Q4 2025 Cronos Group Inc Earnings Call

February 26, 2026

Speaker #1: Good morning. My name is Corey, and I'll be your conference operator today. I would like to welcome everyone to Cronos Group's 2025 fourth quarter and full-year earnings conference call.

Operator: Good morning. My name is Corey, and I'll be your conference operator today. I would like to welcome everyone to Cronos Group's 2025 Q4 and Full Year Earnings Conference Call. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. At this time, I would like to turn the call over to Harrison Aaron, Senior Director, Investor Relations and Corporate Development. Please go ahead.

Speaker #1: To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised.

Speaker #1: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. At this time, I would like to turn the call over to Harrison Aaron, Senior Director, Investor Relations, and Corporate Development.

Speaker #1: Please go ahead.

Speaker #2: Thank you, Corey. And thank you for joining us today to review Cronos's fourth quarter and full-year financial and business performance in 2025. Today, I am joined by our Chairman, President, and CEO, Mike Gorenstein, and our CFO, Anna Shlimak.

Harrison Aaron: Thank you, Corey, and thank you for joining us today to review Cronos' Q4 and full year financial and business performance in 2025. Today, I am joined by our Chairman, President, and CEO, Mike Gorenstein, and our CFO, Anna Shlimak. Cronos issued a news release announcing our financial results this morning, which is filed on our EDGAR and SEDAR profiles. This information and the prepared remarks will also be available 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.

Speaker #2: 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 available on our website under Investor Relations.

Speaker #2: 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.

Speaker #2: 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 #2: 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.

Harrison Aaron: 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. Unless otherwise stated, all market share data is provided by Hifyre. We will now make prepared remarks. Then we'll move to a question and answer session. With that, I'll pass it over to Cronos's Chairman, President, and CEO, Mike Gorenstein.

Speaker #2: Information about non-GAAP financial measures, including reconciliations to US GAAP, can also be found in the earnings materials that are available on our website. Lastly, we will be making statements regarding market share information throughout this conference call, and unless otherwise stated, all market share data is provided by Highfire.

Speaker #2: We will now make prepared remarks, and then we'll move to a question-and-answer session. With that, I'll pass it over to Cronos's Chairman, President, and CEO, Mike Gorenstein.

Speaker #3: Thanks, Harrison. Cronos delivered a record year in 2025, growing net organically, underscoring the continued strength of our core business and the progress we are making towards our strategic priorities.

Mike Gorenstein: Thanks, Harrison. Cronos delivered a record year in 2025, growing net revenue by 25% organically, underscoring the continued strength of our core business and the progress we are making towards our strategic priorities. We achieved record net revenue in Q4 and for the full year, we delivered record full-year gross profit and Adjusted EBITDA. These results reflect strong consumer demand for our leading brands and the growing contribution from Israel and our international platform. In Canada, we delivered record quarterly net revenue, up 42% year-over-year, with key contributions from flower, vapes, and edibles. Spinach continues to be a standout performer in the Canadian market and the second most popular brand nationally. In vapes, Spinach delivered stellar performance in the quarter.

Speaker #3: We achieved record net revenue in the fourth quarter and for the full year, and we delivered record full-year gross profit and adjusted EBITDA. These results reflect strong consumer demand for our leading brands and the growing contribution from Israel and our international platform.

Speaker #3: In Canada, we delivered record quarterly net revenue, up 42% year over year, with key contributions from flour, vapes, and edibles. Spinach continues to be a standout performer in the Canadian market and the second most popular brand nationally.

Speaker #3: In vapes, spinach delivered stellar performance in the quarter. In December, spinach became the number two overall vape brand in Canada. Rising from the number four share position in the first quarter of 2025, within the vape cartridges subcategory, spinach achieved number one market share in the fourth quarter, with our cherry crush and blueberry dynamite flavors as the two best-selling vape cartridges nationwide.

Mike Gorenstein: In December, Spinach became the number 2 overall vape brand in Canada, rising from the number 4 share position in Q1 2025. Within the vape cartridges subcategory, Spinach achieved number 1 market share in Q4 with our Cherry Crush and Blueberry Dynamite flavors as the 2 best-selling vape cartridges nationwide. This performance in vapes is a testament to our ability to leverage extensive R&D and consumer insights work to develop market-leading products that strongly resonate with consumers. We're looking to build on this momentum, and towards the end of Q4, we unveiled Spinach Puffers, our newest innovation in the all-in-one vape device category. Puffers offer bold flavors of high-quality liquid diamond-infused cannabis in a modern palm-style format, with a dual ceramic coil for maximum flavor and smooth draws, and a uniquely satisfying tactile grip.

Speaker #3: This performance in vapes is a testament to our ability to leverage extensive R&D and consumer insights work to develop market-leading products that strongly resonate with consumers.

Speaker #3: We're looking to build on this momentum and towards the end of the fourth quarter, we unveiled spinach puffers, our newest innovation in the all-in-one vape device category.

Speaker #3: Puffers offer bold flavors of high-quality liquid diamond-infused cannabis in a modern, palm-style format, with a dual ceramic coil for maximum flavor and smooth draws, and a uniquely satisfying tactile grip.

Speaker #3: Puffers initially launched in select markets within Canada, with distribution broadening to other Canadian provinces in early 2026. Innovation continues to be one of our biggest competitive advantages, and Puffers is another example of how we raise the bar on product quality, design, and flavor.

