CRON.TO - Earnings call 1 2023

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Operator

Good morning. My name is Tanya, and I will be your conference operator today. I would like to welcome everyone to Cronos Group's 2023 First Quarter Earnings Conference Call. Today's call is being recorded.At this time, I would like to turn the call over to Shayne Laidlaw, Investor Relations. Please go ahead.

Shayne Laidlaw

Tanya. you, Thank for first you today review to And financial joining and XXXX quarter business Cronos' thank us performance. Holmes. Today I'm Gorenstein; James Mike and President joined by and our our Chairman, CEO, CFO, financial issued results on Cronos EDGAR profile. SEDAR and release news announcing our this which is a morning, filed our refer This information you to over and remarks during forward-looking Mike, me remind the as we measures will on may posted statements call be as turn non-GAAP under website the well that this make our Investor prepared financial also to Relations.Before I let call. on statements are that current forward-looking to that projected These assumptions actual forward-looking are cause to based differ uncertainties management's and the expectations those from in risks and materially results subject statements. could expectations filings in our qualified about any call Factors measures, materials and in are earnings that forward-looking are this entirety.Information detailed website, actual that statements materially could cause by SEC our are their on results including U.S. available our to during which reconciliations to financial made from non-GAAP differ can are website. available earnings be on materials that found GAAP, our in the also

throughout we'll information regarding will it now is question-and-answer that, prepared by We'll making conference call. all to statements share over market Chairman, I'll provided Hyfire. share otherwise move data CEO, then Cronos' Gorenstein. and Mike into be we remarks, make market and Unless a Lastly, pass stated, session.With this President

Michael Gorenstein

$XX go prefer $XX a to savings results footing trajectory which comment our into driven financial year given the I'm move of this is associated the cash savings by range. launching versus gross to gross totality.As XXXX on good driving year put with the P&L Building of are of the positive year on additional volatility was in of our at toward we XXXX, in off the strategy in and of $XX overall an target margin on margin. full achieving year at $XX for gross projected performance to XXXX This with But the activity his happy quarter and million.James XXXX earnings operating strategic announced of but for was XXXX.During on want expense the flow us will for that million our reminder, we business of changes everyone. a million a Chronos, costs follows X% Shayne, achievement margin morning, for end XX%, in the we but remarks, you, QX to being towards more the ended in tracking to the borderless focused we margin. our over approximately margin certain we improved high our to timing PEACE XXXX transformative $XX XXXX. products, of NATURALS gross report as last of Thank our I gross the our detail out our during future. intended innovative improving realignment look quarter million Campus, our better negative call, in

basis. we posted gross XX% Turning margin consolidated a to QX, a on

such to to as robust vape. of create the ranking #X as derivative during and products, further our critical the to the Canada keenly a products, innovation a launches have solidified highlighted also momentum continued to our gross edibles. and pre-rolls to reorganize the execute supply PEACE focused our to that higher optimize smoother save our NATURAL decision business such accretive margin our this to margin by plan portfolio product performance progresses.We're quarter, In intend we on we've that we the in across will borderless diversify several first Now on build chain, year as improve to mix new our Campus categories, QX margin

all in holds in Canada that with brand share gummy companies QX. they pre-roll, When position only XX% in, #X are on They vapes XX.X% the growth the quarter just and in versus which is brand Spinach award the just edibles of participate Spanish became edibles.Our top category, market market winning retail categories Our they year-over-year the flower, gummies, growing focusing a completed category had just share. XX.X% share XX%. the a market sales by in XX

sell which the impacted been regulatory the cannabis in performance, are loyalty pack so to that to to Canada category from like per notified has showing Canadian become potency a recently consumers' purports these products market. and as loophole classified edibles.Health extracts, gives the has top advantage has an U.S. against products.Winning at our edibles compliant that thrilled borderless are brands negatively that products Despite a of market. for strong enthusiasm producers platform in extracts, any us We these category and by adult can additional take win remove our steps are higher for part gummies product brand products that them to would integral of have incorrectly thank many chewable announced our lives in confidence this edibles

edibles a basis year-over-year, half climbing the performance to our edible for first are as robust extracts, a portfolio.In the more market share #X. in points For the and quarter, achieved non-compliant up result, category, X.X% back top XX edible X a vape reference, of XXX we we anticipate

include launched leaning in on in X% Kiwi cannabinoids the vape build Haze rare portfolio.We a push with THC continued 'XX, Mango winning driving brand, CBC love profile across base, our a consumers the on that Spinach to under our FEELZ forward and formulations and innovation CBC. momentum that new flavor We with will while XX%

