As has been widely noted since the start of the year, marijuana equities are among 2019’s best-performing issues. Until recently, it would have been accurate to include Cronos Group (NASDAQ:CRON) in that conversation.
Although the ides of March recently struck Cronos Group stock, shares of the Canadian cannabis company are still up 94.80% this year (as of March 27). In fact, Wednesday could go down as a day of infamy for Cronos Group stock.
In late trading, CRON stock was down more than 11% on above-average volume after Canaccord Genuity analysts Matt Bottomley and Bobby Burleson downgraded the shares to “sell” from “hold.”
Late Wednesday, Cronos Group stock was clinging to the $18 area, well above Canaccord’s price target of $12.68.
“While the sales of Canada’s other prominent producers ranged from $15 million to $60 million in the December quarter — the first in which the country allowed recreational sales to adults — Cronos managed just $4 million in sales of both medical and recreational pot,” reports Barron’s. “That even missed the low-bar of Canaccord’s forecast for $5 million.”
While the analysts were not impressed with Cronos’s fourth-quarter revenue, the company’s sales for the last three months of 2018 jumped almost 250%. Measured in kilograms of cannabis, sales nearly tripled during the fourth quarter and Cronos also said its average selling price rose by about 17%.
Cronos Stock: A Falling Knife
There are definitely bull and bear cases for Cronos Group stock. In fact, Canaccord is not the only sell-side firm that is bearish on the shares. Jefferies analyst Owen Bennett recently reiterated an “underperform” rating on Cronos Group stock with a $17 price target.
Last month, it was revealed that noted short selling firm Citron Research said it was shorting Cronos Group stock due in part to the shares trading well above the average price target set by analysts covering the company.
Citron Research’s Andrew Left noted some Canadian weed companies had run too far too fast, prompting investors to reallocate capital to U.S.-based cannabis companies. That is bad news for Cronos Group stock because, according to some analysts, the company is scuffling a bit in the Canadian market, potentially giving more investors compelling reasons to flee the shares in favor of U.S.-based marijuana names.
Due the slow start in Canada experienced by Cronos, the Canaccord analysts “slashed their sales forecasts for the company,” reports Barron’s. “Canaccord now foresees 2019 sales and cash flow coming in at $84 million and $16 million, respectively, instead of the previously-forecast $132 and $41 million. For 2020, the analysts now predict $178 million in revenue and $64 million in cash flow.”
All that said, Cronos Group stock is currently an embattled name and the technicals reflect as much. The stock’s recent tumble has taken the shares below the 50-day moving average and Cronos Group stock would need to rally more than 28% from current levels to reclaim its 52-week high.
Bottom Line on CRON Stock
One of the primary catalysts for Cronos Group stock was news announced last December that Altria Group Inc. (NYSE:MO) made a $2.4 billion equity investment in the Canadian company. Given what many analysts and investors view as stretched valuations on the name, it is clear Cronos Group more than adequately reflects the Altria news as well as some other potential catalysts.
It is expected that Cronos will enter the booming U.S. market for hemp-based CBD products, but with Cronos Group stock trading at 35x expected 2020 sales, triple the comparable metric on rival Canadian cannabis names, even the U.S. CBD foray appears baked into the shares.
For now, the bottom line for investors that are sitting on Cronos Group stock profits is that now is probably a good time to officially recognize some of those profits. For investors that missed out on the stock’s breathtaking rally, waiting for lower prices to become available is a prudent near-term idea.
As of this writing, Todd Shriber does not own any of the aforementioned securities.
