Cronos Group is an undervalued stock, Roth says

Cronos Group (Cronos Group Stock Quote, Chart, News, Analysts, Financials TSX:CRON) is showing meaningful progress on profitability, according to Roth Capital Markets analyst Bill Kirk. In an August 7 sales analysis, he reiterated a “Buy” rating and C$5.00 target, citing stronger margins and a turnaround in Adjusted EBITDA.

Kirk said Cronos has turned a corner on profitability, noting that Adjusted EBITDA is now positive in the first half of the year and margins have strengthened. He added that an upcoming 50% increase in production capacity should help drive further sales gains and improve earnings, with Ontario market share expected to rise and international expansion continuing.

“Throughout our entire coverage (staples retail, broadlines, beverage alcohol and cannabis), Cronos remains our Top Pick,” he said. “We like where Cronos is, and, by 4Q, investors will be forced to recognize what Cronos has become.”

Toronto-based Cronos is a cannabis company producing and distributing cannabis products in Canada and Israel.

Cronos posted stronger-than-expected second-quarter results, reporting net sales of $33.5-million, up from $32.3-million in Q1 and ahead of the $32.9-million consensus. Adjusted EBITDA was $1.7-million, beating expectations of a $3.1-million loss, and remained positive following the company’s first-ever positive EBITDA quarter in Q1/25.

“Importantly, this comes before the completion of the expansion at GrowCo, which will increase supply (to meet existing demand) and lower unit costs,” Kirk said.

The company posted second-quarter revenue of $33.5-million, up 21% from a year earlier and 4% higher than the first quarter. Excluding its GrowCo joint venture, which contributed $2.2-million in the quarter, revenue rose 13% year over year and 6% quarter over quarter.

International markets drove the growth, with revenue in Israel reaching a record $9.4-million and other international sales, led by Germany, climbing to $4.9-million. Canadian revenue declined 3% from last year and 5% from Q1 to $19.2-million. Adjusted gross margin was 43%, just below the 44% reported in Q1 but up from 23% a year ago.

“Sustaining 44% gross margin will be difficult, but with demand exceeding supply and a capacity unlock on the horizon, Cronos’s prospects are exciting,” Kirk said. “Cronos announced a one-year $50mn share repurchase program, of which they used $3.6mn in 2Q.”

Kirk said he now expects Cronos to post third-quarter 2025 revenue of $37.3-million and Adjusted EBITDA of $5.6-million, up from a previous estimate of negative $0.6-million. For the full year, he forecasts $147.7-million in net sales and $16.5-million in Adjusted EBITDA, up from $147.2-million and $1.1-million, respectively. He thinks those numbers will improve to $40.9-million in Adjusted EBITDA on revenue of $220.6-million in fiscal 2026.

Cronos has said that sales from GrowCo’s increased capacity should begin in the fall, and that total second-half operating expenses will likely remain in line with the first half.

Kirk said Cronos remains a “cash and patience story,” but noted that its recent capital deployment signals that new opportunities are beginning to take shape.

“Cronos has wisely and largely avoided value-destructive M&A, and should be rewarded for its patience,” he said. “Should U.S regulations evolve, partnering with a tobacco distribution network will be more valuable than a beverage distribution network. When the U.S. legislative environment improves, Cronos, with its ample cash balance and retail relationships, should be one of the biggest Canadian beneficiaries.”

-30-