Consumer Products

Why Cronos and Tilray Have Crumbled

Paul Ausick

Why marijuana stocks are tanking Monday may be a bit counterintuitive. After all, with major U.S. indexes down more than 3%, it would seem like anything to lift people’s spirits would be a good thing.

That is not what’s happening, however. Cannabis growers Cronos Group Inc. (NASDAQ: CRON) traded down more than 8% Monday morning and Tilray Inc. (NYSE: TLRY) traded down nearly 10%.

Tilray shares were among a group of three pot stocks downgraded Monday by Cowen analyst Vivien Azer who cited the continued slow addition of retail stores in Canada. Companies like Tilray and Cronos need more retail outlets, otherwise their new focus on edibles and other derivatives won’t be enough to boost revenues and profits to levels competitive with other investment opportunities.

Tilray, Aurora Cannabis Inc. (NYSE: ACB) and Sundial Growers Inc. (NASDAQ: SNDL) were all lowered from Market Perform to Underperform. Both Tilray and Aurora have been hit hard, while much smaller Sundial traded up nearly 6%.

The story with Cronos is even more distressing. The company announced Monday morning that it will delay filing its quarterly and full-year earnings report, originally scheduled for Thursday. The company did not say when it expects to file the reports.

Another Canada-based grower, CannTrust Holdings Inc. (NYSE: CTST) has not filed a quarterly report since the end of the first quarter of last year. Over the course of the past 12 months, CannTrust stock has lost more than 90% of its value. For the same period, Cronos has seen just over two-thirds of its value go up in smoke.

Investors are wary of companies that fail to file required documents on time and warier still of those that keep delaying the filings. It’s not a good look, and Cronos will want to clear this as soon as it can. Every week the filing is delayed will come with a price paid in share value.

It’s even worse when the entire cannabis industry is struggling just to maintain some dignity following a nearly yearlong decline that turned into a tumble before reaching landslide proportions. The ETFMG Alternative Harvest ETF (NYSEAMERICAN: MJ) is down nearly 57% in the past 12 months and more than 5% at the noon hour Monday.

Tilray stock traded down 10.2%, at $17.39 in a 52-week range of $15.01 to $82.81. The stock’s 12-month consensus price target is $25.64.

Cronos stock traded down 8.25% to $6.56, in a 52-week range of $6.04 to $24.37. The price target on the stock is around $9.10.