There are plenty of cannabis stocks out there but none with the particular positives of Cronos Group (Cronos Group Stock Quote, Charts, News, Analysts, Financials NASDAQ:CRON), especially when it comes down to crunch time in the cannabis space. That’s the take from Raymond James analyst Michael W. Freeman, who reiterated an “Outperform” rating on the stock in a Tuesday report.
Cronos, a licensed producer of cannabis with business in Canada and internationally, released its first quarter 2023 earnings on Tuesday, showing consolidated revenue down 20 per cent year-over-year to $20.1 million and adjusted EBITDA up 11 per cent to negative $16.8 million. (All figures in US dollars.)
The company said its Canadian cannabis business saw a six per cent increase over the quarter compared to a year earlier.
“I am encouraged by our results across categories in Canada as we are defending our leading position in edibles and climbing market share ranks in other critical product categories,” said Mike Gorenstein, Chairman, President and CEO, in a press release.
“We intend to build off the strength of our number one position in edibles and utilize our borderless gummy platform for new innovative introductions, including additional rare cannabinoids and flavour profiles throughout 2023,” he said.
On the Q1 numbers, Freeman said Cronos’ $20.1 million topline was a miss of both his estimate at $23.3 million and the consensus call at $24.9 million. Adjusted EBITDA at negative $16.8 million was called in-line where Freeman had forecasted negative $18.6 million and the Street had pegged negative $17.3 million.
The company finished the quarter with $836.4 million in cash, a product of the $2.4 billion investment from multinational CPG company Altria made back in 2019.
Freeman said that money is a big deal and not simply because the stock is currently trading at below cash with currently a $56 million enterprise value. Freeman thinks Cronos’ cash pile will allow it to buy valuable assets once the coming storm hits the sector.
“Cannabis companies, particularly those in Canada and the U.S., continue to strain under oppressive regulatory structures; we believe a breaking point is oncoming, and we believe CRON is one of the best positioned to pick up the pieces (at bargain-basement prices), being among the few extant cannabis companies that are self-sustaining, and the only one with such a prodigious cash pile,” Freeman wrote.
“CRON doesn’t aim to be a ‘bond’ forever, and, we believe, will seize M&A opportunity when the time is right. Until then, the company will continue deploying borderless product innovation in key markets (e.g. formulations of rares in edibles, infused pre-rolls, concentrates) and improving the efficiency of the organization broadly,” he said.
On the quarter’s results, Freeman said CRON saw its market share in edibles erode but that a recent “stop sale” ruling from Health Canada should remove from retail shelves SKUs of the edible extracts variety, which will be a boon for Cronos, according to Freeman.
With the update, Freeman maintained a $3.00 target on CRON, implying a 12-month return of 51 per cent at the time of publication.
“We continue to see CRON as a well-insulated cannabis name: a top-10 LP in Canada and a top-3 cannabis operator in Israel impelled by a tech-, IP-, and brand-driven growth strategy, a ~$836 mln 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%) on U.S. MSO Pharmacann and its CBD assets and distribution channels,” Freeman wrote.