With pot stocks a sea of red following the news that Aurora Cannabis (TSX:ACB) (NYSE:ACB) was letting 500 staff go and its CEO, Terry Booth, is retiring, analysts at Raymond James have handed Cronos stock an “outperform” rating and described Cronos Group (TSX:CRON) (NASDAQ:CRON) as “an overlooked gem in the cannabis sector.”
The Canadian cannabis market has been a bloodbath over the last few days after the industry was rocked by the news that cash-strapped Aurora was slashing its workforce by almost 20% and ushering a series of executive-level changes as the firm is forced to contend with C$1 billion impairment charges. Aurora stock has fallen over 25% since the announcement after-hours on Thursday, and while it may be dragging down the rest of the market with it, analysts believe that Cronos stock could be an underappreciated treasure in the broader market collapse.
In a note to clients, Raymond James analyst Rahul Sarugaser said he was optimistic about Cronos Group’s partnership with Altria Group (NYSE:MO) and its potential in the booming US CBD market. Altria, the maker of Marlboro cigarettes and Juul vapes, purchased a 45% stake in Cronos last year for US$1.8 billion, making it the largest shareholder of Cronos stock. That deal will give Cronos exclusive access to Altria’s vape technology, which Sarugaser argues will be of major benefit to Cronos in the Cannabis 2.0 market.
Sarugaser also said that it isn’t fair to value the company solely on its Candian revenue stream, pointing to Altria’s strong distribution network and its disruptive biosynthesis partnership with Ginkgo Bioworks as huge scope for Cronos Group to expand into the US. He also said that the company’s fiscal discipline in remaining asset-light, something that has been to the detriment of Aurora Cannabis and other big hitters, as a reason to be hopeful for the prospects of Cronos stock.
Cronos shares are currently trading for $8.81 on the TSX, but given the struggles of some of the more prominent firms on the market, Cronos Group could quietly become one of the best pot stocks of 2020.
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