Aurora Cannabis Announces Fiscal 2022 Third Quarter Results

  • Increasing Original Target for Expense Savings; Management Now Expects $150 to $170 Million in Annualized Cost Savings by H1/2023 versus Stated Target of $60 to $80 Million
  • Reiterating Adjusted EBITDA Profitability Run Rate by the End of Fiscal H1 2023
  • Remains #1 Canadian LP in High Margin Global Medical Cannabis Revenues; International Medical Revenue Increased 55% from Q3 2021
  • Strong balance sheet; Early Repurchase of $141.4   Million in Convertible Debt

Aurora Cannabis Inc. (the "Company" or "Aurora" ) (NASDAQ: ACB) (TSX: ACB), the Canadian company defining the future of cannabinoids worldwide, today announced its financial and operational results for the third quarter fiscal 2022 ended March 31, 2022 .

Aurora Cannabis Logo (CNW Group/Aurora Cannabis Inc.)

"We continue to steer our differentiated global cannabis business towards long term shareholder value creation. This is being accomplished through a sole focus on the most profitable growth opportunities, rationalization of our Canadian cost structure and disciplined use of capital. Our plan is working and we remain firmly on track to achieving a positive Adjusted EBITDA run rate by the first half of fiscal 2023. Today, we are announcing further cost savings which will enable us to increase our range of savings under our business transformation plan from $60 to $80 million to $150 to $170 million . Our balance sheet also remains among the strongest in the industry, enabling the repurchase of $141.4 million in convertible debt early, while also providing meaningful working capital to support organic growth and pursue strategic M&A, such as our recent acquisition of Thrive Cannabis," stated Miguel Martin , Chief Executive Officer of Aurora.

"During Q3, we continued focusing on our global medical cannabis business because it is both defensive and stable, with cash gross margins that exceed 60%. We were pleased to have experienced considerable top-line growth in this segment year over year, and with new international markets poised to open, our track record and ability to navigate complex regulatory environments position us ideally for a significant revenue opportunity globally.  In terms of the Canadian adult-use market, we continue to adjust to current conditions, are excited for future contributions from the Thrive team, and are committed to a continuous stream of innovation, including advancing our premiumization strategy," he concluded.

Third Quarter 2022 Highlights
(Unless otherwise stated, comparisons are made between fiscal Q3 2022, Q2 2022, and Q3 2021 results and are in Canadian dollars)

Medical Cannabis:

  • Medical cannabis net revenue 1 was $39.4 million , an 8% increase from the prior year period, delivering 78% of Aurora's Q3 2022 consolidated revenue and 92% of adjusted gross profit.
  • The increase in revenue was driven by growth in the international medical business, up 55% year over year as the Company continued to develop new, high margin medical markets, but down 26% sequentially. The sequential revenue decrease was primarily a result of $8.5 million of net sales generated from our Israel supply agreement in the previous quarter. Excluding the impact of Israeli sales, net international medical revenue increased sequentially by $1.8 million and was driven by growth in key markets including Germany , Poland , the UK, and Australia .
  • Adjusted gross margin before fair value adjustments on medical cannabis net revenue 1 was 64% compared to 63% sequentially and 53% in the prior year period. The year over year improvement was a result of an increase in international sales which yield higher margins and an overall reduction in production costs due to the closure of non-core facilities as part of our business transformation plan.

Consumer Cannabis:

  • Consumer cannabis net revenue 1 was $10.3 million compared to the prior quarter net revenue of $14.4 million , with the decline due mainly to industry-wide pricing pressures across our portfolio and exacerbated by retail store closures in key provinces for the Company's premium offerings.
  • Adjusted gross margin before fair value adjustments on consumer cannabis net revenue 1 was 29% versus 23% sequentially and 33% in the prior year period. The increase of 6% from Q2 2022 was driven by the Company's continuing shift toward a premium product portfolio.

