Please ensure Javascript is enabled for purposes of website accessibility

Why Cronos Group Stock Jumped 14% in December While Other Marijuana Stocks Plunged

By Beth McKenna - Updated Apr 14, 2019 at 4:59PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This marijuana stock's investors can thank tobacco giant Altria.

What happened

Cronos Group (CRON 5.42%) stock jumped 13.6% in December, according to data from S&P Global Market Intelligence. That brought the Canadian marijuana grower stock's 2018 gain to 34.4%.

(As for 2019, Cronos stock started the year on a strong note, as it popped 13.1% during last week's holiday-shortened trading week.)

For context, last month shares of Cronos' main peers -- Canopy Growth, TilrayAurora Cannabis, and Aphria -- posted double-digit losses. 

Many $100 bills falling from the sky.

Image source: Getty Images.

So what

The catalyst for Cronos stock's rise last month was the company's announcement before the market open on Friday, Dec. 7, that tobacco giant Altria (MO 2.09%) is buying a 45% stake in Cronos for approximately $1.8 billion (about 2.4 billion Canadian dollars). The agreement also provides an opportunity for Altria to increase its ownership stake to up to 55% over the next four years.  

The deal didn't come as much of a surprise, as Cronos had announced earlier in that week that it was in preliminary talks with Altria about an investment, and rumors about such a deal had been swirling for some time.

Notably, this deal is the second-biggest ever in the legal cannabis industry, behind alcoholic beverage giant Constellation Brands$4.0 billion investment in Canopy Growth

Altria paid a 33% premium over Cronos stock's closing price on Nov. 30 and a 41.5% premium over the stock's 10-day volume-weighted average price through that same date. (Nov. 30 was "the last unaffected trading day prior to when Cronos Group announced it was in preliminary discussions with Altria regarding a possible investment," Cronos said in its press release about the deal.) 

Following the announcement, shares of Cronos gained 21.7% on Dec. 7. Through that date, they were up a whopping 39% in the month, before pulling back sharply, along with other marijuana stocks and, to a lesser degree, the market in general. 

Now what

Cronos' prospects improved significantly last month. An infusion of cash to the tune of $1.8 billion will go a long way in enabling the company to rapidly expand its business and otherwise compete in the fast-growing global legal cannabis market.

Moreover, the company's partnership with Altria should prove invaluable, as the tobacco leader has immense experience in selling products in highly regulated markets along with a vast distribution network.

Check out the latest Cronos Group earnings call transcript.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Cronos Group Stock Quote
Cronos Group
$3.11 (5.42%) $0.16
Altria Group, Inc. Stock Quote
Altria Group, Inc.
$43.40 (2.09%) $0.89

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.