BlackBerry try market innings pre-rolls period. category a formats, the excited Canadian in of consumer flavor pre-rolls our Using The vape we growth approximately in and also launched well formulations continues category elevate year-over-year for success bringing sales the FEELZ utilizing Cronos to differentiate after XX% for terpene-rich market. same the performed for vape, the of Mango dollar CBC THC-CBN sought the year-over-year during first infused brand cannabis increased We've the category during QX. is accounted experience share categories same QX, their Spinach to in helped category cannabinoids.IN by which X XXth potent Kiwi to moving for edibles Kush, growth gummies the in format. Since most THC-CBN blueprint in pre-rolls the one QX, THC-CBC period.Pre-rolls rare cannabinoids the pre-roll to of other our the up Spinach genetics, as XX% in Kush, and introduced infused CBC of has pre-rolls XXX% to and Spinach portfolio XX% best-in-class consumers we're our Spinach gained market the the from the in and focused in and popular revamping of FEEL launch in quarter retail outsized early and which growing our the new fastest QX, Our contribute a in our FEELZ share, rare market, forward and up year, eighth Haze portfolio have the last BlackBerry pre-roll. pre-rolls, are

Flower encompassing us.We pre-roll drive to retail market approximately quarter share this, and With category, continues this the Canadian be XX revenue XX in X.X infused the market utilize gram place reported of share by heavily a category X pack continued of QX. the portfolio base equating Despite of top gains in pre-roll for gram sales. momentum which off continue across a maintaining aim X recent GMO and to the launches right American this in unaudited SKUs. X flower in share GrowCo performance to with to bags, weighted offerings, #X to the close we first share defend sizes, our the X.X% SKU our Cookies continued of to to market critical preliminary of we non-Cronos Wedding leading to in Cake.GrowCo's build cannabinoids, $X.X gram XX customers. the be market strong million

Additionally, million the facility million had provided that GrowCo to GrowCo by of QX. the Cronos credit principal in following currently $X.X repayment $XX.X outstanding previously

health slowed increased industry geo disruptions, has driven patient in permit addition, government $X.X to factors and QX. performance interest vital activity. Cronos QX, a in the overall authorizations payments growth up, by to loan million causing payback pictureTurn slowdown yielding component medical of The led GrowCo of In of in to financial ministry geopolitical and made the which and is changes Israel. pick competitive a multiple The strong cannabis interest financial payment our appointment equity a GrowCo in

of and from health Following issues recent ministry, change a A cannabis. the patient impacting prospect news is access a current model, personal medical a prescription proposal potentially can Israeli to Israel process.The regulatory public licenses more by to obtaining multiples. more streamlined how health complex patients recommended the would transition from via count increasing patient approach optimism cannabis that enable renewed new we issuing care committee prescription, about have services its which government

certain today. This where of Florida X.X% such patients a is medical tripling in legal of of largest a the as still such the near would regulatory would XXX,XXX patients, medical position in jurisdiction.We we of world's to the it's mature reminder, just as a especially purchase Israeli markets result are their were to equate given population. programs Israel X.X% a our distribution population as is a of XXX,XXX medical potential change current to the scenario think to X.X% This U.S. next in the the in legal the possible population, environment, the the over realistic reach or As size. approved market medical number favorable couple cannabis.If long-term Israel federally years, of is federally is of approximately pharmacy that confident compares the in in market current of one

PEACE growth to away Lord as are the market.In high-quality We products. this have beauty cannabinoid for in and have NATURALS, the its to in Jones category the completed continue the the returning brand U.S., by from roots market, and adult-use forward featuring an top-performing moving invest we brand, we transition nearly

I'd balance us execute assembling to it infrastructure to on products James are of with market.With allowing to take a partnerships, borderless strategic an our in any industry-leading and pass sheet, effectively We combined portfolio you financials through like that, with global to