Selling, General and Administrative ("SG&A"):

  • SG&A, including Research and Development ("R&D"), was $39.5 million (excluding $2.0 million of restructuring related costs and $0.7 million of prior period employee-related accruals) versus $40.9 million in the prior quarter and $43.0 million in the prior year period, presented on a comparable basis. Q3 2022 SG&A is now at the lowest level in almost four years.

Consolidated:

  • Q3 2022 total cannabis net revenue 1 was $50.4 million , down 17% sequentially. The Q3 2022 average net selling price per gram of dried cannabis 1 , excluding the effect of bulk wholesale sales, increased 20% to $5.41 from $4.52 in Q2 2022.
  • Adjusted gross margin before fair value adjustments on cannabis net revenue 1 was 54% in Q3 2022 versus 53% in the prior quarter and 44% in Q3 2021. The increase in Adjusted gross margin compared to the prior year period is due to increased sales in our international medical markets which command significantly higher average net selling prices and margins.
  • Adjusted EBITDA 1 loss declined to $12.3 million in Q3 2022 versus $9.0 million in Q2 2022 but narrowed from $20.9 million in the prior year period. The change from Q2 2022 was primarily driven by lower revenue that was partially offset by a decrease in SG&A, net of restructuring and one-time costs.

Operational Efficiency Plan, Balance Sheet Strength, & Cash Use:
Aurora has previously identified annualized cash savings of $60 million to $80 million and now expects to surpass the high end of this range with an additional $70 million to $90 million in savings by the end of H1 fiscal 2023, split evenly between costs of goods sold ("COGS") and SG&A, for a total of up to $170 million in cash savings under this transformation program. Projected COGS savings now include the closure of the Aurora Sky facility in Edmonton (previously announced to be operating at approximately 25% capacity), in keeping with our diversified business portfolio, prudent approach to capital allocation, and our strategy in the Canadian adult-use market to focus on higher margin premium categories. These cash savings will be reflected in our P&L either as they occur within SG&A savings, or as inventory is drawn down for production-related savings.

Resulting from these strategic changes, management concluded that the carrying value of goodwill in the Canadian market segment was impaired and that asset specific impairments were required for production facilities being made redundant. As a result of these decisions, Aurora recorded a number of one-time non-cash charges in Q3 2022 including a write down of goodwill of $741.7 million , asset-specific impairments of $176.1 million , and an inventory provision charge of $63.6 million .

At March 31, 2022 , Aurora had $480.6 million of cash, including $50.7 million in restricted cash, no secured term debt, and access to US$887.6 million of capital under its shelf prospectus, including an at-the-market (ATM) facility, of which currently US$187.6 million remains under the program. As disclosed previously, management considers the ATM to be available for strategic purposes.

During Q3 2022, Aurora repurchased a total of $13.4 million ( US$10.6 million ) in principal amount of convertible debt at a total cost, including accrued interest, of $11.8 million ( US$9.3 million ). Subsequent to Q3 2022, Aurora repurchased a total of $128.0 million ( US$100.0 million ) in principal amount of convertible debt at a total cost, including accrued interest, of $122.9 million ( US$96.0 million ). Aurora may, from time to time and subject to market conditions, repurchase its convertible debt, including in open market purchases and privately negotiated transactions.

_______________________________

1 These terms are non-GAAP measures, see "Non-GAAP Measures" below.


Aurora continues to materially improve cash use, as outlined in the following table:

($ thousands)

Q3 2022

Q2 2022

Q3 2021 (2)





Cash, Opening (1)

$383,753

$424,301

$434,386





Cash used in operations, including working capital

-$39,303

-$20,298

-$66,215

Capital expenditures and investments, net of disposals and government grant income

$9,879

-$11,497

-$12,320

Debt and interest payments

-$12,947

-$8,753

-$7,766

Cash use

-$42,371

-$40,548

-$86,301





Proceeds raised from sale of marketable securities and investments in associates

-

-

-

Proceeds raised through debt

-

-

-

Proceeds raised through equity financing

$139,170

-

$172,153

Cash raised

$139,170

-

$172,153





Cash, Ending (1)

$480,552

$383,753

$520,238



(1)

Includes restricted cash of $50.7M at Q3 2022, $51.3M at Q2 2022, and $50.0M at Q3 2021.

