Cronos Group Earnings Preview: Looking For Updates On Capacity Expansion Plans
The Cronos Group (NASDAQ: CRON) (TOR: CRON.TO), a vertically integrated Canadian marijuana company, is expected to publish its second-quarter results on August 14. While the company hasn’t yet been posting financial results of much consequence (sales stood at ~$2.9 million during Q1), a key factor to watch will be the company’s progress with its capacity expansion plans, considering its recent moves to scale up distribution, enter new geographic markets and launch new recreational brands.
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Capacity Expansion In Focus
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Cronos needs to aggressively scale up its manufacturing capacity and production volumes, considering that its home market of Canada looks set to begin the sale of recreational marijuana to adult consumers. Cronos is preparing for this legalization by improving its retail footprint via a joint venture with U.S.-based company MedMen, which will help it develop branded products and open stores across Canada for the sale of recreational marijuana. Separately, the company is also looking to capitalize on export markets such as Europe, which is showing strong potential for medical marijuana.
However, the company’s manufacturing capacity remains limited. During Q1, the total production of dry flower cannabis stood at 788 kilograms. While Cronos had just about 6,650 kg of annual capacity at the end of last year, it has indicated that its annual production capacity will exceed 47,000 kg by early 2019, and reaching this capacity will be crucial for the expansion of the company’s top line. Cronos is scaling up its Peace Naturals indoor facility in Ontario, while building a greenhouse in Israel and another indoor facility in Australia via a joint venture. The company is also creating a new oil extraction lab at its Peace Naturals facilities, which should allow it to create new cannabis capsules, tinctures, and ointments, which are generally more lucrative compared to dried cannabis. We will be looking for further updates on how the company’s expansion plans are progressing.
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