Cronos Group Q3 2024 Earnings Report & Analysis

Kronos Group's Q3 2024 earnings report showed that they exceeded earnings and revenue expectations. They attribute their success to the recent acquisition of Groko, which helps increase their supply of unique cannabis genetics. They are also focusing on vertical integration, controlling every step of the supply chain. However, there are risks involved, such as changing consumer preferences and regulations. Kronos is also expanding internationally, but each market has its own challenges. They have decided to pull out of the U.S. hemp-derived CBD market due to competition and unclear regulations. Overall, Kronos is taking big risks and success depends on their ability to adapt to the evolving market. Key things to watch are their international strategy and their ability to increase production and develop appealing products. Hey everyone, and welcome back for another Deep Dive. Always fun to be back. So today we are going to be ... Looking in. Yeah, looking at Kronos Group's Q3 2024 earnings report. And our source material today is going to be a YouTube video from this guy, POW Group, and he describes himself as a retail investor, all about marijuana stocks and crypto and all sorts of finance stuff. Fun stuff? Yeah. So he seems really excited about Kronos Group, especially because they beat ... They beat estimates. Yeah, they beat earnings expectations and revenue expectations. But is it a situation where they just barely beat it, or is it something a little more ... That's the real question. Beating estimates is great, but what's the story behind it? Looking at the numbers, they pulled in $34.26 million, which is way higher than that 30.6 that was expected. Okay. And EPS. Yeah. Positive 0.01 or 0.02. Wow, exceeding that 0.01 prediction. Right. So, you know, good on them, but what's going on? Right. What's driving this? Yeah. So the YouTube host seems to think that maybe Kronos' recent acquisition of Groko, this cultivation operation, might be a factor. Oh, interesting. Yeah. He's saying that it's helping Kronos increase their supply of what he's calling unique genetics, which to me sounds a little ... A little vague. ... big. Yeah. Yeah. I mean, it sounds like a bit of marketing jargon, maybe. Yeah. But it's worth noting that Kronos is really pushing Groko's role in their big expansion strategy. Okay. Not just in Canada. They're looking at international. Okay. Australia, Germany, UK. Right. All while they're highlighting Groko's contribution. Okay. So they're really pushing this vertical integration thing. Vertical integration. I have to admit, I'm not entirely sure what that means in this context. Okay. So think about it. Kronos is baking a cake. Right. Right. But instead of just selling the cake, they're now also the ones who grew the wheat, and milled the flour, and produced the sugar. Wow. You know, they're controlling every step of that process ... Right. ... from the cultivation to the final product. So in this case, it would be like they own the farms where the cannabis is grown, and then all the way to the dispensaries where it's being sold. Exactly. Got it. Yeah. That makes a lot more sense. But wouldn't that take a lot of resources? Why would a company want to do that? Well, it's a huge strategic move. Okay. And it has its advantages. Like they can lower costs ... Okay. ... by controlling that entire supply chain, right? Yeah. Ensuring consistent quality, and they've got a much more reliable supply. That makes sense. You know, they're not at the mercy of some outside supplier. Right. But you're right. It does take a huge upfront investment, and you need expertise at each stage. Yeah, like a big gamble. It is. They're putting a lot of faith into this GroCo acquisition. Big time. Yeah. Yeah. Are there any downsides? Of course. Yeah. What could go wrong? You know, maybe if consumer preferences change suddenly ... Yeah. ... or some new regulations pop up ... Right. ... it makes it way harder to adapt ... Got it. ... when you're kind of locked into this system. Right. So many different moving parts. Exactly. Okay. So it's not just all like sunshine and roses. No. No. Definitely not a guaranteed win. All right. So let's go back to these unique genetics for a moment. Right. So what does this even mean? Is this like some kind of super weed? Or ... Well, it's hard to know for sure. Right. Cronus hasn't given us like the secret formula or anything. Yeah. Yeah. But it probably means they've got specific strains of cannabis. Okay. Maybe with some desirable characteristics like high potency ... Right. ... unique flavors. Interesting. Maybe they've developed or acquired those proprietary strains through GroCo. Ah, okay. So that would make sense. Yeah. And I mean, let's be real. It's a good way to stand out ... Right. ... in a credit market. Yeah. Absolutely. And that actually brings us to another interesting point from the report. Cronus' value brand, Spinach, has somehow become the top selling marijuana brand in Canada. Really? I know. Wow. That's a surprise. That's a bit of a head scratcher. I mean, usually value brands compete on price, right? Right. Not quality or brand prestige. You don't really expect them to like dominate. Right. So this is really interesting. It is. So what are