Cronos 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. But is Cronos Group a good stock to buy?
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Cronos Group Company 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.
Cronos has 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
Company Size: Strong
- Market Cap: US $2.77 bil
- Enterprise Value: US $1.54 bil
- # of employees: 297
Cronos Group Markets: Strong
- Primary: Canada, USA
- Secondary: Colombia, Israel, Germany, Australia
- Majority Subsidiaries: Zeus Cannabinoids, LLC; Cronos Growing Company Inc.; Cronos Australia, OriginalBC Ltd.
Cronos Group 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
Company Financing: Strong
The $2.4 billion invested by Altria has Cronos sitting pretty with $1.24 billion in cash. This amount dwarves all other cannabis companies who are struggling to raise enough cash to stay afloat.
Risks of Buying Cronos Group Stock: 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.
Bottom Line: Is Cronos Group a Good Stock to Buy?
In February 2018, Cronos Group 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 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 $1.3 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 hurt investor trust. They have reported earnings above expectations though, which has driven the price up around 30% in the last week.
Cannin’s Recommendation for Cronos Group Stock: Strong
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 company’s 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. Given this, we believe Cronos Group stock is a good buy.
Is Cronos Group a Good Stock to Buy?
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