Shares of Cronos Group (NASDAQ:CRON) dropped in a big way in recent weeks after the Canadian cannabis company reported fourth-quarter numbers that underwhelmed both next to peer numbers and against the backdrop of a 100% year-to-date rally in the shares. Analysts downgraded. Investors sold. CRON stock dropped 10%. It now trades more than 20% off all-time highs reached earlier this year.

In the big picture, this correction in Cronos stock was overdue and needed. To be sure, the fundamentals underlying the global marijuana industry are rapidly improving, and do pave the path for potentially massive long-term gains in cannabis stocks. But, every once in a while, there’s one or two pot stocks that just get way ahead of themselves in the near term, and need to cool off.

Last year, that one stock was Tilray (NASDAQ:TLRY), a stock that went to $300 from $20 in a few months. That was unsustainable. Ever since, although most cannabis stocks have rallied to new highs, TLRY stock has cooled dramatically. It now trades well under $100.

This year, the over-hyped pot stock is Cronos. All pot stocks are up big in 2019. But, not like CRON stock. At one point in time, Cronos stock was up more than 120% in 2019. That was in early February, meaning Cronos stock had more than doubled in a month. This rally was unsustainable. CRON stock has cooled off since then, and is now in bear market territory.

This weakness will persist. I’m bullish on the whole cannabis sector. But, from a valuation and fundamental viewpoint, CRON stock is out over its skis here. Specifically, Cronos is way overvalued relative to cannabis leader Canopy Growth (NYSE:CGC), and that doesn’t make much sense, given the latter has fundamental advantages over the former.

As such, I’d continue to avoid CRON stock here. Instead, I’d get bullish on CGC stock as it closes in on $40.

Numbers Were Underwhelming

The catalyst for the correction in Cronos stock was an underwhelming fourth-quarter earnings report. That makes sense. CRON stock had come very far, very fast, and was trading at a premium valuation, even for a pot stock. Fourth-quarter numbers, though, weren’t good enough to warrant the big rally or the premium valuation. As such, CRON stock dropped big in response.

Specifically, Cronos reported fourth quarter revenue growth of just 248% year-over-year. Over at Canopy, revenue rose 283% year-over-year last quarter. At Aurora (NYSE:ACB), they were up 363% year-over-year. In other words, while nearly 250% revenue growth at Cronos is good on its face, it’s bad relative to peers and implies that Cronos is actually losing share to competitors in the Canadian cannabis market.

Volume numbers tell a similar story. Cronos sold just north of 1,000 kilograms of cannabis last quarter, up nearly 200% year-over-year. Canopy, meanwhile, sold over 10,000 kilograms of cannabis last quarter on 300%-plus growth, and Aurora sold nearly 7,000 kilograms, up over 500% year-over-year. Yet again, we see that Cronos is the bottom-of-the-barrel grower in the cannabis industry on the volume front.

That’s no good. To be sure, the numbers aren’t bad. Cronos is still clearly growing rapidly in the huge growth cannabis market. But, the company is losing share in that market to faster growing peers. Those peers are bigger, too. And, one of those peers (Canopy) has a huge multi-billion dollar investment from Constellation Brands (NYSE:STZ), which it is using to aggressively expand global operations, particularly in the U.S.

In other words, underwhelming fourth-quarter numbers from Cronos don’t exactly inspire confidence that this company can compete at scale with the likes of bigger, more aggressive, and faster growing peers. As such, the year-to-date in rally in CRON stock feels somewhat unwarranted.

Valuation Doesn’t Add Up

At some point, CRON stock is worth buying on the dip because of its exposure to the soon-to-be-huge global cannabis industry. That point is not now. The valuation still doesn’t add up for Cronos stock, and leaves room for further downside on continued underwhelming growth numbers.

Consider this: Cronos has a market cap of $6 billion. The company sold roughly 1,000 kilograms of cannabis last quarter. That means each kilogram of cannabis sold last quarter by Cronos is being valued at $6 million.

Compare that to Canopy, where each kilogram of cannabis sold last quarter is being valued at $1.5 million. Or, compare it to Aurora, where each kilogram is being valued at $1.3 million.

This same valuation discrepancy holds up for revenue, EBITDA, and just about any metric you can find. Cronos stock is way overvalued relative to its peers. It shouldn’t be. The growth trajectory is less impressive today, there isn’t much traction on international and U.S. market expansion, and profitability doesn’t project to be materially higher at scale.

As such, the valuation on CRON stock still doesn’t add up. So long as this remains true, I think the shares have more risk than reward in the near to medium term.

Bottom Line on CRON Stock

Cannabis stocks are still all the craze, and with good reason. Over the next several years, the global cannabis industry will turn into a several hundred-billion dollar business, and will give birth to multiple $50 billion-plus companies.

Cronos may be one of those companies. But, given current lower-than-peer growth trends, it doesn’t look super likely. Meanwhile, given an above-average valuation, the stock is risky. As such, Cronos stock looks like more risk than reward here.

Given that, I’m continuing to avoid CRON stock. Instead, I’m watching CGC stock, and am looking to buy that dip as the stock closes in on $40.

As of this writing, Luke Lango was long CGC.