Cronos Group (TSX:CRON) (NASDAQ:CRON) is among the most valuable companies in the marijuana industry with a valuation of $4 billion, but recently the CRON stock had a bit of a rough ride. It went below the critical level of $12 this week, a level it had not breached since the month of January this year and hence, it is necessary to take a closer look at exactly what Cronos Group has been up to.
Key Analysis
Experts believe that its current valuation of $4 billion is a bit overblown, although one has to take into consideration the fact that the company is cash-rich and does, in fact, have $1.8 billion in cash at its disposal. That being said, it is still difficult to figure out how the rest of the $2.2 billion worth of valuation comes from.
The company has decided to focus on the CBD and cannabis derivative products market, which are currently proving to be extremely important segments. However, its production capacity is not yet up to the level of the biggest companies in the industry. That being said, CBD and its derivatives are high margin products, which is why production capabilities might not matter as much as one might think.
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CRON stock is down 2.50% at $11.69 on the Nasdaq.
The supply issues that are currently being faced by many companies in Canada could also prove to be a detrimental factor for Cronos Group in the near future as it tries to ramp up its CBD and derivative production.
The company’s earnings may have been impressive this time around, but it needs to be pointed out that it included plenty of one-time benefits that are not going to be there in the upcoming quarters. Moreover, its massive cash balance of $1.8 billion will not be of much use if it sits in the bank without being invested in high-growth businesses.
The value will erode, and eventually, Cronos would not benefit from it. Although it has not been able to match companies like Aurora Cannabis (TSX:ACB) (NYSE:ACB) and Canopy Growth (TSX:WEED) (NYSE:CGC) in the Canadian market, it needs to be stated that Cronos has managed to spread internationally quite aggressively.
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