Cronos Group reported a surprise profit based on generally accepted accounting principles, sending its shares abruptly higher Tuesday morning, although revenue fell short of expectations.
GAAP earnings showed a profit of 53 Canadian cents a share, well above estimates calling for a loss of 5 Canadian cents. MKM Partners analyst Bill Kirk chalked that up to noncash accounting gains rather than from marijuana sales.
Still, Cronos stock (ticker: CRON) was up 4% to $8.40, while the S&P 500 index was up 0.4%.
Cronos sold about 3.1 metric tons of marijuana in the third quarter, but its average revenue per gram fell to 3.75 Canadian dollars, or US$2.84, from C$6.44 in the previous quarter. Revenue of C$12.7 million fell short of consensus estimates calling for C$13.7 million. The company reported a loss in earnings before interest taxes, depreciation, and amortization of C$23.9 million, larger than Wall Street expected.
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Though the company’s revenue grew by C$2.5 million quarter over quarter, the Ebitda loss widened by C$6.2 million, Kirk noted. He doesn’t think profitability will improve in the near term, given high inventory levels in provincial stores and pricing pressures.
The company also said it is introducing a CBD brand in the U.S. called PEACE+, which will be sold in a test market of 1,000 stores.
“We consider its US CBD opportunity a potential driver of upside vs. current revenue expectations in 2020,” PiperJaffray analyst Michael Lavery wrote in a note Tuesday morning.
A note from Eight Capital’s Graeme Kreindler and colleagues called the news negative, given lower-than-expected results. But they still feel it is one of the best-capitalized Canadian growers, given that it ended the quarter with C$1.9 billion in cash, cash equivalents and short-term investments.
Write to Connor Smith at connor.smith@barrons.com
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