James Holm

Rest our will Thanks, first year everyone. million. in first a Canada. was prior a to by relation net Mike, of review period. of period. the year Constant XXXX Israel prior World $XX.X by the $XX.X sales The a $X.X XX% profit decrease in the from quarter prior company million, gross revenue million, and in cannabis I XX% the the $X.X by driven to quarter margin, year reported extract consolidated to to from was decreased gross in The consolidated due segment results due good decline driven a net equating in the the gross morning, Consolidated revenue was higher now results currency lower weakened segment representing the the offset cannabis in sales and XX% primarily partially Canadian flower fourth decline mix lower in margin growth the with adverse quarter U.S. in and and profit the to sales million repositioning.Consolidated reduced additionally biomass in flower its dollar price flower shift the results These decline primarily shekel change by U.S. during U.S. cannabis partially a reduction World cannabis in cannabis lower were profit higher costs. by offset Rest in cannabis by Israeli impacted other segment.These of current strategic and period. and segment dollar in sales return were increased against were Canada category results sales a extract a than revenue product in Canada profile in The period. gross

QX adjusted improvement a X% you results intend gross administrative Mike QX, at year where XX% first encouraging we and expenses. research a from representing prior XXXX, general the business, this we a the primarily were XXXX to quarter $X.X negative driven in the gross signs our our by With volatile full the XX% build margin realignment had development and gross quarter-to-quarter, year. a which EBITDA on we off positive throughout and $XX.X from decline had momentum which XXXX.Consolidated the improvement gross improvement million, to margin sequential negative mind, in and was of and of As progression driven The by the million makes margin that stability, where QX XXXX, in positive and margin, in line can see a had was looking both mentioned, comparison difficult. in

of patient year million permit million increased mix price by results first for tax edibles $X.X the period. X% of the in revenue partially Canada prior flower growth Canada, driven competitive excise Mike the for in to These in million. as adverse was cannabis the Rest offset due extracts return. were flower in of the we're is The activity, driven category sales decline in of driving Constant segment primarily of $XX.X World bags gram currency in increased partially to payments offset tracking primarily segment In flower and sales decline the shift quarter a driven the $X.X of operating flower revenue Israel X.X in a net increased slowdown Rest authorization in profit vapes.Gross expense impacted were Rest by gram year unrest.While net transition the change and in percent $XX results lower $XX mix Revenue World shift decreased from decline period. decrease we a These revenue representing sales Canadian million, to in in adverse the cannabis savings As the to from segment, XX in consumer by category was by high the and in in quarter year to rationalization Israel, price $XX reporting the by $XX due from cannabis the quarter from period. was million in margin a negative decline by prior segments. driven World reported higher mentioned, were toward the previously a was profit.Turning of cannabis to political the reported segment XX% first million, quarter announced our improvement XXXX.Turning end our The and and the a decrease by in administrative the inventory prior sales XX% the year representing U.S. primarily general increased million representing a period. realignment which of lower the negative higher to carry in and in Rest to segment $X.X with quarter net the primarily first We due driven a sheet. decline our driven first from profit reserves.Adjusted million, versus prior extracts decrease first reduction costs.Adjusted for to first the quarter cash was of and the the period. in was was U.S. for $XXX The The Gross World spending prior representing year-over-year promotional prior than segment from period. biomass categories revenue the and decline sales the SKU business. $XXX,XXX sales year negative to $XXX,XXX, the prior company decline million prior U.S. the strategic was gross U.S. lower $X.X primarily short-term other profile in EBITDA cannabis from decrease for segment. a Canada, and the The a for and volumes by $XXX,XXX, quarter by decrease due EBITDA year-over-year a in year year million, $X.X year approximately improvement expenses.Turning The versus product a investments. million balance the ended marketing bags. was

