When Will Cronos Group Become Profitable?

In the most recent quarter, most cannabis companies reported increases in their operating losses. This rise in operating losses appears to have made investors nervous, and they’re shifting their focus from revenue growth to profitability. Recently, Jefferies analysts Owen Bennett and Ryan Tomkins stated the importance of cannabis companies becoming profitable. As reported by MarketWatch on October 11, Bennett and Tomkins wrote in a client note, “The next 12 months price performance should see strong divergence between those who can execute/move to profit and the rest.” Amid this shift in focus to profitability, let’s look at analysts’ expectations for Cronos Group (CRON).

Analysts’ take on Cronos Group’s EBITDA

Cronos Group reported negative EBITDAs in the first three quarters of 2019. The company’s EBITDA loss also increased from 0.1 million Canadian dollars in the first quarter to 23.9 million Canadian dollars in the third quarter. The contraction in the company’s gross margins and higher operating expenses caused its operating losses to rise in the third quarter.

Analysts’ consensus estimates project Cronos to report EBITDA of -72.0 million in 2019 and EBITDA of -51.8 million in 2020. However, analysts expect the company’s EBITDA to turn positive at 28.8 million Canadian dollars in 2021.

On August 11, PI Financial upgraded Cronos Group from a “neutral” to a “buy” rating, as reported by Cantech Letter. However, it kept its price target unchanged at 22 Canadian dollars. Jason Zandberg of PI Financial is optimistic about Cronos Group’s introduction of vape products in Canada and CBD products in US markets. Zandberg expects Cronos Group to benefit from Altria’s expertise. Zandberg had projected Cronos to report EBITDA of -63.7 million Canadian dollars in 2019. However, he expects the company to report EBITDA of 7.0 million Canadian dollars in 2020.

Peer comparison

Analysts expect Aurora Cannabis (ACB) to report positive EBITDA starting in the second quarter of fiscal 2021, which will end in December 2020. For more info, read When Will Aurora Cannabis Become Profitable? Analysts expect Canopy Growth (WEED) (CGC) to report positive EBITDA from the second quarter of fiscal 2021, which will end in September 2021. Meanwhile, Aphria (APHA) has already reported positive EBITDA in the last two quarters.

Analysts’ recommendations

Analysts favor a “hold” rating for Cronos Group. Of the 12 analysts that cover the stock, seven advocate “hold” ratings. Of the remaining five analysts, four have “buy” ratings, while one has a “sell” rating. Analysts’ 12-month consensus price target stands at 12.63 Canadian dollars, which implies a potential return of 35.2%.

YTD stock performance of Cronos Group

So far, this year, Cronos Group has lost 35% of its stock value as of December 16. Weakness in the cannabis sector and the company’s worse-than-expected performances in the second and third quarters of 2019 appear to have dragged its stock down. It has underperformed Aphria and Canopy Growth, which have fallen 10.8% and 26.8%, respectively. However, Aurora Cannabis has fallen 51.2% during the same period. Check out 420 Investor Daily for more marijuana-related news and updates.