Cronos shares tumble after warning of wider loss in second-half on rising costs

Cronos Group shares reversed course to trade down after the pot company forecast a wider second-half loss compared to the first, even as sales soar, as it spends on developing new products and expanding abroad.

Investors have been worried of the nascent sector’s spending, even as top lines surge, on research and development as well acquisitions, as marijuana companies look to diversify into product lines and venture into new markets.

Toronto-based Cronos said it would spend more in the second half than the US$28.5 million it splashed out in the first, as it invests in its Israeli research facility and boosts production capacity for its medical marijuana brand Peace Natural.

It also expects to spend on innovating its marijuana vapes, as well as on launching and expanding cannabidiol products in the United States.

The company last week bought CBD beauty brand Lord Jones, marking its foray into the United States.

Brokerage Stifel analyst Andrew Carter called the investments necessary, saying he “would be more concerned if … they were talking about cost discipline in the organization and trying to rein in investments at this point in the game.”

Analysts on average were expecting the loss to be about $15.8 million, based on six analysts, according to Refinitiv IBES data. It posted adjusted core loss of $26.7 million in the six months to June 30.

Second-quarter adjusted core loss widened to $17.8 million from $2.4 million, a year earlier, as expenses related to sales and marketing, research and development, salaries and hiring costs soared.

On a per share basis, the company posted a profit of 22 cents, while analysts had on average expected a loss of 3 cents, according to Refinitiv IBES data.

The surprise profit had sent its Toronto-listed shares up nearly 9 per cent in morning trading. They were down 3.8 per ent at C$18.36 in late-afternoon trading.

Revenue rose three fold to $10.24 million, also beating estimates of $7.40 million, with cannabis sales three times higher at 1,584 kilograms in the quarter.