The rumors are true!
Cronos (CRON), a well-established Canadian marijuana cultivator, confirmed Monday evening it is engaged in talks with tobacco giant Altria (MO).
The aftermarket announcement sent Cronos shares even higher than they traded after the rumors broke the two were in talks.
The same wasn’t true for the rest of the marijuana sector though.
This is a big deal which we can draw a lot about the short-term and long-term future for marijuana stocks.
Here are the Seed Investor’s top three takeaways from this news and the following marijuana stock market action.
Takeaway #1: This Is Not The Coca Cola (KO)/Aurora Cannabis (ACB) Rumor
This potential deal is much different than the
The main difference being any Cronos/Altria deal actually makes sense.
The Coke/Aurora deal didn’t make any sense at all.
Coke and other beverage giants have a simple business model.
They have huge and protected distribution channels which can’t be matched by anyone else.
To grow they add brands into the
For years Coke and other big beverage companies simply buy successful brands and add them into their distribution channels.
Coke was never going to build a CBD-infused beverage brand. It’s way to risky.
Coke will just wait a few years for a leader to emerge and buy it for a few billion dollars.
Any deal between Cronos and Altria is a much different story.
Marijuana is not another brand of tobacco product.
Granted, the two are complimentary, but they are not the same in the way that DASANI water and smartwater (both brands owned by Coca Cola).
The highly-regulated marijuana will not be sold alongside tobacco products in gas stations across the country.
Instead, marijuana would be a different vertical line and a long-term bet for Altria.
That’s why any potential deal between Cronos and Altria or between any other marijuana company and a tobacco company would be make sense unlike the CBD-infused beverage deals which were not going to happen until they mature.
Takeaway #2: It Will Get Worse Before It Gets Better
The most disappointing aspect of the Cronos rumor was what happened to the entire sector.
First, we had the rumor on Monday.
Cronos stock popped up 10% on the day.
However, despite a short-lived uptick in the sector immediately following the rumor, the Canadian Marijuana Index was down 4% for the day.
Maybe it seemed too good to be true.
Maybe the selling pressure on marijuana stocks was too great.
We wouldn’t know until…
After the markets closed, Cronos confirmed the rumor was true and it was indeed in talks with Altria.
The announcement was non-committal about anything more than talks, but it confirmed the rumor was true.
That should have been good news.
However, the Index is down another 4.5% today and pretty much confirmed the selling pressure was too great on the sector.
This is the exact opposite situation from last August.
Marijuana stocks were falling as they are now, but the massive $4 billion investment into Canopy Growth from leading brewer Constellation Brands sparked a massive rally which was fed by Canadian legalization and the Coke/Aurora rumor.
That didn’t happen this time and it likely means things will get worse before they get better for marijuana stocks and the bottom may still be a few weeks away.
Takeaway #3: The Raging Bull Market In Marijuana Is Dead, New Approach Necessary To Invest In Marijuana Successfully
The raging bull market in marijuana stocks is probably dead forever.
Without a (at this point) surprise push from the U.S. Congress to push a complete legalization bill through, this bull market is over for a while.
Marijuana stocks are event-driven and aren’t going to do well without any events to drive them.
To be clear, we’re just talking about the buy-anything-and-make-money era in marijuana stocks being over.
There are still many major growth opportunities in the marijuana industry.
There are few other industries which will be growing the way the marijuana industry will do in 2019.
Where else are you going to find a company like Curaleaf (CAN:CURA / US:CULRF) which posted $21.4 million in revenues in 2017 and expects to grow 1769% to $400 million in just two years later in 2019.
That’s the kind of growth which will make more a than a few big winners.
The gains will be there.
Fortunes will be made.
To win in marijuana stocks going forward though, you’ll just have to be more selective and tactical.
The Seed Investor