people in Canada looking for? You know? Is it all about the price or is there something else going on with Spinach? Yeah. Has Spinach like seriously upped their game? Right. Or have they just nailed their marketing and distribution? Right. Or maybe there's a bigger trend ... Yeah. ... where Canadian consumers are just going for those more affordable options. Yeah. I'm actually curious to hear what you think. Have you ever tried Spinach? What matters to you when you're choosing a cannabis brand? You know, I haven't actually tried Spinach ... Okay. ... but I'm really interested in how the whole consumer landscape is evolving in the cannabis market. Yeah. And speaking of evolving landscapes, the report also highlights Kronos' international ambitions. Oh, right. Pushing into those new markets? Yeah. Like Australia, Germany, and the UK. The YouTube host was super excited about that, but I mean, isn't the global market a bit of a wild west right now? It is definitely a bit of a wild ride. Yeah. It's constantly changing. You know, every one of those markets has its own rules. Right. Cultures and competition. Yeah. So it's not like they can just waltz in and start selling. Exactly. Right? It's complicated. So even if there's a market there, it's not easy for them to just like jump in. Yeah. Okay. So let's unpack that a bit. Okay. Okay. Let's start with Australia. They've had legal medical cannabis for a few years now, so it's a bit more established. It is. But it seems like navigating those regulations and getting the right licenses could be a real pain. Yeah. There are definitely hurdles there. So tell me more about Germany. Okay. So Germany is on track to have like this massive recreational market. Wow. It could be one of the biggest in the world. Okay. But they're still figuring out all the legal details. Right. So nobody really knows how it's going to work. Oh, wow. Who can participate. Right. What taxes will look like. Yeah. It's a bit of a waiting game. That does sound risky for a company like Kronos. Oh, yeah. For sure. Yeah. It's risky. Yeah. Being an early mover in a market like that could be huge. Yeah. It could really pay off. Huge payoff. Yeah. But they have to plan carefully and be ready to adjust. Okay. That makes sense. And what about the UK? I thought they had a pretty decent medical cannabis program already. They do. They do. Okay. But it's been kind of slow going. Okay. Not many patients have access. Right. It's cost a lot. Gotcha. And the regulators are being pretty cautious. So it's like one step forward, two steps back. Yeah. Pretty much. Yeah. Yeah. But things seem to be changing a little bit. Okay. Let's see what happens. So it seems like Kronos going international is a bit of a gamble. It is. Yes. They could win big or they could come up empty. Exactly. Okay. So it all comes down to their strategy. Strategy is key. Yeah. And how they adapt to those local markets and, I guess, most importantly, developing products that people actually want. Yeah. You got to know your audience. Right. And speaking of adapting, did you notice that Kronos is pulling out of the U.S. hemp-derived CBD market? Oh, yeah. I saw that. What's going on there? I was kind of surprised. I thought CBD was supposed to be the more stable, less controversial side of the cannabis industry. You'd think so. Right. Yeah. But the market's just gotten super competitive. Oh, really? Yeah. There's so many brands popping up. Wow. Driving prices down. And it's hard to stand out from the crowd. So even though CBD is getting a lot of buzz, it might not be the gold mine everyone thought it would be. Right. Yeah. And the prices of CBD in the U.S. are still kind of confusing. Oh, that's right. The FDA hasn't given clear guidance yet. Right. So it makes it hard for businesses to know what to do. I can see why a company would be hesitant to invest. Exactly. And it seems like Kronos has decided to put their energy into areas where the rules are clearer and there's more potential for growth. Yeah. Makes sense. So we've covered a lot here already. We have. Kronos beat expectations. Kronos is making this big move into vertical integration with Groko, and they're going global. Lots of big moves. Yeah. But then there's that whole shaky cannabis market thing. Right. Lots of uncertainty. So what are your key takeaways here? What do you think is the most important information for our listener to understand? Well, I think the big takeaway is that Kronos is at a crossroads. Okay. They're taking these big swings, but there's a lot of risk involved. Right. And whether they succeed or not depends on a lot of things that are totally out of their control. Like how the cannabis market is doing overall. Right. Exactly. It's a global market, and it's constantly changing. Right. Regulations are different everywhere you go. Consumer preferences are evolving, and the competition is fierce. So how will Kronos adapt to all of that? Well, that's the million-dollar question. I know, right? So what should our listeners be thinking about as they try to figure out what's next for Kronos? What are the things to keep an eye on? Okay. So first off, their international strategy. Okay. Can they really break into these new markets? Right. How will their products and marketing resonate with consumers in