Cronos Group Inc (NASDAQ: CRON) is a fundamentally attractive investment after a recent correction lower. Just as was the case in our previous update, the stock is likely to resume its upward trajectory, having found support at a crucial level.
CRON Stock Catalysts And Price Analysis
The signing of a multiyear supply agreement with MediPharm is one of the catalysts likely to fuel a rally from current lows. The Company is also fresh from delivering stellar financial results for the first quarter that affirm growth trajectory.
Expansion of global infrastructure network and innovation capabilities is another development that continues to prop investor’s sentiments in the stock. That said the stock is likely to resume its long-term uptrend after a period of consolidation.
A plunge to the $14 a share support level, might as well have presented an opportunity to buy the stock at a discount. Above the critical support level, Cronos Group remains supported for further upside action and likely to continue edging higher.
A rally-followed by a close above the $17 mark should pave the way for the stock to make a run for 52-week highs of $25. Failure to find support above the $14 mark, on the other hand, could result in the acceleration of the sell-off wave that could result in the stock plunging lower.
About Cronos Group
Cronos Group bills itself as an investment firm focused on licensed or companies seeking license into the medical marijuana business. The Company is also engaged in the cultivation, production, and distribution of cannabis and its derivatives. The Company is also building disruptive intellectual property portfolio as it continues to accelerate cannabis research, technology, and product development.
Q1 Business Growth
Cronos Group is likely to re-rate higher after delivering first quarter financial and operational results that underscore business growth. According to the Chief Executive Officer, Mike Gorenstein, the business performed in line with expectations as focus shifted towards the building of the supply chain, distribution network as well as brand portfolio and intellectual property portfolio.
Net revenue in the quarter increased 120% to $6.5 million attributed to the expansion of the cannabis market with recreational use legalization in Canada. The Company also benefited from increased sales in CBD oil.
During the quarter, Cronos Group sold 1,111kg of cannabis, representing a 122% increase from Q1 2018 levels. Management attributes the increase to increased cannabis production. The Company also inked a strategic partnership with Altria expected to generate significant shareholder value going forward.
“Altria’s investment and the services that Altria will provide to Cronos Group will enhance our financial resources and allow us to expand our product development and commercialization capabilities. Altria’s skills in these areas as well as its regulatory expertise position Cronos Group to compete, scale and lead the rapidly growing global cannabis industry as markets open and welcome legalization,” said Mr. Gorenstein.
Fast forward Cronos Group has entered into a multiyear supply agreement with MediPharm Labs. Under the terms of the agreement, MediPharm is to supply the Company high-quality private label cannabis concentrate over the next 18 months. In return, Cronos Group is to supply bulk cannabis to MediPharm Labs facility in Barrie Ontario
Israel R&D Facility
The signing of the supply agreement follows the confirmation that Cronos Group is expanding its footprint into Israel. The Cannabis player is in the process of expanding its global infrastructure network and innovation capabilities with the opening of a cannabinoid R&D facility in the country.
The new lab underscores Cronos Group bid to develop next-generation vaporizer products backed by an experienced team of product development talent as well as advanced vaporizer technology. According to the CEO, the Device Lab marks an important step in the Company’s bid to become a leader in cannabinoid innovation.
“With a deep bench of engineering, analytical, scientific and design talent already in place, we are confident that Cronos Device Labs will play an important role in positioning the Company for long-term success by enabling us to build innovative vaporizer products that resonate with our customers and generate shareholder value,” added Mr. Gorenstein.
What Next For Cronos Group
A steep pullback from record highs at the back of solid fundamentals underscores why Cronos Group is a bargain of a lifetime. As it stands, the company is firing on all angles when it comes to operational efficiency. Robust sales growth supplemented by stable financial position underscores the Company’s long-term prospects.
The company has continued to strengthen its core business with the inking of strategic partnerships as well as supply agreements. Expansion into Israel followed by the unveiling of an R&D facility are other developments that continue to shore the stock’s market sentiments.
That said the stock is likely to resume its upside action as investors react to a flurry of underlying developments that underscore growth and long-term prospects.
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Disclosure: We have no position in CRON and have not been compensated for this article.