Cronos retains Outperform rating with Raymond James

Calling it the steadiest name in the cannabis game, Raymond James analyst Rahul Sarugaser reiterated on Monday an “Outperform” rating on Cronos Group (Cronos Group Stock Quote, Charts, News, Analysts, Financials NASDAQ:CRON). Sarugaser reviewed third quarter earnings from Cronos, where the company missed on revenue but was in-line with expectations on EBITDA.

Toronto-headquartered Cronos, a licensed cannabis producer with domestic and international business as well as a partnership with multi-national CPG company Altria, announced its Q3 2022 results on Monday, featuring net revenue up three per cent year-over-year to $20.9 million, a net income loss of $36.9 million and an adjusted EBITDA loss of $21.7 million compared to an EBITDA loss of $46.8 million a year earlier. (All figures in US dollars.)

Cronos said it’s seeing growth in its Israeli medical market along with higher extract sales in the Canadian adult-use market, while sales were down in the company’s US segment as well as its flower sales in Canada’s rec market. 

“While executing on our innovation pipeline, we also remain on track for the previously announced $20 to $25 million in operating expense savings for 2022. Importantly, we will seek additional opportunities to deliver more efficiencies in 2023,” said Cronos Chairman, President and CEO Mike Gorenstein in a press release.

On the numbers, Sarugaser said the $20.9 million topline was below his forecast at $30.0 million as well as the consensus call at $26.1 million, while adjusted EBITDA at negative $21.7 million was better than Sarugaser’s expected negative $22.8 million and the Street’s negative $24.3 million. 

Sarugaser noted that CRON’s Canadian adult-use market share continued to soften over the quarter, with the company landing at tenth spot, with 4.3 per cent of the market in the third quarter compared to 4.4 per cent in Q2 and as high as 5.1 per cent in the fourth quarter of 2021. 

The analyst said CRON’s US CBD business looks to be in “full restructuring mode,” while he also pointed to Cronos’ status as the #1 single cannabis brand in Israel and noted that the company thinks the recent election outcome with deliver greater certainty on the durability and growth prospects of the cannabis business in Israel.

“We continue to appreciate CRON’s patient, technology-driven, asset-light approach. And, we believe CRON is among those best poised to seize the opportunity inherent in U.S. federal legalization,” Sarugaser wrote.

With the update, Sarugaser reiterated an “Outperform” rating on CRON and is forecasting full 2022 revenue and EBITDA of $114 million and negative $86 million, respectively. For 2023, he is calling for revenue and EBITDA of $180 million and negative $80 million, respectively.

“We continue to see CRON as the steadiest name in the cannabis game: a top ten LP in Canada and a top three cannabis company in Israel motivated by a tech-, IP-, and brand-driven growth strategy; a ~$900 million cash pile (which benefits from rising rates; not many growth companies are in this position); a powerful strategic innovation and, ultimately, distribution partner, in Altria, and strong options on U.S. cannabis reform via its equity option (~10.5 per cent) on U.S. MSO Pharmacann (private) and its CBD assets and distribution channels,” Sarugaser wrote.