different parts of the world? That's a big one for sure. It is. And then there's that vertical integration thing. Right, with Groko. Exactly. Will they be able to increase production? Will they get those unique genetics? And can they handle all the challenges that come with controlling the whole supply chain? It's a lot to manage, for sure, and of course, we can't forget about the overall health of the cannabis market. Absolutely. That's crucial, no matter what their internal strategies are. Right. And if Kronos is doing everything right internally, they could still get tripped up by external forces. That's the reality of the market. Yeah, it's a lot to think about. So do you think Kronos is more likely to buy other companies or get bought out themselves? That's a great question. Yeah. I mean, they definitely have the cash to be a buyer. Right. Remember that big cash pile we talked about earlier? Yeah, for sure. They could use that to buy up smaller companies, expand their market share, and get their hands on some valuable intellectual property. Yeah, that's true. But then again, the cannabis sector is pretty volatile right now. And Kronos' market valuation isn't sky high, so they could be attempting target for a bigger company that wants to get into the cannabis game or expand their existing operations. Wait, their big cash reserve could actually make them a target? It's possible. Okay. Yeah, it's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. It's highly likely. Okay. So, even if there's a market there, it's not easy for a company like Kronos to just jump in and start making money. Right. Okay. So, let's unpack that a little bit. Okay. Sounds good. Let's start with Australia. They've had legal medical cannabis for a few years now. Right. So, it's a bit more established than some other markets. It is more mature, for sure. But it sounds like navigating the regulations and getting the necessary licenses could be a real headache. Yeah. There are definitely hurdles. Okay. Let's start with Germany. What's the situation there? Okay. So, Germany is on track to become a massive recreational cannabis market. Wow. It could be one of the biggest in the world. Okay. But here's the thing. They're still finalizing all the legal details. Oh, so it's not quite ready yet. Not quite. So, there's a lot of uncertainty about how the market will actually be structured, who's going to be allowed to participate, what the tax implications will be. Wow. So, it's kind of a waiting game. Yeah. Pretty much. And that sounds pretty risky for a company like Kronos. Oh, it's definitely risky. Yeah. But there's also huge potential. Right. Like a high-risk, high-reward situation. Exactly. Okay. So, if they can get in early and everything goes smoothly, they could be in a really good position. They could make a killing. Yeah. But they'll need to be really careful and adaptable. For sure. They can't just assume everything will go according to plan. That makes sense. And what about the UK? I just thought they already had a pretty decent medical cannabis program in place. They do. Okay. But it's been a bit of a struggle. Okay. Patient access is limited. Right. Costs are high. Got it. And the regulators have been taking a very cautious approach. So, it's like they take one step forward and then two steps back. Kind of. Yeah. Okay. But there are signs that things might be starting to change. Oh, interesting. We'll have to wait and see how it all plays out. So, it seems like for Kronos, going international is a big gamble. It is a gamble. Yeah. They could either hit the jackpot or strike out completely. Exactly. Okay. So, it all comes down to their strategy. Right. How well they can adapt to all these different local markets. Yeah. And maybe most importantly, whether they can develop products that consumers in those markets will actually buy. Yeah. If they don't have products that people want, the whole international expansion strategy falls apart. Okay. Interesting. I noticed that Kronos is actually pulling out of the U.S. hemp-derived CBD market. Oh, yeah. I saw that. What happened there? I thought CBD was supposed to be like the safe bet in the cannabis industry. Right. I thought so, too. Like, less controversial than THC. You'd think so, right? Yeah. Yeah. But the CBD market has just become incredibly competitive. Oh, really? Yeah. It seems like every company and their grandma is making CBD products now. Wow. Yeah. And the market and price is down. Oh. And it's tough to stand out from the crowd. So, even though there's all this hype around CBD, it might not be the goldmine everyone thought it would be. Yeah. The reality is that a lot of companies are struggling to make a profit in the CBD market. Okay. And then there's the whole regulatory situation in the U.S. Right. It's still kind of a mess. Yeah. The FDA hasn't issued clear guidelines for CBD products. Right. So, it makes it hard for companies to invest with any confidence. Yeah. I can see how that would make things difficult. For sure. So, it sounds like Kronos decided to cut their losses and focus on other areas where there's more potential for growth and less regulatory uncertainty. Right. They're probably thinking, let's put our resources where they'll have the biggest impact. Makes sense. Okay. So, to