Cronos Earnings: Healthy Top-Line Growth but Canadian Oversupply Weighs on Margin Potential

No-moat Cronos reported decent third-quarter results, with net revenue of USD 25 million representing a 22% and 30% increase over the third quarter of last year and the preceding quarter, respectively. Results would have been even stronger had it not been for a stronger U.S. dollar. We expect minimal adjustments to our top-line forecast but plan to slash our longer-term gross margin assumption, which currently assumes 38% by 2032, as the price compression among far too many licensed producers will weigh on expansion potential. As a result, we’ll likely cut our fair value estimates of USD 2.50 and CAD 3.50 per share by 10% to 15%. We think there’s better risk-adjusted upside in cannabis among U.S. multistate operators.