Cronos Group Inc Aktie

Thank you, everyone, for joining us for Cronos' first ever Investor Day. Thank you all for coming. I'm going to read forward-looking statements. So before we kick off, this is -- you have to sit through this. So thank you for bearing with me. So before we begin, I want to remind everyone that today's discussion may include forward-looking statements within the meaning of applicable U.S. and Canadian securities laws. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied.

The cautionary statement regarding forward-looking information included with our Investor Day materials, together with the risk factors described in Cronos Group's public filings with the SEC and the Canadian securities regulator applies to the fireside chat, Q&A, and other remarks made during today's event. We encourage you to review those disclosures. We should not -- you should not place undue reliance on any forward-looking statements made today. If you have any questions, please ask us.

With that, we're going to kick off our panel. I have Mike Gorenstein here with me and Bert Mucci. And now we're just going to start off by -- Bert, I don't think everyone in the room knows who you are. So if you could give us some background on yourself and Mucci Farms.

Okay. First off, welcome to GrowCo. Cronos GrowCo in Kingsville, Ontario. My name is Bert Mucci. We are -- at Mucci Farms, we're 800 acres of controlled environment agriculture. So we're growing 800 acres all under glass. We are the biggest growers in North America. We have one of the largest strawberry facilities probably in the world, it's about 110 acres, and we are continually growing. We're about 3,500 employees to date. We market through every major retailer in the U.S. and Canada both. So about 65% to 70% of our production here is sold to the U.S.

We have a staff, like I said, 3,500 people, and it is mostly supported through the migrant program through Canada. I will say that Canada allows us to have the ability to bring in these migrant workers. I mean, without them, this industry does not exist at Mucci Farms or here at GrowCo. It is -- labor is one of the most difficult things right now.

Great. And Mike, just a quick background on you and how you landed at cannabis.

Mike Gorenstein, CEO. I started at Cronos 11 years ago, I think, 10 years ago. And yes, I started off, I was a corporate M&A lawyer, mostly doing alcohol and healthcare. So back then, I think cannabis was like an interesting discussion you would hear in boardrooms, but not a reality I was obviously very interested in. I moved over to the buyside and really wanted to invest in cannabis, which is very difficult to do at the time for a number of reasons, but eventually found my way to Canada, thought there's a big opportunity to build a global platform, develop IP, and really have kind of the -- everything you need from a portfolio perspective. So as other countries opened up, we can move into them. And I guess it took longer than we expect for the countries to open up and for Canada to open, but I think you'll see today it has opened, and we're starting to realize what that vision was.

So how does the partnership between Cronos and yourself come about?

So back in 2017, I think that was right when Canada legalized. I guess you had -- I have numerous LPs coming to Kingsville and approaching us to grow cannabis, of course. There were a lot of greenhouses in the area. That must have been 15 to 20 facilities, smaller facilities.

The thing that attracted me to the Cronos Group was most of the other LPs were all about getting to market as fast as they can. The one thing that I would say that we were like-minded with the Cronos Group is we wanted to build a purpose-built cannabis facility. And when you tour it, you'll understand why what the differences are. I'm sure you have gone through other facilities. So this is specifically and purposely built for cannabis. And that was just 1 of the things I did not want to retro in vegetable greenhouse because we knew it wasn't the right thing.

Yes. For me, I mean one of the things I think about part of why it's like it's -- I think it's weird to have the name group, like why it is a Cronos Group. Part of the idea was such a big industry, there are so many different verticals, so many different skill sets. Finding the right people, bringing together into a new group to be able to be best in class because if you try to be a master of everything you'll become like a master of nothing. So that was a big early thing.

And then like an internal joke I always worry about like, all right, we have such a big market. What should I be scared of? And like well, what happens when the big ag guys come in? Like are we going to be better growers? Or like the big scare of what happens is like big alcohol or big tobacco comes in. And like my solution to it was like, well, why don't we just partner with whoever would want least as a competitor.

And like part of my purpose building another part to like, I were asking why don't we want to rip out like every other greenhouse growers saying they're going to take out cucumbers or tomato for cannabis like, why don't you want to do it, we're like well, we're profitable. Why would I do that? It seems like the right partner.

So I think there's a big debate in the industry on what type of environment is the best for growing. So indoor, low- or high-tech greenhouses, outdoors, gaining traction. What's your perspective, and how did we settle on a purpose-built greenhouse?

I would say that -- and no different than the vegetable industry, like you have field farming, you have greenhouse farming, and you have indoor farming. In the vegetable business, indoor farming is not -- it's not profitable. We looked at every single -- indoor grow costs are just way too high. I think we've seen that railway between our facility in indoor facilities at Stayner.

But field production is just -- it's 1 of those things like every 1 of our retailers is, what can you grow in a greenhouse that's growing in the field. Like anything, can you grow bananas, can you grow pineapples? It is the cleanest product that you're going to get out there. I mean anything you want to grow in the field has to have a pesticide spray. Like I said, it's just -- I believe the greenhouse that we've built here, we -- a little bit different than our buying crop greenhouses. We are chilling, we are dehumidifying, and that allows us to give us the quality that we're putting out right now at GrowCo.

Yes, I think people underestimate, like there's -- cost is one thing. And people always -- like quality obviously matters, but there are other things people underestimate, predictability, year-round, knowing that you're able to produce, not worrying about having to have 1 giant crop and then storing it. Because obviously, quality will degrade over time. You have extra storage costs. You have to think about kind of what all the other parts in the value chain are.

But I think there's always been a place for craft indoor. It's not the area where we necessarily play. So I wouldn't say that it's -- there's a right answer. There's -- for extracts, it can grow outdoors. And for like pure inputs, that can certainly be attractive depending, of course, where you are. But from a flower perspective, especially when you're thinking of really tight standard and you're thinking of going overseas, you'll see when you go through there from a control perspective, environmentals, you take the flower and put it next to indoor and you look at the infrastructure, it's really not that different than indoor. It's just a cost advantage. And it's way more energy efficient when you think about potential energy crisis that's looming, I think it's a much better place to be if you want to be scalable.

So you mentioned you met with lots of different LPs. I know you've toured other competitor facilities. How would you compare GrowCo's facility and kind of the approach here to those other players?

Yes, I have toured other LPs. I've operated in some of these greenhouses. They're -- I say this because I'm sitting here of course, but you will not find a facility like this anywhere like this. Again, this is purposely built for cannabis. A lot of the other greenhouses are retro greenhouses. So it's a much different greenhouse. And again, when you tour the facility, you understand why.

I'm going to turn to talk about genetics and R&D. Obviously, Lasse is going to really talk about that. But just at a high level, Mike, could you discuss Cronos's focus on genetic R&D on tissue culture and the vision for how this drives value for cultivation at GrowCo?

Yes, I think it's not that different than any other agricultural industry, if you look where you -- where value splits up, a huge part goes to genetics. And I think that it's really difficult to do all the things we're trying to do and also focus on being the -- like, building and managing the labor in every place around the world, the big differentiator and consistency is genetics. I think that it's easy for people to see to grow and like to walk through here, it's obviously extremely impressive. But the part you don't see is the genetics, and the 2 have to fit together.

Part of why the partnerships work so well is focusing on genetics on the one side and having a team that's just thinking about genetics. And the team is just thinking about growing and the data we're able to share back and forth. So you can think about how would this genetic perform in this environment.

And I think that just growing random genetics without breeding, it's really disservice. And I think that's where you start seeing yield gains over time. You start seeing -- from a quality perspective, if you look at what consumers want, it's -- people describe it as a commodity, but it's -- people are thinking different strains for a reason, or getting different price points for a reason. And that's really that match between the genetics and how you're actually cultivate it.

And what's kind of the approach here between genetics that optimize for potency and bag appeals versus genetics that optimize for yield and cultivation efficiency at scale?

Yes, look, I think it's a balance. I think proposition for the consumer. And ultimately, the consumer isn't willing to pay for to provide value, then it's not something that makes sense for us to produce for. So it's almost looking at a [indiscernible] per plant terpene yield you can kind of assign numbers to it and understand that.

And so there is a bit of a trade-off. If we were to [indiscernible] yield, we could. But then the consumers want? Are you now looking at a different tier of pricing. The first and most important thing is if you have something that people want, or no matter how cheap it is, it doesn't go anywhere. We don't want ever product or a product that won't sell. So I think we start with quality and then yield comes after.

So I'm going to turn to cost and efficiency. Bert, could you discuss the most significant cost items involved in operating a scale cultivation facility and why this facility is well situated to compete globally?

Yes. So our number one cost, of course, is labor, electricity, and natural gas. So on the labor side, we are tracking employees. We are -- we've got a Priva system is where we track all of our employees, what their output is, plants deleafing. So we can go back to that.

And we give our guys incentives. So piece rate is 1 of the best things for migrant workers. Like you give them the piece rate, and these guys are -- their performance just doubles instantly. Natural gas and electricity that we have probably the most LEDs I've seen in a greenhouse. We don't normally put this many LEDs in a vine crop greenhouse, but we put the latest and greatest LEDs there for efficiencies, less heat, less temperatures on that crop.

And then our heating costs. So we have a triple screen here, so energy efficient, and just watching our environment is like very, very dialed in. Like our growers here are very dialed in. And just looking at efficiencies, again, with heating, CO2 dosing, and everything.

And can you talk a little bit about just not the labor model as well as the automation that you guys have put in?

Well, when we started, we didn't know what automation to put in. And I'm glad that we didn't go forward with the automation that was there because it would have been all the wrong automation. We are in it now since 2020, so 6 years growing. And we are just starting to implement that automation today. And like I said, I'm glad we didn't do it back then because it would have been all the wrong automation.

And it's obviously mostly in packaging. We just bought -- we're doing for bagging and all of that, we put automation. But I will say, a little bit different than what I've seen in all the other grow ops is that -- I say this, I still say it today, we are large-scale growers here, but we are still large-scale craft growers. Like we do a lot of the -- like nobody was hang drying when we started, everybody is doing on the trays, trying to pump out like the volume out of the dry rooms. And you'll see when we go through our dry rooms, they're very, very expensive and very sophisticated. Like we could dial down like almost everybody and get it to the right concentration or whatever we have to get. Like it's a science. And I always say this is, that room, you can blow millions of dollars. Either you're drying too fast, drying too slow. It is the most important part of the business.

What do you foresee for the future of the partnership? And is there any potential for expansion or growing?

Yes. I think -- I think we haven't had Phase 2 up for that long, and it's fully integrated. I know everyone always talks about like the multiyear ramp-up, but team here has done an amazing job being able to do it, and that gives us confidence that whenever we need to scale, we can do it. And I think that as you see other geographies open, depending on what rules are, knowing there's also other infrastructure for some reason, we need a different location, really in North America specifically, like we can do that together.

And maybe to follow up that, how about when evaluating opportunities that will emerge in the U.S., how crucial do you think this partnership is for that?

Yes. I think that it's really important, right, going, if you could talk about what the infrastructure is in the U.S., I think from -- a lot of the questions always around like what you go to the U.S. to an export to other markets. And you can talk about it too, but not really like off the bat, you have a currency advantage, it's pretty nice. I think that there are -- some of the markets where traditionally people think would be better. You have to remember, humidity is extremely important. And so we're obviously very happy here from an export perspective.

But when we think about the U.S., if it's not an open market, we're not bringing product down from here. There's absolutely opportunities. It's not like we probably tell when we both talk about it, we extensively have like planned and thought about how we would do it, where we would do it, what the time line is. You can add to that?

Yes. I mean, we've talked about the U.S. I've always asked like, when and if we're going, where are we going. The U.S. is difficult. We've grown there. We have facilities in the U.S. right now. Just right across water, it's about 55 kilometers in Sandusky, Ohio.

And climate is very important when you're growing in a greenhouse structure. I'd rather be in a place where it gets to minus temperatures than being in a state where it's never freezes over. I mean, again, I said this earlier to -- I forgot who was talking to here. But the advantage we have here is nothing over winters. So we have a fresh start every single winter. Like in a few weeks, we had -- frost hits here, every pest outside dies.

You start going to -- Sandusky, Ohio is not that bad, but California, because we've grown in California, it is difficult. And pest pressure there with vine crops anyway, you have to spray pesticides. There's no way around it. So we have a clean start here probably. By the time December 1 hits, everything is dead outside. It is a clean start.

We've operated in greenhouses in the U.S. One thing is -- I mean, I've always said this to Mike is we've operated in 1 of the largest greenhouse cannabis grower actually. And we split, we were doing the vine crops there, but I would definitely not retro greenhouse there. Like there's just nothing there that you would even consider. Like if we went to the U.S., it'd be a purpose built just like GrowCo.

Yes. And I think people don't feel -- like the real fact is going, what's the cost of energy, right? So whether that's gas or whether that's -- whether it's just -- what's -- what is it to set up to a substation, like what are the state regulations that becomes pretty real. Access to water is something not everyone thinks about. But water is really, really important, what are the labor costs, access to labor.

And then climate, you want a lot of sunlight. You do not want humidity. So the areas that maybe today are the big cultivation hubs in the U.S. really just because that's where the consumer market started. But you go to places like -- people never think of New Mexico, for example, right, or like maybe I'm biased because I was born in Ohio, but like I love the Ohio idea.

But knowing there's infrastructure there, you already have some of the ag infrastructure. Similar to here, we benefit from having all the ag infrastructure and being able to add the cannabis purpose-built, we would purpose build. That's really -- you need to have a competitive advantage and purpose building is really going to give you that.

So I think we'll open the floor up for questions from the audience. We have about 10 minutes. I'm going to repeat your question back just for the webcast, but...

Mike, you said your -- the facility here is fully ramped. Does that fully ramped in terms of where you expected it to be at this point in the journey with Phase 2? Or is there still more that could come or that you could do, just so we can better understand fully ramped relative to where you want it to be or where the end state would be if markets do open up?

I think it was pretty clear.

Okay. Yes. I think -- yes, I think that from a planting perspective, we're fully planted. I think that there's still things in terms of automation, in terms of efficiencies that we'll get out of it. There's always going to be improvement in genetics. So you'll still see efficiency gains.

But I think what we had talked about is that it was really the Q4, Q1 turn when we're planting, when we're making sure we can get everything in dryer and get everything packaged and get everything out in time. I think that's behind us, and we're fully, I'd say, utilized, but you'll see increases. There's more we can go, but it's not like we have left 20% just wide open waiting.

Given that you're fully utilized and we're starting to see it flow in the numbers the last couple of quarters, how quickly do you think about Phase 3, Phase 4? I mean, like the first 2 phases have been a huge success. It's been a big differentiator. Like how do you think about that next 1 quickly do you move to it?

I mean, look, it's something that we -- I guess, we always think about what's the next phase, what's the timing and it's just making sure that everything aligns at all, like everything is sort of buttoned up before we do something. So we want to make sure that like we were to announce something or if we're expanding that we have everything ready to go, and we kind of -- we would talk about what the plans were sort of when we start, not in advance.

So you're not planning an expansion at this moment, in other words?

We have not announced an expansion [indiscernible].

You talked a lot about the purpose-built versus retro. Maybe just talk in layman terms, why you feel so strongly about that and maybe some of the tangible benefits that you feel, you'll be able to get from being purpose-built versus retro?

Yes. So again, we operate 800 acres in the vine crop industry. And a lot of these cannabis greenhouses are retro greenhouses. You'll see when you walk through here, we have dehumidification systems. We have chilling plants. We have concrete throughout the whole facility. There's no ground tarp, there's no poly film. Anywhere you have a poly film or a ground tarp like we do in vine crops, bugs hibernate under there.

And that's one thing that -- it's the first thing without even growing a cannabis plant, I said we have to bear the expense, we're going to put concrete. Nothing survives on concrete, of course, the bugs have nowhere to hibernate. And then the humidity thing is -- again, I didn't know anything about cannabis coming into it, but I knew humidity, bud rot was a huge prompt. So we put in the dehumidification. Those are all added costs, very expensive to do. But I think that our quality reflects it, for sure.

I mean, just to think high level, right? If you were to go into a retrofit greenhouse and ask the grower like, hey, how do you benchmark your yield to performance versus that greenhouse. They would defensively say something along the lines of like, well, this wasn't purpose-built so you can't really compare. That's the best..

Sorry, just to follow that with respect to purpose-built and yield, how would you compare the yield in this facility versus a purpose-built this side of the border and also south of the border because that's obviously increasingly going to be a discussion. Where do you think this would rank in terms of your -- or could rank in terms of your launch whichever way you're more comfortable?

I think if we were growing purely for yield, then I think it would be number one. And just again, that's a decision of like -- a lot of that comes down. And there, to be fair, you also have to say the same genetics or different genetics because there's a bit of advantage for both.

But if we were saying we want to grow purely for yield, I think it would be nearly impossible to beat us. And I also think -- in the U.S., there really aren't this type of scale, any purpose-built facilities, right? So it's hard to say the U.S. is a comp. I mean, there's large ones in Canada. But yes, I don't think there's anyone that would be at the same level. That's the caveat, what again, where are you -- like what are you going -- do you think like good, better, best, what are you growing for? We could have lower yields if we went for all for like sort of like the niche strains. We went purely for yield and didn't factor in the potency. It's just trying to get that balance and what the right balance is for what fits the brands.

Two questions, specifically. If you did announce a Phase 3, what's the time line after the announcement? Like how quickly would you be ramped or fully ramped? Is it 6 months, is it 8 months, a year? Is it faster than Phase 2.

And a separate question. When you think about expansions, do you think about diversifying your supply chain, like would you consider buying or building something indoor? Or indoor for you guys, it's off limits, you're not interested?