Mike Gorenstein: PUFFERZ initially launched in select markets within Canada, with distribution broadening to other Canadian provinces in early 2026. Innovation continues to be one of our biggest competitive advantages. PUFFERZ is another example of how we raise the bar on product quality, design, and flavor. As we continue building loyalty with consumers, our focus remains on creating products that look, feel, and taste great, delivering the exceptional experiences that define the Spinach brand. In edibles, SOURZ continued to deliver strong growth while maintaining category leadership, with market share approaching 22% for the quarter. Growth was driven by Fully Blasted multi-packs, which, despite having just launched in mid-2025, were 4 of the top 10 selling edibles SKUs in Canada in Q4, including the number 1 edibles SKU nationwide, reinforcing Spinach's leadership position in edibles and demonstrating the success of our innovation pipeline.

Speaker #3: As we continue building loyalty with consumers, our focus remains on creating products that look, feel, and taste great, delivering the exceptional experiences that define the spinach brand.

Speaker #3: In edibles, sour has continued to deliver strong growth while maintaining category leadership, with market share approaching 22% for the quarter. Growth was driven by fully blasted multi-packs, which, despite having just launched in mid-2025, were four of the top 10 selling edible SKUs in Canada in the fourth quarter.

Speaker #3: Including the number one edible SKU nationwide, reinforcing Spinach's leadership position in edibles and demonstrating the success of our innovation pipeline. In flower, Spinach remains the number four brand in the quarter, with supply constraints limiting growth potential.

Mike Gorenstein: In flower, Spinach remained the number four brand in the quarter, with supply constraints limiting growth potential. With the expansion of GrowCo now complete and the expanded cultivation space continuing to get dialed in, we expect these supply constraints to ease in 2026. Turning to Lord Jones, the brand remains the market leader in Canada in hash and live resin-infused pre-rolls, reinforcing its strength in premium formats, where quality and differentiation matter most. Earlier this month, Lord Jones launched in Israel with a lineup of curated premium flower offerings featuring cold-cured large buds, available in a series of limited-time drops, marking an important step in broadening the brand's presence. Internationally, Peace Naturals and LIT posted another impressive quarter. In Israel, net revenue grew 52% year-over-year, the eighth consecutive quarter of record net revenue for Cronos in the market.

Speaker #3: With the expansion of Groco now complete, and the expanded cultivation space continuing to get dialed in, we expect these supply constraints to ease in 2026.

Speaker #3: Turning to Lord Jones, the brand remains the market leader in Canada in hash and live resin-infused pre-rolls, reinforcing its strength in premium formats where quality and differentiation matter most.

Speaker #3: Earlier this month, Lord Jones launched in Israel, with a lineup of curated premium flour offerings featuring cold-cured large buds, available in a series of limited-time drops, marking an important step in broadening the brand's presence.

Speaker #3: Internationally, Peace Naturals and Litt posted another impressive quarter. In Israel, net revenue grew 52% year over year, the eighth consecutive quarter of record net revenue for Cronos in the market.

Speaker #3: Peace Naturals remained the top-selling brand in the market based on pharmacy data collected by Cronos, continuing to benefit from strong brand equity, consistent product quality, and stellar commercial execution.

Mike Gorenstein: Peace Naturals remained the top-selling brand in the market based on pharmacy data collected by Cronos, continuing to benefit from strong brand equity, consistent product quality, and stellar commercial execution. Outside of Israel, Peace Naturals and LIT™ drove a strong quarter for our other international markets, with net revenue up 68% year-over-year, led by growth in Germany as shipment timing normalized and demand remained strong. We capped off the year with a December announcement that we entered into a definitive agreement to acquire CanAdelaar B.V., with closing expected in the first half of 2026. CanAdelaar B.V. is the largest company operating within Netherlands' legal adult use cannabis program based on CanAdelaar B.V. management data, and is the only industrial-scale greenhouse cultivator within the program.

Speaker #3: Outside of Israel, Peace Naturals and Litt drove a strong quarter for our other international markets, with net revenue up 68% year over year, led by growth in Germany, as shipment timing normalized and demand remained strong.

Speaker #3: We capped off the year with a December announcement that we entered into a definitive agreement to acquire Canadalar, with closing expected in the first half of 2026.

Speaker #3: Canadalar is the largest company operating within Netherlands' legal adult use cannabis program, based on Canadalar management data. And is the only industrial-scale greenhouse cultivator within the program.

Speaker #3: Under the agreement, Cronos will acquire Canadalar for upfront consideration of $57.5 million or approximately $67.5 million subject to certain adjustments, with additional continued consideration based on half-act Canadalar's normalized EBITDA in '26 and '27.

Mike Gorenstein: Under the agreement, Cronos will acquire CanAdelaar for upfront consideration of fifty-seven and a half million euros, or approximately sixty-seven and a half million euros, subject to certain adjustments, with additional continuing consideration based on half x CanAdelaar's normalized EBITDA in 2026 and 2027. The Netherlands has a deep cannabis heritage, and its coffee shops, which serve as cannabis retailers, are known worldwide to have played a foundational role in the evolution of the legal cannabis industry. The Dutch legal adult use cannabis program was enacted in 2020 to establish a closed, regulated cannabis supply chain in 10 participating municipalities, with the start of phase beginning in Q4 2023, and the program officially launching on 7 April 2025.

Speaker #3: The Netherlands has a deep cannabis heritage, and its coffee shops, which serve as cannabis retailers, are known worldwide to have played a foundational role in the evolution of the legal cannabis industry.

Speaker #3: The Dutch legal adult use cannabis program was enacted closed, regulated cannabis supply chain in 10 participating municipalities, with the startup phase beginning in the fourth quarter of 2023 and the program officially launching on April 7th, 2025.

Speaker #3: The program is scheduled to run for four years from that date, with the Dutch government retaining the option to extend it by up to an additional 18 months.

