Q1 2022 Cronos Group Inc Earnings Call
[music].
Okay.
Good morning, My name is Amanda and I will be your conference operator today.
I would like to welcome everyone to clinic group 2020, Q first quarter earnings Conference call.
Today's call is being recorded.
At this time I'd like to turn the call over to Shayne Laidlaw Investor Relations. Please go ahead.
Thank you Amanda and thank you for joining us today to review Chronis group's 2022 first quarter financial and business performance.
I am joined by our Chairman, President and CEO , Mike guaranteed and our CFO Bob <unk>.
<unk> group issued a news release announcing these financial results. This morning, which are filed on our Edgar and SEDAR profile. This information as well as 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 in 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.
We will now make prepared remarks, and then we'll move into a question and answer session with that I will pass it over to Curtis groups, Chairman, President and CEO , Mike corn seed.
Thanks Shane.
Don't know if you Miss me as much as I had missed all of you.
One way line, but can you go ahead and dive right in.
I founded Kronos because of the once in a lifetime opportunity to help build and shape an industry that has the potential to improve countless lives.
As CEO I am committed to re instilling a startup culture with a founder's mentality across all levels of the organization.
I want to thank our dedicated employees, who have worked very hard and continue to bring their passion for the industry and for Kronos to work with them every day as we navigate our strategic realignment.
We have set a strong foundation for ourselves.
A lot more work ahead of us and continuing to execute our vision.
Since this is my first call back as CEO I will start off by explaining Kronos and strategy, then I will outline my immediate priorities and finish with some color on our encouraging results this quarter.
The evolving legalization of cannabis industry presents a lot of opportunities for value creation in different verticals, such as agriculture ingredient supply granting products distribution and retail.
Many of the most well known cannabis companies are characterized by pursuing an asset heavy vertically integrated model.
This is different.
We believe that by focusing our resources on being the best branded products company, we will be able to win with consumers versus companies trying to be all things to everyone.
There is more than enough opportunity in the cannabis industry to create tremendous shareholder value by winning in any one vertical and ours is Brandon can have annoyed products.
When I started seven years ago, I think Canada, because it was the first federally legal market and.
And that created a unique opportunity to develop intellectual property built an elite team and ultimately had a leading branded portfolio of disruptive borderlands products that we could deploy in other markets like the U S. As they open up.
That is still our strategy today and as I'll discuss later, we are starting to see the results with consumers in Canada and Israel.
Creating an iconic brand cannabinoid products, it's about identifying a consumer need and building a product that hits that need.
Like other consumer products can add on products are differentiated by taste aroma appearance, the look feel of the product and the story of the brand.
That's the most important point of differentiation for us is the effect.
There are well over 100 unique cannabinoid that individually and in combination deliver different effects.
We continue to advance a disruptive platform that can deliver differentiated experiences.
Rare cannabinoid do custom tailored delivery system that delight consumers in ways that legacy cannabis products did not.
We're aware that winning in the branded product vertical is not an easy task and I want to address that head on.
Fierce competition in every mature legal market and the illicit market is extremely resilient.
But most of that competition is focused on price rather than quality and differentiation.
As a legal cannabinoid company, we have a natural cost disadvantage to the illicit market in North America with the tax and regulatory framework.
But we also have a unique advantage to deliver iconic branded product because we have the resources to think long term and innovate.
That is why it's so important for us to take the time to create the best products because it enables us to win on quality rather than competing in a race to the bottom.
We believe that better we'll beat first and we've seen that through the performance of our leading board with innovation in the market today like salaries by spinach and spinach fields.
And we believe that these superior borderlands products, we're winning with consumers in other markets as well.
Now that we level set the kronos identity and strategy I want to discuss my four key priorities.
First delivering margin accretive growth focusing on adult use products.
During my first day as CEO you heard me primarily focused on building our platform doing research and developing a great pipeline of branded products.
After years of hard work and investment we now have a solid platform great institutional knowledge of what consumers want and what can avenova can do and great Britain products hitting the market.
My first priority is validating the Kronos investment thesis by delivering top line growth.
We want to outgrow the industry in both Canada, and Israel and I want to make sure. We are growing in the right way and that means margin accretive growth.
I've talked in the past about being okay, with having higher opex and variable costs and the beginning of our products product launch cycle to prove out the demand and get the critical mass.
With the results we've been seeing from our products that are in market today, we're able to start focusing on improving margin.
