Third Quarter 2026 Earnings Conference Call - CRONOS GROUP INC

Explicit Guidance:

• No explicit numerical guidance provided for FY2026 Q4 or full-year 2027/2028 metrics (revenue, earnings, margins, capex, or cash flow) beyond trailing 12-month performance context.
• Management explicitly declines to bracket the current margin profile for Q4 or 2027, stating a preference to evaluate performance over a "trailing 12-month period" to account for seasonality and geographic mix.
• Foreign Exchange: A negative $1 million impact from FX was noted for Q3 2026, with no specific forward FX rate assumptions disclosed for future quarters.

Business-Segment Outlook:

• Israel: Anticipated to maintain "11th and 2nd quarter of record net revenue" momentum; growth driven by "Peace Natural's brand" and "Value brand Lit."
• Canada:
  • Vapes: Spinach expected to maintain leadership; Puffer all-in-one innovation projected to continue gaining market traction.
  • Edibles: Sours By Spinach anticipated to sustain #1 position; new limited edition "Caramel Green Apple" launched in October with continued portfolio expansion expected.
  • Flower: Tight supply conditions persist even post-GroCo expansion (late 2025); two Spinach SKUs ranked in top seven nationwide.
  • Pre-rolls: Spinach continues climbing rankings in infused and traditional pre-rolls.
  • Seasonality: Management notes historical "seasonal softness" in Q4 Provincial Board purchasing.
• International (Germany): Continued robust demand expected; revenue growth anticipated but with "lumpiness" due to export permit timing.
• Netherlands (Canadalar Acquisition):
  • Product Mix: Expectation for derivative categories (vapes, edibles) to capture increasing market share over time as regulations permit, mirroring North American trends.
  • Utilization: Current production capacity is "not anywhere close to full utilization," allowing for immediate ramp-up.
  • Product Launch Cadence: Derivative products (vapes/gummies) to be introduced via a "steady calendar" rather than flooding the market, ensuring proper retail messaging and manufacturing standards.
  • Operational Focus: Value added through operational efficiencies in greenhouse genetics and supply chain integration, as B2B wholesale is prohibited.

Market and Competitive Outlook:

• Pricing: Universal "price compression" expected as markets mature and supply ramps up to meet demand (Germany, Netherlands).
• Netherlands Market Structure:
  • Current pilot experiment covers <10% of the population; price stability is not a primary expectation due to immature supply side.
  • Competitors face pressure from Cronos's differentiated supply base and cost flexibility, particularly regarding hash/hashish popularity vs. North American derivatives.
  • Regulatory expansion of the pilot is uncertain; management will not rely on this expansion, though "lots of interest" exists from other municipalities.
  • Coffee shop licensing is slow (queues of 15 years for some new locations); growth depends on municipal permitting, not business strategy.
• Global Expansion: Strategy to build a "portfolio of borderless products" and enter new markets as regulations open, leveraging the Netherlands as a platform for broader European expansion.

Macro / Industry Outlook:

• Macro Environment: No major consumer shifts toward value products observed yet; "strong value proposition" expected to maintain mainstream category demand despite economic headwinds.
• Regulatory/Risk Factors:
  • Netherlands: Solvent-based extraction prohibited; wholesale transactions between growers prohibited; retail competition from neighboring municipalities with legacy tolerated markets.
  • General: "New adult-use markets" inherently face volatility, price compression, and supply volatility until equilibrium is reached.

Strategic Initiatives:

• M&A Integration (Canadalar): Acquisition completed in October 2026; value delivery expected over the long term via three mechanisms: (1) Introducing borderless products (vapes/gummies), (2) Operational efficiency gains from production experience, and (3) Potential future expansion of the Dutch experiment.
• Product Innovation: Continued rollout of "fully-blasted" offerings and new flavor profiles (e.g., Strawberry Banana bake, Sweet Citrus Ponce) in Q4 2026.
• Capacity & Supply: No immediate plans to "pull forward" GroCo expansion timing; focus remains on building "durable and efficient" long-term capacity rather than short-term demand fill.
• Route-to-Market (RTM): Maintaining patience regarding potential M&A in Germany (e.g., OGI Aurora deal assets); no urgent move to acquire distribution assets unless strategic value is clear.

Risks and Headwinds to Outlook:

• Supply Chain: Tight flower supply despite capacity additions; export permit timing and shipment lumps creating quarter-to-quarter revenue volatility.
• Regulatory: Restrictions in Netherlands (solvent extraction, B2B prohibitions) and reliance on municipal licensing for coffee shop expansion.
• Market Dynamics: Price compression in maturing markets; potential slowdown in Dutch coffee shop licensing due to regulatory hurdles.
• Seasonality: Historical Q4 softness in Canadian Provincial Board purchasing.

Management Tone on the Future:

• Confidence: High confidence in "long-term potential" of the Netherlands acquisition and the "borderless product strategy" across all regions.
• Time Horizon: Explicitly adopts a "very long-term view," prioritizing efficiency and durability over short-term speed.
• Caution: "Not relying" on regulatory expansions in the Netherlands; acknowledging "lumpiness" in international revenue; declining to provide specific margin brackets due to seasonal and mix variability.

Miscellaneous:

• Market Share Data: All market share figures provided are attributed to HIFIRE.
• Financial Position: Ended Q3 2026 with $841 million in cash and equivalents; no specific guidance on future capital allocation (dividends/buybacks) beyond the $9M Q3 repurchase.