The long-term prospects for Cronos Group (NASDAQ:CRON) stock look good. That is, if you ask CRON stock fans. There is almost no convincing them otherwise. Critics of Cronos Group stock and the whole industry can offer smartest arguments to prove that the cannabis stocks are headed for disaster, but it will all fall on deaf ears.
The bullish thesis for the industry is so vague and the scope is so widespread that it’s almost impossible to kill it this year. It is a multi-headed beast where if the bears chop off one head, many others will stare them down with sharp teeth.
Don’t take my word for it, just consider the scoreboard. CRON is up 64% year-to-date — leading the pot stock pack. The ETFMG Alternative Harvest ETF (NYSEARCA:MJ) is up only 30%. And I say this while I chuckle because that’s still double the S&P 500 performance for the same period. So CRON is up four times more than the S&P.
This is similar to how it was for Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) in their infancy stages. This is also very similar to the current situation with Beyond Meat (NASDAQ:BYND) and even Uber (NYSE:UBER). The bullish thesis for these types of pioneer stocks is too vague to try too short this early.
This is not the same as saying that I drank the Kool-Aid think pot stocks will be as successful as AMZN long term. I am merely saying that it’s too early to short them.
Trading CRON Stock
So do I go all in on CRON? No, but still this all depends on individual time frames and risk appetites. One thing is for sure, pot stocks make for great short-term trading vehicles so CRON has opportunities on both the upside and downside. Those who believe in it long term, this is as good as any to buy at least half their position. It is futile to wait for a perfect sign to enter.
Mid term, I favor the upside potential through the rest of the year for CRON stock because it established a solid band of support. Since January of 2018, $14 per share played an important role. It served as a major pivot point, so it is an area where bulls and bears are consistently eager to fight it out hard.
This creates congestion so it becomes a sticky zone. And since CRON stock price is above it, the bulls can use it as solid footing. Meaning onus is on the bears to break that. Otherwise, every dip towards it is a buying opportunity. Sustaining the selling then becomes almost impossible.
So this leaves us with evaluating the upside potential at hand. Earlier I mentioned that there are shorter- term time frames to trade. Above $18 per share, CRON will invite momentum buyers to launch a $4 rally from there. There will be resistance near $20. This sounds like a wild statement, but it is doable for such a momentum stock.
I also noted that the $14 per share zone is a long term pivot, but so is $16. Specifically for this year, it served as a major point of contention. So I expect $16 to be the immediate support. For those who like to sell credit put spreads to generate income, that would be a good short-term level to consider.
Conversely, there is risk below especially due to trade uncertainties. So we are vulnerable to geopolitical headlines to cause sporadic selloffs. If Cronos stock fills the gap below and falls below $13.5 per share, it could trigger a $2 overshoot. While this is not my forecast, it is a scenario that exist below.
The Bottom Line on Pot Stocks
It is also important to note that I am not a super fan of the whole cannabis sector. But I do recognize that it’s a tough short.
This is a brand new industry to Wall Street, and marijuana still illegal at the federal level in the U.S. So it has everything going against it. Yet pot stocks still have so much support from everyone from retail investors to mega corporations. Constellation Brands (NYSE:STZ) and Altria (NYSE:MO) were the first two to dip their toes in the water by throwing billions at Canopy Growth (NYSE:CGC) and CRON so we know that they are the best leading cannabis companies.
This is just the beginning.
Dozens more companies are waiting and trying to figure out how they can also grab a piece of this pie. We all know about the popularity of recreational pot. But there are the slew of other applications that are extremely interesting. Mainly medicinal, edibles, and portables. There is a strong consensus that people will be drinking pot-infused drinks instead of soda, beer or wine.
I am not here to judge whether this is a realistic goal; it’s definitely not in the very near term, but it’s not out of the realm of possibilities. So the theoretical addressable market is literally incalculable. So what are the bears shorting? Without any negative headlines Cronos stock is going higher.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room free here.
