Cronos Group Inc. (TSE: CRON) offers a wide range of cannabis products related to personal wellness and adult-consumer segments and operates across five continents.

In September 2019, CRON successfully acquired Redwood Holding Group, LLC, which manufactures and distributes hemp-derived supplements and cosmetic products across the U.S. market. Acquisition costs stood at US$299.9 million in cash and other considerations. The company intends to leverage its capabilities in order to expand its presence across the U.S.

The company launched cannabis vaporizer devices for the Canadian adult-use market under the brand name of COVE and Spinach in December 2019.

Financial Highlights: For the year ended December 31, 2019, CRON posted consolidated net revenue of US$ 23.75 million, up 96% from FY18. The exuberant growth was driven by an increased contribution from Rest of World Segment on account of production growth, increases in the volume of wholesale sales, followed by addition of new product-line (adult-use segment) across Canada. The business witnesses higher operating expenses, which resulted in an operating loss of US$ 121.48 million, as compared to the operating loss of US$ 21.34 million in the previous year. However, the bottom-line was cushioned by a gain on revaluation of derivative liabilities of US$ 1,276.82 million, resulting in net income of US$ 1,165.57 million, against a loss of US$ 21.82 million in FY18. The group exited the period with cash and cash equivalents of US$ 1,199.69 million, increased from US$ 23.93 million in FY18.

Income Statement Highlights (Source: Company Reports)

Stock Recommendations: The stock of CRON is trading at CAD 7.84, with a market capitalization of CAD 2.73 Billion. The stock corrected 34.66% and 67.86% in the last six months and one year, respectively. The stock is quoting at the lower band of its 52-weeks trading range of CAD 24.60 and CAD 5.82. CRON stock witnessed immense selling pressure in the recent past. The company is looking at several production partnerships to drive growth. Moreover, it is planning to increase its presence across the U.S markets both through organically and inorganically. Notably, the company is highly dependent on two of its large clients and derives about 14% and 18% of the total revenue from these two. Loss of any of these two clients would drastically hit the company’s top line. Further, higher operating costs makes us skeptical. Considering the aforesaid facts, we recommend investors to have a wait and watch stance on the stock at the closing market price of CAD 7.84 as on April 03, 2020.

CORON One-Year Daily Price Chart (Source: Thomson Reuters)

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