On Wednesday, MKM Partners analyst Bill Kirk upgraded Cronos Group (CRON) to a buy from a neutral rating. This comes after CRON announced that they would be delaying their fourth-quarter and full-year earnings report in late February. Kirk thinks CRON has even more value now as the stock tanked recently on news of a delay of at least 15 days in filing its annual report for 2019 (CRON was supposed to report its quarterly and full-year earnings on Feb. 27, 2020).
We speculate last week that this delay is due to the fact that this quarter will be the company’s first after a change in its dormitory and primary listing from Canada to the United States.
CRON is now primarily a United States-based dual-listed firm. This means that it needs to file its upcoming reports under the United States Generally Accepted Accounting Principles (GAAP) and not under International Financial Reporting Standards (IFRS). IFRS filing is the standard for Canada, but that’s not the case for CRON anymore as they primarily a United States-based firm.
Kirk does make a few good points regarding CRON though. He doesn’t think the delay of the regulatory filing is too concerning and as we mentioned, most likely due to the accounting changes this quarter. Kirk also favors CRON’s partnership with Altria Group due to the large amount of cash that was infused into the company. Now although Kirk did upgrade CRON from neutral to a buy rating he did also lower his price target from 12 Canadian dollars ($8.96) per share to CA$11 ($8.21) per share. Even with the $1 price target drop, that still indicates roughly 40% of upside.
Regarding CRON’s recent quarterly update, they are conducting an internal review of the recognition of revenue for several bulk resin purchases and wholesale product sales. The reason for the delay is because they won’t be able to submit its annual report to the SEC or release its Q4 results until this review is completed.
In the filings submitted to the SEC on Monday, CRON said it was adding a 15-day extension to its filing deadline, as per federal securities law. They also mentioned that they would be releasing quarterly and annual figures “promptly.” The company did say “However, no assurance can be given that the Company will be able to meet the extended filing deadline.”
In a document that accompanied this update, CRON said the reason for its reporting delay, “has been unable to complete its financial statements for fiscal 2019 due to a continuing review by the Audit Committee of the Company’s Board of Directors, with the assistance of outside counsel and forensic accountants, of several bulk resin purchases and sales of products through the wholesale channel and the appropriateness of the recognition of revenue from those transactions.”
Investors are hoping for a better quarter compared to the previous one in which they reported a top-line miss along with net profits from a one-time accounting gain. CRON has the connections and the capital to be a leading cannabis company in the industry, and now it’s all about execution. Time will tell how well CRON does over the next few quarters but we are optimistic that this company will see continued improvement.
CRON shares were trading at $5.87 per share on Thursday afternoon, down $0.09 (-1.51%). Year-to-date, CRON has declined -23.47%, versus a -6.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...