Cronos Group’s (Cronos Group Stock Quote, Chart, News: TSXV:CRON, NASDAQ:CRON) recently announced joint venture with US cannabis retailer MedMen is a positive, but not enough to move the stock out of a “Hold” rating, says analyst Martin Landry with GMP Securities, who on Monday reiterated his rating and 12-month target price of $11.00 for CRON.
On Monday, Canadian cannabis producer Cronos announced a joint venture with Los Angeles-based MedMen, which owns and operates cannabis outlets in California, Nevada and New York. To be called MedMen Canada, the 50/50 joint venture will involve developing branded products and opening retail stores across Canada while sourcing its products from Cronos.
“Cronos is focused on changing the perception of cannabis on an international scale, and we prioritize working with best-in-class partners who share our vision for the future,” said Cronos CEO Mike Gorenstein, in a press release. “MedMen stores have been integral to mainstreaming cannabis and they have become one of the most well-known and respected cannabis platforms in the US. We’re very excited to bring the MedMen experience to Canada.”
Landry says the deal represents Cronos’ first steps in establishing a retail strategy and platform and should it benefit Cronos, as the company will likely gain from MedMen’s branding and retail experience.
“The joint venture should allow Cronos to leverage MedMen’s brand strength, which already garners strong awareness in the US due to a growing network of retail stores (eleven currently, seven in the large California market) which focus on the ‘mainstreaming’ of cannabis through appealing store design (similar to Apple stores),” said the analyst in a client update. “Cronos should thus be able to drive shelf-space gains in Canada with products carrying the recognizable MedMen brand.”
The analyst does not anticipate Cronos devoting a large cash infusion into the joint venture in the near term.
Landry thinks Cronos Group will generate EBITDA of negative $3.2-million on revenue of $4.5-million in fiscal 2017. He expects those numbers will improve to EBITDA of positive $19.2-million on a topline of $64.3-million the following year.
His price target of $11.00 represents a projected return of negative 1.1 per cent at the time of publication.
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