while year enables burn. QX.Having to GrowCo towards warrants in Cronos strategic of currently range.Moving $X.X cash flow, the net cash the XXXX the calculated flow we most in million combined million maximizing of steadfastly strides cash end to improve remainder paid than impact our fiscal that regular have spending expense take representing year-over-year. cash improvement among $XX $XXX negative sheet onetime We been the of payment with QX net The our XX% million outflow best recouping years.Lastly, taxes of flow. items, a that year, to the on Altria change across in total short-term relinquishment The defined equivalents, and be in proceeds reducing will Adjusting other interest the we flow also bets $XXX to million, for less investments will relinquishment, payment associated committed X in of cannabis $XX.X purchase by and as we XXXX, million are operating interest the GrowCo decline to to for our which $XX.X warrant the positive it anticipate will cash high And February, operating $XX burn anticipated with Altria turn reduction cash gross that for addition flow income cash, tracking In associated industry of next balance the for the of expense by cash of we cash to onetime we $XX payable Last approximately on million. an that, secured back full revenue reduce rate. to XXXX driven excluding payment expects of received remainder improved loan us and categories efforts million we free additional million in the margin the be improvement, I'll an the in return would of in with of over by, million income year principal tax $X.X $X.X company trajectory $XX XXXX, million, cash the of senior fiscal year to cash made continued and in significant savings anticipate Mike. million focused cash XXXX. for quarterly XXXX.With on remain of

Michael Gorenstein

you, James. Thank

all We do employees borderless to and are in to market. Canada winning to our the bring Israel products due best-in-class hard work

Our is market only Spinach flower, edibles. a in XX and in, which they share participate all the that top position holds brand are pre-rolls, vapes categories brand

We are cannabis things set with and to want market we umbrella any XXXX. equivalents is will of the $XX.X in and million best $XX and be debt, among into interest an in regulations generate and where under to with positioned today. additional confident capture interest cash we We remainder closed the through what X stand income additional $XXX the that anticipation I million as Cronos generated income million QX to companies in share level market.Before change, questions, getting in

vapes. Overall, for brand is in Our the #X cannabis pre-rolls #X #X in #X edibles, Spinach brand has the in #X following flower, range market and Spinach is share and QX. in

$X U.S. $XX for currently net PharmaCann, QX.We on stake brand, have medical in X.X% of which NATURALS, the in largest books our PEACE million revenue million. posted MSOs leading in a private one a have We Israel, in

We Vitura, million Cronos publicly of equity a stake facilities and combined have certainly any GrowCo, partnership balance own approximately leading worth the last an on in we loans encumbrances. traded global XX% to which and QX. in estate cannabis own remaining interest least, of We approximately not payments the Australian as approximately an million.With our market exclusive with Cronos of line a GrowCo of is million medical on $XX XX% negative principal in of end have and free of at licensed Altria the profitable and the enterprise $XX.X the QX.We I'll with in paid quarter We open $X.X a that, the ended traded million a partners. million $XX And for but $XXX approximately questions. close market multiple its real cap of and approximately value yesterday, basis.At from an provider

Operator

And John our come first question from CIBC. will of Zamparo

John Zamparo

I get to But I market somewhat competition? would to of historically, the I'm growth? if like Israeli color on versus Israel, additional optimistic market I it do needs you're exactly what And the on is wonder peers more it been to missed curious I back there. you've get what apologies for And seeing you your wanted back start change to think What because year brand. maybe it. half is to and you Israel? the that some of protected to needs your on in

Michael Gorenstein

Sure.

the are competition, sorry, we're prescriptions related recently But announcing and growth. with regulatory for it seeing process. carry the think regulations a the There's way in on of issued cannabis. that lot especially pharmacies thing to for progress are which able that's the biggest announcements, been some stalled actually politically to have -- change really to to has and there do patient unrest I been that Israel

patient what steps where something there's increasing favorable up -- that like kind that to growth. it different -- get have the for have from that think Israel, in indications patient rapid move this last essentially talked announcements, in happen now, opening the special they is a a remarks, really, see of can multiples. another really And count could to process are seen you change would substance.And this entering year the treated controlled about about all by QX to regulatory the we that barriers prepared being if system, we a you these all given that are we've that, really at can see when And you year. look So

looking months, last the QX. would I in return year and beginning saw we're think the more we And over just market couple of to at terms really sticking up growth. next that entire what of at open of So that the

