Cronos Group

Cronos Group (MJN:TSXV): The Sleeping Giant Awakens, Price target set between $3.50 – 4.00 from two firms.

February 13, 2017

Cronos Group (MJN:TSXVis poised to take off for 2017. This is a speculative opinion of course but if we look at Cronos Group objectively we can see that they have positioned themselves to be set for when legalization rolls around and to be competitive now in the industry where giants like WEED , APH & ACB are getting the spotlight. 

 

– Beacon Securities LTD has initiated coverage on Cronos Group, giving them a buy rating and a price target of $3.50 CAD. 

  • Canada’s medical cannabis industry at its current size is considerable. The medical industry alone can see its size expand to $1.5 billion in the next few years.
  • Cronos Group is a diversified company with many assets. It is geographically diversified ( Canada & Germany)  and operates two wholly owned Licensed Producers. 
  • 2017 will be interesting in the terms that cronos is gearing up to expand its multi provincial footprint and take its german operations to the next level. 
  • Cronos Group (MJN:TSXV) is also under the radar for majority of investors in this industry. We will see tremendous upside this year when cronos group starts to execute its growth strategy. source

 

-Eight Capital raised their price target from $2.25 to $4.00 .

Last week we toured the indoor facilities at Peace Naturals, one of Cronos’ two wholly owned licenses, in Stayner, ON. We have increased confidence in Cronos’ rollout of its expansion plans following discussions with management and we have accelerated the timing of multiple build outs compared to our earlier assumptions. Also, with Germany recently legalizing medical cannabis we now include sales to Germany in our estimates. As a result, our target increases due to the increase in EBITDA in our valuation year.       source

  • Eight capital is using a new model to project Cronos group’s production capacity from 4,500 KG to 50,000 KG in 4 years. 
  • • Peace Naturals – Peace currently has three indoor buildings with 4,500 kg of production capacity. A small greenhouse will be constructed behind the indoor facilities for the purpose of extracts production. The next major phase of expansion will see the construction of a 220,000 sq ft greenhouse facility capable of ~25,000 kg of annual production, providing much of the increase to our estimates. We note a portion of the expansion capacity will be allocated to its German partner for distribution to German patients. •

  • In The Zone – ITZ currently operates in a small 2,500 sq ft indoor pilot facility with ~100 kg of annual production. The next phase is construction of a 100,000 sq ft greenhouse capable of ~10,000 kg per year.

  • • Indigenous Roots – A unique partnership with this First Nations group will see the construction of a purpose built 30,000 sq ft indoor production facility capable of ~4,000 kg per year – paid for entirely by Cronos’ partner – with Cronos splitting 50% of the net operating profit from the facility. We note this profit sharing agreement carries over for other new facilities that may be built in the future.

 

  • Eight Capitals maintains a buy rating on MJN.V and raised the price target based on a 7.0x EV/EBITDA multiple.

 

 

Cronos Group has incredible upside and potential , but also a lot of downside risk, like with any other Canadian cannabis stock right now. The key here is the management team at Cronos Group, they are dedicated to building a brand and company that will be a long-term competitive player in the Industry. That and their growth strategy , this company is poised to be winner in 2017. 

 

 

 

 

 

MJN.V Analysis & Research : www.cannainvestor.ca/cronos-group/

 

 

 

 

 

Disclosure: No position in Cronos Group (MJN.V:TSXV) since Jan 15th 2017.

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