Motly Fool take So what
Investors need to keep today's drop in perspective. Cronos Group stock is still up more than 40% in just the past month despite the fallout from the Citron Research report.
There is some truth to the points raised by Citron. Unlike several of its peers, Cronos Group has not disclosed the size of its supply agreements with Canadian provinces. However, referring to this omission as "deceiving the investing public" is a stretch.
Cronos did have some contamination issues with its cannabis products in 2017. But so did one other Canadian marijuana grower. The company appears to have resolved those issues.
Is Cronos Group's revenue less than several other Canadian marijuana growers? Yep. But it's also increasing it faster than many of them, too. And while the company isn't investing much in R&D, that's not exactly a major problem at this point.
There are two issues raised by Citron Research that I think are more relevant to Cronos Group's future. Questions about its international strategy and its likelihood of being selected as a partner by Diageo or another major company are valid, in my opinion.
Cronos claims a major partnership with German pharmaceutical distributor Pohl-Boskamp and a joint venture in Australia, and it recently teamed up with Delfarma to enter the medical cannabis market in Poland. Despite all of these efforts, I do think it's possible that Cronos could get left behind to some extent in the global cannabis market.
As for a Diageo partnership, my hunch is that there are candidates higher on the list for the big beverage company. With much of Cronos Group's recent gains fueled by speculation that it could be picked by Diageo, a sell-off is probably warranted.
Now what
Citron Research's track record is mixed at best. Investors shouldn't panic just because Citron raised issues about Cronos, none of which are secrets to anyone who follows the marijuana grower.
However, questioning whether or not a stock has shot up too much is a good thing to do. Cronos Group's market cap hinges on an extraordinary level of growth. It will no doubt see tremendous growth when Canada's recreational market opens in October. I'm not sure, though, that the growth will be enough to justify the stock's current valuation.
I don't think Cronos is, as Citron alleges, deceiving investors. But investors shouldn't deceive themselves that the path forward for Cronos Group will be easy and that the momentum from the last month is sustainable.