Cronos Group: around 120,000 kilos
You'd probably think Cronos Group (NASDAQ:CRON) is the greatest thing since sliced bread, given that it's doubled since early December. But it's only on track to be Canada's seventh largest grower by annual output. Most of Cronos Group's production will come from its joint venture known as Cronos GrowCo (70,000 kilos), with Peace Naturals kicking in 40,000 kilos at its peak. The wild card for Cronos will be how much cannabinoid production it can expect following a partnership with Ginkgo Bioworks that'll cost it up to $100 million.
A powerful partner
There are marijuana companies that are bigger than Cronos Group by revenue and planned marijuana production. But Cronos and Canopy Growth are the only two cannabis companies with significant financial firepower and access to supply-chain, branding, and regulatory expertise because of investments from major consumer-goods companies. Cronos Group sold 45% of itselfto tobacco powerhouse Altria (NYSE: MO) for $1.8 billion in December; this followed Canopy Growth's decision to sell 38% of itself to alcohol giant Constellation Brands (NYSE: STZ) for roughly $4 billion last August.
Having Altria as a partner is a big win for Cronos Group. Altria owns the U.S. Philip Morris tobacco brands, including Marlboro cigarettes, and it has extensive experience navigating regulatory scrutiny. It's built up a slate of successful brands, and it has extensive relationships with farmers and other suppliers. Additionally, Altria owns over 30% of Juul, a leading vape company that theoretically could provide Cronos Group with some intriguing collaboration opportunities.
Cronos Group hasn't reported results for the calendar fourth quarter yet, so we don't know how it did after recreational sales began in Canada -- but sales jumped 186% year over year to CA$3.8 million in the third quarter, so its products appear to be gaining traction. Its annualized production capacity was just 6,650 kilograms in Q3, but it has said that capacity will reach 40,150 kilograms this year and that it plans to produce 117,000 kilograms per year. Those predictions were prior to Altria's investment, so you could see Cronos Group announce new targets during its next earnings release.
During Altria's fourth-quarter earnings call, it highlighted a forecast for legal marijuana sales of $40 billion per year, based on current legal markets. It also said worldwide legalization could increase that market opportunity to $250 billion. Given those figures and Altria's help, it could be smart to own Cronos Group for the long haul, too.
Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool recommends Constellation Brands. The Motley Fool
https://www.fool.com/investing/2019/02/19/3-marijuana-stocks-to-buy-for-long-haul-in-2019.aspx
https://www.fool.com/investing/2019/02/19/3-marijuana-stocks-to-buy-for-long-haul-in-2019.aspx
Posts
