If you are a new cannabis investor just getting into the market, or a seasoned veteran, it seems as if everything is on sale right now. Although we never really know when the market is at a bottom or how long it will continue to decline, one strategy that has worked has been to consistently buy the large caps in a specific sector, and incrementally add to your positions as the market declines. Eventually, when the market stabilizes, you will have purchased additional shares and brought your average cost down substantially. For the cannabis sector, it has been a harsh spring and summer with most companies facing declines across the board. As the market retests December lows, we need to take a look at which companies are best positioned for a rebound when the market picks back up.
We are taking a close look at Cronos group today to see if now is the time to buy the dip in shares of the company. In the second quarter, Cronos sold a total of 1,584 kilos up from 1,111 kilos in the first quarter. When it comes to cost per gram Cronos outperformed its peers, with an average net selling price for dried cannabis climbing to $6.19/gram from $5.14/gram. The average net selling price of oils rose to $7.69 from $7.16/gram. When it comes to margins, Cronos Group is looking pretty good. Cronos recorded 10.2 million in revenue last quarter which does translate into a lofty valuation compared to its peers.
Looking closer at Cronos to determine why someone might consider this stock over its competitors comes down to two things for us. We see value in the partnership Cronos has with Altria group and the ability to leverage their deeply rooted distribution network when the time is right. This is old news, but we still feel that this carries a premium next to its competitors. The second reason one might consider Cronos is for the simple fact that they are betting big on CBD in America. Cronos recently acquired redwood holdings group which owns a premium CBD brand lord jones. When it comes to first-mover advantage, we feel that having deep-rooted brands under their belt is one way to dominate the market and the acquisition of redwood holdings looks promising for Cronos.
We remain cautiously optimistic when it comes to shares of Cronos. As mentioned earlier we love their partnership with Altria group along with their entry into the CBD market through their acquisition of redwood holdings, but at the same time remain concerned about valuations despite the stock losing over 50% since their peak. At $14 per share the company looks attractive in our books but moving closer to $10 we can get a lot more excited about Cronos. We recommend a wait and see approach if you are interested in shares of Cronos, or a timed incremental buying approach if Cronos is a must-have today. Patience and timed buying should be able to catch the bottom but for now, Cronos still has some proving to do.
CRON shares were trading at $12.23 per share on Friday morning, up $0.65 (+5.61%). Year-to-date, CRON has gained 17.71%, versus a 20.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...