Secondly.
Increased operational efficiencies and disciplined expense management and leading a successful transition from our peace Naturals campus to a more agile supply chain.
Our business model was never to be the farmer.
The wind down of our operations at our peace Naturals campus further aligns us with our priorities focusing on brands and R&D.
We now feel confident that the industry and our supply chain in Canada are at a maturity level, where we can implement this approach.
The peace Naturals campus is where it all began for us so the closing of sad for me personally.
I wanted to take a moment to recognize the contributions of the team members. There we wouldn't be where we are today without their hard work and dedication.
We'll always think of them as part of the Kronos family.
Optimizing our supply chain is a great start, but I want to make sure that we get back to operating with a lean scrappy startup. So we will continue to evaluate our cost structure across all areas of the business.
Sure.
Focusing investments on the highest return opportunities specifically boarder less investments.
We will continue to invest in our innovation pipeline to bring consumers the products they want and novel products that can surprise and delight.
It is important to us to have superior branded products that we can consistently replicate produce and distribute in multiple jurisdictions as they open up in the future.
We're creating board with innovations that we test learn and improve in the Canadian market with our Spanish brand.
The success of spinach is proof that we have the fundamentals right and our borealis products, winning in Canada with one of the best ways to be prepared for legalization in other markets.
We also want to continue to drive rare cannabinoid development and commercialization.
Rare cannabinoid give us the ability to differentiate our products by delivering unique effects that hit specific consumer needs.
Launching a rare cannabinoid sub brand spinach fields, a platform designed to deliver unique and enhanced experiences made possible through proprietary blend of rare cannabinoid is a great example of our board of lift product.
Our culture, TPG gummy and bait product lineup are doing well in market and we're just getting started.
I want our company to be mission ready to execute on bringing our amazing board of lift products to new markets with speed and efficiency and we have a very exciting innovation pipeline to execute on.
And last but certainly not least does this mean kronos to ultimately win in the U S cannabis market.
We bring most of our adult use products to consumers in Canada, but we continue to conduct extensive consumer insight work and all the regions in which we operate with a specific focus on the adult use market in the U S.
The U S remains a great place to learn more about the evolution of consumer preferences, while we focus on creating approaches and strategies to win in the markets we operate in today.
During my time, serving as executive Chairman I was focused on assessing opportunities in the U S.
The deal we did with pharma game that the strong foundation for our entry into the U S. And we will continue to foster a potential strategic relationships that we expect will enable adult use success in the U S.
With our evolving product portfolio and the most robust balance sheet and candidates I believe we sit in a solid position to execute on the branded cannabinoid product opportunity in the U S. Both through organic product development and disciplined and opportunistic M&A.
Turning to our results I want to highlight the progress in our rest of World segment, which is led by strong performance in both Canada and Israel.
First in Canada, we continued to streamline our branded adult use portfolio to focus on is finished and continue to organically grow market share across Canada.
Hi Fi our data in the fourth first quarter of 2022, spinach held an approximate 17% market share in the gummy category.
The three original salaries by finished gummies all ranked in the top 10 for market share in Canada.
In March we launched the fourth flavor of salaries by Finnish Cherry Lime, which is also quickly climbing the market share range.
We launched our first gummy in July of 'twenty, one the rapid consumer adoption of sour demonstrates our theory that first isn't always best and our strong ability to deliver differentiated <unk> product.
We continue to bolster our spinach flower offerings to meet consumer demands for larger formats that don't compromise on quality.
We recently launched a wedding cake and we'll continue to bring our highly sought after strain specific large format skus to market.
Our growth is coming from branded products not a value play that as an outlet for lower quality flower.
Success in the flower category is the culmination of year, the genetic green work, allowing us to now launch these great strength in market.
Similar to the agriculture market, we think the long term value created in the flower category will largely come from breeding proprietary genetics and as we've seen from our success in Israel. We believe this is the best way to create successful borderlands flower products.
<unk> is an area, where we don't want to just compete we want to win.
Following the switch to operating one gram formats, and the launch of our CPG base, we are starting to see market share pickup in this category.
According to high fire data in April our steady state portfolio entered the top 10 in market share in Ontario.
Following this achievement, we are launching new <unk> products in May in Alberta, BC, and Manitoba, Manitoba, including Cosmic Green Apple empowerment vortex in an effort to continue to expand national market share within the category.
