Earnings call transcript: Cronos Group Q3 2025 beats EPS forecasts

Cronos Group Inc. reported its third-quarter 2025 earnings, showcasing a significant earnings per share (EPS) beat with actual EPS of $0.07 against a forecast of $0.02, marking a 250% surprise. However, revenue fell short of expectations, coming in at $36.34 million compared to the anticipated $37.3 million. Despite the revenue miss, Cronos’s stock saw a premarket rise of 4.08%, trading at $2.55, indicating positive investor sentiment driven by the strong EPS performance.

Key Takeaways

• Cronos reported a significant EPS beat, exceeding forecasts by 250%.
• Revenue fell short of expectations, with a 2.57% miss.
• The company’s stock rose 4.08% in premarket trading.
• Strong performance in cannabis sales in Israel and Canada.
• Expanded market presence, now in seven countries.

Company Performance

Cronos Group demonstrated robust performance in Q3 2025, driven by increased cannabis sales in Israel and Canada. The company completed the second phase of its GrowCo expansion, which is expected to boost flower production capacity by 70%. The company also expanded its distribution network to include seven markets, enhancing its international presence.

Financial Highlights

• Revenue: $36.3 million, up 6% year-over-year.
• Gross profit: $18.3 million, with a gross margin of 50%, a 19 percentage point increase YoY.
• Adjusted EBITDA: $5.7 million, showing an improvement of $11.7 million YoY.
• Cash position: $824 million in cash, cash equivalents, and short-term investments.

Earnings vs. Forecast

Cronos’s EPS of $0.07 significantly exceeded the forecast of $0.02, resulting in a 250% surprise. However, revenue was slightly below expectations, with a 2.57% shortfall. This mixed performance reflects the company’s ability to manage costs effectively while facing revenue challenges.

Market Reaction

Following the earnings announcement, Cronos’s stock rose by 4.08% in premarket trading, reaching $2.55. This increase suggests that investors are optimistic about the company’s ability to deliver strong earnings despite revenue challenges. The stock’s performance is notable given its 52-week range of $1.60 to $3.16.

Outlook & Guidance

Cronos remains focused on global expansion and anticipates improved flower sales in 2026. The company expects international revenue in the second half of 2025 to mirror the first half’s performance. Future guidance indicates a cautious outlook, with EPS forecasts suggesting potential challenges ahead.

Executive Commentary

CEO Mike Gorenstein stated, "Cronos Group delivered another record quarter in Q3 2025," emphasizing the company’s focus on top-line growth and margin expansion. He added, "Our performance this quarter demonstrates that Cronos’s core business is strong."

Risks and Challenges

• Regulatory changes in key markets could impact operations.
• Competitive pressures in the cannabis industry may affect market share.
• Economic uncertainties could influence consumer spending on cannabis products.
• Supply chain disruptions may impact production and distribution.

Q&A

During the earnings call, analysts inquired about the impact of the GrowCo expansion on future capacity and the timing of international shipments affecting revenue. The company addressed potential margin improvements from facility optimization, which could enhance profitability moving forward.

Full transcript - Cronos Group Inc (CRON) Q3 2025:

Amber, Conference Operator: Good morning. My name is Amber, and I will be the conference operator today. I would like to welcome everyone to the Cronos Group’s 2025 third-quarter earnings conference call. Today’s call is being recorded. At this time, I would like to turn the call over to Harrison Aaron, Senior Director, Investor Relations and Corporate Development. Please go ahead.

Harrison Aaron, Senior Director, Investor Relations and Corporate Development, Cronos Group: Thank you, Amber. Thank you for joining us today to review Kronos’s third-quarter financial and business performance in 2025. Today, I am joined by our Chairman, President, and CEO, Mike Gorenstein, and our CFO, Anna Shlimak. Kronos issued a news release announcing our financial results this morning, which is filed on our EDGAR and CER 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 HighFire. 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’s Chairman, President, and CEO, Mike Gorenstein.

Mike Gorenstein, Chairman, President, and CEO, Cronos Group: Thanks, Harrison, and good morning, everyone. Cronos Group delivered another record quarter in Q3 2025, underscoring the continued strength of our core business and the success of our global strategy. Our results were driven by robust demand across key markets and product categories, highlighted by outstanding performance in Israel. We remained focused on delivering top-line growth, margin expansion, and disciplined cost management as we continue to strengthen our operations and position the company for sustainable profitability. In Canada, flower supply constraints led to softer flower revenue year over year, yet these declines were largely offset by continued outperformance from our market-leading edibles and significant growth in the vape category. The phase two expansion at GrowCo is now complete, and flower sales commenced in fall of 2025.