(2)

Previously reported amounts have been retroactively recast for the biological assets and inventory non-material prior period error. Refer to the " Significant Accounting Policies and Judgments " section in Note 2(d) of the Financial Statements.

Refer to the "Consolidated Statement of Cash Flows" in the "Consolidated Financial Statements" for our cash flow statements prepared in accordance with IAS 7 – Statement of Cash Flows.

($ thousands, except Operational Results)

Q3 2022

Q3 2021 (1)(2)

$ Change

% Change

Q2 2022

$ Change

% Change

Financial Results








Total net revenue (3)

$50,434

$55,161

($4,727)

(9%)

$60,586

($10,152)

(17%)

Medical cannabis net revenue (3)(4a)

$39,359

$36,378

$2,981

8%

$45,748

($6,389)

(14%)

Consumer cannabis net revenue (3)(4a)

$10,339

$18,023

($7,684)

(43%)

$14,373

($4,034)

(28%)

Adjusted gross margin before FV adjustments on cannabis net revenue (4b)

54%

44%

N/A

10%

53%

N/A

1%

Adjusted gross margin before FV adjustments on medical cannabis net revenue (4b)

64%

53%

N/A

11%

63%

N/A

1%

Adjusted gross margin before FV adjustments on consumer cannabis net revenue (4b)

29%

33%

N/A

(4%)

23%

N/A

6%

SG&A expense

$39,630

$41,684

($2,054)

(5%)

$42,961

($3,331)

(8%)

R&D expense

$2,637

$3,398

($761)

(22%)

$1,625

$1,012

62%

Adjusted EBITDA (4c)

($12,263)

($20,928)

$8,665

41%

($9,040)

($3,223)

(36%)









Balance Sheet








Working capital

$577,566

$646,310

($68,744)

(11%)

$481,574

$95,992

20%

Cannabis inventory and biological assets (5)

$118,729

$102,637

$16,092

16%

$139,625

($20,896)

(15)%

Total assets

$1,570,252

$2,839,155

($1,268,903)

(45%)

$2,485,384

($915,132)

(37)%









Operational Results – Cannabis








Average net selling price of dried cannabis excluding bulk sales (4)

$5.41

$5.00

$0.41

8%

$4.52

$0.89

20%

Kilograms sold (6)

9,722

13,520

(3,798)

(28%)

13,043

(3,321)

(25)%

(1)

Amounts have been retroactively recast for the biological assets and inventory non-material prior period error. Refer to the " Change in Accounting Policies and Estimates" section below for further detail.

(2)

As a result of the Company's dissolution and divestment of its wholly-owned subsidiaries, Hempco and AHE, during the year ended June 30, 2021, the operations of Hempco and AHE have been presented as discontinued operations and the Company's operational results have been retroactively restated, as required. Refer to Note 12(b) of the Financial Statements and Note 12(b) of the annual audited consolidated financial statements for the year ended June 30, 2021 for additional information.

(3)

Includes the impact of actual and expected product returns and price adjustments (Q3 2022 - $0.4 million; Q2 2022 - $3.7 million; Q3 2021 - $3.2 million).

(4)

These terms are defined in the " Cautionary Statement Regarding Certain Non-GAAP Performance Measures " section of this MD&A. Refer to the following sections for reconciliation of non-GAAP measures to the IFRS equivalent measure:


a)

Refer to the " Revenue " section for a reconciliation of cannabis net revenue to the IFRS equivalent.


b)

Refer to the " Cost of Sales and Gross Margin " section for reconciliation to the IFRS equivalent.


c)

Refer to the " Adjusted EBITDA" section for reconciliation to the IFRS equivalent.

