What Cronos Group Inc.’s (TSX:CRON) Earnings Mean for Cannabis Stocks

If you’ve been plugging your ears against the noise that is the cannabis industry this week, then you may not have heard about the latest fourth-quarter earnings report getting analysts going.

Cronos Group Inc.  (TSX:CRON)(NASDAQ:CRON) announced a net loss on March 26, due to an increase in operating costs, missing analysts’ estimates. The loss wasn’t small either, with the company losing $11.6 million, compared to a profit of $2.1 million this same time last year.

But while this loss is important, it wasn’t the only thing being reported by the company. Cronos also told investors about its huge increase in sales after legalization. The company saw revenue more than triple to $5.6 million since the last earnings report on December 31.

So what does this mean for other cannabis companies? And where does Cronos stand among them?

Cronos’ big break

While Cronos may be smaller than a lot of cannabis companies out there, it’s still in the same position of growing its production and expanding into international markets, most notably the U.S.

The company inked a deal with Altria Group Inc. late last year that had investors thrilled at the news. The Marlboro cigarette maker would hold a 45% stake in the company after acquiring it for $2.4 billion, with the option to boost that stake to 55% should the company prove worthy.

The deal would be a huge help to the cannabis company in expanding throughout the U.S. market, and in the short term its certainly helped as well. Cronos used some of that cash to fully pay off its credit with Canadian Imperial Bank of Commerce and Bank of Montreal.

Cronos also announced its acquisition of NatuEra in Colombia to expand its greenhouse capacity, though plans aren’t available yet. And that’s where Cronos has a problem.

Cronos currently has a growth capacity of about 40,000 kilograms of cannabis per year. It has a joint venture to increase this capacity to about 70,000 kilograms called Cronos GrowCo, but that won’t be available until 2020. This puts Cronos near the bottom of some of its bigger peers in terms of production. With legalization now in the rearview, Cronos may struggle to reach those same sales numbers.

Peer pressure

Cronos is certainly getting pressure to perform next to its peers. As I mentioned, the stock is near the bottom in terms of what it can produce. Aurora Cannabis Inc.Canopy Growth Corp., and Aphria Inc. are all already in the triple digits when it comes to kilograms produced per year. So Cronos has a lot of catching up to do.

It also has a lot of catching up in the revenue department, despite announcing a 248% increase. Canopy Growth reported revenue of $83 million last quarter, and Aurora $54 million. And, oh yeah, Aurora’s stock is also way cheaper, so there’s that going for it as well.

Bottom line

While it wasn’t the best news for Cronos, it wasn’t all that bad for the cannabis industry as a whole. Granted, Cronos is going through the same growing pains as everyone else. Canopy is reinvesting so much back into its business, it probably will be posting a loss soon too.

But the difference is that Cronos is so much smaller, and those growing pains are going to hurt for a while before it finally reaches peak production.

You might be missing out on one of the biggest opportunities in Canadian investing history…

Marijuana was legalized across Canada on October 17th, and a little-known Canadian company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

Besides making key partnerships with Facebook and Amazon, they’ve just made a game-changing deal with the Ontario government.

One grassroots Canadian company has already begun introducing this technology to the market – which is why legendary Canadian investor Iain Butler thinks they have a leg up on Amazon in this once-in-a-generation tech race.

This is the company we think you should strongly consider having in your portfolio if you want to position yourself wisely for the coming marijuana boom.

Learn More About This TSX Stock Now

More reading

Fool contributor Amy Legate-Wolfe owns shares of Aurora Cannabis and Canopy Growth.

Source: The Fool
What Cronos Group Inc.’s (TSX:CRON) Earnings Mean for Cannabis Stocks
The Fool

The Motley Fool
Contributor for investorsnews.ca
The Motley Fool is dedicated to helping the world invest — better. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, mutual funds, and premium investing services.

In all we do, we take a different approach.

We believe – and have proven over decades – that the individual investor can beat the market.

We believe that anyone can do it, even if they don’t have a lot of time or money to devote to investing.

We believe in a long-term outlook, helping people build wealth over time.

We believe that the person best positioned to take care of your financial future is you.

And we work tirelessly on behalf of our hundreds of thousands of members who are enjoying the opportunities that come with having enough money to do the things that matter to them.

While we are headquartered in Alexandria, Va., The Motley Fool advocates for the individual investor around the globe with offices in the UK, Australia, Canada, Singapore, and Germany.

Related posts