Yes. On the first one, I mean, really -- it also depends on the time of year. I don't think that it would be on the same exact time line as Phase 2, but a lot of that is like getting something built before the winter and making sure it's -- probably let you answer this, but making sure it's closed.

Yes. I we know -- I mean listen, we know from building Phase 1 and 2 here right now, what to expect. I think we could probably build this facility in 12 months. And would we get into indoor? I don't think so.

Yes. I mean, look, we have -- we wouldn't need -- if we want to do indoor. I don't think that there is a facility we would buy. We would need to get manufacturing space and convert. Basically, we already have a licensed facility that's large purpose built indoor cultivations. So if we felt like there was ROI on converting that back, it would be expanding manufacturing space elsewhere and then growing something that we already have existing.

But it just doesn't feel like from -- like from today, that's where the focus would be. I think the indoor fits in the craft segment a lot more. So it would really be more about the brand that's attached to it than us saying we're going to turn it on. And that just hasn't been our focus. It's really more building for cultivation.

I mean, we're pretty happy with what we have. We haven't seen anything that we're like, oh, we need to go get that. It's always an option, like there's something could be built that we would change our mind later. But example, like the Netherlands, right, that wasn't about like we need cultivation capacity. If you need the -- to enter the market, you need to have cultivation, that becomes a factor. But it wasn't like we need capacity, let's go buy the capacity. It was like that it's a #1 market share. They -- we like the profile. We like the program, capacity came with it.

How does the federal government's regulatory approach over the years shape today's cannabis industry in Canada?

I guess I'll give a positive and negative, so it's really balanced. The positive is that I think because there is a regulatory approach, and it was the first G7 country to legalize, that's allowed there to be a heavy amount of investment and cultivation. I think that the negative is that because of how restrictive it is and because of some of the rules around marketing or some of the tax issues, we have not reached the potential that it could be where some of that changed.

So it's -- we like -- I'm very grateful we have what we have. But if you were designing it, there were a lot of improvements that could and I think should be made. It is frustrating that despite the amount of tax that's paid and I guess I've been going on the rant, but as you think about the contribution to GDP, the cannabis delivers to Canada. Especially now and everyone in the government is trying to find a way, like what can we do to become more independent to gain economic strength.

This is a real industry and a real contributor that people should lead into and it's an industry, it's not the sort of like a side project or idea. And so there's a lot of opportunities. There's a lot of uncaptured market that could be gained just in Canada alone, but also exporting communicating with other governments and trying to partner to open up channels.

So the good news is there's a ton of opportunity. But I think also an advantage has been because it's been tough, it's forced us to really, really develop skill set, really develop capabilities because I think this is -- it's now the largest single market. I think it's also probably the most competitive market. And if you can survive here, you can thrive anywhere..

So it wasn't licensed to print money.

Well, I haven't seen many people print money. Some use a license to print some stuff.

Okay, folks. We are going to thank Bert and Mike, and you can ask questions on the tour with them as well, and we're going to bring up Lasse for his presentation. So just going to pull one of these chairs, and Lasse, turn it over to you.

Okay. Welcome, everyone. We will be talking about how genetics actually result into measurable returns in this presentation. I will give a short overview, a little bit about what we do, and some of the techniques that we are using, talking a little bit about our generic portfolio, then heading into some of the demonstrated results that we have had over the last years.

I'm Dr. Lasse Schulze, I'm the Senior Director of Flower Product Development and Agronomics for the Cronos Group. I'm a scientist by training. I have a dual PhD in plant physiology and toxicology. And I'm running an R&D and horticultural team across 3 countries. We have 4 main labs situated in Stayner, Ontario here, where we are dealing with agronomics. This is also where the Breeding Program is housed. We have also a biotech lab there where we are paving the way for future generations of genetics. And we have also the scaled tissue culture lab there that I will elaborate on a little bit further. We are situated at Cronos GrowCo that you are seeing on the bottom here. It's a purpose-built cannabis greenhouse.

Bert and Mike has been talking about the importance of having it actually purpose-built. And we are working very closely together with them. So all the plants that you are seeing actually in the greenhouse have gone through my lab. So why are genetics so important? If we are looking at adjacent industries like the horticultural industry, into the agriculture industry, the producers that are most successful in these industries have access to latest and greatest genetics.

Yield is a very important factor in genetics. Every single gram that a genetic produces more at the scale as we are growing, makes a huge economic impact. Also potency and quality are very, very important. Especially potency is, after the price, the biggest sales factor.

Flower is also an international market, is the spearhead. These are mostly flower markets. And that's why we want to make sure that the flower has the quality, the right potencies for these markets. If you have also better flower quality, it drives also derivative products at the same time.

The genetics program, we incepted in 2018. We are a team of about 16 employees. And we are pairing the know-how and the knowledge of the agriculture and horticultural sector with cutting edge science and historically, that has been working very well. We are focusing on our operating program on yield, THC potency, the aroma composition to differentiate ourselves to our existing portfolio, but then also from our competition, and also flower size and also disease resistance, which yields then also more genetics, the disease resistance have a higher chance of yielding more. Over the years, we have produced more than 150,000 seeds. We screened more than 6,000 different genotypes, and we have also developed internal capacity to produce more than 20,000 tissue culture plantlets per year.

Let's go over the process. We have a very differentiated platform for genetic led growth. We have -- we are conducting classical breeding where you're conducting crosses on that yield and have better attributes. We are also chemically profiling all of our genetics and the resulting flower. And we are going to very deep analysis, looking to trade inheritance and the like.

We're also running all of our flower through sensory panels. Very, very important. Now we always keep the end consumer in mind. It's great if you have higher yields. But if the end consumer don't like it, you're sitting on a lot of flower that you cannot sell.

Tissue culture is a very important platform technology for many, many different perspectives. As I mentioned, every single plant that you're going to see in the facility has gone through a tissue culture process, which is very, very important for us. We are also working on agronomics. So when we are sending genetics to GrowCo, they have been very thoroughly tested also on the agronomic side, so we can provide the growers with the knowledge, how this genetic grows so that the time of adoption, the learning is much more shorter.

And of course, we are working also with our molecular techniques. We are looking at the DNA level of our genetics, really understanding what is doing what, how genes are interacting with one another. This is more on the biotech side. But overall, we have a much more holistic overview of for our product development. We have platform technologies that create a lot of synergies, and we have also very deep expertise within the team. But in the end, what matters is that we have a consumer preferred product that really makes a difference in the market.

This is how the process looks like. On the very left here, we have the discovery phase where we are conducting a cross and we are screening out hundreds and hundreds of different genotypes to identify a small subsection of that which have attributes that we are more interested in, that have higher yielding, that have a good cannabinoid profile, that have other interesting characteristics that might be more consumer relevant.

Then we are starting to validate them. This is usually when we're also scaling up the numbers of the plants to be more representative of a commercial application. Then in the third phase, we are challenging these genetics with heat, with tests. We have assays with some of the leading institutions in the country where we are really understanding how these genetics are reacting if they are exposed to different environments that while we are in a controlled greenhouse environment, there are still some exposure to the elements. Summers versus winter can be different. And we are testing it so that we have consistency throughout the year.

Then in this fourth stage, we are testing them for consumer acceptance. So we have nonconsumption sensory panels where trained panelists are testing these genetics in a blind test. And we are also doing that in consumption panels as well in downtown Toronto, where we have consumption sensory facility.

The end results are genetics that are distinguished that have proven themselves out throughout the season. It increases our confidence that these are going to be successful before we launch, and this also lowers our risk. Overall, just a sliver, less than 1% of all the genetics that we are testing are making it to the market. So it's very, very rigorous testing that we are undergoing.

Once we have identified these genetics, we need to propagate them and send them to GrowCo. The current standard of propagation is depicted here when we have a genetic, we're taking cuttings from the genetics and then we are growing commercial plans. And in the vegetative phase, we are taking a subsection of that, and we are continuing the cycle. This process is very prone to diseases and also genetic drift and requires a lot of space.

What we are doing different, we are propagating completely from tissue culture. So what is tissue culture? Tissue culture is a technique, comes more from the biotech side where we are taking plant materials, and we are growing them in sterile environments. When we are doing that, we're also stripping out all the diseases, all the viruses, all the viroids and also a lot of that bio burden from the plants that are inherently accumulating in this cycle. And it creates a lot of benefits. We have an increased plant vigor. We have no diseases, no pests, and also less labor, less pesticides that we need to apply. And it's also very hard to scale. And that creates that technological moat around our company that gives us also a competitive advantage.

This is how it looks like in practice. This is part of a tissue culture lab in Stayner. And here is an example of a green crack that just hasn't propagated from a cutting. And this is propagated from tissue culture. They are the same age. So you can really see how much faster plants grow when they're going through the tissue culture process.

Let's look at our genetics portfolio. So everything that we are doing, approaching the development of genetics from a scientific lens as well, while having a consumer in mind, we have situation in the markets that we operate in, where we are competing against hundreds and hundreds of different genetics around the world. Our genetics are consistently ranked very, very high in sales. On the top left, we have our Wedding Cake and GMO. They are for quite a while, #1 and #2 in the Israeli market. And also, our other genetics are faring very well in every market that we are entering.

So let's talk a little bit about some of the results that we have had in the past years. We talked about how important yield is when you're growing at scale. On the left side, you are seeing the yield per plant that I indexed to 2022 and how we have improved yields over the years. It's a very, very important metric, an economic metric that cannot be overstated.

On the right side, you're seeing the GrowCo yield per plant per year. So every year, we have increased the output of this facility, which has a significant economic impact.

This graph shows the cannabinoid improvement over time. So every time when we're developing genetic, we are looking at yield, we are looking at cannabinoid content, and other metrics as well. But cannabinoid content, given that it has such a big impact on sales, has a lot of our attention.

We are breeding specifically for this trait, and we have been improving almost every year. Now we have a record cannabinoid content this year and much more to come in the future. So taking all that together, how does it actually look like in terms of net revenue for our company. We have had very good trajectory of flower products sold. This is the quarterly net revenue graph where we had a record quarter just in 2Q 2026 of USD 39.2 million.

Our market position of our flower products is very strong as well. In Israel, we have 10 consecutive quarters of record -- quarterly net revenue and the #1 market share for quite some time. In Canada, we are, ranked the Spinach, #1 in 2024. Then we run into supply problems that we could actually not produce as much as we wanted to. So we dropped a little bit in ranking, but we are slowly recovering, especially with Phase 2 being online now.

On the international side, without Israel, we are also increasing our footprint. These are all flower markets or predominantly flower markets. In the first half of 2024, we had $1 million net revenue. And in this year, in the first half, we increased at 15x to $15 million in revenue.

And with that, I'm at the end of my presentation and open the floor up to any questions you might have.

Going back to genetics. Do you work with like what I just call a mature terminology, pure land -- like a landrace, you go back to that to get -- because genetics now are marijuana [indiscernible] So how do you do your initial grading?

So we have like a very, very large portfolio of different genetics. What we are having in the market are genetics that have gone through a very, very rigorous selection, but that does not mean that we don't have landraces and other genetics with very important consumer traits in our portfolio that we cannot then cross into our elite lines. So we are very aware of genetics that we have very important traits like disease resistance that we can always bring in to our commercial lines when we need to.

So you cross something, then you get 1,000 different plants?

If the crossing parents are genetically very diverse, we call it heterozygosity, then the progeny of it will be very diverse as well. This is why we are needing to conduct these heavy selections.

Okay. So yes, there's -- material that's less diverse in itself?

That's correct, yes. So we can see that on a DNA level, how genetically diverse they actually are. And that results then also in a more or less diverse generation after that when we conduct a cross.

Question. So back to the genetic breeding and treatment pathways. Apologies if I missed the 1 slide, but how long does the process take? And how many times it will have to be repeated?

So the process repeats itself constantly. As we get better genetics that we have been also pushing to the market, we are usually where we have already conducted many crosses with this genetic before we came to market. This process takes anywhere between 1 to 2 years at least. That's a very long process, but we also want to have the assurance that we have not gone through that very rigorous testing, have grown the plant throughout the seasons as well so that we are lowering the risk before we are moving into market.

Yes. I think even however controlled greenhouse is, you're still going to have variations between the different seasons. So understanding how that works before you fully scale up, a lot of it is -- if we were starting today, it wouldn't be 1 or 2 years, but I think from a 4-year lead time of all the foundational work reading, you kind of have some predictability of what different strains are, when you're going to cross them and then maybe talk about phenotyping that's probably relevant for that, too.

Yes. It's important that we have a long pipeline in place. So the phenotyping part also across the season is a very important part, like the validation part is probably the part that takes the longest. But again, we don't want to skip that. If you are developing genetics that suddenly identify that consumers actually don't like, but we have already scaled it up and put everything into the pipeline to commercialize it, we are getting in trouble. So we want to make sure that we lower the risk as much as possible and that we have all the consumer attributes consistent throughout the growing season so that the consumer are getting always the same product. Whether it hasn't grown in summer or in the winter, it has to be always the exact same.

Yes. One of the things that is helpful here also in the context of how Canada demand works because you don't have -- like for most of the markets, you don't have the ability to just kind of when you want to launch something, launch it, you have the listing date, so you can only launch something twice a year. You have to really plan and make sure it's going to be successful and make sure that you can kind of fill whatever that quantity is.

And switching genetics can be an issue. So a lot of what you haven't seen us launch, and it's like, well, do we want to take something that performs really well in the market off the market? And do we have enough capacity to sort of switch? So it's -- it does make it so when we launch a new genetic because of just the Canadian model, you're going pretty big, and you want to make sure it's a success when you launch.

I think in Canada, we've seen that the consumer starts to graduate away from flower into other products. Are you finding that consumers in Europe have different preferences relative to the North American cannabis consumer? And then, would you be trying other genetics in Europe given that sort of launch cycle time line restrictions you have here?

I think the -- honestly, the biggest -- and I would -- from a preference perspective, I would include Israel with Europe. I think the biggest difference is when you think about pre-rolls versus flower and you see that trend in North America, there is -- consumers just prefer relative to the U.S., mixing cannabis and tobacco, which is why I think flowers will likely have a longer share. And that's not something that you really see as much in Europe. And maybe it was like price compression that will change, but it's just the way the product is used. Or even cigarettes overall versus people rolling their own, it's just more a part of the culture there.

I think another thing is what's going to happen with the medical market, it's harder to do pre-rolls. So if you're looking at a mature adult-use market, I think the biggest difference will be pre-roll share because of that. And then sometimes you can see things like it's not just consuming preference, how does tax policy effects? I know it wasn't exactly the question, but if you think about like California versus Canada, right, or like, generally in the U.S. It's not necessarily a different consumer preference. If you're pricing for an infused pre-roll versus call it base like just a pure flower pre-roll, because of the way excise tax works, it's going to make it actually more expensive on a per cannabinoid basis for an infused pre-roll, which would make the value proposition to the consumer relative to other markets be higher for base flower. And that's where you see the difference. If you go to California, like, almost everything is infused pre-roll.

And so it's not necessarily a consumer preference, but if you were to then discount infuse pre-rolls here, you probably see a huge shift on a relative basis. So a lot of that just comes down to regulatory structure. And I think the biggest difference is how people mix cannabis and tobacco in Europe.

The consumers are also different in the different jurisdictions that we are operating in. So the Israeli consumer is a little bit more, let's just call it, sophisticated. They are looking at different aroma profiles much more than they would be in Canada, for example. And we're also tailoring our genetics for these markets and also for the growing within these environments as well.

I know it's a very simplistic question, but I think -- we hear several large Canadian peers talk about their genetics program. And so that for me as a layman, it's hard to differentiate, right? It sounds like it's something that you have to have. So it is valuable, but is it so unique? I'm sure there is something unique here. But can you explain that? Because sometimes on the surface, I don't want to -- again, I don't want to generalize, but it's like many people who got their genetic. And so again, from outside, how do we achieve?

And then the second part of the question, is there a market for genetics. I mean are you also supplying other people? Or do you buy genetics from others? Or is it all proprietized and all [indiscernible]?

To answer the first part of your question, yes, I mean, licensed producers sometimes talking about like a genetics program. But if you are like really looking at what that actually means, most licensed producers are buying seeds from someone and they're germinating them and looking whether there is something good coming out of it, but they don't have the scientific lens. They don't have also that long foresight to build an actual program.

What I've shown you here is this has been years and years in the making. This is not something that you can just start from scratch, you need significant resources, and also the expertise to pull something like that off. In the industry right now, there's not even a handful of groups that I can name that get even close to what we do.

I think there's -- I mean there's obviously things that we do to differentiate. The tough thing about IP and R&D is like giving the details kind of works against you. But I think anyone you talk to is going to tell you that they're like great at cultivation, great at -- it's hard to show you genetics outside of results, right? And so you can just see the end market performance overall how we do.

And at this point, if we had unlimited capacity, I think you'd see us have a way different numbers than in markets. We never have a problem with selling the product. But like, It will be easy as we tell you we think we have like the best greenhouse, you'll be able to see it. And it's -- it can some ways be subjective. If there was an easy way to explain it. But it comes down in a mix of yield quality. And it's ultimately, if you think the results we've had on a comparative basis have been successful, and that's due to a mix of the genetic program and cultivation. And if we are less successful, that's a mix of genetics and cultivation.

Yes. In terms of the second part of the question, do you buy anything from outside? Do you supply third parties are still owned and used internally?

I would say more than 99% of all the genetics that we have are internal. The reason is, it's not -- that we are not testing external genetics, every good genetics program, if you look also at adjacent industries. We want also to have external germplasm coming into the program so that we are not getting genetically also bottlenecked. That's always like a big danger in like every genetics program. If you inbreed that you are bottlenecking yourself. So we have the interest to have also external genetics coming in.

