Canadian cannabis producer Cronos Group (CRON) on Tuesday reported third-quarter earnings. Cronos Group stock was volatile, moving modestly higher. Other marijuana stocks were mixed.
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Cronos Group Earnings
Estimates: A per-share loss of 3 cents, flat with last year's result, as revenue more than triples to $10.4 million, according to Zacks Investment Research.
Results: Cronos earnings came in at 53 cents Canadian ($0.40), but it's not clear if that's comparable to estimates. Revenue swelled to 12.7 million Canadian dollars, or about $9.586 million.
The results arrive amid a continuing comeuppance for Canada's marijuana stocks. Stocks in the sector have fallen over the past year as the legal industry ran up against knots in the cannabis supply chain and too few stores in big provinces like Ontario.
Among other marijuana stocks, Tilray (TLRY) reports third-quarter earnings after the close today. Canopy Growth (CGC) and Aurora Cannabis (ACB) report Thursday.
Cronos Group Stock, Marijuana Stocks
Cronos Group stock opened higher, reversed lower but climbed 1.5% to 8.20 on the stock market today. Shares have a not-great 35 Composite Rating and a slightly-better EPS Rating of 76. Most marijuana stocks have weaker ratings, as investors pressure the industry tighten up operations and turn a profit. Cronos reported a surprise profit in the second quarter.
Canopy Growth stock edged up 0.4%. Aurora Cannabis stock climbed 0.7% and Tilray stock fell 1.1%.
As for other Canadian marijuana stocks, Hexo (HEXO), which recently laid off employees and retracted its financial outlook for the next fiscal year, advanced 1.7%.
'King in the North,' Small Market Share
Cronos Group's market share has remained among the smaller side when compared to Canopy and Aurora. The company wants to take a more "asset-light" approach to cannabis, under which it grows less of the plant itself. The company has said wants to attack the next wave of legalization with vaping devices before considering other products.
Stifel analyst Andrew Carter, who last month called Cronos Group stock "a new king in the north," likes the company due to its cash on hand — 2 billion Canadian, he said.
He also praised the company's foothold in the U.S. Cronos last year landed a big investment deal from tobacco giant Altria (MO). In August, Cronos agreed to buy parts of Redwood Holding Group, which sells hemp CBD products under the name Lord Jones in the U.S., for $300 million. Gorenstein also co-founded the private equity firm Gotham Green Partners.
However, as Marketwatch reported, Lord Jones' that acquisition price eclipsed Lord Jones' actual sales of $2 million-$4 million last year.
CEO Mike Gorenstein and Jason Adler, a director at Cronos Group, hold an indirect interest in Redwood via their stake in some funds affiliated with Gotham, according to a filing published in tandem with the deal. A special committee of independent Cronos directors reviewed the deal.
Untested Model For Marijuana Stocks
Jefferies analyst Owen Bennett also said that Cronos' approach to cannabis has yet to be fully tested. And he has said he hoped for more news on "material strategic investments or initiatives" following Altria's investment.
Marijuana-industry dealmaking has slowed. An undersupply of weed buckled the industry after recreational legalization last year. But more recently, Financial Post reported, some analysts have warned of an oversupply, as producers ramp up cannabis cultivation more quickly than stores that sell it get built, leaving pot companies with piles of inventory.
Carter, similarly, noted an oversupply across the supply chain. He wrote, however, that "the oversupply is not necessarily at the consumer level." Instead, he said, the bottleneck lay at the wholesale level in the provinces, most of which run warehouses that store product before it goes to cannabis stores.
That bottleneck is "likely to tighten further as provinces adjust to allocating new space for the second wave products," he added.
Those second-wave products, like vapes and edibles, weren't legalized last year. But regulations surrounding the legal sale of them took hold this month. The government expects a "limited selection" of the new products to be available next month.
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