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Cannabis stocks need to fight their way out of their funk. That’s true for names like Canopy Growth (NYSE:CGC) and New Age Beverages (NASDAQ:NBEV), but it’s critical for Cronos Group (NASDAQ:CRON). CRON stock is not only down by a third since its March high, but is on the verge of breaking under a crucial technical support level.

Cronos Needs to Show the Market Something to Pull Stock Out of Funk

Source: Shutterstock

Some — perhaps most — would argue that the shape of a chart is irrelevant. A chart’s history shouldn’t dictate its future. Rather, a company’s results and prospects are reflected in its stock’s movement.

The fact is, however, the movement of a marijuana stock shapes the rhetoric about that company as much as it’s shaped by the rhetoric. If Cronos stock slips any further, it would become alarmingly easy for the masses to view it as a liability.

Charting CRON Stock

It’s not difficult to see.

After an overheated rally in January and February set the stage for significant profit-taking in March and April, the 200-day moving average line (plotted on the white line on the chart below) began to serve as a technical floor. It’s not yet become a pushoff point, though, and it doesn’t appear it’s going to. Just within the past several days the sellers have tested the pivotal 200-day moving average line as support again, and it’s failing to even modestly repel the effort.

The 200-day moving average line is regarded by some as the most important of all the trend indicators. It’s admittedly simplistic, but still has significant psychological implications because so many traders still see it as a make-or-break level.

There’s modest encouragement in the fact that the weakness since March’s high has been on relatively low volume. That suggests there’s not necessarily a great deal of conviction behind the selling; investors are just biding their time.

Conversely, the fact that the other aforementioned names, like most marijuana stocks of late, are falling is a red flag. Group-wide movement tends to indicate longer-lived, philosophical doubt.

Analysts Still in Doubt

Still, Cronos Group stock is a standout for all the wrong reasons. Chief among them is the fact that among all cannabis stocks, CRON stock remains one of the analyst community’s least favorite.

As of the most recent look, analysts collectively rate Cronos at a little less than a Hold … tiptoeing into Sell territory. Rivals New Age Beverages and Canopy Growth, for perspective, are considered a Buy and something that’s almost a full Buy, respectively. Hexo (NYSEAMERICAN:HEXO) is also closer to a Buy than a Hold.


Click to Enlarge

Reasons for the pessimism range from lack of clear capital spending plans to a sheer lack of story in an environment where a company’s story is a powerful marketing tool. Given that the $1.8 billion investment Altria Group (NYSE:MO) made in CRON stock has now been closed for weeks as well, one would have expected a more definitive direction for a partnership than we’ve seen yet.

More than anything though, analysts still take issue with the stock’s crazy valuation.

Cronos sports a $4.8 billion market cap, and though revenue of $6.5 million was only a fraction of what the company could be driving in just a few quarters, even the most optimistic of plausible output levels will fall short of justifying that sort of price. It’s a reality made even more amazing considering analysts have cared little about other similarly frothy valuations among cannabis stocks.

Wait and See on CRON Stock

It’s certainly possible CRON stock could dig its way out of trouble and use its 200-day moving average line as a launchpad rather than a trigger for more trouble. The stock’s yet to break below it.

Those hopes are fading fast though, as the broader realities of the legal marijuana business sink in. The most overvalued names in the business also make for the most susceptible targets. That’s Cronos, to be sure.

Whatever’s in the cards, it’s certainly not a time to step into the pot name. Newcomers will want to wait for a little more clarity before doing anything.

The world will get a big dose of that clarity in the first half of August, when Cronos will be reporting its Q2 numbers.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about him at his website jamesbrumley.com, or follow him on Twitter, at @jbrumley.

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