Cronos stock has been falling since early June, with a slump of 35%. Let's analyze whether Cronos Group (TSX:CRON) (NASDAQ:CRON) has reached the bottom or not.
Key Analysis
The cannabis sector has gone through a lot of pain over the past few months as multiple factors have had an adverse effect on most stocks in the sector. Many stocks reached their all-time highs in February and March, but since then, many of them have given up much of those gains. Cronos Group, which remains one of the biggest companies in the industry, was not spared in the carnage either. Poor financial performances, coupled with analyst reports downgrading Cronos stock, have had a largely negative effect on CRON. That being said, it is important to figure out whether Cronos Group could prove to be a long term play for investors.
One of the most important factors in favor of Cronos is the fact that tobacco giant Altria Group (NYSE:MO) has invested $1.8 billion in the company and picked up a 45% stake in Cronos stock. The cash pile will help the company in expanding its business significantly, and recently it opened up a research facility in Israel.
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The company has been using that cash intelligently as well. It acquired Redwood Holding Group LLC in a deal worth $300 million, out of which Cronos Group paid out $225 million in cash. Redwood makes CBD-laced skincare products named Lord Jones, and it is believed to be a significant acquisition.
That being said, the company’s revenues are not growing at a rate that can be compared with its peers in the industry. For instance, in Q2 2019, the company’s revenues grew by 249% year-on-year to hit $90 million CAD. However, in the same quarter, Aurora Cannabis (TSX:ACB) (NYSE:ACB) posted $65 million CAD in revenues, but it generated year-on-year growth of 304%.
In addition, Cronos Group's production capabilities are not up to the mark for a company of its size. Currently, it produces 110,000 kilos a year. There are actually many smaller companies that produce more than Cronos currently. While it is true that there are plenty of positives with regards to CRON stock as a long term play, it needs to be pointed out that the company needs to expand its capabilities quickly.
Cronos stock is down another 2% at $11.49 in Wednesday's trading session.
Featured image: Canva
