Analyst: Cronos And Altria Make A Powerful Team

Cronos Group Inc CRON CEO Mike Gorenstein presented Tuesday at the Consumer Analyst Group of New York lunch. After attending the event, one Wall Street analyst said Cronos could become a “crown JUUL” of the cannabis business.

The Analyst

Wells Fargo analyst Bonnie Herzog reiterated her Outperform rating and $65 price target for Cronos stock.

The Thesis

Cronos’ Canadian distribution now reaches about 60 percent of the population and is still growing, however, Gorenstein said establishing infrastructure for edibles, beverages and vaping products in the Canadian market may take longer than investors think. Cronos plans to launch its first CBD vape product by next January.

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Cronos’ partnership with Altria Group Inc MO prohibits Cronos from other tobacco partnerships, but Altria would likely benefit from additional food, beverage and pharma partnerships for Cronos. Gorenstein said tobacco volumes are declining with or without cannabis and doesn't believe there's a major risk of tobacco cannibalization.

Herzog said the combination of Altria, JUUL and Cronos should be a profitable one for investors.

“As with JUUL, we believe MO’s expertise in regulatory, marketing and brand mgmt matters will help CRON to accelerate its growth esp with regard to developing cannabis vape products, large scale mfg automation, preroll technology & supply chain mgmt,” Herzog wrote in the note.

In the long term, Cronos management expects a wide range of margins across the industry, but sustainable 70 percent margins are unlikely. Gorenstein isn’t necessarily convinced the first global cannabis brand will be a Canadian company.