Marijuana stock Cronos Group fell on Tuesday after it lost a bullish rating. It just added a new one.

Where we were. Cronos stock (ticker: CRON) has tanked 76% in the past 12 months and has fallen 28% year to date. Industry-wide struggles have dragged on pot stocks, including pressure from illegal sellers, a sluggish provincial retail store rollout in Canada’s most populous province, and a greater-than-expected trend toward value-priced pot rather than premium offerings.

But one area Cronos isn’t struggling like its peers is cash burn. With its $1.8 billion investment from Altria Group (MO), Cronos has opted for an asset-light approach. Instead of rushing to build the next “biggest” greenhouse facility, Cronos has been more prudent with its cash.

Cronos recently had more than a billion in cash, which could last for years based on recent spending. Some of its competitors, like Aurora Cannabis, could have months of cash remaining—unless they’re able to raise funds or cut spending.

What’s new. Cronos stock fell nearly 12% on Tuesday after Stifel analyst Andrew Carter lowered his rating to Hold from Buy. He’s had that bullish rating since October 2019. Carter cited the company’s recent SEC filing that extended its deadline for fourth-quarter earnings by 15 days—a deadline Cronos did not give assurances it would make.

In a news release, Cronos cited an audit related to “several bulk resin purchases and sales of products through the wholesale channel and the appropriateness of the recognition of revenue from those transactions.”

MKM Partners analyst Bill Kirk says such uncertainty is a reason to buy the dip. As Kirk writes, the wholesale business is not one of its core businesses.

“We estimate that Cronos wholesale revenue is C$10mn/year,” he wrote. “Cronos is not valued on wholesale revenue opportunities (nor should it be). Even if all the wholesale revenue and profitability didn’t exist (unlikely), we still think there is compelling value.”

He noted the company’s cash and short-term investments, limited cash burn, and debt burden give it a net cash position of C$1.9 billion (US$1.4 billion). Its market cap is about C$2.6 billion, making cash alone 75% of its equity value, according to Kirk.

Cronos stock was up 3% to $5.48 Wednesday morning, while the S&P 500 index was up 1.7%.

Looking ahead. Kirk raised his rating to Buy from Hold but lowered his price target to C$11 from C$12.

Kirk likes advantages in the U.S. market that could come from investor Altria. “Altria is the most important vendor into U.S. convenience stores and likely has more points of distribution than any CPG company,” he wrote.

Kirk also estimates that, of the six Canadian growers he covers, Cronos set the most correct expectations. Based on statements in earnings calls, analyst days, and other public comments, industry expectations were only correct about 50% of the time since 2017. Cronos has been right about 68% of the time, according to Kirk, which, in his view, inspires more confidence.

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