Only Maryland?
Recreational marijuana could become legalized in five more states if voters approve measures on the ballot Tuesday. Those states are Arkansas, Maryland, Missouri, North Dakota, and South Dakota. Marijuana is currently legal in these states for medical use. Based on recent polling, Maryland appears to be the only state a measure will pass. The other four states are more uncertain. Maryland looks to be a shoo-in for marijuana reform advocates. An MJBizDaily polling trend tracker found that as of the week ended Sept. 27, 73% of Maryland voters were in favor of legalization. For the same week ended, the MJBizDaily tracker found that 48% of Missouri voters support legalization, with 17% undecided. In Arkansas, based on a poll taken in mid-October, support for the measure is only at 50.5%, with 6.5% undecided. In both of the Dakotas, it appears measures are facing an uphill battle. Based on polling data, support for measures in both states has been below 50%. In South Dakota, the ballot question isn't to create a legalized market but to allow possession and home cultivation. Voters approved recreational marijuana use in the 2020 election, but the state supreme court overturned the measure. Voters in North Dakota previously rejected a legalization measure in the 2018 midterm elections.
Cronos 3Q22 Earnings Report.
Cronos Group (CRON) is a Hedgeye Cannabis Best Idea Long.
Let's be honest, the headwinds out of the Canadian cannabis market are brutal. It's like living in Nunavut, the coldest area in Canada. That being said, market position and their absurdly distressed valuation are reasons we are staying long Cronos. Was the stock down close to 10% yesterday, YES. Is there downside risk of 10-20%, YES. But at the same time, this isn't a name that we only see 30%, NOPE. This is a name we could see double, and then double again, and potentially double after that.
The reported 3Q22 net revenue of $20.9 million with the growth being driven by an increase in net revenue in the Israeli medical market and higher extract sales in the Canadian adult-use market and partially offset by a reduction in revenue in the U.S. segment, lower cannabis flower sales in the Canadian adult-use market driven by an adverse price/mix shift and the impact of the weakening Canadian dollar against the U.S. dollar during the current period. Following the decision to begin a phased exit of the wholesale beauty category in the U.S. business in the second quarter of 2022, the Company continued to reduce operating expenses in the U.S. to better align the business structure with the new strategy to focus on adult-use product formats in the direct-to-consumer channel.
They saw a gross profit of $1.2 million which improved by $1.9 million from 3Q21. The increases were partially offset by lower fixed cost absorption due to the timing of wind-down activities associated with our planned exit of the Peace Naturals Campus and lower revenue in the U.S. segment. Adjusted EBITDA in 3Q22 came in at -$21.7 million. The improvement year-over-year was primarily driven by decreases in general and administrative expenses, sales and marketing expenses, and research and development expenses as a result of the Company's strategic realignment and an improvement in gross profit. Capital expenditures of $1.6 million in Q3 2022 decreased by $0.9 million from Q3 2021.
“While executing on our innovation pipeline, we also remain on track for the previously announced $20 to $25 million in operating expense savings for 2022,” continued Mr. Gorenstein. “Importantly, we will seek additional opportunities to deliver more efficiencies in 2023. I am proud and grateful for the efforts our global team has put in this year and believe our leaner and more nimble organization provides a strong foundation for us to capitalize on the many growth opportunities ahead.”
All told, the stock is down because the company's net revenue grew 2.5% YoY, missing street estimates, in the quarter, and saw a net loss of ~$37M compared to a net income of ~$78M last year in the quarter. Net revenue in the U.S. declined ~76% YoY, ROW's net revenue grew ~11.5% YoY, and Israel's net revenue grew ~88% YoY. Operating expenses in the quarter had declined -42.2% Y/Y to $32.16M. The company noted that the decline was mainly due to lower advertising and marketing spending and lower payroll-related costs in the U.S. segment due to its Realignment, reduced costs linked with the timing of Ginkgo milestones, and a cancellation of beauty-focused product development spending in the U.S. segment, and expected credit loss allowance revaluation recognized in the three- and nine-month comparative periods.
Washington Cannabis Trends.
Washington cannabis sales for the month of October came in at ~$44M which is a sequential increase of 1.5% and a 2% YoY growth number. Unit Volumes were up 7.2% YoY and 2.4 sequentially. This represents a 4.9% decline in average cannabis prices for the state of Washington and a 0.8% sequential decline. It is very positive that we are seeing continued unit volume growth in this market and it appears that the pricing pressure is getting less bad.