Pre rolls are category, we think we can win and as well long term, we expect <unk> to become an increasingly more important category and believe there is a lot of opportunity to differentiate like.
Like Gummies, we don't need to be first to market, we want to be the best we are working on several developments within this category and look forward to sharing more news with you when the time comes.
Now I don't want to turn on one of the most underappreciated aspects of the Kronos story Israel.
The Israel market is the best example of how quickly the cannabis industry can reach its potential with the right regulatory framework.
The Israeli cannabis regulator the car has done a great job of setting up a regulatory framework that provides superior patient access to cannabis and also a great opportunity for sustainable industry growth.
For Kronos, Israel isn't an opportunity to place excess supply from Canada. It is a core market for us to deliver branded products that meet the needs of our consumers.
We believed and invested early in Israel back in 2017 and have boots on the ground actively manufacturing and selling peace naturals products.
Our strong position in Israel has helped kronos gain recognition in the market with pharmacy operators and consumers and led to us achieving top three market share.
These efforts have resulted in revenue within Israel of $9 1 million in the first quarter up approximately 90% from fourth quarter 21, and approximately 260% from the first quarter of 'twenty one.
Our results compare to an overall Israeli market that experienced an approximately 40% year over year growth in kilos sold in the first quarter.
We are confident we have a long runway of growth ahead of us in Israel.
From our products that are already in market and the opportunity to launch more borderlands products.
As a reminder, we started this year by undertaking a realignment of the business to better position Kronos to drive profitable and sustainable long term growth.
This realignment puts our brands and products at the focal point.
We announced two primary changes to the organizational structure.
First we centralized functions under common leadership, which is already bearing fruit in cost savings and driving faster decision, making.
We announced the planned exit of our peace Naturals campus and standards to further drive our asset light model.
With a substantial portion of our Canadian manufacturing moving to Kronos broke out while we continue to maintain other third party manufacturing relationships.
We are working fast to build out our own space within <unk> to support our needs moving forward.
We are incredibly pleased with the cultivation operations that broke out and continue to purchase high quality dried flower from them.
This marks a milestone in the evolution of our supply chain and Youre seeing some of the beneficial Cobb show through in the margin, which Bob will speak to about at greater length. During his remarks.
High level, we were able to purchase high quality flower, we broke out for less than what our internal cost of cultivation wise at the peace Naturals campus.
And since we also owned 50% of the equity there is additional upside to the margin improvement we get from shifting to <unk> that will show up in bottom line contribution.
<unk> was more than just a part of our supply chain.
It is an underappreciated asset with hidden value.
<unk> is really just getting started and while we are their largest customer if you exclude our purchases. They still had revenue of approximately $7 million this quarter to non kronos customers.
Given <unk> current and expected performance, we are confident in a total of approximately $97 million in senior secured loans that we made to <unk> and the <unk> in 2019, and <unk> has already started repaying alone.
That only strengthens our already leading industry balance sheet of approximately $1 billion in cash and short term investments.
Turning to appointments within the organization I'm excited to announce that Terry would you say was appointed general counsel after serving in an interim capacity since December of 'twenty one.
Terry has been with Kronos since 2018 and have been a critical player in helping build the organization to where it is today.
Terry has guided kronos through significant growth over the last few years, including the build out of our legal and regulatory affairs teams are strategic investment from Altria, Our ginkgo collaboration our investment in foreign Mccann and our menu product commercialization initiatives.
As we realign the organization to match our go forward strategy. Our primary focus will continue to be elevating our brand by utilizing borderlands innovation that can be deployed in new markets.
With that I'd like to pass it over to Bob to take you through our financials.
Thanks, Mike and good morning, everyone.
Reported consolidated net revenue in the first quarter 2022 of $25 million.
Which is a 99% increase from the first quarter of 2021.
Revenue growth year over year was primarily driven by an increase in net revenue in the rest of the world segment.
Driven by growth in the Israeli medical market.
In the Canadian adult use market.
Consolidated gross profit.
For the first quarter of 2002 was $6 9 million, representing a $9 9 million improvement from the first quarter of 2021.
Gross margin was positive 28%.
From a negative minus 23% last year.
The improvement versus prior year was primarily driven by increased gross profit.
And the rest of the World segment, which I'll get into in a little more detail shortly.
Consolidated adjusted EBITDA for the first quarter of 2022 was a negative $18 9 million.
