Cronos Group (CRON) is a Hedgeye Cannabis Best Idea Long.
EVENT DETAILS:
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Topics to be discussed & THE PATH FORWARD:
- Update on the business reorganization and the decision to maintain some operations at the PEACE NATURALS campus
- "Borderless" brand building in Canada & Israel, including the new flower genetic launch in those countries.
- Understanding the strategy that drove Spinach brand to become Canada's #1 gummy brand. How this strategy may apply to the eventual move into the USA
- The outlook for Gross margins in 2023
- Detailed sum of the parts
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About Mike Gorenstein (CEO):
4Q22 Earnings Commentary:
Cronos reported 4Q22 earnings results yesterday and put up net revenue of $22.9M in the quarter, representing a YoY decrease of 11.27% but beast street estimates by 3.56%. Full-year revenue grew 23.5% YoY to $91.9M, which was primarily driven by an increase in net revenue in the ROW segment driven by growth in the Israeli medical market and higher extract sales in the Canadian adult-use market. In constant currency, net revenue in Israel was up 137% in 2022 compared to 2021. Gross profit of $(0.2)M in 4Q22 declined by $2.2M from 4Q21. The decline year-over-year was primarily driven by reduced gross profit in the Rest of World (“ROW”) segment and adjusted EBITDA of $(21.2)M in 4Q22 improved by $6.1M from 4Q21. The improvement year-over-year was primarily driven by decreases in general and administrative expenses, sales and marketing expenses, and research and development expenses primarily due to the Company's strategic realignment. The company had $28.7M in operating expense savings in 2022 and has identified an additional $10 to $20 million in anticipate saving across operating expense categories in 2023.
“2022 was a transformative year for Cronos in which we executed a business realignment, including a cost savings program, while staying laser-focused on continuing to build our portfolio of borderless products,” said Mike Gorenstein, Chairman, President and CEO of Cronos. “We exceeded our originally stated goal by saving $28.7 million in operating expenses in 2022, to right-size our cost structure to be more adaptable to the changing landscape we face globally in the cannabis industry."
The company did miss street expectations for EPS, but the stock was up 3% on the print due to the continued execution of management's plan. This company is cutting costs while investing in its brands, waiting for the regulatory constraints to ease. They ended the year with $878M in cash, which puts them in a great position to be aggressive when the time comes. We are not saying 2023 will be a huge year for Cornos, but we do expect them to continue executing their cost-saving plan and believe that this name is positioned to thrive over the tail duration.
