Cronos Group vs. Tilray Stock

At the federal level in the United States, marijuana is still a controlled substance, but many investors are betting that change is coming. More importantly, Canada has passed legislation legalizing recreational use of marijuana, offering significant opportunities for investors who own stock in companies with Canadian distribution channels.

The Pros and Cons of Buying Marijuana Stocks

Smart investors know that analysts have their own agendas, so it is wise to examine the pros and cons of a particular industry for yourself before making a financial commitment.

Pros

Growth – The industry is in a period of major growth, and those who buy now could win big. Some investors firmly believe that they are getting in on the ground floor of companies with Facebook [FB], Apple [AAPL], and Amazon [AMZN]-like potential. Most new industries develop slowly, but marijuana may not follow that trend. In fact, the global predictions indicate marijuana could be a $75 billion industry by 2030. There is already a large market for the product, which could mean fast profits for investors.

Diversification – Some companies that dabble in marijuana also manufacture and distribute other products. There are opportunities to buy stock in organizations with diverse product lines, so you can benefit from the increase in marijuana-related revenue without exposing yourself to significant risk.

Cons

Legal Risk – The fact is that marijuana is still illegal in the United States according to federal regulation. While some administrations have indicated they will not pursue federal prosecution in states that have legalized the substance, other administrations have suggested they will take a different approach. As long as marijuana is illegal, there is risk in making an investment. A change in regulations or a change in how regulations are enforced could abruptly shut down marijuana-related businesses.

Disreputable Companies – Just because some companies in the marijuana industry have investment potential doesn’t mean they all do. Many businesses are wooing investors with low-priced shares built on shaky business plans and faulty infrastructure. If you choose to invest in any company, whether it is in the marijuana industry or not, it is critical to thoroughly research the financial health of the organizations.

Is Cronos Group Stock Worth Buying?

The Cronos Group [CRON] is a major player in the marijuana industry.

Cronos is a Canadian company that trades on the NASDAQ exchange, and it has an international presence.

These are the three reasons why Cronos may be a solid investment:

Capacity – The marijuana industry is driven by growing capacity. Cronos can currently produce approximately 6,650 kilograms of cannabis per year, and when its expansion project is complete, it will produce more than 40,000 kilograms. In addition, the organization has entered into a joint venture to build a new greenhouse capable of producing an additional 70,000 kilograms.

Supply Agreements – Cronos has stated that it already has supply agreements with two Canadian provinces, British Columbia and Ontario. Other agreements are in process, including supplier agreements with Nova Scotia and Prince Edward Island, and a five-year agreement to supply a minimum of 20,000 kilograms to Cura Cannabis Solutions each year.

Global Partnerships – Cronos has already established a presence in the international market for marijuana. The company has an exclusive supplier contract with German pharmaceutical distributor Pohl-Boskamp and a supply agreement with Poland’s Delfarma. Two joint ventures are already in progress – one to supply medical marijuana in Latin America and another to supply medical marijuana in Australia.

Of course, no investment is without risk, and Cronos has two significant issues worth considering.

First, a Citron Research analyst has stated that Cronos has not given accurate information about its supply agreements with the Canadian government.

And second, the analyst noted that other marijuana growers have a more substantial international presence than Cronos does.

While these issues could make investing in alternative companies more appealing, this announcement did precipitate a drop in Cronos share price. Investors who make their purchase during this low point may balance their risk with the potential for an even bigger reward.

Is Tilray Stock Worth Buying?

Tilray [TLRY] is another major player in the marijuana industry, and its shares have been very popular with investors.

Between August and September of 2018, share price nearly doubled. Some of this growth is related to the overall optimism about the industry in general. This is particularly true with October’s rollout of legalized recreational marijuana in Canada.

Some of the growth in price is specific to the company itself. These are the top three reasons investors are flocking to Tilray:

Focus on Medical Use – Unlike many of its competitors, Tilray isn’t focused on producing massive amounts of marijuana for recreational use. Instead, the company is creating medicinal products to support a variety of health conditions.

Supply Agreements – Tilray is having success with supplier agreements of its own, and the company already has a commitment with the Canadian province of Ontario. Tilray supplies some of its products under the name Marley Natural, which is the official brand of legendary musician Bob Marley. Tilray also has supplier agreements with Quebec and Manitoba, which serves to expand its total market share.

International Presence – In addition to a partnership with Novartis to develop products to sell in hospitals and pharmacies, Tilray distributes cannabis for pharmaceutical use in 12 countries.

Every year, more U.S. states legalize medical and/or recreational use of marijuana, and study after study has determined that marijuana offers safe, effective treatment for medical conditions ranging from glaucoma to epilepsy. This makes investment in marijuana stock appealing for investors with a variety of long-term strategies.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.