The action of the marijuana group in recent weeks has been encouraging—after giant runs higher in January, most names consolidated very nicely in February and look poised for another leg up, asserts Mike Cintolo, growth stock expert and editor of Cabot Top Ten Trader.
Right now, Cronos (CRON) looks like the leader of the sector (it’s one of the few that’s hit new all-time highs this year) and should do very well during the next leg up.
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Fundamentally, the firm is benefiting from the same trends as most of its peers — Canada’s full legalization is likely to be the big sales driver for the company.
And Cronos also has a handful of international operations and joint ventures (distribution, production and a handful of brands) that are making progress in both the medical and recreational weed industry. It just sold its position in one of them to Aurora Cannabis (ACB) for $175 million of stock in that company.
But the big differentiator for Cronos — and the one we think is attracting more big investors — came in December, when giant Altria Group (MO) agreed to take a 45% stake in the firm for C$2.4 billion, with an option to increase that figure to 55% (by exercising another C$1.4 billion of warrants).
Besides the huge cash influx that will accelerate its distribution and production capacity, the deal also promises to bring Cronos know-how and expertise in things like huge-scale manufacturing, regulations and delivery technologies.
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Obviously, it’s speculative, but the pieces are in place for higher prices if the group gets going again. Earnings are due out March 26.
Technically, CRON had set up a nice launching pad coming into 2019, and the stock went bananas once the calendar flipped, rallying from $10 to $25 in early February.
There was a sharp pullback after that, and another dip last week, but support appeared near rapidly rising 25-day line, a sign of strength. Another dip could occur, but we like the pattern, and the longer CRON can hold up, the greater the chance the next big move is up. Be sure to keep positions small and use a loose leash.
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