Mike Gorenstein: The program is scheduled to run for 4 years from that date, with the Dutch government retaining the option to extend it by up to an additional 18 months. The program is well-designed and regulated to limit cannabis to responsible levels among adult consumers only, serving as a potential model for other countries. We are committed to the continuity of the program in cooperation with regulators, municipalities, and all industry stakeholders to ensure its long-term success. Under the program, all 72 cannabis retailers in the 10 participating municipalities are now required to source their cannabis products exclusively from 1 of 10 licensed producers, including CanAdelaar.

Speaker #3: The program is well-designed and regulated to limit cannabis to responsible levels among adult consumers only. Serving as a potential model for other countries. We are committed to the continuity of the program and cooperation with regulators and municipalities and all industry stakeholders to ensure its long-term success.

Speaker #3: Under the program, all 72 cannabis retailers in the 10 participating municipalities are now required to source their cannabis products exclusively from one of 10 licensed producers.

Speaker #3: Including Canadalar, including the 72 cannabis retailers in the program, there are a total of 562 cannabis retailers in the Netherlands, based on data from the Dutch government, allowing for a potentially significant increase in the addressable market should the program be eventually expanded to additional municipalities or nationwide.

Mike Gorenstein: Including the 72 cannabis retailers in the program, there are a total of 562 cannabis retailers in the Netherlands, based on data from the Dutch government, allowing for a potentially significant increase in the addressable market should the program be eventually expanded to additional municipalities or nationwide. European expansion is an important area of focus for us, and if completed, acquiring a market leader in Europe's largest adult use cannabis market will allow us to further leverage our investments in borderless products at scale. Combined with a highly attractive financial profile and the expectation for accretion from the transaction, we're excited to bring Cannadolar under the Cronos umbrella and to build upon the foundation that the company has established.

Speaker #3: European expansion is an important area of focus for us, and if completed, acquiring a market leader in Europe's largest adult use cannabis market will allow us to further leverage our investments in borderless products at scale.

Speaker #3: Combined with the highly attractive financial profile and the expectation for accretion from the transaction, we're excited to bring Canadalar under the Cronos umbrella and to build upon the foundation that the company has established.

Speaker #3: Cronos maintains the strongest balance sheet in the industry, with no debt and 832 million in cash, cash equivalents in short-term investments. Allowing us to continue investing in growth, innovation, and global expansion.

Mike Gorenstein: Cronos maintains the strongest balance sheet in the industry, with no debt and $832 million in cash equivalents, and short-term investments, allowing us to continue investing in growth, innovation, and global expansion. Now, I'll turn it over to Anna to walk you through our Q4 and full year financials.

Speaker #3: Now I'll turn it over to Anna to walk you through our fourth quarter and full year financials.

Speaker #4: Thanks, Mike, and good morning, everyone. I'll now review our fourth quarter 2025 results. The company reported consolidated net revenue of $44.5 million, a 47% increase year over year.

Anna Shlimak: Thanks, Mike. Good morning, everyone. I'll now review our Q4 2025 results. The company reported consolidated net revenue of CAD 44.5 million, a 47% increase year-over-year. The net revenue increase was driven by higher cannabis flower sales in Israel, Canada, and other countries, and higher cannabis extract sales in the Canadian market. Gross Profit and Adjusted Gross Profit in Q4 were CAD 16.2 million, equating to a 36% margin, a 670 basis point improvement from the 30% Adjusted Gross Margin in Q4 2024. The year-over-year margin improvement was driven by higher average sales prices, due primarily to a mix shift to Israel and other countries, and higher sale volume. Adjusted Gross Margin declined from the levels realized in Q1, Q2, and Q3 of 2025.

Speaker #4: The net revenue increase was driven by higher cannabis flower sales in Israel, Canada, and other countries, and higher cannabis extract sales in the Canadian market.

Speaker #4: Gross profit and adjusted gross profit in the fourth quarter were $16.2 million equating to a 36% margin, a $670 basis point improvement from the 30% adjusted gross margin in Q4 2024.

Speaker #4: The year-over-year margin improvement was driven by higher average sales prices, due primarily to a mixed shift to Israel and other countries, and higher sale volumes.

Speaker #4: Adjusted gross margin declined from the levels realized in the first three quarters of 2025. This was driven by adverse production quality mix at Groco, as Groco dialed in the expansion as well as an expense timing in Q4 as part of that ramp-up.

Anna Shlimak: This was driven by adverse production quality mix at Cronos GrowCo, as Cronos GrowCo dialed in the expansion, as well as an expense timing in Q4 as part of that ramp-up. For full year 2025, Adjusted gross margin of 43%, we would view this as a reasonable margin level for the business. Operating expenses, excluding restructuring costs and impairments, were $22.5 million in the quarter, a modest year-over-year increase of $0.3 million. Adjusted EBITDA in Q4 was $0.5 million, an improvement of $7.7 million year-over-year, driven by higher Adjusted gross profit. While remaining positive, Adjusted EBITDA was lower than reported in the first three quarters of the year, given the gross margin pressures and expense timing. We remain confident in the operating leverage of the business as production stabilizes and scale efficiencies are realized....

Speaker #4: For full year 2025, adjusted gross margin of $43% and we would view this as a reasonable margin level for the business. Operating expenses excluding restructuring costs and impairments were $22.5 million in the quarter, a modest year-over-year increase of 0.3 million.

Speaker #4: Adjusted EBITDA in the fourth quarter was 0.5 million, an improvement of 7.7 million year over year, driven by higher adjusted gross profit. While remaining positive, adjusted EBITDA was lower than reported in the first three quarters of the year, given the gross margin pressures and expense timing.

Speaker #4: Remain confident in the operating leverage of the business as production stabilizes and scale efficiencies are realized. Turning to the balance sheet and cash flow statement, the company ended the quarter with $832 million in cash, cash equivalents in short-term investments, up 8 million from Q3 2025.

