all right uh good morning everybody uh this is the consumer track we are in the blue room where we're about to hear from chronos group chairman and ceo mike gorenstein mike thank you for being here uh chronos 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 percent uh gross margin rate basically doubled year over year so mike again thank you for being here where i want to get started is 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 yeah thanks and thanks for having me uh it's a great question I think that what you saw early days you know these cycles are starting to get smaller but as soon as you have a real buildup of demand because the access to capital and Canada you had a lot of people over building a lot of people tried to get big before they they got good and so you know just because you had numbers of supply that doesn't necessarily mean that you had good supply and that that supply would actually you know sell or consumers would want it so you know you had a lot of shutdowns you know you had a lot of struggles there and I think as things started rationalizing you then had you know finally people would 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 you know I think that 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 you know which I think gives people some pause so yeah we feel like there hasn't been enough supply but my assumption is always that you know 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 you know I think you've seen in the past years we you know we're pretty deliberate about how we expand and we we have a place to put supply and for us right now and for the last is two years we've really been uh struggling to keep up with demand so having groco online is pretty important for us and we'll definitely get to groco but i want to spend a little time on on spinach it's i think the number two vape brand in the country uh it's sours edibles 20 ish percent segment market share and in flower it's probably about the number four brand so maybe how did you build a brand like spinach in an industry in a market where building brand equity and brand loyalty is pretty hard yeah I think you know one of the things that makes it hard is if you as a company come out with you know double-digit number of brands and 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 supplying and saying what brands can sell our supply so it's really starting with the consumer and working back from that you know it's not a coincidence that we you know primarily in Canada almost all of our revenue is spinach and certainly Lord Jones it takes more time to build you know but 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 Sours, and now Puffers is the newest example. You know, 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, you know, me-too products.

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

Yeah So the success you've seen in vapes is really we've been you know in in five tens But we've taken a pretty long road for all-in-one same as with sours and edibles where we didn't launch immediately But we kept doing all the consumer work and in the R&D to make sure we can hit a need and so all-in-one's been a big category It's been growing and this is our entry into it And I think our long-awaited entry that, you know, probably a couple years coming. So it's just, it's a differentiated device. It's, you know, the fact that we have a boost button that can give you, you know, a really large hit. Or you can have something that's more normal and giving that toggle, the way it feels in your hand. Have you been able to, you know, to grab one yet? Yeah, I think it's just a, it's a great, great feeling for consumers.

We want it to be something that you can take everywhere with you. fits neatly in your pocket you know the actual texture it 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 you know in the 510 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 you know double basically year over year but 4q was a little bit lighter than you know the previous quarters in 2025 so maybe what was abnormal about the profitability in 4q and where can it go back to going forward yeah so part of you know the

phase two coming online for broco that's a 70% capacity ramp up and you know in doing that there's certainly challenges you know I would expect the the full year for 25 gross margin to be what you know things look like going forward you you know, as Kronos stands today, excluding the Netherlands. But we had things like there was a, despite the meter running the whole time, you know, we got a catch-up electricity bill in January that was, hey, here's extra, and it's a government, you know, 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, you know, more of grade C than grade A. so just in terms of like trim versus flour so I think just temporary ramp up things it gets smoothed out and I think you'll see the see the facility dialed in pretty quickly and so let's let's spend some time on Groco you have some of the first grows that have come out of there what are the early learnings from the expansion at Groco and how long does it take for the new capacity to get to the standards of call it the legacy Groco capacity it you know really not that long I think you know we have the same same facility it's generally the same team although you need you know certainly more people a lot of it is scheduling you know you get into a cadence of how things move through you know from flower rooms to your dry rooms to bolt how you fill orders how you process it and so just getting that scheduling down making sure everyone's trained and dialed in but overall it's the same process it's the the same processing facility we just expanded the glass part so I think it's it's you know 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 what what kind of impediments to growth are now removed with this extra extra capacity if frankly I think it's Canada so you know when you saw us go from number one flower brand and move down to number four you also saw Israel grow you saw other markets in Europe grow we've we've definitely been you know 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 you know fill channels is something you know feels feels really good of course the plans always to have demand you know outstripped supply we you know part of making sure that the brands in a good place is is not having to oversaturate market so uh you know we'll keep working on you know the marketing side and you know looking at

