The cannabis boom has generated significant interest among investors and traders alike over the past few years. However, 2019 saw a sharp decline in the marijuana market due to issues of oversupply and overproduction. While many marijuana companies experienced significant losses and cutbacks, Cronos Group Inc. [CRON] has continued to gain attention as a potential investment opportunity.
Cronos is a Canadian company that produces and distributes marijuana. Founded in 2012 and headquartered in Toronto, Canada, Cronos has numerous brands under its label including PEACE NATURALS, COVE and Spinach. Outside of Canada, Cronos has international partnerships in Germany, Poland and Israel and is looking to tap into the American market in the coming years.
Like most other cannabis companies, 2019 was a tough year for Cronos. Its average selling price hovered around half of previous years and continued to drop since. But, whereas other companies continue to deal with oversupply issues, Cronos has changed its strategy: shifting away from production and toward research and development for next-generation products, along with a transition to the U.S. market. Cronos’ flexibility and ability to adapt to changes in the volatile cannabis market has put it on the radar as an investment opportunity for many investors.
How to Buy Cronos Stock
Options Brokerage
To buy Cronos stock, you’ll want to find an options brokerage that fits your investment style and has resources available to help you reach your investment goals. Options are derivative financial instruments, meaning that their value is based on the value of underlying securities like stocks. You can buy or sell Cronos stock through an options contract, which includes a strike price (more on this in the next section) and a specific expiration date.
Two types of options contracts are call options and put options:
- Call options give the holders the right to buy a stock if it reaches a certain price before the expiration date.
- Put options allow holders to sell a stock if it reaches a certain price before the expiration date.
Options are typically bought or sold through brokers. Unlike futures, options trading never requires you to buy or sell an asset if you do not wish to.
Cronos Group trades on NASDAQ under the ticker symbol [CRON]. You can purchase shares through any online brokerage account that has access to the U.S. stock market. A few popular online brokerages are Vanguard Brokerage Services, TD Ameritrade, Fidelity and Charles Schwab.
Choose Strike Price
The strike price is perhaps the most important component of an options contract because it determines an option’s value. A strike price represents the set price that an option can be bought or sold at. Your broker will establish a strike price in a fixed dollar amount (for example, $10, $15 or $20) when writing your options contract.
For call options, the strike price represents the price at which the stock can be bought. For put options, the strike price represents the price at which the stock can be sold. The closer the strike price is to the stock price, the more sensitive or volatile the option can be.
Choose Expiration Date
Just like a jug of milk, options contracts have expiration dates. An expiration date indicates the specific time that an option’s contract must be used by. Expiration dates vary depending on the underlying asset of the option’s contract. For stocks, the expiration date usually falls on the 3rd Friday of the contract’s month.
Decide How Many Contracts
Whether you choose a put option contract or a call option contract, you need to decide how many shares you want to buy or sell. For stock options, a single contract covers 100 shares of stock. If you want to purchase more options, you will need more contracts. For example, to purchase or sell 500 shares of stock, you would need 5 options contracts.
Watch Stock Prices
Patience is a virtue. When buying or selling stocks, this is true. It pays to watch stock prices and track the stock performance of those you’re interested in before you buy or sell. One way that you can do that is by taking advantage of sites that offer free stock watch sites. MSN and Yahoo! Finance are both credible sites offering this resource.
On a stock watch site, you can learn more about a company’s stock by entering its name and clicking on the stock symbol. The company will then show up on your stock watchlist so you can monitor how it performs over time and research past performance. Using a tool like a watchlist, you can identify trends and make purchases.
Another strategy for helping you determine trends in the stock market is to imagine that you had invested real money with a company. As you watch the stock price, keep track of your imaginary monetary gains and losses. This will help you figure out patterns and make better decisions when you do decide to buy or sell.
Pros to Buying Cronos Stock
The Altria Investment
Cronos recently secured a $1.8 billion investment agreement with Altria Group. Though Cronos gave up a 45% stake to do so, Altria will help Cronos increase distribution, develop consumer products and design targeted marketing campaigns. Altria’s investment validates Cronos’ strategy moving forward and provides capital for future growth, giving Cronos a significant advantage over rivals moving forward.
