Why Marijuana Stock Cronos Group Has Skyrocketed 104% So Far in 2019
What happened
Shares of Cronos Group (NASDAQ: CRON) have already more than doubled this year, according to data provided by S&P Global Market Intelligence. The Canadian cannabis producer is benefitting from a host of powerful growth catalysts.
So what
January was an incredible month for pot stocks. No less than 15 marijuana-focused companies saw their stock prices surge by at least 50% in the first month of the year. In stark contrast to 2018, which saw many cannabis stocks plunge in value, investors appear to be taking a more optimistic view of the marijuana industry in 2019.
There are many valid reasons to be bullish. Canada legalized recreational marijuana in October. Citizens in several more U.S. states voted to legalize cannabis for medical and recreational purposes in November. And President Trump signed the Farm Bill into law in December, which legalizes the production and sale of hemp and cannabidiol (CBD) derived from the hemp plant. All of these developments should help boost demand for cannabis-based products going forward.
Cronos Group also benefited from some stock-specific news. The company struck a blockbuster deal with tobacco titan Altria (NYSE: MO) in December. Altria plans to invest $1.8 billion in Cronos in exchange for a 45% stake. The deal also gives Altria the opportunity to acquire another 10% of Cronos' stock in the future.
Now what
Altria brings to the table its vast distribution system and regulatory expertise. And the cash it's injecting in Cronos will allow it to scale up its production and accelerate its international expansion plans.
Moreover, Altria's first investment in Cronos may not be its last. It's possible that if the partnership goes well, Altria could acquire Cronos Group's remaining shares -- likely at a sizable premium to where they trade today.
Still, despite all of these positive catalysts, Cronos Group isn't expected to generate much in the way of profits this year or next. In turn, some analysts believe Cronos's stock to be vastly overvalued -- and expect it to underperform its peers in the coming years. As such, investors may wish to wait for a better price at which to purchase Cronos Group's shares.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.