Anna Shlimak: Turning to the balance sheet and cash flow statement, the company ended the quarter with $832 million in cash equivalents, and short-term investments, up $8 million from Q3 2025. Driven primarily by positive cash flow from operations before changes in working capital of $18 million and $3 million of proceeds from the sale of the Cronos fermentation facility, partially offset by a $7 million working capital outflow, $4 million of share repurchases, and $2 million of CapEx spend. In addition to this cash balance, we hold $21 million of loans receivable and $8 million of other investments. In summary, our Q4 jump in top line set a net revenue record, setting the stage for bottom line growth in 2026.

Speaker #4: Driven primarily by positive cash flow from operations before changes in working capital of $18 million, and $3 million of proceeds from the sale of the Cronos fermentation facility.

Speaker #4: Partially offset by a $7 million working capital outflow, $4 million of share repurchases, and $2 million of capex spend. In addition to this cash balance, we hold $21 million of loans receivable and $8 million of other investments.

Speaker #4: In summary, our fourth quarter jump in top line set a net revenue record, setting the stage for bottom line growth in 2026. For full year 2025, we achieve record net revenue gross profit and adjusted EBITDA, demonstrating continued improvement in operating fundamentals as we execute against our business objectives.

Anna Shlimak: For full year 2025, we achieved record net revenue, gross profit, and Adjusted EBITDA, demonstrating continued improvement in our operating fundamentals as we execute against our business objectives. With that, I would like to hand it back to Mike for a brief comment before going into Q&A.

Speaker #4: With that, I would like to hand it back to Mike for a brief comment before going into Q&A.

Speaker #5: Thanks, Anna. In summary, we delivered meaningful improvements to our business and financial results in 2025, growing net revenue organically by 25% year over year, strengthening our competitive positioning across key markets and product categories.

Mike Gorenstein: Thanks, Anna. In summary, we delivered meaningful improvements to our business and financial results in 2025, growing net revenue organically by 25% year-over-year, strengthening our competitive positioning across key markets and product categories. It's important to understand the context of this organic growth relative to our peers. Not only did we grow without acquisition, but while most of our peers have ATMs and have been issuing shares to fund their businesses, with our strong balance sheet and self-sustaining business, we have an active share repurchase program that led to a declining share count over the course of 2025. Looking ahead to 2026, we continue to be committed to our share repurchase program. We also will be opportunistic and disciplined while evaluating M&A opportunities.

Speaker #5: It's important to understand the context of this organic growth relative to our peers. Not only do we grow without acquisition, but while most of our peers have ATMs and have been issuing shares to fund their businesses, with our strong balance sheet and self-sustaining business, we have an active share repurchase program that led to a declining share count over the course of 2025.

Speaker #5: Looking ahead to 2026, we continue to be committed to our share repurchase program. We also will be opportunistic and disciplined while evaluating M&A opportunities.

Speaker #5: Canadalar is an example of a transaction that allows us to advance our borderless product strategy and establish a strong foothold in important markets. In addition to new market opportunities, we will also look for strong brands and IP that we can add to our portfolio.

Mike Gorenstein: CanAdelaar is an example of a transaction that allows us to advance our borderless product strategy and establish a strong foothold in an important market. In addition to new market opportunities, we will also look for strong brands and IP that we can add to our portfolio. We see multiple drivers of continued momentum this year: the expected closing of the CanAdelaar transaction, increased production capacity following GrowCo's expansion, continued growth in our branded products, and our increasing presence in international markets. We remain focused on delivering sustainable top-line growth and attractive growth margins, while maintaining disciplined cost management as we continue to scale Cronos globally and position the business for long-term success. Thank you, we'll now open the call for questions.

Speaker #5: We see multiple drivers of continued momentum this year. The expected closing of the Canadalar transaction, increased production capacity following Groco's expansion, continued growth in our branded products, and our increasing presence in international markets.

Speaker #5: We remain focused on delivering sustainable top-line growth at attractive gross margins while maintaining disciplined cost management as we continue to scale Cronos globally and position the business for long-term success.

Speaker #5: Thank you, and we'll now open the call for questions.

Speaker #6: Thank you very much. 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.

Operator: Thank you very much. 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. Please stand by while we compile the Q&A roster. Our first question comes from Bill Kirk of ROTH Capital Partners. Bill, your line is open.

Speaker #6: And wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Speaker #6: Our first question comes from Bill Kirk of Roth Capital Partners. Bill, your line is open.

Speaker #7: Hey, good morning, everybody. I was hoping to talk a bit about product allocation coming out of the new Groco capacity. How are decisions made of where to send that product?

Bill Kirk: Hey, good morning, everybody. I was hoping to talk a bit about product allocation coming out of the new GroCo capacity. You know, how are decisions made of where to send that product? How did it kind of get allocated in Q4? Are there any considerations like permit timing or things like that might change the future allocation from what we see in Q4?

Speaker #7: How did it kind of get allocated in 4Q? And are there any considerations like permit timing or things like that that might change the future allocation from what we see in 4Q?

Mike Gorenstein: Sure. Thanks, Bill. You know, I think when, you know, historically we've been trying to figure out how to deal from a position of shortage and allocate. You know, there's been a balance between how do we make sure that we're keeping, you know, a certain level of demand in markets, but also focusing on margin. I think now that we have more supply coming online, expect kind of the, you know, the quality of supply to be consistent with what we've historically had. We'll be able to start filling more product in Canada, but also, you know, be a little bit more aggressive in scaling in Europe. I think, you know, in Q4, you saw us trying to get a lot of the new product coming out.