Representing a $17 7 million improvement.
The first quarter of 2021.
This improvement versus the prior year was driven primarily by an improvement in gross profit.
And a decline in sales and marketing and research and development expenses.
In association with our strategic realignment plan.
Turning to our reporting segments.
And the rest of the World segment reported net revenue in the first quarter of 2022 of $22 7 million.
The 123% increase.
During the first quarter of 2021.
Revenue growth year over year was primarily driven by growth in Israel, which was up 263% year over year.
Largely attributable to the cannabis flower category and growth.
In Canada, which was up 79% year over year.
Led by our cannabis extracts category.
Which received a boost.
Through the introduction of our gummies platform, which did not exist in the prior year.
As well as an introduction of a one gram date.
Which provides a great value to the consumer.
Gross profit for the rest of the World segment for the first quarter of 2022 was $6 7 million.
Representing a $10 8 million improvement from the first quarter of 2021.
Gross margin was positive plus 30%.
Up from a negative minus 41% last year.
The improvement versus the prior year was primarily driven by increased cannabis flower revenue.
The introduction of additional cannabis extract products.
Tend to carry a higher gross profit margin than.
In other product categories.
Lower inventory valuation adjustments.
And lower depreciation expense as a result of the lower fair value of our peace Naturals campus.
Which is in connection with the impairment we took in Q4 related to our.
Our restructuring plan.
And lastly.
We experienced will read candidates biomass costs.
As we begin to further leverage our joint venture arrangement with Grupo which as Mike pointed out its been very successful thus far we're very happy with it.
Adjusted EBITDA in the rest of the World segment for the first quarter of 2022 was a negative $3 4 million.
That represents an $18 8 million improvement from the first quarter of last year.
The improvement versus the prior year was primarily driven by an improvement in gross profit as.
As discussed.
And a decline in sales and marketing and research and development expenses.
Associated with our strategic realignment.
Turning to the U S segment.
Ported net revenue in the first quarter of 2000 $22 million to $3 million.
Which represents a 5% decrease from the first quarter of 2021.
The decrease year over year was primarily driven by a reduction in volume as a result of the decrease in promotional spend.
The company works grew its review of the U S business as part of the strategic realignment.
Gross profit for the U S segment for the first quarter of 2022 was 200000 reps.
Representing a $1 million decline from the first quarter of 2021.
Gross margin was a positive 9%.
Down from a positive 48% last year the decline year over year was primarily due to an increased inventory valuation adjustments.
Higher shipping costs.
Unfavorable sales mix.
Adjusted EBITDA in the U S segment for the first quarter of 2022 was negative $7 1 million.
Representing a $2 4 million improvement from the first quarter of 2021.
The improvement versus the prior year.
Primarily driven by a decline in sales and marketing research and development expenses.
As we previously pointed out in a suit in association with our strategic realignment plan.
Turning to the balance sheet. The company ended the quarter with approximately $1 billion in cash and short term investments, which is down approximately $23 million from the fourth quarter of 2021.
Capital expenditures for the quarter were $700000.
90% year over year.
Driven primarily by reduced spending on property plant and equipment.
Across our facilities and the rest of the World segment.
We remain committed to deploying capital in a very disciplined manner and only in ways that align with our strategic priorities.
And return requirements.
With that I'll turn it back to Mike.
Thanks, Bob.
Our full confidence in our people our strategy and our future and I'm excited to keep working with our talented teams to build our highly differentiated brand and cannabinoid platform and drive long term value.
To sum things up I am pleased with the results of this quarter are.
Our gummies are a clear consumer favorites hitting the top of the charts in Canada.
We're executing in Israel, and driving strong revenue growth and we're making great strides in improving the margin profile of our business.
Can't wait to see a future where people around the world get to enjoy our next generation cannabinoid product.
With that I will open the line for questions.
Thank you to ask a question you will need to press Star and then one on your telephone.
Let me try your question. Please press the pound key.
Please limit to one question and one follow up question only.
Our first question comes from the line of Michael Freedman.
With Raymond James Your line is now open.
Hey, there. Thanks, so much for taking our questions will come back Mike. Thank you.
As Bob and chain.
Congratulations on this quarter the evolution of the business is beginning to really show through so congratulations on this.
First question is on the transition from from Peace Naturals campus to grow co glad.
