Why Cronos Group (TSX:CRON) Is Still Not a Buy

Despite stellar revenue growth, Cronos Group Inc (TSX:CRON)(NASDAQ:CRON) probably isn’t the best pick in the marijuana sector; here is why.

| More on:
Road sign warning of a risk ahead

Image source: Getty Images.

The recent struggles in the marijuana sector have been attributed to two main causes.

First, several scandals have rocked the industry. Of course, the biggest one of them — and by far the most damaging — was the drama surrounding CannTrust Holdings.

Second, a lot of pundits have claimed that the cannabis bubble has finally burst. There may be some truth to this claim. In years past, we had nothing other than the perceived growth of marijuana sales worldwide underpinning much of our valuation of pot companies. But now that there is a significant amount of financial information available to investors, hopes and promises are no longer enough; they want results.

Cronos Group (TSX:CRON)(NASDAQ:CRON) has been one of the most disappointing pot firms in this regard. 

An inflated stock price

Cronos has a lot going its way, most notably its partnership with Altria. This partnership allows the firm to have access to a lot of cash with which to fund its operations but also to benefit from Altria’s vast experience. This factor was, without a doubt, one of the main engines behind the firm’s shares skyrocketing at the beginning of the year. Sure, equity markets were recovering from a slump, and many other marijuana companies were performing well, but few of them performed nearly as well as Cronos.

Between January and early March, the firm’s share price more than doubled. However, there was little by way of actual financial results that could justify this increase. When the results came in, analysts were left unimpressed, and investors were left sorely disappointed. 

To be fair, Cronos has delivered sequential top-line increases consistently; the firm’s revenues jumped from about $3.7 million in September of last year to $10.2 million in June. The firm’s latest revenues also came in three times higher than consensus analyst estimates. However, the company’s results (and future revenue estimates) lag that of its main competitors by quite a margin. Though Cronos delivered a net income in its latest reported quarter, this was mostly due to an accounting gain that had little to do with its core operations.

In other words, the firm’s bottom line wasn’t as impressive as it seemed at first. Given Cronos’s mixed results, it isn’t surprising that the company’s shares have fallen from their all-time highs, and despite the recent price correction, the company still trades at a hefty valuation. 

Why Cronos isn’t a buy right now

Cronos is in search of opportunities to improve its financial performance. The firm recently dipped its toes into the CBD segment and is also looking to be a major player in the market for vaporizers, which are gaining in popularity among recreational marijuana consumers. Despite these potentially lucrative opportunities, it would be best to keep an arm’s length away from Cronos for one simple reason: promises aren’t substitutes for results. Until the firm can deliver performances on par with its competitors, the cannabis company doesn’t look particularly attractive. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Prosper Junior Bakiny has no position in any of the stocks mentioned.

More on Cannabis Stocks

Powder of Cannabis (Drugs), Analysis of Cannabis in laboratory.
Cannabis Stocks

Canopy Growth: Is There Budding Potential in the Cannabis Market?

Canopy Growth stock hit 52-week lows recently on news of needing to re-file on its BIoSteel business, so what now?

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

What’s Happening With Cannabis Stocks in May 2023?

Cannabis stocks were up this week, as the market began to turn, but how long will it last, and is…

Read more »

Cannabis smoke
Cannabis Stocks

Are Cannabis Stocks a Good Buy in May 2023?

If you're going to buy cannabis stocks, these are pretty much the only two I would consider. Even so, you…

Read more »

edit Cannabis leaves of a plant on a dark background
Cannabis Stocks

Aurora Cannabis: Time to Light Up Your Portfolio?

Here's my take on whether Aurora Cannabis (TSX:ACB) is worth adding to a growth portfolio right now, given its growth…

Read more »

Target. Stand out from the crowd
Tech Stocks

These Undervalued TSX Stocks Are a Bargain in May 2023

If you're willing to bet on a rebound, these are the three TSX stocks I would consider first as they…

Read more »

A cannabis plant grows.
Cannabis Stocks

Tilray Stock Is Scraping 52-Week Lows: Will it Bottom Out Soon?

Tilray (TSX:TLRY) stock remains down 53% in the last year, but when will this company hit the bottom and start…

Read more »

Medicinal research is conducted on cannabis.
Metals and Mining Stocks

2 Canadian Stocks That Are Simply Too Cheap to Avoid

These two Canadian stocks have sunk lower and lower, which is why now could be the right time for long-term…

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

1 Marijuana Stock I’d Buy Over Aurora Cannabis

Explore a promising marijuana stock that outshines Aurora Cannabis. Unveil the investment opportunity to boost your cannabis portfolio.

Read more »