different ways of expanding but i think it was a really important step to get that out and take care of uh kind of our first primary market um groco's kind of one aspect of this uh kind of i'm going to call it new phase of chronos where you're putting more capital to work uh you did some m a uh you made an investment in in canada's largest cannabis retailer so what what convinced you maybe after years of not much cash leaving Kronos to to start putting capital behind ideas like I assume you had ideas the whole time what convinced you that now is the time we need to start acting on some of these ideas yeah look I think it's you know a couple things one as I mentioned

before for us a lot of the focus was let's you know like early R&D it 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 then to expand and then try and dial it in later so you know as the efficiencies 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 you know some of the asks of external and the third parties coming down so we see more value where um we've never really been uh look at relative value uh type of company like i if it doesn't pencil if i can't see that it's a better return than treasuries and you know 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 you know i have a conversation with someone is like can i do better by you know whatever it is you're suggesting than treasuries and you know interest rates going up help the the treasury yield right right so yeah maybe that that's factor but i also think that you know you see markets start to mature when when i look at a market and um you always have to forecast some you know price compression you know there's there's different market structures but eventually they start moving towards a pretty similar equilibrium and understanding that and modeling it uh we can be patient and wait until things you know move there and and then i think you know 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 you know crazy crazy margins doesn't doesn't work out um so you put more capital work you still have a cash balance i think over 800 million um what does it take and maybe is it a change in u.s 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's on strategy opportunities that are creative you know there's nothing stopping us from you know from doing them obviously the US is still the biggest you know biggest opportunity long term I've gotten to the point where I don't really like bet on regulatory change so it's sort of when it happens you know but yeah I think 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 you know the big opportunity but I'm really excited about that market and so I think regulations moving I think that you know supply demand rationalizing in and markets maturing really is what what's key the we'll get to the Netherlands what is your expectation for the US right like you know people the executive order happened in 2025 there was some very encouraging language within that in that in that executive order suggesting a quick timeline we haven't seen much since so what's your expectation for the u.s is it a 2026 rescheduling year you know i 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 uh you've got more uh more volatility in this administration as far as of what potential outcomes or actions there are and that's a good thing because if we're following a normal political process given you know where things stand it's tougher to get things through and you know reality is we could wake up any day and it could be done and you can see almost any outcome and I think that we need that we need some type of you know high variance so I'm more optimistic than you know 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 and making sure that we're ready to take advantage of it you know we have the benefit of a really great partner that you know we have infrastructure in the US that we can immediately leverage so you know I think people don't talk about hemp enough I think that how hemp gets regulated you

know there's gonna be some potential horse trading around that you know how will that affect rescheduling or eventually de-scheduling is really important to watch i do still think it makes sense to have a harmonized framework uh but you know i think there's other priorities at the moment okay yes um uh another one of the other investments you made that i referenced was was into high tide the canada's largest cannabis retailer for years you know you were 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 nine months ago you made that investment so so why nine months ago do you say I want exposure to the

retail tier when for so long you hadn't had that exposure yeah I think first and there's a few different reasons for it you know first I think it's a great company and so I think it's a you know a great investment but you know more than anything it's actually that same philosophy carried over it's that we 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 that's really what drove the decision from a high level perspective got it um now let's go to international um there's been a lot of excitement for germany 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 yeah first we're very excited about

Germany long term, it's you know, it's probably one of the most important, you know, not the most important market in, you know, in Europe. But just this comes down to regulatory certainty, I think it is a major one. You know, seeing what happens with telemedicine, what happens with with delivery, having that, you know, that certainty would go a long way. we're in a phase now we're still building demand getting our brand out there you know we're seeing seeing good growth but without that you know certainty on what potential changes to the model there are it's you know really hard for us to invest and we're still growing you know in the meantime so you know 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 you know we want to be able to know kind of where prices go to what supply levels are and so you know if there's that much uncertainty we're happy to supply and you know partner with others and if you know we have certainty and we see something that's a you know attractive it's something that we're not afraid to move when you know when the opportunity is right does the the relationship with high tide give you kind of a more asset light access to Germany at some point I mean they they can be maybe a conduit between Canada and Germany is that something you plan to use for the for German exposure yeah I think 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 you know we've been in Germany you know before the deal so we're focused on whatever the best way to get get brands to patients are whether that's you know through high

