Debra Borchardt
Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) is selling its Peace Naturals Campus to Future Farmco Canada Inc. for C$23 million in cash. However, Cronos won’t be leaving the property, instead, it will lease part of the campus to continue its operations. Future Farmco is a vertical farming company.
“The sale-leaseback of the Peace Naturals Campus supports Cronos’ goal to reduce costs across the Company,” said Mike Gorenstein, Chairman, President, and CEO, of Cronos. “More specifically, this sale will aid in improving the gross margin profile of our business, while lowering costs and increasing our agility. This sale only strengthens our industry-leading balance sheet and allows us to continue to pursue organic growth and future transactions that bolster Cronos’ existing value. We do not expect any interruption to our current operations and plan to carry out existing growth plans within our leased space at the facility.”
The property is located at 4491 Concession 12 Sunnidale Road, Stayner, Ontario, Canada, L0M 1S0. The deal includes a five-year term and one five-year renewal option that may be exercised by Cronos. Cronos said it will also have an option to lease certain additional space during the term of the lease. Cronos can also choose to terminate the lease without penalty anytime after the second year by giving written notice at least 12 months before termination.
Cash Cushion
Green Market Report wrote a couple of weeks ago that Cronos successfully reduced its general and administrative expenses, a key driver behind improved cash flow. The company maintains a cost-savings target of $20 million to $25 million for the year and aims to carve out further savings into 2024.
In the company’s recent earnings call, Chief Financial Officer James Holm said “The company ended the quarter with approximately $140 million in cash and short-term investments, which is down by about $1 million from the second quarter. In addition to maximizing the return on our cash, we received an interest payment on our GrowCo senior secured loan of $1.2 million and a principal repayment of $1.1 million for total cash paid by GrowCo to Cronos of $2.3 million in Q3. Having the best balance sheet in the cannabis industry enables us to take calculated strategic bets while we remain steadfastly focused on reducing cash burn.”
Holm went on to add, “Cash flow from operations was negative approximately $180,000, representing a substantial improvement. We will continue to work to improve further as we create a fully self-sustaining operation. Free cash flow, defined as operating cash flow less CapEx, was only negative $510,000, another great achievement.”
