Cannabis companies have become very attractive over the past few months as investors jump on the opportunity to invest in the industry. Much of this excitement has been reflected over to both stock prices as well as the financial metrics of many cannabis companies. While some businesses have a strong history of profitability or some other redeeming characteristics, others are seen by Wall Street as just flat out overvalued.
One of those companies is Cronos Group (NASDAQ: CRON), which recently was downgraded by analysts who felt the stock price was too high. Today, it turns out another financial institution did the same, with the Bank of Montreal (BMO) being the latest to join and downgrade the stock.
BMO analyst Tamy Chen lowered her rating of Cronos to “underperform” from it’s previous “market perform” position, the equivalent of a “sell” rating for many banks. The company’s shares, which have increased by over 100 percent since the new year started (up 80 percent in January alone), are trading at 75 times EBIDTA. The analyst went on to compare this to other rivals in the space, with Aurora Cannabis as an example only trading at 40 times.
BMO joins another investment bank, GMP Securities, which also downgraded the company’s stock. In a note to investors, GMP analyst Martin Landry would describe the company as being in its early stage of development with little revenues to justify its relatively massive market capitalization. “The company’s shares have surged ~110% year-to-date on no material news and have outperformed the HMMJ cannabis index by a factor of two. This strong performance forces us to change our rating to HOLD solely based on valuation,” he said last month. “The company’s shares have surged ~110% year-to-date on no material news and have outperformed the HMMJ cannabis index by a factor of two. This strong performance forces us to change our rating to HOLD solely based on valuation.”
Cronos Group is one of a few cannabis businesses that are seen as being significantly overvalued by Wall Street. Another company in a similar position is Tilray Inc (NASDAQ: TLRY), which Chen noted traded at around 70 times EBITDA. Depending on which quarterly figures you use, Tilray’s annual revenue is extrapolated at around $40 million. For a company with an $11 billion market cap, this is extremely low by almost any standard.
Cronos’ stock price dipped around 4 percent today. Just a few days ago, the company’s stock price was near the $24 point, now having fallen down to $20.92 per share.
Cronos Group Company Profile
Cronos Group is a globally diversified and vertically integrated cannabis company with a presence across five continents. Cronos Group operates two wholly-owned Canadian licensed producers: Peace Naturals Project Inc., which was the first non-incumbent medical cannabis license granted by Health Canada, and Original BC Ltd., which is based in the Okanagan Valley, British Columbia.
Cronos Group has multiple international production and distribution platforms across five continents. Cronos Group intends to continue to rapidly expand its global footprint as it focuses on building an international iconic brand portfolio and developing disruptive intellectual property. Cronos Group is committed to building industry leading companies that transform the perception of cannabis and responsibly elevate the consumer experience. – Cronos Group