Good morning. My name is Stephanie, and I will be your conference operator today. I would like to welcome everyone to Cronos' 2026 third quarter conference call. Today's call is being recorded. At this time, I would like to turn the call over to Harrison Aaron, Senior Director, Investor Relations and Corporate Development. Please go ahead.
Thank you, Stephanie, and thank you for joining us today to review Cronos' 2026 Q3 financial and business performance. Today, I am joined by our Chairman, President, and CEO, Mike Gorenstein, and our CFO, Anna Shlimak. Cronos issued a news release announcing our financial results this morning, which is filed on our EDGAR and SEDAR profiles. This information and the prepared remarks will also be posted on our website under Investor Relations. Before I turn the call over to Mike, let me remind you that we may make forward-looking statements and refer to non-GAAP financial measures during this call. These forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements.
Factors that could cause actual results to differ materially from expectations are detailed in our earnings materials and our SEC filings that are available on our website, by which any forward-looking statements made during this call are qualified in their entirety. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in the earnings materials that are available on our website. Lastly, we will be making statements regarding market share information throughout this conference call, and unless otherwise stated, all market share data is provided by HiFyre. We will now make prepared remarks, and then we'll move to a question-and-answer session. With that, I'll pass it over to Cronos' Chairman, President, and CEO, Mike Gorenstein.
Thanks, Harrison. Cronos delivered an outstanding third quarter, organically achieving records across net revenue, gross profit, and Adjusted EBITDA, reflecting the successful execution of our borderless product strategy across each region in which we operate. Starting with Israel, Cronos delivered its 11th consecutive quarter of record net revenue, growing 33% year-over-year, or 19% growth on a constant currency basis, with PEACE NATURALS brand reinforcing its leadership position based on pharmacy data collected by Cronos. Our value brand, LIT, also drove growth in the quarter. Turning to Canada, we delivered record net revenue, with our brands generating 41% year-over-year retail sales growth relative to industry-wide sales growth of 1%. The Spinach brand posted another standout quarter, with its market-leading share gains underscoring the effectiveness of our innovation engine. In Canada, Spinach maintained its number one position in vapes for the third consecutive quarter, with total vape market share expanding to 11.4%.
Within the vape cartridge subcategory, Spinach held its number one position for the fourth consecutive quarter, with market share expanding to 12.1%. In the all-in-one vape subcategory, Spinach share expanded to 10.2%, as our PUFFERZ all-in-one innovation continues to gain market traction. In the third quarter, we continued to leverage our proven flavor development process, introducing two new flavor profiles to the Spinach vape cartridge lineup: the Strawberry Banana 1.2 g vape and the Sweet Citrus Punch 1 g liquid diamonds vape. We followed this up in October with a reintroduction of the seasonal limited edition Sweet Green Apple 1 g vape. In edibles, SOURZ remained Canada's number one brand for the ninth consecutive quarter, with market share rising to 21.8% and share within gummies expanding to 23.6%.
In Q3, SOURZ by Spinach Fully Blasted offerings were four of the top seven edible SKUs in Canada, including the number one edible nationwide, the Fully Blasted Blue Raspberry Watermelon 10-pack. In September, we expanded the SOURZ by Spinach product lineup with the launch of the Fully Blasted Blue Raspberry Lemonade gummies, the brand's first gummies infused with 100% live resin. In October, we introduced the Caramel Green Apple flavor to our Fully Blasted SOURZ portfolio for the first time, with a limited edition offering available this fall. In flower, Spinach ranked number three in Canada, with market share expanding to 6.1% and with two Spinach SKUs among the top seven selling flower products nationwide. Strong product demand continues to drive tight flower supply, even with the additional capacity from our late 2025 GrowCo expansion.
In pre-rolls, Spinach continued to climb the ranks to number five in Canada, with market share rising to 3.3%. Within infused pre-rolls, Spinach ranked sixth, with market share increasing to 3.8%. In traditional pre-rolls, Spinach also ranked sixth, with market share increasing to 3%. Turning to our other international markets outside Israel, we delivered record net revenue, which increased by 7x year-over-year, or from $1.9 million- $13.2 million, led by continued robust demand in Germany. Our expanding international footprint continues to be a meaningful growth driver as we execute our borderless product strategy. In October, we completed our acquisition of CanAdelaar, the largest adult-use cannabis company in Europe, and I'm excited about what this means for Cronos. The Netherlands is a unique market, and it's different from the adult-use markets we've seen legalized in North America.
