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Did Cronos Group Just Become a Big-Time Sell?

Bret Kenwell

What is going on with the cannabis space? Seemingly every stock in the group is getting sold lower, including Cronos Group (NASDAQ:CRON). In fact, what’s even more interesting is the way that they’re all selling off. CRON stock and others are positioning in a similar bearish setup.

The technicals for CRON stock suggest trouble ahead

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It’s drawing questions from observers as to why the industry is under such pressure. The inquiry becomes even more pressing as the Dow Jones, S&P 500 and Nasdaq are hitting new highs on a seemingly daily basis.

How can equities be at a high while cannabis stocks are scraping multi-month lows?

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Breaking Down Cronos Group Stock

There are dozens of cannabis stocks investors can consider — that goes for almost any industry. And like any other sector, there are good companies and not-so-good companies to choose from. Luckily for Cronos stock, it is a good company. But that doesn’t seem to matter right now, and that’s because of the fundamentals.

You see, even though CRON stock runs a good operation, this company has a $4.7 billion market capitalization and had just — wait for it — 6.5 million CAD in sales last quarter. This was up an impressive 120% year-over-year, but is a very small revenue number given its valuation.

The company turned a pretty strong profit for the quarter, earning more than 400 million CAD. How’s that possible on 6.5 million CAD in sales? CRON generated a non-cash unrealized gain of 436.4 million CAD on the revaluation of derivative liabilities.

The cannabis space is a land grab right now. And the ones with the cash get to grab the most assets. Canopy Growth’s (NYSE:CGC) big bank account was infused by Constellation Brands (NYSE:STZ). But now CRON stock can throw its hat into the ring, after it closed a $2.4 billion investment from Altria (NYSE:MO) in the most recent quarter.

Now its balance sheet is strong, even if its income statement remains unimpressive. This vault will be important down the road. Earlier this month, Stifel analysts said the cannabis market could hit $200 billion in the next decade. That’s up from $8 billion in 2018.

The bottom line: you might look at the revenue underlining Cronos stock and question all the hype. But with more than $2.4 billion sitting in cash and making up half the market cap, it commands some respect.

Trading CRON Stock

So, did CRON stock just become a big-time sell? Not yet, but it could be soon. Aurora Cannabis (NYSE:ACB) is breaking down, while Canopy plunged through support. Both stocks were setting up as a descending triangle, a bearish technical development.

Cronos stock isn’t looking healthy, either.

After falling hard on Friday and closing below the 200-day moving average, shares rebounded 4.5% on Monday. The stock closed just above this key moving average on Monday, but only by a dime. It’s not clear whether Cronos stock will reclaim this mark or find it as resistance.

chart of CRON stock


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But that doesn’t really matter because we know two things now. One, $14 support is a must-hold level. Unlike ACB, CGC and other cannabis plays, CRON stock is still clinging to its support level. Below $14 puts the June lows of $13.51 on the table, as well as the 61.8% retracement for the one-year range at $13.06.

Below that and there’s no immediate support level to lean on.

The other thing that’s clear? In order for Cronos Group stock to look healthy on the long side, we need to see it clear the $15 to $15.50 area. Over the past few months, $15.50 has been a relevant level, while both the 20-day and 50-day moving averages are trading in this range.

It’s a bit early to say Cronos Group stock is doomed, but it’s not looking healthy as the industry draws in sellers. I’d rather wait for CRON stock to have the wind at its back than buying now and hoping support holds up.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

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