Medical Potential
CBD is a plant-based compound that has proven therapeutic and has medical properties. Medial research demonstrates that CBD mitigates pain without producing a high, causing Congress to pass the Farm Bill in 2019, removing CBD from the illegal substance list. As a result, the CBD market, which is estimated to reach $22 billion within a few years, has recently swung wide open — and Cronos is poised to profit. Over the past few years, Cronos invested heavily in CBD and developed CBD partnerships with companies like Ginkgo Bioworks, which can create CBD compounds at scale.
Global Partnerships
Cronos has been able to position itself as a major player in Canada’s $4 billion CAD cannabis market after legalization by securing a number of supply agreements. Cronos already has supply agreements with British Columbia and Ontario and is in negotiations to secure agreements with Nova Scotia and Prince Edward Island. Additionally, Cronos has proven its international appeal through a variety of global partnerships and supply agreements. Cronos is the exclusive supplier to German pharmaceutical distributor Pohl-Boskamp and has a supply agreement with Poland’s Delfarma. It is also in the process of securing medical marijuana supply agreements in Latin American and Australia.
Cons to Buying Cronos Stock
The Expense
Despite a significant decline in prices over the past year, Cronos stock is still comparatively more expensive than competitors’. Cronos shares are trading at an enterprise value/sales ratio of around 50, which is about 20 points higher than many established cannabis companies. Cronos’s stock is currently trading around $6.35, but volatility in the Canadian cannabis market has left investors uncertain if the decline is over and if it is worth paying for Cronos over other choices.
The Oversupply Problem
Though the cannabis market provides recreational and medical products, at its core it is an agricultural market. Consequently, it is extremely vulnerable to oversupply issues. While all of the investments pouring into the cannabis industry have made it possible for large-scale growth across the Canadian market, many companies have overbuilt their production capacity, leading to oversupply and sharp declines in prices. While this is not unique to the Canadian market, its effects are far reaching and can compromise the capital necessary for future domestic or international expansion.
How to Choose the Best Broker for You
If you’re in the market for an options broker, you have a few choices: a full-service brokerage firm, a discount broker or a direct access broker.
Types of Brokers
| Full-Service Broker | Discount Brokers | Direct Access Brokers | |
| Where | Brokerage firm | Online brokerage firm | Online brokerage firm |
| Personal Interaction with a Broker | Yes | No | No |
| Services | Diversified financial servicesBuys and sells stocks and securitiesIn-house investment, research and banking | Buys and sells the trades you order | Platform access to trade securities directly with financial markets |
| Best for | Individuals with a significant investment portfolioIndividuals who want expert managementLong-term investors | Individuals who trade frequently and have small portfoliosIndividuals who want more autonomy | Individuals who want to bypass a traditional brokerIndividuals who value speed and access |
| Fees and Commission | Higher feesCommissions on percentage of assets | Lower fees and commissions Investors research and chose investments | Lowest commissionsPriced on a per-share basisPlatforms can carry a monthly fee |
With all of the options available to you, it can be hard to figure out what works best for you. Consider these tips:
- Think about your investment goals. Consider how much you want to invest, how much you are willing to risk, and how much you are willing to put down for a minimum account balance.
- Consider your investment style. Do you want to be more autonomous and actively trade? Or, do you want to have an expert assist you and manage your portfolio?
- Decide what type of broker fits your investment style. If you want more services and contact with a personal broker, a full-service broker is a better fit for you. If you want more autonomy and faster action time, a discount broker or direct access broker is better for you.
- Research the individual broker or firm. Use resources such BrokerCheck on the FINRA website to look up your broker’s education background, licensure and previous employers.
Weathering the Storm
Despite experiencing a stormy 2019, Cronos has continued with a strong showing domestically and internationally. Cronos’ ability to secure domestic and international partners and adapt to changes in the cannabis market has put it a step ahead of many competitors in the global cannabis market. Also, its decision to shift from production toward supply has positioned Cronos well to weather the storm and come out strong.
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