Speaker #5: Sure. Thanks, Bill. I think when historically we've been trying to figure out how to deal from a position of shortage and allocate, and so there's been a balance between how do we make sure that we're keeping a certain level of demand in markets, but also focusing on margin.

Speaker #5: And I think now that we have more supply coming online and expect kind of the quality of supply to be consistent with what we've historically had, we'll be able to start filling more product in Canada, but also be a little bit more aggressive in scaling in Europe.

Speaker #5: So I think in Q4, you saw us trying to get a lot of the new product coming out. So we didn't maybe have the same normal fills we would, but that should go back starting this year to more consistent than what we had in the past, with the exception that there's more product available for Canada than we historically had.

Mike Gorenstein: We didn't maybe have the same normal fill as we would, but that should go back starting this year, to more consistent with what we had in the past, with the exception that there's more product available for Canada than we historically had.

Speaker #6: Got it. And then Anna, you talked about go forward gross margins being similar to 2025 full-year levels. What in particular leads to improving gross margin off what you reported in 4Q?

Bill Kirk: Got it. Then, Anna, you talked about go-forward gross margins, you know, being similar to 2025 full year levels. What particularly leads to improving gross margin off what you reported in Q4? Is it more price? Is it better mix? Is it lower costs? Then with the greater sales and scale from GroCo, why can't gross margin be higher than 2025?

Speaker #6: Is it more price? Is it better mix? Is it lower cost? And then with the greater sales and scale from Groco, why can't gross margin be higher than 2025?

Speaker #4: Sure. Thanks, Bill. Yeah. So I mean, in Q4, there was a kind of couple adversities we'd face. So we had some expansion-related production quality mix from the Groco scale-up, as well as some one-time expenses that float through COGS due to the ramp-up.

Anna Shlimak: Sure. Thanks, Bill. I mean, in Q4, there was a kind of couple, you know, adversities we faced. We had some expansion-related production quality mix from the Cronos GrowCo scale-up, as well as some one-time expenses that flow through COGS due to the ramp-up. Kind of those headwinds has impacted Q4, which we don't expect to have going forward. That's why we feel like that full year, 43% margin range is reasonable for us for the business. Look, I think, you know, there's potential for some margin expansion in the future, but we have to really be balanced, right? You could also have margin compression in Europe. We don't really know at this moment, but we feel good about kind of that full year, 2025 run rate going forward.

Speaker #4: So kind of those headwinds impacted Q4, which we don't expect to have going forward. So that's why we feel like that full-year 43% margin range is reasonable for us for the business.

Speaker #4: Look, I think there's potential for some margin expansion in the future, but we have to really be balanced, right? You could also have margin compression.

Speaker #4: In Europe, we don't really know at this moment, but we feel good about kind of that full-year 2025 run rate. Going forward.

Speaker #6: Okay. Thank you.

Bill Kirk: Okay. Thank you.

Speaker #2: Thank you very much. Our next question comes from the line of Kendrick Tai of Concordia Genuity Capital Markets. Kendrick, your line is open.

Operator: Thank you very much. Our next question comes from the line of Kenric Tyghe of Canaccord Genuity Capital Markets. Kenric, your line is open.

Speaker #8: Thank you. And good morning. If I could just jump in with a follow-up on the gross margin quickly. Anna, you're calling out sort of a similar level to full-year '25.

Kenric Tyghe: Thank you, and good morning. If I could just jump in with a follow-up on the gross margin quickly. You're calling out sort of the similar levels to full year 2025, just for clarification, would those expectations factor in the close of CanAdelaar, or is there potential further upside? That's perhaps what you were alluding to in your comments about there could be some further expansion through the year. How should we just think about the potential evolution here, following up on your earlier comment?

Speaker #8: Just for clarification, would those expectations factor in the close of Canadalar? Or is there a potential further upside? And that's perhaps what you were alluding to in your comment about there could be some further expansion through the year.

Speaker #8: How should we just think about the potential evolution here following up on your earlier comment?

Speaker #4: Sure. So my comments were just for Cronos as a standalone business, not considering Canadalar, that is a profitable business as well with very nice gross margins.

Anna Shlimak: Sure. My comments were just for Cronos as a standalone business, not considering CanAdelaar.

Kenric Tyghe: Okay.

Anna Shlimak: That is a, it is a profitable business as well with, you know, very nice gross margins, so we could see some margin expansion from that. I was more speaking to our business as a standalone, that 43% go forward.

Speaker #4: So we could see some margin expansion from that. But just from a more speaking to our business as a standalone, that 43% go forward.

Speaker #8: Great. I appreciate the clarification. And then just timing and the quarter, if I could, looking to the revenue and the revenue beat, you did call out that sort of 68% growth in international, I think, was plus 52% in Israel.

Kenric Tyghe: Great. I appreciate the clarification. Then just, timing in Q4, if I could just, you know, looking to the revenue and the revenue beat. You did call out that, you know, sort of 68% growth in international, I think it was plus 52% in Israel. How much of the revenue beat in Q4 was timing shift versus just, you know, call it pure Q4?

Speaker #8: How much of the revenue beat in quarter was timing shift versus just call it pure Q4?

Anna Shlimak: Sure. There was some timing shifts for those international markets outside of Israel, going from Q3 to Q4. We had some kind of shipping timings move into Q4, but the rest is, you know, pretty. Our business is growing, so you know, you should expect to see that from us going forward across our markets.

Speaker #4: Sure. So some of the there was some timing shifts for those international markets outside of Israel, going from Q3 to Q4. We had some kind of shipping time and smooth into Q4.

Speaker #4: But the rest is pretty our business is growing so you should expect to see that from us going forward across our markets.

