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Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry and exit points. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA. Invest with Stone Fox Capital's model Net Payout Yields portfolio on IB Asset Management as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here: Follow Mark on twitter: @stonefoxcapital

Cronos (CRON) Stock Still Looks Overvalued

With all of the promises of the global cannabis market, some of the Canadian companies like Cronos Group (CRON) have failed to launch. The cannabis company reported Q1 results that were so underwhelming that one has to question why the market valuation got so high when the Cronos stock hit $25 a few months back.

Failure To Launch

For Q1, Cronos Group reported net revenues only reached C$6.5 million, up slightly from C$5.6 million in the prior quarter. Nearly six months after the legalization of adult-use cannabis in their home market of Canada and business hasn’t gone very far.

In the quarter, kilograms sold were a meager 1,111 and only increased slightly in the quarter. Some competitors are selling 7,000 to 10,000 kg per quarter with the goal of increasing supply to 25,000 kg in the current June quarter. Cronos Group didn’t see a material change to finished inventory going into Q2 and doesn’t predict much revenue growth for yet another quarter.

About the only thing that really increased in a meaningful way was the cash balance. The company closed the Altria Group (MO) investment of C$2.4 billion leaving the Cronos Group with a massive cash balance to invest in the sector. Cronos Group still only has access to 5 provinces in Canada with coverage of only 58% of the Canadian population while working on obtaining licenses in Columbia via NatuEra and exporting medical cannabis from a joint venture in Israel.

The company now generates a sizable C$8.9 million quarterly EBITDA loss and has accumulated a C$18.9 EBITDA loss since the adult-use market opened up in Canada. Not exactly the boom times expected when the market valuation reached $7.5 billion based on a fully diluted share count of 300 million now after the Altria Group investment.

Wrong Focus

CEO Mike Gorenstein mentions on the earnings call that the company dedicated a lot of time and effort into closing the strategic transaction from Altria. The numbers show that Cronos Group would’ve been a better company, if management had not chosen the path of listing on the NASDAQ and taking on a strategic investors.

The U.S cannabis market was open for the taking and plenty of the multi-state operators (MSOs) in the U.S. are building businesses now generating hundreds of millions in annual revenues. While others were busy executing a business strategy and successfully navigating a difficult regulatory landscape, Cronos Group appears to now lean on Altria that isn’t even actively in the cannabis sector.


The key investor takeaway is that investors need to see Cronos Group wisely spend this war chest of cash from the Altria investment. Despite the mounting stock weakness, Cronos Group still has a market valuation of over $4 billion.

In general, the company has failed to launch during this land grab period in North America and the stock is still far too expensive until the company makes actual business moves surrounding cultivation and production of CBD and marijuana that leads to actual sales expansion. The focus on building design labs and obtaining strategic investments don’t actually lead to actual immediate business while the market is growing substantially.

To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.


Disclosure: The author has no positions in CRON stock.

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