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Shares in cannabis stocks jumped at the news that US Democratic Senate candidates Raphael Warnock and Jon Ossoff defeated their Republican opponents in last week’s Georgia runoff elections.

With the Democrats’ albeit small lead in the Senate and House of Representatives and Joe Biden’s election promise of decriminalising cannabis, there is every chance that cannabis, or marijuana, will be legalised at the federal level.

While shares in Canopy Growth (NASDAQ:CGC) and Tilray (NASDAQ:TLRY) increased by more than 10% to around $30 and $10 per share respectively, Canadian cannabinoid company, Cronos Group (NASDAQ:CRON) jumped around 20% to just under $10 per share.

Cronos Group was the first pure-play cannabis company to list on NASDAQ. However, the stock has fluctuated significantly since it began trading in February 2018. In the past year the share price has dropped to around $4.

Strong on research, technology and product development, Cronos Group manufactures, markets and distributes hemp-derived supplements and cosmetic products (oils, tinctures) to e-commerce, retail and partner organisations.

The products which are for both medical and recreational use are available in Canada, the US, Australia, Germany and more recently in Israel. Although not available in each and every country, brands include Peace Naturals, Cove, Spinach, Lord Jones, Happy Dance and Peace Plus.

Increased revenue but losses continue

In 2018 Altria Group (NYSE:MO), parent company of Philip Morris, invested $1.8 billion in Cronos Group for a 45% ownership interest. However, in its Q3 2020 results, Altria announced that it had discounted its investment in Cronos by 20%, stating that “while Altria believes that this decline in fair value is temporary, it will continue to monitor its investment in Cronos, including the impact of COVID-19 on Cronos’s business and market valuation.”

In Q3 2020, the company reported an operating loss of $41.2 million – an increased loss of $10.5 million from Q3 2019. However, this was primarily driven by increased share-based payments related to separation packages as a result of the Redwood acquisition.

But amid the losses there have been some positive numbers. Firstly, the company recorded net revenue of $11.4 million, an increase of $5.6 million from Q3 2019.

Secondly, the gross loss of $1.5 million in Q3 2020 was in fact a decrease of $1.6 million from Q3 2019. This was primarily driven by the increase in net revenue and the gross profit contribution of the US business segment.

Investing for the future

Nevertheless, 2020 was a productive year for Cronos Group, with the launch of a new hemp-derived CBD brand, ‘Happy Dance’ in the US market, in partnership with actress Kristen Bell, and with its Israeli operation receiving approval to cultivate, produce and sell ‘Peace Naturals’ branded dried flower, pre-rolls and oils.

Late last year, the group made a significant new hire. Kurt Schmidt, who has considerable experience in global consumer brands having worked at Campbell’s Soup Company, Nestlé, Gerber and Kraft Foods among others; he was appointed as company president and CEO.

In the third quarter of 2020, Natuera which is backed by Cronos Group, also completed its first export of hemp-derived CBD distillate to the UK for R&D purposes.

With the cannabis market projected to reach $97.35 billion by the end of 2026 according to Fortune Business Research, our view is that there is plenty of room for Cronos Group to grow.

Related

Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Philippa Aylmer

Philippa Aylmer

Philippa Aylmer is a freelance writer within the investment management sector.

She began her career in the late 90s writing about emerging markets for the Euromoney titles while based in Pakistan. Since then, she has covered hedge funds, ETFs, wealth management and fintech.

As well as news, on the client side, Philippa advises on media relations and editorial strategy, writing about the topical and technical issues of investment management

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