It has been two weeks since Cronos Group (NASDAQ:CRON) reported its less-than-stellar first-quarter of 2019 earnings report. Although CRON stock initially fell on the news, it’s subsequently regained those losses and a little more.

That said, it’s still well down from its 52-week high of $25.10 reached in February. Investors are scratching their heads trying to figure out which direction Cronos stock is headed: back to single digits, where it traded as recently as December, or $25, where it traded earlier in the year.

I haven’t a clue. What I do know is that Cronos Group has an “X” factor that many of its peers don’t that justifies its valuation of $4.7 million per kilogram of cannabis sold.

Here’s why.

It’s a Stupid Number

Anyone old enough to have lived through the dot-com boom and bust knows all about the way tech stocks were valued at the time. No earnings? No problem! Your stock is worth 300-times sales.

And if a company didn’t have revenue, investors used any number of other financial metrics to justify the valuation. The “average Joe” bought it hook, line, and sinker.

Today we have cannabis stocks, and the same nonsense applies.

Cronos reported earnings and the headlines were anything but cheery. By focusing on missed revenues and a reduced earnings outlook, the investment media used the wrong framework. Cronos Group stock and its peers aren’t Dow Jones components where average estimates are obtained from 20 or 30 analysts.

A total of 12 analysts cover CRON stock.

At the moment, two rate it a buy, six a hold, one at underweight, and three at sell. Of the analysts that have revenue estimates available, the average for 2019 is $41.4 million and $126.2 million in 2020. On the bottom line, analysts are expecting 52 cents per share on average in 2019 and 7 cents in 2020.

If you’re relying on these estimates, you’re a better man or woman than I am because they’re not worth the paper they’re written on. So for the media to make a big deal out of CRON stock missing the Q1 revenue estimate is ludicrous. I’d say the same thing if the headline were “Cronos blows through Q1 revenue estimate.”

Play the Long Game with Cronos Stock

Knowing that analyst estimates are useless at this stage of the game, investors have moved to the price per kilogram sold to make comparisons between the various companies.

“Cronos is being valued at $4.7 million per kilogram of cannabis sold last quarter. The average valuation across Canopy, Aurora and Tilray is roughly $1.3 million per kilogram of cannabis sold last quarter, with a range of $1 million to $1.5 million,” wrote InvestorPlace’s Luke Lango on May 23.

If you value cannabis firms this way, Cronos stock most certainly looks to be the outlier among Canada’s biggest names.

I don’t.

I’m more concerned about the partnerships and business strategies of these companies. It is how they view the big picture five to ten years from now that matters. How many kilograms they’re producing today is irrelevant to the future health of the global-cannabis industry.

In this race, I’d rather be the tortoise, because that’s who will win, not the fastest out of the gate.

The “X” Factor for CRON

Most people look at Altria’s (NYSE:MO) $1.8 billion investment in CRON stock and they ask the same question: what will it do with the cash? As Lango suggests, “investors are hoping that the $1.8 billion influx will lead to huge gains in market share over the next several months.”

I’m sure not. I look at Altria’s investment and think of what could be.

In Brantford, Ontario, 48North is looking to grow 40,000 kilograms of cannabis on its 100-acre property. All of it is outdoors at a fraction of the cost of greenhouse or indoor cannabis.

Co-CEO Jeannette VanderMarel says that 48North will produce cannabis at 25 cents a gram. That compares favorably to $1 per gram in greenhouses and $2 in an indoor facility.

You take the tobacco-growing expertise of Altria and put it together with the smart people at Cronos and you’re looking at a profit-making machine. The synergy is similar to the production of traditional cigarettes but with a much healthier slant.

I fail to see why Altria would spend $1.8 billion on CRON stock if it didn’t have a bigger plan in mind. Outdoor grow operations can be the future for cannabis in many parts of the world. Plus Altria’s got the infrastructure, connections, and know-how to roll out production well beyond Canada.

It’s going to take another 20 years or more for cigarettes to disappear from the planet. Perhaps never. So Altria’s in no hurry to move on to its next cash crop.

But make no mistake: Altria’s not buying Cronos stock to be a passive investor. It wants more out of this relationship. In the coming months and years, we’ll find out exactly what that is.

The Bottom Line on CRON Stock

Of all the partnerships cannabis firms have entered into on either side of the 49th parallel, Cronos’ tie-up with Altria is the most organic and natural.

It’s the “X” factor that justifies the valuation in Cronos Group stock. That applies for today and into the future.

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.