Glad to hear that the transition is going well and you are seeing a cogs benefit there I wonder if you could.
Describe the.
Proportion of Kronos is biomass is derived.
Day from grow code versus.
From a wholesale or contract growers.
Yes, so in this quarter.
We actually purchased about $3 million of biomass from from <unk>.
That amount will continue to increase.
Demand was.
Since we're in the process of winding down our <unk> our transition rates. So we're finishing our last cultivation and harvest and we will finish production of that product.
Cetera, as we're ramping up <unk> at the same time.
And we believe.
One of our big gross margin opportunities going forward.
Really leveraging the grow co.
Relationship and the economics around cultivation of biomass, which is a big percentage of what we do what we sell.
But more and more to come on that and we anticipate that being a bigger a bigger piece of our gross margin improvement going forward.
Alright. Thank you that's really helpful and now a follow up.
Through our our coverage of <unk>.
We see it of course that you have <unk> on the market risk.
You received.
<unk>.
Producing microbe from.
Ginkgo.
Wondering if you could give us an update on your on your progress in the sort of.
Rare cultured cannabinoid segments.
And how you expect this to fold into krona Swiss border. This IP strategy and if there are some additional considerations for for exporting. These these particular cannot alright. Thank you.
Sure.
Thanks, and so when we look at it right now CTG is performing well and it's still early but just for the single SKU.
You're under sours, they're sorry feel.
<unk>.
Two 5% market share.
We're seeing great traction with the <unk> and so what we're seeing is that as we introduce rare cannabinoid into some of the delivery systems. We already have on the market. They are performing well and we see them as incremental and not not cannibalistic.
I'd say that we're also progressing really well as far as getting new cannabinoid and where our platform and I think youll see new cannabinoid introduced this year. So we're really excited not only to get CPG out into other product formats, but also.
New cannabinoid combinations.
Different formats.
And as far as borderlands products.
We see this as kind of Theres two things that go into the <unk> product is the delivery systems, and that's going to be something like the gummy platform.
We will have a number of other.
Really disruptive delivery system that we're launching and then there is the actual mixture of cannabinoid and thats, where the rare cannabinoid to come in so we see that really touching all parts of our.
Our board of list products.
The exception being just dry flower, but we're really excited.
Think that there won't be an issue with getting them into other federal legal markets as they open up and so that's one of the one of the most exciting things that we have to look forward to over the next year or two.
That's terrific. Thanks, very much I'll jump back in the queue.
Our next question is from John Santoro from CIBC. Your line is now open.
Yeah.
Thank you good morning, and welcome back Mike.
Wanted to start on Israel.
It was a remarkable number in the quarter on the top line I want to get a sense of what's your what's the repeat ability of this type resulting in I assume you don't want us using that as a baseline for future quarters, but just would like to get a sense of how volatile you expect results to be from Israel in the coming quarters.
Sure. Thanks, that's a great question.
Just as a reminder, when you think about our business in Israel versus some of our peers.
This isn't lumpy <unk> wholesale transaction. This is really driven by branded sales that we're making through pharmacies. So we actually see it as consistent with kind of an.
We've been expecting to see see growth for quite some time and it's.
It really is a great market I think our brand is extremely well received.
Got a good team that's pushing things forward.
So we're very optimistic about the future in Israel, and we don't see things as lumpy and we think that there is additional.
Opportunities as as the market continues to grow both from the products, we already have on market and being able to launch more products in the market, but we think there is a great opportunity, especially because of the fact that we arent competing within illicit market. The same way that we compete with in illicit market in North America.
Okay. That's that's helpful. Thank you and then as a follow up on the CPG side.
It does seem like you have really positive reception of these products both on gummies and debates I Wonder if you have any data or any insight on how much of this is from novelty of these products I think which does exist to some extent.
<unk> repeat purchases is there anything you can share on that front.
Yes, I think you get a lot of great feedback on the actual experiences that you are getting or the consumers are getting from the CPG products. So we don't see it as simply a novelty or trial I think when we get that type of feedback in.
We got that feedback from the consumer insight work, we did early on.
We really do expect this to be.
Something again, it's additive.
And something that we see more growth and we think that there is there is more to come with some of the other cannabinoid as well.
Got it okay. Thanks, very much I'll pass it on.
Our next question is from the line of Andrew Carter from Stifel. Your line is now open.