Kenric Tyghe: Great. Sorry, maybe just one quick final one. You know, CapEx, any sort of key issue, key initiatives we should be thinking through this year? Is it reasonable to think that we'd be looking at something, you know, less than $10 million on the year, given the spend in Q4 and you know, what we currently understand your needs or goals will be in 2026?

Speaker #8: Go ahead. Sorry. Maybe just one quick final one. Cathays, any sort of key initiatives we should be thinking through this year? Was it reasonable to think that we'd be looking at something less than $10 million on the year given the spend in Q4 and what we currently understand your needs or build will be in 2026?

Speaker #4: Yeah. I think that's right. I think those are appropriate levels for us going forward.

Anna Shlimak: Yeah, I think that's right. I think those are appropriate levels for us going forward.

Speaker #8: Great. Thank you. I'll get back in tune.

Kenric Tyghe: Great. Thank you. I'll get back in queue.

Speaker #2: Thank you very much. Our next question comes from the line of Ryan Neal of TD Cohen. Ryan, your line is open.

Operator: Thank you very much. Our next question comes from the line of Ryan Neil of TD Cowen. Ryan, your line is open.

Speaker #9: Good morning, everyone. This is Ryan stepping in for Derek. Just want to quickly start on the domestic market. So obviously, you saw Canada was up more than 40% year over year.

Ryan Neil: Morning, everyone. This is Ryan stepping in for Derek. Just want to quickly start in the domestic market. Obviously saw Canada was up more than 40% year-over-year. Can you guys just talk a little bit about some of the drivers there? And especially, I know you mentioned in Q3, there were still some softer flower sales due to the domestic supply constraints.

Speaker #9: Can you guys just talk a little bit about some of the drivers there? And especially I know you mentioned in Q3 there were still some softer flower sales due to the domestic supply constraints.

Mike Gorenstein: Thanks. Yeah, I think the, you know, one of the biggest drivers here is just having additional supply. I think that's something that you'll see continue to work through. You know, before this quarter, we've really just been struggling with how to allocate the limited product we had. I think now that we're starting to have more product come online, that allows us to fill existing demand in, you know, in the markets that we're already in.

Speaker #5: Thanks. Yeah. I think one of the biggest drivers here is just having additional supply. And I think that's something that you'll see continue to work through before this quarter.

Speaker #5: We've really just been struggling with how to allocate the limited product we had. And I think now that we're starting to have more product come online, that allows us to fill existing demand in the markets that we're already in.

Speaker #9: Great. And then you guys obviously have a pretty large capital base. I'm just curious how you view the current pipeline of potential opportunities and how you might deploy some of that moving forward.

Ryan Neil: Great. Then you guys obviously have a pretty large capital base. I'm just curious how you view the current pipeline of potential opportunities and how you might deploy some of that moving forward.

Speaker #5: Sure. I think first staying committed to the buyback is an important thing for us. There's a lot that we're looking at internationally. I think whether that falls in the bucket of a new market and is there anything we need to expand our platform, but also are there new products, new brands that we can put on our existing platform and get the benefit of expanding those into new markets?

Mike Gorenstein: Sure. You know, I think, you know, first, staying committed to the buyback is an important thing for us. You know, there's a lot that we're looking at internationally. You know, I think whether that falls in the bucket of a new market, and is there anything we can do to expand our platform? Also are there new products, new brands that we can, you know, put on our existing platform and get the benefit of expanding those into new markets. You know, we'll continue to be disciplined and be opportunistic, and, you know, as you've seen from 2025, you know, when there's opportunities, we'll certainly act on them.

Speaker #5: So we'll continue to be disciplined and be opportunistic and, as you've seen from 2025, when there's opportunities, we'll certainly act on them.

Speaker #9: Great. And then I'll just put one more question in here. So curious about some of the innovation you guys are doing? I know you last call mentioned a few launches.

Ryan Neil: Great. I'll just put one more question in here. Curious about some of the innovation you guys are doing. I know you last call mentioned a few launches. How are those trending, and sort of what are the categories that you're seeing the most strength in?

Speaker #9: How are those trending and sort of what are the categories that you're seeing the most strength in?

Speaker #5: Yeah. I think one that you don't always see sort of immediately and it's harder to measure, but genetics is a really important one for us.

Mike Gorenstein: Yeah, I think one that you don't always see sort of immediately, and it's harder to measure, but genetics is a really important one for us. There's a lot we've been doing, you know, over the years, breeding, and I think you know, you're seeing every year the successes that come out of that, and we have some really interesting projects in genetics, very excited there. Continuing to innovate in, you know, in edibles is really important for us. Keeping SOURZ fresh. I think that maybe the most exciting one for, you know, for this quarter and you'll see showing up in the data in Q1, is in vapes, PUFFERZ. It's our all-in-one.

Speaker #5: So there's a lot we've been doing over the years breeding. And I think you're seeing every year the successes that come out of that.

Speaker #5: And we have some really interesting projects in genetics. So very excited there. Continuing to innovate in edibles is really important for us. Keeping sours fresh.

Speaker #5: But I think that maybe the most exciting one for this quarter and you'll see showing up in the data in Q1 was in vapes.

Speaker #5: Puffers. So it's our all-in-one. We've put a lot of time and work into making sure that this is going to be a big driver for us.

Mike Gorenstein: We've, you know, put a lot of time and work into making sure that this is going to be a big driver for us, and I think you're seeing the early success already. PUFFERZ is, you know, I think all of us are very excited about right now.

Speaker #5: And I think you're seeing the early success already. So Puffers is what I think all of us are very excited about right now.

Speaker #9: Great. Thanks, everyone.

Ryan Neil: Great. Thanks, everyone.

Speaker #2: Thank you very much. Our next question comes from the line of Pablo Zunich of Zunich and Associates. Pablo, your line is open.

