Why Cronos Group Inc. (TSX:CRON) Is My Top Pot Stock for 2019 and Beyond

These three reasons make Cronos Group Inc. (TSX:CRON) (NYSE:CRON) a better investment option than other popular TSX pot stocks.

| More on:

Among the Canadian cannabis companies whose shares trade on the TSX, Cronos Group Inc. (TSX:CRON)(NASDAQ:CRON) is the fourth largest by market cap. The top three companies, Canopy Growth Corporation (TSX:WEED) (NYSE:CGC), Aurora Cannabis (TSX:ACB)(NYSE:ACB), and Aphria Inc. (TSX:APHA)(NYSE:APHA) garner most of the media attention. As a result, many investors naturally gravitate toward them as the primary investment options in the marijuana industry.

Hype is rarely the best metric to use when making investment decisions, however, and despite earning fewer mentions than the “big three,” I believe Cronos is currently the best pot stock on the TSX. Here is why.

International footprints

The legal marijuana sector is still in its infantry. The potential for growth available for the biggest players in this industry can hardly be overstated. The recent legalization of the recreational use of marijuana in Canada is an experiment of sorts. The effects of the new regulation on marijuana companies are already being analyzed and over-analyzed.

Canada is not the only place where marijuana companies are poised to reap substantial benefits, however. Having footprints elsewhere can provide more avenues for growth, and at this little game, Cronos has some good arguments. Sure, Cronos makes the bulk of its revenues from its Canadian operations, but the company’s reach extends to other geographical regions.

Cronos has a five-year distribution agreement with G.Pohl-Boskamp, which allows the company to distribute its products to more than 12,000 pharmacies in Germany — one of Europe’s largest cannabis market. Last year, Cronos announced a strategic joint venture in Australia for the research, production, manufacture, and distribution of medical cannabis. The company was granted a medical cannabis manufacture license in the country.

These international ventures — which are likely not the last for Cronos — will allow the Ontario-based medical cannabis company to tap into a growing worldwide market.

Strategic partnership with Altria

Late last year, tobacco giant Altria acquired a 45% stake in Cronos for around $1.8 billion. The news — first announced on December 7 — helped Cronos’ stock climb by as much as 38% in premarket trading on that day; investors were understandably enthusiastic.

Altria is a juggernaut with substantial business expertise, be it in North America or abroad. Teaming up with this U.S.-based tobacco company will help Cronos in many ways. For example, Cronos will have access to Altria’s financial resources to help its growth and development.

Supply agreements 

Although the recreational use of marijuana was legalized less than a year ago, the race to the top among pot companies has been heating up for much longer. What better way to get a leg up on the competition than to have supply agreements that guarantee a stable and predictable stream of revenues.

Last year, Cronos signed supply agreements with the Ontario Cannabis retail corporation and the BC Liquor Distribution Branch. These provinces make up more than half of the Canadian population. Cronos also secured a supply deal with Cura Cannabis Solution, a Portland-based marijuana oil company. Cronos reached a deal to provide Cura with 20,000 kilograms per year of cannabis for five years.

These supply agreements promise to bolster the company’s top line.

The bottom line

Cronos’ latest quarter showed substantial increases in revenue and kilograms of cannabis sold year over year of 186% and 213%, respectively. While this much growth is expected given current market conditions, Cronos has shown several times over while it should be considered one of the top pot stocks on the TSX.

With solid international footprints, its strategic partner with a global tobacco leader, and supply agreements that will increase the company’s top line, Cronos presents serious upside for investors.

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 Prosper Bakiny has no position in the companies mentioned. 

More on Investing

Tired or stressed businessman sitting on the walkway in panic digital stock market financial background
Stocks for Beginners

Buying These 2 Stocks Is a Good Way to Hedge Against a Falling Market

Investors looking to hedge against a stock downturn should consider these two stocks as viable long-term picks.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

How I’d Invest $1000 in February to Make Easy Passive Income

Looking to earn some extra passive income in February but don't have much cash? Build an easy portfolio with these…

Read more »

The sun sets behind a high voltage telecom tower.
Energy Stocks

2 Utilities Stocks With Sought-After Stability

Here's why Fortis and Hydro One are two top utilities stocks long-term investors may want to consider right now.

Read more »

clock time
Tech Stocks

3 Top ‘Future’ Stocks to Hold for the Rest of This Decade

Canadian growth stocks like Constellation Software are starting to look appealing.

Read more »

Coworkers standing near a wall
Investing

Is Restaurant Brands International Stock Worth Buying in February 2023?

After an impressive rally, does restaurant stock QSR have more room to grow, or is it already fairly valued?

Read more »

financial freedom sign
Investing

Millionaire by 40: Top 4 Ways to Hit Your 1st Million

Canadians who want to hit the millionaire milestone by the time they hit 40 may want to target growth stocks…

Read more »

Dollar symbol and Canadian flag on keyboard
Stocks for Beginners

2 Canadian Stocks I’ll Be Buying Hand Over Fist in 2023

There are some great Canadian stocks on sale right now. Here's a duo of companies I'm buying that you may…

Read more »

Women's fashion boutique Aritzia is a top stock to buy in September 2022.
Stocks for Beginners

Has ATZ Stock Bottomed Out?

Has ATZ stock finally bottomed out after losing nearly 10% of its value in 2022? Let’s find out.

Read more »