The cannabis investing craze continues, and marijuana companies have never gotten more attention from mainstream investors. Cronos Group (CRON -4.82%) is a great example, as the cannabis company became a particularly hot commodity once tobacco giant Altria Group (MO 0.61%) announced that it would spend $1.8 billion for a 45% stake.

Before Cronos released its fourth-quarter financial report earlier this week, investors had expected to see impressive sales gains that would match up to the giants of the industry. Cronos did indeed see higher revenue, but the growth was disappointingly slow, and that's making some Altria investors wonder if the tobacco company made the wrong choice of partners.

Interior of a greenhouse filled with marijuana plants

Image source: Getty Images.

How Cronos fared

Cronos Group's fourth-quarter results both reflected the growth potential in the cannabis industry and the costs of pursuing that growth. Sales for the company climbed 248% to 5.6 million Canadian dollars, but Cronos posted a net loss of CA$11.61 million, or CA$0.06 per share.

Yet what was perhaps most notable about Cronos Group's release was how little it talked about fundamental aspects of the business. Instead, most of the release tried to highlight various milestones, including the following:

  • The closing of the Altria investment.
  • Efforts to expand its global network of partnerships, joint ventures, production facilities, and distribution arrangements.
  • Research and development efforts to foster innovation.
  • The building of its Cove and Spinach brands.

CEO Mike Gorenstein shared that narrative. "We've expanded our footprint domestically and internationally," Gorenstein said, "developed our distribution with global partnerships, launched iconic brands for the Canadian adult-use market, and grown our IP portfolio with landmark research and development initiatives." The CEO also pointed to Altria as being a "transformative partnership."

Even so, digging through the required regulatory disclosures reveals the numbers that marijuana investors wanted to see. Sales volume climbed to 1,040 kilograms, nearly triple the amount from 12 months ago and more than double what Cronos sold in the third quarter. The take was split about 75%-25% between dried cannabis and cannabis oil.

Cronos saw gains in net selling prices, but the picture across its product lines was mixed. Dried cannabis sales fetched an average of CA$5.45 per gram, up 24% from year-ago levels. However, cannabis oil products saw disappointing sales prices of CA$5.08 per gram -- down more than CA$3 per gram from last year and raising questions about whether cannabis oil sales will be the key for Cronos in the future.

Meanwhile, Cronos saw spending on growth efforts rise sharply. Operating expenses quadrupled to CA$12.4 million, and gross margin also fell sharply as costs of sales increased, contributing to rising losses.

Check out the latest earnings call transcripts for Cronos Group and Altria.

How will Cronos and Altria help each other?

With the Altria investment now complete, the tobacco giant now has four of the seven seats on Cronos Group's board of directors. In addition, Cronos outgoing CFO and new Chief Commercial Officer Billy Hilson went through some of the things the marijuana company expects to do with the money Altria invested, including increased capital investment in the Peace Naturals facility and automation equipment, as well as other facilities worldwide.

Gorenstein also went into some of the benefits of having Altria on Cronos Group's side. The CEO expects to attract new talent and develop innovative products. In particular, as Cronos has seen early success with rolled products, Altria's cigarette production experience should be extremely valuable.

Yet Gorenstein also seemed to downplay some potential synergies. For instance, when asked about possibly using Altria's partnership with JUUL Labs to come up with cannabis vaping products, the CEO said, "We think that the leading and winning device will be specifically tailored to cannabinoid formulations," suggesting that Cronos wants to move forward with its own independent initiatives rather than relying too heavily on Altria's expertise and resources.

Cronos investors saw the stock fall both on the day of the earnings release and then more sharply as stock analysts parsed through the report. Unless the cannabis company can demonstrate a better working relationship with its new partner, Altria investors might well end up feeling as though the tobacco giant isn't getting the respect from Cronos Group's executives that it deserves.