Cronos Group (CRON) Q2 2026 earnings call transcript

Good morning. My name is Haley, and I will be your conference operator today. I would like to welcome everyone to Cronos' 2026 second quarter conference call. Today's call is being recorded. At this time, I would like to turn the call over to Harrison Aaron, Senior Director of Investor Relations and Corporate Development. Please go ahead.

Thank you, Haley, and thank you for joining us today to review Cronos' 2026 Q2 financial and business performance. Today, I am joined by our chairman, president, and CEO, Mike Gorenstein, and our CFO, Anish Lee Mack. Cronos issued a news release announcing our financial results this morning, which is filed on our Edgar and Cedar profiles. This information and the prepared remarks will also be posted on our website under Investor Relations.

Before I turn the call over to Mike, let me remind you that we may make forward-looking statements and refer to non-GAAP financial measures during this call. These forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements.

Factors that could cause actual results to differ materially from expectations are detailed in our earnings materials and our SEC filings that are available on our website, by which any forward-looking statements made during this call are qualified in their entirety. Information about non-GAAP financial measures, including reconciliations to U. S. GAAP, can also be found in the earnings materials that are available on our website.

Lastly, we will be making statements regarding market share information throughout this conference call, and unless otherwise stated, all market share data is provided by HiFire. We will now make prepared remarks, and then we'll move to a question and answer session.

With that, I'll pass it over to Cronos' Chairman, President, and CEO, Mike Gornstein.

Thanks, Harrison. Cronos delivered a stellar second quarter, organically achieving records across net revenue, gross profit, and adjusted EBITDA. as our borderless product strategy continues to gain momentum across each region in which we operate. Yesterday, the Trade Levy's Commissioner of the Israeli Minister of Economy and Industry announced that it had opened a new investigation into alleged dumping of medical cannabis imports from Canada. This announcement follows the previous investigation by the Commissioner, which did not result in the imposition of an anti-dumping duty. We dispute the allegations underlying the investigation. We will cooperate fully with the Ministry and are confident the facts support us. Our position has not changed. Cronos does not engage in dumping. During the last investigation of these same allegations, we provided the Trade Commissioner with comprehensive pricing and cost data that demonstrated that our pricing in the Israeli market was not below our pricing in Canada.

We stand behind that evidence fully. Over the last few years, there have been a number of geopolitical and regulatory issues that have made operating in Israel uniquely difficult. However, we will stay committed to Cronos Israel as we have been since 2017 when we obtained our medical cannabis license. We have built strong infrastructure in Israel, investing over 100 million new Israeli shekels in building a greenhouse manufacturing facility in the cannabinoid R&D lab.

And we are one of the largest cannabis manufacturers in Israel with a team of approximately 80 people. And that team has been incredibly resilient, consistently delivering record results despite the aforementioned challenges. And this quarter was no different, with Cronos Israel delivering our 10th consecutive quarter of record net revenue, growing 60% year-over-year or 32% growth on a constant currency basis.

The Peace Naturals brand continues to expand its lead in the Israeli medical cannabis market, based on pharmacy data collected by Cronos. This is the second quarter of Lord Jones sales in Israel, with the brand gaining momentum in the premium flower space.

Turning to Canada, we delivered record net revenue, with our brands generating 25% year-over-year retail sales growth relative to industry-wide sales growth of 1% according to Hi-Fire. The Spinach brand had another excellent quarter, with our product portfolio continuing to demonstrate the success of our innovation efforts through significant share gains.

In Canada, Spinach held its number one position in vapes for the second consecutive quarter, with total vape market share expanding to 10.6%. And within the vape cartridge category specifically, spinach remained number one for the third consecutive quarter, with market share expanding to 11.8%. In the disposable vape category, spinach ranked number two in Q2, with share expanding to 8.2%, driven by our Puffers All-in-One Innovation, which launched in late Q4 of 2025.

We launched three new Puffers flavors in the second quarter, strawberry burst, peach iced tea, and grape gas. We also introduced the Spinach Orange Vanilla Twist 1 gram cartridge, the brand's first limited-time vape cartridge offering for the summer season.

In edibles, Spinach Remain Canada's number one brand for the eighth consecutive quarter, with market share steady at 20.8% and share within gummies of 22.5%. In Q2, Sour's by Spinach fully blasted offerings were five of the top ten edible SKUs in Canada, including the number one edible nationwide, the fully blasted Blue Raspberry Watermelon 10-pack. In Flour, Spinach ranked number three in Canada, with market share expanding to 5.4%. Two spinach flower strains, GMO Cookies and OG Kush, were among the top six selling flower products nationally in the quarter. In pre-rolls, spinach rose to number 7 in Canada, with market share rising to 3.1%. Within infused pre-rolls, spinach climbed to number 6, with market share increasing to 3.5%.

