Canadian cannabis stock Cronos Group (NASDAQ: CRON) (TOR: CRON.TO) has had a relatively mixed performance over the last few months, with its stock falling from over CAD 11 in early January to levels of about CAD 8.50 currently, due to relatively disappointing Q1 results and likely some profit booking, after the stock soared by 5x last year. While marijuana stocks, in general, face many risks as the organized market for marijuana is still in its infancy, there is significant scope for earnings growth in the industry. Below, we take a look at some of the trends that could drive the performance of Cronos Group and the broader Canadian marijuana industry going forward.
View our interactive dashboard What’s Driving Cronos Group’s Valuation which allows users to modify the company’s forward revenues and multiple to arrive at a valuation estimate for the company. We are valuing Cronos group at about CAD 9 per share, or CAD 1.6 billion, which is roughly in line with the market price.
Canada’s Legalization Of Recreational Marijuana
Canada will become the first G7 nation to legalize the use of marijuana for recreational purposes by adult consumers. This revolutionary law is anticipated to open up a new and lucrative market for cannabis companies in the country. According to market assessment, the sales of Canadian marijuana could…
go up by over $4 billion in the first year of its legalization. To prepare for the legalization Cronos is expanding its capacity (see below), while improving its retail footprint via a joint venture with the U.S-based company, MedMen, which will help it develop branded products and open stores across Canada for the sale of recreational marijuana. MedMen is the largest cannabis retail chain in California and the company’s retail expertise could be valuable to Cronos as it addresses new customer groups.
Scaling Up Manufacturing Capacity
Cronos is looking to significantly ramp up its production capacity. While the company only had about 6,650 kg of capacity at the end of last year, it has estimated that its annual production capacity will exceed 47,000 kg by early 2019. To reach these levels, Cronos is scaling up its Peace Naturals indoor facility, while building a greenhouse in Israel and another indoor facility in Australia via a joint venture. The company is also creating a…
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