I'll answer the third party. On sales, that's something that -- there's a few things that we want to have in place before it makes sense. I think in Canada, it's like because on the cultivation side, it's consolidated enough, and there's -- like breeders' rights are complicated. And then you do get into a question of are you gaining more than you're losing by basically increasing someone else's yield so much of their quality, and does that affect you?

So it's probably more of a -- when other markets or bigger markets open up, and it's likely more with -- not to jump ahead or give more details about breeding, like, I think we talked about before like stable seeds being important. But it's likely something where you're doing more on seed sales than it would be in tissue culture where you need to be able to kind of directly serve, but that's likely in future markets. Or something that's a contract for where we're able to control the distribution of our own genetics because it's just kind of key to the brand.

So when you're operating in a kind of a silo, like larger players because you don't want to share too much -- is that what you'd tell us?

Today, yes. And I think that it's -- depending on market structure, that can change. But I think today, it hasn't made sense for us. The revenue from selling genetics versus sort of what the trade-offs are, it doesn't really feel like it's there, but it is a tool to use for potential contract growth in other markets to be able to -- but like today, you'll see that we're pretty happy with the arrangement we have for cultivation.

But it is look, Netherlands acquisition or it's a closed market for us, they want to take the genetics, send them over and then actually have the same genetics being grown there. We can transfer that advantage part of this idea for borderless products. So it makes us -- it's part -- it's almost like a reverse synergy. It's -- you go and you buy something, and then, all right, we can bring our genetics the same way we can bring our edibles, we can bring our base genetics.

What happened in the beginning of the industry. You had to go buy genetics from somewhere?

Now actually -- having -- fun story. So PEACE NATURALS is the first commercial license issued under MMPR, which is, this is like going back a long time, but it was 1 of the reasons it was such a sought-after license. And initially, the whole program was set up, and I think there was about 3,000 applicants, something like that. And I think it was maybe first 8, after 8 was a big bottleneck to get a license.

And what the rule was it was like if you want you're applying for a license and you're in the illicit market and you want to be able to get -- have genetics and things are open, you need to send it to 1 of the LPs. The original owner of PEACE NATURALS, I think was viewed as very trusted.

On the grade side of things?

He was very trusted by the legacy market. And so a lot of genetics were sent there, but at a certain point, like all those seeds in the seed bank, if you didn't get a license, you just abandoned it, gave up and a lot of people...

And now compared like that, what's different?

Everything. It's very different. [indiscernible] we were like -- we were growing in a -- when I started, we were going a 100-year old horse barns. And they were 8 of us living in a house in Wasaga, and we had like mattresses spread everywhere and whiteboards. And we had like a -- there was 1 time when we were working on -- I'm trying to -- we had the first GMP inspection. There was -- they're like, I think we're done. I think we're getting close, and a raccoon busted through the walls [indiscernible] a lot has changed.

You're talking about your own experience.

Okay. But back to what end up happening was we ended up basically getting 20,000 seeds into a seed bank as a head start because people didn't get the licenses. It was really hard to get a license in early days. You'd have public companies that were valued at over $100 million with no license and a trade based off of like, oh, we're getting close Friday. Health Canada might make an announcement when they get a license. And they can gain $10 million, $20 million in market cap. It was really hard to get [indiscernible]. It's like you have a license, like sorry, that you just got it.

There's still -- the illegal market is still there.

It's not as much now. Is it is like it 20% of the market or?

It depends kind of who you ask. I mean we don't really focus that much on what the -- other than knowing like it's a competitor.

Backyard growers, too.

Yes. And it's probably different. like I think that for us, we have -- it's part of why we aren't like the value -- like the cheapest here. It's going to be hard to be cost competitive. But for us, it's focusing on innovation and there are products that you're not getting them there. But I think it's -- like I would maybe focus on it more if we were like, oh, we have all this capacity, we can't sell or we like having problems.

But I think if you focus on a consumer and you understand they have options, whether it's the -- whether it's from someone growing in their backyard, whether it's someone growing down the street or someone in another province, there's always going to be multiple options. We just focus on giving the best possible experience. And that we cannot control, they don't have to deal with taxes or labor laws. We have the ability to do R&D and be out in the open and not worry about getting shut down. So there's pros and cons, and I think it's worked out well for us. It obviously could be -- it could be a more favorable overall market, but that's -- it's better for us to just focus on how do we give some of the best possible products.

I think that's a great -- maybe a great -- so sorry, I don't want to cut you off if you have a question.

Sorry. I was just going to ask, what's the [indiscernible] in terms of how long you generate sales versus some of your most successful offerings?

[indiscernible] and GMO ...

Yes, I mean, I don't think we're at that point at this in order to see that.

Yes. We've been -- I mean, there are sometimes smaller strains that like for other markets, I think it's like there's a strain that may not work in Canada, but may work in another market. Although I do -- I mean I probably over repeat this, my favorite genetic ever, it's what I've learned like we'll let focus groups and overall pick things. My favorite genetic was not as popular because it's not high potency. It's like a balanced strain, and that doesn't maybe work as well, but it's -- the top genetics are pretty resilient.

And again, it's tough to say we're going to take off a top genetic to launch another one because you have -- it's a block in sales. But if you look at GMO cookies and it's been wedding cake is like it's so strong in Israel. The top ones are pretty sticky. I think the ones that aren't as popular first, we were launching -- if we had like a portfolio of 30 genetics, that's where you see people that are saying like new news is all that matters, keep launching, keep launching, keep launching. But if you take a pretty focused approach and you find some people like, people are pretty loyal to it.

That's a great segue to talk about brands and our other consumer products.

I get to hear about these projects every week and every day. And it's just wild to me because the amount of time I've been doing this, and we've been doing this just it's exciting because for so long, we've been at it, there's still so much opportunity to unlock really [indiscernible]. So I'm Jeff Jacobson, I'm the Chief Growth Officer at Cronos Group. I have been doing this for quite a while. I started in the legal cannabis industry in 2012, and I was one of the cofounders of PEACE NATURALS.

So the site that is not the GrowCo site of about 3, 4 hours from here. And we were rolled up into Cronos Group at about 2016. I oversee our sales, marketing, and operations. My business unit, really covers everywhere except for Israel, that includes all of our brands and our operations outside of GrowCo. Our brands, our operations and all of our sales for Canada, for Europe, for Australia. So everywhere that we're doing business, again, with the exception of Israel, where I have a counterpart market.

My team works in tremendous partnership with the team at GrowCo here. So all planning together, looking at all of the global demand and how we can work together to ensure that we meet that demand. And then what you're not going to see today is that all the product that comes out of here in a bulk state goes to our other factory that I oversee where we're doing manufacturing. And that manufacturing is into the vapes, the edibles, the pre-rolls. And it's a centralized hub for more finished goods distribution, both for the domestic market and the international market.

So you've got to see the a bit of insight into the really far upstream. And I know everybody is really excited. I'm excited for you to go and see how all of that comes to life. So you take all of this knowledge, experience and time and you try to cram it into a few slides. So I'll do the same, so you can get out there. But between the incredible work that Lasse's team does and the experience, just the general expertise, the execution of GrowCo, I get to benefit from that by bringing all of those great things to life in the markets that we're in, in different products.

So I'm going to go over our -- like a high level of our brand strategy. I'm going to talk to you about how we think about insights and our audiences of interest. And then I will give you a couple of case studies on more of our recent successes.

So I'll start with our brand portfolio. We've seen a few different approaches to brand building, and I'm going to specifically focus on the Canadian market because that's where we are today. Thanks for coming here.

And I'll focus on that for the bulk of the discussion. We've seen a number of approaches. I mean I'll break them into really 2 buckets. We see some companies with an approach that I refer to as a house of brands. And what I mean by that is launching a number of brands either at an overlapping time or shortly after one another, really going after multiple or oftentimes overlapping audiences of interest, trying to see in real time how consumers do not just react to those brands, but ultimately, what you end up seeing is that when you do that, it's always the 80/20 rule. You'll have a brand or 2 that are driving most of your volume and the rest of it is something that you're just keeping alive.

We did not take that approach. You hear a lot of people say purpose and focus, and I believe that is one of our biggest differentiators from our competitive set really in everything that we do. I believe and we believe in a philosophy of hero brands. And so what I mean by that as we spend, and I'll talk a lot about it, a tremendous amount of time trying to understand who the audience is. If my job and my team's job is to bring great products to market, I need to know who my audience is, I need to know what that audience believes great products to be.

So we talk about brand positioning on this slide. And everything here, like I said is very purposeful. Mainstream to me is really about the audience of interest. And in this context, it's the largest audience, be it that kind of mainstream. And I'll talk about what that means to me, but the largest opportunity. So you'll see a couple of brands there, and then I'll speak to how we supplement that and look at that additional, call it, incremental opportunities, trying our best to limit cannibalization. So I think that's the key for me.

So Spinach is our mainstream brand in the adult-use markets you hear about it today. That is our hero brand within an adult use. So it's in Canada only today. We're #2 overall, and I'll show you some of those stats later in terms of retail sales. So there's a point in time when we were #1. I believe, I'd like to believe that we will get back there. But we're #2 today. But within that, we're #1 in multiple categories.

So this brand is really about great products targeted to this large -- the largest size of prize or largest opportunity at fair pricing, right? But it is a consistently good product at a great price. Lord Jones is a brand that we use to complement that, and we do this in Lord Jones in Canada as well as Israel, where we see that there are consumers or audiences who are looking for an elevated product with elevated inputs and elevated experiences.

That doesn't always mean that it's priced dramatically higher or anything like that with a premium, but we're putting more elevated inputs into these products, different forms of extraction, things like that, that go into the blends and the formulations. Mainstream for PEACE NATURALS, this is our medical proposition. So we tried really hard not to cross or blur the lines between the markets we're in. We're in medical markets, we're in adult-use markets. PEACE NATURALS was the first medical brand in Canada. So that -- I call it the PEACE NATURALS site. That was the name on the license. Today, it's a brand for us. But that was Canada's very first medical brand when the legislation changed in 2013.

So it has a nice heritage story when we take it to other parts of the world. But that brand for us in those medical markets we treat similarly in terms of positioning to how we think about Spinach when you look at the largest opportunity in terms of audience of interest, and we try to target everything we do in that brand to the audience.

LIT is a brand that today, you'll see only sells flower in Israel, Germany, is also in the U.K. And for there, we know that there's an audience of interest that wants a more affordable product maybe with a bit of compromise on quality or size or things like that. Typically for us, we -- because of the expertise here and the consistency we output, we're able to deliver a great quality product, but we know there's this audience that wants something more affordable.

So you're going to hear me talk a lot about insights. I sometimes joke, but in a very positive meaning a way that we have a complementary business that is consumer research and insights. I believe this is 1 of the biggest differentiators for our company. I've been doing this a long time. I know all or most of our competitors. We put a tremendous amount of focus and resourcing into understanding our audiences. And then we think about them, again specifically Canadian brands and positioning how we understand those audiences and how our brands make sense to those audiences.

So when recreational started in 2018 or adult-use started, we had an internal insights team and it's spread across my organization and marketing as well as our R&D and product development teams. We also worked with some leading external market research groups. This is early on. And we really wanted to understand who the audiences are. Everybody loves music, but people like different types of music.

So we developed a questionnaire, and we've spent a ton of time in stores running focus groups. The questionnaire covered things like lifestyle, current cannabis consumption patterns, habits, products people like. And what we realized in doing that is that you start to really see a pattern, and you could see the different consumers fit within the different segments of the market.

And so this is 1 view of how we think about who our different audiences could be. So for example, status. I won't withdraw all of them, but status seeking newbs, you can see -- and then -- and we also take all of that data and the results from the questionnaire so we can extrapolate out to what we believe that would be on a larger scale in terms of the percent of the market. Status seeking newbs, young, affluent, like to go out, that's definitely a core [indiscernible] brand based on its positioning, its visual identity. You have other groups like ethical homebodies who are an older demographic who consume at home. You think about extroverted achievers who don't necessarily love going on all the time and doing that. So we are trying to understand exactly where our audience is, what percent of the market, we believe those audiences make up.

And then when I talked earlier about our brand positioning and trying not to -- trying to position the identity of the brands, but as well the portfolios within those brands within [indiscernible]. So I'll give you a very high level and this will build into sort of where we play in the different categories of the market. So this is the total market in Canada just in terms of percent retail sales and what categories are making up the overall market in Canada. Flower historically was the largest category in the market. I think as affordability came to pre-rolls, convenience and innovation came into pre-rolls, we started to see that shift maybe 1, 2 years ago to now the point where pre-rolls overall is a bigger [indiscernible] in terms of retail sales.

But regardless, pre-rolls and flower input made up a significant portion of the market. Vapes being next to the edibles. Concentrates continue to be really small in Canada. Things like shatters, waxes, like true to form concentrates and others will be tinctures, accessories and things like that. So for us, when we're thinking about positioning our brands with the greatest -- with the audiences of interest to where we want to be successful when we see the opportunity, we do the same thing with the categories.

So talking about our specific performance, we've really focused on those largest opportunities. Flower is foundational for us. We've been doing it the longest. Obviously, we hit our stride between Lasse's organization and our partnership with GrowCo to get to the success that we have had. We were #1 for quite a while in flower. But as mentioned, we ran into supply constraints. We are continuing to see our share climb back up. And we're #4, #3 now. And I think we'll continue to see that if we -- as we continue to ramp.

Edibles was the first area of focus for us when we talk about innovation. We have a baseline of products in every category, but then we want to spend the time. You'll see at the top line of our real mantra is we want to be better. We don't need to be first. So creating a baseline got us presence in stores and we're on shelves, that was like how do we really lean into categories, can't do everything at once. So let's start where we think it makes sense to be a better product. Edibles out of the gate, and I'm going to -- this is one of the case studies I'll get into is our SOURZ. But edibles, we, since launch have been in this #1 position held consecutively for 8 quarters. There were some products that came into the market that were noncompliant. So we had a bit of a dip. The government took those out, and we went right back up. So we've really been in this kind of leadership position in the edibles category with SOURZ by Spinach since its inception.

From edibles, we then focus on our vape business, the introduction of things like liquid diamonds, new hardware, hardware performance. We'll talk a bit about that. The introduction of PUFFERZ, that's the other case study that I'll get into is 1 of our more recent successes. But with the innovation and renovation we've done in vapes, we've achieved the #1 retail share position in that category. And pre-rolls, so start flower foundation, plus work on edibles where we knew we could truly innovate and differentiate the formulation than to vapes and now on to pre-rolls.

So our trend in the pre-roll category continues to grow as we renovate our existing products, sort of applying the same playbook that I'll get into and how we think about bringing great products to life. So flowing right into that. There's a couple of things that we think about in our development journey. So the first is understanding what that audience of interest is.

Once we have -- once we believe that we have a handle on that and we have a brand portfolio that positions within that, we want to understand what drives purchase intent. So we spend a ton of time in stores at retail, talking with not just customers but actual consumers on their shopping journey from the point of entry to a store, all the way to the point of purchase, listening, asking questions and trying to understand what they're buying and why.

And what we will be doing that, and this may not be that much of a surprise. But this is sort of the pyramid of the purchase intent. So people are looking for cost-effective products. And I want to say I don't believe that, that always means it's the lowest price. I don't think that that's what we're saying. I think that it's affordability at the tier of quality that the consumer is looking to purchase. Effect is incredibly important is -- I'm looking for a sort of effect, can I feel it? I think, is critical to the decision.

Always flavor. So you can say flavor, aroma for strains, always flavor. It comes up in every discussion we have with every customer, with every consumer. So it's a key point of interest for us in consideration and development. And quality, right? Consistently, like people find something they like, they want to get it all the time. To me, if I go back to that number 1 item, that's the intersection of these 3. If you can figure out the harmony between these 3 tiers, that's where people are looking to say, okay, well, you've covered me in this area. I just want to pay a fair price for that product. So say it's not always kind of get the lowest-priced product. It's a combination of these things and where they intersect.

So once we feel that we have a handle on the purchase intent, now we go to the next layer, which is, all right, what's the development journey for our product. So similar to Lasse's slides, I'm going to try and take a tremendous amount of time and knowledge and work and cram it into this 1 slide. But hopefully, you could appreciate there is a ton of detail and granularity that goes into every single element of what's on the screen.

But generally speaking, our approach to bringing new innovation to the market starts always with exploratory research. So again, I'll get into some examples. If we think about SOURZ by Spinach, we have, Lasse mentioned, a sensory space in downtown Toronto. It's just a space that we use in the city center where we can bring in consumers constantly. I would say that there isn't a week that goes by that we don't have some level of research being conducted in these sensory spaces. It is just, again, such an area of focus and differentiation for us.

So for something like edibles or vapes or even flower, we'll start by bringing in every product we can get our hands on in the general market. So we think about edibles, we were bringing in competitor products. For gummies, we're bringing in confection, general confection non-cannabis products, and we are bringing in rounds and rounds of focus groups to try to see what people gravitate towards and asking a lot of questions, what drives your interest in that specific item. And we learned things like shape and color and I'll get into how that led to our SOURZ product. But we are trying to identify just in the early stage what people are gravitating towards.

We learned -- and really, these buckets will apply upstream or things here. But again, flavor texture. So we started to ask questions in the exploratory, which flavors -- we can see which flavors people are gravitating towards things like Berry. People seem to really love no matter what category you're in. So we started to map out all the different flavors that people were talking about. And then we started to identify, based on the number of individuals like a certain profile of flavor these sort of primary flavors and then secondary and tertiary flavors.

So what we have is what we call a TURF analysis that lays out a mapping sort of desired flavors across different categories of product. And then we could position the secondary and tertiary where we believe it's incremental. So what's your baseline flavor line up for that category, and then where do you think you can find incrementality. And so that's where the exploratory research will lead us into delivering on that consumer need.

