In recent weeks Wall Street has turned bullish on Cronos Group (CRON) stock, despite the cannabis sector’s slide throughout this summer. Many analysts are opining that it’s just a seasonal slump; that cannabis stocks are about to rebound in the fall, with CRON breaking out ahead of the pack.
Perhaps the biggest reason for this renewed interest in the stock comes from the company’s recent $300 million dollar acquisition of U.S.-based CBD manufacturer Redwood Holding Group. Redwood Holding is best known for its Lord Jones brand which manufactures hemp-derived lotions, bath salts, and other CBD-infused skin care and consumer products.
This headline-grabbing buyout put Cronos Group firmly in the company of its peers who are part of a Canadian invasion to acquire as many U.S.-based cannabis companies as possible: Aurora Cannabis, Canopy Growth, Tilray and Hexo.
Comparatively though, CRON is trading at a premium when compared to those stocks. Cronos Group is valued at $5.3 billion, which means that it’s trading at a multiple of 117 times its sales. By Comparison, Aurora Cannabis, Tilray, Canopy Growth, and Hexo are trading at 30, 16.7, 18.6, and 22.3 times sales, respectively.
Premium pricing aside, many analysts still maintain a positive outlook on CRON. Piper Jaffray analyst Michael Lavery said that he expects Cronos to generate approximately 60% of its 2020 sales from cannabidiol (CBD) products.
Stifel analysts are predicting that U.S. cannabis/cannabinoid sales could hit $100 billion in the next 10 years, making up half of all global sales. And Bank of America analyst Christopher Carey anticipates peak annual sales of nearly $166 billion for legal cannabis, with the U.S. market contributing to 34% of this annual total.
Based on a new report from the Brightfield Group, CBD sales in the U.S. could skyrocket to $23.7 billion by 2023, which would mean a compound annual growth rate of more than 100% for the years 2018 through 2023.
It’s important to keep in mind that Cronos received a major injection of capital last March when tobacco giant Altria (MO) acquired 45% of the company for $1.8 billion. In addition to the cash, Altria brings with it regulatory expertise and access to more than 230,000 U.S. retail locations, which should prove invaluable as Cronos Group rolls out its line of vape products throughout North America.
The Cronos Group cash reserves puts the company in an advantageous position. The Redwood Holding Group acquisition also made headlines because $225 million of the $300 million deal was paid in cash, which equates to only $75 million of the transaction being financed through new stock shares. This was a record breaker.
So while many of its peers have had to resort to diluting shares in order to make acquisitions happen, it doesn’t appear the Cronos will have to stoop to that any time soon.
Despite having fallen 46% since March 2019, it’s important to remember that CRON stock has returned 1,825% since its IPO in December 2014. And in Q2, company sales rose 200% to $10.2 million, carving out a profit of $251 million, which included a $263.9 million gain from warrant revaluations.
Analysts anticipate that Cronos will post revenue of $45.26 million in 2019 — a year-over-year growth of 287.7%. And revenue is predicted to rise by 233% to $150.72 million in 2020.
Unlike many of its peers, Cronos is expected to be profitable by the end of 2021. Analysts predict a Cronos net margin of 12.6%.
CRON shares rose $0.02 (+0.17%) in after-hours trading Thursday. Year-to-date, CRON has gained 11.45%, versus a 18.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Eric Bowler
Eric is an accomplished journalist providing in-depth insights for more than two decades, with a special focus on the cannabis industry. Learn more about Eric’s background, along with links to his most recent articles. More...