Operator: Thank you very much. Our next question comes from the line of Pablo Zuanich of Zuanich & Associates. Pablo, your line is open.

Speaker #10: Thank you. And good morning, everyone. Mike, can you explain in the context of the consolidation we are seeing in Germany, high tire Nexian, OGI Sanity, why Holland was a priority over Germany?

Kenric Tyghe: Thank you, good morning, everyone. Mike, can you explain, you know, in the context of the consolidation we are seeing in Germany, you know, High Tide, Mexichem, OGI, Sanity, why Holland was a priority over Germany, especially with the market consolidating and some distributors still being available? Thanks.

Pablo Zuanic: Thank you, good morning, everyone. Mike, can you explain, you know, in the context of the consolidation we are seeing in Germany, you know, High Tide, Mexichem, OGI, Sanity, why Holland was a priority over Germany, especially with the market consolidating and some distributors still being available? Thanks.

Speaker #10: Especially with the market consolidating and some distributors still being available. Thanks.

Speaker #5: Sure. I think when I look at Germany, the first thing is there's still regulatory uncertainty. And you've got some movement that's going through. And we expect in the coming months to get certainty.

Mike Gorenstein: Sure. You know, I think when I look at Germany, you know, the first thing is, there's still regulatory uncertainty, and you've got some movement that's going through. We expect, you know, in the coming months to get certainty. I also think when you look at availability of licenses, you know, distribution and opportunity to get into the market, there's plenty of opportunity to get in. There are, you know, many options there. I think from a business model perspective, it can be difficult because some of the distributors that you look at buying, well, they're, you know, they have many brands on the platform, so there's a lot of different distribution.

Speaker #5: But I also think when you look at availability of licenses, distribution, and opportunity to get into the market, it's there's plenty of opportunity to get in.

Speaker #5: There are many options there. And I think from a business model perspective, it can be difficult because some of the distributors that you look at buying, well, they have many brands on the platform.

Speaker #5: So there's a lot of different distribution. And I think you're not sure if you're picking up a business or you're still going to have that distribution business because you're distributing your competitors.

Mike Gorenstein: I think, you know, you're not sure if you're picking up a business, are you still gonna have that distribution business because they're distributing your competitors? It's something we continue to evaluate, think about the smartest way that we could deepen our presence in the market. We thought the Netherlands was much more sort of on strategy. It's a market that, you know, without making an acquisition, we would have no way to get in because it's closed as far as import-export. It has its own supply base, its own brands. You know, we feel like it's not a step towards getting towards adult use and building a brand.

Speaker #5: So it's something we continue to evaluate, think about the smartest way that we could deepen our presence in the market. But we thought the Netherlands was much more sort of on strategy.

Speaker #5: It's a market that without making an acquisition, we would have no way to get in because it's closed as far as import-export. It has its own supply base, its own brand.

Speaker #5: And we feel like it's not a step towards getting towards adult use. And building a brand, it is moving directly into the adult use market in a place where you've had a 50-year history of adult use sales.

Mike Gorenstein: It is moving directly into the adult use market, in a place where you've had a 50-year history of adult use sales, and we think gets the most brand leverage, you know, for any market across Europe, just given the kind of culture and history around the Netherlands coffee shops. We thought it just made a lot of sense, and it was a really unique opportunity for us.

Speaker #5: And we think gets the most brand leverage for any market across Europe just given the kind of culture and history around the Netherlands coffee shops and.

Speaker #5: And so we thought it just made a lot of sense, and it was a really unique opportunity for us.

Speaker #10: Thank you. And then just a quick follow-up. Look, I mean, in markets like Australia, we've seen an operators, distributors taking control of downstream assets, whether it's clinics or even online pharmacies.

Pablo Zuanich: Thank you. Just a quick follow-up. Look, I mean, in markets like Australia, we've seen operators, distributors taking control of downstream assets, whether it's clinics or even online pharmacies. We're beginning to see that in Germany, apparently, and it's happening in the UK. I mean, Curaleaf owns a clinic there and an online pharmacy. How do you think about downstream opportunities, medium, longer term, or is that something that you prefer not to be involved in? Thanks.

Pablo Zuanic: Thank you. Just a quick follow-up. Look, I mean, in markets like Australia, we've seen operators, distributors taking control of downstream assets, whether it's clinics or even online pharmacies. We're beginning to see that in Germany, apparently, and it's happening in the UK. I mean, Curaleaf owns a clinic there and an online pharmacy. How do you think about downstream opportunities, medium, longer term, or is that something that you prefer not to be involved in? Thanks.

Speaker #10: We're beginning to see that in Germany, apparently. And it's happening in the UK. I mean, Coralie owns a clinic there and an online pharmacy.

Speaker #10: How do you think about downstream opportunities medium, longer term? Or is that something that you prefer not to be involved in? Thanks.

Speaker #5: Thanks. It's a great question. I think we take a really long-term view on any acquisitions and capital spend. And I think it can be market-specific.

Mike Gorenstein: Thanks. It's a great question. I think, you know, we take a really long-term view on any acquisitions and capital spend, and I think it can be market specific, but I'm always looking at where do I think the market's going to end up? You know, if it's something where it's a more temporary business or we're worried regulations are going to change it's something where we prefer to be a customer than an owner of the asset. If I think it's going to be locked in for longer and, you know, we can model it out and see there's a long-term payback to being an owner versus a customer, then it's something we would consider. I think it's really market specific.

Speaker #5: But I'm always looking at where do I think the market's going to end up. And if it's something where it's a more temporary business or we're worried regulations are going to change it, it's something where we prefer to be a customer than an owner of the asset.

Speaker #5: But if I think it's going to be locked in for longer and we can model it out and see there's a long-term payback to being an owner versus a customer, then it's something we would consider.

