Cronos Group (NASDAQ:CRON) is not alone as its shares have fallen more than 33% since April 5. Compliance issues and regulatory delays in Canada, have also weighed on Tilray (NASDAQ:TLRY), Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB). CRON stock, though, has fared the best of that bunch.
Yet, despite the problems, you’d be hard-pressed to find a faster-growing industry than cannabis. According to recent research, the global market size is expected to reach $66.3 billion by the end of 2025, though these estimates vary widely.
But Wall Street still has mixed reactions when it comes to Cronos Group stock. Out of the 14 analysts reviewing the stock, eight have given it a hold rating. Here are a few reasons why analysts aren’t more bullish about CRON stock.
Cronos Delivered Mixed Q2 Results
CRON stock hit a new 52-week low in early August, thanks in part to a mixed earnings report. Initially, the company’s shares rose due to better-than-expected sales. But Cronos Group also saw its operating losses widen.
And on the earnings call, company executives said they expect these losses to increase during the second half of the year. This is due to Cronos’ investments in sales and marketing and other growth initiatives.
As well, Cronos Group lags behind other cannabis companies in terms of production. While it produced nearly 1,600 kilos during the second quarter, that’s less than one-fifth of the the 29,000 kilos Aurora Cannabis produced.
Vaping Concerns Could Affect CRON Stock
Canadian cannabis companies are currently waiting on the second wave of cannabis legalization, set for the middle of next month. This will include a limited supply of items like vapes, cannabis-infused beverages, and edibles.
But there is a growing concern in the U.S. about the safety of vaping. More than 450 Americans dealt with vaping-related lung illnesses and five of these patients died. It’s unclear what’s causing the illnesses but there does seem to be a link between THC-infused products and vaping. (My InvestorPlace colleague Josh Enomoto has a contrarian take on this today.)
In March, Cronos Group received an equity investment from the tobacco giant Altria Group (NYSE:MO). Altria also owns a stake in the e-cigarette makers Juul, which gives Cronos access to additional vaping technology. However, this could pose a problem is the health-related concerns continue to gain traction.
Expect More Supply Issues in Canada
Canada continues to deal with ongoing supply issues since legalizing cannabis in October 2018. The regulatory agency Health Canada is dealing with a backlog of licensing applications.
Most likely, Canada will still be dealing with this issues when cannabis derivatives hit the shelves in December. And it will continue to slow the ability of companies like CRON to harvest, process, and sell cannabis.
As of this writing, Jamie Johnson did not hold a position in any of the aforementioned stocks.