tide through can sativa through another partner you know where we look at all options okay um on on israel it's a country where you're 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 chronos in israel going in terms of size and profitability yeah israel's been a great market for us uh you know as a you know wholesale uh you know brand supplier we're you know pretty clear number one share now roughly 23% I think

it's a 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 you know essentially purchasing from the legal market you've got high usage you know 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 the last few years, but that certainly held back some of the reform people have expected, some of what we wanted to change. I think it's a market that's really important to have boots on the ground. The time you spend in the market is really important. but you know we've kind of adjusted to the way life is right you know you're in meetings and you're used to there's a siren goes off you have you know within eight and a half minutes if 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 to the reserves we've learned how to, you know, deal with shelter in place. We're still an essential business, so we, you know, there's all types of different contingencies we planned for, but Israel is still, Israel is still moving, and I think when things are over, there's potential upside.

And I, you know, when you look at what the actual patient counts are for population, you compare it to other medical markets, you can see it pretty easily two or three xing 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 um you brought up the netherlands earlier you know you recently announced the the acquisition of canadelaar there uh it makes you a prominent dutch player right off 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 when when deciding to enter yeah so 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 you know for those of you aren't familiar and in the Netherlands the retailers or coffee shops are essentially allowed to supply product to you know to consumers but the you know the growers that actually sell into the coffee shops are completely illegal so you know 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 you know transparent supply chain we want to get rid of crime and the way they've approached it makes it clear that their their objective really is eliminating you know all the kind of criminal organizations around it and so I love the idea of having licenses that can actually start you know in these different municipalities it would be really difficult to imagine saying okay you know now I don't see them getting rid of the 50 years of history of you know retailing it and it'd be really tough to be like yeah you know after these you know four or five years we've decided everyone's gonna go get product the legally again that's like you know it's just very very unlikely to me a question is sort of where does it evolve how how does it expand does it extend you know I love the approach that making this is the only market I've seen where the you know 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 you know I like that I think structurally Kanatalar has an advantage being the only commercial greenhouse in the program so you know that gave certainty and we modeled it out even if the you know even if the program is not extended we still would recover our you know you know our principal so I think that was a pretty key thing for us what what can you build on you know 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 but what can you build on that they've already put in place to take it to kind of a next more exciting level yeah we definitely don't look this as a cost energy acquisition I think of it as a pretty valuable platform for us you know we for years we've been doing a lot of R&D whether it's genetic breeding developing you know with the number one edible with sours we're really excited about puffers you know we've got a portfolio of IP and they're much younger company even though they're you know very profitable and you know very very large as the market share leader being able to tech transfer that over you know that's the whole model of borderless products for us so having another platform we can take what we have and you know and put it into the Netherlands that's where we see the opportunity and they still haven't launched vapes in any meaningful way so being able to get you know get brands over there and do that being able to get sours in market that I think is where you know we can do it and when you think about brand leverage in Europe you know the Netherlands is really like kind of like the the core where cannabis culture came from and I remember what years ago I went there and I was like wow imagine if weed was legal one day and then oh yeah you know but I will say I think that the the market it hasn't really changed in 20 30 years and maybe 50, I don't know, because I haven't 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 five countries as we kind of went through.

We did Canada, U.S., Netherlands, Germany, Israel, five. so outside of those five what countries have you most excited and then we'll kind of wrap up because we're getting a little tight on time oh it's a bunch I'd say you know markets where you're seeing seeing growth you know and seeing potential and again everything you know often depends on on regulatory change so obviously we're always we're always optimistic or hopeful things moving in the US but I think UK and Switzerland are two markets that you know you're seeing progress forward you know potentially you know Italy at some point but you know 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 that's really starting to move it's a good start all right for the last one what aspects of the cannabis industry and Kronos in particular do you think maybe are not appropriately appreciated yeah I think you know a lot of times I mean this is a really basic one but with us there's a general perception you know 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 you know a growing profitable business it's growing pretty fast and profitability is increasing you know we have a lot of opportunities you know to grow organically you know M&A and you know active buyback so I think we're you know we're really excited and understand that the industry isn't necessarily as I guess fairly looked looked at by investors as it used to be but I think not all companies are the same and you know I think we've shown we're pretty disciplined and opportunistic and can operate the company I think that's a perfect spot to Mike, thank you for joining us.