(5)

Represents total biological assets and cannabis inventory, exclusive of merchandise, accessories, supplies and consumables.

(6)

The kilograms sold is offset by the grams returned during the period.


Conference Call

Aurora will host a conference call today, Thursday, May 12, 2022 , to discuss these results. Miguel Martin, Chief Executive Officer, and Glen Ibbott , Chief Financial Officer, will host the call starting at 5:00 p.m. Eastern time | 3:00 p.m. Mountain Time . A question and answer session will follow management's presentation.

Conference Call Details

DATE:

Thursday, May 12, 2022

TIME:

5:00 p.m. Eastern Time | 3:00 p.m. Mountain Time

WEBCAST:

Click here


This weblink has also been posted to the Company's "Investor Info" link at https://investor.auroramj.com/ under "News & Events".

About Aurora

Aurora is a global leader in the cannabis industry, serving both the medical and consumer markets. Headquartered in Edmonton, Alberta , Aurora is a pioneer in global cannabis, dedicated to helping people improve their lives. The Company's adult-use brand portfolio includes Aurora Drift, San Rafael '71, Daily Special, and Whistler, as well as CBD brands, Reliva and KG7. Medical cannabis brands include MedReleaf, CanniMed, Aurora, Whistler Medical Marijuana Co, and Pedanios. Driven by science and innovation, and with a focus on high-quality cannabis products, Aurora's brands continue to break through as industry leaders in the medical, performance, wellness and adult recreational markets wherever they are launched. Learn more at www.auroramj.com and follow us on Twitter and LinkedIn.

Aurora's common shares trade on the NASDAQ and TSX under the symbol "ACB" and is a constituent of the S&P/TSX Composite Index.

Forward Looking Statements

This news release includes statements containing certain "forward-looking information" within the meaning of applicable securities law ("forward-looking statements"). Forward-looking statements are frequently characterized by words such as "plan", "continue", "expect", "project", "intend", "believe", "anticipate", "estimate", "may", "will", "potential", "proposed" and other similar words, or statements that certain events or conditions "may" or "will" occur. Forward-looking statements made in this news release include, but are not limited to, statements with respect to:

  • pro forma measures including revenue, cash flow, Adjusted gross margin before fair value adjustments, and expected SG&A run-rates;
  • the Company's ability to execute on its business transformation plan, and path and timing to achieve Adjusted EBITDA profitability;
  • anticipated cost savings and planned cost efficiencies, including the execution of the Company's costs savings plan, including, but not limited to, asset consolidation, operational and supply chain efficiencies, and other reductions in SG&A expenses;
  • competitive advantages and associated revenue opportunities;
  • the Company's ability to fund organic growth and pursue strategic M&A
  • future contributions from the Thrive team;
  • the opening of new international markets and associated revenue opportunities;
  • the repurchase of additional convertible debentures; and
  • the use of proceeds from the ATM facility.

