A cash pile and patient management makes this cannabis stock a somewhat hidden cannabis gem…
Yet again, the optimism toward cannabis stock has spiked, then faded. Cronos Group (NASDAQ:CRON) stock has been no exception.
Both CRON stock and the sector as a whole, as measured by the ETFMG Alternative Harvest ETF (NYSEARCA:MJ), have been on a wild ride. Between Oct. 30 and Feb. 10, MJ more than tripled and CRON nearly did the same. From those February highs, MJ is off 37% and Cronos stock has been nearly halved.
The volatility isn’t new. In fact, it makes some sense.
There’s a push/pull for the sector. Cannabis stocks often rally on hopes for U.S. legalization. It’s not a coincidence, after all, that last year’s rally began just ahead of federal elections, and strengthened as Democrats won the Presidency and, eventually, narrow control of the Senate (Reddit investors added a final, unsustainable flourish to the gains).
Those hopes, however, often run into the reality of the existing Canadian businesses, which remain largely unprofitable amid a supply glut. And so it’s also no coincidence that earnings in February led to a reversal for the group.
With the big pullback, the sector does look more attractive. The long-term trend of cannabis legalization seems unassailable at this point — and in markets far beyond North America. There are several potential plays, but understanding the risks and the rewards, CRON stock still seems like the best choice.
The Big Cannabis Names
That’s not to say that CRON is the only choice. Indeed, investors have plenty of options.
The Canadian operators first sparked investor optimism. But the sector gained broader notice in 2018, when Constellation Brands (NYSE:STZ, NYSE:STZ.B) made a massive $4 billion investment into Canopy Growth (NASDAQ:CGC).
The validation of the industry by one of the world’s largest beer, wine and spirits companies after a smaller investment in 2017 brought cannabis into wider view among investors. Tobacco giant Altria (NYSE:MO) followed by injecting $1.8 billion into Cronos a few months later.
Both Canopy and Cronos retain massive war chests for investments and acquisitions. Canopy in fact recently agreed to acquire Supreme Cannabis (OTCMKTS:SPRWF), although it’s using mostly stock for that deal.
Other companies have gone it alone. Aurora Cannabis (NYSE:ACB) used its stock to make a number of acquisitions worldwide. That strategy hasn’t worked so far, and shareholders have been significantly diluted. But Aurora still has enough assets to make it a high-risk yet high-reward play going forward. The same is true of Sundial Growers (NASDAQ:SNDL), another Reddit favorite that has a turnaround story of its own (though I personally think SNDL stock still needs to get cheaper).
Aphria (NASDAQ:APHA) managed to be more profitable than its rivals. It’s now merging with Tilray (NASDAQ:TLRY), with the two companies looking to the tie-up as a way to cut costs and drive consistent, sustainable, positive free cash flow.
There are U.S. options as well. So-called multi-state operators like…
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