Cronos Group has 67 per cent upside, GMP Securities says

Despite the slower than expected rollout of recreational cannabis in Canada, analyst Martin Landry of GMP Securities is maintaining his “Buy” rating and $17.00 target price for Cronos Group (Cronos Group Stock Quote, Chart TSX, NASDAQ:CRON), which reports its third quarter financials on November 13.

From a distribution standpoint, the first two weeks of rec cannabis have been a bit of a bust, says Landry, who points to delays in shipments and the scant number of retail stores currently open across the country, where there are 12 in Quebec, 17 in Alberta, one in BC and none in Ontario.

Those realities, which also include industry-wide delays in receiving excise stamps, will impact Cronos’ Q3 and Q4 revenues, says Landry, who now calls for Q3 revenues of $3.6 million (was $11 million) and Q4 revenues of $10 million (was $21.6 million).

Nevertheless, Landry’s long-term forecast for CRON remains the same.

“Despite the possibility of near-term issues in the onset of the recreational market, our long-term forecasts remain unchanged. Between the ramp up of Building 4 and the Cronos GrowCo JV, we anticipate the company will have ample capacity in 2019,” Landry says in a client update on Monday.

“While we expect Cronos to have received its sales licence for Building 4, the company’s large 280,000 sq. ft. facility in Stayner, Ontario, the first harvest from Building 4 may have only occurred in November. In addition, with harvests being staggered, Cronos may have limited volumes available to supply the recreational market in Q4/18,” he says.

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Landry now projects CRON to generate revenue and EBITDA in 2018 of $19.7 million (was $42.8 million) and negative $7.9 million (was $4.3 million), respectively. His estimates for 2019 remain unchanged at revenue of $160.7 million and EBITDA of $49.4 million.

At the time of publication, Landry’s $17.00 target represented a projected return of 67.2 per cent.