It’s been a rough ride for Cronos (NASDAQ:CRON) stock investors. At one point in time, Cronos stock was the hottest ticket in a burgeoning cannabis market that investors couldn’t get enough of.

That was back in early 2019. Since then, however, Cronos stock has become the coldest ticket in a fluttering cannabis market that investors are running away from faster than they would run away from coronavirus. From its early 2019 highs, Cronos stock has dropped about 75%.

At this point in time, I don’t blame investors for throwing in the towel. A 75% drop is tough to stomach, especially when shares have done nothing but drop over the past year. And over that time, any and all relief rallies have been small and short-lived.

Nonetheless, I think patience will ultimately be rewarded here.

In the big picture, Cronos stock is a potential multi-bagger — and buyers at current levels stand to make upwards of 400% return over the next several years as the global legal cannabis market grows by leaps and bounds. Here’s why.

The Cannabis Market Is Just Getting Started

Zooming out, the cannabis market is in the top of the first inning of a huge global growth narrative.

Overall, consumers love cannabis — especially young consumers. Among U.S. 12th graders in high school, the 30-day usage of alcohol is 30.2%, not much higher than the 30-day usage rate of marijuana at 22.2%. Perhaps more importantly, cannabis usage has been on the up-and-up for the past several years, while alcohol usage has steadily declined.

That said, these trends aren’t going to reverse course anytime soon.

Clearly, there is big demand here. And sure, most of this demand is stuck in the black market. But, that’s a temporary phenomena. Over the next several years, governments will increasingly adopt pro-cannabis legislation. In turn, the legal market will grow its production and distribution footprint with significantly more resources than what’s being used in the black market. So, with time, the legal market will simply become better than the black market in terms of supply, cost and distribution.

With that, demand will shift. The legal cannabis market will boom. Not just in Canada, but in the U.S. and everywhere else, too. Because the idea that “cannabis is bad, but alcohol is fine” is an old-school mindset that no longer fits in today’s world. And soon enough, you will see cannabis be sold just as broadly as alcohol.

Cronos Is a Winner

In the booming legal cannabis market, Cronos will emerge as a winner.

That’s because this company has several billion dollars in cash on the balance sheet, and the support of tobacco giant Altria (NYSE:MO). Only one other cannabis company — Canopy Growth (NYSE:CGC) — has those two things.

Moreover, those two things are so important for, coincidentally, two big reasons.

First, a huge balance sheet allows Cronos to absorb operating losses for a lot longer — reducing insolvency risks and mitigating pressure on the company to immediately turn a profit.

Second, a huge balance sheet also allows Cronos to invest more aggressively than peers. Investing is everything at this stage of the game. The more Cronos invests today, the more they establish a platform for growth tomorrow. They can acquire smaller companies, develop more products, build bigger growing facilities, open more stores, fund more international expansion, etc. Inevitably, doing all of those things “more” than peers today, gives them more firepower to grow tomorrow.

Overall then, next to Canopy, Cronos has the clearest pathway in the cannabis sector to emerging as a long-term winner.

The Math Adds Up to HUGE Upside

Perhaps most importantly, the math on Cronos stock adds up to this stock being a multi-bagger over the next several years.

According to BDS Analytics, the legal cannabis market will measure about $20 billion on a global scale in 2020. Cronos projects to do about $130 million revenue. That means the company is set to own a measly 0.7% of the global legal cannabis market this year.

That’s nothing. But, that share will grow dramatically over the next few years, mostly because Cronos has more resources than peers to invest in market share expansion. As such, it seems totally reasonable to assume that Cronos hits 3% market share by 2030.

At that time, the global legal cannabis market will likely measure somewhere around $100 billion. That may seem big, but it’s not compared to the multi-trillion dollar global alcoholic beverage market. It’s also up just 15% per year from a projection of $43 billion in sales by 2024.

Doing the math there, Cronos could hit $3 billion in revenues by 2030. Gross margins should return to more normal 55% levels. Moderating marketing and research expense growth should drive the expense rate down towards 25%. Operating margins should clock in around 30%.

Assuming so, my modeling pegs Cronos’ 2030 earnings per share potential at $1.50. Based on a 20-times forward earnings multiple — which is about average for alcoholic beverage stocks — that implies a 2029 price target of $30 for Cronos stock.

Bottom Line on Cronos Stock

It’s been a rough ride for Cronos stock, and I’m not sure when it will end. Presumably, more favorable operating conditions in 2020 — defined by less promotional activity, new products and more retail store openings — will bring about an end to the slide in Cronos stock.

But, that’s tough to say. What isn’t tough to say, however, is that Cronos has a bright future in what will one day be a very big global cannabis market.

All things considered, my two cents is simple. Forget Cronos stock if you have a short-time horizon or if you can’t stomach volatility. But, for longer term investors with a stomach for volatility, patiently buy into the dip. Long term, that patience should be handsomely rewarded.