The retail cannabis framework has existed for nearly 50 years under a policy where coffee shops were tolerated by the government to sell cannabis in a restricted manner, and from the perspective of the consumer, has effectively operated like a legal market that entire time. There's no excise tax policy that disadvantages the legal market. The experiment gives retailers more product formats and the ability to carry more inventory than those in the tolerated market. The experiment prohibits wholesale transactions between growers, and solvent-based extraction is not allowed. Retailers within the experiment also compete with stores in the legacy tolerated market in neighboring municipalities, which have fewer available product formats. All of this mitigates some of the volatility we see in other new adult-use markets.
That said, like every new adult-use market, we still expect price compression now that suppliers have had a chance to ramp up and meet demand. But with a base purchase price of less than 3x trailing Adjusted EBITDA, we didn't make this acquisition with the expectation of short-term price stability or immediate growth. Despite the 50-year-old coffee shop network, this market is still quite immature. Until the experiment, the supply side had never been tolerated like the retail side, so it hasn't had the benefit of years of sustained investment in R&D and operational efficiencies. The experiment opens the door to new formats such as vapes and gummies. That is where we think we can add value, by implementing efficiencies from our production experience across Cronos and investing to bring our borderless products to the market.
We think that over time, these investments will compound as they have in the other markets in which we operate. We believe that upside is amplified by the potential expansion of the experiment in the future. This fits our strategy: build a portfolio of borderless products and take them into new markets as regulations open. In conclusion, we see three ways this acquisition could deliver asymmetric value over the long term. One, introducing our borderless products and improving operational efficiency. Two, benefiting from the potential expansion of the experiment, which currently covers less than 10% of the population. And three, leveraging the Netherlands as a platform to establish our branded products across Europe. We're very excited about the long-term potential here, and we're just getting started. Now, I'll turn it over to Anna to walk you through our third quarter financials.
Thanks, Mike, and good morning, everyone. In the third quarter of 2026, Cronos reported consolidated net revenue of $63.5 million, a 75% increase year-over-year. The net revenue increase was primarily driven by higher cannabis flower sales in Israel, Canada, and other countries, specifically Germany, and higher cannabis extract sales in the Canadian market. We note that historically, there can be seasonal softness in the Canadian provincial board purchasing in Q4 versus Q3, and that sales internationally outside of Israel can be lumpy from quarter to quarter due to the timing of export permits and shipments. Gross profit in the third quarter was $32.3 million, representing a 76% growth year-over-year from Q3 2025. The year-over-year increase was primarily due to higher average sales prices, largely driven by a mix shift to Israel and other countries, which carry no excise taxes, and higher sales volume.
Higher sales volumes led to both higher net revenue and efficiencies from overhead cost absorption. As we noted last quarter, gross margins may vary from quarter to quarter due to factors including seasonality, product and geographic mix, production volumes, and potential price compression. Accordingly, we believe our gross margin performance over a trailing 12-month period provides more useful context than any single quarter. Total operating expenses were $23.3 million in the quarter, a year-over-year increase of $4.4 million, driven by increases in G&A and sales and marketing expenses. The 23% year-over-year increase in operating expenses compares to 75% net revenue growth year-over-year, with total OPEX as a percentage of net revenue declining from 52% in Q3 2025 to 37% in Q3 2026.
Adjusted EBITDA in the third quarter was a record $17.1 million, an improvement of $11.4 million year-over-year, driven by higher gross profit, partially offset by high operating expenses. Turning to the balance sheet and cash flow statement, the company ended the quarter with $841 million in cash equivalents, restricted cash, short-term investments, and non-current interest-bearing deposits, up $14 million from Q2 2026, driven by $34 million of cash flow from operations, which benefited from $12 million in working capital inflow, partially offset by $10 million of CapEx spend, $9 million of share repurchases, and $1 million negative foreign exchange impact. In addition to this $841 million, we hold $18 million of loans receivable and $5 million of other investments.
