What happened
Shares of Cronos Group Inc. (CRON 3.31%) were up 11.3% as of 3:18 p.m. EDT on Tuesday as its momentum from yesterday continued. Several Canadian marijuana stocks increased sharply on Monday, with buying by large institutional investors a likely reason for the upward moves.
Cronos Group and some of its peers chalked up even more gains on Tuesday after the Ontario Cannabis Store, the sole online retail outlet for recreational marijuana in Ontario, announced supply agreements with 26 licensed cannabis producers. Cronos was one of those suppliers landing a deal with the province. The company also announced that it secured a recreational cannabis supply agreement with the province of British Columbia.
Image source: Getty Images.
So what
Share prices of several other leading Canadian marijuana growers also rose for the fifth day in a row following the announcement of Constellation Brands' $4 billion investment in Canopy Growth last week. It appears that institutional investors are scooping up shares of the top pot stocks in anticipation of more potential deals and the opening of the recreational marijuana market in Canada in October.
Cronos Group's timing of announcing two recreational cannabis supply agreements on the same day seemed to have given the stock an added boost. The provinces of British Columbia and Ontario together make up more than half of Canada's total population. Cronos has production facilities in both provinces.
Many in the Canadian cannabis industry had hoped that Ontario would allow brick-and-mortar retail cannabis outlets beginning later this year. However, the province instead opted to start off with online sales only. Ontario plans to allow physical retail stores to operate in the future.
British Columbia will allow retail stores, but retailers must obtain recreational cannabis for adult use through the province's distribution operation. In addition, the BC Liquor Distribution Branch will be the sole channel for online recreational marijuana purchases.
Cronos now should be in a good position to market recreational cannabis in both provinces. The company is already one of the leading medical cannabis producers in Canada.
Now what
The next step for Cronos Group is to meet expectations when the Canadian recreational cannabis market opens later this year. Many investors anticipate very high demand.
There's also a wildcard: the potential for a major deal. Other alcoholic beverage companies could follow Constellation's lead in establishing significant partnerships with -- and making big investments in -- Canadian marijuana growers. Cronos Group could be one of the more attractive candidates for such a deal.