Hey, Thanks. Good morning first question I wanted to ask about the shipments in Canada. It looks like they were down 24% sequentially. Our headset data says your consumption was down 12%. So I guess could you could you unpack that a little bit in terms of I know you did was there any discontinuation of Cove in there was there pricing and are there any inventory reduction.
The province is going on.
Okay.
No.
Go ahead Mike.
Yes.
Start off when you look at it I think from Q4 to Q1, there is certainly seasonality and we see that every year.
I think year over year, you saw a lot of improvement.
But certainly there is some of that and you saw on the industry I think one thing that we are.
Happy that call it a silver lining as we still did gain market share in the quarter.
But we think theres a lot of additional levers we can pull to.
To continue growing revenue and not just market share so I'll kick it over to Bob for for some of the other nuance as well.
The other encouraging thing is a lot of our new product innovations turned to do kind of hero Skus for us at the end of the day, particularly a lot of our sours.
Wine, but other new product innovations too.
And with the margin increase in the quarter.
It's just an evolution of what we think the opportunity is going forward also right not just in Canada, but for rest of the world.
And the business in general so.
Mike pointed out a little bit of the seasonality between Q4 and Q1 in Canada in particular.
What we've seen particularly as Mike pointed out with market share gains.
Are extremely encouraging and the fact that the business was up but it was in the quarter.
It is encouraging to couple that with the margin improvement.
We feel like we're really moving this business in the <unk>.
Right direction.
Line with the strategy, that's been pretty consistent right. So we're excited about it.
Yes, I understand seasonality and that's where I started with consumption was down 12% I'm asking the shipments were down 24, and what I'm, saying is specifically I'm looking at it extracts theyre up five your edibles were up 15% sequentially.
Where are you getting your fair share of shipments at the provincial level, where did there were any orders and I'm guessing with as well as spinach is doing it's probably short on inventory at the province, they might you might be wanting to increase anything you can help me out on that side.
Yeah, No look I think I think it's got a time opportunity.
Good luck.
Yes, Andy I think sometimes you do see lumpiness in how the provinces order.
We have great relationships with retailers and I think the most important thing is making sure that the retailers are pulling through and selling and when you see that I think.
That sort of normalizes and how the provinces tend to order after so.
I think we're seeing especially towards the end of the quarter things.
Things picked up and we think that progress should continue through going forward.
Last one from me today, you mentioned something about evaluating the U S CBD business and Im looking I think I guess, it's like $11 million cost or so for the quarter. How does that work with altria going forward I mean in terms of this environment right now the quasi federal legal Youre only doing that is do you all see it still see an opportunity to work.
Together in this environment or does this evaluation just consider hey, we might not be able to create value here just conserve resources for full Phd.
Yes, I think look having altria has a very powerful torque tool and they're a great partner and I think we think about it in a very aligned way.
We don't see the opportunity to create value.
I don't think either one of us would push it.
We wanted to do is make sure we have a product offering that we know consumers really want before we turn on the type of distribution that they have and so we're evaluating all types of things different different products I think.
When we looked at what we did with Canada to get back to growth a lot of that had to do with focusing on a few kind of core hero, skus, which strengthen things and.
And also looking at rare cannabinoid to the driver and so.
Those are going to be some of the levers we'll look to poll, we certainly are focused on.
Some bottom line optimization, especially in this environment, so that will come into play.
We kind of a similar view at the end of the day, we want to make sure that.
Anything we're doing for top line growth that it's ultimately margin accretive.
So I'll pass on.
Our next question is from the line of Matt Bottomley from Canaccord. Your line is now open.
Yes, good morning, welcome back Mike and thanks for taking the questions just wanted to get maybe more of a higher level of indication from you of where the international opportunities are going for Kronos.
It seems to be clipping, along wells a couple of other public companies that seem to be making headway as that as that country potentially goes towards full adult utilization. So I'm. Just wondering if you could touch on on other market opportunities that might come into the Fray here in the next 12 months as well as your prospects for adult use in Israel.
Sure so.
One of the things that we've learned is making sure that we're focused and we're entering the REIT market is really really important so we do still have.
In Germany, and when we look at opportunities that are going to open up I don't want to say it's necessarily.
Opportunity to enter adult use in the next 12 months, but we do know that there is legislation is starting to move and so we want to make sure that anywhere we go into.
For the amount of cost and time it takes its something thats really exciting and we can we can ultimately start getting the results that we're getting in Israel.
