Cronos Group Inc: This $7 Pot Stock Could Be Special

cron stockWhy Pot Stock Investors Should Consider This Company

One of the most prominent pot stocks on the market is Cronos Group Inc (NASDAQ:CRON).

Founded in 2012, Cronos is a vertically integrated cannabis company headquartered in Toronto, ON, Canada. Other than being listed in its home country’s Toronto Stock Exchange, the company also trades on the Nasdaq. On both exchanges, the ticker symbol is “CRON.”

One of the reasons why pot companies want to have their shares listed on major U.S. stock exchanges is that it gives them a lot more exposure, higher liquidity, and a larger potential investor base.

And some institutional investors aren’t allowed to buy stocks that trade over the counter. In the U.S., many pot stocks still only trade over the counter.

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But CRON stock is a prominent ticker, even compared to Nasdaq- and NYSE-listed pot stocks. This is because the company was involved in one of the landmark deals for the cannabis industry.

In March 2019, Altria Group Inc (NYSE:MO)—one of the largest producers and marketers of tobacco products in the world—made a $1.8-billion strategic investment in Cronos stock.  The transaction gave the maker of “Marlboro” cigarettes a 45% stake in the pot company. (Source: “Cronos Group Inc. Closes C$2.4 Billion Strategic Growth Investment from Altria Group, Inc.,” GlobeNewswire, March 8, 2019.)

Moreover, Altria has a warrant to increase its ownership stake in Cronos by an additional 10% for $1.0 billion.

Right now, legal cannabis is still a very new industry. Therefore, having a strategic partnership with Altria could give Cronos better access to the capital, product development capabilities, and experience needed to expand its presence in a highly regulated business.

Cronos is one of the few companies in the pot industry that has a global platform, with partnerships, production, and distribution across five continents.

In Canada, Cronos’ wholly owned subsidiary, Peace Naturals Project Inc., has a 90-acre facility in Stayner, ON that is licensed for cannabis production, extraction, manufacturing, research, and development. (Source: “Investor Presentation November 2020,” Cronos Group Inc, last accessed November 20, 2020.)

In the U.S., Cronos manufactures, markets, and distributes hemp-derived supplements and cosmetic products through its subsidiary Redwood holding Group, LLC.

At the same time, Cronos has joint ventures in Israel and Columbia, as well as distribution agreements in Germany, Poland, and Australia.

As you’d expect from a major player in the cannabis industry, Cronos Group Inc has churned out impressive growth rates in recent years. From 2018 to 2019, the company’s net revenue surged from $12.1 to $23.8 million, marking a staggering increase of 95.9%.

This year, the world economy has been experiencing a major recession due to the COVID-19 pandemic, and that has led to setbacks for a lot of cannabis operators’ growth trajectories. But as the chart below shows, Cronos’ momentum is still continuing strong.

In particular, the chart shows that, in just the first nine months of 2020, the company’s net revenue had already surpassed what Cronos earned in all of 2019.

(Source: Ibid.)

According to the company’s latest earnings report, Cronos generated $11.4 million in consolidated net revenue in the third quarter of 2020, representing a 96% increase year-over-year. (Source: “Cronos Group Reports 2020 Third Quarter Results,” Cronos Group Inc, November 5, 2020.)

This was mainly due to growth in the Canadian recreational pot market and the Israeli medical pot market, as well as inclusion of its Redwood acquisition.

Meanwhile, the company’s gross loss totaled $1.5 million for the quarter, which was substantially narrower than its $3.1-million gross loss incurred in the year-ago period.

But there are uncertainties going forward. In Cronos’ third-quarter earnings conference call, Jerry Filomena Barbato, chief financial officer, said, “And as we continue to refine our global supply chain throughout 2020 and into 2021, we expect gross margins are going to continue to fluctuate as price and mix can change from quarter-to-quarter.” (Source: “Edited Transcript: CRON.TO – Q3 2020 Cronos Group Inc Earnings Call,” Cronos Group Inc, November 5, 2020.)

Cronos Group Inc (NASDAQ:CRON) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Despite being one of the bigger pot stocks on the market, Cronos stock has been quiet volatile. CRON stock has had a very choppy ride over the past year. Most recently, it surged from about $5.50 to over $7.00 apiece, thanks to an industry-wide pot stock rally after the U.S. presidential election.

Given the growth momentum in the company’s business, I’d say the best could be yet to come for Cronos Group Inc.