Replies to post #8684 on Cronos Group Inc (CRON)

[Gladys Thong]

Cronos: Sitting On Its Hands

Cronos: Sitting On Your Hands Is Not A Winning Strategy

* Cronos is the third-largest and most expensive large-cap Canadian LP (behind Canopy and merged Aphria/Tilray).

* 2020 Q3 financial performance remains weak with $11M in revenue and $30M of negative EBITDA, unfitting for a $1.4B company.

* The business does not seem to have a clear strategy, and it has made little progress since Altria invested in Dec 2018.
. . .
Cronos continued to show little progress in its cannabis business with small revenues and large losses. The company was given $1.8B in cash from Altria (NYSE:MO), which is battling its massive missed bet on Juul that caused a ~$11B write-off so far, but it is not clear what is the business plan for Cronos.

Weak Financial Results

Cronos is the second-largest cannabis company in Canada with a $1.4B enterprise value. However, the company only pulled in $11M in sales last quarter, which annualized to less than $45M. . . .

Cronos paid ~40x EV/Sales for a business that just reported $1.6M in Q3 sales. The U.S. operation also reported massive operating losses of $12M . . .

Cronos continues to burn cash due to large operating losses made possible by break-even or negative gross margins and ~$150M of annualized operating expenses. Since Altria invested $1.8B, Cronos has burned through $500M . . .

Cronos has a very simplistic business today that is certainly not compatible with its valuation. Its operations remain deeply unprofitable which implies that its valuation is largely based on hope and the Altria affiliation.

Conclusion

. . . The Altria relationship has done little in two years after Cronos burned through $500M in cash. After all, Cronos appears to be sitting on its hands while waiting for the U.S. market to open which to us is not going to be a winning strategy.