Cronos Group (NASDAQ:CRON) was once known as the best-performing marijuana stock of all time, and the good news for the company is that it performed better than many of its peers in 2019.

The bad news for Cronos, however, is that it still didn't perform well. Sure, the company's shares slid by "only" 26%, whereas the Horizons Marijuana Life Sciences Index ETF -- which holds many of the top cannabis companies, including Cronos -- lost 36% of its value last year. Still, a 26% decline is nothing to be proud of, particularly when the broader market performed very well; the S&P 500 was up by about 29% in 2019. Like other marijuana companies, Cronos will look to have a much better year in 2020, but does the Toronto-based pot grower have what it takes to stage a strong comeback this year? 

Black maple leaf surrounded by cannabis leaves

Image source: Getty Images.

Cronos' shortcomings

First, it is essential to acknowledge what Cronos doesn't do as well as many of its competitors. In the Canadian market, Cronos does not have as many provincial supply agreements as some of its peers. The company only boasts four such agreements, whereas both Aphria (NASDAQ:APHA) and Canopy Growth (NASDAQ:CGC) -- which are two of Cronos' biggest rivals -- have signed supply deals with every Canadian province. Aurora Cannabis (NYSE:ACB), another one of Cronos' competitors, has supply agreements with nine Canadian provinces and territories.

Furthermore, Cronos' production capacity also compares unfavorably with that of its competitors. The company's projected output of 117,500 kilograms per year is unimpressive compared to Aurora's 662,000 kilograms per year, Canopy's 550,000 kilograms per year, and Aphria's 255,000 kilograms per year.

Lastly, and perhaps most importantly, Cronos has thus far posted revenue figures that were not nearly up to par with its peers. During the third quarter, Cronos' revenue was 12.7 million Canadian dollars (about $9.7 million). By comparison, Aphria, Canopy, and Aurora posted revenue figures of CAD$126 million ($96.4 million), CAD$76.6 million ($58.6 million), and CAD$75.2 million ($57.6 million), respectively.

Despite these shortcomings, however, Cronos has a secret weapon, namely its partnership with tobacco giant Altria (NYSE:MO).

Cronos' strengths 

In December 2018, Altria announced it would make a CA$2.4 billion ($1.8 billion) investment in Cronos to acquire a 45% stake in the marijuana company. This deal helped Cronos become one of the leaders in the cannabis industry in terms of its cash balance. But the company is also benefiting from Altria's distribution network. In its press release disclosing its third-quarter financial results, Cronos announced it was launching a new venture, a hemp-derived cannabidiol (CBD) brand called Peace+.

In the company's own words:

PEACE+ will sell hemp-derived CBD tincture products through a test market of approximately 1,000 retail stores in the U.S. The Company intends to utilize Altria Group, Inc.'s sales and distribution network to access the U.S. convenience store retail channel in order to gain consumer insights prior to expanding distribution more broadly.

Even with the U.S. Food and Drug Administration recently warning consumers about the dangers of CBD, the U.S. CBD market is projected to grow at a fast pace over the next few years. Cronos also acquired Redwood Holdings Group -- a company with CBD-based products sold under the popular brand name Lord Jones in retail stores in the U.S. -- in a cash and stock deal valued at $300 million. Cronos' presence in the U.S. CBD market could pay rich dividends down the road. 

Of course, Cronos is also looking to make a dent in the potentially lucrative cannabis derivative market that officially opened on Oct. 17, 2019. In September 2019, Cronos signed a deal with MediPharm Labs (OTC:MEDIF), a company that provides cannabis extraction services. Under the terms of the agreement -- the financial details of which were not disclosed -- MediPharm Labs will fill, label, and package vaporizers for Cronos. It seems plausible that Cronos will eventually develop vaping products in collaboration with Altria.

It is worth noting that the market for vaping products experienced turmoil since last summer after deadly health concerns related to vaping arose. At this point, it isn't clear to what extent vape-related deaths and illnesses will hinder the growth of the market for vape products.  

Why you should stay away from Cronos

Cronos does have a few things going its way, including its presence in the U.S. CBD market and its partnership with Altria. However, the company's financial results have not only been mediocre but also fall short of figures being posted by similarly sized peers. That, coupled with Cronos lagging its peers in two key categories -- production capacity and provincial supply agreements -- does not bode well for the company.

Cronos does have a lot to prove, and until the company significantly improves its financial results, I think it's best to watch from afar. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.