What happened
Shares of Cronos Group (CRON 3.62%) were sinking 13.7% lower as of 3:10 p.m. EST on Tuesday. There were two factors contributing to this decline.
First, Cronos announced that it filed for a 15-day extension with the U.S. Securities and Exchange Commission (SEC) for submitting its annual report for 2019. Cronos revealed last week that it was delaying its 2019 fourth-quarter and full-year update, which was originally scheduled for Feb. 27.
Second, fellow Canadian cannabis producer Tilray (TLRY) announced disappointing fourth-quarter results after the market closed on Monday. Investors likely concluded that Cronos will probably provide disappointing news of its own whenever it ultimately delivers its Q4 update.
Image source: Getty Images.
So what
Cronos Group said its delay in announcing Q4 results is due to "a continuing review by the Audit Committee of the Company's Board of Directors, with the assistance of outside counsel and forensic accountants, of several bulk resin purchases and sales of products through the wholesale channel and the appropriateness of the recognition of revenue from those transactions." It's not known yet if this review will require Cronos to restate results for previous quarters.
Any delay in filing its annual report to the SEC and providing an update to investors is embarrassing for Cronos. But unless there are some major issues found in the review, the postponement should only be a temporary problem for the company.
Some of the headwinds Tilray faced in the fourth quarter could show up when Cronos provides its Q4 update. In particular, the inadequate number of retail cannabis stores in Ontario hurts both companies. However, Tilray's business model is significantly different from Cronos Group's due to Tilray's acquisition of Manitoba Harvest. In addition, unlike Tilray, Cronos has a major partner with deep pockets in Altria.
Now what
There's no guarantee that Cronos Group will actually file its annual report to the SEC and provide a Q4 update within the next 15 days. At this point, it remains uncertain exactly when the company will complete its accounting review.
In the meantime, Cronos stock is likely to be highly volatile. The coronavirus outbreak has weighed on the overall market, pulling down marijuana stocks along the way. Although there could be good news on the horizon with Ontario issuing new licenses for retail cannabis stores and the Cannabis 2.0 market picking up steam, it could be a few quarters before Cronos benefits from these trends.
