Why Cronos Group Inc (TSX:CRON) Has Been Soaring

Cronos Group Inc (TSX:CRON)(NASDAQ:CRON) has been up big lately while other cannabis stocks have been struggling.

| More on:

Cronos Group Inc (TSX:CRON)(NASDAQ:CRON) got a big boost in share price this week after rumours began swirling that Altria was looking at buying the cannabis company.

While details are limited and no one wants to say anything just yet, it wouldn’t be the first time that the company behind Marlboro was involved in these types of rumours. A few months ago, Altria was linked to Aphria Inc and expectations were that it would make an investment in the company.

However, with Altria appearing to move on from that and with no news regarding the two companies since, it may be safe to assume that nothing will come of those rumoured discussions.

Similarly, investors should exercise caution in assuming a deal with Cronos will take place, as these rumours are nothing new for Altria. Spun-off company Phillip Morris even downplayed any interest in the cannabis industry.

We’ve seen in the past how rumoured deals can create a lot of excitement around a stock. But many deals have not materialized into anything, and only a few big ones have been made thus far.

We’ve witnessed many companies try to distance themselves from the emerging cannabis industry, as many don’t see the industry as a fit for their brand, as it’s not a good move just yet with the U.S. still a long way away from legalization.

What does this mean for Cronos investors?

As tempting as it may be to believe that a deal with Cronos and Altria might be imminent, investors should ignore these rumours and wait for something more tangible to come out. Discussions are just that, and there have been many involving the industry already, this is just an example of one that appears to have leaked out.

It’s understandable why investors would be excited, as a partnership or even investment from a big company not only acts as a vote of confidence, but also provides a lot of cash flow to fund further expansions.

The danger is buying Cronos at these elevated prices, which now have expectations of a deal priced into them. If the deal ends up falling through or nothing ends up happening (as with Aphria), Cronos stock could end up giving back all of those gains.

Marijuana stocks have been struggling as of late, but this news has allowed Cronos to buck that trend, rising more than 20% during the past week.

Bottom line

Marijuana stocks can be very fickle and even rumours can send share prices up or down very quickly. Investors should rely on press releases or official statements from the companies involved, as anything else could artificially and temporarily inflate a price that could be due for a correction later.

While there might be legitimate interest from Altria to purchase Cronos, the company may not be willing to pull the trigger until cannabis becomes legalized across the U.S. and it could still have discussions with other cannabis companies as well.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned.

More on Investing

warning or alert

Bitcoin Crash 2022: Is the Winter Coming?

People shouldn’t be surprised anymore whenever Bitcoin (CRYPTO:BTC) sharply drops like it did on January 21, 2022. It fell 10.38% …

Read more »

Supermarket aisle with empty green shopping cart

Find Growth Stocks in Different Segments of the Market

Is your portfolio diversified? Investors frequently ponder the answer to that question. Fortunately, the market gives us plenty of options …

Read more »

cryptocurrency, crypto, blockchain

Should You Sell Shiba Inu for Other High Potential Cryptocurrencies?

There were several cryptocurrencies that gained popularity and earned investors major rewards in 2021. One of the biggest gainers, though, …

Read more »

oil and gas pipeline
Energy Stocks

4 TSX Stocks Returned More Than 10x Since the Pandemic Crash: Should You Buy?

What’s your return expectation when investing in stocks? A yearly return of 10%-15% seems reasonable, right? That’s the case for …

Read more »

Oil pumps against sunset
Energy Stocks

This Oil Stock Is up 10% in 2022 and it’s Still Undervalued

CES Energy Solutions (TSX:CEU) is a Calgary-based company that provides consumable chemical solutions throughout the life-cycle of an oilfield. It …

Read more »

Glass piggy bank
Dividend Stocks

How to Accelerate Your TFSA Returns From Dividend Stocks

The stock market saw a correction in January, as investors booked profits ahead of the central bank’s interest rate hikes. The TSX …

Read more »

money cash dividends
Dividend Stocks

Top 3 Dividend Stocks in Canada for 2022

Canada is home to some of the best dividend stocks in the world. With finance, telecoms, and energy dominating the …

Read more »

Shopping and e-commerce
Tech Stocks

Can Shopify Recover to New All-time Highs in 2022?

With more than 1.7 million merchants on its platform, Shopify (TSX:SHOP)(NYSE:SHOP) is undoubtedly a core platform for SMBs. The company’s software-as-a-service platform …

Read more »