Cronos Group (CRON 0.41%) released its fourth-quarter results on Feb. 26 for the period ending Dec. 31, 2020. The cannabis producer had some mixed results; it generated sales growth, but losses continued to mount. And down 21% over the past month, investors have been bearish on the stock -- it has performed worse than the Horizons Marijuana Life Sciences ETF, which has fallen by 14% during that time.

But before you decide whether to buy the pot stock on the dip, it's important to take a closer look at the earnings report to see just how well the business is doing. Here are the five of the most surprising numbers from Cronos' recent results. 

Man dressed in plaid shirt, overalls, and hat walks through a field of cannabis plants with the sun shining in the background.

Image source: Getty Images

1. 193% sales growth in its rest of world segment but only 30% growth in the U.S.

Cronos is a Canadian-based company, but its focus is clearly on the U.S. market. That's no more evident than in its segmented reporting, where it puts the Canadian market in the "rest of world" category -- even though it currently makes up the bulk of its sales. In Q4, the company's sales of $17 million more than doubled from the prior-year period, when Cronos reported $7.3 million in revenue. Of that tally, $13.5 million came from its rest of world segment, which grew at a rate of 193%. And while that was a terrific growth percentage, its U.S. sales of $3.5 million only increased by 30%.

The company made a big splash in the market in August 2019 when it acquired U.S.-based Redwood Holding Group, which owned the Lord Jones brand and its popular hemp-based cannabidiol (CBD) products. But thus far, Cronos' U.S. sales numbers have been underwhelming. While 30% growth is good, it pales in comparison to the other markets, and with a smaller revenue figure, I would have expected a higher growth rate than from the rest of world segment. However, as the company invests more into its operations, there is hope that all of its segments will get stronger.

2. $11 million in capital expenditures

In Q4, there was a noticeable uptick in capital spending from a year ago. Cronos invested $11 million in a variety of initiatives, including a new enterprise resource planning (ERP) system, an Israeli facility, and a Peace Naturals campus. The company is also investing in its fermentation process. In July 2019, it announced plans to acquire an 84,000 square foot "start-of-the-art" fermentation and manufacturing facility where it plans to produce cannabinoids at a large scale (two fermentation production areas at the time had combined capacities of 102,000 liters). Earlier this year, Cronos announced plans to release lab-grown products, which could drastically bring down its costs.

A year ago, Cronos spent just $757,000 on capital expenditures. Investing in the business is generally a good sign, especially if it involves expanding operations and making them more efficient. Given the company's ambitions to bring lab-grown products to market and scale production, it is possible that Cronos' capital expenditures may only get bigger in the quarters ahead. But with $1.1 billion in cash and cash equivalents, it's in a solid position to fund those initiatives.

3. $15 million in writedowns

Another area that has been consistent for Cronos is the company's writedowns. In Q4, it incurred inventory writedowns totaling $15 million -- nearly as much as its sales for the period. Cronos blamed the expense on "product price compression in the Canadian market." Cannabis companies in Canada have been coming out with value brands to compete with the black market, and that's likely at least part of the reason why Cronos struggled to sell some of its products and had to adjust its inventory and the price it expects to sell it at.

And while $15 million is not a huge figure given how much cash the company has on its books, the bigger issue is that this remains an ongoing problem for Cronos. In 2020, it wrote down $26.1 million in inventory, and in the previous year, that figure was $29.2 million. It's a positive that the writedowns are coming down, but they shouldn't be happening on such an ongoing basis to begin with. Those added expenses aren't going to make it any easier for the company to stay out of the red.

4. $53 million adjusted EBITDA loss

Cronos posted an adjusted EBITDA loss of $53.1 million in Q4, which is worse than the $51.7 million loss it posted in the same quarter last year. Generally, as companies make more in sales, investors would expect to see their bottom lines improve. But the opposite is happening with Cronos. Investors may be willing to forgive this for the time being, especially if lab-grown products are on the way, which will bring down its costs. However, as many cannabis producers are targeting adjusted EBITDA profitability, if Cronos can't make significant improvements on its bottom line this year, it could be hard for investors to justify investing in the stock over its peers.

5. 550 Ulta Beauty locations will sell its Happy Dance products

One reason for investors to be optimistic in the near term is that Cronos' new brand of hemp-based CBD products, Happy Dance, is already making headway with one large retailer -- Ulta Beauty. In October 2020, Cronos announced the launch of the CBD skincare brand Happy Dance, partnering with actress Kristen Bell.

Cronos expects to have products in more than 550 Ulta Beauty locations in the U.S. in the weeks ahead, which is close to half of the 1,260 stores the beauty retailer has in the country. It's a great vote of confidence from the retailer and it will be a big test for Cronos' newest brand of products.

Is Cronos stock a buy?

Cronos is an intriguing buy, and for me, a lot hinges on whether it will deliver on lab-grown products. If it does, the products could drastically change the outlook for the company by bringing down its costs. But until that happens and without knowing how popular those products will be with consumers, Cronos is still a risky buy, as its sales numbers are nowhere near where other industry leaders are at today (Aphria has generated approximately $475 million in revenue over the trailing 12 months). And that's why, for now, this is a stock to leave on the watch list.