Q2 2024 Cronos Group Inc Earnings Call

August 8, 2024

Andrea: Good morning. My name is Andrea, and I will be your conference operator today. I would like to welcome everyone to Cronos Group's 2024 Second 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.

Andrea: Good morning, my name is Andrea, and I will be your conference operator today. I would like to welcome everyone to Cronos Group's 2024 second quarter earnings conference call. Today's call is being recorded.

Good morning. My name is Andrea and I will be your conference operator today. I would like to welcome everyone to Cronos Group's 2024 Second 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.

Operator: Welcome everyone to Cronos Group's 2024 Second 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.

Shayne Laidlaw: At this time, I'd like to turn the call over to Shayne Laidlaw, Investor Relations. Please go ahead.

Shayne Laidlaw: Thank you, Andrea, and thank you for joining us today to review Cronos's 2024 second quarter financial and business performance. Today I am joined by our Chairman, President, and CEO Mike Gorenstein and our CFO James Holm. Cronos issued a news release announcing our financial results this morning, which is filed on our EDGAR and Cedar profiles. This information and the prepared remarks will also be posted on our website under Investor Relations.

Shayne Laidlaw: Thank you, Andrea, and thank you for joining us today to review Cronos' 2024 second quarter financial and business performance. Today, I am joined by our chairman, president, and CEO, Mike Gorenstein, and our CFO, James Holm.

Shayne Laidlaw: thank you andrewa and thank you for joining us today to review chronosis two thousand and twenty four second quarter financial and business performance today i am joined by our chairman president and ceo mi gornstein and our cfo james home

Shayne Laidlaw: Cronos issued a news release announcing our financial results this morning, which is filed on our EDGAR and CDAR 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 statement.

Shayne Laidlaw: Cronos issued a news release announcing our financial results this morning which is filed on our EDGAR and CDAR profiles. This information and the prepared remarks will also be posted on our website under investor relations.

Shayne Laidlaw: 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.

Shayne Laidlaw: 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.

Speaker Change: 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.

Speaker Change: factors that could cause actual results to differ materially from expectitations 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

Shayne Laidlaw: Information about non-GAAP financial measures, including reconciliation to U.S. GAAP, can also be found in the earnings materials that are available on our website.

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. Unless otherwise stated, all market share data is provided by HiFIRE.

Shayne Laidlaw: Unless otherwise stated, all market share data is provided by HiFIRE. Now, I will make prepared remarks, and then we will move into a question and answer session. With that, I'll pass over to Cronos' Chairman, President, and CEO, Mike Gorenstein.

Shayne Laidlaw: Lastly, we will be making statements regarding market share information throughout this conference call. Unless otherwise stated, all market share data is provided by High Fire.

Shayne Laidlaw: We will now make prepared remarks, and then we will move into a question and answer session with that.

mike gornstein: we will now make prepared remarks and then we llwill move into a question-and answer session with that i'll pass over to carnce's chairman president and ceo mike gornstein

Michael Gorenstein: I'll pass over to Cronos's Chairman, President, and CEO Mike Gornstein. Thank you, Shane, and good morning, everyone. The Canadian market has been characterized by extreme cycles of supply, demand, and balances. In the early days of legalization, there was not enough supply to meet demand, which caused many investors and industry participants to measure value using metrics such as funded capacity. This essentially rewarded companies that were building large cultivation facilities with higher valuations, which they then used to raise more capital and build even more capacity. This placed a lot of industry focus on facility size, not on production efficiency or product quality.

Mike Gorenstein: Thank you, Shayne, and good morning, everyone. The Canadian market has been characterized by extreme cycles of supply, demand, and balance. In the early days of legalization, there was not enough supply to meet demand, which caused many investors and industry participants to measure value using metrics such as funded capacity. This essentially rewarded companies that were building large cultivation facilities with higher valuations, which they then used to raise more capital and build even more capacity.

mike gornstein: Thank you, Shayne, and good morning, everyone. The Canadian market has been characterized by extreme cycles of supply-demand imbalances.

mike gornstein: In the early days of legalization, there was not enough supply to meet demand, which caused many investors and industry participants to measure value using metrics such as funded capacity.

Speaker Change: This essentially rewarded companies that were building large cultivation facilities with higher valuations, which they then used to raise more capital and build even more capacity.

Mike Gorenstein: It placed a lot of industry focus on facility size, not on production efficiency or product quality. As a result, total supply quickly ballooned and significantly outpaced demand. The industry structure and expectations were all set up with price assumptions that were three to four times what they are today. And that created a market structure with high excise tax, high provincial margin, and high regulatory costs. However, companies with inefficient production facilities, having already built significant capacity, had to capture a significant market share for their business models to work, and attempts to get that market share led to price compression.

Speaker Change: This places a lot of industry focus on facility size, not on production efficiency or product quality.

Michael Gorenstein: As a result, total supply quickly ballooned and significantly outpaced demand. The industry structure and expectations were all set up with price assumptions that were three to four times what they are today, and that created a market structure with high excise tax, high provincial margin, and high regulatory fees. However, companies with inefficient production facilities, having already built significant capacity, had to capture significant market share for their business models to work, and attempts to get that market share led to price regression. Many of these companies continue to raise capital, albeit on much less attractive terms, and hopes to survive long enough to benefit from expected tailwinds of attractive international markets opening or rationalization in the Canadian market.

Speaker Change: As a result, total supply quickly ballooned and significantly outpaced demand.

Speaker Change: the industryute structure and expectations were all set up with price assumptions that were three tofour times what they are today and that created a market structure with high excise tax high provincial margin and high regulatory feess

Andrea: Good morning, my name is Andrea and I will be your conference operator today. I would like to welcome everyone to Cronos Group's 2024 second quarter earnings conference call. Today's call is being recorded.

Speaker Change: however companies with inefficient production for sh facilities having already buildil as capacity had to capture a significant market share for their business models to work and attempts to guess at market share led to price aggression

Shayne Laidlaw: At this time I'd like to turn the call over to Shayne Laidlaw investor relations. Please go ahead.

Mike Gorenstein: Many of these companies continue to raise capital, albeit on much less attractive terms, in hopes of surviving long enough to benefit from expected tailwinds of attractive international markets opening or rationalization in the Canadian market. Some have resorted to not paying excise taxes to artificially lower their cost of production, and other lab shops to artificially inflate consumers' perception of quality via higher potency limits. However, with global macro events taking priority with policymakers,

Michael Gorenstein: Many of these companies continue to raise capital, albeit on much less attractive terms, and hope to survive long enough to benefit from expected tailwinds of attractive international markets opening or rationalization in the Canadian market. Our team has introduced thoughtful innovations across various categories, and I'm incredibly proud of what we've accomplished from a brand perspective. Our commitment to quality, innovation, and investment in genetic breeding keeps us at the forefront of the flower category. In the edibles category, Spinach had 15.6% market share in Q2.

Speaker Change: Many of these companies continue to raise capital, albeit on much less attractive terms, in hopes to survive long enough to benefit from expected tailwinds of attractive international markets opening or rationalization in the Canadian market.

Shayne Laidlaw: Thank you Andrea and thank you for joining us today to review Cronos's 2024 second quarter financial and business performance. Today I am joined by our chairman president and CEO Mike Gorenstein and our CFO James Holm. Cronos issued a news release announcing our financial results this morning, which is filed on our Edgar and Cedar profiles. This information and the prepared remarks will also be posted on our website under investor relations. Before I turn the call over to Mike, let me remind you that we may make forward looking statements and refer to non get financial measures during this call.

Michael Gorenstein: Some resorted to not paying excise taxes to artificially lower their cost of production, and others lab shop to artificially inflate consumer perception of quality via higher potency label claims. However, with global macro events taking priority with policymakers, many producers were not able to survive long enough to see benefits of new markets opening. Over the last year, we have seen CRA begin to ramp up collections and enforcement against companies not paying excise tax, and regulators cracked down against lab shopping, forcing more facility shutdowns and bankers. and earlier this year, the regulatory changes in Germany and increased traction in the UK, we seen international demand finally begin to ramp.

