Cronus Group Stock is Cash Rich Cannabis Play

Cannabinoid products producer Cronus Group (NASDAQ: CRON) stock has fallen over (-30%) from its $15.83 year-to-date (YTD) highs reached on Feb. 10, 2021 with the Nasdaq sell-off.
Cronus Group Stock is Cash Rich Cannabis Play
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Cannabinoid products producer Cronus Group (NASDAQ: CRON) stock has fallen over (-30%) from its $15.83 year-to-date (YTD) highs reached on Feb. 10, 2021 with the Nasdaq sell-off. To be fair, the whole cannabis group including Canada-based Tilray (NASDAQ: TLRY), Canopy Growth Corporation (NASDAQ: CGC) and U.S.-based GrowGeneration (NASDAQ: GRWG) all peaked on that day and proceeded to sell-off. Stocks like Tilray took a (-60%) haircut of its February 10th highs. The anticipation of U.S. federal legalization of marijuana is the highly anticipated binary event for this group. However, the legalization on a state-by-state basis is the catalyst triggering short term bounces. Cronus Group continues to invest in its product portfolio and distribution infrastructure with its massive $1.3 billion cash war chest, thanks to a $1.8 billion investment by Altria Group (NYSE: MO) for a 45% stake in December 2018. With New York reaching a marijuana legalization deal and Democratic majority seeking to end federal prohibition in 2021, there are growing tailwinds for the industry. Cronus has a diversified portfolio that can benefit from the continued legalization tailwinds. Risk-tolerant investors may want to watch for opportunistic pullback levels if considering taking exposure in this play.

Q4 FY 2020 Earnings Release

On Feb. 26, 2021, Cronus Group reported an adjusted earnings-per-share (EPS) loss of (-$0.30), missing consensus analyst estimates for EPS loss of (-$0.07), by (-$0.23). Revenues rose 133% year-over-year (YOY) to $17 million, up $9.7 million from the previous year period. This was driven primarily by the continuing growth in the adult-use market in Canada, Israeli medical marijuana sales and growth in the U.S. segment. The Company incurred an inventory write-down of $15 million on dried cannabis and cannabis extracts driven by price compression in Canada. Further inventory write-downs are possible due to pricing pressures. Adjusted EBITDA losses were ($53.1 million) driven by the increase in G&A and R&D spending. Capex was $11 million in Q4 primarily driven by spending at the Peace Naturals campus, Cronos Fermentation, its Israeli facility, and the new ERP system.

Happy Dance Bath and Body Products

The line of CBD line of bath and body products co-founded by Actress Kristen Bell, Happy Dance, secured its first major U.S. retailer ULTA Beauty (NASDAQ: ULTA). The full line of products is expected to launch online and in-store in over 550 ULTA Beauty locations.

Peace Naturals

Cronos Israel received all certifications and licenses to cultivate, produce and market dried flower, pre-rolls, and oils in Israel. Cronos Israel signed a distribution agreement with the largest pharmacy chain in Israel, Super-Pharm, with over 250 branches for distribution and brand awareness. Peace Naturals is the medical-purpose cannabis product line.

Cronos Growing Company Completion

The construction of the Company’s greenhouse and post-harvest production facility was completed and received a cultivation license. Cronos Group expects the facility to be operational in phases beginning in 1H 2021. Of the six brands, Cronos is currently offering Lord Jones, U.S. hemp-derived supplements and cosmetics, and Happy Dance, CBD skincare, in the U.S. The Company anticipates PEACE+ line of products for U.S. distribution. U.S. sales improved 30% YoY to $3.5 million. The Company ended the quarter with $1.3 billion in cash, cash-equivalents, and short-term investments. While sale are paltry compared to peers, the war chest of $3.58 cash-per share provides a very long runway for the Company to harvest growth and buy time for U.S. Federal legalization.