John Zamparo

then gross Rest my is on And in on Understood. question margins, of Okay. particular World. second

stabilize? and You parts saw maybe to moving a with in point versus But the you're at there's Obviously, at margin the the completely that so back a is Stayner. to I gross cost of I wonder predict margin will somewhat we in Rest back development? able QX. nice at uptick World where assume line, of there's But are decent -- Or not switch point year of fixed half QX stabilized? but gross some amount now it. likely now, in should what a that point the we're somewhat

James Holm

guess expect I but from answer, would say, do to somewhat yes, we stable, So further here. we're I improvements

So optimizing as highlighted right. our continually chain, we're you supply

to back some activities certain process. moving evaluating are those of in are Stayner, and We so

so And through see we would further flow expect as those COGS. of improvements some we

of we we're to And seeing versus a right state potential remainder lot coming back would margin in pickup the of year.But the were of throughout the coming kind volatility of normalized so a you year. a -- prior more the expect

Operator

question our Carter our from question. of Stifel. for And come moment next will Andrew One next

W. Andrew Carter

fourth to your you for quarter. Just the I'm cadence And XX% remainder give looks an XX% to answer $XXX until don't the wanted for improvement question revenue in right, at you heard rate John's Israel to is currency. Could XX% the of I XX% which really of if first us the off, expect the phasing? constant the the year, getting on million. to $XXX guidance year, ask, spot to like million

that. Just square all help me

James Holm

talking period, So about So question? Andrew, each revenue can for when are the each quarter? you expecting maybe we're reframe the for you

W. Andrew Carter

on to I means X to And $XXX XX% constant start the $XXX bit. math, mean, currency, million that has just Well, a the to there, year just back grow to up, just in XX%. to for little -- my million means back XX%. spot I'm XX% so revenue to

I phasing kind what John's So I'm acceleration? of about the -- the revenue And growth asking if quarter? heard Israel right, till that what's doesn't improve of question within that, fourth

James Holm

Got it.

Fair. Okay.

the that you've guidance million fuel but back a $XXX improvement yes, revenue We've we're of last million a innovation have for we for $XXX confident driving right?And of strong our over full of XXXX, to that X highlighted. of pipeline half million additional to year So million. help also targets, year in OpEx right, we meaningful introduced planned right, of of the that new to some innovations launches the months, the on remainder end for we're had number track growth, the the also top $XX have announced today achieve savings to $XX

all we kind revenue the But that the work year. of improvement. expect drive cash of will do right overall throughout of to together the continued duration So flow improvement

Michael Gorenstein

not about but and a layer that change huge And QX, to talking that. guidance very we're on that think think just see more on that's something to I meteoric we it's what about. optimistic that, not for relying than would I we're talking likely in step really And when we're growth. that's in Israel change, think We're you do regulatory the be and about

James Holm

would it be Yes, upside. additional

W. Andrew Carter

capital of cash Mike, of comments now. your interest end said one, talked And and think going your to kind the I about And that hey, the enterprise the that's it. feel to rates? kind you're of in kind script, enterprise terms that where clarify, direction, terms value? current free in you hindrance do based positive become moving to continue overall Got having shares at a on you're to I enough obviously -- trying impetus it of of Is at to to guess you helpful negative going M&A? you Does the the then Or you value in right do is second XXXX, back flow. number of equity for is of what get allocate, kind value just, Or here to have to allocate? an some

Michael Gorenstein

first can on let balance I'll go where I then guidance, the sheet you to we're Sure. James, and positioned. and jump

James Holm

having I issues line. of And my Andrew. I'm bit Yes. apologize, little a on

you guidance restate the reframe If could question. or

W. Andrew Carter

Yes.

is guidance and Just cash next interest of that year, current kind the cash your on for rates flow flow based projections?

James Holm

it. Got

right, little -- we are degradation, right, interest some I'll So right, flexibility, assuming of say regulatory we've all rates, let that flexibility So we're there, right? -- or some but stability there's bit environment, put We're in those. me also assuming general a economic way. of no that got qualifying definitely same assuming, it -- significant in

So comfortable guidance could the there's interest if rates. with well, would as The conservative obviously, the right, then, is changes, I we're material reasonably impact very So guidance. right? say that given we've

W. Andrew Carter

me Let clear. try time one more to be absolutely

So XXXX, kind this of on year? free is cash income assumption million core an the that to does that interest based flow positive include how of in $XX is similar for Or guess, operations? interest income providing, cash I

James Holm

Yes.

bit So cash income. So it little I'll net we're maybe in does include right? yes, talking a flow, more, dig interest So right?

