How is the Cronos group taxed? – The crazy fool

Cronos Group (NASDAQ: CRON) recently became the last major Canadian cannabis producer to record fourth-quarter earnings in 2019. Like its largest competitors, revenues have skyrocketed, along with losses.

You may remember that 17 days into the fourth quarter, Canada began licensing Cronos and its peers. Cover growth (NYSE: CGC), Aurora Cannabis (NYSE: ACB), and Tilray (NASDAQ: TLRY), sell marijuana for recreational purposes. Now that we have some numbers for these four big players, we can know where Cronos is in relation to their peers.

Who sold the most?

Canopy Growth was by far the best seller when deploying adult sales in Canada. In the last three months of 2018, total revenues increased by 256% over the previous quarter compared to the previous quarter, after taking into account the new excise duty of 10%.

Aurora Cannabis was second, with fourth-quarter sales up 83 percent from the previous quarter to $ 54.78 million.

Cronos Group sales growth in the fourth quarter was not as dramatic as Canopy and Aurora. Compared to the third quarter, the Cronos Group increased its revenues by C $ 5.6 million in the last three months of 2018, up 49%.

Gross margin

This is where wheat begins to separate from the weeds and we see how effectively these companies produce cannabis. Before adjusting the fair value of growing crops, Aurora Cannabis has announced a cost of sales equivalent to 48% of the fourth quarter sales figure, making it the market leader.

The Cronos group finished second after stating that the cost of its sold products had reached 56% of its turnover in the fourth quarter, which is much better than Canopy and Tilray. Tilray does not separate the fair value adjustments from the production costs, which could explain why the company reported a cost of producing goods sold equivalent to 80% of the fourth quarter sales figure.

Canopy Growth distinguishes between changes in fair value and production costs, but that did not help much. The producer with the most income was also the least effective. Cost of sales reached 78% of fourth-quarter sales, leaving little to pay for operating expenses that grew like weeds.

Losses of exploitation

Operating expenses include many different expenses that should not continue. To evaluate the performance of the Cronos Group and its peers during the first months of adult sales in Canada, let us focus on commercial, general and administrative expenses. These are costs that will not go down unless a company starts closing doors and firing employees. By comparing selling, administrative and other overhead costs against the amount of revenue generated, we are able to know if a business can not expect better.

Cronos Group performs poorly on this front with sales, administrative and other general and administrative expenses of $ 21.5 million in the last three months of 2018, accounting for 137% of the total revenue. business. During the period, activities lost $ 18.1 million. On the same level, Canopy Growth achieved the best results with sales, administrative expenses and other business expenses reaching only 110% of sales, although all operations lost $ 157 million. dollars.

In the last three months of 2018, Aurora and Tilray reported selling, administrative and other overhead expenses amounting to 122% and 129% of sales, respectively. Tilray's operations lost $ 22.3 million and Aurora recorded an operating loss of $ 80.2 million.

What should happen

The Cronos group sells as little cannabis as possible among its peers. There are probably too many bored employees who collect pay checks while waiting for the recreational marijuana sales to meet expectations.

To reach the breakeven point, gross profit must increase by around 360%, but the price of this stock is not comparable to that of a company that should reach the breakeven point. The recent market capitalization of the Cronos Group is still about $ 3.5 billion, which means investors are expecting sales to reach the space. If the price of Cronos was comparable to that of a consumer goods company, the turnover should reach about $ 1 billion with a profit margin of 15% by 2020 for its current valuation to have meaning.

If the Cronos Group wants to offer long-term gains to new shareholders, sales must skyrocket and increase rapidly. Unfortunately, Statistics Canada claims that licensed marijuana sales reached $ 1.2 billion annualized in the fourth quarter, or 21% of total sales, if the illicit market is included.

In order for long-term investors to buy stocks at long-term prices, Cronos Group must capture 80% of the licensed cannabis market in Canada. In fact, sales of licensed cannabis in the Far North are not increasing. In fact, revenue from cannabis stores fell 4.5% in January from the previous month.

A look towards the future

It will be difficult to create a brand if you can not promote it like any other consumer product. Canada insists on plain packaging and does not even allow personal endorsements or customer testimonials. At best, a celebrity can be used to promote society, but not its products.

Tobacco giant Altria (NYSE: MO) seat on the board of directors consisting of seven members of the Cronos group, following a major investment in 2018. The management team of the Cronos group being under the watchful eye of a well-run company, there is a chance that the company can eventually control its expenses and produce a profit. However, given the overcrowded market, you have to be crazy to bet that Cronos, or any other company, will have an incredible chance.