Is Cronos Group (TSX:CRON) a Buy Right Now?

There are things to admire about Cronos Group (TSX:CRON) (NASDAQ:CRON), but here is why it might not be the best bet right now.

| More on:
question marks written reminders tickets

Image source: Getty Images

Cronos Group Inc (TSX:CRON)(NASDAQ:CRON) has had a mixed year so far. The first three months or so saw the firm’s share price make giant leaps forward. However, a series of bad news have brought it back to earth.

Cronos released its fourth-quarter earnings report in March, and more recently, its financial results for the first quarter of the current fiscal year. Both times, Cronos disappointed investors. However, could now be a good time to buy shares of Cronos? What is the Toronto-based pot company doing that might be attractive to investors?

Why Cronos might be an enticing opportunity

Perhaps the most intriguing thing about Cronos is its partnership with tobacco giant Altria. This partnership is important for at least two reasons. First, Altria is an excellent business partner, particularly as it has experience with controlled substances.

Although Altria has not been doing well recently, Cronos could definitely benefit from its leadership and industry know-how. This partnership could also allow Cronos to enter alternative sectors of the market. 

During Altria’s fourth-quarter earnings conference call (back in January), CEO Howard Willard said the following, “I think that both we and Cronos think there are opportunities really across the world in a variety of product categories, both recreational and medicinal, that would involve them entering new product forms and developing new products and new product brands.” 

Second, Cronos benefits from its partnership with Altria by having access to a boatload of cash. Indeed, the amount of cash and cash equivalents on Cronos’ balance sheet has increased exponentially since last year. Cronos is one of the pot companies with the most amount of cash at its disposal, which means that the firm no longer needs to rely on dilutive forms of financing to fund its growth.

Cronos has yet to put the cash it owns to good use, but there are several ways in which it could do so. The most obvious is, of course, by acquiring other marijuana companies. There are hundreds of firms — both in North America and elsewhere — that are prime targets for a firm such as Cronos to acquire. 

And yet…

Cronos certainly looks well equipped to profit from the growing cannabis market, which is expected to become a multi-billion dollar industry. Why, then, has the company been issued sell-ratings by Wall Street analysts on at least three separate occasions over the past three months? One reason could be that Cronos’ sales and revenues pale in comparison to industry leaders — and the company’s production capacity is in the same boat.

In principle, Cronos could increase its position in both of these areas by making shrewd acquisitions. But the Toronto-based pot grower has yet to do so, while some of its competitors have made major headway. Thus, it is becoming increasingly difficult to justify is price tag that seems hefty in comparison to many of its peers with similar or even better growth prospects.

In short, despite its attractive qualities, it might be better to stay away from Cronos, at least for the time being. 

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 any of the stocks mentioned.  

More on Cannabis Stocks

A cannabis plant grows.
Cannabis Stocks

TLRY Stock: Here’s What’s Coming in 2023

Tilray Inc. (TSX:TLRY) is geared up for big growth this decade and looks like one of the top cannabis stocks…

Read more »

A person holds a small glass jar of marijuana.
Cannabis Stocks

Canopy Growth Stock: Here’s What’s Coming in 2023

Canopy Growth stock has made a lot of new moves in the last few months, but where is the company…

Read more »

A cannabis plant grows.
Cannabis Stocks

Better Cannabis Buy: Canopy Growth Stock or Tilray?

Only two TSX weed stocks can deliver substantial returns in the highly anticipated growth of the global cannabis market.

Read more »

Medicinal research is conducted on cannabis.
Cannabis Stocks

Is Tilray Stock a Buy in January 2023?

Tilray stock has lost 50% of its value in the last 12 months, in line with its peers.

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Are Cannabis Stocks Still a Thing in 2023?

The whole question of whether cannabis stocks are still relevant in 2023 is an interesting one. Here's my take on…

Read more »

A cannabis plant grows.
Cannabis Stocks

Why Canopy Growth Stock Fell 72% Last Year

Canopy Growth stock is a beaten-up cannabis giant that is trading at a discount compared to historical multiples. But is…

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Is SNDL Stock a Buy in January 2023?

SNDL is among the worst-performing cannabis stocks in the last three years. But is SNDL stock a buy right now?

Read more »

a person watches a downward arrow crash through the floor
Cannabis Stocks

Why Tilray Stock Fell Almost 60% in 2022

Tilray is a Canadian cannabis stock that is down 93% from all-time highs. Let's see if TLRY stock is a…

Read more »