Bank Of America Double Upgrades Cronos, Says Bear Thesis 'Increasingly Untenable'

Cannabis stocks have been hot in 2019, but Cronos Group Inc CRON shares have lagged the past three months. One Wall Street analyst says expansion opportunities into the U.S. market will soon send Cronos shares to new highs.

The Analyst

Bank of America analyst Christopher Carey upgraded Cronos from Underperform to Buy and raised his price target from $17 to $27.

The Thesis

Carey said the double upgrade is due to the potential for a near-term launch of Cronos Group's U.S. business with the help of tobacco partner Altria Group Inc MO.

On Tuesday, Carey attended a lunch hosted by the Consumer Analyst Group of New York at which Cronos CEO Mike Gorenstein said the company has been doing an in-depth investigation into the current U.S. laws on a state-by-state basis to identify potential opportunities and protect against legal risk.

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Bank of America is projecting the U.S. CBD business will expand from $2 billion today to $11.5 billion by 2032. Rather than acquiring an American cannabis retailer, Carey said Cronos is likely to leverage Altria’s existing U.S. distribution network of more than 230,000 stores to launch its own products.

“As this process accelerates, the N-T bear thesis, one to which we ascribed, becomes increasingly untenable, esp. with CRON value fractions peers despite more cash and similar market opportunity,” Carey wrote in the note.

CBD in food additives is still banned in the U.S. by the FDA, but Carey said Cronos is likely to pursue creams, tinctures and vapes/sprays in the near-term.

Price Action

Cronos shares traded higher by 9.5 percent to $15.79 on Wednesday morning.

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