Speaker Change: some resorortder to not paying excise taxes to artificially lower their cost of production and other labshop to artificially infllaate consumerers perception of quality the a higher poent label cims

Shayne Laidlaw: These forward looking statements are based on management's current expectations and assumptions that are subject to risk and uncertainties that could cause actual results to different materially from those projected in the forward looking statements. Factors that could cause actual results to different 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.

Mike Gorenstein: Many producers were not able to survive long enough to see benefits as new markets opened. Over the last year, we have seen CRA begin to ramp up collections and enforcement against companies not paying excise tax, and regulators crackdown on lab shopping, forcing more facility shutdowns and bankruptcies. And earlier this year, with regulatory changes in Germany and increased traction in the UK, we've seen international demand finally begin to ramp up. But as we've said in the past, there's a difference between available cannabis inventory and available inventory that is sellable as quality flowers. While there's plenty of the former, there is now a shortage of high-quality desirable flowers that are still able to consume more than you can.

Speaker Change: however with global macroevents taking priority with policymakers

Speaker Change: Many producers were not able to survive long enough to see benefits of new markets opening.

Speaker Change: Over the last year, we have seen CRA begin to ramp up collections and enforcement against companies not paying exit tax and regulators crackdown against lab shopping, forcing more facility shutdowns and bankruptcies.

Speaker Change: And earlier this year, with regulatory changes in Germany and increased traction in the UK, we've seen international demand finally begin to ramp.

Michael Gorenstein: As we said in the past, there's a difference between available cannabis inventory and available inventory that is sellable to quality flower. While there's plenty of the former, there is now a shortage of high quality, desirable flower that is sellable to consumers in Canada.

Speaker Change: as we said in the past there's a difference between available cannab' inventory and available inventory that the cellw quality lower

Shayne Laidlaw: Information about non get financial measures, including reconciliation to US gap 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 unless otherwise stated all market share data is provided by high fire.

Speaker Change: While there's plenty of the former, there is now a shortage of high-quality, desirable flour that is sellable to consumers in Canada.

Michael Gorenstein: That is in part why, in June, we announced the expansion of Groco to continue to fuel our global growth initiatives. Groco is proving to be a leading cannabis grower, continually improving yields and hitting consistent and high THC levels that consumers desire. This investment, which will be funded by an additional approximately $51 million credit facility, will support the expansion of Groco's state-of-the-art purpose-built cannabis facility to meet the growing global demand for high-quality cannabis flower, enabling growth opportunities in the markets Cronos operates in today, enabling future growth into new markets that open. An important component of this transaction is that in Q3, Cronos will consolidate Groco in its financial statements.

Mike Gorenstein: That is in part why, in June, we announced the expansion of Groco to continue to fuel our global growth initiative. GroCo has proven to be a leading cannabis grower, continually improving yields and hitting consistent and high THC levels that consumers desire. This investment, which will be funded by an additional approximately $51 million credit facility.

Ryan: that is in part ryan june we announcedthe expansion of broco to continue to fuel our global growth initiati

Shayne Laidlaw: We will now make prepared remarks and then we will move into a question and answer session with that.

Michael Gorenstein: I'll pass over to Cronos's chairman president and CEO Mike Gornstein. Thank you Shane and good morning everyone. The Canadian market has been characterized by extreme cycles of supply demand and balances. In the early days of legalization, there was not enough supply to meet demand, which caused many investors and industry participants to measure value using metrics such as funded capacity. This essentially rewarded companies that were building large cultivation facilities with higher valuations, which they then used to raise more capital and build even more capacity.

Speaker Change: GroCo has proven to be a leading cannabis grower, continually improving yields and hitting consistent and high THC levels that consumers desire.

Speaker Change: This investment, which will be funded by an additional approximately $51 million credit facility,

Mike Gorenstein: Support the expansion of GroCo's state-of-the-art, purpose-built cannabis facility to meet the growing global demand for high-quality cannabis flower, enabling growth opportunities in the markets Cronos operates in today and enabling future growth into new markets that open. An important component of this transaction is that, in Q3, Cronos will consolidate GroCo in its financial statement. You've heard me speak at length in the past about the strong performance of Groco. Consolidated Groko will provide investors with additional information on this underappreciated component of our business.

Speaker Change: will support the expansion of growgos date of the art purpose both cannaba facility to meet the growing global demand for high- quality cannabis fer enabling growth opportunities in the marketss crredinals operates in today enabling future growth into new markets that open

Speaker Change: An important component of this transaction is that in Q3, Cronos will consolidate GroCo in its financial statements.

Michael Gorenstein: This placed a lot of industry focus on facility size, not on production efficiency or product quality. As a result, total supply quickly ballooned and significantly outpaced demand. The industry structure and expectations were all set up with price assumptions that were three to four times what they are today and that created a market structure with high excite tax, high provincial margin and high regulatory fees. However, companies with inefficient production facilities, having already built significant capacity, had to capture significant market share for their business models to work and attempts to get that market share led to price regression.

Michael Gorenstein: You've heard me speak at Legs in the past about the strong performance of Groco. Cronos will provide investors with additional information on this under-appreciated component of our business.

Speaker Change: you've heard thinit late in the past but the strongperformance of ggo consolidating and broco will provide investors with additional information on its underappreciated component of our business

Michael Gorenstein: Turning out of brand updates, when we launch our best-selling brand spinach, we strategically focus on specific consumer segments and product attributes, elevating the consumer experience. This approach played a crucial role in establishing spinach as one of the most recognized and best-selling brands in Canada. Our team has introduced thoughtful innovations across various categories, and I'm incredibly proud of what we've accomplished from a brand perspective this quarter. Spinach continues its exceptional performance in the flower category in the Canadian market with 6.2 percent market share led by popular genetics such as GMO Cookies, Wedding Cake, and Space Cake in a variety of size formats.

Mike Gorenstein: Turning now to brand updates, when we launch our best-selling brand, Spinach, we strategically focus on specific consumer segments and product attributes, elevating the consumer experience. This approach has played a crucial role in establishing Spinach as one of the most recognized and best-selling brands in Canada. Our team has introduced thoughtful innovations across various categories, and I'm incredibly proud of what we've accomplished from a brand perspective. Spinach continues its exceptional performance in the flower category in the Canadian market with 6.2% market share, led by popular genetics such as GMO cookies, wedding cake, and space cake in a variety of size formats.

Speaker Change: Turning now to brand updates. When we launch our best-selling brand Spinach, we strategically focus on specific consumer segments and product attributes, elevating the consumer experience.

Speaker Change: This approach played a crucial role in establishing Spinach as one of the most recognized and best-selling brands in Canada.

Speaker Change: Our team has introduced thoughtful innovations across various categories, and I'm incredibly proud of what we've accomplished from a brand perspective this quarter.

Michael Gorenstein: Many of these companies continue to raise capital, albeit on much less attractive terms and hopes to survive long enough to benefit from expected tailwinds of attractive international markets opening or rationalization in the Canadian market. Some resorted to not paying excite taxes to artificially lower their cost of production and others lab shop to artificially inflate consumer perception of quality via higher potency label claims. However, with global macro events taking priority with policy makers, many producers were not able to survive long enough to see benefits of new markets opening.

Speaker Change: spanish continues the exceptional performance in the flower categoryia in the canadian market with six point two percent market share led by popular genetics such as gmo cookies wedding cake and space cake in a variety of sideze formats

Michael Gorenstein: In Q2, we introduced Spinach Grind, a milled flower offering conveniently designed to be ready to roll or used in a variety of smoking and vaporizing devices. Ready-to-use milled flower offerings of grown in popularity in Canada, appealing to consumers seeking both value and convenience. Spinach grinds is growing demand by providing high quality milled cannabis that saves time and effort. Our commitment to quality, innovation, and investment in genetic breeding keeps us at the forefront of the flower category. The macro trends show that pre-rolls will be the number one category in retail sales within the next few years, so winning there will be critical.

