BofA Downgrades Cronos, Says 'There's Just Little For Investors To Work With'

Cronos Group Inc. CRON released fourth quarter and full-year 2019 financial results Monday, posting net revenue of $7.3 million versus $4.28 million in the same quarter of 2018.

The increase in revenue contained a non-cash gain of $118.8 million connected with the $1.8-billion investment from Altria Group Inc. MO.

The Cronos Analyst

Bank of America’s Christopher Carey downgraded Cronos from Buy to Neutral and lowered the price objective from CA$11 ($7.56) to CA$9 ($6.33).

The Cronos Thesis 

Cronos has not worked on the commercialization of its brand and product development, and one year after it received a CA$2.4-billion investment from Altria, the company generated $7.3 million in December quarter revenue, Carey said in a Thursday downgrade note. (See his track record here.)

What’s more, the recorded December revenue also counted small sales from Cronos' recent $300-million Redwood (Lord Jones) acquisition, and the company said it is postponing long-planned U.S. CBD launch, the analyst said. 

“There’s just little for investors to work with.” 

While Cronos’ concentration on cash and long-term value is admirable, its passivity is problematic, Carey said, citing "scant commercialization of work thus far."

While the company still has the potential to become a long-term leader in the cannabis space, right now it is not possible to benchmark the company on any milestones, the analyst said. 

“We think CRON shares will become interesting once investors can assess a business, and not a cash proxy plus research and development."  

CRON Price Action

Cronos shares were trading 1.15% higher at $5.30 at the time of publication Thursday. 

Photo courtesy of Cronos Group