Speaker #5: And I think it's really market-specific. But I do go back to the experience we saw early in Canada. So if it's a market where we think it's going to go adult use or if it's a market where we think that regulations can change what that funnel looks like, it's something we would rather just spend the money to help with marketing and demand versus be sort of an owner of that part of the funnel.

Mike Gorenstein: You know, but I do go back to the experience we saw early in Canada. If it's a market where we think it's going to go adult use, or if it's a market where we think that regulations can change, you know, what that funnel looks like, it's something we would rather just spend money to help with marketing and demand versus be sort of an owner of that part of the funnel.

Speaker #10: Thank you. And one last one, if I may. I know this is going back in time, but what lessons can you take from the option you had acquired in Pharmacon, right?

Pablo Zuanich: Thank you. One last one, if I may. You know, I know this is going back in time, but what lessons can you take from the option you have acquired in PharmaCann, right? You have an option to buy, I think, a stake in the company. I know that's a while ago, but what lessons did the company learn from that? How do you think about that lesson as the US begins to reschedule? Thanks. That's it.

Pablo Zuanic: Thank you. One last one, if I may. You know, I know this is going back in time, but what lessons can you take from the option you have acquired in PharmaCann, right? You have an option to buy, I think, a stake in the company. I know that's a while ago, but what lessons did the company learn from that? How do you think about that lesson as the US begins to reschedule? Thanks. That's it.

Speaker #10: You had an option to buy, I think, a stake in the company. And I know that's a while ago. But what lessons did the company learn from that?

Speaker #10: And how do you think about that lesson as the US begins to reschedule? Thanks. That's it.

Speaker #5: So I cut out there for a minute. I heard what lessons. And could you just repeat the part after that? Apologize.

Mike Gorenstein: Sorry, I cut out there for a minute. I heard what lessons, and can you just repeat the part after that? I apologize.

Speaker #10: Yeah. I'm going to repeat it. I'm sorry. Yeah. I'm going to repeat. No, going back in time, I believe that Kronos had an option to acquire a stake in Pharmacon in the US, right?

Pablo Zuanich: Yeah, I'm going to repeat. I'm sorry. Yeah, I'm going to repeat. No, going back in time, I believe that Cronos had an option to acquire a stake in PharmaCann in the US, right? That company hasn't done too well. What lessons did Cronos learn from that, and how does that color your thinking about future opportunities in the US as that country reschedules cannabis? Thank you.

Pablo Zuanic: Yeah, I'm going to repeat. I'm sorry. Yeah, I'm going to repeat. No, going back in time, I believe that Cronos had an option to acquire a stake in PharmaCann in the US, right? That company hasn't done too well. What lessons did Cronos learn from that, and how does that color your thinking about future opportunities in the US as that country reschedules cannabis? Thank you.

Speaker #10: That company hasn't done too well. What lessons did Kronos learn from that? And how does that color your thinking about future opportunities in the US as that country reschedules cannabis?

Speaker #10: Thank you.

Speaker #5: Thanks. No, it's a great question. I think there's two things that I would specifically point to. The first is that when we did that, it was a little bit of a hedge if you recall the timing was around the sort of craze around States Act.

Mike Gorenstein: Thanks. No, that's a, it's a great question. I think, you know, there's two things that I would specifically point to. You know, the first is that when we did that, it was a little bit of a, of a hedge. If you recall, the timing was around the sort of craze around the STATES Act. We. It was roughly 10% on the option, and part of the reason was we wanted to make sure we had distribution secured if you had regs move. Part of that is it's still important we didn't do a, you know, a larger stake than that we were being, I'd say, a little bit more disciplined and controlled. I think also a bigger part is that you can't really move ahead of regulations.

Speaker #5: We didn't it was roughly 10% on the option. And part of the reason was we wanted to make sure we had distribution security if you had regs move and so part of that is it's still important.

Speaker #5: We didn't do a larger stake in that we were being, I'd say, a little bit more disciplined and controlled. But I think also a bigger part is that you can't really move ahead of regulations.

Speaker #5: I think what we've seen in this industry is that when you try to be aggressive and move ahead of regulations, it doesn't usually work out.

Mike Gorenstein: I think what we've seen in this industry is that when you try to be aggressive and move ahead of regulations, it doesn't usually work out. Specifically in the US, I think trying to get creative with structures, doesn't always work to your advantage. Making sure that you have, you know, ways of operationally being able to pivot, when things change is pretty important. You know, the US is really the market where I think those lessons are going to be most applicable, you know, given the federal legality, but size of the business in spite of that. Still, you know, I think extremely important market and something that we monitor and think of other ways to get in.

Speaker #5: And specifically in the US, I think trying to get creative with structures doesn't always work to your advantage. And making sure that you have passed the control and you have ways of operationally being able to pivot when things change is pretty important.

Speaker #5: So the US is really the market where I think those lessons are going to be most applicable. Given the federal legality, but size of the business in spite of that.

Speaker #5: Still, I think extremely important market and something that we monitor and think of other ways to get in. But it feels like until you have the actual opportunity to move in and operate, and be able to directly own it's better to just continue developing the portfolio and building up strength outside of the US.

Mike Gorenstein: You know, it, it feels like until you have the actual opportunity to move in and operate and be able to directly own, it's better to just continue developing, you know, the portfolio and building up, you know, strength outside of the US.

Speaker #10: Yeah. All right. Thank you.

Pablo Zuanich: Yeah. All right, thank you.

Pablo Zuanic: Yeah. All right, thank you.

Operator: Thank you very much. This concludes the Cronos Group questions and answer session. Thank you very much, and you may now disconnect.

Q4 2025 Cronos Group Inc Earnings Call

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