Cronos Group Inc: Up 45% Already, More Profits to Come?

Cronos Group Inc: Up 45% Already, More Profits to Come?
iStock.com/Adam Simpson

This Marijuana Stock Deserves Investors’ Attention

It looked like a free fall.

I’m talking about December 2018, when stocks from nearly every sector were dropping to the floor.

Marijuana stock investors were already not in the best of moods. In October and November, the North American Marijuana Index had plunged by nearly 25%. Some analysts were even wondering whether this would be the end for pot stocks.

I, on the other hand, was a bit more optimistic. Quite a few cannabis companies, such as Cronos Group Inc (NASDAQ:CRON), were churning out growth rates that even tech unicorns would be jealous of.

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In fact, when the bears were still dominating the world of weed stocks, I wrote a piece arguing that Cronos stock could see further upside.

I hope you took advantage of that article. Since it was published, CRON stock has surged by over 45%.

Being optimistic about Cronos Group Inc wasn’t really a hard call, even when everything on the market was deep in the doldrums.

As I said, very few businesses can match the marijuana industry in terms of growth potential. And Cronos happens to be one of the fastest-growing companies in that industry.

Cronos Group Inc: Delivering Triple-Digit Growth Rates

If growth investors need any convincing on why they should take a look at the cannabis industry, all they need to do is go through Cronos’ latest earnings report.

In the third quarter of 2018, the company generated CA$3.8 million of revenue, marking a staggering 186% increase year-over-year. In the first nine months of 2018, Cronos Group’ revenue totaled CA$10.1 million, which more than quadrupled the CA$2.5 million earned in the same period of 2017. (Source: “Cronos Group Inc. Announces Third Quarter 2018 Results,” Cronos Group Inc, November 13, 2018.)

Because Cronos is a marijuana stock, investors should also pay close attention to how much cannabis it sells. In the third quarter of 2018, the company sold 514 kilograms of cannabis, representing a 213% increase from the third quarter of 2017.

And consider this: At the end of 2017, Cronos Group had 7,353 cannabis plants. Nine months later, that number had increased to 24,961. With this huge expansion in biological assets, it’s only natural to expect that the company will deliver even higher production and sales figures down the road. (Source: “Unaudited Condensed Interim Consolidated Financial Statements For the Three and Nine Months Ended September 30, 2018 and September 30, 2017,” Cronos Group Inc, last accessed January 28, 2019.)

The blunt reality is, Cronos stock bears can say what they want, but they cannot deny the fact that over the past several quarters, the company has significantly grown its business.

New Opportunities

For those still wondering whether weed stocks are “legit”—as in whether they are real investments to consider—the decision from a major tobacco company should provide an answer.

In December, Altria Group Inc (NYSE:MO), the maker of “Marlboro” cigarettes, agreed to invest CA$2.4 billion in Cronos. That would give the tobacco giant around 45% ownership in the weed stock. (Source: “Cronos Group Inc. Announces C$2.4 Billion Strategic Investment from Altria Group, Inc,” Cronos Group Inc, December 7, 2018.)

The agreement also provides Altria with warrants for Cronos shares, which, once exercised, would give Altria another 10% stake in the cannabis company.

In my opinion, Altria’s decision to invest in Cronos is not only a sign of strength for the weed stock, but could also lead to plenty of partnership opportunities between the two companies.

Analyst Take

Add everything up, and you’ll see that Cronos Group Inc represents one of the best growth opportunities in the marijuana industry.

I should point out that the company is not the biggest player in the business. As of this writing, Cronos commands a market capitalization of around $3.3 billion. That makes it quite a bit smaller than companies like Canopy Growth Corp (NYSE:CGC)—at $17.4 billion—and Tilray Inc (NASDAQ:TLRY)—at $7.6 billion.

But by being a smaller name, Cronos stock may actually attract more growth-oriented investors.

Ultimately, it’s not every day that you see a company with triple-digit growth rates in multiple key stats. For growth investors looking to make a buck in 2019, CRON stock is a name they cannot afford to ignore.