Then from there, we'll get into things like concept testing. So think about edibles again. We learned, like I said, color, shape, size were really important to people. So then we started the prototype. And we started to bring different shapes, different molds for our edibles. We looked at different colors, vibrant, less vibrants. Whatever it was, and we brought those out and we started to get results from consumers again, just looking at what they gravitate towards.

And then once we believe we have a concept that wins, then we're going into quite literally a simulated shelf shop. So we're actually setting up our space to look like a store. Things are unmarked, unbranded and we have people come in and we again, I'll keep saying it, but where they gravitate to in those -- in that environment. And then from there, are we market ready.

So when we deploy this pathway for our products, it is pretty well the same amount of the category with some nuances, but we're leaning in to understand the flavors and textures. We're leaning into the visual appeal. Same thing hardware, what people like, colored shapes. And then performance is incredibly important, like I said, effects. Is the product stable? Is it -- what's the manufacturability? Can you automate it?

So this is not necessarily something novel, but I think it's unique to our company. And I think that we spend a tremendous amount of time compared to our peer groups doing this type of work. And I think that, that leads to a lot of our successes.

So I'll get into 2 case studies for you. SOURZ by Spinach being probably our -- 1 of our greatest successes to date. I'm sure we'll have many, many more. But through all of that journey of developments, it led us this product. We learned that unique shapes were incredibly appealing to people. So then we -- after exploration, what kind of shapes can we do. We landed on our S with an embossed inner, and people really loved it. We knew color was critically important. We also identified that nobody in the market was doing this dual color, dual flavor concept. So that allowed us to really lean into the insight and deliver it twice.

So we were able to come up with not just -- you need colors on each side of the gummy, but also unique flavors. So we hit those 2 attributes with this product. And then flavor masking was incredibly important in the edibles category. And for this audience of interest is mainstream audience, people that don't want to taste cannabis. The way that we do that is not 1 magic ingredient. It is really a combination of multiple approaches. So we're leaning into to try to complement certain flavors that are natural in the cannabis extract and then marrying that with how we can mask and cover the things that we find are not desirable.

So it's not 1 ingredient or 1 process that does the masking, it's a combination of things that we've developed, including how we do our sugar on the outside. So we learned that, that is very important. So again, when you -- almost through everything here, but when you take that development pathway in that journey to really understand your audience and what they're looking for, it led us to SOURZ by Spinach.

And then how do we bring that concept to life. This is again something that's reasonably consistent no matter the category for us. We really work with our customers in terms of how can we reach that audience. We do -- the majority of our work is done in store. That's where the purchase decisions make, plus regulations don't allow us to do anything we may traditionally do in out-of-home marketing.

But at the end of the day, that store experience is the budtender. These are the interactions that drive the sale. So we want to understand the path to purchase, like I said, from the moment they walk in the door to the point of sale, the actual transaction. We want to make sure that we're present along the way. So it's a combination of in-store displays, education with budtenders, critical. We do a lot of it, budtender events and things like that, plus in-store. We are to store takeovers. We're actually demoing. For SOURZ, we had squishy versions, but not actual edible that people could touch and feel and put in their hand and that led them to the counter to purchase.

And then we do a little bit of out of the store work, which is mostly on social media and digital. Since the launch of SOURZ, I mentioned, I think we're just incredibly proud of the successes that we had that we've been able to maintain. You can see that since launch in 2021, it very quickly climbed to be the leading edible. So we're #1 in this category for 8 consecutive quarters, as I mentioned, we hold over 20% market share. We have a number of SKUs in top 15, even in the top 10. So we're just incredibly proud of this product line.

Now we continue to innovate within it, multi-packs, larger pack sizes are coming to the Canadian market. So that's something that we are -- that we're in and that we're continuing to develop. And we're also continuously developing new flavors and doing limited-time-offer programs to see if there are new flavors that people like they may perform better than other. So constantly iterating and innovating with the category even in this leadership position.

So the next 1 that I'll touch on is PUFFERZ. This is our newest success. This was our first entry into the all-in-one category in Canada or subcategory. Originally, there wasn't much interest in the all-in-one with our provincial customers in Canada because -- and in their defense, there wasn't that much brand equity established at that point. Are people really going to buy into things like pods and things like all in ones. The 510 cartridges have always been a baseline because people can buy multiple cartridges with 1 battery and switch them around.

But a couple of years ago, the interest started to grow into getting into disposables and a couple of competitors enter. So for us, we wanted to take that same playbook and apply it to the main category. So we're going right back to that exploratory research. We bought every device when we got our hands on of what was currently in the market, reached out to vendors overseas. We brought hundreds of devices into rooms, and we had multiple rounds of people doing the same thing, right? Gravitating towards. You have stick style, palm style, you have all kinds of form factors, all kinds of features like screens now. You can play games on these devices.

And it's like what really is -- what are people really looking for. And we learned a lot, right? And so 1 of the things that came out of that for us was obviously, rounds of concepts and prototyping, but we were looking at everything from the curvature, the feel in your hands, the sharpness of edges, like every detail to the millimeter of the size of this device was considered. So it's completely custom, including things like the size of the window, and then getting into features, again, okay? I think a lot of that stuff is very gimmicky, what people really want is they just want to understand the battery life.

There's oftentimes where if a cartridge is left sitting, you need to warm it up a little bit. So we introduced what we call a preheat or a boost feature that people can click on the side, and that will do a warm-up of the distillate, or extract inside. So we really leaned into that same pathway of development and it led us to our PUFFERZ device. So what you have is, again, amazing flavors, we've used our TURF analysis to determine which flavors to go to market with. And we have a lineup of flavors to come behind it. We introduced liquid diamonds into our formulation that is incredibly important in driving velocity for us.

The puffer panel, which is a satisfying sensory kind of aspect of the device. I mean, you'll have some samples in your bag there, but you'll see the way it feels in your hands. It's just it's soft and it's satisfying. And then there are a lot of performance considerations in the device. We've done things like epoxy coating of ports like to be extra safe. I mean there's some off-the-shelf stuff that doesn't work for us. So we spend a lot of time on just general safety and performance of these devices. We have an entire lab at that other site where we're doing what we call puff testing, we're putting devices on machines, we're replicating human consumption. We're trying to make sure that it doesn't clog, that it doesn't burn all the way through after only 10 pulls on the device. But we want to know that this device will perform over time, right, and meet up to consumer expectations.

And then with that, we bring the product to life in the very same way. So we had a ton of in-store displays and assets, a ton of education with stores and customers. With provincial boards as well, a lot of activations where we were letting consumers hold the devices, and then just layering on some of our digital and paid social. But again, I mean, this kind of culmination of all of these efforts. This product gets introduced and almost immediately, we climb to the ranking today where we are over $20 million in retail sales, over 10% share of just the disposables category in multiple SKUs in the top 20 for all-in-ones as well.

So we feel very strongly that we have this development journey and pathway that helps really drive and lead to our success. I love this slide personally, and I think it speaks a lot to what I opened with around brand strategy. When you look at the competitive set, you can see that house of brands approach that I'm talking about. And then you can clearly see that there are only a handful of us, I mean, really, really us when you look at, again, you may have a few less buckets or boxes within the core. But for us, we're really to stand out where that approach to focusing on audience, not trying to do everything all at once, not needing to be first, but trying to be better has really resulted in Cronos being really the only LP that has a winning brand that's in every category. Not many other LPs can say to any of their brands, be it that we're #1 edible, #1 in vapes, top 3 in flower. Yes, it's just -- it's remarkable and I think it is a test to that strategy that we deployed.

We are currently the #2 brand in Spinach by retail share, but growing at a faster rate at least last 4 weeks over last year's same period, growing at a faster rate than the #1. We've been in that spot before. So my goal is to get us back there.

And then this slide always is something that I track very closely. I want to know that the output of all this resourcing and all this investment and all of this work, am I growing faster than the market. And what you can see based on the last 4-week period versus the same period a year ago, that in every category or major category that made up that pie, Cronos continues to grow at a rate faster than the category itself. And this is something that my team and I are incredibly proud of and we can't do without the efforts of everything that happens at the site that you're going to get to see shortly and everything that happens from our R&D teams.

So with that, I think we can open up to Q&A. And then get [indiscernible].

Is it hard you're not on volunteer for those research?

There's a sign-up sheet outside. I would say that it was difficult when we were trying to do it at that. There's some efficiency that you could get [indiscernible]. It's a bit too rural. So I'll tell you the answer -- the short answer is no, not now. It's not really fun here. I get some of the comments. Yes. Please.

Pre-rolls up and to the right, obviously was a good thing in this business. Separate to that, though, is still #7 remains a drag, tracking very well. Is there a path to that being similar to what you have in other categories, the top 3 products? Are there structural barriers there in terms of certain brands and certain players that just are and will continue to make pre-rolls? Or is that something which is a credible part or whether it's top 5 or top 3, but how do you want to answer it?

You jump in, but, look, I certainly like to believe that we're going to make this thing a top 3 brand, if not a #1 brand when we can get there. But for us, it's really about just now that's our area of focus. We were at a baseline offering. It wasn't anything special, we were in it. So we had some loyalty from some smaller segment of consumer group, but we chose to focus on edibles first and then vapes and now we're on to pre-roll.

So what you're seeing that up into the right in our current performance is just that we started really leaning into it and playing it on this development pathway and the journey. I mean about 1.5 years ago maybe. So the renovations we've done, we took existing products, we improved them. We improved the flavors and the aromas of the inputs based on the work that Lasse does and that the GrowCo team does here. That certainly enables that category for us to have differentiation and strong consumer appeal.

We have leaped into visual appeal on those products. I think it's important if you look at what's in the market, you have really short pre-rolls, you have long pre-rolls. We're focused on how do you do it consistently at scale. So I think for me, it's -- I don't believe that there's any one in any category today that we cannot achieve a greater position or greater market share for ourselves. I don't see anybody that has that strong of a foothold on the category. I think this is just us now putting our focus to it. And you're going to see that in the results as I think you are.

Yes. One thing also I should -- now the way we think about it, it's probably different than a lot of peers. It's not like you can have a -- obviously, you want to have the biggest market share, but sometimes I put like restrictions on because we are not going to operate in an unsustainable way to say like, hey, we have #1 market share. Like it doesn't -- that's not what the goal is. It's how do you have a better product, the right value proposition, something sustainable.

And then I think that what naturally happens, we try to have the best product and the best offer to the consumer, you end up being #1, but we don't want to do it by like, okay, we're going to just do this and hope someone buys us like that was a failed model that a lot of companies did, just doesn't work long term. I think a lot of the work that we do when we talk about genetics, right, it's pretty foundational. So there's been a lot of steps you're seeing incremental before like you'll see the commercial launch and also part has been how much biomass do you have, right?

Like that's been a bit of a sort of constraint on it. But no, I think it's an area that we have a lot of focus on. There's probably like 3 parts that really matter for it. One is obviously what's your input like base flower, minerals for infusions and other things that I think we understand and do. And the third is what's the actual methodology technique and understanding, is there clogs with the filter and we -- there's other partners that I'm sure everyone is aware we have that like have good expertise and we can tackle these stuffs. So yes, a lot of areas to pull from in the group, but the great thing about the genetics program about is, insights is it all sort of adds value to the platform and kind of past.

For the breakdown of the consumers that you laid out, I think those 2 that were heavy consumers down up to about 28%. So think about the 80-20 principle, have you looked at those 2 heavy consumer demographics and see how much they're making up maybe in consumption or sales? And then second part of that question would be what level of brand loyalty are you seeing in those heavy consumer demographics? And is it greater than maybe the other ones, and that have you looked to address target?

Yes, sure. So the 2 that are the largest on that slide in the way we break down the data is the Status Seeking Newbs and the Tuned Out Tokers, and that's who we sort of position as this mainstream bucket. These are sort of -- these are consumers who, like I said before, want great products at fair prices. And we absolutely see -- we refresh this data quite often, maybe not annually, but every couple of years, we go back out to see if this -- and we've also seen people adopt this model, even some of the provincial boards have something similar now in the way that they do their consumer segmentation. But we absolutely see that those groups continue to purchase greater volumes in the market, and that's why we identify that as our size of price opportunity for brands. That's why we deploy that hero strategy specifically to those segments.

And I think it also helps us when we think about -- again, the way to build, it doesn't mean we're like we want to have a small number of brands forever as how do those brands fit together and making sure you really build out and focus on a brand before you look at another area. And so being able to have segmentation and say, all right, we're not currently addressing -- when I was a member because my first [indiscernible] like 3 months, [indiscernible]. But before you go to the other segments, you really want to finish building the brand that we already started and then keep innovating, goes back to you probably imagine I say no a lot, that's why probably half of my job is saying, oh, it sounds really interesting, just not now. We need to keep winning here. And when we go and add something, make sure that it's incremental and [indiscernible].

So it wouldn't be an Investor Day without some financial slides. So I need my co-host. And he needs coffee. Okay.

How is this doing the fun section?

Now that you're back, it's going to be more fun. All right. I'm just going to level set and then I'll turn the mic to Mike. Okay. So very simplified, looking at our revenue trajectory. So last quarter, we had record revenue across Canada, Israel and our international markets. So up 58% year-over-year, and that's following 2025, where for the year, we were up 25% and 2024, where we were up 35%. So pretty tough comps.

Our gross profit and gross margin trajectory. You'll see, again, we had a record gross margin, gross profit last quarter. And look, this is a big driver of our overall success between GrowCo consolidation, international markets and getting into product categories with higher margins like vapes, like the PUFFERZ. You're seeing kind of all the success pitch.

Trend going in the opposite direction, our OpEx. So we continue to be very disciplined on OpEx over the years. And now we're really focused like we know we need to grow our revenue on the OpEx, on the stable OpEx base. And all of that culminates into our EBITDA and cash flow generation. So since 1Q 2025, we have had positive adjusted EBITDA that's 6 straight quarters in a row of profitability. The growth is accelerating, not plateauing.

What is that EB, what is that, EBITDA?

EBITDA? Earnings before interest, taxes, depreciation, amortization.

Net figure to that. Sorry.

Right. Okay. So while interest income, which isn't -- which is adjusted -- which isn't included in adjusted EBITDA as a tailwind to free cash flow, I would say even adjusting for this, our conversion of adjusted EBITDA to free cash flow is best-in-class, and Mike is going to talk about that in some of our other slides.

And I think finally, like our $827 million of cash on the balance sheet, 0 debt, and that's all here to kind of fund growth, fund M&A, buybacks, all of that without dilution or leverage risk.

All right. So this is, I guess, for everyone look at live stream, the long short guys because in the background, that would be like the slide to pay attention to. Yes. So look, I think a big thing here that's important is how are we growing organically. That's kind of like the measure. And while there's M&A can be important, once you own something, are you growing that as well and what value you're getting out of it.

So just because of how competitive Canada is and it's a relatively mature market, you do hear people often ask like what do you do outside of Canada because there's no growth in Canada. I mean for us, we feel like organically, there is growth. I think that's a really, really important metric for us.

So we do have kind of binding peers but overall, I don't think anyone is really coming close on the growth. So pretty happy about us doing. All right. I think that another one, and we didn't go as far as to say like, all right, what about debt as well, but are you -- it's not just organically growing, growing with -- on a per share basis. The fact that we have a declining share count that we aren't increasing enterprise value by adding debt. That's a big thing for us. It's really like staying disciplined and being able to overall grow and grow on a per share basis. So you can see kind of against peers, the gross profit basis, we are doing extremely well and over 9x higher and on a 3-year basis, that's certainly been accelerating with buybacks lately. I think that's extremely important.

All right. Yes. Same thing here. It's not surprising gross profit is growing. We're keeping our expenses stable that overall EBITDA is growing on a per share basis as well. So I think while I -- despite talking about, I'm always skeptical about adjusted EBITDA, this is a really good way to kind of look at it and see overall what that growth is. And we feel like a lot of M&A in the space has not been accretive. And when we look at opportunities, and I think the analyst here and every earnings call, the question for a while was like, what do you think we're going to buy? And we just look, can we do better organically or acquiring something? And to date, a lot of that, especially in Canada, has been all about organic. So we're here.

All right. The reason I'm skeptical about adjusted EBITDA, it's great for the question about it. A lot of times, it [indiscernible]. What really matters is, are you actually turning that EBITDA or adjusted EBITDA into money. And if you take out the interest income because obviously, that's things like kind of we should be evaluated on, it's sort of nice to have. Still, what are we doing in terms of converting adjusted EBITDA into free cash flow is really important.

So we aren't using these heavy adjustments. We are actually generating cash flow. It helps us be able to buy back shares, be able to invest in growth and continue looking for accretive opportunities. So I think this slide is really important because when people are comparing us to other companies, it can be difficult to just say, okay, here's the headline adjusted EBITDA number, but it really is not all created equal, there are a lot of things we don't understand why we adjusted out other places, but we try to be as conservative as we can. And really, it's meant to give an idea of smoothing things out. I think that was originally meant for private equity leverage and what leverage can we tolerate. So that's something I think we're pretty confident in that we aren't trying to do that. And I think with that, Rob can start questions.

Mike, you called out your performance and growth in Canada relative to your peers. A lot of that is obviously recouping of the share loss in flower when you were capacity constrained. If we were to normalize for you being back to where you were in flower with some of the growth initiatives you called out, do you think that Canada will still be growing faster than the market?

Yes. I think -- I mean, if you look at vapes, edibles, we've depending on what you're looking at, like growing or maintaining share. And then pre-rolls is a big focus, a huge opportunity. So I think absolutely, and that's things specific to Canada. And then what we didn't show Israel, Europe, where we also have a lot of growth ahead of us.