Cannabinoid products producer Cronus Group (NASDAQ: CRON) stock has fallen over (-30%) from its $15.83 year-to-date (YTD) highs reached on Feb. 10, 2021 with the Nasdaq sell-off. To be fair, the whole cannabis group including Canada-based Tilray (NASDAQ: TLRY), Canopy Growth Corporation (NASDAQ: CGC) and U.S.-based GrowGeneration (NASDAQ: GRWG) all peaked on that day and proceeded to sell-off. Stocks like Tilray took a (-60%) haircut of its February 10th highs. The anticipation of U.S. federal legalization of marijuana is the highly anticipated binary event for this group. However, the legalization on a state-by-state basis is the catalyst triggering short term bounces. Cronus Group continues to invest in its product portfolio and distribution infrastructure with its massive $1.3 billion cash war chest, thanks to a $1.8 billion investment by Altria Group (NYSE: MO) for a 45% stake in December 2018. With New York reaching a marijuana legalization deal and Democratic majority seeking to end federal prohibition in 2021, there are growing tailwinds for the industry. Cronus has a diversified portfolio that can benefit from the continued legalization tailwinds. Risk-tolerant investors may want to watch for opportunistic pullback levels if considering taking exposure in this play.

Q4 FY 2020 Earnings Release

On Feb. 26, 2021, Cronus Group reported an adjusted earnings-per-share (EPS) loss of (-$0.30), missing consensus analyst estimates for EPS loss of (-$0.07), by (-$0.23). Revenues rose 133% year-over-year (YOY) to $17 million, up $9.7 million from the previous year period. This was driven primarily by the continuing growth in the adult-use market in Canada, Israeli medical marijuana sales and growth in the U.S. segment. The Company incurred an inventory write-down of $15 million on dried cannabis and cannabis extracts driven by price compression in Canada. Further inventory write-downs are possible due to pricing pressures. Adjusted EBITDA losses were ($53.1 million) driven by the increase in G&A and R&D spending. Capex was $11 million in Q4 primarily driven by spending at the Peace Naturals campus, Cronos Fermentation, its Israeli facility, and the new ERP system.

Happy Dance Bath and Body Products

The line of CBD line of bath and body products co-founded by Actress Kristen Bell, Happy Dance, secured its first major U.S. retailer ULTA Beauty (NASDAQ: ULTA). The full line of products is expected to launch online and in-store in over 550 ULTA Beauty locations.

Peace Naturals

Cronos Israel received all certifications and licenses to cultivate, produce and market dried flower, pre-rolls, and oils in Israel. Cronos Israel signed a distribution agreement with the largest pharmacy chain in Israel, Super-Pharm, with over 250 branches for distribution and brand awareness. Peace Naturals is the medical-purpose cannabis product line.

Cronos Growing Company Completion

The construction of the Company’s greenhouse and post-harvest production facility was completed and received a cultivation license. Cronos Group expects the facility to be operational in phases beginning in 1H 2021. Of the six brands, Cronos is currently offering Lord Jones, U.S. hemp-derived supplements and cosmetics, and Happy Dance, CBD skincare, in the U.S. The Company anticipates PEACE+ line of products for U.S. distribution. U.S. sales improved 30% YoY to $3.5 million. The Company ended the quarter with $1.3 billion in cash, cash-equivalents, and short-term investments. While sale are paltry compared to peers, the war chest of $3.58 cash-per share provides a very long runway for the Company to harvest growth and buy time for U.S. Federal legalization.

Cronus Group Stock is Cash Rich Cannabis Play

CRON Opportunistic Pullback Levels

Using the rifle charts on the monthly and weekly time frames provides a more broader perspective of the landscape for CRON stock. The monthly rifle chart uptrend peaked on the spike up to the $15.80  Fibonacci (fib) level. The rapid rug pull reversal caused shares to collapse to the $8.69 fib support before coiling back up through the monthly 5-period moving average (MA) support at $9.18. While the monthly stochastic is still rising, it is a laggard to the smaller time frames. The monthly upper Bollinger Bands (BBs) target the $12.41 level but momentum is slipping as evidenced by the weekly rifle chart. The monthly market structure low (MSL) buy triggered on a break above $6.72 but also formed a market structure high (MSH) sell trigger on a breakdown below $8.66. The weekly rifle chart is starting to break down as the 5-period MA at $9.94 starts to crossover down through the 15-period MA at $9.97 driven lower by the bearish weekly stochastic mini inverse pup oscillation down. This can provide opportunistic pullback price levels at the $8.11 fib, $7.69 fib, $6.72 monthly MSL trigger, $5.88 fib, and the $5.46 fib. Keep an eye on peers TLRY, CGC and GRWG as they tend to move as a group. Upside trajectories range from the $11.77 fib up to the $14.68 fib.

      

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