Mike Gorenstein: In Q2, we introduced Spinach Grind, a milled flour offering conveniently designed to be ready to roll or used in a variety of smoking and vaporizing applications. Ready-to-use milled flour offerings have grown in popularity in Canada, appealing to consumers seeking both value and convenience.

Speaker Change: In Q2, we introduced Spinach Grinds, a milled flour offering conveniently designed to be ready to roll or used in a variety of smoking and vaporizing devices.

Speaker Change: ready to use noild flower offerings have grownin popularity in canada appealing to consumerers seeking both valuating edians

Mike Gorenstein: Spinach Grinds caters to this growing demand by providing high-quality milled cannabis that saves time and effort. Our commitment to quality, innovation, and investment in genetic breeding keeps us at the forefront of the flower category. Macro trends show that pre-rolls will be the number one category in retail sales within the next few years, so winning there will be critical. The pre-roll category is an area of focus for us, and there is a lot of work and development going into this segment.

Michael Gorenstein: Over the last year, we have seen CRA begin to ramp up collections and enforcement against companies not paying excite tax and regulators cracked out against lab shopping, forcing more facility shutdowns and bankers, and earlier this year, the regulatory changes in Germany and increased traction in the UK, we seen international demand finally begin to ramp. As we said in the past, there's a difference between available cannabis inventory and available inventory that is sellable to quality flower.

Speaker Change: Spinach Grinds caters to this growing demand by providing high-quality milled cannabis that saves time and effort.

Speaker Change: our commitment to quality innovation and investment in genetic greeting kepses before front in the ferour category

Speaker Change: The macro trends show that pre-rolls will be the number one category in retail sales within the next few years, so winning there will be critical.

Michael Gorenstein: The pre-roll category is an area of focus for us, and there is a lot of work and development going into this segment. As we innovate and iterate in this space, we're especially proud of our recent launches under the Lord Jones brand, adding to the ice water hash infused pre-roll lineup with Sour Blueberry and Snow Loaded strains. What you see from us in the pre-roll category today is just the beginning, and we plan to bring new and innovative products to market in the future.

Michael Gorenstein: While there's plenty of the former, there is now a shortage of high quality desirable flower that is sellable to consumers in Canada.

Speaker Change: The pre-roll category is an area of focus for us, and there is a lot of work and development going into this segment.

Mike Gorenstein: As we innovate and iterate in this space, we're especially proud of our recent launches under the Lord Jones brand, adding to the ice water hash infused pre-roll lineup with sour blueberry and snow lotus straight. What you see from us in the pre-roll category today is just the beginning, and we plan to bring new and innovative products to market in the future. In the edibles category, Minaj had 15.6% market share in Q2.

Speaker Change: As we innovate and iterate in this space, we're especially proud of our recent launches under the Lord Jones brand, adding to the ice water hash infused pre-roll lineup with sour blueberry and snow lotus strains.

Michael Gorenstein: That is in part why in June, we announced the expansion of Groco to continue to fuel our global growth initiatives. Groco is proving to be a leading cannabis grower, continually improving yields and hitting consistent and high THC levels that consumers desire. This investment, which will be funded by an additional approximately $51 million credit facility, will support the expansion of Groco's state-of-the-art purpose-built cannabis facility to meet the growing global demand for high-quality cannabis flower, enabling growth opportunities in the markets Cronos operates in today, enabling future growth into new markets that open.

Speaker Change: What you see from us in the pre-roll category today is just the beginning, and we plan to bring new and innovative products to market in the future.

Michael Gorenstein: In the edibles category, spinach has 15.6 percent market share in Q2. Our focus on developing innovative strategies and products in the category has been instrumental in our success. In Q2, we launched our first variety pack offering, the soures by Spinach Tropical Party Pack, which introduces new gummies with bolder tropical flavors and the distinctive Spinach S-shake. These gummies have a perfect blend of sour and sweet and utilize chronicles with proprietary flavor and mass and technology and feature three new dual flavors. Peach-fashioned fruit, pineapple coconut, and strawberry guava. We're excited to introduce these great new products under our spinach brand in time for the summer season, when we know consumers want convenience and new products to try.

Speaker Change: in edible category enit had fifteen point six percent market share in q two

Mike Gorenstein: Our focus on developing innovative strategies and products for this category is an instrumental to our success. In Q2, we launched our first variety pack offering, the Sours by Spinach Tropical Party Pack, which introduces new gummies with bolder tropical flavors and the distinctive spinach S shape. These gummies have a perfect blend of sour and sweet, and utilize Cronos' proprietary flavor mapping technology and feature three new dual flavors: Peach Passion Fruit, Pineapple Coconut, and Strawberry Guava.

Speaker Change: Our focus on developing innovative strategies and products in this category has been instrumental in our success.

Speaker Change: In Q2, we launched our first variety pack offering, the Sours by Spinach Tropical Party Pack, which introduces new gummies with bolder tropical flavors and the distinctive spinach S-shape.

Michael Gorenstein: These gummies have a perfect blend of sour and sweet and utilize Cronos' proprietary flavor masking technology and feature three new dual flavors. Also, a pivotal addition to our product lineup is the new Sours by Spinach fully blasted gummy. We expect this to provide positive momentum for Edible's portfolio now that it is more fully distributed. In June, Health Canada published proposed amendments to the cannabis regulations, which currently limit edibles to 10 mg of THC per package. We think this would be a great step in the right direction to provide consumers with their desired pack sizes, which are popular in other adult-use legalized markets.

Speaker Change: These gummies have a perfect blend of sour and sweet and utilize Cronos' proprietary flavor masking technology and feature three new dual flavors, peach passion fruit, pineapple coconut, and strawberry guava.

Michael Gorenstein: An important component of this transaction is that in Q3, Cronos will consolidate Groco in its financial statements. You've heard me speak at legs in the past about the strong performance of Groco. Cronos will provide investors with additional information on this under-appreciated component of our business. Turning out of brand updates, when we launch our best-selling brand spinach, we strategically focus on specific consumer segments and product attributes, elevating the consumer experience. This approach played a crucial role in establishing spinach as one of the most recognized and best-selling brands in Canada.

Mike Gorenstein: We're excited to introduce these great new products under our spinach brand in time for the summer season, when consumers want convenience and new products to try. Also, a pivotal addition to our product lineup is the new Sours by Spinach Fully Blasted Gummy, which are for the same great tasting sourdough flavor, now with 10 milligrams of H.E.P.P.

Speaker Change: We're excited to introduce these great new products under our Spinach brand in time for the summer season, when we know consumers want convenience and new products to try.

Michael Gorenstein: Also, a pivotal addition to our product lineup is a new sourced by spinach and fully blasted gummies, which are for the same great tasting sourced by spinach flavors, now with 10 milligrams of THC per piece. This product launched in select market trailer this year, but didn't hit Ontario, Canada's largest market until July. We expect us to provide positive momentum for our edible portfolio, now that it's more fully distributed.

Speaker Change: Also, a pivotal addition to our product lineup is the new Sours by Spinach fully blasted gummies.

Speaker Change: which are for the same great tasting souwered by spinish flavors now with ten milligrams of phh per piece

Mike Gorenstein: This product launched in select markets earlier this year but didn't hit Ontario, Canada's largest market, until July. We expect this to provide positive momentum for Edible's portfolio, now that it is more fully distributed. In June, Health Canada published proposed amendments to the cannabis regulations, which currently limit edibles to 10 milligrams of CHC per pack.

Speaker Change: this product launch select markets earlier this year but didn't hit ontario canada's largest market until july

Michael Gorenstein: Our team has introduced thoughtful innovations across various categories and I'm incredibly proud of what we've accomplished from a brand perspective this quarter. Spinach continues its exceptional performance in the flower category in the Canadian market with 6.2 percent market share led by popular genetics such as GMO cookies, wedding cake, and space cake in a variety of size formats. In Q2, we introduced spinach grind, a milled flower offering conveniently designed to be ready to roll or used in a variety of smoking and vaporizing devices.

