Cronos, a Canadian cannabinoid company, is planning on expanding its operations into the United States in the next six to twelve months. Thanks to this news, its stock price spiked over 10% as of this writing at the promise that this expansion holds for the company.
While a 10% bump in a single day is newsworthy, the real gains for this company over he last year happened thanks to the 2018 Farm Bill that passed late last year. Here’s a chart from Google showing the movements in stock price for Cronos over the last year:
Two stock analysts who monitor Cronos had this to say about the company’s plans: ” “In particular, we would expect CRON to focus on topicals and vapor, initially, given the current regulatory framework,” Cowen analysts Vivien Azer and Steven Schneiderman wrote after attending the CAGNY event. “However, Gorenstein commented that CBD would likely lend itself better to edibles and beverages than THC, and thus we look for CRON to enter these segments once deemed permissible for interstate commerce by the FDA.” “
Publicly traded companies are being careful with how they roll out their expansions. As we have seen with Canopy Growth, they are meticulous with where they are expanding and what they are expanding with. Cronos is no different and they are focusing on the CBD market for the initial rollout because the laws are more favorable for that product. Additionally, the FDA just held hearings on how it plans to regulate CBD, which, at least some people think, was the impetus for Cronos to make this announcement.
Where are the Investment Opportunities?
Everyone has opinions on this. From my perspective, the highest upside play in the CBD/cannabis market would be with a moderately sized venture fund in the neighborhood of $20 million, that invests throughout the value chain for cannabis and CBD (or pick one of the two). That kind of play would provide investors with enough diversification but still expose investors to the upside of investing in early stage companies in the cannabis/CBD industry.
Companies like Cronos and Canopy Growth do provide investors with some upside still, especially considering the explosive growth that is forecast for this industry. Additionally, there is less risk when investing in publicly traded companies versus investing in startups but the tremendous upside is no longer there with the publicly traded companies.
Taking Cronos as an example, one of the analysts from the Business Insider article thinks that the target for that company is $20/share by the end of the year. And that would be great if it performed that well, that would be a more than 20% increase from where it is today. For most investors, the vast majority of investors really, this is the kind of play that makes the most sense.
But, for those investors that have the sophistication to evaluate startups in this space and the means to invest in them, that’s where the real upside is. Of course, investing in startups is also a good way to lose all of your investment capital.
In other words, it depends on what your investment goals are. If you are looking to allocate a portion of your portfolio to investments that can have returns of 100X or more, then you have to go with investing in startups either as an independent investor (angel) or through a venture capital fund (this kind of investing is usually only open to accredited investors). If your looking for something more stable and don’t want to go through the rigamarole of investing in startups then one of these public companies makes the most sense. An even safer option would be to find an equity traded fund (ETF) and invest in that instead.
Or you could go all out and start up your own cannabis/CBD company. That’s always an option and, if the market size explodes like analysts think it will, then there will be some extreme winners in this space. “Fortune favors the bold” and all that.