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Why Cronos Group Stock Just Jumped 14%

By Rich Smith – Apr 10, 2018 at 7:14PM

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Could this be a delayed reaction to the upgrade?

What happened

Shares of Canadian marijuana grower Cronos Group (CRON 2.73%) -- the first honest-to-goodness pot plant producer on the Nasdaq, if not the largest -- jumped nearly 18% in early trading Tuesday before closing the day up a still respectable 14.4%.

The question is, why?

Marijuana plants

Upgrades are budding at marijuana stock Cronos Group. Image source: Getty Images.

So what

There being no actual news concerning Cronos on the wires today, my best guess as to why Cronos shares flew so high today is in delayed reaction to the news we got last week. Specifically, on Friday, Cronos scored its first official upgrade as a Nasdaq-traded company, when Toronto-based boutique investment banker GMP Securities announced it was upgrading the shares from hold to buy.

That wasn't a terribly surprising call. After all, as reported by TheFly.com, GMP was one of two brokers (the other being fellow Canuck BMO Capital) underwriting Cronos's stock offering last week. It makes sense that the analyst might want to recommend an offering it helped to underwrite. That fact may, by the way, explain why investors didn't react immediately to news that GMP upgraded the stock yesterday.

As for why investors' reaction was delayed to today...

Now what

That's actually the intriguing part, here. According to TheFly, in addition to GMP and BMO, there were at least three other investment bankers who participated in the "syndicate" underwriting Cronos last week: Cormark Securities, Beacon Securities Limited, and PI Financial. That suggests there could be as many as four other buy ratings for Cronos stock waiting in the wings, any or all of which could boost the stock's price -- as GMP's upgrade did.

Granted, no number of upgrades can change the fact that Cronos is a stock trading for more than $1 billion in market capitalization, but reporting just $1.4 million in profits earned over the past year -- giving it a P/E ratio of 775. But facts notwithstanding, a series of positive upgrades could change the sentiment surrounding the stock -- and I think that's what investors may have been reacting to today.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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