Marijuana News Today: Cronos Stock Down, Canopy Stock and Aurora Stock Butt Heads?

Marijuana News Today
iStock/Johny87

Marijuana News Today

The marijuana news today has been busy, with several of the biggest players in the industry all having recently made significant moves. We’ll be covering Cronos Group Inc (NASDAQ:CRON) and its fall in share value, as well as the potential standoff between Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) and Canopy Growth Corp (OTCMKTS:TWJMF, TSE:WEED) in Australia.

CRON Stock Plummets

For a while, April held some promise that maybe the marijuana stock market correction was finally over. Especially considering all the political victories that pot stock investors won in the U.S. last month, many were cautiously optimistic that the growth would be sustainable and bring about an end to what has been a rough 2018.

Unfortunately, as we’re seeing now in the marijuana news today, April was ultimately unable to halt the marijuana stock market correction.

Case in point: CRON stock.

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The company took a huge hit, dropping by as much as 11% over the past five days. The strange thing is that this drop came following a pretty impressive financial report that came out on April 30.

Chart courtesy of StockCharts.com

So what gives?

The quarterly report showed sales having increased by CA$3.5 million, or 636% year-over-year. (Source: “Cronos Group Inc. Announces Fourth Quarter and Fiscal Year 2017 Results,” Cision, April 30, 2018.)

It also completed several indoor facilities that will help expand production and ready the company for both Canadian marijuana legalization and further expansion internationally.

The company extended its reach into the Israeli market, and as I’ve said from the beginning, internationally focused marijuana companies are the way to go for long-term pot stock investors.

And that doesn’t include all the other international plays that CRON stock made, including entering the European market as well as getting registered on the Nasdaq, making it the first pure-play marijuana company to do so.

“We are building Cronos Group with a focus on the long-term and 2017 set the foundation for the explosive growth we have already started realizing in 2018,” said Cronos Group CEO Mike Gorenstein, in a statement. (Source: Ibid.)

“We are extremely proud of all that our team has accomplished and look forward to a year of rapid increases in sales, commencing distribution in new markets, further developing disruptive intellectual property and launching new iconic brands.”

With so much going in its favor, how come the company fell by such a steep percentage, or at all?

The problem is the company’s valuation.

CRON stock has a market cap of about CA$1.4 billion. If you multiply the Q4 sales figures by four, you get an estimated annual sales of CA$6.4 million.

CRON stock is therefore trading at 220-times sales. For investors, they see a company that is hugely overvalued.

And they may not be wrong.

My position on CRON stock has always been a pained one.

While I do support the company’s international expansion and believe that the future of all marijuana companies lies in that global outlook, I felt that the company’s meteoric rise following its listing on the Nasdaq was too much, too fast, and led to too many new investors trying to hop on the hype bandwagon.

As a result, you’ve had a CRON stock that has been at times one of the best and worst performers in 2018, and certainly among the most volatile.

Yesterday’s fall only further cements the company’s position as among the most volatile in the industry. I would caution investors from getting involved in CRON stock at the moment considering its current position, but further stock price reductions could end up making it a bargain deal down the road.

Aurora Stock and Canopy Growth Stock to Clash?

Marijuana companies are currently experiencing the rising tide principle, by which I mean that most are often raised or dashed in unison, with a few outliers.

Aurora stock and Canopy Growth stock both have made great strides over the past five days, especially when compared to the struggling CRON stock. That makes the marijuana news today rather positive for two of the biggest heavy hitters around.

The reason these two stocks are in the marijuana news today is because Aurora confirmed that it was in preliminary discussions to acquire Cann Group Limited, the first Australian company licensed to conduct research on cannabis, as well as cultivate medical cannabis. Aurora already holds a 22.9% stake in the company and has been very aggressive in acquiring companies in late 2017 and 2018. (Source: “Aurora Cannabis Set to Challenge Canopy Growth in Australia?,” SmallCap Power, May 2, 2018.)

Aurora claims that no offer has been submitted. Still, this could be shaping up to be some thunder down under as Canopy Growth has already announced that it is launching Spectrum Cannabis Australia, where it will invest up to AU$16.0 million in the state of Victoria in order to establish an Asian headquarters.

This could naturally lead to some fierce competition in Australia between two of the largest marijuana companies around.

Chart courtesy of StockCharts.com

And we’re likely to see more of this competition come about as companies—especially the larger ones—continue to look toward international expansion and acquisitions in order to justify their valuations.

You see, that’s what the marijuana industry currently finds itself faced with—a crisis of confidence.

While investors and analysts all acknowledge that marijuana is going to be big business, the dissonance comes about when these companies garner such high valuations (like CRON stock) without the necessary justifications for those valuations.

The valuations were of course spurred on by massive waves of investing that came about following the hype in the industry.

Those perceived overvaluations—right or wrong—are putting a damper on the industry as a whole and have led to this market correction we’ve seen in 2018.

Analyst Take

The marijuana industry has a ton of potential, no one is going to argue that.

But the marijuana news today revealed some of the negatives we’re seeing in the market.

The first is the trouble with overvaluation.

With companies growing so fast and many investors interested in getting a piece of this multi-billion-dollar pie, the rapid growth is no surprise. But as hardened stock market players know, emergent industries are extremely volatile and often lack concrete numbers to justify their valuations, frequently relying on projections.

And of course, projections can be wrong.

We’ve seen this play out in 2018 to the detriment of many companies, with CRON stock being in the marijuana news today for precisely that reason.

Another issue that the industry is going to run into is oversaturation. With so many companies vying for their piece of the market, competition could impede growth and lead to less-than-ideal results down the line.

While I’m still very much a supporter of the marijuana stock market, this was a good reminder of some of the more concerning aspects of the industry.