Cronos Group, Inc. Q1 FY2025 earnings call

• Cronos' goals for 2025 remain focused on leading the market in product innovation, quality, distribution, and leveraging strengths into leading positions in global cannabis markets. - Brand updates: Spinach brand was the second most popular in Canada with 4.6% market share; SOURZ by Spinach line had over 23% of the gummy category; Lord Jones brand was number 3 chocolate brand in Canada with 9.6% market share and led the hash-infused pre-roll segment; Peace Naturals brand in Israel was the number 1 flower brand with well over 20% market share. - International expansion: Peace Naturals portfolio in Israel grew, and Cronos continued to gain traction in markets like Germany and the UK. - GrowCo expansion: The upcoming completion of the GrowCo expansion would unlock significant additional capacity in the second half of 2025 to address supply constraints and strengthen market share.

Cronos Group reported consolidated net revenue of $32.3 million for the 2025 first quarter, a 28% increase from the prior year period. Excluding GrowCo, net revenue was $29.4 million, representing a 16% year-over-year growth. GrowCo's net revenue for Q1 2025 was $2.9 million. Gross profit in the first quarter was $13.7 million, equating to a 43% gross margin. After adjusting for the inventory step-up from the GrowCo transaction, the adjusted gross profit was $14.3 million with a 44% adjusted gross margin. The Israel business of Cronos saw revenue grow by over 40% year-over-year, and Israel sales contributed nearly 30% of the consolidated net revenue in the period. The Spinach brand ended the quarter as the second most popular in Canada with 4.6% market share. In edibles, Cronos held the number one position with 20.7% market share. In the vape category, Cronos achieved a 5.7% overall share and 7% share for vape cartridges specifically. The Lord Jones brand maintained its position as the number 3 chocolate brand in Canada with 9.6% market share and was the category leader in the hash-infused pre-roll segment with a 30.1% market share.

• Focused on successfully bringing the GrowCo expansion online in the remainder of 2025 to address current supply constraints. - Aimed to realize operational efficiencies and operating leverage, pursue international expansion in markets offering the strongest ROI, and maintain disciplined cost management. - Announced the Board's authorization of a $50 million share repurchase program. - Expected quarterly operating expenses in the balance of 2025 to be higher than Q1 2025 levels but remain relatively flat year-over-year. - Blended adjusted gross margin between Q4 2024 and Q1 2025 was more indicative of the current underlying margins, and the GrowCo expansion was expected to be neutral to accretive to gross margins over time though it would take time to ramp up.

• Israel anti-dumping allegations: Israel's Ministry of Economy and Industry announced proposed tariffs on Canadian cannabis including Cronos' imports, which were opposed but the minister might move forward, risking impacting patients and reducing choices. - Supply constraints: Strong consumer demand for Spinach flower products led to supply constraints, presenting a near-term challenge.

Q: Is the shortage more specific to Cronos product and demand or is it a broader industry-wide phenomenon right now as well?

A: Anna Shlimak said it's about having the right product to supply the market and that there was a shortage of good product in the market, related to investing in the GrowCo expansion to supply more leading products globally.

Q: How does underlying gross margin change maybe when the GrowCo expansion is complete?

A: Anna Shlimak said the blended rate between Q4 and Q1 was more indicative for the rest of the year, and the GrowCo expansion was expected to be neutral to accretive to gross margins as the expanded cultivation area would allow better leverage of fixed costs at the facility though it would take time to ramp up.