In traditional pre-rolls, spinach also rose to number 6, with market share increasing to 2.9%. This quarter, spinach 6, the brand's first cylindrical-style pre-roll, became more widely available across additional provinces in Canada.

Turning to our other international markets outside Israel, we delivered record net revenue, which increased 88% year-over-year, led by strong demand in Germany. The breadth of our international footprint continues to provide meaningful growth as we execute our borderless product strategy.

Building on our international momentum, this week I had the opportunity to meet with the Kanatalar team in the Netherlands and the businesses performing in line with our expectations. We are prepared to close the acquisition of Kanadalar upon receipt of regulatory clearance in the Netherlands in satisfaction or waiver of the remaining closing conditions. We expect the acquisition to close in the second half of 2026. We have not been informed of any specific issues with a regulatory clearance submission, and while it's taken longer to close than we had hoped, based on the information available to us, the timing appears to reflect the ordinary course of the Dutch regulatory review process for a transaction of this nature. As a reminder Canatelar is the largest company operating within the Netherlands Legal Adult Use Cannabis Program We excited and eager for Canatelar to join the Cronos family We continue to execute on our capital allocation priorities and remain active under our share repurchase program which we believe represents an attractive use of capital Backed by an industry-leading balance sheet and positive cash flow from operations, we are well-positioned to invest in our growth strategy while returning capital to shareholders and maintaining optionality to be opportunistic as attractive opportunities arise.

Now, I'll turn it over to Anna to walk you through our second quarter financials.

Thanks, Mike, and good morning, everyone. I will now review our second quarter 2026 results. The company reported consolidated net revenue of $53 million, a 58% increase year over year. The net revenue increase was primarily driven by higher cannabis flower sales in Israel, Canada, and other countries, Specifically, Germany, and higher cannabis extract sales in the Canadian market.

Gross profit in the second quarter was $28.5 million, representing 96% year-over-year growth from Q2 2025's gross profit. The year-over-year increase was primarily due to higher average sales prices, largely driven by a mixed shift to Israel and other countries, which carry no excise taxes, and higher sales volume. Higher sales volumes led to both higher net revenue and efficiencies from overhead cost absorption.

This quarter's gross margin demonstrates what our business looks like when it's firing on all cylinders, with Q2 also benefiting from seasonally better growing conditions. However, gross margins may vary from quarter to quarter due to factors including seasonality, product and geographic mix, production volumes, and potential price compression. Accordingly, we believe our gross margin performance over a trailing 12-month period provides more useful context than a single quarter. Total operating expenses were $21 million in the quarter, a year-over-year increase of $1.2 million, driven by increases in sales and marketing, R&D, and G&A expenses.

Note that half a million of the $1.2 million year-over-year OPEX increase was driven by transaction costs primarily related to our pending acquisition of Conatalar. Adjusted EBITDA in the second quarter was a record $13.1 million, an improvement of $11.4 million year-over-year, driven by higher gross profit, partially offset by higher operating expenses.

Turning to the balance sheet and cash flow statement, the company ended the quarter with $827 million in cash, cash equivalents, short-term investments, and non-current interest-bearing deposits. Up $5 million from Q1 2026, driven primarily by $24 million of positive cash flow from operations, partially offset by $60 million of share repurchases and $2 million of CapEx spend. In addition to this $827 million, we hold $17 million of loan receivable, a $15 million current income tax receivable, and $5 million of other investments.

In summary, we delivered record net revenue, gross profit, and adjusted EBITDA on 2Q, a testament to our focus strategy, the underlying momentum of our business, and the team's continued strong execution.

With that, we'll now open the call for questions.

Thank you. At this time, we will host the question and answer session. To ask a question, please press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.

Thanks. It's a great question. I think part of what's made spinach strong in different categories is we haven't really rested on the laurels of the brand. Category by category, we focus on each product as if we were launching it new and making sure it's a best-in-class product. And I think, you know, in every single market, you still have to win, you know, win consumers. And as long as we take the same approach, I think we'll be able to do that. I think we've shown the ability for the products to translate to other markets already. But it's certainly something that, you know, we're planning, and it's one of the reasons that we're so excited about the Canadalar acquisition.

It's a, you know, adult use market where we think spinach, you know, will have a great opportunity to be able to perform and see those products like sours and puffers translate over. And then if I can on Germany, the market has gotten a little tougher for some on some price compression, but you're showing strong growth there. So can you help us maybe understand your route to market into Germany? And was the unlock for Germany getting bigger for you? Was that really the additional capacity at GroCo? And you're just now satisfying demand that you had there. Can you talk about the German market, how your product gets into Germany, and how you're positioned there?

