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We came across a bullish thesis on Cronos Group Inc. (CRON) on Raging Bull Investments’ Substack by Jake LaMotta. In this article, we will summarize the bulls’ thesis on CRON. Cronos Group Inc. (CRON)'s share was trading at $2.01 as of Nov 15th. CRON’s trailing P/E was 65.31 according to Yahoo Finance.
A close-up of a package of cannabis accessories, displayed on a brightly-lit retail shelf.
Cronos Group presents a compelling investment opportunity, with its fundamentals improving despite persistent challenges in the cannabis industry. The company's Q3 results highlight its strong growth trajectory, with net revenue increasing 38% year-over-year to $34.4 million. While approximately $4 million of this growth is attributed to the consolidation of GrowCo, the remaining growth—reflecting a 25% annualized run rate improvement—stems from increasing market share in Canada. Notably, Cronos has managed this growth while reducing operating expenses by $3 million year-over-year (adjusted for non-cash impairments), significantly improving EBITDA from -$15 million to -$6 million. This operational efficiency, coupled with its top brand Spinach's leading market position in Canada and a 17.2% share in the edibles segment, underscores the company's ability to outmaneuver competitors in a challenging pricing environment.
The recently renegotiated supply agreement with GrowCo marks a strategic shift that positions Cronos to lower production costs materially. Meanwhile, its balance sheet remains an undeniable strength, boasting $862 million in cash—exceeding its current market capitalization—and additional value in loan receivables and real estate assets, with no debt obligations. This creates a meaningful discount to its liquidation value, offering a robust margin of safety to investors.
Cronos has demonstrated resilience amid depressed cannabis prices, growing revenue through volume and market share rather than pricing power. This contrasts with weaker players like Canopy Growth, which has seen domestic revenues decline. While the Canadian cannabis market remains irrational due to overregulation, high excise taxes (consuming 30% of Cronos’ topline), and competition from the illicit market, these challenges could eventually trigger much-needed rationalization. Companies with weaker financials are likely to be flushed out, and Cronos is well-positioned to benefit from pricing normalization, which would directly enhance profitability.
Investor sentiment remains excessively pessimistic, as evidenced by the recent sell-off following U.S. election results, despite Cronos having minimal U.S. exposure. Concerns over Florida’s rejection of cannabis legalization and fears of a conservative U.S. administration have spilled over irrationally into Cronos’ valuation, even though domestic fundamentals remain the focus. Speculation about potential cannabis deregulation under a libertarian-leaning Republican administration offers an additional upside catalyst, though it is not central to Cronos’ near-term thesis.