Cronos Group Inc.

Continued Operations and Decent Increase in Net Revenue: Cronos Group Inc. (TSX: CRON) cultivates and sells medicinal and recreational cannabis through its medicinal brand, Peace Naturals, and its two recreational brands, Cove and Spinach. As on 12 May 2020, market capitalization of the company stood at CAD2.53 billion. 

First Quarter Results (For the Period Ended 31 March 2020): During the first quarter ended 31 March 2020, continued growth in the adult-use Canadian cannabis market, sales from the launch of cannabis vaporizers, and the acquisition of Redwood resulted in an increase in net revenue of the company to USD8.4 million. In the same time span, an increase in the marginal production cost and writing down of inventory resulted in a gross loss of USD6.5 million.

Quarterly Financial Performance (Source: Company Reports)

What is on the Horizon: The company has entered the Israeli medical cannabis market to sell PEACE NATURALS™ dried flower products to medical patients. The medical market in Israel is a growing channel for the company, and CRON is likely to serve this market in the coming years. Despite the pandemic from the outbreak of COVID-19, the company remains agile and will continue to launch innovative products. CRON is targeting to improve lives through cannabinoid innovation. The company remains well positioned and committed to generate sustainable and long-term value for its shareholders.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company currently has sufficient inventory and supply of materials to meet current demand. However, the closures or other restrictions may impact business operations for third-party manufacturers which may disrupt the supply chain of the company. CRON has given a negative return of 8.78% in the past one month. The company has moved closer to operational readiness for the Cronos Israel facility. Considering the trading levels, negative returns in the past one month and impact of COVID-19 on financial performance, we have valued the stock using EV/Sales multiple based illustrative relative valuation method which gave us a limited upside. Hence, we have a watch stance on the stock as we would seek more visibility on the viability of the business. The stock is currently trading at the market price of CAD7.28, down by 1.355% on 12 May 2020.

CRON Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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