In summary, we delivered records across net revenue, gross profit, and Adjusted EBITDA in Q3, as we continue to experience strong business momentum driven by focused strategy and our team's dedication and execution. With that, we will now open the call for questions.
Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question is from Kenric Tyghe of Canaccord Genuity Capital Markets. Your line is now open.
Thank you. Good morning, and congrats on a great quarter. Mike, if I could, just with respect to the performance in Germany, help us reconcile that given some of your peers' recent commentary. How much of that do you think is just reflective of strong demand pull for Cronos product versus some of the export timing, export permit timing lumpiness that Anna called out?
Thanks. I think it's a great question, and I think there's been a lot of discussion about price compression. I think that while there is a real amount of price compression, we still see it as being something that's accretive overall margin-wise to our business. I think that generally, we just haven't had the availability of supplies as gone through this allocation exercise. There's certainly some lumpiness, but a lot of that is just we've had more supply available to send over as we've ramped up. So, we still see growth ahead in Germany, but I would still look at us smoothing it out over a 12-month period.
Right. Thank you for that. Then just further to that, a follow-up. You've commented in your prepared remarks on tight supply despite the capacity expansion. Is any of what you're seeing out there and the success that you're enjoying in markets, the likes of Germany, informing a rethink around that next phase of growth at GrowCo or potential pull forward? Or are you going to let the dust settle here before revisiting the timing of any further expansion?
Look, I think it's a great question. The most important thing for us is just making sure that when we look at expansion, that we're not focused on just bringing something online to meet a demand shortfall in a few months, but that we're building something that's going to be durable and efficient for years to come. So, we take a really long-term view. We want to make sure that we cross every T, dot every I. But we are certainly looking at what can help drive future growth.
Thank you. Maybe just a quick final one. Anna, how comfortable are you with, if you were to bracket the margin profile in quarter, what risks do you see around the current margin profile as you look to the fourth quarter? I think you called out some of that potential Canadian board level weakness, but more specifically when we look to 2027, given the movement in margins through the year, where are you comfortable or how comfortable are you with where we are?
Sure. I think that that trailing 12-month period provides kind of the best useful context for our margin, and you've seen that fluctuation throughout the year, so I think that's kind of where we're going to stick to. I would say, moving forward, that's kind of where we think we'll be.
Okay. I'll leave it there. Thanks so much. I'll get back in queue, and congrats again.
Thank you. Our next question comes from Ryan Neal of TD Cowen. Your line is now open.
Hey, everyone. This is Ryan on for Derek, and thanks for taking my questions. Obviously, in Canada, we've seen a dynamic where derivative categories have taken significant share from flower over the years. I'm just wondering if you guys expect to see a similar dynamic in the Dutch market.
Thanks. Yeah. I think that is reasonable to expect, and I think that is something that, when regulations permit, I would expect to see in just about any market over time. While the market there, as I said earlier, has been around for 50 years from a consumer perspective, the experiment is really the first opportunity to have legal sales that you have the vapes and edibles. There have been pre-rolls. The main difference that we have seen in the Netherlands is just the prevalence of hash. Hash is pretty popular there compared to North America. But it is a big part of our thesis is being able to bring those borderless products over, build real loyalty in some of those repeatable, defined products, and we think that trend will match North America.
Great. Then maybe just one on the macro. Any update there would be great, just in terms of if people are trading to more value products, et cetera.
No, I think macro, we have definitely seen in Germany, I think is where a lot of people are focused on right now, but I think that has more to do with the market maturing. Any new market, you can expect to see price compression. You can expect as supply ramps up, you start to approach an equilibrium. But we have seen relative stability overall in other markets. I think that it is just important, as long as we are offering a strong value proposition, I think that you will still have people seeing the value in kind of the mainstream category. But we have not really seen any major shifts outside of differences in product formats or what you would expect typical in a seasonal shopping to reflect.
Great. Thanks, everyone, and congrats on the quarter.
Thank you. Our next question is from Pablo Zuanic of Zuanic & Associates. Your line is now open.
