In this piece, I evaluated two agriculture stocks, Cronos Group Inc. (CRON) and MariMed Inc. (MRMD), to determine which is a better investment. Based on the fundamental comparison of these stocks, I believe MRMD is the better buy and is quite popular among investors for the reasons explained throughout this article.
The agriculture industry is well-positioned to witness robust growth and expansion in the foreseeable future due to sustained demand for agricultural commodities and products. Demand is driven by food consumption trends, supportive government policies and investments, and growing adoption of advanced technologies.
A growing population worldwide and significant shifts in dietary patterns should propel the demand for agricultural products. The global population is more than three times larger than it was in the mid-twentieth century. Based on United Nations estimates, the world population is expected to increase to 8.5 billion in 2030 and 9.7 billion in 2050.
This month, the U.S. Department of Agriculture (USDA) announced plans to invest up to $500 million from President Biden’s Inflation Reduction Act (IRA) to boost the availability of domestic biofuels. Also, it is announced that next month the Department will begin accepting applications for $450 in grants to support installation and upgrade of biofuel-related infrastructure.
In addition, USDA announced $23 million in grant funding to support processing capacity expansion, on-farm improvements, and technical assistance services to producers through the Business Innovation Initiatives.
According to a report by ReportLinker, the global agricultural market is projected to reach $19.01 trillion in 2027, growing at a 9.1% CAGR.
The agriculture industry is also expanding significantly with the increased integration of innovative digital technologies. Adoption of cutting-edge technologies such as Internet of Things (IoT), big data, agricultural robots, livestock biometrics, and GPS, would increase productivity to cater to the growing demand for food, reduce human efforts, maximize profitability, and promote sustainability.
For instance, agricultural robots are being used to automate farming processes, including soil maintenance, fruit picking, weeding, planting, harvesting, plowing, and irrigation among others. Furthermore, infrastructural health sensors are employed for monitoring material conditions and vibrations in factories, farms, and other infrastructure.
As per a report by Grand View Research, the global smart agriculture market is projected to reach $54.71 billion by 2030, growing at a 13.4% CAGR. Also, the U.S. smart agriculture market is expected to expand at a 7.6% CAGR from 2023 to 2030.
MRMD is a clear winner in terms of price performance, with 3.2% returns over the past three months compared to CRON’s 4.1% decline. MRMD has gained 3.2% over the past six months, while CRON slumped 26.8%. Also, MRMD’s 10.1% gains year-to-date are higher than CRON’s decline of 26.8%.
Here are the reasons why we think MRMD could perform better in the near term:
Latest Developments
On May 31, CRON announced streamlining its operating structure to improve cash flow by winding down and exiting its existing U.S. hemp-derived CBD-focused operations by the end of the second quarter of 2023. Also, CRON increased its previously announced 2023 operating expense savings target from a range of $10 to $20 million to a new range of $20-$25 million, partially due to exiting its U.S. operations.
On June 8, MRMD opened a Thrive Wellness Dispensary, a medical dispensary in Tiffin Ohio, marking the company’s first operational dispensary in the state and the 11th that MRMD owns across five states. The opening of this dispensary in Ohio is part of the company’s strategic plan to expand its existing footprint into new states that it identified as proving high-growth opportunities.
Also, On April 4, MRMD disclosed that its wholly-owned subsidiary, Kind Therapeutics USA, had obtained approval from the Maryland Medical Cannabis Commission (MMCC) to commence producing and distributing THC-infused edibles with higher dosages. With this approval, the company could offer higher-dose edibles across its product portfolio to the medical cannabis patients of Maryland.
Recent Financial Results
CRON’s net revenue decreased 19.5% year-over-year to $20.14 million in the first quarter that ended March 31, 2023. Its gross profit declined 65.6% from the year-ago value to $2.38 million. It reported an operating loss and adjusted EBITDA loss of $22 million and $16.76 million, respectively. Also, the company’s net loss and net loss from continuing operations per share were $19.26 million and $0.05, respectively.