recap, we've talked about Kronos beating earnings expectations. Yep. Their big move into vertical integration with the GroKo acquisition. Good move. And their ambitious plans for global expansion. Very ambitious. But we've also talked about the challenges they're facing. Right. Like the volatile cannabis market. Definitely volatile. Regulatory uncertainty. Uh-huh. And all that competition. Right. So, given all of that, what do you think are the key takeaways for our listeners? What's the most important information they should be thinking about? It really feels like Kronos is locking a tightrope here. I know. Right? On one hand, you've got them exceeding those financial expectations, making strategic acquisitions going global. They are moving fast. They are. But on the other hand, you've got this struggling cannabis market, all those regulatory uncertainties, and the competition's getting fierce. Yeah. So, where does all of that leave them? That is the million-dollar question. I think the key takeaway here is that Kronos is a company at a crossroads. Right now, they're making these big, bold moves, but they all come with a lot of inherent risks. Okay. And whether or not those risks pay off is going to depend on a lot of things that are outside of their control. Things like the overall health of the cannabis market. Exactly. You said it. The global cannabis landscape is constantly shifting. Regulations are changing. Consumer preferences are evolving. Right. And the competition's only getting tougher. So, what does Kronos need to do to navigate all of that? What should our listeners be paying attention to? Well, I think one of the most crucial factors is going to be their international expansion strategy. All right. Will they be able to actually break into these new markets? Right. Will they be able to tailor their products and their marketing to appeal to consumers in different countries with different cultures? Right. Because what works in Canada might not work in Germany. Exactly. It's all about understanding those local nuances. And then there's their vertical integration strategy with GroCo. Right. Will it deliver on its promise? Can they really ramp up production, get those unique genetics, and handle all the complexity and costs that come with a vertically integrated supply chain? Those are the big questions. And, of course, we can't forget about the overall health of the cannabis market. Yeah. That's a big one. It's going to play a huge role in Kronos' success, regardless of what they do internally. Okay. So, even if Kronos makes all the right moves, they could still get tripped up by external factors. Exactly. You can't control everything. It's a lot to consider. So, with all of that in mind, do you think Kronos is more likely to be a buyer or a seller in this environment? Are they going to acquire other companies or get acquired themselves? Oh, that's a great question. Yeah. I mean, they definitely have the financial resources to be an acquirer. They do have that big cash pile. Right. And they could use that to buy up some smaller players. Okay. Expand their market share and get their hands on some valuable intellectual property. That makes sense. But on the other hand... Right. On the other hand... Their current market valuation isn't super high. Yeah. And the whole sector's volatile. Right. So, Kronos could be a pretty attractive target for a larger company. So, their cash could actually make them a target. It's not impossible. Interesting. It makes them a more appealing prospect for a potential buyer. So fascinating. So, ultimately, whether Kronos becomes a predator or prey in this whole M&A game is going to depend on a lot of different factors. Yeah. Like how much risk their management team is willing to take, their overall strategic goals, and how the market is behaving. Yeah. So many moving parts. It sounds like Kronos' future is anything but certain. That's the nature of investing, right? Right. Always some unknowns, always potential for things to go wrong. But that's also what makes it so exciting. I like that perspective. Well, I think we've given our listeners a lot to think about when it comes to Kronos Group and their future. I hope so. We've covered a lot of ground. We have. We've talked about their financial performance, their strategic acquisitions, their global expansion plans, all the challenges they're facing. That's a lot. And ultimately, we've equipped you with the knowledge to make your own informed decisions. Exactly. Will Kronos' international gamble pay off? Will their vertical integration strategy give them that competitive edge they're looking for? And how will they navigate this crazy global cannabis market? It's going to be an interesting ride, that's for sure. Yeah. Only time will tell. But in the meantime, we encourage all of our listeners to stay curious, keep learning, and make those informed decisions. The best advice. And hey, if any of you out there have tried spinach, let us know. We're dying to know what's driving its popularity. We're very curious. All right. That's it for today's deep dive into Kronos Group's Q3 2024 earnings report. Thanks for having me. We'll be back soon with another deep dive into a different company or industry. Always a pleasure. Until then, happy investing, everyone.