Cronos Q3 F18 Rundown Sept 30, 2018

Open up the financials and MDA and follow along.


Cronos evidenced a $0.4 million or 11% in crease in sales to $3.8 million.  They have some new disclosure that wasn’t available last Q, so I cannot track down the exact location of increase but I believe it to be all oil related.  Oil now constitutes 29% of overall sales.

International sales make up $0.6 million of sales or 15% of mix. Again, new disclosure so no comparative.

Sale price per gram increased to $7.32 from $7.12 likely due to higher oil sales.

Cost of goods sold

Cronos 31-Mar-18 30-Jun-18 30-Sep-18
Gross Margin B4 GoB 46.8% 63.1% 55.1%

  Cronos Gross Margin showed a decrease QoQ.  I would guess some compression was due to Rec sales  [“Guess” because they do not do a QoQ commentary].  Absolute $ of gross margin actually decreased by $68k despite the higher sales. “Onboarding new production facilities” was the reason given for the YoY change of 55% vs 65% in F2017.

With B4 coming into production they may get lift once fully harvesting.

Given Cronos large reliance on Indoor Growing and Ontario’s energy rates, I would not expect GM to surge without new higher value formats and until the Mucci JV in Kingsville is in production in late 2019.

FVI plus Production costs does come in under sales at $2.9 million versus sales of $3.8 million, so they are leaving some profit in for at sales versus at harvest.  FVI per gram sold is $2.94 a stark reduction from last Q of $5.50. Q2F18 FVI plus production costs was greater than sales. 

MDA shows cost of sales b4 GoB at $3.28/gram.  Quite high compared to other LP’s.  Again, B4 coming on line might help move that over time.

Operating Expenses

Cronos 31-Mar-18 30-Jun-18 30-Sep-18
Opex as % of sales 139.4% 172.5% 185.4%  

Opex has shown the same upwards ramp leading to Rec as other LP’s, but not as drastic as some.  Opex was $7 million as compared to $5.9 million last Q.  G&A increase of $0.6 million was the largest contributor.

Selling expense at 16% of sales, a 5% increase QoQ, is low compared to peers. Selling increase $0.2 million QoQ.

While G&A at 128% of sales, a 4% increase QoQ, is the highest amongst peer group.

SBC on a TTM basis is 22% of Sales, tied with CannTrust as lowest amongst peers. For the Q SBC increased $0.3 million

Net Operating Profit net of Gain on Bios, was negative $4.9million a slide for negative $3.7 million last Q.

Cronos 31-Mar-18 30-Jun-18 30-Sep-18
Sales $2,945 $3,394 $3,760
Gross Margin without IFRS $1,378 $2,140 $2,072
Opex $4,106 $5,856 $6,971
Net Op Profit without IFRS -$2,728 -$3,716 -$4,899
Adj EBITDA -$1,414 -$2,191 -$3,031
Implied B/E Sales $8,775 $9,288 $12,650
Sales Gap to B/E Sales $5,830 $5,894 $8,890
Sales Gap to B/E EBITDA $3,022 $3,475 $5,500
Sales for B/E EBITDA $5,967 $6,869 $9,260

Adjusted EBITDA continued its slide as the drop in absolute GM and increase in cash OPEX contributed to the decrease.

A decrease in GM % and increase in OPEX leads to an increase in Sales required to Breakeven on a quarterly basis to $13 million or a gap of $9 million, 2.34 times current sales.

Sales gap to Breakeven EBITDA also widened to $5.5 million with Breakeven EBITDA occurring at $9.3 million in Q sales.  GM % reduction is the biggest culprit.


Balance Sheet Items of Note

  • Cash decreased by $48 million to $42 million. While they have availability on construction loan, this is low and they will need to float payment terms for Rec
  • $6 million in prepaid expenses… I believe CC said it was payment for construction
  • Bio assets fell by $1.3 million QoQ to $5.6 million. But plants on the floor has increased substantially to 25k from 14k.  This is a factor of planting B4 but without the plants being in latter stage development [where GoB increases] this number s low for the Q.
  • Inventory increased to $15 million from $12.3 million
    • Dry KG of cannabis is up from 1,166 kgs to 2,044 kgs
    • Oil is up from 350 liters to 608 L
    • They have begun to provide Finished Goods figures this Q, so in future I should be able to determine if throughput is greater than sales.
    • I couldn’t find a harvest number. Last Q was 1,145 kgs. If someone finds it, please let me know.
  • $34 million increase in PPE was likely the biggest drain on cash reserves.
  • Nothing huge happening on Liability and Equity side.


That’s all I got.






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