Speaker Change: We expect this to provide positive momentum for Edible's portfolio now that it is more fully distributed.

Michael Gorenstein: In June, Health Canada published proposed amendments to the cannabis regulations, which currently limit edibles to 10 milligrams of THC per package. The proposed amendments would allow greater flexibility in packing together multiple packages of edibles, each containing up to 10 milligrams of THC within a larger package, which we would welcome as an option for our best selling sourced edibles. We think this would be a great step in the right direction to provide the consumer with their desired pack sizes.

Speaker Change: in june health care and a published proposed amendments to the cannabis regulations which currently limitited edible to ten milligrams of kc perpackage

Mike Gorenstein: The proposed amendments would allow greater flexibility in packing together multiple packages of edibles, each containing up to 10 mg of THC, within a larger package, which we would welcome as an option for our best-selling sourced edibles. We think this would be a great step in the right direction to provide the consumer with their desired pack sizes, which are popular in other adult-use legalized markets. In the vape category, Spinach had the number 4 market position in the quarter, with 6.8% of retail sales in the category.

Speaker Change: The proposed amendments would allow greater flexibility in packing together multiple packages of edibles, each containing up to 10 mg of THC, within a larger package, which we would welcome as an option for our best-selling sourced edibles.

Speaker Change: we think this to be a great step in the right direction and proide the consumer with their desired tax sizes which are popular in other adult use legalized markets

Michael Gorenstein: Ready to use milled flower offerings of grown in popularity in Canada, appealing to consumers seeking both value and convenience. Spinach grinds is growing demand by providing high quality milled cannabis that saves time and effort. Our commitment to quality, innovation, and investment in genetic breeding keeps us at the forefront of the flower category. The macro trends show that pre-rolls will be the number one category in retail sales within the next few years, so winning there will be critical.

Michael Gorenstein: In the vape category, spinach has a number four market position in the quarter, with 6.8% of retail sales in the category. Spinach's performance in the vape category is led by our top selling products, such as pink lemonade, blueberry dynamite, strawberry sourcane, and rocket icicle. Under Lord Joan, our new live resin vape features the Gorilla Z straight, including a half gram trial size in the community to the very sleek all-in-one device. Under one gram stock of size as a 510 thread cartridge, catering to enthusiasts who love the natural flavors of live resin, and those adult consumers near the category want to give this new strand of try.

Speaker Change: In the vape category, Spinach had the number 4 market position in the quarter with 6.8% of retail sales in the category.

Mike Gorenstein: Spinach's performance in the vape category is led by our top selling products such as Pink Lemonade, Blueberry Dynamite, Strawberry Slurrcane, and Rocket Ice. Under Lord Jones, our new live resin bait features the Gorilla Z-Strain, including a half-gram trial size in the convenience of a very sleek all-in-one device and a one-gram stock-up size as a 510-thread cartridge, catering to enthusiasts who love the natural flavors of live resin and those adult consumers new to the category who want to give this new strain a try.

Speaker Change: Spinach's performance in the vape category is led by our top selling products such as Pink Lemonade, Blueberry Dynamite, Strawberry Slurrcane, and Rocket Icicle.

Speaker Change: Under Lord Jones, our new live resin vape features the Gorilla Z-Strain, including a half-gram trial size and convenience of a very sleek all-in-one device, and a one-gram stock-up size as a 510-thread cartridge.

Michael Gorenstein: The pre-roll category is an area of focus for us and there is a lot of work and development going into this segment. As we innovate and iterate in this space, we're especially proud of our recent launches under the Lord Jones brand, adding to the ice water hash infused pre-roll lineup with sour blueberry and snow loaded strains. What you see from us in the pre-roll category today is just the beginning and we plan to bring new and innovative products to market in the future.

Speaker Change: KW Enthusiasts who love the natural flavors of live resin and those adult consumers new to the category want to give this new strain a try.

Michael Gorenstein: We continue to develop the portfolio to bring differentiated flavor and cannabino combinations to market, and formats and sizes consumers desire.

Mike Gorenstein: We continue to develop a portfolio to bring differentiated flavors and can have a combination to market in the formats and sizes consumers desire. Turning our attention to international markets, our Israel team continues to perform very well. The team in Israel has put in tremendous effort to refine the culture of our portfolio, manufacturing processes, and pricing strategy, resulting in higher volumes of products sold and improved pricing for our hero SKUs. In Q2, the team in Israel launched four new strains: GG4, Key Lime Punch, Pink Sherb, and GMO Light.

Speaker Change: we continue to develop this portfolio to bring differentiated flaor and canna combinations to market in formats and sized consumer desire

Michael Gorenstein: Turning our attention to international markets, our Israel team continues to perform very well. The team in Israel has put in tremendous efforts to refine the cultivar portfolio, manufacturing processes, and pricing strategy, resulting in higher volumes of product sold and improved pricing for our heroes' dues. In Q2, the team in Israel launched four new strains: GG4, Keyline Punch, Pink Shurb, and GMO Light. Our success in Israel is fueled by our in-house genetic breeding program, which is elevated to the Peace Natural brand to a leadership position.

Michael Gorenstein: In the edibles category, Spinach has 15.6 percent market share in Q2. Our focus on developing innovative strategies and products in the category has been instrumental in our success. In Q2, we launched our first variety pack offering, the soures by Spinach Tropical Party Pack, which introduces new gummies with bolder tropical flavors and the distinctive Spinach S-shake. These gummies have a perfect blend of sour and sweet and utilize chronicles with proprietary flavor and mass and technology and feature three new dual flavors.

Speaker Change: Turning our attention to international markets, our Israel team continues to perform very well. The team in Israel has put in tremendous efforts to refine the culture of our portfolio, manufacturing processes, and pricing strategy, resulting in higher volumes of products sold and improved pricing for our hero SKUs.

Speaker Change: In Q2, the team in Israel launched four new strains, GG4, Key Lime Punch, Pink Sherb, and GMO Light.

Mike Gorenstein: Our success in Israel is fueled by our in-house genetic breeding program, which has elevated the Peace Natural brand to a leadership position. In May, we announced that Pete's Naturals expanded into the U.K. via our distribution partner, Grow Pharma, a leading distributor of prescribed medicinal cannabis products. Supplying the UK market, which has the potential to grow significantly this year, is another milestone for Cronos as we enter and expand into an international market.

Speaker Change: Our success in Israel is fueled by our in-house genetic breeding program, which has elevated the Peace Natural brand to a leadership position.

Michael Gorenstein: Peach-fashioned fruit, pineapple coconut, and strawberry guava. We're excited to introduce these great new products under our spinach brand in time for the summer season, when we know consumers want convenience and new products to try. Also, a pivotal addition to our product lineup is a new sourced by spinach and fully blasted gummies, which are for the same great tasting sourced by spinach flavors, now with 10 milligrams of THC per piece. This product launched in select market trailer this year, but didn't hit Ontario, Canada's largest market until July. We expect us to provide positive momentum for our edible portfolio, now that it's more fully distributed.

Michael Gorenstein: In May, we announced the peace natural expanded into the UK, via our distribution partner, Roe Pharma, a leading distributor of prescribed medicinal cannabis products. Supplying the UK market, which has a potential to grow significantly this year, is another milestone for Kronos as we enter and expand within international markets. We intend to establish peace natural with the top brand in the UK as we have done in Israel and Germany. We remain focused on growing within the markets we have entered and expanding our portfolio borderless products to those markets one allowed. This quarter's achievements stem from our unwavering commitment to developing a portfolio of borderless products supported by strategic infrastructure and global partnerships.

Speaker Change: In May, we announced that Pete's Naturals expanded into the UK via our distribution partner Grow Pharma, a leading distributor of prescribed medicinal cannabis products.

Speaker Change: Supplying the UK market, which has the potential to grow significantly this year, is another milestone for Cronos as we enter and expand within international markets.

