Cannabis Earnings Preview – The Cronos Group

The  Cronos Group (Ticker Symbol:CRON) the Cannabis distribution and production company reports earnings this Tuesday before the bell.  The Cronos Group has seen its shares double, going up over 100% at one point in January alone. The stock is expected to report a large increase in revenues of over 8.95 million (Canadian Dollars) and a .01-.02 cent loss on earnings per share. Tamy Chen, a Bank of Montreal analyst, came out stated that shares of Cronos Group were overpriced, trading at a much higher EBITDA multiple compared to its competitors in its industry.   

Much of its elevated performance this year is due to the investment that the Altria Group ​(ticker symbol: MO) ​made in the company. Altria Group Inc.​, the maker of the United States top-selling cigarette brand, Marlboro, made a $1.8 billion investment in exchange for 45% of the company. Cronos Group CEO Mike Gorenstein stated that “The proceeds from Altria’s investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in R&D and brands that resonate with our consumers.”  

On December 07, 2018 Altria​ ​announced its 45% stake in Cronos. As you can see above, Cronos’ stock gapped up and closed up 21.24% on that day. After a slight post announcement pullback, the stock found some support at its 100-day Moving Average. It then took off in the first quarter of 2019, breaking a minor downtrend and then surging above its 2018 highs, to rally an additional 60% more.  The stock has maintained some of its strength and is still up over 85% for the year as of Friday’s close.

The Cronos Group initial public offering (IPO) was July 11, 2016, at .17 cents! Since its IPO, the stock has rallied over 10,000 %.  The stock was subject to some of the hype from cannabis speculation, but investments like the one mentioned above are helping the stock maintain its valuation.  

(Chart above courtesy of ​​)  

Based on a survey of 7 analysts across Wall Street, the average price target for Cronos Group’s stock is $22.00.  Based on that number, the stock is priced at a discount relative to Wall Street’s analysts. Cronos Group stock is currently trading at $19.23.

There have been ten states (including the District of Columbia) that have already approved it for recreational use and thirty-three states that have already legalized the use of medical marijuana.  Tilray set the tone early in the earnings season for the cannabis sector with its report of its much larger than expected gain in revenues. Let’s see if the Cronos Group can keep up with the bar Tilray set when they report earnings before the bell on Tuesday.