Please ensure Javascript is enabled for purposes of website accessibility

Why Cronos Group Stock Soared 89% in January

By Beth McKenna – Updated Apr 18, 2019 at 11:11AM

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 is on fire in 2019 after "only" gaining 34.4% last year.

What happened

Shares of Canadian marijuana grower Cronos Group (CRON -0.17%) rocketed 89.4% higher in January, according to data from S&P Global Market Intelligence

For some context, the S&P 500 (including dividends) returned 8% last month. Shares of most of Cronos' peers also sprinted out of the new-year gate, but none of them topped Cronos' performance. In January, shares of Canopy Growth (CGC -2.11%)Aurora Cannabis, and Aphria surged 82.3%, 42.9%, and 53.6%, respectively, while Tilray lagged the group with "only" a 14.1% gain.

Cronos stock was up 34.4% last year, whereas the broader market declined slightly. Thanks to their strong start to 2019, shares have gained a whopping 220% for the one-year period through Friday, Feb. 1, versus the S&P 500's 2.2% loss.

Close-up of the top of a marijuana plant with blue sky and clouds in background.

Image source: Getty Images.

So what

Cronos Group didn't release any notable news in January, nor was it specifically the subject of any material news. So we can probably safely attribute the stock's big rise last month to the following three catalysts, only one of which is company-specific.

First, Cronos stock probably got a nice lift from the bullish sentiment surrounding the overall cannabis sector. Part of this enthusiasm is likely related to the December passage of the U.S. Farm Bill, which took effect Jan. 1, 2019. This bill made it legal on a federal level to grow and process industrial hemp, opening up a potentially huge market for products made from hemp-derived cannabidiol (CBD). CBD, which can be extracted from both marijuana and hemp, is a nonpsychoactive chemical that's been linked with various medicinal benefits. To be clear, unlike Canopy Growth, Cronos hasn't announced that it plans to enter the U.S. hemp market, but it seems only a matter of time. 

Check out the latest Cronos earnings call transcript.

Another reason for the stock's jubilant January was likely investor anticipation of the closing of the deal with Altria (MO -0.59%). The tobacco giant is buying a 45% stake in Cronos for approximately $1.8 billion (about 2.4 billion Canadian dollars), as Cronos announced in early December. The deal is expected to close in the first half of 2019.

And third, on Jan. 28, shares of Cronos -- which popped 15.4% -- and several other cannabis players probably got a "boost from U.S. attorney general nominee William Barr's written response to questions from the Senate Judiciary Committee," wrote fellow Motley Fool contributor Keith Speights. "In this response, Barr confirmed his previous testimony before the committee that he would not target cannabis businesses that comply with individual states' marijuana laws." 

CRON Chart

Data by YCharts.

Now what

As I wrote last month, "Cronos became a more compelling player in the global cannabis market [in December]. Its $1.8 billion investment from Altria will enable the company to quickly ramp up its business." 

That said, only investors comfortable with much risk and volatility should consider investing in Cronos or its peers, which are nearly all unprofitable and whose stocks sport sky-high valuations.

Beth McKenna owns shares of Canopy Growth. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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
CRON
$2.85 (-0.17%) $0.01
Altria Group, Inc. Stock Quote
Altria Group, Inc.
MO
$41.44 (-0.59%) $0.24
Canopy Growth Stock Quote
Canopy Growth
CGC
$2.78 (-2.11%) $0.06

*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
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

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.