Cronos Group downgraded by PI Financial

Underwhelming quarterly results from Cronos Group (Cronos Group Stock Quote, Chart TSX:CRON) are cause for a rating change from PI Financial analyst Jason Zandberg, who on Tuesday kept his $24.00 target price but dropped his rating from “Buy” to “Neutral.”

Cannabis company Cronos Group announced its fourth quarter and full year 2018 financials on Tuesday, with Cronos posting a net loss of $11.6 million for the quarter compared to a profit of $2.1 million a year prior on net revenues of $5.6 million, which was up from $1.6 million a year prior.

With the release, CEO Mike Gorenstein highlighted the company’s accomplishments in 2018, including the partnership with tobacco company Altria Group.

“The growth potential in the cannabis industry is vast and we are only just beginning,” Gorenstein said. “With our differentiated brands, global footprint, growing production capacity and commitment to cannabinoid innovation, together with Altria’s partnership, Cronos Group is well positioned to realize this opportunity. We’re heading into 2019 energized and ready to execute on our strategy.”

Zandberg says the Q4 results for revenue, EBITDA and EPS ($5.6 million, negative $7.9 million and negative $0.04 per share, respectively) were below his estimates of $9.0 million, $1.6 million and $0.1 million, respectively. The analyst points out that the revenue growth came primarily to shipments into Canada’s adult-use market and growth in cannabis oil revenue. The company’s average net selling price for dried cannabis during the quarter was $5.45 per gram, which compared to $6.60 per gram during Q3 and was caused by lower pricing of adult-use products.

“Although the Q4 result was disappointing, Cronos recently closed the $2.4 billion investment by Altria and now ready to deploy the cash for product development and global expansion. Currently, Cronos has footprints in Germany, Australia, Israel, and Colombia,” Zandberg said in an update to clients on Tuesday.

The analyst has altered his forecasts, calling for fiscal 2019 revenue and EBITDA of $91.5 million and negative $57.5 million (previously $100.3 million and $24.3 million) and fiscal 2020 revenue and EBITDA of $241.0 million and $30.3 million (previously $240.5 million and $72.9 million).

Zandberg’s $24.00 target represented a projected 12-month return of negative 11.1 per cent at the time of publication.