Mike Gorenstein: We intend to establish Peace Naturals as a top brand in the UK, as we have done in Israel and Germany. We remain focused on growing within the markets we have entered and expanding our portfolio of borderless products to those markets when allowed. This quarter's achievements stem from our unwavering commitment to developing a portfolio of borderless products supported by strategic infrastructure and global partnerships. Our long-term approach of investing in borderless-branded innovations tailored to specific consumer needs is proving successful.

Speaker Change: We intend to establish Peace Naturals as a top brand in the UK, as we have done in Israel and Germany.

Speaker Change: We remain focused on growing within the markets we have entered and expanding our portfolio of borderless products to those markets when allowed.

Speaker Change: This quarter's achievements stem from our unwavering commitment to developing a portfolio of borderless products supported by strategic infrastructure and global partnerships.

Michael Gorenstein: In June, Health Canada published proposed amendments to the cannabis regulations, which currently limit edible to 10 milligrams of THC per package. The proposed amendments would allow greater flexibility in packing together multiple packages of edibles, each containing up to 10 milligrams of THC within a larger package, which we would welcome as an option for our best selling sourced edibles. We think this would be a great step in the right direction to provide the consumer with their desired pack sizes.

Michael Gorenstein: Our long-term approach of investing in borderless branded innovations tailored to specific consumer needs is proving successful. We have stayed focused and shown in our Q2 results. The combination of these efforts and industry-leading balance sheet sets us up well to grow in our current markets and execute in any new market we decide to enter.

Speaker Change: Our long-term approach of investing in borderless-graded innovations tailored to specific consumer needs is proving successful.

Mike Gorenstein: We have stayed focused, and it's shown in our Q2 results. The combination of these efforts and an industry-leading balance sheet sets us up well to grow in our current markets and execute in any new market we decide to enter. With that, I'd like to pass it on to James to take you through our financials.

Speaker Change: We have stayed focused and it's shown in our Q2 results.

Speaker Change: The combination of these efforts and an industry-leading balance sheet sets us up well to grow in our current markets and execute in any new market we decide to enter.

James Holm: With that, I'd like to pass it on to James to take you through our financials.

James Holm: Thanks, Mike. Good morning, everyone.

James Holm: Thanks, Mike. Good morning, everyone. I will now review our second quarter 2024 results in relation to the prior year period. The company reported consolidated net revenue of 27.8 million, a 46% increase from the prior year. Constant currency consolidated net revenue increased by 49% to 28.3 million. The revenue increase is primarily driven by higher cannabis, flower, and extract sales in Canada. Higher cannabis flower sales in Israel, and sales in other countries, which included Germany and the UK. Gross profit in the second quarter was 6.3 million, equating to a 23% gross margin, representing a 3.2 million improvement in gross profit and roughly a 600 basis point improvement in gross margin.

Speaker Change: With that, I'd like to pass it on to James to take you through our financials.

Michael Gorenstein: In the vape category, spinach has a number four market position in the quarter, with 6.8% of retail sales in the category, spinach's performance in the vape category is led by our top selling products, such as pink lemonade, blueberry dynamite, strawberry sourcane and rocket icicle. Under Lord Joan, our new live resin vape features the Gorilla Z straight, including a half gram trial size in the community to the very sleek all-in-one device. Under one gram stock of size as a 510 thread cartridge, catering to enthusiasts who love the natural flavors of live resin, and those adult consumers near the category want to give this new strand of try. We continue to develop the portfolio to bring differentiated flavor and cannabino combinations to market, and formats and sizes, consumers desire.

James: Thanks, Mike. Good morning, everyone. I will now review our second quarter 2024 results in relation to the prior year period.

James Holm: I will now review our second quarter 2024 results in relation to the prior year period. The company reported consolidated net revenue of $27.8 million, a 46% increase from the prior year. Constant currency consolidated net revenue increased by 49% to $28.3 million. The revenue increase is primarily driven by higher cannabis flour and extract sales in Canada, higher cannabis flour sales in Israel, and sales in other countries, which included Germany and the UK.

James: the company reported consolidated net revenue of twenty seven point eight million forty -six percent increase from the prior year constant currency consolidated net revenue increased by forty nine percent twenty eight point three million

James: The revenue increase is primarily driven by higher cannabis flower and extract sales in Canada, higher cannabis flower sales in Israel, and sales in other countries, which included Germany and the UK.

James Holm: Gross profit in the second quarter was $6.3 million, equating to a 23% gross margin, representing a $3.2 million improvement in gross profit and roughly a $600 basis point improvement in gross margin. The increase was primarily driven by higher sales of cannabis flower and extracts in Canada, higher cannabis flower sales in Israel, and sales in other international markets, partially offset by an adverse price mix in the Canadian cannabis flower category. This, in turn, drove increased excise tax payments as a percentage of revenue.

James: Gross profit in the second quarter was $6.3 million, equating to a 23% gross margin, representing a $3.2 million improvement in gross profit and roughly a $600 basis point improvement in gross margin.

James Holm: The increase is primarily driven by higher sales in cannabis, flower, and extracts in Canada. Higher cannabis flower sales in Israel, and sales in other international markets, partially offset by an adverse price mix in the Canadian cannabis flower category, driving increased excise tax payments as a percentage of revenue. Consolidated adjusted EBITDA in the second quarter was negative 11.1 million, representing a 4.9 million improvement from the prior year period. The improvement year over year was driven by an increase in gross profit, and decreases in sales and marketing, and general administrative expenses. It's important to note that during the quarter, we incurred a 1.2 million non-cash seasonal charge within our general administrative expense line, associated with the idea of additional credit facility for Groco's expansion, which is not adjusted for in the adjusted EBITDA figure.

Michael Gorenstein: The increase was primarily driven by higher sales of cannabis flour and extracts in Canada, higher cannabis flour sales in Israel, and sales in other international markets, partially offset by an adverse price mix in the Canadian cannabis flour category. This increased excise tax payments as a percentage of revenue. In Q3 2024, Cronos will consolidate GroCo's results and its financial statements, which we believe will highlight the significant underappreciated strength of GroCo's performance and the advantages it provides to our overall business. Turning to the balance sheet and cash flow, the company ended the quarter with $848 million in cash and cash equivalents.

Speaker Change: the increase was primarily driven by higher sales than canabis flower and extract in canada higher canandabidates flower sales in israel and sales in other international markets partially offset by an adverse price mix in the canadianand cannabis flower category driving increased excite tax payments at the percentage of revenue

Michael Gorenstein: Turning our attention to international markets, our Israel team continues to perform very well. The team in Israel has put in tremendous efforts to refine the cultivar portfolio, manufacturing processes and pricing strategy, resulting in higher volumes of product sold and improved pricing for our heroes' dues. In Q2, the team in Israel launched four new strains, GG4, Keyline Punch, Pink Shurb, and GMO Light.

James Holm: Consolidated to Justice EBITDA in the second quarter was negative 11.1 million, representing a 4.9 million improvement from the prior year period. The improvement year over year was driven by an increase in gross profit and decreases in sales and marketing and general and administrative expenses. It's important to note that during the quarter, we incurred a 1.2 million non-cash Cecil charge within our general and administrative expense line associated with the additional credit facility for Groco's expansion, which is not adjusted for in the adjusted even to figure it out. This charge will reverse upon consolidation in Q3.

James: consolidated adjusted ebitd in the second quarter was negative eleven point one million representing a four point nine millionimprovement from the prior year period the improvement year-over-year was driven by an increase in gross profit and decreases in sales and marketing and general and administrative expenses

Michael Gorenstein: Our success in Israel is fueled by our in-house genetic breeding program, which is elevated to the peace natural brand to a leadership position.

James: It's important to note that during the quarter, we incurred a $1.2 million non-cash CECL charge within our General and Administrative Expense Line associated with the Additional Credit Facility for GrowCode's expansion, which is not adjusted for in the adjusted EBITDA figure.

