GMP analyst Martin Landry thinks Altria’s investment into Cronos Group (Cronos Group Stock Quote, Chart TSX:CRON) has propelled the latter into one of the top two cannabis companies in the world.
On Friday, Cronos Group announced it had entered into a subscription agreement with Altria Group that would see the cigarette giant invest $2.4-billion into Cronos.
“Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth,” said Cronos Group’s CEO Mike Gorenstein said. “The proceeds from Altria’s investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in R&D and brands that resonate with our consumers. Importantly, Altria shares our vision of driving long-term value through innovation, and we look forward to continuing to differentiate in this area. As one of the largest holding companies in the adult consumer products sector, Altria has decades of experience in regulatory, government affairs, compliance, product development and brand management that we expect to leverage, particularly as new markets for cannabis open around the world.”
Landry says this is a transformational development.
“We are making a material revision to our valuation to reflect the significance of Altria’s investment and partnership,” the analyst said in a research update to clients today. “In our view, this propels Cronos in the top 2 of global cannabis companies in terms of financial resources and execution capabilities. Hence, to reflect the above, we have doubled our international sales expectations in our DCF and reduced our discount rate. We believe that Altria’s investment significantly reduces Cronos’ risk profile and provides investors much more visibility on the path forward to significant revenue growth.”
Landry today maintained his “Buy” rating, but raised his one-year price target on Cronos Group from $14.00 to $24.00, implying a return of 40.7 per cent at the time of publication.
Landry thinks CRON will generate EBITDA of negative $7.4-million on revenue of $18.9-million in fiscal 2018. He expects those numbers will improve to EBITDA of $28.1-million on a topline of $93.9-million the following year.