There’s still upside in Cronos Group, Canaccord Genuity says

Unlike most cannabis sector stocks it has made gains this summer, but Canaccord Genuity analyst Matt Bottomley thinks Cronos Group (Cronos Group Stock quote, Chart, News: TSXV:MJN) is still undervalued.

Yesterday, Cronos announced it had entered into a joint venture with Kibbutz Gan Shmuel, an Israeli medical cannabis distributor. The pair will create Cronis Israel, which management expects will ultimately generate more than 100,000 kilograms, annually.

“Gan Shmuel is one of the most established kibbutzim, with extensive experience in agriculture, large-scale manufacturing and export,” said Cronos COO David Hsu. “This partnership allows Cronos to efficiently scale low-cost, high-quality production to meet global demand.”

Bottomley says he likes the diversification Cronos Group is striving for, but is taking a catious approach for now.

“We believe securing additional capacity to supply international markets provides attractive optionality for the company as medical cannabis continues to gain global acceptance; however, we have not updated our estimates for the time being as we await additional updates on Israel’s timing for allowing export sales and construction/expansion benchmarks, as the JV continues to build capacity,” the analyst says.

In a ressearch update to clients today, Bottomley maintained his “Speculative Buy” rating and one-year price target of $3.00 on Cronos Group, implying a return of 29.9 per cent at the time of publication.

Bottomley thinks Cronos Group will generate Adjusted EBITDA of negative $2.4-million on revenue of $9.0-million in fiscal 2017. He expects those numbers will improve to EBITDA of positive $13.0-million on a topline of $44.0-million the followng year.