As with any cultivation expansion, it typically takes time to dial in the new facility, and while we’re on schedule and making great progress, we expect improvement over time. Overall, we believe flower sales will improve in 2026 with resolution of our supply constraints driven by the Groco expansion and the increased supply of the high-quality flower, which our brands are known for. Our Spinach brand continues to be a standout performer, ending the quarter as the number two cannabis brand in Canada with 4.5% overall market share. In flower, Spinach ranked number four in Canada with 4.9% share, and in vapes, Spinach achieved 7% share across Canada, moving up in the ranks to the number three overall vape brand. In the vape cartridge subcategory, we achieved the number two market position with 9.5% market share.

A number of our vape SKUs are among Canada’s top sellers, including Pink Lemonade, which was the best-selling 1.2-gram vape cartridge in Canada. In edibles, Spinach strengthened its category leadership, holding the number one position with 19.7% market share. Within gummies, Spinach led the market with 22.8% share, with four products ranking in the top 10 nationally. In Q3, Sour has continued to build on its category leadership in edibles with the launch of fully blasted multi-packs featuring liquid diamond-infused gummies. These multi-packs are available in five of our most popular flavors, giving consumers more choice, convenience, and value when purchasing Canada’s number one cannabis edible. We also launched two limited-edition seasonal offerings in the quarter, continuing to keep our assortment fresh and exciting for consumers.

The popular Sour’s Caramel Green Apple Gummy returned as a limited-time flavor, and we introduced the Sweet Green Apple 1-gram vape, featuring crisp, refreshing apple flavor notes that complement our edible lineup and strengthen the brand’s presence in the vape category. Together, these new launches reinforce the brand’s reputation for flavor innovation and product quality while driving continued consumer engagement and retail momentum heading into the holiday season. Turning to Lord Jones, the brand continues to elevate its premium positioning in Canada. In chocolates, Lord Jones holds a 10.7% market share, number three in the category, with Salted Caramel Crunch Chocolate Fusions ranked among the top 10 chocolate edibles nationally. The brand maintained its leadership position in hash and live resin-infused pre-rolls with 17.5% share, and we’re excited to have launched live resin caviar-infused pre-rolls in August, further strengthening our footprint in premium formats.

In Israel, Cronos Group achieved another quarter of record net revenue, delivering exceptional growth across both the flagship Peace Naturals brand and the value-focused Lit brand. The high quality of our product offering and the sales team’s focus on pharmacy partnerships have combined to strengthen our leadership position and engagement with patients, driving the strongest months in company history in July and August. Peace Naturals remains the number one medical cannabis brand in Israel, according to pharmacy data collected by Cronos Group, underpinned by strong demand for flagship strains like Wedding Cake, the best-selling product in the market, and GMO, the second best-selling product in the market. In Q3, Cronos Group Israel continued to innovate, introducing new strains Animal and OGC grown indoors in Israel under a new limited-edition product series.

We’re also encouraged that Israel’s medical patient count has returned to growth in 2025, with patient count up nearly 5% year to date, following a 6% decline in patient count in 2024, resulting from reforms to the country’s medical cannabis program, according to data from Israel’s Medical Cannabis Agency. Across our other international markets, results were lighter this quarter due to shipment timing, which pushed some revenue recognition into the fourth quarter. Given this dynamic, we expect the second half of 2025 net revenue for other international markets to be similar to our first-half results. Germany continues to be the standout contributor, even as we monitor potential regulatory changes that could shape future market dynamics. We’re encouraged by traction in Switzerland, where Peace Naturals is now available through the country’s medical network.

With our distribution also ramping up in Australia, Peace Naturals products are now available in seven markets: Canada, Israel, Germany, the U.K., Australia, Switzerland, and Malta. Finally, Cronos Group maintains one of the strongest balance sheets in the industry, with no debt and $824 million in cash, cash equivalents, and short-term investments, providing the flexibility to continue investing in growth, innovation, and global expansion. Now, I’ll turn it over to Anna to walk you through the third-quarter financials.

Anna Shlimak, CFO, Cronos Group: Thanks, Mike, and good morning, everyone. I will now review our third-quarter 2025 results. The company reported consolidated net revenue of $36.3 million, a 6% increase year over year. The net revenue increase was driven by higher cannabis flower sales in Israel and higher cannabis extract sales in the Canadian market, partially offset by a decrease in cannabis flower sales in the Canadian market. Gross profit and adjusted gross profit in the third quarter were $18.3 million, equating to a 50% gross margin, a 19 percentage point improvement from 31% adjusted gross margins in Q3 2024. The year-over-year gross margin improvement was driven by higher average sales prices due primarily to a mix shift to Israel, higher sales volumes, and production efficiencies, as well as by favorable inventory dynamics, which benefited Q3 2025 gross margins.

