Shares of cannabis companies traded mostly lower Wednesday, pulling back from a big run up the previous session that snapped a long losing streak.
Among individual weed stocks, Cronos Group Inc.’s /zigman2/quotes/206842762/composite CRON +0.82% /zigman2/quotes/202715342/delayed CA:CRON +0.54% helped pace the gainers, surging 9.6% in midday trading after Bank of America swung to being bullish from bearish, as the potential for a near-term launch of the company’s U.S. business, with help from Altria Group Inc. /zigman2/quotes/208895754/composite MO +0.13% , made a bearish stance “untenable.”
Analyst Christopher Carey raised his rating two notches to buy from underperform, and his U.S. dollar price target to $20 from $13.
“While clearly a high multiple even vs. peers, following recent [management] comments we have improved confidence [Cronos] is near announcing its US CBD launch, a potentially significant catalyst,” Carey wrote in a note to clients.
Carey said he doesn’t expect Cronos entering the U.S. by acquiring a cannabis retailer, but rather expects the company to leverage Altria’s distribution—Altria’s products are in about 230,000 stores—to launch its own products. He said he believes Cronos will start with a focus on creams, tinctures and vapes/sprays, given that the Food and Drug Administration has stated that CBD (cannabidiol) in food additives is still prohibited.
Cowen analyst Vivien Azer wrote in a note to clients Wednesday that Cronos Chief Executive Mike Gorenstein said at a presentation that the company plans to lead with vaporizers for the upcoming introduction of new product forms in Canada. According to people familiar with the matter, Cronos has begun making substantial orders of Ccell vaporizer products.
The company reiterated its plans to use the old Altria facility in Israel to develop a vaporizers based on tech that the tobacco maker developed for its main business. It plans to launch at several prices, much like Juul, the nicotine vape company.
Azer has a C$21 target price on the name with the equivalent of a hold rating.
Like Cary, Azer says that it’s unlikely Cronos will enter the U.S. market through the acquisition of a multistate operator — that’s because Gorenstein co-founded Gotham Green Partners, an investment fund that focuses on cannabis.
Gotham Green has made investments in public entities such as MedMen Enterprises Inc., iAnthus Capital Holdings Inc., and GrowGeneration Corp. among other names. Gotham has also taken a stake in several cannabis startups, such as Flow Kana — incorporated as Event Horizon Technologies Inc. likely because cannabis remains illegal under federal law — which MarketWatch obtained confidential materials from the company’s last fundraising round, which Gotham participated in.
In part because of the informal relationships between Cronos and Gotham’s various investments, Azer says that it will use data they gather for insight into the U.S. consumer and test products in Canada. Azer also says Cronos plans to enter the CBD market likely with topicals and vaporizer products. The company said CBD products will likely be better suited for various edibles and beverages and is awaiting FDA action.
Cronos’ stock’s rally follows a 5.9% surge on Tuesday. It has now run up 52% year to date, and has more than doubled (up 126%) over the past 12 months.