What To Watch As Cronos Group Publishes Q4 Results

CRON: Cronos Group logo
CRON
Cronos Group

Cannabis company Cronos Group is expected to publish its Q4 2018 results in the coming weeks. The company’s stock has fared well following its last earnings report, rising from around $8 in mid-November to close to $19 currently, driven by a $1.8 billion investment from tobacco major Altria Group and potentially due to the passage of the U.S. farm bill, which took steps towards the legalization of hemp at the federal level in the U.S. . (related: Should Cronos Group Scale Up Its U.S. Business?) While the company’s valuation has been surging, its financials are currently not of much consequence yet, with revenues standing at just $3.8 million in Q3 2018. For this quarter, we will be closely watching the company’s progress in the Canadian market, which recently legalized marijuana for adult recreational use, and also the company’s progress in increasing its manufacturing capacity.

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Canadian Operations 

Canada legalized cannabis sales for adult recreational use in October 2018, and Cronos has been expanding its distribution footprint, selling dried cannabis, pre-rolls and cannabis oils to regions including Nova Scotia, Ontario, British Columbia, and Prince Edward Island, which together account for over half of Canada’s population. The company said that it expects to receive additional provincial listings as more of its production capacity comes online. Cronos also entered into a supply agreement with Cura Cannabis Solutions, one of the largest pot companies in the world. Under the deal, Cura will purchase a minimum of 20,000 kilograms of cannabis from Cronos, subject to receiving necessary licenses from Canadian authorities. We will be looking for updates on how Cronos is scaling up its business in its home market.

Production Capacity Expansion

Cronos is looking to scale up its production volumes meaningfully. While the company’s capacity only stood at about 6,650 kilograms (annualized) as of the last quarter, Cronos has taken steps to scale up capacity. For instance, the company completed construction of a facility that can produce 40,000 kilograms of cannabis annually in Canada, while forging a joint venture with a group of investors to build a greenhouse that can produce up to 70,000 kilograms annually. The company is also focusing on improving its technology capabilities to gain a long-term edge in the market for cannabis oils. Last October, Cronos entered into a partnership with Boston-based biotech startup Ginkgo Bioworks to develop cannabinoids – which are the active ingredients of cannabis plant – artificially. We will be looking for updates on how the company is scaling up its production capabilities (related: Should Cronos Group Scale Up Its U.S. Business?).

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