Our Cronos Stock Prediction in 2019 (Buy or Sell?)
The hottest sector of 2018 was the marijuana industry. There was a pretty solid frenzy surrounding weed stocks for much of the year, and when Tilray’s stock took off late in the year, the rest of the sector followed suit. Which brings us to the topic of our CRON stock prediction for 2019.
The real trick with marijuana stocks is just how many of them are likely to turn into viable businesses, and how many will just end up as glorified penny stocks.
Legalization has been a powerful driver for marijuana stocks. Canada is where everyone seems to be pointing, and several states are in the mix as well. While legalization will ultimately be the underlying support for these companies, the ability for any of them to execute is where the rubber will meet the road.
Our CRON stock prediction will examine both of these issues and a few more.
What is Cronos Group?
In order to determine our CRON stock prediction, we have to know what the company actually does.
Cronos Group is a company that provides growing capacity for marijuana, distribution for it, and a certain amount of intellectual property. Cronos has three core assets and seven other non-core assets.
The core assets include 100% ownership of Peace Naturals, which is licensed to produce and sell medical marijuana, and cultivate cannabis oil, under the what is known as the Access to Cannabis for Medical Purposes Regulation in Canada. In other words, it’s licensed. This is a 95 acre operation.
Peace Naturals distributes directly to Canadian medical consumers, and through other entities in Germany and Poland.
Cronos Group owns 100% of Original BC, which is licensed to cultivate and sell medical marijuana, and operates on 31 acres of land. They distribute for recreational use in four Canadian provinces.
Cronos Group owns a 21.5% interest in Whistler Medical Marijuana Company which produces and sell medical marijuana, and cultivates cannabis oil.
Cronos has a partnership with Ginkgo Bioworks to produce cannabinoids. Cronos will have an exclusive, royalty-free license to production and commercialization technology for 8 target cannabinoids.
Cronos has a joint venture with an Israeli kibbutz, the Kibbutz Gan Shmuel, which is the leader in R&D for medical marijuana. The company is a major cannabis player, exporting to 35 countries.
Cronos also has a joint venture with New Southern Capital, an Australian venture, to build a growing facility, as well as a research license.
Another joint venture is in Canada with Mucci Farms, a major greenhouse grower. They plan to partner on a massive facility to produce 70,000 kg of cannabis annually.
Here’s a video on investing in marijuana stocks, so you are fully informed.
How Has Cronos Stock Performed?
What is Cronos’ Stock History?
- Over the past 10 months, since the Cronos Group IPO, its shares have gained 54% whereas the S&P 500 has lost 7.7%.
- Over the past two years, CRON shares have gained 54% whereas the S&P 500 has gained 11.2%.
- Over the past five years, CRON shares have gained 54% whereas the S&P 500 has gained 37%.
How Has Cronos Performed in 2017/2018?
- In 2017, Cronos Group had not yet become a publicly traded company.
- In 2018, since the Cronos Group IPO, its shares have gained 54% whereas the S&P 500 has lost 7.7%.
Who Are Cronos’ Rivals?
In order to assess our CRON stock prediction, we must look at Cronos’ competitors.
Canopy Growth Corporation
Canopy Growth is a Canadian company that grows and sells of medical cannabis in Canada. Some of its products include flowers, oils, concentrates, soft gel capsules, and hemps. The company was previously known as Tweed Marijuana, and marketed its products under several names, including Tweed, Black Label, Spectrum Cannabis, DNA Genetics, Leafs By Snoop, Bedrocan Canada, CraftGrow, and Foria.
It had virtually no revenue in 2015 and has since grown to the point where it has about $100 million in annual sales. It’s losing a ton of money but has ample cash reserves.
Aurora Cannabis is a licensed producer and retailer of medical marijuana in Canada, with 16,400 active registered patients.
Aurora Cannabis acquired a 40,000 square foot facility, which pumps out about 4,000 kg of cannabis. It’s also got an 800,000 square foot facility that will eventually ramp up to 100,000 kg of cannabis.
Aurora has become increasingly popular and is starting to see real sales. It barely sold anything through July 1 of 2016, but then hit $78 million over the past twelve months.
The Scotts Miracle-Gro Company has been around since 1868. It makes, markets, and sells lawn and garden products. It is best known for its lawn care products.