James Holm: This charge will reverse upon consolidation in Q3. The strong OPEX controls employed to date have put us well on our way to achieving our 2024 goal of saving an incremental 5 to 10 million for Kronos on a standalone basis. Our joint venture Groco continues to excel, demonstrating real bus performance and line with our expectation. Groco reported to us preliminary unaudited revenue of approximately 2.7 million from third-party customers in the second quarter. Additionally, the combined credit facilities that Kronos provided Groco currently has 74 million outstanding, following the principal repayment of 1.2 million in Q2. In addition, Groco made an interest payment of 1.4 million in Q2.

James Holm: The strong OPEX controls employed to date have put us well on our way to achieving our 2024 goal of saving an incremental $5-10 million for Cronos on a stand-alone basis. Meanwhile, our joint venture GroCo continues to excel, demonstrating robust performance in line with our expectations. GroCo reported to us preliminary unaudited revenue of approximately $2.7 million from third-party customers in the second quarter. Additionally, the combined credit facilities that Cronos provided GroCo currently have $74 million outstanding following the principal repayment of $1.2 million in Q2. In addition, GroCo made an interest payment of $1.4 million in Q2. Mike took you through the DO rationale and high-level numbers, but let me briefly share more details on the Trans-Action with Grogues.

James: This charge will reverse upon consolidation in Q3. The strong OPEX controls employed to date have put us well on our way to achieving our 2024 goal of saving an incremental five to 10 million for Cronos on a standalone basis.

James: Our joint venture GroCo continues to excel, demonstrating robust performance in line with our expectations.

James: GroCo reported to us preliminary unaudited revenue of approximately $2.7 million from third-party customers in the second quarter.

Michael Gorenstein: This quarter's achievements stem from our unwavering commitment to developing a portfolio of borderless products supported by strategic infrastructure and global partnerships. Our long-term approach of investing in borderless branded innovations tailored to specific consumer needs is proving successful. We have stayed focused and shown in our Q2 results. The combination of these efforts and industry-leading balance sheet sets us up well to grow in our current markets and execute in any new market we decide to enter.

James: Additionally, the combined credit facilities that Kronos provided GroKo currently at $74 million outstanding following the principal repayment of $1.2 million in Q2. In addition, GroKo made an interest payment of $1.4 million in Q2.

James Holm: Mike took you through the D.O. rationale and high level numbers, but let me briefly share more details on the transaction with Groco. Kronos has provided a second credit facility to Groco for approximately 51 million to fund the expansion of Groco's purpose-built cannabis facility. With this additional investment, the Groco board expands to five members, three of whom have been appointed by Kronos. We also struck a new supply agreement that will give Kronos the option of purchase up to 70% of the total production once the expanded facility is online. In Q3, 2024, Kronos will consolidate Groco's results in its financial statement, which we believe will highlight the significant underappreciated strength of Groco's performance and the advantages provided to our overall business.

Speaker Change: Mike took you through the deal rationale and high-level numbers, but let me briefly share more details on the transaction with GroCo.

James Holm: Cronos has provided a second credit facility to GroCo of approximately $51 million to fund the expansion of GroCo's purpose-built cannabis facility. With this additional investment, the GroCo board expanded to five members, three of whom have been appointed by Cronos. We also struck a new supply agreement that will give Cronos the option to purchase up to 70% of the total production once the expanded facility is online. In Q3 2024, Cronos will consolidate Groco's results in its financial statement, which we believe will highlight the significant under-appreciated strength of Groco's performance and the advantages. We are excited about the expanding partnership with our JV partners and look forward to continuing to grow with them.

James: Kronos has provided a second credit facility to GroCo of approximately 51 million to fund the expansion of GroCo's purpose-built cannabis facility.

James Holm: With that, I'd like to pass it on to James to take you through our financials. Thanks, Mike.

James Holm: Good morning, everyone. I will now review our second quarter 2024 results in relation to the prior year period. The company reported consolidated net revenue of 27.8 million, a 46% increase from the prior year. Constant currency consolidated net revenue increased by 49% to 28.3 million. The revenue increase is primarily driven by higher cannabis, flower and extract sales in Canada. Higher cannabis flower sales in Israel, and sales in other countries, which included Germany and the UK.

James: With this additional investment, the GroCo board expands to five members, three of whom have been appointed by Kronos. We also struck a new supply agreement that will give Kronos the option to purchase up to 70% of the total production once the expanded facility is online.

Cronos: In Q3 2024, Cronos will consolidate GroCo's results in its financial statements, which we believe will highlight the significant underappreciated strength of GroCo's performance and the advantages it provides to our overall business.

James Holm: We are excited about the expanding partnership with our JD partners and look forward to continuing to grow with them.

Speaker Change: We are excited about the expanding partnership with our JV partners and look forward to continuing to grow with them.

James Holm: Gross profit in the second quarter was 6.3 million, equating to a 23% gross margin, representing a 3.2 million improvement in gross profit, and roughly a 600 basis point improvement in gross margin. The increase is primarily driven by higher sales in cannabis, flower and extracts in Canada. Higher cannabis flower sales in Israel, and sales in other international markets, partially offset by an adverse price mix in the Canadian cannabis flower category, driving increased excite tax payments as a percentage of revenue.

James Holm: Turning to the balance sheet and cash flow, the company ended the quarter with 848 million in cash and cash equivalents. Cash and cash equivalents were down by 6.9 million from Q1, driven by an 8.8 million cash from investing activities outflow for advances in loans receivable to fund the construction of Groco's faith to expand. Cash flow from operations with positive $1.7 million compared to a negative $11.8 million in the prior year period, and free cash flow with positive $8 million compared to a negative $12.3 million in the prior year period, so a significant improvement. Despite our cash balance being down in the quarter, you can see the underlying fundamentals of our operations are showing a significant improvement, and without the additional investment to expand Broco, our balance sheet would have been up sequentially by almost $2 million.

James Holm: Turning to the balance sheet and cash flow, the company ended the quarter with $848 million in cash and cash equivalents. Cash and cash equivalents were down by 6.9 million from Q1, driven by an 8.8 million cash from investing activities outflow for advances in loans receivable to fund the construction of growth codes faced to expand. Cash flow from operations was positive $1.7 million, compared to a negative $11.8 million in the prior year period.

Speaker Change: Turning to the balance sheet and cash flow, the company ended the quarter with $848 million in cash and cash equivalents.

Speaker Change: Cash and cash equivalents were down by $6.9 million from Q1, driven by an $8.8 million cash from investing activities outflow for advances in loans receivable to fund the construction of GroCo's Phase 2 expansion.

James: Cash flow from operations was positive $1.7 million, compared to a negative $11.8 million in the prior year period. And free cash flow was positive $8 million, compared to a negative $12.3 million in the prior year period. So a significant improvement.

James Holm: And free cash flow was positive $8 million, compared to a negative $12.3 million in the prior year period, so a significant improvement. Despite our cash balance being down in the quarter, you can see the underlying fundamentals of our operations are showing a significant improvement, and without the additional investment to expand GroCo, our balance sheet would have been up sequentially by almost $2 million. Due to the additional $51 million investment in GroCo and the resulting facility expansion, we no longer anticipate the net change in cash, defined as the sum of cash and cash equivalents and short-term investments, to be positive in 2024.

James Holm: Consolidated adjusted EBITDA in the second quarter was negative 11.1 million, representing a 4.9 million improvement from the prior year period. The improvement year over year was driven by an increase in gross profit, and decreases in sales and marketing, and general administrative expenses. It's important to note that during the quarter, we incurred a 1.2 million non-cash seasonal charge within our general administrative expense line, associated with the idea of additional credit facility for Groco's expansion, which is not adjusted for in the adjusted EBITDA figure.

