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Mike Gorenstein, Cronos Group's founder and CEO, speaks during an interview in New York on Sept. 4, 2018.

BRENDAN MCDERMID/Reuters

Part of cannabis and investing

Shares of Cronos Group Inc. fell in Thursday trading after the licensed Canadian cannabis producer announced a wider-than-expected second-quarter loss as costs and expenses rose.

Toronto-based Cronos reported $10.2-million in quarterly revenue before markets opened Thursday, roughly triple the total income generated during the same period in 2018 and well above analyst expectations of $7.3-million. Gross margins came in at 53 per cent, in line with Bay Street estimates.

But Cronos’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), revealed a loss of $17.8-million, more than the $10-million loss expected by analysts.

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The company’s TSX-listed stock was trading at $18.51 per share shortly after 12pm ET on Thursday, down 3.4 per cent from its Wednesday closing price.

Costs per gram came in at $3.01 for Q2, representing a 14 per cent increase from $2.63 per gram in Q1, which Cronos blamed on higher processing costs as the company focused more on cannabis oil production.

Other costs at the company soared, with sales and marketing expenses coming in at $5.4-million compared to $364,000 in Q2 of 2018, research and development spending totaling $3.1-million in the quarter versus nothing during the same period last year and administrative expenses nearly quadrupled on a year-over-year basis to $15.2-million.

Earlier this week, Cronos announced a US$300-million mostly cash-based deal to acquire Redwood Holdings, which manufactures, markets and distributes hemp-derived CBD products under the brand Lord Jones. In addition to an ecommerce platform in the United States, Lord Jones products are also sold in 170 Sephora locations.

Late last year, Marlboro cigarette producer Altria Group invested $2.4-billion in Cronos in what remains among the largest-ever transactions in the legal cannabis space. Cronos continues to retain the vast majority of that cash and executives did not provide any specific spending plans in a Thursday morning conference call with analysts.

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