So yes, I think obviously, that can make it dramatic, and it can lead to a little bit of a step change in growth, right? Like the flower for Canada, it doesn't mean overall the company are growing, but flower is dropping in Canada, servicing other markets, and you can have a pause where we need to go get more capacity. You need to find out the way to get more flower. And then once we have it, we'll see a big acceleration of growth again. So it might not be as smooth, but I think that the opportunity is still there.

Are you thinking about capital allocation in terms of the share buyback, organic growth and the M&A opportunities, mergers and acquisitions?

I would say it's really about like opportunistic, right? One doesn't -- we're in a very fortunate position. One isn't stopping us from doing the other. So if there is something that is an accretive acquisition and we like, we will -- we're going to do it. If there's CapEx or automation that we see a good return on, we'll do the thing that basically we are always careful about is making sure that we don't take on so much that we fail at it or we're not excellent at it. We want to be best of class in everything we're doing. So that's a big function. And then on share buybacks, there's -- volume is -- we're kind of restricting how much we can do, but we still prioritize that.

Just an overall picture, I noticed some of the peers seem to be doing quite well, not all. But are you there's like 2, 3 big companies that are doing pretty well. I think you're one of them?

Fair to say, yes.

This facility is not EU GMP certified yet, right? But can you give a time line or any guidance?

There's a European group that could answer that, but I don't want to put a time line on for them that where we had quite a delay, but I think that it's not something we expect is going to affect the business or opportunities. I think it's something that's coming and we're working on, but I don't have the exact -- I think we've learned from the Netherlands that trying to like give an exact date is [indiscernible].

Once it's certified, it's going to be obviously just for this facility. You don't want to have extra EU GMP capacity to process for other people, right, like say [indiscernible].

It's not really part of our model. I mean if we were using -- if we're doing a contract or something else, then that would be related, but it's -- we're just trying to focus on what we think long term where the business is. And I think those businesses short term certainly can be really profitable. But I think long term, it's probably not still going to be a major business. And so it's really just what will help us develop our brands, help us do well in 5-, 10-year period. Israel is another one wouldn't just be the facility, it's going to have that optionality. But yes, when we're thinking about third party, it's really more about how does it help our own sales versus a service provider to others.

What would you say is the major risk to your growth trajectory near term?

Regulation always is. You never know which -- where things go, what opens, what doesn't, what can close. That's certainly -- that's the one that's always the answer of like what is the biggest change outside of our own operations that we can't control, the regulatory. Yes, that's probably the number one. I could give you like a laundry list of like 20 things that we worry about, but that's probably a big driver. And I think we're pretty resilient from a macro perspective, and we get that a lot -- like every -- just in the last few years, you've had a weakened consumer. You've had a lot of competitiveness. And I think that the category, if you're offering the right value proposition, that's something you can overcome. So we've been pretty pleased with being able to navigate that. And so that's the macro aspect still a pressure point for us.

[indiscernible] your time here, but I know it's a public setting, but do you want to make any comments on Aurora and Curaleaf and the acquiring?

I don't really know it. Like they're -- I wish them both. I hope they both get whatever they want out of it. I don't know. I don't want to take a side.

[indiscernible].

Never. Those Renaissance fairs, I think I did one when I was younger with a balloon on your head and with sword, and that was probably more of the most knighting I think I'll be doing for a while.

Okay. On that note, why don't we take a quick bathroom break, and then we're going to split up into 2 groups, so 11, 12 for the door.

Thank you. Good morning. My name is Haley and I will be your conference operator today. I would like to welcome everyone to Kronos' 2026 second quarter conference call. Today's call is being recorded. At this time I would like to turn the call over to Harrison Aaron, senior director of investor relations and corporate development.

Thank you, Haley, and thank you for joining us today to review Kronos' 2026 Q2 Financial and Business Performance. I'm joined by our Chairman, President and CEO Mike Gorenstein and our CFO Anna Schlemack. Bruno's 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 statements. We should cause actual results to differ materially from expectations are detailed in our earnings materials and our SEC filings that are available on our website. any forward-looking statements made during this call are qualified in their entirety.

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 HiFire. 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 Chronos' Chairman, President, and CEO, Mike Gornstein.

Thanks Harrison. Kronos delivered a stellar second quarter, organically achieving records across net revenue, gross profit, and adjusted EBITDA, as our borderless product strategy continues to gain momentum across each region in which we operate. Yesterday, the Trade Levies Commissioner of the Israeli Minister of Economy and Industry announced that it had opened a new investigation into alleged dumping of medical cannabis imports from Canada. This announcement follows the previous investigation by the Commissioner, which did not result in the imposition of an anti-dumping duty. We dispute the allegations underlying the investigation. We will cooperate fully with the ministry and are confident the facts support us. Our position has not changed. Kronos does not engage in dumping. During the last investigation of these same allegations, we provided the Trade Commissioner with comprehensive pricing and cost data that demonstrated that our pricing in the Israeli market was not below our pricing in Canada.

We stand behind that evidence fully. Over the last few years, there have been a number of geopolitical and regulatory issues that have made operating in Israel uniquely difficult. However, we will stay committed to Kronos Israel, as we have been since 2017 when we obtained our medical cannabis license. We have built strong infrastructure in Israel, investing over 100 million new Israeli shekels in building a greenhouse manufacturing facility in the cannabinoid R&D lab. and we are one of the largest cannabis manufacturers in Israel with a team of approximately 80 people. And that team has been incredibly resilient, consistently delivering record results despite the aforementioned challenges. This quarter was no different, with Kronos Israel delivering our 10th consecutive quarter of record net revenue, growing 60% year-over-year or 32% growth on a constant currency basis. The Peace Naturals brand continues to expand its lead in the Israeli medical cannabis market, based on pharmacy data collected by Kronos.

This is the second quarter of Lord Jones sales in Israel, with the brand gaining momentum in the premium flower space. Turning to Canada, we delivered record net revenue with our brands generating 25% year-over-year retail sales growth relative to industry-wide sales growth of 1% according to HiFire. The Sprintage brand had another excellent quarter, with our product portfolio continuing to demonstrate the success of our innovation efforts through significant share gains. In Canada, spinach held its number one position in vapes for the second consecutive quarter, with total vape market share expanding to 10.6%. And within the vape cartridge category specifically, spinach remained number one for the third consecutive quarter, with market share expanding to 11.8%. In the disposable vape category, Spinach ranked number two in Q2, with share expanding to 8.2%, driven by our Puffers all-in-one innovation, which launched in late Q4 of 2025. We launched three new puffer flavors in the second quarter, strawberry burst, peach iced tea, and grape gas.

We also introduced the spinach orange vanilla twist one gram cartridge, the brand's first limited time vape cartridge offering for the summer season. In edibles, spinach remained Canada's number one brand for the eighth consecutive quarter, with market share steady at 20.8% and share within gummies of 22.5%. In Q2, Sours by Spinach Fully Blasted offerings were five of the top ten edible SKUs in Canada, including the number one edible nationwide, the Fully Blasted Blue Raspberry Watermelon 10-pack. In flour, spinach ranked number three in Canada, with market share expanding to 5.4%. spinach flower strains, GMO Cookies and OG Kush were among the top six selling flower products nationally in the quarter. In pre-rolls, spinach rose to number seven in Canada, with market share rising at 3.1%. With an infused pre-roll, Spinach climbed to number six, with market share increasing to 3.5%. In traditional pre-rolls, spinach also rose to number six, with market share increasing to 2.9%. quarter, Spinach 6, the brand's first cylindrical style pre-roll, became more widely available across additional provinces in Canada.

Turning to our other international markets outside Israel, we delivered record net revenue, which increased 88% year over year, led by strong demand in Germany. The breadth of our international footprint continues to provide meaningful growth as we execute our borderless product strategy. Building on our international momentum, this week I had the opportunity to meet with the Canadalar team in the Netherlands and the businesses performing in line with our expectations. We are prepared to close the acquisition of Canadalar upon receipt of regulatory clearance in the Netherlands in satisfaction or waiver of the remaining closing conditions. We expect the acquisition to close in the second half of 2026. We have not been informed of any specific issues with our regulatory clearance submission, and while it has taken longer to close than we had hoped, based on the information available to us, the timing appears to reflect the ordinary course of the Dutch regulatory review process for a transaction of this nature. As a reminder, Canadalar is the largest company operating within the Netherlands Legal Adult Use Cannabis Program.

We're excited and eager for Cunadalar to join the Kronos family. We continue to execute on our capital allocation priorities and remain active under our share repurchase program, which we believe represents an attractive use of capital. Backed by an industry-leading balance sheet and positive cash flow from operations, we are well-positioned to invest in our growth strategy while returning capital to shareholders and maintaining optionality to be opportunistic as attractive opportunities arise.

Now, I'll turn it over to Anna to walk you through our second quarter financials. Thanks, Mike, and good morning, everyone. I will now review our second quarter 2026 results. The company reported consolidated net revenue of $53 million, a 58% increase year over year. The net revenue increase was primarily driven by higher cannabis flower sales in Israel, Canada and other countries, specifically Germany, and higher cannabis extract sales in the Canadian market. Gross profit in the second quarter was $28.5 million, representing 96% year-over-year growth from Q2 2025's gross profit. The year-over-year increase was primarily due to higher average sales prices, largely driven by a mixed shift to Israel and other countries, which carry no excise taxes, and higher sales volumes.

Higher sales volumes led to both higher net revenue and efficiencies from overhead cost absorption. This quarter's gross margin demonstrates what our business looks like when it's firing on all cylinders, with Q2 also benefiting from seasonally better growing conditions. However, gross margins may vary from quarter to quarter due to factors including seasonality, product and geographic mix, production volumes, and potential price compression. Accordingly, we believe our gross margin performance over a trailing 12-month period provides more useful context than a series of high-end products. single quarter. Total operating expenses were $21 million in the quarter, a year-over-year increase of $1.2 million, driven by increases in sales and marketing, R&D, and G&A expenses. Note that half a million of the 1.2 million year-over-year OPEX increase was driven by transaction costs primarily related to our pending acquisition of Canadalar. Adjusted EBITDA in the second quarter was a record $13.1 million, an improvement of $11.4 million year-over-year, driven by higher gross profit partially offset by higher operating expenses.

Turning to the balance sheet and cash flow statement, the company ended the quarter with $827 million in cash, cash equivalents, short-term investments, and non-current interest-bearing deposits, up $5 million from Q1 2026, driven primarily by $24 million of positive cash flow. cash flow from operations, partially offset by $60 million of share repurchases and $2 million of CapEx spend. In addition to this $827 million, we hold $17 million of loan receivable, a $15 million current income tax receivable, and $5 million of other investments. In summary, we delivered a record net revenue, gross profit, and adjusted EBITDA in 2Q. A testament to our focused strategy, the underlying momentum of our business, and the team's continued strong execution. With that, we'll now open the call for questions.

Thank you. At this time, we will host the question and answer session. To ask a question, please press star 1 1 on your telephone. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Bill Kirk from Ross Capital Partners. Your line is now open.

Hey, good morning everyone. I wanted to ask about the Spinach brand. the brand has shown strength that's allowed it to kind of transcend across product formats. And I was hoping if you could talk about how you envision the brand and its potential to maybe cross borders and transcend borders where an adult use brand might eventually make sense.

Sure, thanks. That's a great question. I think part of what's made Spinach strong in different categories is we haven't really rested on the laurels of the brand. Category by category, we focus on each product as if we were launching it new and making sure it's a best-in-class product. In every single market you still have to win consumers. And as long as we take the same approach, I think we'll be able to do that. I think we've shown the ability for the products to translate to other markets already. But it's certainly something that we're planning and it's one of the reasons that we're so excited about the Kanadalar acquisition. adult use market where we think spinach will have a great opportunity to be able to perform and see those products like sours and puffers translate over.

And then if I can on Germany, the market has gotten a little tougher for some on some price compression, but you're showing strong growth there. So can you help us maybe understand your route to market into Germany? And was the unlock for Germany getting bigger for you, was that really the additional capacity at GroCo and you're just now satisfying demand that you had there? But can you talk about the German market, how your product gets into Germany and how you're positioned there? Sure.

Sure, it's really not that different in terms of what we're succeeding based on versus Canada, Israel, where also you can kind of look at data and it's competitive. It's tough. I think it just comes down to having the right value proposition to pay for the data. patients or to consumers. And while we don't have boots on the ground like we do in Canada and Israel, I think ultimately if you have a great product, I think that it finds a way to have demand. We understand the backdrop and competitiveness, but from my perspective, it's actually not as competitive yet as some of the other markets we're in. And yes, I think that is the unlock. We aren't really running from competition. We wanna make sure that we win in whatever market we're in.

I think having the discipline to keep adapting and making sure you win sharpens and improves the offering you have. And now that we have additional capacity, there's much more of a focus on Europe than there has been in the past.

Thanks, Mike. And Anna, can I round out a question on gross margin? It expanded more than we expected, which obviously is a great thing. And you broke it into some buckets, which included average selling price and mix. Could you help us maybe which bucket was the largest contributor behind the year-over-year gross margin expansion.

Sure, happy to provide a bit more context. So, you know, like I said, we benefited from, you know, seasonally better growing conditions and that translates to both higher yields and more high quality grade A flower to sell. So obviously, you know, more flower contributes to efficiencies as fixed overhead costs are spread over growth. greater volumes. I would say that's your, probably your largest contributor. And then you have that geographic shift to higher ASPs, to Israel and international markets, so higher ESPs, no excise tax. And then lastly, you know, in Canada, we've experienced such tremendous growth in our vape portfolio, and that carries, you know, the best margin in the portfolio. So kind of all of those factors together was that perfect storm of favorability.

But as I mentioned, you know, in the prepared remarks, we believe, you know, that our gross margin performance over that trailing 12-month period provides better context than, you know, this one particular quarter.

Thank you. I'll pass it along. Thank you. Our next question comes from Derek Lessard from TD Cohen. Your line is now open.

Yes, good morning everybody. Really strong results guys. Congrats Mike to you and the team. Good color so far. Two part question, I guess, was this, I guess these results, were they better than you guys had expected internally? And then secondly, is there anything that you can point to that really went really right for you guys in the corner? And I think Ana answered some of that, but curious on your thoughts.

Thanks, appreciate it. And, Yoke, I think we're We're generally optimistic, but we're always conservative, so we're all extremely pleased with the results. I think that you just saw things go well in pretty much every market and category, so... I don't know if there's a single thing that I would point to. I think that in Canada, we talked about it the last few quarters with Puffers launching and starting to get momentum. That's certainly been a big driver. I think that overall having more supply. That's been really helpful, just being able to satisfy a lot of the demand that we've been talking about has been out there but we haven't been able to fill.

I think that, you know, you think about yield and you think about the weather and growing season, that was certainly positive. But things are just moving in the right direction in most of the markets and a lot of the work we've put in the last few years, you're starting to see things click and as we continue to dial in, you know, growth is going to be a big factor. and with some of the manufacturing, you know, at Stainer in Israel, things are improving.

Absolutely. You know, and just on Canada, I guess there's been some talk about a pressured consumer here and a move towards some value product, more value oriented product. Doesn't seem like it's the case or you guys have run into that problem, but maybe just comment on what you're seeing from a Canadian perspective.

a consumer perspective would be helpful. Yes, from our perspective, it's really about delivering value and the value propositions which matters. And for some, that might be the value category. And then for us, it's as long as we're providing more value, I think that there's still in our segments, there's a lot of opportunity. I think that you can also see some switching just based off of cost from other categories. So you can see someone that maybe was looking at a beer and they think of what's more cost effective and they move to cannabis. But we haven't really seen a lot of issues in terms of the resiliency of the consumer.

But I understand it's more broadly out there. Yes. Thanks, Mike, and congrats again.

Thank you. Thank you. Our next question comes from the line of Indigo Bayliss from Canaccord Genuity. Go ahead.

Hey, good morning. I'm on the line for Ken with TAIG at Canaccord. Congratulations on the quarter. My question just relates to sort of your GroCo integration. So it appears that GroCo is moving along quite nicely. I was wondering if you had any commentary on how that increased supply supporting your market share gains And then sort of your next strategic area of focus is through leveraging this facility. And then the second part of that is, I guess, your expectations on the fully ramped site, and then how it might contribute to that top line and gross margin contribution in the future.

Sure, thanks. So yes, I think it's coming along really well. It's fully online. I think that over time you'll see some more efficiency gains as we continue to dial it in. Whether that's the facility or just improvements, the genetic breeding program we've had for I think every year you get to see new genetics come out and there's a lot of improvements we're really excited about. I think that when you think about opportunity for efficiency, genetics is actually, it's hard to measure and you know, put out as far as like building a facility versus genetic breeding. But I still think genetics is probably where you'll see the most efficiency gain. But I think GroCo is going extremely well. I think that having that extra supply, you know, the majority of the of the market globally is still flour.

So the gains that we've had are a mix of having more flour, I think increased strength in pre-rolls, increased strength in vapes, and maintaining the lead we have in edibles. And so yes, I think they all sort of contribute. But the facility expansion, it's really adding more grow to what we already had. So it's fully integrated as far as processing, It's just figuring out scheduling, being able to get the increased product through it. I think it's something that we now have a full handle on.

Great, thank you. Thank you. Our next question comes from the line of Pablo Zoanick from Zoanick and Associates. Your line is now open.