These forward-looking statements are only predictions. Forward looking information or statements contained in this news release have been developed based on assumptions management considers to be reasonable. Material factors or assumptions involved in developing forward-looking statements include, without limitation, publicly available information from governmental sources as well as from market research and industry analysis and on assumptions based on data and knowledge of this industry which the Company believes to be reasonable. Forward-looking statements are subject to a variety of risks, uncertainties and other factors that management believes to be relevant and reasonable in the circumstances could cause actual events, results, level of activity, performance, prospects, opportunities or achievements to differ materially from those projected in the forward-looking statements. These risks include, but are not limited to, the ability to retain key personnel, the ability to continue investing in infrastructure to support growth, the ability to obtain financing on acceptable terms, the continued quality of our products, customer experience and retention, the development of third party government and non-government consumer sales channels, management's estimates of consumer demand in Canada and in jurisdictions where the Company exports, expectations of future results and expenses, the risk of successful integration of acquired business and operations, management's estimation that SG&A will grow only in proportion of revenue growth, the ability to expand and maintain distribution capabilities, the impact of competition, the general impact of financial market conditions, the yield from cannabis growing operations, product demand, changes in prices of required commodities, competition, and the possibility for changes in laws, rules, and regulations in the industry, epidemics, pandemics or other public health crises, including the current outbreak of COVID-19, and other risks, uncertainties and factors set out under the heading "Risk Factors" in the Company's annual information form dated September 27, 2021 (the "AIF") and filed with Canadian securities regulators available on the Company's issuer profile on SEDAR at www.sedar.com and filed with and available on the SEC's website at www.sec.gov . The Company cautions that the list of risks, uncertainties and other factors described in the AIF is not exhaustive and other factors could also adversely affect its results. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such information. The Company is under no obligation, and expressly disclaims any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities law.

Non-GAAP Measures

This news release contains certain financial performance measures that are not recognized or defined under IFRS (termed "Non-GAAP Measures"). As a result, this data may not be comparable to data presented by other licensed producers of cannabis and cannabis companies. For an explanation of these measures to related comparable financial information presented in the consolidated financial statements prepared in accordance with IFRS, refer to the discussion below. The Company believes that these Non-GAAP Measures are useful indicators of operating performance and are specifically used by management to assess the financial and operational performance of the Company. These Non-GAAP Measures include, but are not limited, to the following:

