(Photo by Uriel Sinai / Getty Images)
Photograph by Uriel Sinai / Getty Images
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One day after Canadian pot producer
Cronos Group
reported slender sales for the December quarter, analysts at Canaccord Genuity downgraded the stock to a sell. This morning's note by analysts Matt Bottomley and Bobby Burleson quote the stock's sky-high majority and fretted at Crono's slow start in Canada's recreational cannabis market.
On the Nasdaq, the Cronos file (ticker: CRON) is down 11% today to $ 18.08. It remains well above analysts' price target of $ 12.68.
While sales of Canada's other prominent manufacturers ranged from $ 15 million to $ 60 million in the December quarter, the first country to allow adults to sell to adults, Cronos managed only $ 4 million in sales of both medical and recreational games. Still, it missed Canaccord's $ 5 million forecast.
Barron searched Cronos's comment on the downgrade, but received no reply.
Analysts also note that Crono's average selling price for dried bids and oil in the quarter was Canadian $ 5.39 (US $ 4.00), which was behind its peer group average of C $ 6.50. The $ 9 million low-quarter stock, with only about $ 1 million for finished goods, failed to make good for quarterly sales, says Canaccord's gents.
Due to Cronos' relatively slow start out of the port in the [Canadian] rec market, "analysts slashed their sales forecasts for the company. Canaccord now assumes 2019 sales and cash flows of $ 84 million and $ 16 million, respectively, in place of the previous forecast of $ 132 and $ 41 million. For 2020, analysts expect $ 178 million in revenue and $ 64 million in cash flow.
Despite the size disadvantage of such ones
Canopy Growth
(CGC) and
Aurora Cannabis
(ACB), Cronos has seen its stock trading as high as $ 25 after the tobacco giant
Altria Group
Plunked down $ 1.8 billion for a 45% stake – a price that represented $ 12 per share.
"Cronos has seen its stock price almost double as one of only two licensed manufacturers to receive a substantial stock investment from a global strategic partner," writes Bottomley and Burleson. Even in yesterday's price of $ 20, they notice that Cronos traded almost 92 times its estimate for 2020 cash flow. On the other hand, cannabis rivals trade with better levels of recreational turnover at approximately 40 times estimated 2020 cash flows.
It's too rich a premium, even for the industry leaders in Canaccord.
Write to Bill Alpert at william.alpert@barrons.com
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