$XXX this range, end, In of to OpEx we're we're line tracking $XX is savings, right? Improved combination to obviously, high million top well. $XXX interest the then, year, a throughout a of that that So guidance with that million $XX saying be projecting would the million, COGS, And right? significant highlighted million we're the of a we improved as which improved toward component right?

Michael Gorenstein

To second Andrew. jump of your in question, part on the

hindrance. think Okay. don't that I there's a

flexibility, also to we're us it's it's I a we but self-sustaining. lot for sure that important that have feel I think make we think of time and like

doesn't on and turning of something ultimately, we really always cash accretive preclude continue flow. over accretive, my see That that's we'll value if be will keep opportunistic.Of not way cash looking us. every flow us that's towards anything stone is -- accretive be But importance income. something interest the to for that's we to So preference and positive for course, being will just that relying

have still flexibility. So I think plenty we of

Operator

Michael Freeman Raymond comes from James. And of our question next

Michael Freeman

become or for I have wonder your I just yielding investing and payments Cronos' it. are could cash increasingly an strategy returns important your of given -- interest from describe picture, part you becoming if revenue wonder

James Holm

Sure.

cash. looking maximize for So our we're to available our us constantly on return

that with, But security safety say, right? work on again, large, we're month are financial ensuring in X, of extremely implement rates for vehicles. those.So environment, typically making large right, strategy, a top year I'll current vehicles return or the focused looking we those return there. we So funds. X, that a so obviously, stable financial we're on institutions with the intent with stable at it's And less, maximize and laddering X, right? we But institutions, sure top-rated Especially, then, the XX

Michael Freeman

question. product portfolio Great. through markets helpful. playing products some your role All underpenetrated years, in? second looking see important can you set. We've I'll of a proliferates couple ask right. cultured cannabinoids That's are your what a or I cannabinoid an ahead and rare right. All wonder, seen rare

Michael Gorenstein

It's Sure. a question. great

you where towards I shift I what I consumer flower pre-rolls. think see think pointing are, products would keep you're as to also awareness those more in. derivatives, derivative of to rare that's see and to from come going preferences starts

opportunity flower, infused the further in edibles, to you few years, to is And growth seen You've rise you'll the that one similar over differentiate.And We to that also one believe popularity biggest next opportunities pre-rolls. get of what lot general the from best think of just there's of a more an the we the our in see pre-rolls. infused include still categories differentiate. notice launches of you that,

opportunity which out do we'll that have are of haven't some there across edibles, to do to in looking So today you the in that's formats are the we're still I things to then rest that opportunity going think in portfolio that's date, able pre-rolls. seen I think be vapes, interesting We of we terms And our there's years, but -- huge. of be market think launch lot a that there. us few with concentrates, a

Michael Freeman

All I just could you right. in can throw And more. great. one -- if That's if

and given Cronos, going seem I'm manage pre-rolls for -- wondering price the some specifically hearing going be market. area the action is of in On -- an able that to how Cronos We've infused seeing how is of pre-rolls to been talk forward? price you're wonder that to compression. focus how I Cronos

Michael Gorenstein

products in category, the going I Yes. think Look, is see big pre-roll very a I that real segmentation think to and how you're develop.

of than to end you have spectrum, sell flower. an there the one on think I actually is pre-rolls that that cheaper can opportunity

well making process a about aren't going worried it's ending managed be You pre-roll. flower a into sure because the to is into

something will premium you end cigar the flower. more spectrum, then automation.And on is think get I into other segment a value-oriented, significant will at that's to that's you almost have that's that more premium a of be like much about I more more the So think that

think to it's why you talking about one have you're reasons exactly your that needs the for you I consumer there. tailored that's win. of a But I opportunity order narrowly it's keep know fits and where product a make So what segment sure such have exactly targeting. product very to think that And about innovation. about understanding in that I really big It's

