For some context, the S&P 500 (including dividends) lost 4.4% last year. Shares of Cronos' main peers Canopy Growth (CGC 4.56%) and Tilray (which has only traded in the U.S. since July) rose 13.6% and 215%, respectively, while shares of Aurora Cannabis and Aphria dropped 35% and 61.4%, respectively.
In 2019, marijuana stocks have sped out of the new-year gate. Cronos stock is up 31.6% through Friday, Jan. 11. Canopy, Tilray, Aurora, and Aphria are up 42.4%, 36.1%, 28.6%, and 21.6%, respectively. The broader market has returned 3.6% over this period.
Like most marijuana stocks, Cronos stock was volatile last year, swinging notably higher and lower throughout much of the year, as the chart below shows.
While there were several notable catalysts that moved Cronos stock both up and down last year, we can largely attribute the stock's solid 2018 performance to two major positive catalysts.
First, in late summer, the stock rocketed higher in anticipation of the opening of Canada's recreational marijuana market on Oct. 17. Most of Cronos' Canadian marijuana grower peers also saw their shares blast higher due to investor enthusiasm over the expanding size of the Canadian cannabis market.
The second huge catalyst came at the end of the year, when the company announced on Dec. 7 that tobacco giant Altria (MO -0.23%) is buying a 45% stake in Cronos for approximately $1.8 billion (about 2.4 billion Canadian dollars).
As I previously wrote about the deal:
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.)
As for Cronos stock's gain of 31.6% so far in 2019, through Jan. 11, we can largely attribute this to investor optimism about the cannabis space in general. Part of the enthusiasm could be related to the December passage of the 2018 Farm Bill. This legislation, which went into effect on Jan. 1, 2019, contains a provision that makes it legal on a federal level for U.S. farmers to grow industrial hemp. Like its cannabis cousin, marijuana, hemp can be used to extract cannabidiol, or CBD, which has been linked to a host of wellness and medical benefits.
Cronos became a more compelling player in the global cannabis market last month. Its $1.8 billion investment from Altria will enable the company to quickly ramp up its business. Canopy Growth is the only other marijuana grower with a huge war chest, having received a $4 billion investment from alcoholic-beverage giant Constellation Brands.
Along with the money, Cronos should benefit from Altria's deep experience operating in a highly regulated market and its extensive global distribution network.
Check out the latest Cronos Group earnings call transcript.