  • Cannabis net revenue represents revenue from the sale of cannabis products, excluding excise taxes. Cannabis net revenue is further broken down as follows:
    • Medical cannabis net revenue represents Canadian and international cannabis net revenue for medical cannabis sales only.
    • Consumer cannabis net revenue represents cannabis net revenue for consumer cannabis sales only.
    • Wholesale bulk cannabis net revenue represents cannabis net revenue for wholesale bulk cannabis only.
    • Ancillary net revenue represents non-cannabis net revenue for ancillary support functions only.
  • Management believes the cannabis net revenue measures provide more specific information about the net revenue purely generated from our core cannabis business and by market type.
  • Average net selling price per gram and gram equivalent is calculated by taking cannabis net revenue and removing the impact of cost of sales net against revenue in agency relationships, which is then divided by total grams and grams equivalent of cannabis sold in the period. Average net selling price per gram and gram equivalent is further broken down as follows:
    • Average net selling price per gram of dried cannabis represents the average net selling price per gram for dried cannabis sales only, excluding wholesale bulk cannabis sold in the period.
    • Average net selling price per gram of international dried cannabis represents the average net selling price per gram for international dried cannabis sales only, excluding wholesale bulk cannabis sold in the period.
    • Average net selling price per gram and gram equivalent of Canadian medical cannabis represents the average net selling price per gram and gram equivalent for dried cannabis and cannabis derivatives sold in the Canadian medical market.
    • Average net selling price per gram and gram equivalent of medical cannabis represents the average net selling price per gram and gram equivalent for dried cannabis and cannabis derivatives sold in the medical market.
    • Average net selling price per gram and gram equivalent of consumer cannabis represents the average net selling price per gram and gram equivalent for dried cannabis and cannabis derivatives sold in the consumer market.
  • Management believes the average net selling price per gram or gram equivalent measures provide more specific information about the pricing trends over time by product and market type. Under an agency relationship, revenue is recognized net of cost of sales in accordance with IFRS. Management believes the removal of agency cost of sales in determining the average net selling price per gram and gram equivalent is more reflective of our average net selling price generated in the marketplace.
  • Gross profit before FV adjustments on cannabis net revenue is calculated by subtracting (i) cost of sales, before the effects of changes in FV of biological assets and inventory, and (ii) cost of sales from non-cannabis ancillary support functions, from total cannabis net revenue. Gross margin before FV adjustments on cannabis net revenue is calculated by dividing gross profit before FV adjustments on cannabis net revenue divided by cannabis net revenue. Management believes that these measures provide useful information to assess the profitability of our cannabis operations as it excludes the effects of non-cash FV adjustments on inventory and biological assets, which are required by IFRS.
  • Adjusted gross profit before FV adjustments on cannabis net revenue represents cash gross profit and gross margin on cannabis net revenue and is calculated by subtracting from total cannabis net revenue (i) cost of sales, before the effects of changes in FV of biological assets and inventory; (ii) cost of sales from non-cannabis ancillary support functions; and removing (iii) depreciation in cost of sales; (iv) cannabis inventory impairment; and (v) out-of-period adjustments. Adjusted gross margin before FV adjustments on cannabis net revenue is calculated by dividing Adjusted gross profit before FV adjustments on cannabis net revenue divided by cannabis net revenue. Adjusted gross profit and gross margin before FV adjustments on cannabis net revenue is further broken down as follows:
    • Adjusted gross profit and gross margin before FV adjustments on medical cannabis net revenue represents gross profit and gross margin before FV adjustments on sales generated in the medical market only.
    • Adjusted gross profit and gross margin before FV adjustments on consumer cannabis net revenue represents gross profit and gross margin before FV adjustments on sales generated in the consumer market only.
    • Adjusted gross profit and gross margin before FV adjustments on wholesale bulk cannabis net revenue represents gross profit and gross margin before FV adjustments on sales generated from wholesale bulk cannabis only.
    • Adjusted gross profit and gross margin before FV adjustments on ancillary net revenue represents gross profit and gross margin before FV adjustments on sales generated from ancillary support functions only.
  • Management believes that these measures provide useful information to assess the profitability of our cannabis operations as it represents the cash gross profit and margin generated from cannabis operations and excludes (i) out-of-period adjustments to provide information that reflects current period results; and (ii) excludes the effects of non-cash FV adjustments on inventory and biological assets, which are required by IFRS.
  • Adjusted EBITDA is calculated as net income (loss) excluding interest income (expense), accretion, income taxes, depreciation, amortization, changes in fair value of inventory sold, changes in fair value of biological assets, share-based compensation, acquisition costs, foreign exchange, share of income (losses) from investment in associates, government grant income, fair value gains and losses on financial instruments, gains and losses on deemed disposal, losses on disposal of assets, restructuring charges, onerous contract provisions, out-of-period adjustments, and non-cash impairments of deposits, property, plant and equipment, equity investments, intangibles, goodwill, and other assets. Adjusted EBITDA is intended to provide a proxy for the Company's operating cash flow and is widely used by industry analysts to compare Aurora to its competitors, and derive expectations of future financial performance for Aurora, and excludes out-of-period adjustments that are not reflective of current operating results. Adjusted EBITDA increases comparability between comparative companies by eliminating variability resulting from differences in capital structures, management decisions related to resource allocation, and the impact of FV adjustments on biological assets and inventory and financial instruments, which may be volatile and fluctuate significantly from period to period.

Non-GAAP measures should be considered together with other data prepared accordance with IFRS to enable investors to evaluate the Company's operating results, underlying performance and prospects in a manner similar to Aurora's management. Accordingly, these non-GAAP measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

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A State-by-State Guide to Cannabis in Australia

Australia federally legalised medicinal cannabis in 2016, and Australia's cannabis market has seen major growth since then.

Medical cannabis approvals were up by 120 percent in the first half of 2023 compared to the same period in 2022. Statista forecasts that Australian cannabis revenue will reach AU$3.73 billion in 2024 and grow at an annual rate of 3.22 percent, culminating in market volume worth AU$4.53 billion by 2029.

However, Australia’s cannabis industry is still young. Despite there being a strong case for a regulated market, which was outlined in a July 2024 report by the Penington Institute, recreational use is not legal and medical access remains limited and regulated.

