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Report on Business Cannabis Professional Thursday, August 8: Cronos shares rise despite wider loss, New Brunswick retail loss, RCMP to say more about Revelstoke home grow raid

Cannabis Professional’s daily roundup of industry news. View archive here.

Shares of Cronos Group are rising in New York despite the cannabis grower losing more money in Q2 than analysts were expecting, New Brunswick is blaming its retail losses on illegal competition and a lack of supply and the British Columbia RCMP is planning to share more details on its decision to seize three cannabis plants from a home in Revelstoke

– Jameson Berkow

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Cronos Group shares rise despite wider-than-expected Q2 loss

Shares of Cronos Group rose in pre-market trading Thursday after the licenced Canadian cannabis producer announced higher-than-expected second-quarter revenue and margins.

Toronto-based Cronos reported $10.2-million in Q2 revenue early 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.

Cronos was expected to report a major increase in overall losses, however, with adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), estimated to be roughly $10-million in the red for the second quarter. The actual Q2 adjusted EBITDA loss Cronos reported Thursday was $17.8-million.

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 totalling $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.

The company’s Nasdaq-listed shares were trading at US$15.63 apiece shortly before 8am ET on Thursday, more than eight per cent higher than their Wednesday closing price. Cronos executives will be hosting a conference call starting at 8:30am ET to provide more details on the results and answer analyst questions.

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New Brunswick cannabis retailer narrows loss in Q2

Cannabis NB, the recreational cannabis retail store chain owned by the provincial government, lost $2.2-million in its second quarter.

While the loss is less than half of the $4.6-million net loss Cannabis NB reported in Q1, Spokesperson Nicole Picot attributed the latest loss to too much illicit market competition and not enough legal supply.

“Emergence of many illegal dispensaries (up to 40) throughout the province continues to be the biggest risk and threat to a safe, legal cannabis retail industry,” Ms. Picot told Cannabis Professional via email, adding “the continuing stabilization of the portfolio and having access to full product offering is improving but still not at our originally anticipated levels.”

“We continue to add Licensed producers as partners and we continue to try and find new revenue streams while also keeping an eye on our expenses in order to be fiscally responsible,” Ms. Picot said.

Cannabis NB laid off 60 employees in early 2019 after determining a “better understanding of operational needs.”

In neighbouring Nova Scotia, meanwhile, cannabis sales actually prevented the provincial alcohol retailer from losing money in its most recent quarter.

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RCMP to issue further statement on Revelstoke home grow raid

Canada’s national police service is preparing to respond to widespread criticism of a local detachment in British Columbia’s decision to seize three cannabis plants earlier this week.

As The Globe and Mail’s Mike Hager reported on Wednesday, an off-duty member of the Royal Canadian Mounted Police spotted three cannabis plants growing outside a home in Revelstoke, B.C. while participating in a community garden tour. B.C. is the only province with a law requiring cannabis plants to be grown away from public view and as a result, the RCMP executed a search warrant on the home and seized the plants.

No charges have been filed, but according to B.C.'s public cannabis growth law, first-time offenders can face up to $5,000 in fines, up to three months in jail, or both.

“To take out a search warrant and to enter my home seems like a major violation of my privacy and my rights,” homeowner Anna Minten, an alternative health practitioner, told the Globe. “This has been a big wake-up call.”

RCMP Cpl. Mike Esson told the Revelstoke Mountaineer the law enforcement agency would be issuing an incident statement on Thursday that would provide a more detailed response to the criticism.

“Local media communications with the RCMP can be strained at times, especially during significant incidents when there is high public interest,” the Mountaineer reported.

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“The relationship was strained by a demand by Esson at the end of the interview to not publish his statements, saying we didn’t have ‘permission.’ After two days of requests for an interview, it was an unusual demand to make at the end of the roughly 15-minute interview."

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