Raymond James analyst Michael W. Freeman has tempered his expectations on Canadian cannabis name Cronos Group (Cronos Group Stock Quote, Charts, News, Analysts, Financials NASDAQ:CRON), keeping an “Outperform” rating in a Wednesday report but lowering his target from $7.00 to $3.00 per share. Freeman said multiple compression across the cannabis space was the cause.
Toronto-based Cronos, a licensed cannabis producer in Canada with domestic and international business and a key partnership with multinational CPG company Altria, announced its fourth quarter 2022 and full-year financials on Tuesday. Cronos posted Q4 revenue of $22.9 million, down 11 per cent year-over-year, and full 2022 revenue of $91.9 million, up 23.5 per cent from 2021. Quarterly adjusted EBITDA was a loss of $21.2 million compared to a loss of $27.4 million a year earlier. (All amounts in US dollars.)
“2022 was a transformative year for Cronos in which we executed a business realignment, including a cost savings program, while staying laser focused on continuing to build our portfolio of borderless products,” said Mike Gorenstein, Chairman, President and CEO, in a press release.
Freeman said the Q4 topline of $22.9 million was in-line with the consensus estimate at $22.3 million, while adjusted EBITDA at a loss of $21.2 million was a miss of the Street’s call at negative $19.1 million. The analyst noted cash at the quarter’s end of $877.7 million and no debt, with the quarter showing growth in Canadian cannabis sales, steady sales into Israel and a small step up for the company’s US CBD sales.
Freeman said Cronos continues to introduce new product innovations, even as it rationalizes costs, adding two new strains of pre-roll and flower products over the fourth quarter. The analyst noted that CRON’s Spinach brand of edibles became #1 by market share in Canada, a point of interest seeing as Cronos has grown its share of the edibles market from essentially zero to 15.9 per cent in less than two years.
“We expect future innovations from CRON will come in the form of infused pre-rolls (Canada’s fastest growing product-set), and in products featuring custom combinations of multiple rare cannabinoids, honing in on fine-tuned sensory experiences. These innovations, which CRON is finding success with in its Canadian ‘test market’, are the core of its borderless IP and brand strategy,” Freeman wrote.
Freeman said Cronos continues to trade at below cash, with a pro forma enterprise value of currently $253 million. At press time, Freeman’s new $3.00 target represented a projected one-year return of 38 per cent.
“We continue to see CRON as a patient, well-insulated cannabis name: a top-ten LP in Canada and a top-three cannabis operator in Israel impelled by a tech-, IP-, and brand-driven growth strategy, a ~$877 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,” Freeman said.