In the first quarter that ended March 31, 2023, MRMD’s total revenue increased 24.1% year-over-year to $34.38 million, while its product revenue came in at $33.56 million, up 22% year-over-year. As of March 31, 2023, the company’s cash and cash equivalents stood at $21.60 million, compared to $9.74 million as of December 31, 2022. In addition, its total assets were $184.39 million as of March 31, 2023.
Past And Expected Financial Performance
Over the past three years, CRON’s revenue grew at 43.9% CAGR. However, the company’s total assets declined at a 15.6% CAGR over the same period.
Analysts expect CRON’s revenue for the fiscal quarter (ending June 2023) to increase 1.7% year-over-year to $23.38 million. However, the company’s EPS is expected to be negative for at least two fiscal quarters. In addition, CRON is expected to report a loss per share of $0.14 for the fiscal year 2023 and $0.09 for the fiscal year 2024.
MRMD’s revenue grew at a 40.4% CAGR over the past three years. Over the same time frame, the company’s total assets increased at a CAGR of 41.3%.
For the fiscal quarter ending June 2023, MRMD’s revenue is expected to increase 8.4% year-over-year to $35.75. Analysts expect the company’s revenue for the fiscal year (ending December 2024) to grow 11.4% from the prior year to $151.45 million. Also, for the fiscal year 2024, its revenue is estimated to increase 14.7% year-over-year to $173.70 million.
Profitability
MRMD’s trailing-12-month revenue is 1.6 times what CRON generates. Moreover, MRMD is more profitable, with a trailing-12-month gross profit margin of 45.49% compared to CRON’s 8.53%. Also, MRMD’s trailing-12-month EBITDA margin and net income margin of 18.25% and 6.30% are higher than CRON’s negative 112.09% and negative 178.43%, respectively.
Furthermore, MRMD’s trailing-12-month ROE, ROA, and ROTC of 9.45%, 12.38%, and 8.96% are favorably higher than CRON’s negative 12.69%, negative 8.51%, and negative 5.51%, respectively.
Valuation
In terms of trailing-12-month Price/Sales, MRMD is currently trading at 0.98x, 87.5% lower than CRON, which is trading at 5.64x. However, CRON’s trailing-12-month Price to Book multiple of 0.61 is lower than MRMD’s 2.06.
POWR Ratings
CRON has an overall rating of D, which equates to a Sell in our proprietary POWR Ratings system. Conversely, MRMD has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CRON has a grade of D for Sentiment. The Sentiment grade is justified by its disappointing analyst estimates. On the other hand, MRMD has a B grade for Sentiment, consistent with its favorable analyst expectations.
In addition, CRON has a grade of D for Quality, in sync with its lower-than-industry profitability. CRON’s trailing-12-month EBITDA margin of negative 112.09% compares to the industry average of 3.53%. MRMD, in contrast, has a B grade for Quality, in sync with its relatively higher profitability. MRMD has a trailing-12-month EBITDA margin of 18.25%, 416.8% higher than the 3.53% industry average.
Of the 28 stocks in the Agriculture industry, CRON is ranked #24, while MRMD is ranked #11.
Beyond what we’ve stated above, we have also rated both stocks for Stability, Momentum, Value, and Growth. Click here to view CRON Ratings. Get all MRMD ratings here.
The Winner
High demand for agricultural products, favorable government policies and investments, and rapid adoption of innovative digital technologies is expected to position the agriculture industry for solid growth and expansion in the foreseeable years. Therefore, leading agriculture stocks CRON and MRMD are expected to benefit significantly from the industry’s promising growth prospects.
However, CRON’s deteriorating financials, low profitability, and weak growth prospects make its rival, MRMD, a better buy now.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Agriculture industry here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
CRON shares were unchanged in premarket trading Tuesday. Year-to-date, CRON has declined -26.77%, versus a 13.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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