The company has already used some of the proceeds from the Altria deal to fully pay off its credit facility with the Canadian Imperial Bank of Commerce and the Bank of Montreal. Gorenstein said that Cronos Group's top two priorities in using its newfound wealth from the Altria investment were "talent acquisition" and expanding product research and development through organic investment and external ventures.
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