Cronos Quarterly Report
So far this year, marijuana quarterly reports have often heralded big gains when released. Revenue has spiked through the roof due to the first sales figures following legalization in Canada rolling in. But most—not all—financial reports have been positive. That brings us to the Cronos quarterly report.
Cronos Group Inc (NASDAQ:CRON) released its financial statement and it left much to be desired.
Cronos reported revenue of CA$5.6 million, well below the consensus estimate of CA$10.8 million and below all analyst expectations.
Analysts surveyed by Bloomberg projected revenue growth of more than 500%. While that figure may seem unrealistic, remember that many other marijuana financial statements have shown similar growth due to legalization in Canada. (Source: “Cannabis producer Cronos sinks after revenue comes up short (CRON),” Business Insider, March 26, 2019.)
Net revenue for the quarter hit a 248% increase, far below the expectations. The company also posted a loss of CA$0.11 per share for fiscal-year 2018.
You know a quarterly report isn’t all that great when the press release doesn’t tout numbers and instead focuses on “corporate milestones,” as the Cronos release did. (Source: “Cronos Group Inc. Announces Fourth Quarter 2018 and Full Year 2018 Results,” Globe Newswire, March 26, 2019.)
The numbers disappointed, and that has led to a very bad week for CRON stock. The company dropped nearly 10% on March 27.
And to complicate matters further, Cronos was complaining of a “big shortage situation” that could impact its future growth.
“We are still in a situation where we are trying to manage how we allocate between medical patients, provinces, private retail partners, and international partners in a pretty big shortage situation,” said CEO Mike Gorenstein. (Source: “Cronos Group reports $11.6 million net loss, CEO warns of ‘big shortage situation’,” Yahoo! Finance, March 26, 2019.)
Cronos does not disclose the numbers for its sales channels, yet.
The picture that was painted, then, was bleak. And over the past month, you can see how things have taken a nosedive.
Chart courtesy of StockCharts.com
But there was some good news for investors.
The major point being that Cronos is going to focus on sales, something that will be heartening to hear when so many companies are often laser-focused on growth.
“Expect our focus to be making the cheese, rather than raising and milking the cow,” said Gorenstein. (Source: Ibid.)
What he’s trying to say there is that the company is focused on production and sales, rather than growth and expanding capacity.
While both are valid strategies, I do appreciate that CRON stock is looking to bolster itself via sales first before returning to growth-mode.
The company also touted its deal with Altria Group Inc (NYSE:MO) as a major win, as the cigarette maker took a 45% ownership stake in Cronos.
CRON Stock Forecast
While things may indeed be bleak at the moment, looking ahead, it’s easy to see a lot of potential yet left in CRON stock.
The Altria deal is going to pay dividends as the two deepen their relationship, I believe. As such, there could be huge growth in sales via vaping and other markets that Altria could help Cronos capitalize on.
Furthermore, the company is focused on increasing its sales numbers in response to the poor showing in its quarterly report. That means we may see a perfect storm forming: lowered expectations following the recent disappointment and a renewed focus on sales, potentially leading to a much better quarter the next time around.
And the shortages that the company decried are being solved…albeit slowly. The Canadian government is aware of the mass pot shortages across the country and is looking to rectify the situation. While bureaucracies move slowly, it is still a problem that will be solved sooner rather than later.
It’s also worth noting how impressive CRON stock has been in 2019, as seen in the chart below.
Chart courtesy of StockCharts.com
The present notwithstanding, 2019 as a whole has been very good to CRON stock, and I believe that the losses due to the recent quarterly report will be recovered sooner rather than later.
The true test lies in the next quarter. If the company can turn things around, investors will flood back in droves. If, however, the company disappoints again, then we have a real problem on our hands and will have to reconsider CRON stock’s future.
Despite the weak numbers in the most recent financial report, there’s enough going for CRON stock that I believe the company will recover.