You’ve been living under a rock if you don’t know its most famous names: Nature Scape, Miracle-Gro, Organic Choice, Turf Builder, PatchMaster, Scotts OxiCleanTM3, Miracle-Gro, Ortho, Nature’s Care, Agrolux, (the infamous) Roundup, and Groundclear.
But it has now diversified into cannabis. Hawthorne Gardening Company is name for its cannabis division.
Will Cronos Go Up in 2019 (Should You Buy?)
A quick argument why Cronos is cheap and under priced
Our CRON stock prediction moves into its next phase by examining if Cronos stock is undervalued.
Much of this argument is centered around potential. That is, the potential that cannabis is going to be a multi-billion dollar market, and first movers like Cronos are going to be winners in that market.
This in itself is driven by strong support for marijuana legalization. A 2017 Gallup poll showed 64% of Americans want weed legalized. As it is, cannabis research firm ArcView says legal sales growth based just on current legislation will grow 25% through 2021.
That marijuana was legalized in Canada is the current big news for Cronos. Canada has several reasons for having done this. The country is somewhat looser on marijuana use from a societal standpoint, but $5 billion in tax revenue was also a motivator.
To that end, Cronos’ three core assets are already up and running to take advantage of the new law.
What I like most about Cronos is that it isn’t an operating company. It’s an investment firm. It buys up or invests in people who already know what their doing.
So not only is Cronos diversified, its investments are global. I love that it has partnered with an Israeli firm, because Israeli science firms have historically performed exceptionally well. The climate is perfect for marijuana growth, and when an Israeli firm sets its mind to something, it gets it done.
Even aside from the possibility of explosive recreational use, though, the medical marijuana market is a core component to its business. Health Canada has been seeing 10% monthly growth in registered clients. That’s MONTHLY.
Finally, Cronos hit the jackpot in December, when Altria said it would drop a whopping $1.8 billion equity investment into the company. That gives Altria a 45% stake in the company, with the option to boost it to 55% if it exercises its warrants.
Altria is not going to take this venture lightly. It needs a new growth stream because cigarette usage is crashing.
So, is Cronos stock undervalued? Because it has no earnings, it’s impossible say. What I can say is that there is potential, and if there was one element here that made me think it could eventually go higher, it’s that Altria would eventually just buy out the company completely.
Will STOCK GO Down in 2019 (Should You Sell?)
A quick argument why Cronos is expensive and overpriced
Our CRON stock prediction moves into its next phase by examining if Cronos stock is overvalued.
There are some major risks for Cronos stock.
It may sound exciting that weed could become this massive market. However, the Achilles Heel to this argument is that weed is ultimately a commodity. Commodities are terrible investments.
The reason is because, when everyone is selling the same thing, there’s nothing to distinguish the products. So price wars erupt and prices crater. Thus, profit margins are very thin.
That’s why the price of TV’s drop so quickly. There’s nothing special about a Samsung vs. a Sony, except to the home theater nerds.
The only things that distinguish commoditized products are marketing and customer service. Sure, it’s possible that one weed seller will offer a much better product, but any difference is going to narrow over time.
As it is, with Canada making marijuana legal, that race is already on.
There may also be backlash in the United States over legalization. While more and more states are pushing various forms of legalization, the data out of Colorado is not good in terms of how legalization has affected society.
The black market has actually increased, as criminals grow legally to sell out of state illegally. Manufacturing arrests increased almost four-fold. Felony marijuana cases have almost doubled.
The more data that comes out, the more likely that these ill effects are going to create a backlash. If people pile into marijuana stocks and the legalization trend slows or stops, that’ll be a problem.
Finally, remember that Cronos is losing money, and only has about $10 million in sales the past twelve months.
Overall Cronos Forecast and Prediction for 2019
That chart above is very enticing. However, I’m a long-term investor, so I don’t like to make predictions for a given year. If you are going to invest in a company, then you invest and hold for as long as the company’s story looks good.
However, I recognize that some people have shorter time frames and are interested in trading stocks.
So what is my CRON stock prediction for 2019?
I think it will be a bumpy year for marijuana stocks. Those that get outside investment are likely to do better than those that don’t. Cronos has Altria behind it, and I think that investment is going to provide a floor.
Cronos stock is also probably not reflecting the Altria news completely because the deal hasn’t been finalized. The stock is at $11.78 as I write and had been $13 on the Altria news.
So my CRON stock prediction is that Cronos will end the year a bit higher than where it is now – between $13 and $14 per share. Of course, there will be big gyrations in between.