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Is Marijuana Stock Cronos Group a Purchase? – The Motley Fool




Cronos Group (NASDAQ: CRON) reported fourth-quarter financial results this week that could not impress. Despite the fact that revenue jumped over 50% from the quarter, investors sold shares due to rising losses.

A Great Market Opportunity

The thrill of marijuana shares stems from the ability of cannabis companies to obtain what Constellation Brands has said could be a global market worth $ 200 billion in 15 years. It is a jaw outlook for potty stocks, earning revenue in most of these companies, including the Cronos Group, tracking less than $ 100 million a year.

  An origami paper finger game with the words buy, sell and hold written on

IMAGE SOURCE: GETTY IMAGES.

The worldwide opportunity is based on around $ 150 billion being spent on marijuana today, according to the United Nations, and spending can climb as several countries legalize marijuana and consumers embrace new products made from cannabis or chemical cannabinoids derived from it. for example, beverages.

Tapping on the Recreational Market

Reaching $ 200 billion in long-term market goals will require more countries to legalize marijuana. Today, Canada is the only member of the G7 nations that has passed the laws that allow adult recreational use, and Canada's market is small compared to Europe and the US.

Canadians spend about 6 billion Canadian dollars per year on marijuana, but the lion's share of the expenses is in the black market, not in licensed medical or recreational dispensers. In Q4 2018, Canada's spending amounted to $ 1.48 billion, and only $ 155 million and $ 152 million were spent on licensed medical or leisure retailers.

It is far shy of what the forecasts expected in the quarter. In September 2018, Statistics Canada, the Canadian government's official number cruncher, reckons to legal expenses of between $ 816 million and $ 1.02 billion due to its recreational marketplace opened on October 17, 2018.

Nevertheless, the change of sales out of the Shadows Regulated dealers are still a blessing to Canada's best cannabis companies, including the Cronos Group. In the quarter, net sales increased by 248% during the year to $ 5.6 million, and net sales for the full year were $ 15.7 million, up 285% from 2017.

Subsidy Costs

growth skyrocketing this year, It may surprise you that the Cronos Group's shares stumbled upon the revenue release. However, it is less shocking when you start digging into the company's income statement and discover that Crono's spending is growing much faster than revenue.

Gross profit in the fourth quarter was $ 2.5 million excluding real value adjustments to the value of marijuana in stock, representing a gross margin of 44%. Operating expenses, including sales, general and administration, research, share compensation, etc. However, in the quarter was $ 12.4 million, an increase of 328% from the same quarter in 2017. As a result, the company's fourth quarter net loss was $ 11.8 million, or more than double the revenue. For the full year, the net loss was USD 19.2 million, an increase of over 1100%.

How bad is that?

Since we are talking about a market of about $ 6 billion in Canada and a global opportunity worth $ 150 billion now, investors should not blame Cronos Group or its peers for investing significantly to establish a foothold.

The company also flushes cash, so it can afford to increase costs without risking bankruptcy. It recently closed an investment from the tobacco giant Altria (NYSE: MO) which increased the balance by $ 2.4 billion. Altria now owns 45% of Cronos and an option that, if exercised, allows it to pay $ 1.4 billion to increase its 55% stake.

Altria's branding expertise – it is the manufacturer of Marlboro cigarettes – and its deep pockets suggests that Cronos has ample financial wiggle room to capitalize on opportunities, both in Canada and, possibly, in the US, where speed to legalize marijuana federally growing. So far, 10 states have been adhering to the Act on Adult Use, and according to Gallup, about two-thirds of Americans have favored making legal use legally nationwide.

  A man stares at the blackboard that is drawn by drawings of money bags and question marks. [19659022] Cronos Gruppe's relationship with Altria makes it less risky than peers without big name backdrops, but the revenues spring most of the most famous players in the square. </p>
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<h2>  Is Cronos worth buying? </h2>
<p>  and the market rate is higher than others with more income, suggesting that the Cronos Group is not the best deal between marijuana stocks. Nevertheless, there are plenty of opportunities to gain market share, increase sales and ultimately reward investors, so long-term investors who want to diversify across many marijuana stocks should consider this solution an opportunity to raise some stocks. </p>
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