Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) is a geographically diversified and vertically integrated cannabis group. The Company operates two wholly-owned Canadian licensed producers regulated under Health Canada’s Access to Cannabis for Medical Purposes Regulations: Peace Naturals Project Inc., which was the first non-incumbent medical cannabis license granted by Health Canada, and Original BC Ltd., which is based in the Okanagan Valley, British Columbia.
CRON recently announced that trading of its common shares in Canada would be elevated from the TSX Venture Exchange (“TSX-V”) to the Toronto Stock Exchange (“TSX”). The uplisting to TSX is a reflection of the growth and progress, the company have made globally and within the Canadian market. Additionally, In February 2018, Cronos Group became the first licensed producer to list on a major stock exchange in the United States. The Company’s common shares trade on the NASDAQ under the trading symbol “CRON.”
In addition to long-term benefits, both these new listings bring a significant advantage for the overall financial flexibility of the company and its investors, as the company now has access to much broader capital markets and even stronger possibilities of M&A activity in the marijuana space. Moreover, this also enhances the overall brand equity and liquidity for its shareholders.
On May 15th, the company announced financial results for the first quarter ended March 31, 2018. The company reported Q1 2018 total sales of $2.9 million, up 473% year over year Cannabis oil sales represent 29% of domestic medical patient revenue in Q1 2018.
As per management, the strategic initiatives launched in 2017 are coming to fruition. 2017 was a building block year which set the groundwork and foundation for the results achieved in the first quarter. Cronos is focused on continuing to increase capacity in order to serve existing distribution and newly established markets, developing intellectual property and launching recreational brands.
Analysts expect that revenue and earnings will be the critical catalyst for CRON over the near to medium term and the company is expected to grow significantly, mainly as a result of their operations within Canada which is a month from legalizing marijuana federally.
Taking all into consideration, analysts tracking the stock believes that CRON is now well positioned to trade higher. Furthermore, driven by the accelerated interest of the market, CRON has become an attractive play in the legalization of recreational cannabis. Taking a valuation call on the stock and the sector, shares now ruling at $6.77, it can move to a level of $13.50 in next few months.
About the Company: Cronos Group is a globally diversified and vertically integrated cannabis company with a presence across four continents. The Company operates two wholly-owned Canadian licensed producers regulated under Health Canada’s Access to Cannabis for Medical Purposes Regulations: Peace Naturals Project Inc., which was the first non-incumbent medical cannabis license granted by Health Canada and Original BC Ltd. (British Columbia), which is based in the Okanagan Valley. The Company has multiple international production and distribution platforms including Germany, Israel, and Australia. The Company is rapidly expanding its global footprint as it focuses on building an international iconic brand portfolio and developing the disruptive intellectual property. Cronos Group is committed to building industry-leading companies that transform the perception of cannabis and responsibly elevate the consumer experience.
Key highlights for the quarter:
- Since November 2017 when Health Canada approved the Company’s new extraction laboratory, Cronos Group has ramped-up production of strain-specific cannabis oils that have been received favorably by customers. In Q1 2018, cannabis oil sales represented 29% of domestic medical patient revenue. The Company expects oil sales to continue to become a more significant part of sales over time.
- In February 2018, Cronos Group became the first licensed producer to list on a major stock exchange in the United States. The Company’s common shares trade on the NASDAQ under the trading symbol “CRON.”
- In February 2018, the Company announced a strategic joint for the venture in Australia (“Cronos Australia”) for the research, production, manufacture, and distribution of medical cannabis. The Company owns a 50% equity interest in Cronos Australia. In the initial phase of the joint venture, Cronos Australia is planning to construct a 20,000 sq. Ft. purpose-built an indoor facility that is expected to produce up to 2,000 kilograms of cannabis annually.
- In March 2018, Cronos Group announced a strategic joint venture with MedMen Enterprises USA, LLC. The Company owns a 50% equity interest in the joint venture MedMen Canada Inc. MedMen Canada is focused on branded products, research, and development activities in Canada and creating a Canadian branded retail chain in provinces that permit private retailers.
- In January 2018, Peace Naturals received a dealer’s license (the “Peace Naturals Dealer’s License”) from Health Canada pursuant to the Narcotic Control Regulations and the Controlled Drugs and Substances Act (Canada) (“CDSA”) for the possession, sale, transportation and delivery of controlled substances under the CDSA. The Peace Naturals Dealer’s License allows Peace Naturals to develop products that are not yet available for sale in Canada and to export medical cannabis extracts, including concentrated oil and resin products.
- Completed construction of, received regulatory approvals for and commenced cultivation of cannabis in, the 28,000 sq. Ft. Greenhouse at Peace Naturals. The greenhouse’s first harvest is expected to occur in the second quarter of 2018.
- Completed a rebrand of Peace Naturals, which included new proprietary packaging, an evolution of the brand’s logo, new marketing materials, a revised website, a unique shopping portal experience, and new products such as strain-specific oils and limited-edition cultivars. Peace Naturals also established a new classification system for products, which helped educate patients on key product differences.
- Strengthened liquidity by raising $46.0 million of gross proceeds through a bought deal offering by way of a short form prospectus offering in Canada in January 2018.
Financials for three months ended March 31st, 2018:
Revenue: Sales were $2.9 million for the first quarter of 2018 as compared to $0.5 million for the first quarter of 2017, representing an increase of $2.4 million, or 473%. Compared to the fourth quarter of 2017, sales increased by $1.3 million, or 83%, for the first quarter of 2018.
Profitability: Net loss for the same period amounted to $1.085 million, or $(0.01) per basic and diluted share, compared to a net loss of $0.844 million or $(0.01) per basic and diluted share for the prior year.
Liquidity and Financial Flexibility: Consolidated cash and cash equivalents were $32.36 million at March 31, 2018. Also, the company strengthened liquidity by raising $100.0 million of gross proceeds through a bought deal offering in April 2018. The common shares were offered in the United States pursuant to the Company’s effective registration statement on Form F-10 filed with the U.S. Securities and Exchange Commission and in Canada by way of a short form prospectus offering.
Key risk factors and potential stock drivers:
Continuing efforts at cannabis legalization in the US and Canada may act as a catalyst for CRON shares;
Company’ ability to grow revenue while significantly improving its profitability will continue to remain a critical price sensitivity for the company;
Company’s ability to maintain its liquidity and financial flexibility to fund its incremental capital requirements. Since cannabis is still illegal at the federal level, it is not easy for CRON to access capital on agreeable terms;
The company continues to face significant regulatory risks and uncertainty, while at the same time additional states legalize cannabis.
Stock Chart:
Comments:
- On Monday, June 12th, 2018, CRON closed at $6.77, on an above average volume of 2.9M shares exchanging hands. Market capitalization is $1.19 billion. The current RSI is 51.19
- In the past 52 weeks, shares of CRON have traded as low as $5.12 and as high as $10.39
- At $6.77, shares of CRON are trading above its 50-day moving average (MA) at $6.48 and above its 200-day moving average (MA) at $5.38
- The present support and resistance levels for the stock are at $6.48 & $7.18 respectively.
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