Sure. It's really not that different in terms of what we're succeeding based on versus Canada, Israel, where also you can kind of look at data, and it's competitive. It's tough. I think it just comes down to having the right value proposition to patients or to consumers. And while we don't have boots on the ground like we do in Canada and Israel, I think ultimately if you have a great product, I think that it finds a way to have demand. So we understand the backdrop and competitiveness, but from my perspective, it's actually not as competitive yet as some of the other markets we're in.

And yeah, I think that is the unlock. We aren't really running from competition. We want to make sure that we win in whatever market we in I think having the discipline to keep adapting and making sure you win sort of sharpens and improves the offering you have And now that we have additional capacity there much more of a focus on Europe than there has been in the past Thanks, Mike.

And Anna, can I round out a question on gross margin? It expanded more than we expected, which obviously is a great thing. And you broke it into some buckets, which included average selling price and mix. Could you help us maybe which bucket was the largest contributor behind the year-over-year gross margin expansion?

Sure. Happy to provide a bit more context. So, you know, like I said, we benefited from, you know, seasonally better growing conditions, and that translates to both higher yields and more high-quality grade-A flower to sell. So obviously, you know, more flour contributes to efficiencies as six overhead costs are spread over greater volumes. So I would say that's your, probably your largest contributor. And then you have that geographic shift to higher ASPs to Israel and international markets, so higher ASPs, no excise tax. And then lastly, in Canada, we've experienced such tremendous growth in our vape portfolio, and that carries the best margin in the portfolio. So kind of all of those factors together was that perfect storm of favorability.

But as I mentioned in the prepared remarks, we believe that our gross margin performance over that trailing 12-month period provides better context than this one particular quarter. Thank you. I'll pass it along.

Thank you.

I appreciate it. I think we're generally optimistic, but we're always conservative, so we're all extremely pleased with the results. I think that you just saw things go well in pretty much every market and category. So I don't know if there's a single thing that I would point to. I think that in Canada, we talked about it the last few quarters with Puffers launching and starting to get momentum. That's certainly been a big driver. I think that overall having more supply, that's been really helpful. Just being able to satisfy a lot of the demand that we've been talking about has been out there, but we haven't been able to fill.

I think that, you know, you think about yield and you think about the weather and growing season. That was certainly positive. But things are just moving the right direction in most of the markets. And a lot of the work we've put in the last few years, you're starting to see things click. And as we continue to dial in, you know, at Groco and some of the manufacturing, you know, Stainer and Israel, things are improving.

Absolutely. You know, and just on Canada, I guess there's been some talk about a pressured consumer here and a move towards some value product, more value-oriented product. It doesn't seem like it's the case, or you guys have run into that problem, but maybe just comment on what you're seeing from a Canadian consumer perspective would be helpful.

Yeah, from our perspective, it's really about delivering value, and the value proposition is what matters. And for some, that might be the value category, and then for us, it's as long as we're providing more value. So, you know, I think that there's still in our, you know, segments, there's a lot of opportunity. I think that you can also see some switching just based off of cost from other categories. So you can see someone that, you know, maybe was looking at beer and they think of what's, you know, what's more cost effective and they move to cannabis.

But we haven't really seen a lot of issues in terms of the resiliency of the consumer. But I understand it's more broadly out there. Yeah, thanks Mike, and congrats again.

Thank you.

Thank you.

Congratulations on the quarter. My question just relates to sort of your GroCo integration. So it appears that Broco is moving along quite nicely. I was wondering if you had any commentary on how that increased supply supporting your market share gains, and then sort of your next strategic area of focus is through leveraging this facility. And then the second part of that is, I guess, your expectations on the fully ramped site, and then how it might contribute to that top line and gross margin contribution in the future. Sure, thanks. So, yeah, I think it's coming along really well. It's, you know, it's fully online. I think that, you know, over time, you'll see some more efficiency gains just as we continue to dial it in.

You know, whether that's the facility or just improvements, you know, genetic breeding program we've been, we've had for years. I think every year you get to see new genetics come out and there's, you know, a lot of improvements we're really excited about. I think that when you think about opportunity for efficiency, genetics is actually hard to measure and put out as far as building a facility versus genetic breeding, but I still think genetics is probably where you'll see the most efficiency gain. But I think GroCo is going extremely well. I think that having that extra supply, you know, the majority of the market globally is still flour. So the gains that we've had are a mix of having more flour.

