Personal Finance

Better Marijuana Stock: Cronos Group vs. The Hydropothecary Corporation

Marijuana buds and cannabis oil on top of red Canadian maple leaf cut-out

Set yourself apart from the crowd.

That's a good strategy for any business. And it's a strategy that both Cronos Group (NASDAQ: CRON) and The Hydropothecary Corporation (NASDAQOTH: HYYDF) , also known as HEXO, have both tried to execute. These two companies are part of a relatively crowded group of Canadian marijuana growers. They both market a product -- cannabis -- that is basically a commodity.

Can Cronos Group and HEXO (the name rolls off the tongue more easily than Hydropothecary) really differentiate themselves? And which is the better marijuana stock right now? Here's how these two companies compare.

Marijuana buds and cannabis oil on top of red Canadian maple leaf cut-out

Image source: Getty Images.

The case for Cronos Group

In March, Cronos Group became the first Canadia marijuana grower to list its stock on a U.S. stock exchange . The move increased the company's visibility with U.S. investors and provided a nice -- albeit temporary -- bump to the stock.

But there are thousands of stocks listed on the Nasdaq stock exchange. What makes Cronos Group worthy of investors' consideration? Perhaps the best answer to the question is that Cronos has tremendous growth opportunities at home in Canada and in global medical marijuana markets.

The recreational marijuana market in Canada is scheduled to open in October 2018. Cronos aims to be a major player in that market. The company has been busy cranking up its capacity in anticipation of significant demand. Cronos recently announced a joint venture with a group of investors to develop a new greenhouse in Ontario that, when completed, should produce around 70,000 kilograms of cannabis each year.

Cronos also teamed up with MedMen , a leading U.S.-based cannabis retailer, to develop branded products and launch retail stores in Canada. MedMen brings a lot of expertise in marketing cannabis in a retail environment. In addition, Cronos will supply cannabis to Cura as it expands into the Canadian market. Cura currently claims the best-selling cannabis brand on the U.S. West Coast.

Global medical marijuana markets should present an even greater opportunity for Cronos, especially Germany. Cronos has an exclusive supply agreement with one of the top pharmaceutical distributors in Germany, Pohl-Boskamp. It also has joint ventures in Australia and Israel as well as a distribution partnership with Delfarma in Poland.

The case for HEXO

HEXO made its mark in setting itself apart from most of its peers earlier in August with the announcement of a deal with Molson Coors Brewing . The big alcoholic beverage company selected HEXO as its partner to develop cannabis-infused beverages after talking with several other potential candidates.

But can HEXO compete effectively in the Canadian recreational marijuana market? It thinks so. It's beefing up capacity significantly. By early next year, it expects to have an annual production capacity of 108,000 kilograms.

The company's status as leader in the medical cannabis market in Quebec helped HEXO snag the biggest forward-supply contract for cannabis ever in Canada . This five-year deal should set up HEXO nicely in the recreational market in Quebec. HEXO hopes to gain a foothold in other provinces as well.

HEXO has made great strides in lowering its production costs. In 2017, it had a weighted average cost of dried cannabis sold of 1.73 Canadian dollars per gram. HEXO has slashed that cost to only CA$0.97 per gram now.

For now, HEXO doesn't have a presence in international markets. However, the company has stated that its strategy is to leverage its dominant position in Quebec to export to other countries down the road.

Better buy

I think Cronos Group gets the nod between these two marijuana stocks. Cronos appears to be in a better position to gain market share in the Canadian recreational market and the global medical marijuana market. Securing the deal with Molson Coors was a big coup for HEXO, but it remains to be seen if the company will be able to achieve success outside of Quebec.

But while Cronos is the better pick, I'm not really a fan of either of these stocks. Their valuations are through the roof with investors banking on enormous growth. That enormous growth might not materialize.

There are several scenarios I can see where both Cronos and HEXO flop. One is if the Canadian recreational market isn't as big as projected. Another is that a coming supply glut in Canada could cause the stocks to tank. And the global marijuana market might take a lot longer to develop than anyone expects. Maybe things will unfold much more pleasantly, but my view is to watch both Cronos and HEXO from the sidelines.

10 stocks we like better than Cronos Group Inc.

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Cronos Group Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 6, 2018

Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of Molson Coors Brewing. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More