Thank you and good morning everyone. Mike, can you expand on your supply chain in Israel? I don't know if you can talk about what percent of what you sell is produced by Kronos in Israel. How much is it imported? I'm just trying to understand the flexibility to ramp up domestic production. If there are restrictions on imports, and also when you report your total Israel sales, does that include product that you buy from other from third parties, whether in Israel.

or from outside Israel for that market? Thank you. Sure, thanks. So, yes, we do have a domestic grow. You know, we do buy from third parties. Israel or otherwise and also from GroCo in Canada. But everything is included when you see sales in Israel. It's everything that goes through our facility and we sell under our brand. So we have all the packaging and manufacturing is done there in addition to the grow.

I would just go back and say, we really think that there's not merit to the anti-dumping investigation. We've gone through it once already and I think you can look at the results and it's clear this is not a market where we're like, oh, we need to get rid of excess product. It's something we view as a strong and important part of our business. of our business. We've increased supply with Israel in mind, and it's something we'll continue to do, and we're confident that we will prevail again.

Thank you. Just regarding the US, in a recent podcast, I think you made a comment that you have a roadmap under various scenarios, the bit of a matrix. If this happens, you do this. If this happens, you do something else. But in a scenario where we continue to have this state silo system, no exports, no federal oversight by the FDA, and everything regulated by the state, is that a scenario in which Kronos would want to participate and get more active in the U.S. or not really if things don't change from that perspective?.

Yes, so if you're assuming it's sort of like, I think you're asking you freeze sort of the system we have today where... You know, there's state medical markets that in theory could be accessed, but adult use does not roll over, and we assume that there's no interstate commerce available. I think if you were to put aside the question of whether or not under Schedule 3 there's potential challenges about interstate commerce, I think we would look at entering with more of a focus on borderless products than on sort of a full production site, I think because As much as we could assume that it gets locked like this forever, I still find it hard to believe that you're not going to eventually have interstate commerce and you won't have free trade, just given every other industry and the dormant commerce clause being pretty strong. So we would look to enter in with a number of products. And I think that when you hear us talk about borderless products, that's the flexibility it affords us. So I still think that there are ways to enter in with genetics, with with our edibles, with our vapes, with pre-rolls, but not necessarily building out really strong grow infrastructure. So more of an IP focus than full production.

And I think the reason for that is I do believe eventually that it's going to be really tough to start building our infrastructure state by state when you're eventually going to have to compete with something that's centralized, absorbs much more fixed costs, and is producing at a national scale similar to what you see.

any CPE company do. Right, thank you. I want to add one more. It has to do more, you know, the liquidity of your stock and in general, the liquidity of the NASDAQ listed Canadian LPs, right? That has declined quite a bit over time. Um, you know, we have these, um, US MSOs that supposedly we'll have list and, uh, NYSE or NASDAQ. And supposedly that's, that's like a big catalyst, right? But I could make the argument that here we have these very sizable Canadian licensed producers like yourselves, which are already NASDAQ listed and investor or stock liquidity is thin, right? So, I mean, from your perspective, why is that? I mean, is it just because there's just too much focus on the U.S. and that's all investors want, and they're missing out on what's happening in the Canadian red market and all these very large export potentials that the Canadian LPs have? What's your perspective? I'M JUST, AGAIN, I DON'T WANT TO REPEAT THE QUESTION, BUT IT'S LIKE WHY, IF WE HAVE THESE NASDAQ-LISTED VEHICLES RIGHT NOW WHERE YOU HAVE ALL THIS GROWTH, THAT IT'S NOT.

liquidity is so low for the stock in general? Thanks. You know, yes, I, it's tough to answer. I'd say for the size of the market, you probably have a lot of companies. And I think that one of the challenges is that investors probably are, you know, the sometimes the loudest companies and the most liquid ones are just making a lot of promises and burn people. So it's much more of a show me, type industry now. But I don't really think of it as US versus Canada. I think every company is different.

It's no longer just, there's two types of companies in LP or MSO. I think that you're increasingly seeing those lines kind of change and it's not necessarily just Canada, right? You're looking at rest of world versus US, some are in both. But ultimately the way I see it is, you know, people always ask us about capital deployment and I I think that we've been given a pretty good opportunity as far as having a buyback, as long as things are the way they are. So, um, it's not something I really worry about. We don't really, you know, we don't need to use our, our stock as currency, uh, We don't need to raise capital. So we really just focus on what the market opportunity is. And we still think there's plenty of opportunity within the markets we have today, even with the situation in the U.S.

Right. Thank you. Thank you. This concludes the question and answer session and our conference call for today. Thank you for your participation in today's conference. This does conclude our program. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good morning. My name is Michelle, and I will be your conference operator today. I would like to welcome everyone to the Cronos 2026 First Quarter Conference Call. Today's call 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, sir.

Thank you, Michelle, and thank you for joining us today to review Cronos' 2026 Q1 financial and business performance. 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 posted on our website under Investor Relations.

Before I turn the call over to Mike, let me remind you that we may make forward-looking statements and refer to non-GAAP financial measures during this call. These forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Factors that could cause actual results to differ materially from expectations are detailed in our earnings materials 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, and unless otherwise stated, all market share data is provided by Hifyre. 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' Chairman, President and CEO, Mike Gorenstein.

Thanks, Harrison. Cronos delivered record net revenue and gross profit in Q1 2026 as we continue to execute on our strategic vision. International markets delivered record net revenue, and our Canadian brands posted share gains across key categories, led by Spinach achieving the #1 market share position in vapes.

Starting with Cronos Israel, in Q1, we delivered our ninth consecutive quarter of record net revenue, growing 53% year-over-year. We extended our market share lead powered by PEACE NATURALS as the #1 brand in Israel, according to pharmacy data collected by Cronos. This performance was driven by the quality of our genetics and the execution of our team on the ground.

We're also very pleased with the initial performance of the Lord Jones brand in Israel. We launched the brand with a lineup of curated premium flower offerings featuring cold-cured large flower buds in a series of limited time drops. The initial reception has been strong, demonstrating that the Lord Jones brand's premium positioning translates across markets. We're looking forward to building upon this early momentum. Between PEACE NATURALS, LIT and Lord Jones, we now offer Israeli pharmacies a comprehensive tiered product portfolio that addresses a spectrum of patient price points and broadens our market reach.

Turning to Canada, our brands generated 18% year-over-year retail sales growth relative to industry-wide sales growth of 2% according to Hifyre. The Spinach brand had an excellent quarter with our product portfolio demonstrating the success of our innovation efforts through substantial share gains. Spinach ranked #1 across all vape formats in Q1, capturing 9.8% total market share. In vape cartridges specifically, Spinach held an 11.1% share, also the #1 position.

Adding to that achievement, the 3 best-selling vape SKUs in the country this quarter were all Spinach cartridges. This is a meaningful milestone that reflects our ongoing investment in product quality and innovation while leaning on consumer insights to guide our product development pipeline.

On that note, Spinach PUFFERZ continue to build distribution and disrupt the market in Q1, broadening its presence across Canadian provinces after its initial launch in select markets late last year. PUFFERZ reached the #2 market share position in the all-in-one vape category in March 2026, just 4 months after launch. PUFFERZ exemplifies what we mean when we talk about raising the bar on product excellence, design and flavor, and the early consumer response has validated our conviction in the PUFFERZ platform.

In edibles, we maintained our #1 position with 20.8% market share with gummies at 22.7%. SOURZ by Spinach remains the clear category leader in edibles, with the Fully Blasted multipack leading the charge. Launched in mid-2025, the Fully Blasted offerings now occupy four of the top 10 edible SKUs in Canada, including the #1 SKU nationwide in Q1.

In flower, quarter-over-quarter, we rose in the ranks from #4 to #3, which is a direct reflection of the easing of our supply constraints following the completion of the GrowCo expansion. We said last quarter that we expected supply constraints ease in 2026, and we're starting to see that play out.

In the pre-roll category, we introduced Spinach STIX, the brand's first cylindrical-style pre-roll, responding to strong consumer demand for this fast-growing format. We launched three STIX SKUs in GMO Cookies, Sour Chem and Space Cake, alongside new 2x1 gram pre-rolls in Sour Chem and GMO Cookies. Together, these launches helped Spinach climb the #8 market share position in non-infused pre-rolls in Q1.

Turning to our other international markets, we delivered 97% year-over-year growth, posting record net revenue in the quarter, driven by sustained momentum in Germany. Our PEACE NATURALS and LIT brands remain the engine of our international performance, and the breadth of our footprint across the markets provide significant further growth potential and optionality as regulatory environments evolve.

Building on our international momentum, we remain very excited about our pending acquisition of CanAdelaar. We announced a definitive agreement in December and are prepared to close, subject to certain closing conditions, with completion of the transaction expected in summer of 2026. As a reminder, CanAdelaar is the largest company operating within the Netherlands legal adult-use cannabis program and the only industrial-scale greenhouse cultivator. The Netherlands has a deep cannabis heritage, and we believe this market has the potential to serve as a model for other European markets.

Acquiring a market leader in Europe's largest adult-use cannabis market is an important step in our international strategy and an opportunity to deploy our borderless products strategy at scale. We're excited to bring CanAdelaar into the Cronos family and build on the foundation it has established.

Cronos maintains the strongest balance sheet in the industry with no debt and $822 million in cash and cash equivalents, allowing us to continue investing in growth, innovation and global expansion. And today, we announced our Board's authorization of a renewed $50 million share repurchase program. This decision reflects our belief in the long-term value of our business and our commitment to delivering returns to shareholders as we execute on our strategy. Given our balance sheet and profitability, we have the opportunity to invest across organic growth, share repurchases and M&A.

Now I'll turn it over to Anna to walk you through our first quarter financials.

Thanks, Mike, and good morning, everyone. I'll now review our first quarter 2026 results. The company reported consolidated net revenue of $45.2 million, a 40% 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 the first quarter were $19.2 million, representing a 39% year-over-year growth from Q1 2025 adjusted gross profit. The year-over-year increase was primarily due to higher sales volumes and higher average sales prices, largely driven by a mix shift to Israel and other countries, which carry no excise tax.

Operating expenses, excluding restructuring costs and impairments, were $20.5 million in the quarter, a year-over-year increase of $3.3 million, driven by increases in G&A, sales and marketing and R&D expenses. Note that $1.3 million of the increase in G&A within OpEx is due to discrete costs primarily related to transaction costs incurred in connection with the CanAdelaar acquisition.

Adjusted EBITDA in the first quarter was $5.1 million, an improvement of $2.8 million year-over-year, driven by higher gross profit, partially offset by higher operating expenses.

Turning to the balance sheet and cash flow statement, the company ended the quarter with $822 million in cash, cash equivalents and short-term investments, down $10 million from Q4 2025, driven by $17 million of share repurchases, $2 million of CapEx spend and $2 million of withholding taxes paid on share-based compensation, partially offset by positive cash flow from operations before changes in working capital of $11 million. In addition to this cash balance, we hold $21 million of loans receivable and $5 million of other investments.

In summary, we delivered record net revenue and record gross profit in Q1 with strong gross margins and adjusted EBITDA that was the second highest in company history. This is a reflection of the underlying strength of our business and the team's continued focus on execution.

With that, I'd like to hand it back to Mike for a brief comment before Q&A.

Thanks, Anna. Q1 was a strong start to 2026 with record net revenue and record gross profit. In Canada, Spinach reaching #1 in vapes for the first time while maintaining or advancing its market-leading position in all the categories we participate in. Cronos Israel delivered another record quarter, and our international markets outside Israel nearly doubled year-over-year.

We are building something differentiated, a branded portfolio of innovative products that resonate with consumers in any market, underpinned by an expanding and efficient production platform and the strongest balance sheet in the industry. The GrowCo expansion is now online. We expect to close the CanAdelaar acquisition to add Europe's largest adult-use cannabis business to our footprint this summer. And we enter the balance of 2026 with momentum, financial flexibility and a team that knows how to execute.

Thank you, and we'll now open the line for questions.

[Operator Instructions] Our first question will come from the line of Kenric Tyghe with Canaccord Genuity Capital Markets.

Congrats on the quarter. My quick question for you on the GrowCo expansion and that ramp, just in terms of your targeted efficiency and throughput, where do you think you are on that journey today, and how is that tracking against your expectations?

That's a great question. I think that we've seen certainly a jump in efficiency and progress from last quarter to this quarter. So I think you've seen kind of a bulk of us getting things online and working through the ramp-up, but there's still some efficiencies that we'll dial in over the coming quarters. But as far as being planted and having the throughput, we're there now.

Appreciate that. Then just a quick pivot. With respect to the extension of the long stop date on CanAdelaar, is that just an abundance of caution on the extension through September so this doesn't become sort of an iterative process? Or do you think balance of probability is there is a chance that this does only close in the third quarter versus late in the second?

I think that's an abundance of caution. We haven't seen anything that would cause any issues. I think it's certainly taking time, but we've already seen multiple licensed producers in the experiment get approval. And it's really just, I think, a question of waiting for Bibob to process. So we're confident in the process, and there's no issues that we've seen.

Our next question will come from the line of Bill Kirk with ROTH Capital Partners.

Mike, I'd love your perspective on the rescheduling news in the U.S. and maybe how it impacts how you think about that market and Cronos' plans to participate or not participate or be involved. So maybe we could start there on your perspective of the rescheduling announcement so far.

Sure. Yes. I'd say it's a very, very exciting announcement and development, I think one of the most significant milestones in the U.S. regulatory environment that we've seen in the last 10 years. As always, I think that the devil will be in the details, and there's still some things that need to be worked out, but we're very optimistic. And I think that when you compare how this was announced and what early indications look like compared to maybe the last few iterations of rescheduling, this seems very positive.

So we're continuing to monitor and figure out what the best spot for us is. I would say that really what I'm focused on is what opportunities end up being created from an interstate perspective and then also an international perspective. And I think that how state laws end up changing and how some of those details work out will really dictate where we move in.

Okay. And if I can, another on the capacity expansion in GrowCo and maybe how that product ultimately gets allocated. But where is GrowCo in its -- the expansion of GrowCo? Where is it in its kind of maturity? What is it able to do today versus what you think it can do, I don't know, a year from now?

Yes, I think we talked about this in the initial -- when we projected it forward that we would have the first -- you get through a first harvest or two harvests and that ramp-up is a big step. And since we've been past that, we're now in the phase where it's how each harvest after that efficiency dials in, in the first year. So you're looking at smaller percentage gains. There wouldn't be massive changes. But of course, depending on what the season is, light can affect yields.

But I think that we can now move back to how do we dial in efficiencies and increase yields versus how do we get everything planted to get everything harvested. So you can expect some efficiency gains and some extra yield, but it's not going to be, I think, a dramatic step change.

Our next question comes from the line of Derek Lessard with TD Cowen.

Mike and Anna, congrats on a really strong quarter. I guess I just wanted to touch on your #1 market share. Just maybe talk about the specific levers behind the share gains? And what is -- what do you think your playbook looks like from here?

So I assume you're referring to Canada. I'm not sure which market, but...

Yes, Canada, Mike.

Look, I think a big thing that affects share for us is obviously in flower and what availability we have. And so we're always in this sort of back and forth of do we have enough capacity to allocate to all the markets and how do we allocate among the markets. So I think this quarter, you saw us have, because of the increase in capacity, more flower available to Canada, and that allowed us to fill a lot of unconstrained demand.

I still think that you'll see more unconstrained demand. And then with things growing also, though, in Israel and in Europe, that will just be something that quarter-to-quarter, we'll have to look at how we allocate and really optimize overall for margin. I think that a big change was also what we were able to do with vapes. The biggest innovation, biggest change came down to PUFFERZ.

It's been something we've been working on for a long time, and we haven't really been a meaningful participant in all-in-one vapes, which is a really big category. So that's just -- you're seeing that momentum. I think you're going to see that momentum continue throughout the year. And then now we think the big lever for us to pull is going to be in pre-rolls where we still have some work to do.

Awesome. And I guess, given the success, I was curious if you can maybe just comment on some of the competitive intensity, again, within Canada and within those categories that you're seeing and how you're working to -- given your strength, but maybe just protecting your margins?

Yes, I think we've seen more -- we've seen tougher competitive dynamics than we're seeing now just because of a lot of the pull that goes to Europe and certainly depends on the categories. But I think that as we continue to scale that, we get better fixed cost absorption, we're able to get costs down. And that allows us to have the flexibility to compete as needed. But we don't feel like it's sort of in the same deflationary environment that it was in the past.

Our next question will come from the line of Pablo Zuanic with Zuanic & Associates.

Mike, can you comment regarding the Netherlands on market conditions there in the pilot towns regarding either market size, growth trends, competitive dynamics, pricing? And also on the same topic, the summer review is supposed to be completed soon. And would you expect any changes from that, like either more licenses issued to more licensed producers or more towns added to the pilot?

Sure. Yes, I think that you've seen a little bit of competition heating up because you had one of the licensed producers that wasn't online come online. You've seen some of the companies dial in efficiencies, but you're also seeing the market growing a bit. So from a competitive dynamic, it's not really as intense as what you've seen in Canada or Israel. And I think there's still a ways to go as far as kind of innovation in the market, and that's something that will come with the maturity.

You may see some changes in stores in one of the municipalities where you'll have a few that come offline, but a few more stores will be opening. So in Groningen, there'll be a few that shut down and then open up, but net, we should be gaining stores, and that will play out over the next year or so. I don't know if it's something that you'll see that will be a big enough impact to the market one way or the other, but there will be some movement on stores there.

And then I don't expect changes from the summer review. I think that that's really more about showing the data of how the program is going. I think the program has been going very well, and that's really just something that's going to kind of help propel things forward for the future.

And just a quick follow-up. I know this is probably a question more for Altria, but now with the CEO change, Sal taking over from Billy, potential implications for Cronos or maybe you can talk about -- if you can talk about your interaction with the prior CEO and the new CEO, whatever color you can give, it would be helpful, especially in the context of BAT being so active in the space through its affiliates in terms of M&A.

