Cronos Group Stock: Learning the Basics
Canada-based Cronos Group Inc. (NASDAQ:CRON) is high on our investment watchlist, but there are a lot of moving parts to consider. This report will try to do two things:
- Determine whether Cronos Group stock is worth your attention.
- Determine a Cronos stock forecast for the next three years.
But before we delve into the weeds, let’s start with the basics.
Cronos is a global distributor of cannabis products. The “global” part is what got me excited, because it shows that the Toronto-based company is not sitting on its heels; it has grand ambitions about changing the way marijuana is perceived around the world. I like that.
Too many Canadian companies hide above the 49th parallel, either being unwilling to give up their protectionist safeguards or being unable to raise enough capital for overseas expansion.
Cronos is the exact opposite.
It has offices in Germany, Israel, and Australia—in addition to the four locations it already has scattered across Canada. Probably the most ambitious move the company made, however, was to secure a U.S. Nasdaq listing.
None of the other big Canadian marijuana stocks—Canopy Growth Corp
(OTCMKTS:TWMJF, TSE:WEED), Aphria Inc (OTCMKTS:APHQF, TSE:APH), or Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB)—have made the jump to a major American exchange, which means many investors still have to trade them over the counter.
You can find Cronos stock trading under the ticker symbol “CRON” on both the Nasdaq and the TSX Venture exchanges.
(Sidenote: Cronos stock only began trading on the Nasdaq on February 27. Also, the Canadian ticker symbol was previously “MJN” but was changed to “CRON” as of March 5.)
Is CRON Stock Good for the Long Term?
In the past year, Cronos stock has more than quadrupled in value. Its share price catapulted roughly 308%, meaning that an investor who put in $10,000 initially would have $40,843 today.
Chart courtesy of StockCharts.com
Obviously, this is fantastic for investors who bought CRON stock last March. But the question we’re asking today is: “Will this trend continue?”
You can try answering this question with technical analysis, but you won’t get very far. Charts only reveal the market’s intentions. They cannot predict the future, which is why I put trust in a company’s fundamentals.
Give me a good business, one with rising sales and soaring upside potential, and I’ll happily gobble up its shares. And if those shares are trading at a discount, get out of my way.
Does Cronos match this description? Well, its geographical diversity is certainly promising. Let’s take a closer look at what the company has cooking around the world. Then maybe we’ll know if it’s worth our time and, more importantly, money.
One of the company’s most exciting international opportunities is Australia, which has a booming medical marijuana trade and an emerging export business. In fact, CNN reports that Australia wants to become the “world’s number one supplier” of marijuana. (Source: “Australia wants to sell pot to the world,” CNN Money, January 4, 2018.)
Cronos is using its Melbourne office to leverage this opportunity. It has already obtained licenses for cultivation and research. Plus, its 20,000-square-foot facility should be able to produce 2.2 tons of marijuana per year once it’s completed.
Some of this marijuana might be sold in Australia itself, where demand for medical-grade weed is expected to reach $1.0 billion by 2020. However, the rest of Cronos’s production can be shipped overseas to New Zealand and Southeast Asia.
While attitudes in this part of the world lean “conservative,” the region’s climate is perfect for growing marijuana. It is warm and dry. Under these conditions, Cronos can manufacture high-quality cannabis for a mere $0.45 per gram, which is vastly better than what it can do here.
However, the company isn’t flying solo in this mission. It enlisted a partner called Gan Shmuel, which is structured as a kibbutz (an Israeli settlement that operates as a socialist village).
This subsidiary already exports to 35 countries in Europe and Asia.
While Israel and Australia are essentially launchpads to their respective regions, Germany is more of a retail gambit. There is a large shortage of medical marijuana in the country, not to mention rising demand after it was included in health insurance coverage.
In order to meet this demand, Cronos partnered with G. Pohl-Boskamp GmbH & Co. KG, a pharmaceutical provider with access to 12,000 local pharmacies. The idea is to reach the customer at the local level, much in the way local dispensaries do in the United States.
Cronos MedMen Joint Venture
Although Cronos is making tremendous progress overseas, the company’s most interesting project is close to home: the Cronos MedMen joint venture.
MM Enterprises USA, LLC, also known as MedMen Enterprises, is a U.S. cannabis company with offices in California, Nevada, and New York. Cronos is partnering with MedMen to import U.S. marijuana products into Canada, which seems like a pretty smart move, given Canada’s upcoming legalization on July 1, 2018.
The joint venture will take the name MedMen Canada Inc.
If you live north of the border or are visiting Toronto or Vancouver after July 1, expect to see a ton of MedMen stores and MedMen products. The brand is already quite famous in California—where it has become the largest retail chain in the state—meaning that it has a running head start over the Canadian competition.
“MedMen stores have been integral to mainstreaming cannabis, and they have become one of the most well-known and respected cannabis platforms in the U.S.,” said Cronos CEO Mike Gorenstein. “We’re very excited to bring the MedMen experience to Canada.” (Source: “Cannabis Giants Join Forces in Cross Border Venture,” Cronos Group Inc, March 19, 2018.)
Cronos Stock Forecast for 2018
Given that merely listing CRON stock on the Nasdaq exposed it to greater liquidity, I wasn’t surprised to see its share price advance 27% in two trading sessions.
Although those gains were later erased by a market-wide slump in equities, we’re here to consider whether CRON stock is good for the long term. Where will it be in, say, 2020?
With the information I have thus far, I’d say there’s a possibility that CRON stock can reach $25.00 to $30.00. However, this year will be tough. A lot of hype surrounding the marijuana market might be drained out, which could lead to a painful but ultimately helpful correction.
Plus, Cronos will have to file its 10-Q form with the U.S. Securities and Exchange Commission (SEC). This should give us a closer look at its financial health, as well as the structure of the MedMen partnership, both of which might lead to changes to our Cronos stock forecast.
That being said, we’re optimistic about the long-term growth of Cronos stock.