I think increased strength in pre-rolls, increased strength in vapes, and maintaining the lead we have in edibles. And so yeah I think they all sort of contribute but the facility expansion it really adding more grow to what we already had so it fully integrated as far as processing and it was just figuring out scheduling being able to get the increased product through it and I think it something that we now have a full handle on Great Thank you Thank you.

Our next question comes to line of Pablo Zolanik from Zolanik & Associates. Your line is now open.

Sure, thanks. So, yeah, we do have a domestic grow. Also, we do buy from third parties, Israel or otherwise, and also from Groco in Canada. But everything is included when you see sales in Israel. It's everything that goes through our facility and we sell under our brand. So we have all the packaging and manufacturing is done there in addition to the grow. But I would just go back and say we really think that there's not merit to the anti-dumping investigation. We've gone through it once already, and I think you can look at the results, and it's clear. This is not a market where we're like, oh, we need to get rid of excess product. It's something we view as a strong and important part of our business.

We've increased supply with Israel in mind, and it's something we'll continue to do, and we're confident that we will prevail again.

Thank you. Look, just regarding the U. S. , in a recent podcast, I think you made a comment that you have a roadmap under various scenarios, right, a bit of a matrix. If this happens, you do this. If this happens, you do something else. But in a scenario where we have re-scheduling, but we continue to have this state silo system, no exports, no federal oversight by the FDA, and everything regulated by the state, is that a scenario in which Cronos would want to participate and get more active in the U. S. or not really if things don't change from that perspective? Yeah, so if you're assuming it's sort of like, I think you're asking you freeze sort of the system we have today where, you know, there's state medical markets that in theory could be accessed, but adult use does not roll over, and we assume that there's no interstate commerce.

I think if you were to put aside the question of whether or not under Schedule 3 there's potential challenges about interstate commerce, I think we would look at entering with more of a focus on borderless products than on sort of a full production site. I think because, you know, as much as we could assume that it gets locked like this forever, I still find it hard to believe that you're not going to eventually have interstate commerce and you won't have, you know, free trade just given every other industry and, you know, the dormant commerce clause being pretty strong.

So we would look to enter in with, you know, a number of products. And I think that when you hear us talk about borderless products, that's the flexibility it affords us. So I still think that, you know, there are ways to enter in with genetics, with, you know, our edibles, with our vapes, with pre-rolls, but not necessarily building out really strong grow infrastructure.

So more of an IP focus than full production. And I think the reason for that is to expand is I do believe eventually that it's going to be really tough to start building out infrastructure state by state when you're eventually going to have to compete with something that's centralized, absorbs much more fixed costs, and is producing at a national scale similar to what you see any CPC company do.

Right. Thank you. So I want to add one more. You know, it has to do more, you know, the liquidity of your stock and, in general, the liquidity of the NASDAQ-listed Canadian LPs, right? That has declined quite a bit over time. You know, we have these U. S. MSOs that supposedly will uplist and NYSE or NASDAQ, and supposedly that's like a big catalyst, right? But I could make the argument that here we have these very sizable Canadian licensed producers like yourselves, which are already in asset listed, and investor or stock liquidity is thin, right? So, I mean, from your perspective, why is that? I mean, is it just because there's just too much focus on the U. S. and that's all investors want, and they're missing out on what's happening in the Canadian red market and all this very large export potential that the Canadian piece have?

What's your perspective there? I'm just trying, again, I mean, I don't want to repeat the question, but it's like, why, if we have these NASDAQ listed vehicles right now, where you have all this growth, the liquidity is so low for the stock in general? Thanks.

You know, yeah, it's tough to answer. I'd say for the size of the market, you probably have a lot of companies, and I think that one of the challenges is that investors probably are, you know, sometimes the loudest companies and the most liquid ones are just making a lot of promises. and it's burned people, so it's much more of a show-me type industry now. But I don't really think of it as U. S. versus Canada. I think every company is different. It's no longer just there's two types of companies, an LP or MSO. I think that you're increasingly seeing those lines kind of change, and it's not necessarily just Canada, right? You're looking at rest of world versus U. S. , somewhere in both.

But ultimately, the way I see it is, you know, people always ask us about capital deployment, and I think that we've been given a pretty good opportunity as far as having a buyback as long as things are the way they are. So it's not something I really worry about. We don't really, you know, we don't need to use our stock as currency.

We don't, you know, we don't need to raise capital. So we really just focus on what the market opportunity is. And we still think there's plenty of opportunity within the markets we have today, even with the situation in the U. S. Right. Thank you.

Thank you. This concludes the question and answer session and our conference call for today. Thank you for your participation in today's conference. This does conclude our program. You may now disconnect.