Yes, I think we have a great relationship with Sal. We've known -- there's a lot of continuity at Altria. So we've known the management teams, and we don't see any change. I think that when you look at the activity, we -- part of why it looks like Altria is less active is we just haven't had a need for additional capital. So that means sort of less actions on their part, but they're still involved through the Board. We're still in constant dialogue. And I think everyone is very pleased with the progress and what's going on.

And if I may -- I know it's only 2 questions, but I want to add just one more. In terms of how you coordinate your international strategy between GrowCo and Cronos, is that like one company together operating overseas? Or is there some competition between the two? Can you just give color on that?

Yes, we're pretty closely aligned. I mean it's because of the Board dynamics, because of just operationally, how we work together, there is pretty close coordination. We share the same Cronos name, same genetics, same products, same governance. So I'd say it's a very, very close relationship and closer to one company than two separate.

We have a follow-up question from the line of Derek Lessard with TD Cowen.

Yes, Mike, just one follow-up from me. PEACE NATURALS brand is still clearly resonating with consumers. Maybe just talk about the market dynamics in Israel and some of the opportunities you guys are seeing in that market.

Yes, I think Israel has been a kind of unique situation for a year now, but -- sorry, for more than a year, but I think that staying consistent is really, really important. Patients there really want to see that you have the same product quality available, and for us being able to keep that has been really strong. I think that there's -- there are new strains that we're able to introduce, but we do so carefully and making sure that we can be consistent with them. That's really a key difference in the medical market, making sure that availability is there.

There are other formats that we've looked at, but really it's genetics that I think drive the most differentiation. I think that beyond PEACE NATURALS, also Lord Jones is a really incremental opportunity for us. So now being able to have not just a value and mainstream offering, but having premium just allows us to have more offerings when we go to the different pharmacies and it strengthens our distribution footprint.

Thank you. Ladies and gentlemen, that does conclude today's question-and-answer session. This will also conclude today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

All right. Good morning, everybody. This is the consumer track. We are in the blue room where we're about to hear from Cronos Group, Chairman and CEO, Mike Gorenstein. Mike, thank you for being here. Cronos is a leading cannabis LP who in 2025 started putting its ample cash balance to work and that came with results. Year-over-year, 2025 revenue was up 25%. Gross margin rate basically doubled year-over-year.

So Mike, again, thank you for being here.

Where I want to get started is Canada. I want to start in Canada because for the longest time, supply and demand were imbalanced. It seems like it's gotten better, but I want to hear from your perspective, maybe how supply and demand in Canada has evolved, how the relationship has evolved and where you see it today and where you see it going forward.

Yes, and thanks for having me. It's a great question. I think that what you saw early days, these cycles are starting to get smaller, but as soon as you have a real buildup of demand because of the access to capital in Canada, you had a lot of people overbuilding. A lot of people tried to get big before they got good. And so just because you had numbers of supply, that doesn't necessarily mean that you had good supply and that supply would actually sell or consumers would want it.

So you had a lot of shutdowns. You had a lot of struggles there. And I think as things started rationalizing, you then had finally, people were also built for Europe and then you had Europe start to open. So now you have people that are able to ship product to Europe, and that caused more of a shortage in Canada because you simultaneously had supply come offline and you had additional demand. And so I think that really did lead to a shortage. You've also had the CRA start to collect not a lot, but collect a little bit more, which I think gives people some pause.

So yes, we feel like there hasn't been enough supply, but my assumption is always that we'll reach equilibrium and be prepared for supply to outstrip demand. That's why it's so important for us to think about quality and efficiency. So I think you've seen in the past years, we're pretty deliberate about how we expand and we have a place to put supply. And for us right now, and for the last, I guess, 2 years, we've really been struggling to keep up with demand. So having GrowCo online is pretty important for us.

And we'll definitely get to GrowCo, but I want to spend a little time on Spinach. It's, I think, the #2 vape brand in the country. It's SOURZ edibles, 20-ish percent segment market share. And in flower, it's probably about the #4 brand. So maybe how did you build a brand like Spinach in an industry and a market where building brand equity and brand loyalty is pretty hard.

Yes. I think one of the things that makes it hard is if you, as a company, come out with double-digit number of brands and those brands don't have anything unique. It's just the same strains in each brand and you're finding ways to push product. We really thought of Spinach is what is the demand we have and how do we get supply to fill the demand. And I think that approach was much different than others that were building out supply and saying what brands can sell our supply. So it's really starting with the consumer and working back from that.

It's not a coincidence that we -- primarily in Canada, almost all of our revenue is Spinach. I mean certainly, Lord Jones, it takes more time to build. That was the first thing. And then I think also starting with product. So building from product up, making sure we actually have something that's differentiated, something that has a better value proposition. And that's where you see SOURZ and now PUFFERZ is the newest example. That's what the strategy has always been is have products and those products will build the brand versus a brand sort of just attaching to me-too products.

You mentioned PUFFERZ. Is that the innovation you're most excited about now? Is that the newest? Can you maybe talk to us about what that product is, what need state it's trying to fit?

Yes. So the success you've seen in vapes is really we've been in 510s, but we've taken a pretty long road for all-in-one, same is with SOURZ and edibles where we didn't launch immediately, but we kept doing all the consumer work and the R&D to make sure we can hit a need. And so all-in-one has been a big category. It's been growing, and this is our entry into it. And I think our long-awaited entry that probably a couple of years coming.

So it's just -- it's a differentiated device. It's -- the fact that we have a boost button that can give you a really large hit or you can have something that's more normal and giving that toggle. The way it feels in your hand, if you've been able to grab one yet, yes, I think it's a great feeling for consumers. We want it to be something that you could take everywhere with you, fits neatly in your pocket. The actual texture doesn't roll off of things. So just a number of kind of insights we had that we wanted to make sure we provided and then still the same flavors that we have in the 510s that have made us really successful.

And the other big kind of inflection that I mentioned in the intro was on the gross margin side. It doubled basically year-over-year, but 4Q was a little bit lighter than the previous quarters in 2025. So maybe what was abnormal about the profitability in 4Q? And where can it go back to going forward?

Yes. So part of the Phase 2 coming online for GrowCo, that's a 70% capacity ramp-up. And in doing that, there are certainly challenges. I would expect the full year for '25 gross margin to be what things look like going forward as Cronos stands today, excluding the Netherlands. But we have things like there was a -- despite the meter running the whole time, we got a catch-up electricity bill in January that was, hey, here's extra -- and it's a government utility, you can't really change that. Just what we have to do to get kind of overtime labor and bring people in when you have that 70% expansion, producing more of Grade C than Grade A. So just in terms of like trim versus flower. So I think just temporary ramp-up thing that gets smoothed out, and I think you'll see the facility dialed in pretty quickly.

So let's spend some time on GrowCo. You have some of the first grows that have come out of there. What are the early learnings from the expansion at GrowCo? And how long does it take for the new capacity to get to the standards of, call it, the legacy GrowCo capacity?

Really not that long. I think we have the same facility. It's generally the same team, although you need certainly more people. A lot of it is scheduling. You get into a cadence of how things move through from flower rooms to your dry rooms to vault, how you fill orders, how you process it. And so just getting that scheduling down, making sure everyone is trained and dialed in. But overall, it's the same process. It's the same processing facility. We just expanded the glass part. So I think it's pretty quick.

You talked a little bit ago about how demand had exceeded your supply availability of product. So with this extra capacity coming on, what tough allocation decisions are removed? Like what kind of impediments to growth are now removed with this extra capacity?

Yes. Frankly, I think it's Canada. So when you saw us go from #1 flower brand and move down to #4, you also saw Israel grow. You saw other markets in Europe grow. We've definitely been playing a game of trying to make sure we allocate and keep people happy, but also try to build demand in new markets. And so finally having that online being able to fill channels is something that feels really good. Of course, the plan is always to have demand outstrip supply. We -- part of making sure that the brand is in a good place is not having to oversaturate market. So we'll keep working on the marketing side and looking at different ways of expanding, but I think it was a really important step to get that out and take care of our first primary market.

GrowCo is kind of one aspect of this kind of I want to call it new phase of Cronos where you're putting more capital to work. You did some M&A. You made an investment in Canada's largest cannabis retailer. So what convinced you maybe after years of not much cash leaving Cronos to start putting capital behind ideas? Like I assume you had ideas the whole time. What convinced you like now is the time we need to start acting on some of these ideas?

Yes. Look, I think it's a couple of things. One, as I mentioned before, for us, a lot of the focus was let's -- like early R&D was really important, making sure that we dialed in operationally, it's a lot easier, and this is very different than a lot of what happened in Canada, but it's easier to get really good at what you're doing and then expand than to expand and then try and dial it in later. So as the efficiency there, we then feel more comfortable to grow. But maybe one of the bigger things is that you don't have a flood of capital coming in the industry anymore. And I think that's led to some of the asks of external and third parties coming down. So we see more value where we've never really been a look at relative value type of company, like if it doesn't pencil if I can't see that it's a better return than treasuries, and we're not doing it. And I've been told that's harsh by people. It's one of the first questions I ask whenever I have a conversation with someone is like, can I do better by whatever it is you're suggesting than treasuries. And...

Interest rates going up help the treasury yield, right?

Right. So maybe that's a factor. But I also think that you see markets start to mature. When I look at a market, you always have to forecast some price compression. There's different market structures, but eventually, they start moving towards a pretty similar equilibrium and understanding that and modeling it, we can be patient and wait until things move there. And then I think we're able to find a place where we'll win based off of being able to optimize, bringing our portfolio of IP and brands over. But modeling something on crazy margins doesn't work out.

So you put more capital to work. You still have a cash balance, I think, over $800 million. What does it take? And maybe is it a change in U.S. legislative outlook, but what does it take for you to put even more cash to work?

Look, we look at a lot of opportunities all the time. There is on strategy opportunities that are accretive. There's nothing stopping us from doing them. Obviously, the U.S. is still the biggest opportunity long term. I have gotten to the point where I don't really like bet on regulatory change. So it's sort of when it happens. But yes, I think you're seeing growth in Europe. I think you're seeing things move. People probably never would have thought Netherlands would have been a big opportunity, but I'm really excited about that market. And so I think regulation is moving. I think that supply-demand rationalizing and markets maturing really is what's key.

We'll get to the Netherlands. What is your expectation for the U.S., right? Like people -- the executive order happened in 2025. There was some very encouraging language within that executive order suggesting a quick time line. We haven't seen much since. So what's your expectation for the U.S.? Is it a 2026 rescheduling year?

It's really difficult to predict, and I've always tried to stay away from. Well, that's why I'm trying. I try to stay away from predicting. What I will say is I think that we probably have a -- you've got more volatility in this administration as far as what potential outcomes or actions there are. I think that's a good thing because if we're following a normal political process, given where things stand, it's tougher to get things through. And a reality is we could wake up any day and it could be done. And you could see almost any outcome. And I think that we need that. We need some type of high variance.

So I'm more optimistic than I have been in past years, but I'm also -- part of that is it's really, really difficult to predict. And so it's making sure that we're positioned the right way, making sure that we're ready to take advantage of it. We have the benefit of a really great partner that we have infrastructure in the U.S. that we can immediately leverage. So I think people don't talk about hemp enough. I think that how hemp gets regulated, there's going to be some potential horse trading around that. How will that affect rescheduling or eventually descheduling is really important to watch. I do still think it makes sense to have a harmonized framework. But I think there's other priorities at the moment.

Okay. Another -- one of the other investments you made that I referenced was into High Tide, Canada's largest cannabis retailer. For years -- or years ago in Canada, some of the LPs did pursue like a partially owned retail model where they own some stores. You did not. But 9 months ago, you made that investment. So why 9 months ago do you say, I want exposure to the retail tier when for so long, you hadn't had that exposure?

Yes. I mean I think, look, first, and there's a few different reasons for it. First, I think it's a great company, and I think it's a great investment. But more than anything, it's actually that same philosophy carried over. It's that we wanted to preserve the independence of retailers and the independence of suppliers. And this is making sure that the leader in retail in Canada could stay independent. And I think that it's an investment sort of in a model that we're winning in and making sure that the brands are ultimately what consumers are choosing and not choosing because of different ownership structures. And so that's really what drove the decision from a high-level perspective.

Got it. Now let's go to international. There's been a lot of excitement for Germany. There's a lot of investment in Germany. You're a part of it, but maybe it's not -- maybe it hasn't been like as large of a focus for you as it has been for some others. What would it take for you to get more excited about Germany and to make a bigger kind of investment into the country?

Yes. First, we're very excited about Germany long term. It's probably be one of the most important, if not the most important market in Europe. But just this comes down to regulatory certainty, I think, is a major one, seeing what happens with telemedicine, what happens with delivery, having that certainty would go a long way. We're in a phase now. We're still building demand, getting our brand out there. We're seeing good growth. But without that certainty on what potential changes to the model there are, it's really hard for us to invest.

And we're still growing in the meantime. So I think that -- and I think also, again, like some of these other markets we talked about, you're seeing price discovery change a little bit. We want to be able to know kind of where prices go to, what supply levels are. And so if there's that much uncertainty, we're happy to supply and partner with others. And if we have certainty and we see something that's attractive, it's something that we're not afraid to move when the opportunity is right.

Does the relationship with High Tide give you kind of a more asset-light access to Germany at some point? I mean they can be maybe a conduit between Canada and Germany. Is that something you plan to use for the -- for German exposure?

Yes. Look, I think it's a great relationship to have and something that certainly can be helpful. We also have other relationships. We've been in Germany before the deal. So we're focused on whatever the best way to get brands to patients are, whether that's through High Tide, through Cansativa, through another partner. We look at all options.

Okay. On Israel, it's a country where you're already quite large. It's been growing. Has the recent conflict with Iran, has that disrupted anything in Israel? But more importantly, over time, where do you see Cronos in Israel going in terms of size and profitability?

Yes. Israel has been a great market for us. As a wholesale brand supplier, we're pretty clear #1 share now, roughly 23%. I think it's got potential to be a great market for a lot of different reasons. You do not have a strong illicit market. In fact, the illicit market is essentially purchasing from the legal market. You've got high usage. It's a pretty high GDP country, but it's unfortunately been a tough few years. I think that we're built to withstand sort of adversity, which is why you've seen us kind of grow and be really successful in the last few years, but that certainly held back some of the reform people have expected, some of -- we wanted to change.

I think it's a market that's really important to have boots on the ground. It's -- the time we spend in the market is really important. But we've kind of adjusted to the way life is, right? You're in meetings and you're used to there's a siren goes off. You have -- within 8.5 minutes, if your phone gets the alert, we've got on-site bomb shelter, everyone gets to the bomb shelter and then the meeting continues. So we've been fortunate that we haven't had any damage to the facilities. Our people are safe.

We've learned how to deal with people going in the reserves. We've learned how to deal with shelter in place. We're still an essential business. So we -- there's all types of different contingencies we plan for, but Israel is still moving. And I think when things are over, there's potential upside. And when you look at what the actual patient counts are for population, you compare it to other medical markets, you could see it pretty easily 2x or 3x from here. And so it's similar to the U.S., it's just when that becomes the priority, there's just really pressing security concerns that I think are front of mind right now.

Okay. You brought up the Netherlands earlier. You recently announced the acquisition of CanAdelaar there. It makes you a prominent Dutch player right off the bat. I guess let's start with what got you excited about the Netherlands, but also in the context of that market, as I understand it, is still an experiment market, and it has an expiration date. So how did you get comfortable with those assumptions and those criteria when deciding to enter?

Yes. So I mean it would sound almost the opposite of what I was saying about certainty given that. But I look at it as you've got now 50 years of this history of having a tolerated market. And so for those of you who aren't familiar in the Netherlands, the retailers or coffee shops are essentially allowed to supply product to consumers, but the growers that actually sell into the coffee shops are completely illegal. So you can get arrested for going and selling to one of those retailers, and it's not the most logical. And I think the Netherlands is approaching this is like we want to have safer, transparent supply chain. We want to get rid of crime. And the way they've approached it makes it clear that their objective really is eliminating all the kind of criminal organizations around it.

And so I love the idea of having licenses that can actually start in these different municipalities. It would be really difficult to imagine saying, okay, now -- I don't see them getting rid of the 50 years of history of retailing and it'd be really tough to like, yes, after these 4 or 5 years have decided, everyone is going to go get product illegally again. That's like -- it's just very, very unlikely to me a question is sort of where does it evolve? How does it expand? Does it extend? I love the approach that making -- this is the only market I've seen with -- maybe medically in Israel, but the legal market has an advantage over the illicit market, and that's very rare to see in any market. So I like that. I think structurally, CanAdelaar has an advantage of being the only commercial greenhouse in the program. So that gave certainty. And we modeled it out even if the program is not extended, we still would recover our principles. So I think that was a pretty key thing for us.

What can you build on -- they've been operating there for a little while. What can you build on that they've already done, either revenue opportunities or cost synergies that you can bring with your infrastructure? Or what can you build on that they've already put in place to take it to kind of the next more exciting level?

Yes. We definitely don't look at this as a cost synergy acquisition. I think of it as a pretty valuable platform for us. For years, we've been doing a lot of R&D, whether it's genetic breeding, developing, the #1 edible with SOURZ. We're really excited about PUFFERZ. We've just got a portfolio of IP, and they're a much younger company, even though they're very profitable and very, very large as a market share leader, being able to tech transfer that over, that's the whole model of borderless products for us. So having another platform, we can take what we have and put it into the Netherlands, that's where we see the opportunity. They still haven't launched vapes in any meaningful way. So being able to get brands over there and do that, being able to get SOURZ in market. That, I think, is where we can do it.

