October 17, 2018, the date on which recreational marijuana use will become legal in Canada, is close at hand. With it come high hopes that marijuana stocks will finally be able to capitalize on what they’ve been promising investors for years. Cronos Group Inc (NASDAQ:CRON) is one marijuana stock that could be the biggest winner in the overcrowded weed sector.
The company reported triple-digit revenue growth in the second quarter, a landmark partnership with Ginkgo Bioworks Inc., new ventures furthering its global expansion, major supply agreements, and significant steps to be one of the world’s leading provider of cannabidiol (CBD) oils.
On the technical side, the company’s share price remains bullish with strong indicators for major gains. This has resulted in an aggressive CRON stock forecast that could see the Cronos Group Inc stock price cross $22.00 per share by the end of 2018.
Cronos Stock Forecast
More than anything, the hype surrounding what marijuana stocks could do has helped propel weed stocks higher. With the legalization of marijuana about to become law in Canada, it’s up to weed stocks to actually perform.
Because recreational marijuana use is not legal in the U.S., many investors have stayed away from pot stocks. That’s because the vast majority of marijuana stocks trade on the Toronto Stock Exchange or junior exchanges in Canada (the TSE Venture and the Canadian Securities Exchange) and on over-the-counter (OTC) listings in the U.S.
That said, Cronos Group Inc stock is one of just a few big marijuana stocks that also trades in the U.S. That might explain why its share price has been soaring since early August with a U.S. market cap exceeding $2.0 billion.
One could argue that investors are sending the share price of Cronos Group Inc, Canopy Growth Corp (NYSE:CGC), and Tilray Inc (NASDAQ:TLRY) significantly higher because they trade in the U.S.
There are, after all, a large number of excellent marijuana stocks that trade exclusively in Canada. And because American investors are somewhat hesitant to invest outside the country, these marijuana stocks are, for now, overlooked.
At the same time, Cronos Group Inc has recently made a number of major announcements that suggest it deserves the attention it is getting.
On September 4, Cronos announced a landmark deal with Ginkgo Bioworks Inc. to produce cultured cannabinoids. On August 29, Cronos announced it formed a 50/50 joint venture named NatuEra S.à r.l. in Columbia, with an affiliate of Agroidea SAS, Colombia’s leading agricultural services provider. Cronos Group already has multiple international production and distribution platforms in Germany, Poland, Israel, and Australia.
On August 21, Cronos announced its first agreements for retail distribution of marijuana in Canada. The company secured listings and signed bindings supply agreements with the Ontario Cannabis Retail Corporation and the BC Liquor Distribution Branch.
Ontario and British Columbia account for more than 50% of the Canadian population and are also two provinces known for their love of marijuana.
Not surprisingly, the Cronos Group Inc share price has been on a tear.
Chart courtesy of StockCharts.com
Cronos Group Inc stock is breaking above a major resistance level. The company’s share price is also mirroring a similar pattern from July 2017, when it soared from around $2.00 per share to around $12.00 per share. That’s an increase of 500%.
Moreover, Cronos is trading above its 50-day and 200-day moving averages, showing a continued upward trend. Plus, there has been a serious spike in volume since the middle of August; this points to excited buying.
Moreover, momentum indicators like the moving average convergence/divergence (MACD) indicator and the relative strength indicator (RSI) remain in buyer territory and suggest ongoing bullish sentiment.
It’s highly unlikely that Cronos’ share price will soar more than 500% over the coming months, implying a share price in excess of $72.00 per share. Hopefully, rational investors will prevail.
That said, all of these technical indicators suggest that the Cronos stock price could more than double by the end of 2018, to around $22.00 per share.
After that, it’s up to Cronos Group Inc stock and other major marijuana stocks to post solid fourth-quarter results in early 2019.
