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Better Marijuana Stock: Cronos Group vs. Charlotte's Web Holdings

Keith Speights, The Motley Fool

It's still early, but 2019 is shaping up to be a great year for some marijuana stocks. You can put Cronos Group (NASDAQ: CRON) and Charlotte's Web Holdings (NASDAQOTH: CWBHF) on the list of big winners so far this year.

Both Cronos and Charlotte's Web could have more catalysts ahead. Which of these two hot marijuana stocks is the better pick now?  

Cannabis leaves draped over a globe, covering North America.

Image source: Getty Images.

The opportunities

Cronos Group and Charlotte's Web operate in different markets, so their opportunities are quite different. But the opportunities are certainly impressive for both companies.

Cronos' top priority right now is the Canadian recreational marijuana market. This market only opened for business in October 2018. By 2022, though, it could present a $5.5 billion opportunity for Cronos and other Canadian marijuana producers.

An even greater opportunity for Cronos Group over the long run, though, is in the global medical cannabis market. Over 30 countries across the world have legalized medical cannabis, notably including Germany and the United Kingdom.

The world's biggest marijuana market, however, is currently off-limits to Cronos. Although Cronos would love to expand into the U.S. marijuana market, it can't do so and keep its listing on the Nasdaq and Toronto Stock Exchange as long as marijuana remains illegal at the federal level in the U.S. There's a possibility that U.S. federal laws could change in the future, though. 

Meanwhile, Charlotte's Web focuses largely on the U.S. market -- but with hemp products rather than marijuana products. Hemp, like marijuana, is made from the cannabis plant. There are a couple of key differences, though. Hemp contains only low levels of the psychoactive ingredient tetrahydrocannabinol (THC). And while marijuana isn't legal, the U.S. recently legalized hemp.

There has been a lot of excitement in particular about hemp-based cannabidiol (CBD) products. Brightfield Group even projects that U.S. hemp-based CBD sales could skyrocket to $22 billion by 2022. Hemp Industry Daily is more subdued in its forecast but still thinks that hemp CBD sales could reach $7.5 billion by 2023.  

The capabilities

Opportunities are one thing, the capabilities needed to capitalize on those opportunities are another. The good news for Cronos Group and Charlotte's Web is that they both appear to be in pretty good shape to seize the opportunities that lie before them.

Probably the most important thing to know about Cronos Group is that it has a big partner. In December 2018, tobacco giant Altria invested $1.8 billion in Cronos for a 38% stake. Altria also has the option to buy a majority interest in the company down the road.

This deal provided Cronos Group with plenty of cash to fund its expansion efforts. It also gave the company a close relationship with a big partner that has successfully navigated highly regulated markets across the world and built successful consumer brands.

Even without the Altria partnership, Cronos Group was in pretty good shape to succeed. The company is on track to have an annual production capacity of over 117,000 kilograms. It has key distribution partnerships in Germany and Poland. Cronos is active in the Latin America market. It teamed up with top U.S. cannabis retailer MedMen to launch cannabis retail stores in Canada.

Charlotte's Web claims the No. 1 position in market share in the hemp CBD market. The company's products are sold in 3,680 retail locations as well as on its website. Charlotte's Web had 300 acres of hemp planted in 2018 compared with only 70 acres in 2017. It produced 675,000 pounds of hemp last year.

The legalization of hemp in the U.S. should open the doors for Charlotte's Web to expand its retail opportunities with national chains. The company also plans to launch new products and grow its international presence, especially in Europe, South America, and Asia.

Better marijuana stock

I like the opportunities for both Cronos Group and Charlotte's Web. I like the capabilities for both companies to capitalize on those opportunities. 

One thing to consider, though, is that Cronos Group could decide to jump into the U.S. hemp market. It would be able to do so without jeopardizing its stock listings on the major exchanges. That would give Cronos a much larger total addressable market.

My view is that Charlotte's Web will be a big winner from the U.S. legalization of hemp. However, I think that the long-term prospects for Cronos Group look even better, thanks in large part to its partnership with Altria. I like both of these stocks, but in my opinion Cronos gets the nod as the better marijuana stock right now.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.