Cronos Group, Inc.
Cronos Group, Inc. (CRON) is a cannabis investment company that invests in cannabis producers either with, or actively seeking, a production license. They have medical cannabis brands: Peace Naturals (Ontario) and OGBC (British Columbia). Both are licensed producers. Cronos is geographically diversified and vertically-integrated, with a presence on five continents. Its main activities are currently in Canada, Israel, Colombia, and Germany.
Is CRON a strong BUY and HOLD?
Cronos Group Fundamental Analysis
Company Profile
HQ: Toronto, ON, Canada
Founded: 2012
Facilities: Ontario, BC, Israel, Australia, Germany
Symbol: CRON (Nasdaq), CRON (TSX)
Focus: Strong
Cronos is a cannabis investment company that invests in cannabis producers either with, or actively seeking, a production license. These are in federally legal markets, and are typically Canadian companies. They have a few cannabis brands: Peace Naturals (Ontario), COVE, Spinach, PEACE, Lord Jones. Cronos is geographically diversified and vertically-integrated, with a presence on five continents.
They have four joint ventures, including in Israel and Australia, and holds minority interests in cannabis-related companies and Licensed Producers. Its strategy has four elements:
– building an efficient global operation
– diversifying revenue
– developing IP that ensures enduring margins
– growing a portfolio of brands with customer loyalty
Size: Strong
Market Cap: US $2.52 bil
Enterprise Value: US $1.23 bil
# of employees: 297
Markets: Strong
Secondary: Colombia, Israel, Germany, Australia
Majority Subsidiaries: Zeus Cannabinoids, LLC; Cronos Growing Company Inc.; Cronos Australia, OriginalBC Ltd.
Operations: Neutral
Cultivation:
Current production: 40,000 kgs/year on 70,000 sf of grow space
Future capacity: 117,000 kgs/year on 420,000 sf of grow space
Cronos’ reported cannabis shipped was 6,927 pounds in Q3 2020, which was double their Q2 2020 numbers. They are shifting somewhat from growers to extractors and this is being reflected in their repurposing of cultivation space on the Peace Naturals Campus to production and manufacturing space for concentrates.
Distribution:
Direct sales: Yes
Store networks: Cronos sells medical dried cannabis and oils through wholesale and direct-to-consumer channels under its medical cannabis brand, Peace Naturals.
Management Agreements/Joint Ventures:
Cronos Israel (90% ownership)
Cronos Growing CO (50%, Canada)
NatuEra S.a.r.l. (50%, Colombia)
Cronos Australia (31%)
Medmen Canada (50%, Canada)
Integration/Diversification:
Vertically integrated: Yes
Horizontally diversified: No
Financials: Neutral
Third Quarter 2020 Revenue: $11.358 mil
Previous Quarter 2019 Revenue: $5.785 mil
Outstanding shares (diluted): 356 mil
Cash: $1.097 bil
EPS: $0.29
Management: Neutral
Executive Chairman: Mike Gorenstein
CEO: Kurt Schmidt
CFO: Jerry Barbato
Head of Marketing: Eric Klein
Branding: Strong
Brands include Peace Naturals, Cove, Spinach, and Lord Jones, their CBD line. Peace Naturals is the health and wellness line, Cove the premium line, spinach is the mainstream line and lord jones concentrates on consumer goods for adults.
Valuation: Neutral
Current share price: US $7.22
Price to Sales: 71.64 (Tobacco industry = 5)
52 week low/high: US $4.00- $9.00
EV/Revenue: 33.33
Price/book: 1.43
Financing: Strong
The $2.4 billion invested by Altria has Cronos sitting pretty with $1.1 billion in cash. This amount dwarves all other cannabis companies who are struggling to raise enough cash to stay afloat.
Risks: Neutral
The risks of investing in any cannabis or hemp company are currently medium given the newness of the market. Given the recent revenue growth and losses, these risks are still medium.
Cronos Group Technical Analysis
Should I buy Cronos Group Cannabis Stock?
Follow Stephen Goldman as he evaluates Cronos Group Cannabis Stock (CRON) using different moving averages to see recent golden crosses as well as the CCI and RSI to see why Cronos popped like it did.
Remember sound cannabis stock trading strategies include both Fundamental Analysis and Technical Analysis.
Bottom Line: Is Cronos Group Cannabis Stock a Buy?
Recommendation: Strong
In February 2018, Cronos Group, Inc. became the first licensed producer to list on a major stock exchange in the United States. They also are known as one of the biggest cannabis companies on the planet and have the backing of one of the largest tobacco companies on the planet currently (fiscally and at the board level).
Cronos Group has a much smaller capacity expansion plan than quite a few other players, despite over a billion dollars in market capitalization. In addition, its indoor facilities will result in somewhat high operating costs, in the face of dropping prices. This does not present a highly attractive picture of the business going forward but they’ve never wanted to grow the most cannabis. They are invested in other areas.
First, the good news, and cash is king. Due to their investment from Altria, they have a whopping $1.8 billion on hand. This amount is enough for them to continue to correct their expenses and revenue, which is still negative (they lost $40 million Q3 on $11.4 mil revenue).
They have had some financial reporting woes recently which has hurt investor trust. They have reported earnings above expectations though, which has driven the price up around 30% in the last week.
The price to sales ratio is 71, way too high to touch given the revenue in Q3 this year. The enterprise value to revenue is also very high, at 33. Both of these numbers will need to come down to below 10 for us to feel comfortable long term.
Given how trendy this stock is, we expect short term gains with a new Biden campaign in power in 2021. During that time, the companies management should continue to make the books look healthier and to hopefully become profitable. If they do this, the long term outlook is much rosier.
If you are looking for more productive companies, check out our Featured Companies Page for many other winners in the cannabis and hemp industry.
