Analyst Likes Cronos, But Valuation Suggests 'Downside Potential'

Investors have had an appetite for cannabis stocks since recreational marijuana was legalized in Canada last year. Wall Street analysts are now taking notice, and Stifel is the latest firm to weigh in on Cronos Group Inc CRON.

The Analyst

On Thursday, Stifel analyst W. Andrew Carter initiated coverage of Cronos with a Hold rating and C$18 ($13.44 USD) price target.

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The Thesis

Carter said Cronos is well-positioned for the booming Canadian adult-use marijuana market and has the resources, capital and partnerships to potentially attack the global market in the long-term. Carter is especially optimistic about Cronos’ partnership with tobacco giant Altria Group Inc MO, which invested about $2 billion to help with the Cronos growth push.

With the stock up 125 percent in the past year, Carter said the market has gotten a bit ahead of itself.

“Our near-term target price for the shares suggests some downside potential given the unbridled enthusiasm that has taken hold here following the investment by Altria pushing the valuation to the top of the industry,” Carey wrote in a note.

For now, Carey said investors should remain patient and look to buy shares on any major pullback opportunities.

Carey says Cronos is also focused on delivering the same type of innovation with its cannabis vapor products that Apple, Inc. AAPL brought to the smartphone industry when it launched the iPhone. Altria’s tobacco expertise has helped Cronos prepare for having vaping products ready for launch on day one of legalization last October.

Price Action

Cronos shares traded about 1 percent lower to $15.86 on Thursday.

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