Thank you, and good morning, everyone. Look, two questions on the Netherlands. First, when you talk about the expectation for the pilot to be expanded, are you talking within the current four years or after the pilot is completed in those four years? Related to that, we've seen compression in the, I mean, a decline in the number of coffee shops. I think we're at 70 or 71 right now. What's driving that? How quickly can the towns issue those licenses to other people? Is there room for the towns to add more coffee shops beyond the initial licenses? Thank you.
Thanks. Yeah, I was referring to the end of the period. I think that there is a lot of interest from other municipalities to come in the experiment. I think there has been talk of expanding prior to that date, but I think just given the legislative process, it feels like it's difficult. While we'd obviously welcome it's certainly not something we would rely on. Your second question as far as the number of coffee shops, I think that's more specific to regulations and kind of what's happening with any of the individual coffee shops. There are some that are scheduled to come back online, so I think we would build that out with a few extras than where we started. Nothing really happens that fast as far as what we have to do with the permitting, going through the different approval processes.
It's not business-related. It's really more regulatory and specific to the coffee shop. I think that you can see some more added, and it's really up to the municipalities whether or not more are added. Some of these have had queues of like 15 years, I think, one of the newer ones, it took to actually be able to open up. There's a lot of interest in people doing it, but I think that generally you're seeing a pretty long road for these new stores to open.
Right. Thank you. Just another question on the Netherlands. In terms of your capacity's greenhouse, you have the largest capacity. You operate more in the, I do not know if you call it value or mainstream segment. We are seeing more capacity from the other players, but those are more, I guess, higher-priced products, indoor. Maybe they do not have the same cost flexibility that you have. When we talk about price compression, in theory, that would benefit you because it would squeeze the profits of the others, whereas you are very well positioned in terms of what you have. Correct me if I am wrong in terms of all that description. The second part of the question, in terms of expanding the portfolio of products, how quickly can you do that, especially on the extract side that you have talked about? Thanks.
Thank you. I think that is a very fair characterization. Obviously, given the choice, we would be happy with where pricing is. One of the reasons that we like the asset is because we do feel we have a differentiated supply base, and I think that is really important. We are not anywhere close to full utilization, so we are able to ramp up. We also think there is going to be cost improvements from different efficiencies that we can put in, especially in genetics. I think that is certainly something we feel gives us kind of a long-term upside here.
As far as what we can do on the derivative products, one thing that is interesting about this market is because there is no B2B sales between the different companies like you have in most of the other markets we look at, I think that the efficiency of the grow matters that much more because you are essentially using your own product as inputs. I think that is something that we look at, and it is really for how quick we bring products to market. I think that we already have a lot of the development work done and the experience in making them. It is just doing so in a way that we can look at the calendar and make sure that we are giving them the proper attention that they need at retail, to have the right messaging. We do not want to overcrowd or kind of flood just launching everything at once.
We will have a pretty steady calendar. I think we can bring products to market relatively quickly. Still, we want to pace it so that we are able to kind of make sure that the selling is done properly and make sure that the team is manufacturing everything up to our standards, and again, taking a very long-term view on how we get the product out.
Thank you. One last one regarding Germany. I know we've talked about before about investing in a route to market downstream in Germany. I believe you rely mostly on local distributors there and importers. I know it's hypothetical, but assuming that the OGI Aurora transaction goes through, in my opinion, there's going to be a lot of overlap on their route to market in Europe, and maybe people and assets could come up and could be available, and that would be an opportunity for you to build your RTM or strengthen your RTM organically in Germany. Am I thinking of that right, and is that an opportunity?
Yeah. Look, I think you're thinking about it right. We're always opportunistic. I think that for now, what we've been focusing on is making sure that we're able to have the right supply and make sure that we have enough supply to meet demand. We feel that today we've had pretty good traction and been able to get to market. But I haven't felt that there's a squeeze or some sort of urgency where we're going to miss out on distribution assets if we didn't make an immediate move. But I think that, yeah, there will be more and more opportunities to do that. So, we're being patient and disciplined. But I think as long as we keep focusing on having the best available supply, we'll be in good shape for Germany.
Thank you.
Thank you. This concludes the question and answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.