Given this favorability, we would view the blended adjusted gross margins over Q2 and Q3 as more indicative of the current underlying margins of the business. Operating expenses, excluding restriction costs and impairments, were $18.6 million in the quarter, a year-over-year decline of $4.3 million, driven by a $3.5 million year-over-year decline in G&A. Adjusted EBITDA in the third quarter was $5.7 million, an improvement of $11.7 million year-over-year, driven by a higher gross profit and lower operating expenses. We view the average adjusted EBITDA over Q2 and Q3 as more indicative of the current underlying profitability of the business.

Turning to the balance sheet and cash flow statement, the company ended the quarter with $824 million in cash, cash equivalents, and short-term investments, down $10.2 million from Q2 2025, driven primarily by our $18.4 million convertible loan and warrant investment in High Tide, as well as by $5.8 million working capital outflow, $4.6 million of CapEx spend, and $1.9 million of share repurchases, partially offset by positive cash flow from operations before changes in working capital of $19.1 million and a $1.3 million FX benefit. In summary, our third-quarter results set records across net revenue, gross profit, and adjusted EBITDA, demonstrating continued improvement in our operating fundamentals as we execute against our business objectives. With that, I’d like to hand it back to Mike for a brief comment before we go into Q&A.

Mike Gorenstein, Chairman, President, and CEO, Cronos Group: Thanks, Anna. To wrap up, our performance this quarter demonstrates that Cronos’s core business is strong and is a testament to our borderless product strategy. With leading adult use brands, Spinach and Lord Jones, and momentum in Israel and internationally with Peace Naturals and Lit, alongside the recently completed expansion at GrowCo, we’re well positioned for continued growth as we look forward to 2026. We are confident in our strategy and excited to end 2025 strong. Thank you, and we’ll now open the line for questions.

Amber, Conference Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press Star 11 on your phone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Bill Kirk of Roth Capital Partners. Your line is open.

Bill Kirk, Analyst, Roth Capital Partners: Hey, good morning, everybody. Mike, you mentioned sales out of Groco expansion beginning in the fall. Would any of that have occurred in 3Q? When you talk about growth in 2026, can you help us think about the magnitude, right? The capacity expansion for you is about 50%, but there were some comments about optimizing that facility over time. When you talk about growth in 2026, how much do you have in mind?

Mike Gorenstein, Chairman, President, and CEO, Cronos Group: Sure. Thanks, Bill. Yeah, I think, you know, so you see when Groco comes online, part of that is when the sales come to us versus third-party, and it was certainly towards the end. I don’t think you’ve really seen a lot of that hit yet. That’s something that will gradually show up, and I think you’ll see also as we dial it in, that magnitude will really increase into 2026. You know, going through the first cycle. The 70% capacity increase on flower is a good way to kind of think about how that can start to impact revenue going forward, with the variables being sort of which market it gets allocated to and given the different pricing. We think it’s a great growth driver along with other increases in brand launches that we have, or sorry, product launches we have in our existing markets.

Bill Kirk, Analyst, Roth Capital Partners: Awesome. Anna, you talked about 2Q and 3Q gross margins blended as indicative of underlying gross margins. Would you expect underlying to improve with the new Groco capacity? Go forward, it is different than 2Q and 3Q blended. It is something else because now Groco is online.

Anna Shlimak, CFO, Cronos Group: Yeah, I think that’s right. We could, in the future, see benefits from increased fixed cost absorption as that facility dials in. I would say, in the short term, closing out the year, a blend of Q2 and Q3 is indicative of the business’s margins.

Bill Kirk, Analyst, Roth Capital Partners: Awesome. I’m going to selfishly sneak one more in. There were two things, I guess, that weighed slightly on 3Q. In Canada, you called out flower supply constraints. How much did that impact 3Q? Then international, outside of Israel, there was the shipment timing shift into 4Q. How big was that?

Mike Gorenstein, Chairman, President, and CEO, Cronos Group: Thanks. Yeah, I think we’ve definitely been weighed down by not having enough flower. That’s one of the reasons it’s been so important to get Groco online. I think that when you look at overall top line, that’s been something that certainly eased up. I just want to point out, I think there is still a margin difference in Canada versus international. Going forward, you’ll see costs, I think, a little better with the expansion and fixed cost absorption from Groco. The more allocated to Canada versus international markets would pull down sort of the margin without accounting for the cost decreases. I still think it’s all net positive. I think you should think about the shipment timings being something that will normalize so that this half will look kind of like the first half.

Bill Kirk, Analyst, Roth Capital Partners: Awesome. Thank you, guys.

Amber, Conference Operator: Thank you. I am showing no further questions at this time. I want to thank you for your participation in today’s conference. This does conclude the program, and you may now disconnect.

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