Friday 29 November 2019

Cronos Group Inc. Stock could fall even more

Cronos Group is an innovative global cannabis company. It was founded in 2013. Its international production and distribution is across 5 continents. The company helps advance cannabis research, technology and product development.

Cronos Group is building an impressive brand portfolio. The portfolio includes Peace Naturals (a global health and wellness platform). 2 adult-use brands are Cove and Spinach. 2 hemp-derived CBD brands are Lord Jones and Peace. Cronos Group owns and operates brands in the business of marijuana cultivation and distribution.

The company name sounds almost like (not to be confused with) Cronus (that's from Greek mythology). Cronus was the son of Uranus (Heaven) and Gaea (Earth), being the youngest of the 12 Titans. Later, Zeus was born.

It is possible that Cronos Group Stock could fall below its cash value. Cronos Group ended the 3rd quarter with $1.51 billion in cash, cash equivalents and marketable securities. However, the company has a market cap of less than $2.2 billion. Earlier this year, Cronos Group (NASDAQ:CRON) performed quite well. The popular Canadian grower more than doubled at one point during the 1st quarter. The biggest help was an announced equity investment from tobacco giant Altria Group (NYSE:MO). This deal closed in mid-March. It featured a $1.8 billion cash investment that gave Altria a 45% non-diluted stake in Cronos.

The promising partnership between Cronos and Altria was the main event. A serious cash increase came with this investment. Cronos ended 2018 with only less than $25 million in cash and cash equivalents on its balance sheet. Altria helped a lot with Cronos cash concerns. Cronos is now able to create long-term growth strategies.

Cronos can use large amounts of cash to buy out other companies. For example, Cronos announced that it would buy Redwood Holdings (the company behind the cannabidiol (CBD) based beauty line Lord Jones) in early August. The price was $300 million.

Altria is diversifying beyond USA tobacco. Adult cigarette smoking rates in USA are now at an all-time low. By investing in Cronos, Altria creates more revenue opportunities. Altria seems to know what USA smokers want. Derivative pot products, such as vapes, will begin to be in Canadian dispensaries by the middle of December.

This situation could be perfect for the success of Cronos Group. The cash account is huge, but many challenges are ahead. Cronos Group has been one of the worst-performing cannabis stocks since the end of March. Its shares are down 66% in that time frame. The market cap is shrinking. It is even possible that Cronos Group market cap could go below its end-of-quarter cash balance.

There are issues with the supply of legal pot products in Canada. Regulatory agency Health Canada has been unable to approve growing/sales licenses quickly. They are overwhelmed with applications. All consumer demand has not been met in Canada. Certain provinces are slow with the roll out of physical dispensaries. Ontario has just 2 dozen locations open that legally sell cannabis. Hopefully Canada will quickly resolve its supply issues.

1 comment:

  1. The word “chronic” has become a commonplace way to describe marijuana. Maybe Cronos should be called Chronos. A lot of people probably type that.