Within a still very speculative cannabis space, the prospects for Cronos Group (NASDAQ:CRON) look good. But if you’re willing to buy the bull argument in CRON stock, don’t forget to place a lid — and more importantly a floor — on that enthusiasm. Let me explain.
Publicly traded companies like CRON stock in the marijuana and cannabis industries are ripe for being called the next Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) or Netflix (NASDAQ:NFLX). But today’s crop of cannabis stocks aren’t going to change the balance of life as we know it in the same way as those three classic market disruptors have. Sorry, they’re simply not.
Don’t get me wrong. I’m not suggesting the cannabis industry won’t be big business and that there won’t be big winners. The problem is there will be even more losing investments being pitched as the real deal today, as the market grows and matures. Caveats in place, within the group CRON stock looks promising.
To be sure, investors in Cronos will have to look past some valuation comparisons relative to peers Canopy Growth (NYSE:CGC), Aurora Cannabis (NYSE:ACB) and even one-time Street darling Tilray (NASDAQ:TLRY). Those concerns have been laid more than a few times by my fellow cronies at InvestorPlace.
One recent warning that sums up CRON stock’s comparative flaws is from Luke Lango. I respect the apprehension, but it’s not the entire story either.
Any investor with even a passing interest knows about Cronos’ $1.8 billion partnership with Altria (NYSE:MO). That’s interesting of course. But in an industry flush with cash and other investment deals, it’s not a game changer for CRON stock.
The real backbone of the deal are the numerous synergies and expertise the tobacco giant behind the market-leading Marlboro brand can support Cronos with. From marketing, manufacturing, distribution and regulatory challenges, there’s little doubt Altria is a partner in a unique position to help CRON succeed in the cannabis industry.
What’s more and as InvestorPlace’s Tom Taulli noted, Cronos’ current weak production numbers and relative high valuation which have so many doubting Thomas’ attention could soon be in the rear-view mirror. Bottom and top-line, the company’s heavy investment in expanding capacity is nearly ready to bear fruit as its massive 286,000 square foot Building 4 facility comes online.
CRON Stock Weekly Chart
From a technical perspective, the stock chart for CRON also can’t be ignored. Over the last four weeks shares of Cronos have put together a small double bottom pattern. That’s potentially bullish.
Coupled with an oversold and similar double bottom stochastics setup, a meaningful low in CRON stock looks even more interesting. Further, with shares finding support in-between a pair of weekly rising price lines within its uptrend and a handful of key Fibonacci levels—there’s definitely reason to be upbeat on CRON stock.
For traders agreeable with the bullish narrative for Cronos, I’d recommend waiting for weekly confirmation a low is in place. At the end of the day, a variation such as a lower low double bottom within the support band could always emerge in the next week or couple of weeks. That being said, I’d personally allow CRON stock to trade as low as $13.50 before throwing in the towel.
Bottom line though, if CRON stock does oblige our bullish forecast, due to the high volatility in shares I would strongly suggest investors contain their enthusiasm with a controlled and reduced risk options-based collar strategy rather than rely on a stock-based stop-loss.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.