Operator

Nadine One moment of Sarwat our next for question from will our Bernstein. next come question. And

Nadine Sarwat

then the my me. Two you of overriding factor. bottom Can of Or questions for signs And question. in are oversupply reaching markets you're comment seeing Any yet? terms the second being what in in still those on Canada? pricing

developing share position. years, Spinach it I that You in of called market commoditized edibles. people saying prove brands category. risks a back cannabis if strong within And couple strong especially has of could out look challenging developed were on a the being

sector, had to So I'm strong you the factors the you've curious experience a brand share cannabis? the say in success would hear behind in are of building with with what market

Michael Gorenstein

Sure.

the the excise important But they taxes I very And still product-based Building understanding -- taxes do I is on your on it the that the with seeing about first have actually needed that of are industry. need that we're maybe I do price you've compress isn't on product. wins really is taxes. think but big paying a for a the very And to compression in compression.And of question. needed that really be second flower, especially it how one I one they're of -- we think, that part the of prices.So is to in excise leveraging I it's on you what the is the excise paid. bigger collected. I focus, some LPs And portion think different a that given cost positions, will and solely see, excise will that's and happen things not brand, enforcement there the think actually has factors how supply, a and a generally, of the expect their reform is and tax Canada further something think are capital being So are trend to noticed really

into it's are brand cannabis we telling consumers about less community a very, marketing. have in that this features the and less people the of have building We story. At given bring about stage very on focused and one trying lifestyle to regulations that the product the It's actual a industry, in has.

thing matters. that. What's to in there, has effect us, edible cannabinoids?And So of combination one the think reasons certainly, the I you have the with see do the strength for we of really, key really

can do, Flavor that either or a is is different differentiator, extremely I also experiences with important. given is will, think leading we cocktail, CBG you part CBN with what CBC or of big flavor. but that if

is be I focused for just experience initial brands enjoyable something are that really on most cost. think want of I that, think to you that And it the consumers.

So like product, matters. any other experience matters, flavor

Operator

for And moment our from next come Canaccord. Bottomley will next Matt of one And question. our question

Matt Bottomley

Maybe continuing of just the giving Mike, there. the comments some just you're characteristics on on,

stores. there the continuing some of the Canada, But of range of in get $X Canadian landscape, and of regulatory like think still legalized But is seems are Ontario If at over lot maybe the are others legal do to stuck back the of a that like step it the be potential hard challenges have the markets will illicit maybe purchase through time overall what to already it opportunity it's now? only but keeping million channels. further which say, like you just saturation guys channels. to overall you XX% in look TAM future -- and market anything a seems customers seems regulatory in changes $X take And to been a some retail market able converted you to just has overall for outside million

Michael Gorenstein

think is. there Yes, I

of you that are I holding pricing when on think lot think those about on really those consumers and regulatory challenges, back value. a

premium on are I can there that side, think you things continue doing. more the

and we with platform. SOURZ you've the were able with edible So to do seen what

market consumer, the that still big will TAM. volume I view a come that's willing you're product, something that's to part is think the illicit to far consistent so a there premium that as come something chain, which if consumers of higher end, supply think opportunity. able a of in.And bigger has probably pay sort There a are over with different I that is transparent out as a highest a are

consumer in that into will be shift consumers for sure that a change can that deemed think provide legacy really really during will something that's bit I you better you that's habits market extracts that about something purchasing You regulatory legacy that a making and a a the product larger market.And quickly and important have more alternative, you has, I what I potency And that shows safer do. talked see when you can the transparent higher that's to a -- have pack conversion. side, the that kind the what of much so remarks. chewable think is can similar if that's a to combine

to think that I progress. So continues

That pre-roll able it and a to that I we're value, our innovation a to But continuing big supply the drive that then more premium it, specifically, things to I the improving be are on end is and regulatory will drive we're to change. think being industry main make X company think going those competitive. the is able will and be chain as as potentially with we're as more sure help. and

Matt Bottomley

it. of the just Federal and of dozens Banking just head some another I in reintroduced. me is Okay. for then Got there's level dozens question know interest past. SAFE And on U.S. in headlines. which of these is your And been fakes

those looking it a to White something how do what Or people reform be But are of cautiously. you I meaningful Biden's is to de-scheduling think maybe trying your are decisions important more with you Joe do of to headlines some will altogether? types think it and House capital? like deploy So potentially have at -- to