Speaker Change: despite our cash balance being down in the quarter you can see the underlying fundamentals of our operations are showing a significant improvement and without the additional investment to expand broco our balance sheet would have been up sequentiallyby almost two million

James Holm: Due to the additional $51 million investment in Broco and resulting facility expansion, we no longer anticipate the net changing cash defined as the sum of cash and cash equivalent and short-term investment to be positive in 2024. This additional investment to expand Broco's purpose-built cannabis facility will greatly aid our ability to serve its existing markets and take advantage of additional growth opportunities. Looking back on the progress we have made, I share in Mike's confidence in the trajectory of our business and our preparedness for entering into new markets as they become available.

Speaker Change: Due to the additional $51 million investment in GroCo and resulting facility expansion, we no longer anticipate the net change in cash, defined as the sum of cash and cash equivalents and short-term investments, to be positive in 2024.

James Holm: This charge will reverse upon consolidation in Q3. The strong OPEX controls employed to date have put us well on our way to achieving our 2024 goal of saving an incremental 5 to 10 million for Kronos on a standalone basis. Our joint venture Groco continues to excel, demonstrating real bus performance and line with our expectation. Groco reported to us preliminary unaudited revenue over approximately 2.7 million from third-party customers in the second quarter. Additionally, the combined credit facilities that Kronos provided Groco currently has 74 million outstanding following the principal repayment of 1.2 million in Q2. In addition, Groco made an interest payment of 1.4 million in Q2.

James Holm: This additional investment to expand GroCo's purpose-built cannabis facility will greatly aid our ability to service existing markets and take advantage of additional growth opportunities. Looking back on the progress we have made, I share in Mike's confidence in the trajectory of our business and our preparedness for entry into new markets as they become available. With that, I would like to hand it back to Mike for a brief comment before going into Q&A.

James: This additional investment to expand GroCo's purpose-built cannabis facility will greatly aid our ability to service existing markets and take advantage of additional growth opportunities.

James: Looking back on the progress we have made, I share in Mike's confidence in the trajectory of our business and our preparedness for entry into new markets as they become available. With that, I would like to hand it back to Mike for a brief comment before going into Q&A.

Michael Gorenstein: With that, I would like to hand it back to Mike for a brief comment before going into Q&A. We're on the right trajectory, growing revenue, improving margins, and reducing costs, all while building our borderless product portfolio supplemented by new and exciting innovations and opening new markets globally.

Mike Gorenstein: We're on the right trajectory. Growing revenue, improving margins, and reducing costs. All while building our borderless product portfolio, supplemented by new and exciting innovations. An opening new market flow. With that, I will open the line for questions. Thank you.

mike gornstein: We're on the right trajectory. Growing revenue, improving margins, and reducing costs. All while building our borderless product portfolio, supplemented by new and exciting innovations.

Michael Gorenstein: With that, I will open line for questions. Thank you.

James Holm: Mike took you through the D.O, rationale and high level numbers, but let me briefly share more details on the transaction with Groco. Kronos has provided a second credit facility to Groco for approximately 51 million to fund the expansion of Groco's purpose bill cannabis facility. With this additional investment, the Groco board expands to five members, three of whom have been appointed by Kronos. We also struck a new supply agreement that will give Kronos the option of purchase up to 70% of the total production once the expanded facility is online.

mike gornstein: and opening new markets globally. With that, I will open the line for questions.

Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. In the interest of time, we kindly ask that you limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Their first question comes from Yewon Kang with Canacor Genuity. Please go ahead.

Shayne Laidlaw: At this time, we will conduct the question-and-answer session. As a reminder to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.

Speaker Change: 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 telephone and wait for your name to be announced.

Shayne Laidlaw: In the interest of time, we kindly ask that you limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster.

Speaker Change: to draw your question please press star one one again in the interest of time we kindly ask that you limit yourself to one question and one follow up please stand by what we compile to q and a roster

Wang Kang: Your first question comes from you, Wang Kang, with Canacor Genuity. Please go ahead. Hi, good morning. Thank you for the question. Just the first one here is regarding the growth investment. I wanted to see if you guys can provide some color behind the cost benefits and assets that must have been conducted in terms of investing your dollars into Canadian-based growth versus production facilities located. You have provided an international channel that you supplied to given that the facility expansion and growth code is going to be heavily leveraged to increase your supplies into those channels. Thank you.

James Holm: In Q3, 2024, Kronos will consolidate Groco's results in its financial statement, which we believe will highlight the significant under appreciated strength of Groco's performance and the advantages provide to our overall business. We are excited about the expanding partnership with our JD partners and look forward to continuing to grow with them.

Speaker Change: Our first question comes from Yewon Kang with Canaccord Genuity. Please go ahead.

Yewon Kang: Hi, good morning. Thank you for the question. Just the first one here is regarding the GroCo investment. I wanted to see if you guys could provide some color behind the cost-benefit analysis that must have been conducted in terms of investing your dollars into Canadian-based GroCo versus production facilities located in international channels that you supply to, given that the facility expansion in GroCo is going to be heavily leveraged to increase your supplies into those channels.

Unidentified Analyst: Hi, good morning. Thank you for the question. Just the first one here is regarding the GroCo investment. I wanted to see if you guys could provide some color behind the cost-benefit analysis that must have been conducted in terms of investing your dollars into Canadian-based GroCo versus production facilities located in international channels that you supply to, given that the facility expansion in GroCo is going to be heavily leveraged to increase your supplies into those channels. Thank you.

Yewon Kang: Hi, good morning. Thank you for the question. Just the first one here is regarding the GroCo investment. I wanted to see if you guys can provide some color behind the cost-benefit analysis that must have been conducted in terms of investing your dollars into Canadian-based GroCo versus in production facilities located in international channels that you supply to, given that the facility expansion in GroCo is going to be

James Holm: Turning to the balance sheet and cash flow, the company ended the quarter with 848 million in cash and cash equivalent. Cash and cash equivalents were down by 6.9 million from Q1, driven by an 8.8 million cash from investing activities outflower for advances in loans receivable to fund the construction of Groco's faith to expand. Cash flow from operations with positive $1.7 million compared to a negative $11.8 million in the prior year period and free cash flow with positive $8 million compared to a negative $12.3 million in the prior year period, so a significant improvement.

James: heavily leveraged to increase your supplies into those channels. Thank you.

Michael Gorenstein: Sure, good morning. As I discussed at the beginning of the prepared remarks, we have really seen a huge shift in the supply dynamics, or we have had significant oversupply in the past. For high-quality flower, which we've seen growth consistently produce, there really is a shortage. As we see international markets expanding, and we're seeing supply contract in Canada, we're seeing from both ends that gap expand, and we're seeing pricing increase. We think that it's not just what we've been able to do with achieving number one flower brand in Canada, but also with the growth we're seeing in international markets.

Mike Gorenstein: Sure, good morning. As I discussed at the beginning of the prepared remarks, we've really seen a huge shift in the supply dynamics where we've had significant oversupply in the past. For high-quality flour, which, you know, we've seen GroCo consistently produce, there really is a shortage. And I think, you know, as we see international markets expanding, we're and we're seeing supply contract in Canada, we're seeing both ends of that gap expand, and we're seeing pricing increase.

Speaker Change: Sure, good morning. So, you know, as I discussed at the beginning of the prepared remarks, we've really seen a huge shift in the, you know,

Speaker Change: in the supply dynamics will reve significant oversupply andthe past

James Holm: Despite our cash balance being down in the quarter, you can see the underlying fundamentals of our operations are showing a significant improvement and without the additional investment to expand Broco, our balance sheet would have been up sequentially by almost $2 million.

Speaker Change: for High-Quality Flour, which...

James: we've seen groco consistently produce

Speaker Change: There really is a shortage, and I think, you know, as we see international markets expanding, and we're seeing supply contract in Canada, we're seeing, you know, from both ends, that gap expand, and we're seeing pricing increase.

Mike Gorenstein: So, you know, we think that it's not just what we've been able to do with achieving the number one flour brand in Canada but also with the growth we're seeing in international markets. It's a really good way for us to continue to fuel growth. But also from a risk perspective, GroCo already being profitable, looking in and seeing, you know, we do own 50%; now we consolidate. You know, we think that we're able to control; we've seen for years how they perform. It's a really good way for us to do it. We've been very disciplined and conservative and see this is, you know, a great risk award overall.

