What happened
Shares of Canadian marijuana grower Cronos Group (CRON +1.98%) popped 13.5% in June, according to data from S&P Global Market Intelligence.
This was a good performance relative to both the broader market -- the S&P 500 returned 7.1% last month -- and the company's main peers. Of the top five largest cannabis stocks by market cap, only Tilray -- up 22.5% -- performed better than Cronos. Shares of Canopy Growth (CGC +2.00%) were flat, while shares of Aurora Cannabis and Aphria gained 3.3% and 6.4%, respectively.
Image source: Getty Images.
So what
Cronos didn't release any notable news last month. We can probably attribute the stock's better-than-average performance relative to most of its peers to Wall Street action. On June 5, Bank of America Merrill Lynch upgraded its rating on Cronos stock all the way from underperform to buy and put a new $20 price target on the stock. (For some context, shares closed at $15.51 yesterday, July 2.) Shares soared to a closing gain of 10.9% following this upgrade.
The primary reason for the upgrade? Cronos CEO Mike Gorenstein's comments at an analyst event that the company "would move aggressively into the U.S. hemp CBD [cannabidiol] market ... in the relatively near future," as my colleague Keith Speights wrote, citing a report by Bloomberg.
Here's the year-to-date 2019 picture for Cronos stock:
Data by YCharts. Canopy Growth and Aurora Cannabis stocks are up 49.2% and 53.8%, respectively, over this same period.
Now what
Investors will probably soon be hearing more about Cronos' plans to enter the hemp-derived CBD market in the United States.
Cronos has some quite distinct positives and negatives. Earlier this year, it became a more compelling competitor in the global cannabis space, thanks to a $1.8 billion investment from tobacco giant Altria (MO +1.15%), which bought a 45% stake in the company. Among its peers, only Canopy Growth has a larger cash stash, as well as a powerful strategic partner, alcoholic beverage maker Constellation Brands.
That said, Cronos continues to face challenges in significantly ramping up its production capacity, and its stock's valuation remains extremely high relative to its peers, which all sport sky-high valuations. Cronos shares are trading at 223 times the company's trailing 12-month sales, while the price-to-sales ratios for Canopy and Aurora are about 63% and 51%, respectively.