Michael Gorenstein

that getting probably biggest I the there with Banking really is to progress. thing has -- just think do SAFE

regulatory of big type for I an of think as it the and appropriate larger piece one really think important market it's and And things be as that think towards. solved like means pipeline.So what it's the in sort think and would XXXE we of in right of do capital that you showing of that the -- you have the underappreciated news But if reform, with catalysts U.S. far some sentiment as bellwether it's what big have wise. I of right, I markets, some a far as biggest, can most what getting you all the regulatory need, picture, the the But involved, just that's look capital getting base of rescheduling. significant the I we

I'm but currently I it's on going everyone progress. think to that's drafted, focused something really happens, prediction just it as think whether incremental it's more it. know or I SAFE moving. not on I Banking, not a is make

Operator

Ma Victor one come our of will And next Cowen. from And question our moment for next question. TD

Victor Ma

Victor Ma on for Vivien Azer.

you And some So product on on driving the in differentiation? color these edibles. defensibility were what also vapes is Can first, share more based any sequential in ex offer losses there Quebec, data Hifyre and trends? on Spinach's comment

Michael Gorenstein

Sure.

missed the sorry, question. last So I the of -- part and

Victor Ma

defensibility the in on comment Just product Spinach's differentiation.

Michael Gorenstein

Sure.

here biggest with extract. the think to seen thing we've that has I chewable do

and out amount with So top end sell And with did it. see SKUs we was this anyone right that think, made you defending were, chewable XX I very doing Health fair pantry once the winning extracts, at not announcement the would be Canada against of well a May. And now, in loading. to able by of of essentially X

are the didn't that in been back inventory just weeks. the fall more hope ready It's have would world look though, demand change to I defensibility today. there's edible. if in potency think And -- that and weeks, have year ramped has opportunity there's that that same consumers. there side that as any out that, absent term, also the up given And as of making I we is the takes think for gain and there the of sure way. few been that always to do our opportunity will -- in be to we right that might do So very gain continue that share. it far is this government for we've consistent defending that demand be offering take put as there.I But and the take we we'll long goes that given shift.And believe not that innovation and looking that into term things more making to able a being regulatory up, do might a of product shifts depleted, with approach the half quality few more that able longer higher expect, on is apart differentiation that see sure things share to I we sort But think offensively will budget something moat, with of the -- we compliant with be relatively big back a but I I certainly as think a on really only anything do we product

a it's otherwise. blip ultimately, than think And blip. chewable temporary us I around extract for So bullish circumstances is more the the

Victor Ma

for was sequentially I losses down the share in that category. just add on think can you the some vapes? And color well Great. as then share

Michael Gorenstein

Yes.

updates when think patterns think is has which that can relatively you bit was little is the small the with that when probably bit make a do trend you changeovers. concerned there. fluctuations. are a any the cards nuanced. made. to vapes has those And vape It see with there were like more potency, do what size But especially ordering I updates, And of to actual that we and don't you that about doing I I'm and

up. pick see back you'll that think I

Victor Ma

Great. And question. then just my second on

the these activity Or on are seeing competitive discounting? think quarter? you you activities? how enduring the increased can comment Are competitive So do you more over on Israel,

Michael Gorenstein

Yes. Sure.

discounting, consolidation, participants. I with to similar there's think there's been market more in seen some the Canada we've of what

consolidation. starting you're and more -- to see seen You've

the more exiting You'll market. companies see

against. Canada. think do I And capital enter as there look used try I I I it's opportunity I other ultimately, flower there's separate think lot innovations, certainly there's there's to relief the a Israel and focusing something we think biggest investment seeing was products that continue in change. to. It's that something in Canada defend you're Israel.But than think a share. less and to But to, in And companies we'll something in we've we're on more can it's is regulatory exits, seen Israel. in related like our we've been to think And biggest and with opportunity. able Canada, the take

Operator

Thank concludes for conference This today's participating. call. you

disconnect. may You now

Cronos (CRON) 9 May 232023 Q1 Earnings call transcript