And when you think about brand leverage in Europe, the Netherlands is really kind of like the core of where cannabis culture came from. And I remember 20 years ago, I went there and I was like, wow, that'd be really cool to be -- imagine if we legal one day -- but I will say, I think that the market, it hasn't really changed in 20, 30 years. I mean maybe 50, I don't know because I've been there that long ago. But you've seen a lot of shifts in terms of product quality, innovation in North America, and you just haven't really seen that in the market there because you haven't had legal investment and you haven't had really long-term views on products and brands.

I think we touched probably on 5 countries as we kind of went through. We did Canada, U.S., Netherlands, Germany, Israel, 5. So outside of those 5, what countries have you most excited? And then we'll kind of wrap up because we're getting a little tight on time.

That's a bunch. I'd say markets where you're seeing growth and seeing potential. And again, everything often depends on regulatory change. So obviously, we're always optimistic or hopeful of things moving in the U.S. But I think U.K. and Switzerland are 2 markets that you're seeing progress forward, potentially Italy at some point. But we're monitoring. I think that it tends to -- as you get progress in one country, it tends to help the neighboring countries. So you've got a little corridor there that's really starting to move.

It's a good start. All right. For the last one, what aspects of the cannabis industry and Cronos in particular, do you think maybe are not appropriately appreciated?

Yes. I think a lot of times, I mean this is a really basic one, but with us, there's a general perception of like a market cap versus enterprise value and most people generally assume that your enterprise value is higher than your market cap. That has not been the case with us. I still get a lot of questions about our debt, which we don't have. But we have a growing profitable business. It's growing pretty fast, and profitability is increasing. We have a lot of opportunities to grow organically with M&A and active buybacks. So I think we're really excited and understand that the industry isn't necessarily as, I guess, favorably looked at by investors as it used to be, but I think not all companies are the same. And I think we've shown we're pretty disciplined and opportunistic and can operate the company.

I think that's a perfect spot to stop. Mike, thank you for joining us. It was wonderful.

Thank you.

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 Instructions] 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.

Thank you, Corey, and thank you for joining us today to review Cronos' 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.

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. 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, and unless otherwise stated, all market share data is provided by Hifyre. 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' Chairman, President and CEO, Michael 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 priority. 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.

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. In December, Spinach became the #2 overall vape brand in Canada, rising from the #4 share position in the first quarter of 2025. Within the vape cartridges subcategory, Spinach achieved #1 market share in the fourth quarter 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 the fourth quarter, 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. 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. 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, Sour continued to deliver strong growth while maintaining category leadership with market share approaching 22% for the quarter. Growth was driven by fully blasted multipacks, which despite having just launched in mid-2025, were 4 of the top 10 selling edible SKUs in Canada in the fourth quarter, including the #1 edible SKU nationwide, reinforcing Spinach's leadership position in edibles and demonstrating the success of our innovation pipeline.

In flower, Spinach remained the #4 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 LIFT 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. 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 LIFT 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 remains strong. We capped off the year with the December announcement that we entered into a definitive agreement to acquire CanAdelaar, with closing expected in the first half of 2026. CanAdelaar is the largest company operating with the Netherlands legal adult-use cannabis program based on CanAdelaar management data, and is the only industrial-scale greenhouse cultivator within the program.

Under the agreement, Cronos will acquire CanAdelaar for upfront consideration of EUR 57.5 million, or approximately $67.5 million, subject to certain adjustments with additional contingent consideration based on 0.5x CanAdelaar's normalized EBITDA in '26 and '27.

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-up phase beginning in the fourth quarter of 2023, and the program officially launching on April 7, 2025.

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 and 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.

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 CanAdelaar under the Cronos umbrella and to build upon the foundation that the company has established.

Cronos maintains the strongest balance sheet in the industry with no debt and $832 million in cash, 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 fourth quarter and full year financials.

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. 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 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. 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 sales volume.

Adjusted gross margin declined from the levels realized in the first 3 quarters of 2025. This was driven by adverse production quality mix at GrowCo, as 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%, 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. 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 3 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.

Turning to the balance sheet and cash flow statement, the company ended the quarter with $832 million in cash, 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 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 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 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.

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 do we grow without acquisition, though most of our peers have ATMs and have been issuing shares to fund their businesses with a 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. 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 at attractive gross margins while maintaining disciplined cost management as we continue to scale Cronos globally and position the business for long-term success.

Thank you, and we'll now open the call for questions.

[Operator Instructions] Our first question comes from Bill Kirk of ROTH Capital Partners.

I was hoping to talk a bit about product allocation coming out of the new GrowCo capacity. How are decisions made of where to send that product? 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?

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. 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.

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 with what we had in the past with the exception that there's more product available for Canada than we historically had.

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 of what you reported in 4Q? Is it more price? Is it better mix? Is it lower costs? And then with the greater sales and scale from GrowCo, why can't gross margin be higher than 2025?

Sure. Thanks, Bill. Yes. So I mean, in Q4, there was a kind of a couple of adversities we faced. So we had some expansion-related production quality mix from the GrowCo scale-up as well as some onetime expenses that flow through COGS due to the ramp-up. So kind of those headwinds has 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. 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 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.

Our next question comes from the line of Kenric Tyghe of Canaccord Genuity Capital Markets.

If I could just jump in with a follow-up on the gross margin quickly. I know you're calling out sort of similar levels to full year '25. Just for clarification, would those expectations factor in the close of CanAdelaar? Or is there a potential further upside, and that's perhaps what you're 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?

Sure. So my comments were just for Cronos as a stand-alone business, not considering CanAdelaar that it is a profitable business as well with very nice gross margins. So we could see some margin expansion from that. But just from -- more speaking to our business as a stand-alone that 43% go-forward.

I appreciate the clarification. And then just timing in 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 it was plus 52% in Israel. How much of the revenue beat in quarter was timing shift versus just, call it, pure Q4?

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 as we move into Q4, but the rest is pretty -- our business is growing. So you should expect to see that from us going forward across our markets.

Great. Sorry, maybe just one quick final one. CapEx, any sort of key initiatives we should be thinking through this year? Or is 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 goal will be in 2026?

Yes, I think that's right. I think those are appropriate levels for us going forward.

Our next question comes from the line of Ryan Neal of TD Cowen.

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. 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.

Yes. 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, 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.

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?

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 can do 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. 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.

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, at 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?

Yes. 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. 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, 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. But I think that maybe the most exciting one for this quarter, and you'll see showing up in the data in Q1 in vapes, puffers. So it's our all-in-one. We've put a lot of time and work in making sure that this is going to be a big driver for us. And I think you're seeing the early success already. So puffers is, I think, all of us are very excited about right now.

Our next question comes from the line of Pablo Zuanic of Zuanic & Associates.

Mike, can you explain in the context of the consolidation we are seeing in Germany, Hifyre, DEMECAN, OGI, Sanity, why Holland was a priority over Germany, especially with the market consolidating and some distributors still being available?

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. 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.

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

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. 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. 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, 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 so we thought it just made a lot of sense, and it was a really unique opportunity for us.

And then 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 U.K. 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?

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, but I'm always looking at where do I think the market is 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 assets. 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.

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 money to help with marketing and demand versus be sort of an owner of that part of the funnel.

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 PharmaCann, right? You have 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? And how do you think about that lesson as the U.S. begins to reschedule?

So I cut out there for a minute. I heard what lessons. And could you just repeat the part after that, I apologize.

Yes, I'm going to repeat. I'm sorry. Yes, 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 U.S., right? That company hasn't done too well. What lessons did Cronos learn from that? And how does that color you are thinking about future opportunities in the U.S. as that country reschedules cannabis?

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 sort of craze around the STATES Act. We didn't -- it was roughly 10% on the option. And part of the reason was we want to make sure we had distribution secured if you had reg move. And so part of that is it's still important. We didn't do a larger stake, and 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.

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

So the U.S. 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, 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 U.S.

Thank you very much. This concludes the Cronos Group question-and-answer session. Thank you very much, and you may now disconnect.

Good morning. My name is Amber, and I will be the conference operator today. I would like to welcome everyone to the Cronos Group's 2025 Third Quarter Earnings Conference Call. Today's call 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.

Thank you, Amber, and thank you for joining us today to review Cronos' Third Quarter 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 posted on our website under Investor Relations.

Before I turn the call over to Mike, let me remind you that we may make forward-looking statements and refer to non-GAAP financial measures during this call. These forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements.

Factors that could cause actual results to differ materially from expectations are detailed in our earnings materials 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, and unless otherwise stated, all market share data is provided by Hifyre. 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' Chairman, President and CEO, Mike Gorenstein.

Thanks, Harrison, and good morning, everyone. Cronos delivered another record quarter in Q3 2025, underscoring the continued strength of our core business and the success of our global strategy. Our results were driven by robust demand across key markets and product categories, highlighted by outstanding performance in Israel. We remained focused on delivering top line growth, margin expansion and disciplined cost management as we continue to strengthen our operations and position the company for sustainable profitability.

In Canada, flower supply constraints led to softer flower revenue year-over-year, yet these declines were largely offset by continued outperformance from our market-leading edibles and significant growth in the vape category. The Phase 2 expansion at GrowCo is now complete and flower sales commenced in fall of 2025. As with any cultivation expansion, it typically takes time to dial in the new facility. And while we're on schedule and making great progress, we expect improvement over time. Overall, we believe flower sales will improve in 2026 with resolution of our supply constraints driven by the GrowCo expansion and the increased supply of the high-quality flower, which our brands are known for.

Our Spinach brand continues to be a standout performer, ending the quarter as the #2 cannabis brand in Canada with 4.5% overall market share. In Flower, Spinach ranked #4 in Canada with 4.9% share. And in vapes, Spinach achieved 7% share across Canada, moving up in the ranks to the #3 overall vape brand.

In the vape cartridge subcategory, we achieved the #2 market position with 9.5% market share. The number of our vape SKUs are among Canada's top sellers, including Pink Lemonade, which was the best-selling 1.2 gram vape cartridge in Canada. In edibles, Spinach strengthened its category leadership, holding the #1 position with 19.7% market share. Within gummies, Spinach led the market with 22.8% share with 4 products ranking in the top 10 nationally.

In Q3, SOURZ continued to build on its category leadership in edibles with the launch of fully blasted multipacks featuring liquid diamond-infused gummies. These multipacks are available on 5 of our most popular flavors, giving consumers more choice, convenience and value when purchasing Canada's #1 cannabis edible.

We also launched 2 limited edition seasonal offerings in the quarter, continuing to keep our assortment fresh and exciting for consumers. The popular SOURZ Caramel Green Apple gummy returned as a limited time flavor, and we introduced a Sweet Green Apple 1-gram vape featuring crisp, refreshing apple flavor notes that complement our edibles lineup and strengthen the brand's presence in the vape category. Together, these new launches reinforce the brand's reputation for flavor innovation and product quality, while driving continued consumer engagement and retail momentum heading into the holiday season.

Turning to Lord Jones. The brand continues to elevate its premium positioning in Canada. In chocolates, Lord Jones holds a 10.7% market share, #3 in the category, with Salted Caramel Crunch Chocolate Fusions ranked among the top 10 chocolate edibles nationally. The brand maintained its leadership position in hash and live resin-infused pre-rolls with 17.5% share, and we're excited to have launched Live Resin Caviar infused pre-rolls in August, further strengthening our footprint in premium formats.

In Israel, Cronos achieved another quarter of record net revenue, delivering exceptional growth across both the flagship PEACE NATURALS brand and the value-focused Lit brand. The high quality of our product offering and the sales team's focus on pharmacy partnerships have combined to strengthen our leadership position and engagement with patients, driving the strongest month in company history in July and August.

PEACE NATURALS remains the #1 medical cannabis brand in Israel, according to pharmacy data collected by Cronos, underpinned by strong demand for flagship strains like Wedding CK, the best-selling product in the market and GMO, the second best-selling product in the market. In Q3, Cronos Israel continued to innovate, introducing new strains, ANML and OGC grown indoors in Israel under a new limited edition product series. We're also encouraged that Israel's medical patient count has returned to growth in 2025, with patient count up nearly 5% year-to-date, following a 6% decline in patient count in 2024, resulting from reforms to the country's medical cannabis program according to data from Israel's Medical Cannabis Agency.

Across our other international markets, results were lighter this quarter due to shipment timing, which pushed some revenue recognition in the fourth quarter. Given this dynamic, we expect second half of 2025 net revenue for other international markets to be similar to our first half results. Germany continues to be the standout contributor even as we monitor potential regulatory changes that could shape future market dynamics. We're encouraged by traction in Switzerland, where PEACE NATURALS is now available through the country's medical network. With our distribution also ramping up in Australia, PEACE NATURALS products are now available in 7 markets: Canada; Israel; Germany; the U.K.; Australia; Switzerland; and Malta.

Finally, Cronos maintains one of the strongest balance sheets in the industry with no debt and $824 million in cash, cash equivalents and short-term investments, providing the flexibility to continue investing in growth, innovation and global expansion.

Now I'll turn it over to Anna to walk you through the third quarter financials.

Thanks, Mike, and good morning, everyone. I will now review our Third Quarter 2025 Results. The company reported consolidated net revenue of $36.3 million, a 6% increase year-over-year. The net revenue increase was driven by higher cannabis flower sales in Israel and higher cannabis extract sales in the Canadian market, partially offset by a decrease in cannabis flower sales in the Canadian market. Gross profit and adjusted gross profit in the third quarter were $18.3 million, equating to a 50% gross margin, a 19 percentage point improvement from 31% adjusted gross margins in Q3 2024. The year-over-year gross margin improvement was driven by higher average sales prices due primarily to a mix shift to Israel, higher sales volumes and production efficiencies as well as by favorable inventory dynamics, which benefited Q3 2025 gross margin.

Given this favorability, we would view the blended adjusted gross margins over Q2 and Q3 as more indicative of the current underlying margins of the business. Operating expenses, excluding restructuring costs and impairments, were $18.6 million in the quarter, a year-over-year decline of $4.3 million, driven by a $3.5 million year-over-year decline in G&A. Adjusted EBITDA in the third quarter was $5.7 million, an improvement of $11.7 million year-over-year, driven by higher gross profit and lower operating expenses. We view the average adjusted EBITDA over Q2 and Q3 as more indicative of the current underlying profitability of the business. Turning to the balance sheet and cash flow statement. The company ended the quarter with $824 million in cash, cash equivalents and short-term investments, down $10.2 million from Q2 2025, driven primarily by our $18.4 million convertible loan and warrant investment in High Tide as well as by a $5.8 million working capital outflow, $4.6 million of CapEx spend and $1.9 million of share repurchases, partially offset by positive cash flow from operations before changes in working capital of $19.1 million and a $1.3 million FX benefit.

In summary, our third quarter results set records across net revenue, gross profit and adjusted EBITDA, demonstrating continued improvement in our operating fundamentals as we execute against our business objectives.

With that, I'd like to hand it back to Mike for a brief comment before we go into Q&A.

Thanks, Anna. To wrap up, our performance this quarter demonstrates that Cronos' core business is strong and is a testament to our borderless product strategy. With leading adult-use brands, Spinach and Lord Jones and momentum in Israel and internationally with PEACE NATURALS and Lit alongside the recently completed expansion at GrowCo, we're well positioned for continued growth as we look forward to 2026. We are confident in our strategy and excited to end 2025 strong.

Thank you, and we'll now open the line for questions.

[Operator Instructions]

Our first question comes from Bill Kirk of ROTH Capital Partners.

Mike, you mentioned sales out of GrowCo expansion beginning in the fall. Would any of that have occurred in 3Q? And then when you talk about growth in 2026, can you help us think about the magnitude, right? The capacity expansion for you is about 50%, but there were some comments about optimizing that facility over time. So when you talk about growth in 2026, how much do you have in mind?

Sure. Thanks, Bill. Yes. I think -- so you see when GrowCo comes online, part of that is when the sales come to us versus third party, and it was certainly towards the end. So I don't think you've really seen a lot of that hit yet. That's something that will gradually show up. And you'll -- I think you'll see also as we dial it in that magnitude will really increase into 2026. So going through the first cycle. The 70% capacity increase on Flower is a good way to kind of think about how that can start to impact revenue going forward with the variables being sort of which market it gets allocated to and given the different pricing. But we think it's a great growth driver along with other increases and brand launches that we have -- sorry, product launches we have in our existing markets.

Awesome. And then, Anna, you talked about 2Q and 3Q gross margins blended as indicative of underlying gross margins. Would you expect underlying to improve with the new GrowCo capacity? So go forward, it's different than 2Q and 3Q blended, it's something else because now GrowCo is online?

Yes. I think that's right. So we could, in the future, see benefits from increased fixed cost absorption as that facility dials in. But I would say, in the short term, closing out the year, a blend of Q2 and Q3 is indicative of the business margins.

Awesome. And I'm going to selfishly sneak one more in. There were 2 things, I guess, that weighed slightly on 3Q. In Canada, you called out Flower supply constraints. How much did that impact 3Q? And then international outside of Israel, there is a shipment timing shift into 4Q. How big was that?

So yes, I think we've definitely been weighed down by not having enough Flower. That's one of the reasons it's been so important to get GrowCo online. And I think that when you look at overall top line, that's been something that will certainly ease up. And I just want to point out, I think there is still a margin difference in Canada versus international. So going forward, you'll see costs, I think, a little better with the expansion and fixed cost absorption from GrowCo, but the more allocated to Canada versus international markets would pull down sort of the margin without accounting for the cost decreases. So I still think it's all net positive. And I think you should think about the shipment timings being something that will normalize, this half will look kind of like the first half.

I'm showing no further questions at this time. I want to thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.