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New Cannabis Consumption Trends, Regulatory Shifts Seen Driving Market in 2025

Understanding trends in the cannabis industry is paramount for investors eyeing a market with steady growth potential, but the landscape is complex as products and regulations continue to evolve.

Consumption habits are changing as edibles, vaping and THC beverages gain traction, especially among younger users, and cannabis companies are adapting their offerings to meet shifting demand.

Meanwhile, regulatory uncertainty, particularly surrounding the future of the US Farm Bill and state-level restrictions on hemp-derived cannabinoids, continues to challenge the market.

Despite these headwinds, production data and long-term growth forecasts suggest the cannabis industry remains on a promising — albeit turbulent — path. Read on for more on key trends to watch in 2025.

Consumption methods evolving post-legalization

Shifts in consumer behavior are reshaping markets across the board, and the cannabis industry is no exception.

While smoking remains the dominant method of cannabis consumption, a recent report from the Centers for Disease Control and Prevention highlights the growing popularity of edibles, vaping and dabbing.

The report notes that vaping and dabbing are particularly pronounced among younger adults.

A separate study published by the American Medical Association and funded in part by the Canadian Institutes of Health Research also points to how product preferences have changed among Canadian users since legalization in 2018.


The study indicates that while the use of flower, cannabis concentrates, oil, tinctures and topicals has decreased during that time, the use of vape cartridges, edibles and beverages has increased.

Edibles and beverages were legalized in Canada in late 2019, and Truss Beverage was one of the first players to introduce cannabis-infused drinks. Truss was a joint venture formed by Molson Coors Canada (TSX:TPX.A,TSX:TPX.B) and HEXO, a cannabis company that has since been acquired by Tilray Brands (TSX:TLRY,NASDAQ:TLRY).

In early 2020, Tilray launched a lineup of confectionery, wellness products and beverages through its subsidiary, High Park; Canopy Growth (TSX:WEED,NASDAQ:CGC) made a similar move. These companies gradually brought their products to the US as more states legalized cannabis for medical and/or recreational use.

Today, established cannabis brands typically offer edibles and beverages alongside their other products. Organigram Global (TSX:OGI,NASDAQ:OGI) is one of the newest US entrants, with its April acquisition of Collective Project providing immediate access to the US hemp-derived THC beverage market.

Growing awareness of health and wellness, potentially amplified by the pandemic-led adoption of health trackers, appears to be making an impact on the alcoholic beverage market.

A 2023 Gallup poll reveals a two decade decline in alcohol consumption, particularly among younger adults, suggesting a shift towards more health-conscious lifestyles within this demographic.

Craft beer production declined by 4 percent year-on-year in 2024, according to data collected by the Brewers Association. This marked the largest drop in the industry's history, excluding the pandemic. For small, independent craft breweries, 2024 marked the third consecutive year of declining production. A drop in the number of operating small breweries last year provides further evidence of this trend, with 501 closures in 2024 versus 434 openings.

Challenges in the alcohol market extend beyond the brewing industry, with the New York Times recently reporting the closure of a handful of nightclubs facing decreased alcohol sales alongside rising insurance and rent costs.

Meanwhile, cannabis lounges have been popping up across the US for the last several years. As of early 2025, several states had legalized or were in the process of implementing regulations for cannabis consumption lounges.

Hemp market growth despite regulatory uncertainty

The burgeoning hemp industry is another segment of the expanding cannabis market.

The legalization of industrial hemp — defined as cannabis with a THC concentration of 0.3 percent or less — through the 2018 Farm Bill led to initial investment and optimistic projections for CBD wellness products and various industrial applications. The sector’s rapid evolution also brought the rise of hemp-derived intoxicating cannabinoids, creating a market that presented both opportunities and complexities for participants.

However, after an initial boom, a lack of infrastructure and clearly defined regulations for CBD, as well as state-level variations and market oversupply, ultimately contributed to a quick retraction.