James: youknowwe think that

James: Not just what we've been able to do with achieving number one flyer brand in Canada, but also with the growth we're seeing in international markets

Michael Gorenstein: It's a really good way for us to continue to fuel growth, but also from a risk perspective. We think that we're able to control. We've seen for years how they perform. It's a really good way for us to do it.

James: It's a really good way for us to continue to fuel growth, but also from a risk perspective. GroCo already being profitable, looking and seeing, you know, we do own 50%, now we consolidate.

James: You know, we think that we're able to control. We've seen for years how they perform. It's a really good way for us to do it. We've been very disciplined and conservative and see this is, you know, a great risk award overall.

Michael Gorenstein: We've been very disciplined and conservative and see this as a great risk of war and overall.

Wang Kang: Thank you.

Unidentified Analyst: And just my second question here as a follow-up, I wanted to ask about what your plans are for Peace Naturals Campus going forward, given that the sales lease back that was previously announced has been terminated, and if, you know, this idle facility is causing any kind of drag on your guys' operations for the past few quarters. Thank you.

Michael Gorenstein: And just my second question here, as a follow-up, I wanted to ask about what your plans are for peace and outdoors campus going forward. Given that, the sales least back, that was previously announced has been terminated. And if, you know, this idle facility is causing any kind of drag on your guys' operations to the past few quarters, thank you. Sure, thanks. That's a great question. So, Peace Natural has not been idle. It's actually where we make our edible number of derivative products packaging. So, it's still, you know, our center. We bring in package flour; you know, we ship distribution.

Mike Gorenstein: And just my second question here as a follow-up. Wanted to ask about what your plans are for Peace Naturals Camp going forward, given that the sales lease back that was previously announced has been terminated. And if this idle facility is causing any kind of drag on your guys' operations for the past few quarters. Thank you.

Shayne Laidlaw: With that, I will open line for questions. 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 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. In the interest of time, we kindly ask that you limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster.

Speaker Change: thank you and just my second t question here as a follow-up of want ed to ask about what your plans are for piece naturals campus going forward

Speaker Change: Given that the sales lease back that was previously announced has been terminated, and if, you know, this idle facility is causing any kind of drag on your guys' operations for the past few quarters. Thank you.

Mike Gorenstein: Sure, thanks. That's a great question. So Peace Naturals has not been idle. It's actually where we make our edibles, a number of derivative products, and packaging. So it's still, you know, our center. We bring in and package flour, you know; we ship distribution. So, you know, as we're continuing to see growth in the Canadian market, adding products, you know, adding Lord Jones, we actually like having the ability to, you know, have space on one licensed campus that we can keep moving into. So we don't see that as a drag. We think that, you know, especially once phase two is complete, having that extra space is going to be critical to being able to achieve our objective.

Speaker Change: Sure, thanks. That's a great question. So, Peace Naturals has not been idle. It's actually where we make our edibles, a number of derivative products.

Wang Kang: Your first question comes from you, Wang Kang with Canacor Genuity. Please go ahead. Hi, good morning. Thank you for the question. Just the first one here is regarding the growth investment. I wanted to see if you guys can provide some color behind the cost benefits and assets that must have been conducted in terms of investing your dollars into Canadian based growth versus production facilities located. You have provided an international channel that you supplied to given that the facility expansion and growth code is going to be heavily leveraged to increase your supplies into those channels.

Speaker Change: Packaging, so it's still, you know, our center. We bring in and package flour, you know, we ship distribution.

Michael Gorenstein: So, you know, as we're continuously growth in the Canadian market, adding products, you know, adding more drones, we actually like having the ability to, you know, have space of one licensed campus and keep moving into. So, we don't see that as a drag; we think that, you know, especially one space to complete, having that extra space, it's going to be critical of being able to achieve our objectives. Thank you for the caller. I'll jump back into the queue.

Speaker Change: So, you know, as we're continuing to see growth in the Canadian market, adding products, you know, adding Lorde Jones.

Speaker Change: We actually like having the ability to, you know, have space in one licensed campus that we can keep moving into. So we don't see that as a drag. We think that, you know, especially once phase two is complete, having that extra space is going to be critical to being able to achieve our objectives.

Unidentified Analyst: Thank you for the color; I'll jump back into the queue.

Yewon Kang: Thank you for the caller; I'll jump back into the queue.

Wang Kang: Thank you. Sure, good morning. As I discussed at the beginning of the prepared remarks, we have really seen a huge shift in the supply dynamics, or we have had significant oversupply in the past. For high-quality flower, which we've seen growth consistently produce, there really is a shortage. As we see international markets expanding, and we're seeing supply contract in Canada, we're seeing from both ends that gap expand, and we're seeing pricing increase.

Shayne Laidlaw: Thank you. One moment for our next question.

Speaker Change: Thank you for the caller, I'll jump back into the queue.

Operator: Thank you. One moment for our next question. I'm showing no further questions if you want, but if you would like to continue, you may.

Speaker Change: Thank you. One moment for our next question.

Shayne Laidlaw: I'm showing no further questions. You want, if you would like to continue, you may. I think I'm good.

Speaker Change: I'm showing no further questions. Yewon, if you would like to continue, you may.

Operator: I think I'm good. Thank you so much. Thank you. I'm showing no further questions at this time. Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Thank you for watching!

Shayne Laidlaw: Thank you so much. Thank you. I'm showing no further questions at this time.

Operator: Thank you.

Speaker Change: I think I'm good. Thank you so much.

Operator: I am showing no further questions at this time. Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Thank you for watching!

Shayne Laidlaw: Thank you for your participation in today's conference.

Speaker Change: thank you i'm showing you further questions at this time thank you for your participation in today's conference this concludes the program you maynow disconnect

Shayne Laidlaw: This concludes the program.

Shayne Laidlaw: You may now disconnect.

Wang Kang: We think that it's not just what we've been able to do with achieving number one flower brand in Canada, but also with the growth we're seeing in international markets. It's a really good way for us to continue to fuel growth, but also from a risk perspective. We think that we're able to control. We've seen for years how they perform. It's a really good way for us to do it. We've been very disciplined and conservative and see this is a great risk of war and overall. Thank you.

Michael Gorenstein: And just my second question here as a follow up, I wanted to ask about what your plans are for peace and outdoors campus going forward. Given that the sales lease back that was previously announced has been terminated. And if, you know, this idle facility is causing any kind of drag on your guys's operations to the past few quarters, thank you. Sure, thanks. That's a great question. So peace natural has not been idle, it's actually where we make our edible number of derivative products packaging.

Michael Gorenstein: So it's still, you know, our center we bring in package flour, you know, we ship distribution. So, you know, as we're continuously growth in the Canadian market adding products, you actually like having the ability to, you know, have space of one license campus and keep moving into. So we don't see that as a drag, we think that, you know, especially one space to complete having that extra space is going to be critical of being able to achieve our objectives.

Michael Gorenstein: Thank you for the call, I'll jump back into the queue. Thank you. One moment for our next question. I'm showing no further questions you want if you would like to continue, you may. I think I'm good, thank you so much. Thank you.

Speaker Change: and many more. Thank you. Thank you. Thank you. Thank you. Thank you.

John Zamparo: I'm Dr. Spatian in today's conference, this concludes the program, you may now disconnect. [inaudible][inaudible] John Zamparo, John[inaudible][inaudible] John Zamparo, John[inaudible] Zamparo,[inaudible][inaudible] John Zamparo, John Zamparo, John Zamparo, John[inaudible] John Zamparo

Operator: https://www.youtube.com/action-circlelineartschool.com https://www.youtube.com/action-circlelineartschool.com [music] [inaudible]

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Speaker Change: do

Speaker Change: and many more. Thank you. Thank you. Thank you. Thank you. Thank you.

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