Just when you think it couldn't get any better for marijuana stock investors, the industry just keeps proving skeptics wrong. Following an abysmal fourth quarter that saw some pot stocks lose half of their value, the Horizons Marijuana Life Sciences ETF, the first tradable cannabis exchange-traded fund, is up more than 50% year to date, with many well-known marijuana stocks at or near all-time highs.

It's certainly easy to get excited about the long-term "pot-tential" for the industry when analysts like Christopher Carey at Bank of America are throwing around utopic peak annual revenue projections of $166 billion, and forecasting that cannabis will disrupt other industries that are generating a collective $2.6 trillion in annual sales.

An up-close view of a flowering cannabis plant growing in a large indoor farm.

Image source: Getty Images.

This cash-rich pot stock is a popular choice among investors

This excitement is a big reason behind the rise of Cronos Group (CRON -3.97%), one of the most popular pot stocks. As of this past weekend, Cronos was the third-largest marijuana stock by market cap, at $5.55 billion.

Of course, in all fairness, Cronos Group's biggest boost came from the announcement in December (and closure in March) of a $1.8 billion equity investment from tobacco company Altria (MO 0.28%).

Altria, which has been contending with a precipitous decline in tobacco shipment volumes, has seen the U.S. adult smoking rate dip to a more-than-50-year low of 14%. In order to continue growing its business, it has had to lean heavily on its premium Marlboro brand and, more specifically, price hikes. Not wanting to run the risk of pricing consumers out of the market for its premium product, Altria needs new sales channels. The Cronos investment, which gave Altria a 45% non-diluted stake in the company, should allow the duo to work on pre-rolled and vape products, among other initiatives, and it gives Altria, which is a cash-flow machine, the opportunity to acquire Cronos Group at some point down the line.

As for Cronos, it walked away from this investment with $1.82 billion in cash on its balance sheet after having ended the previous quarter with around $24 million. It now has the capital to consider expanding its production capacity, to diversify its product portfolio, or to move into new markets.

This cash buffer and its tie-in with Altria are a big reason behind the success of Cronos Group's stock.

A processor using scissors to trim cannabis flowers.

Image source: Getty Images.

A scary truth about Cronos Group

However, Cronos Group shareholders and investors might be overlooking one of the craziest but truest facts about this company. Namely, that if you look at marijuana growers as retailers of their product, Cronos may not even be a top 10 player in Canada.

Although peak production estimates change all the time, here's a quick rundown of the 11 companies that should produce at least 100,000 kilos when operating at full capacity, as of right now.

  1. Aurora Cannabis: More than 625,000 kilos (company estimate)
  2. Canopy Growth: More than 500,000 kilos
  3. Aphria: 255,000 kilos (company estimate)
  4. CannTrust Holdings: 200,000 kilos to 300,000 kilos (company estimate)
  5. The Green Organic Dutchman: 219,000 kilos (company estimate)
  6. HEXO: 150,000 kilos (company estimate)
  7. Aleafia Health: 138,000 kilos (company estimate)
  8. Cronos Group: 117,500 kilos (company estimate)
  9. OrganiGram Holdings (OGI -0.49%): 113,000 kilos (company estimate)
  10. Tilray: More than 100,000 kilos
  11. Emerald Health Therapeutics (EMHT.F): More than 100,000 kilos

As you'll see from this list of individual growers, Cronos Group slides in as the eighth-largest producer, with all but three of these marijuana growers providing peak production estimates.

A person holding a magnifying glass over a potted cannabis plant.

Image source: Getty Images.

But something interesting happens if you look at these producers as retailers that also need to sell their product (which is the case). For example, the Pure Sunfarms initiative, which is a joint venture between Emerald Health Therapeutics and Village Farms International, will be capable of 150,000 kilos of yearly production by the midpoint of 2020. Also, this doesn't take into account that Emerald Health has the option to convert another 2.6 million square feet of vegetable-growing greenhouses owned by Village Farms into cannabis grow sites. That makes the Pure Sunfarms joint venture a bigger player than Cronos Group's aggregate production.

We can also bring Auxly Cannabis Group (CBWTF -4.95%) into the mix. Auxly Cannabis wasn't included in the above list of growers because it has both wholly owned grow farms, as well as royalty interests with licensed producers. These royalty deals allow Auxly to provide upfront capital to growers looking to expand capacity in return for a percentage of crop yield at a below-market cost. When all of Auxly's more than one dozen partners are producing at full capacity (probably by early 2021), it'll be selling a company-estimated 170,000 kilos a year. That, too, is more than Cronos will bring to market each year.

And then there's OrganiGram Holdings, which has just a single grow site at Moncton, New Brunswick. Even though OrganiGram has stuck by its peak output estimate of 113,000 kilos for more than a year, investors might forget that the entire reason the company chose to bolster its phase 4 expansion, as announced in March 2018, was because of higher-than-expected yields from its harvests. If OrganiGram's yields are even 4% better than advertised, it too could be a bigger player than Cronos Group.

Thus, when it comes to production and, more importantly, the retail sale of cannabis products, Cronos Group is, at best, a top 10 fringe player, or maybe not even top 10 material. Period. That's an eye-opener for a company with the third-largest market cap of any marijuana stock, and which has an unimpressive overseas presence at the moment.

Chalk this up as just another reason why I believe Cronos to be the most overvalued of all pot stocks.