I would put Germany towards the top of the list.
But we're not really looking for some of the smaller medical opportunity that we don't see translating into adult use formats. We do think a lot of the medical markets are sort of.
Beginning of the transition to adult use when you start to get upside. So I would I would highlight Germany, we certainly monitor a number of other markets and optimism but.
There's a lot of things moving in the world, especially in Europe right now.
Tend to derail some of that progress and so we'll be cautious.
As far as Israel with interesting is.
Everyone does asked about adult use and we do think that that will happen at some point.
But we don't need adult use continue to see.
Sustainable really durable growth there so.
I think theres a lot of runway in the medical market over the next year or two years, we know that theres been a lot of discussion and a lot of.
A lot of excitement for adult use both from consumers and from regulators.
So I wouldn't expect it in 'twenty two I do think it's on the horizon, but I don't think that should slow down our growth there.
Okay understood and then just maybe a follow up just in terms of the company's philosophy on.
Capital investment or a strategic investment into various markets. Obviously, you guys are sitting on a good chunk of change.
And when you look at the potential for THC exposure for Kronos in the U S that could be a year, where it could be who knows three four years away.
Or do you decide between sitting on the cash reserves that you have for potentially the homerun of USDA versus maybe getting inroads in some of these other.
Headline any type of market, but ones that are starting to open up outside of North America.
Yes, I think that's a great question.
Overall, I think you have to look at where things will go long term and whether it's the U S. Whether it's the market in EU I do think it is going to be branded products that are going to matter. So it really depends on how the market evolves and how we'll invest ultimately the most important thing. We can do is have the best branded.
Product portfolio and so that's when we think about borderless investments, making those investments now and getting the product offering right.
We're able to move into a market.
And get those products to consumers, we will win in markets. When we go in now that might take additional investment around either manufacturing or distribution, depending on how the market and the regulations set up and Thats a lot of what the capital be used for.
But youre right, there will be evaluation of whether or not it makes sense to deploy in the U S or other markets I do think we have optionality from a balance sheet that it is not necessarily either or it is just looking what is the ROI on the investment.
But when we look at the U S from a philosophy perspective.
We arent going to be looking to buy licenses or just say how many licenses are in X state what's the math.
Making sure we just have the opportunity to get our products and our brands out to consumers.
And also if we see brands that are performing well.
Additive to our portfolio, that's something that we'll look to invest in or acquire.
But I think it's a little bit of a different strategy than what you see most of the headline U S investments debate and I think over the coming quarters Youll see as supply starts to catch up with demand and a lot of the.
Limited license states that it will also become a branded game.
Alright, thanks for all that.
Thank you and as a reminder, if you'd like to ask a question press star and the number one on your telephone keypad.
Our next question is from Gaurav Jain from Barclays. Your line is now open.
Hi, Thanks, a lot.
Apologies. If this question has already been asked but together, but this quarter is probably the lowest that it has been a long time.
Taylor.
Does the new run rate, which we should assume this is going.
We're going to continue on a steady basis.
As mentioned earlier so that's my question number one.
I'm sorry <unk>.
Kind of came in and out a little bit.
So can you repeat your question. Please sure apologies for that so im asking about this.
8 million EBITDA loss that you ever reported for Q1.
Is that a good run.
For the next three quarters.
So we don't we're not going to give the guidance on what the EBITDA run rate should be going forward we.
We're just generally not giving guidance right now I will say that we have a lot of cost savings programs that we've put in that haven't fully hit yet and we expect.
Start coming in the back half of the year end.
That we are very focused on not only for what we've announced but also additional cost saving initiatives.
That being a focus.
You can expect us to put a lot of work and trending to continue to improve EBITDA.
Sure. Thank you and my second question is just on the stock price and where it does that.
EV of the company is almost equal.
The cash balance on the balance sheet. So is there a way for you to deploy the cash flow that share repurchase that's not something you will consider.
Sure.
Well look I think my focus right now is on doing what we can to improve the.
The business fundamentals make sure that we're set up for growth in the future.
I think if we do that we tend.
To have the stock price follow but focus today is really on.
Business and end market performance and hopefully.
Hopefully all of the analysts on the call can can help communicate what the stock market you need to follow it.
Thanks, a lot.
I'm showing no further questions at this time. This does conclude today's conference call. Thank you for participating you may now disconnect.
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