Cronos Group Inc Second-Quarter Financial Results
On August 14, Cronos announced its financial results for the second quarter ended June 30, 2018. Second-quarter revenue came in at $3.4 million, a 428% increase over the $600,000 recorded in the same prior-year period. (Source: “Cronos Group Inc. Announces Second Quarter 2018 Results,” Cronos Group Inc., August 14, 2018.)
The triple-digit increase was helped by an expansion in patient onboarding, increase in the average sales price, and strong growth with the company’s cannabidiol (CBD) oil products.
Second-quarter net income was $723,000, up significantly (315%) from $174,000 in the same quarter last year.
“This year and subsequently, this quarter is about setting the stage and establishing Cronos Group’s strategy for future growth,” said Mike Gorenstein, CEO.
“Cronos Group delivered encouraging results across the company in the second quarter with sales growing among all of our products and channels, impressive improvements in cultivation yields since the start of the year, and continued business development success in penetrating new markets and establishing new partnerships for expansion,” he added.
“We pushed the business forward while achieving great milestones for the company and this is only the beginning,” Gorenstein concluded.
At the end of the second quarter, the company reported finished good inventory and biological assets of 2,451 kilograms (5,403 pounds), a 46% increase over the first quarter.
During the quarter, Cronos Group Inc strengthened its liquidity by raising $100.0 million of gross proceeds through a bought deal offering of common shares in April 2018. As of June 30, 2018, total liquidity was $118.0 million, providing the company with significant room “to execute its strategic priorities.”
Second-Quarter Business Highlights
- Construction of the company’s 286,000-square-foot purpose-built indoor production facility in Stayner, Ontario remains on schedule and will start cultivation once it receives approval and a license from Health Canada
- Cronos Australia was granted a medicinal cannabis Manufacture License by the Australian Office of Drug Control in June 2018. This license permits the manufacturing of cannabinoid-based products in Australia and is required for all forms of extraction, refining, concentration, and transformation of the cannabis plant.
- In June 2018, Cronos entered into a distribution partnership with Delfarma Sp. Zo.o, a pharmaceutical wholesaler with a distribution network of over 5,000 pharmacies and more than 200 hospitals, that collectively reaches approximately 40% of the Polish domestic market.
Business Highlights Subsequent to Second Quarter 2018
- In the weeks following the end of the second quarter, Cronos announced a 50/50 joint venture with a group of investors to create a new partnership, Cronos Growing Company Inc. The new entity expects to build an 850,000-square-foot greenhouse for cannabis production in Kingsville, Ontario. One fully operational, it is expected to produce up to 70,000 kilograms (154,325 pounds) of cannabis annually.
- Cronos entered into a supply agreement with Cura Cannabis Solutions, one of the world’s largest cannabis company’s in the world by revenue. Cura signed a five-year agreement to purchase a minimum of 20,000 kilograms (44,092 pounds) of cannabis per year.
Cronos Group Financial Statement
Below is Cronos Group Inc’ unaudited condensed interim consolidated statements of financial position as at June 30, 2018 and December 31, 2017.
(in thousands of CA$)
|As At June 30, 2018||As At December 31, 2017|
|Property, Plant, and Equipment||$93,657||$56,172|
|Construction Loan Payable||$5,565||$5,367|
|Total Shareholders’ Equity||$227,270||$86,368|
|Total Liabilities & Shareholders’ Equity||$235,436||$101,029|
Legal cannabis is a multi-billion-dollar industry…and the industry won’t really even be legal in Canada for another month. Even then, the industry is still in its infancy; Canada is just the first industrialized country in the world to legalize the recreational use of marijuana.
Suffice it to say, the marijuana industry will likely continue to make waves, and savvy investors wealthy, for years to come.
Like every industry, some stocks will soar and others will crash and burn. The best marijuana stocks will be those that have an experienced management team, strong infrastructure, global aspirations, strong partnerships and distribution agreements, innovative products, a strong research and development pipeline, and strong financials.
Cronos Group Inc has all of that.