In case you missed it, something interesting happened in the marijuana industry in the last two weeks. To know, Cronos Group (NASDAQ: CRON) outdated Tilray (NASDAQ: TLRY) become the world's third publicly quoted stock pot behind only Cover growth (NYSE: CGC) and Aurora Cannabis (NYSE: ACB).
Why Cronos Group jumped over Tilray in 3rd place
The rise of Cronos Group comes from the closing of the $ 1.8 billion investment in the company by Altria (NYSE: MO). At the closing, Altria took an undiluted 45% stake in Cronos, with a potential increase of its stake to 55% if it chooses to execute warrants received as part of the 39; investment. Given the sharp drop in Altria's tobacco shipment volumes in the United States, this investment gives the king of American tobacco access to a strong growth trend (cannabis) in North America.
Meanwhile, Altria's $ 1.8 billion cash injection has allowed Cronos to rank second in cash available among pot stocks, behind only Canopy Growth. The company closed the previous quarter with less than $ 25 million in cash. The $ 1.8 billion now gives him the freedom to implement his long-term strategy.
At the same time, around the same time that Cronos Group closed its investment in Altria shares, Tilray released its fourth quarter results. Sales of $ 15.5 million, gross margin of 20% and loss of $ 0.33 per share were all undesirable results after Canada's legalization of marijuana for recreational purposes last October. In addition, Tilray's CEO, Brendan Kennedy, announcing that the company would focus its efforts on the US and Europe, essentially throwing the spotlight on future investment in Canada, it seems that Tilray is a ship without rudder at sea for the moment.
Add to that, and it's pretty easy to see how the Cronos group has usurped the number 3 of the market capitalization of Tilray. But let's do one thing very Clear: The Cronos group can not hold a candle to Aurora Cannabis or Canopy Growth.
Canopy and Aurora could circle around Cronos
Although Cronos is now one of the most prominent marijuana stocks, it is unlikely to succeed beyond its investment in Altria shares. Apart from this money and the $ 100 million Cronos Group with Ginkgo Bioworks to develop cannabinoids on a commercial scale, the company has absolutely no listed activities near Canopy or Aurora.
Based on production, Aurora Cannabis is expected to drive all growers with a peak yield of about 700,000 kilos by 2021 or 2022. Canopy Growth, while more optimistic about its record annual production, has over 5, 6 million square feet already authorized by Health Canada. This should allow the company to reach (comfortably) more than 500,000 kilos in peak annual output. Meanwhile, the Cronos group should gather all the buds to reach perhaps 120,000 kilos of production per year.
By deepening its production, Aurora Cannabis has more than a dozen facilities that will help it achieve production status # 1. Canopy Growth has 10 facilities representing 5.6 million square feet . Cronos Group has a 850,000 square foot joint venture that can reach 70,000 kilograms at its peak. Peace Naturals, which will produce a maximum of 40,000 kilograms, and three other facilities producing marginally. In another context, Aurora has three sites that are close to the production of the Cronos group, or even totally.
In addition, Aurora Cannabis has conquered 24 markets in all, with growth easily exceeding a dozen. These international sales channels are extremely important, given the likelihood that dried cannabis flowers will eventually be oversupplied and commoditized in Canada. Thus, a presence in foreign markets will ensure that Aurora and Canopy do not see their national operating margins wrecked by falling prices per gram of dried flowers.
As for Cronos, its production is low in Australia and Israel, as well as its distribution platforms in Poland and Germany. But that is about it when it comes to international expansion.
To make this comparison even more day and night, Canopy Growth and Aurora Cannabis reported respective sales of $ 62.3 million and $ 40.6 million in their last quarter. In comparison, even with the legalization of leisure, the Cronos group generated only $ 4.2 million in sales. It has been overtaken by many producers whose market capitalizations are much smaller.
In summary, yes, the Cronos group is the new No. 3 in market capitalization among pot titles. But no, he does not deserve to be at the top of the list at a distance. My suggestion is not to fall in love with the recent success of the Cronos group and instead avoid what seems to be the most overvalued marijuana stock of all.