- Cronos Group is a Canadian cannabinoid group.
- CRON shares fall after Q2 earnings.
- The company gets good factor grades.
- Cronos is the seventh leading cannabis company by market cap.
- The factor that could turbocharge CRON shares.
In an August 8 article on Seeking Alpha , I highlighted that Curaleaf ( CURLF ), the cannabis company with the top market cap, had a potential catalyst to end the bearish pattern of lower highs and lower lows that has gripped the stock since February 2021.
On August 9, another cannabis company, Chronos Group Inc. ( CRON ), reported earnings , and the stock moved to the downside . Chronos is a Canadian company that exports its products to the U.S., Germany, Israel, and Australia. The Q2 earnings reflected a narrower loss, but the company missed its revenue target, sending shares 49.0 cents or 13.7% lower on the session.
CRON is another cannabis company that has been trending lower since February 2021, when it reached $15.83 per share. The all-time high was in February 2019, when the shares peaked at $25.10. At just over the $3 level, CRON is a marijuana lottery ticket that could deliver if the U.S. finally legalizes pot.
Cronos Group is a Canadian cannabinoid group
The Cronos Group website states the company is:
“ Committed to building disruptive intellectual property by advancing cannabis research, technology, and product development. With a passion to responsibly elevating the consumer experience, Cronos Group is building an iconic brand portfolio. Cronos Group’s diverse international brand portfolio includes Spinach, PEACE NATURALS, Lord Jones, Happy Dance, and PEACE+ ” all registered brands.
The company’s headquarters are in Toronto, Canada, and it was formerly known as PharmaCan Capital Corporation.
CRON shares fall after Q2 earnings
CRON released Q2 earnings on August 9. On August 8, optimism over the upcoming earnings report caused the stock to settle at $3.58 per share after trading to a high of $3.60.
The company put a positive spin on its earnings. In an August 9 press release , CRON highlighted a year-over-year 48% increase in consolidated net revenue in Q2 and net revenue from Israel that increased by 212% year-over-year. While the company’s EPS loss of five cents per share was in line with forecasts, the $22.98 million in revenues was $5.37 below expectations. CRON shares dropped on the disappointing revenue miss.
The short-term chart highlights the post-Q2 earnings selling that took the stock to the $3.10 level on August 11, 13.9% below the August 8 high. Optimism turned to pessimism for the shares that have been accustomed to falling.
The long-term chart highlights the decline from the 2019 record $25.10 high and the February 2021 lower high of $15.83 per share. Since the 2019 high, the shares lost 87.6% and were over 80% lower than the early 2021 peak.
The company gets good factor grades
While the share performance has been miserable and disappointing for investors, the company gets good factor grades.
The chart shows the grades have improved over the past six months, with the best ratings for valuation and profitability, two issues that support CRON’s share price. The overall Quant rating was hold as of August 11.
One of the company’s issues is the declining cash balance.
The chart shows losses have eroded the cash balance over the past quarters. At nearly $790 million, CRON continues to have enough cash to survive, but the cash burn trend is a warning for investors.
Cronos is the seventh leading cannabis company by market cap
CRON is the seventh-leading cannabis company by market cap.
Top Cannabis Companies by Market Cap (Campaniesmarketcap.com)
The chart shows that at $1.16 billion, CRON’s market cap reflects just over 5% of the total $23.14 billion market cap of the 29 publicly traded companies in the cannabis sector. While CRON is a small-cap, it is in the billion-dollar cannabis club, and only eight companies can claim that status in the sector.
The factor that could turbocharge Cronos shares - Altria likes CRON, a hint
In my article on CURLF, I wrote:
“ The latest legislation and victory for the Biden Administration is a slimmed-down Build Back Better program, addressing climate change, increasing corporate taxes, and refunding the Internal Revenue Service to bolster tax receipts. The US marijuana industry now suffers from a lack of state and federal government coordination that would open the floodgates for traditional financing and revenue collection. Moreover, it would allow the federal government to levy excise taxes on pot, paying for new spending and reducing the deficit. ”
US Federal legalization would expand CRON’s addressable market beyond Canada, Germany, Israel, and Australia into the United States.
In that piece, I also pointed out that Philip Morris ( PM ) and Altria ( MO ), with an over 50% share of the total market cap of sixteen publicly traded tobacco and cigarette companies, could be buyers of the leading cannabis companies. In his article on August 1, Seeking Alpha contributor Edmund Ingham pointed out that Altria made an initial $1.8 billion investment in CRON in 2018. MO has an option to increase its stake above 50% and take control of the cannabis company. On August 8, I wrote, “ PM and MO are candidates to make aggressive acquisitions in the cannabis sector upon Federal legalization ” in the U.S. CRON seems to be the logical target for MO with a $1.16 billion valuation. MO’s market cap on August 11 stood at over the $80.5 billion level.
CRON’s future is in the hands of Washington, D.C., as U.S. federal legalization is the event that could turbocharge the industry. Meanwhile, PM and MO are standing by and ready to pounce once Washington, D.C., decides it is ready to open a much-needed new revenue vertical.
I believe CRON is another pot lotto ticket at $3.10 per share. While the value of MO’s investment has declined since 2018, investing alongside the world’s third-leading tobacco company could be a compelling opportunity in the coming years.
For further details see:
Cronos Group: Another Inexpensive Pot Stock With Risk And Upside Potential