2024 was a pivotal year for the US hemp industry, as the hemp-related provisions of the 2018 Farm Bill — originally set to expire in September 2023, but extended to December 31, 2024 — created an urgent need to address critical issues like THC limits and the regulation of novel hemp-derived cannabinoids. A major point of contention was the proposed shift from defining hemp based on Delta-9 THC concentration (0.3 percent or less) to “total THC,” which includes THCA.

This change had the potential to significantly impact farmers and processors, as many hemp varieties that are compliant under the Delta-9 THC rule could exceed the 0.3 percent limit when THCA is included.

Various bills and amendments were proposed in 2024 as part of the Farm Bill discussions, each with different approaches to regulating hemp. Separate regulatory frameworks for industrial hemp and hemp grown for cannabinoids were suggested, and many states took their own action, leading to a patchwork of regulations and even outright bans.

Despite challenges, data from the US Department of Agriculture suggests signs of recovery.

The department's annual National Hemp Report from 2024 points to an 18 percent increase in industrial hemp production value between 2022 and 2023, with output growth seen in specific sectors like floral (18 percent), fiber (133 percent) and seed hemp (414 percent). The 2025 report from the Department of Agriculture indicates further expansion, with notable increases observed in both acreage (up 64 percent from 2023) and value (46 percent).

The 2024 Farm Bill ultimately did not pass, and right now the hemp industry is operating under a temporary extension of the 2018 Farm Bill under the American Relief Act of 2025, signed into law on December 21, 2024.

The 2018 Farm Bill is now set to expire on September 30, 2025.

While analysts for Markets and Markets project that the North American hemp industry will grow at a CAGR of 22.4 percent and ultimately reach a valuation of US$30.24 billion by 2029, the future of the industry will be heavily influenced by the outcome of the ongoing Farm Bill discussions.

US cannabis legalization remains stalled

Although there is clear demand for cannabis products, the now-defunct rescheduling process in the US is likely to continue casting a shadow of uncertainty over the industry's long-term trajectory.

Legal and procedural delays, including allegations of improper conduct and bias within the US Drug Enforcement Administration (DEA), led to hearing cancellations, and the new administration of US President Donald Trump has brought leadership changes to key agencies like the DEA and the Department of Justice.

Terry Cole, who Trump nominated to be DEA administrator on February 11, has a history of opposing cannabis legalization in the country. Similarly, Pam Bondi, Trump’s pick to lead the justice department, staunchly opposed a movement to legalize medical cannabis during her tenure as Florida’s attorney general.

While there have been bipartisan efforts in Congress to end federal cannabis prohibition and establish regulations for eventual legalization, the DEA’s actions and statements indicate a potential stall or reversal of progress.

In addition to that, new research is adding complexity to the debate.

A study published in the American Journal of Psychiatry this past March highlights an association between the use of high-potency cannabis strains and increased risks of psychosis, a factor that may not have been fully considered by the Department of Health and Human Services. As stronger cannabis strains become more widely available, a reassessment of their potential health risks may be required.

Investor takeaway

While the cannabis industry holds promise for growth and innovation, investors must remain acutely aware of the regulatory uncertainties and market volatility that will undoubtedly shape its trajectory in the years to come.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.

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Cronos Group Inc. to Hold 2024 Fourth Quarter and Full-Year Earnings Conference Call on February 27, 2025

Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) ("Cronos" or the "Company") will hold its 2024 fourth-quarter and full-year earnings conference call on Thursday, February 27, 2025 at 8:30 a.m. ET. Cronos' senior management team will discuss the Company's financial results and will be available for questions from the investment community after prepared remarks.

To attend the conference call or webcast, participants should register online at https://ir.thecronosgroup.com/events-presentations . To avoid delays, we encourage participants to dial into the conference call fifteen minutes ahead of the scheduled start time. The webcast of the call will be archived for replay on the Company's website.

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