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Cronos Group vs. Scotts Miracle-Gro – The Motley Fool




Buy the big momentum or buy the big pullback? It is a question you may ask when it comes to deciding between Cronos Group (NASDAQ: CRON) and Scotts Miracle-Gro (NYSE: SMG) . Shares in Cronos have increased more than 45% so far in 2018, while Scotts Stock has dropped around 40% so far.

Another question you may ask is whether to invest in a pure play marijuana stock (Cronos) or a top supplier to marijuana manufacturers with extensive operations in addition to cannabis focus (Scotts). However, the best way to decide which of these two marijuana stocks is is better to choose is to look at prospects. Here's how Cronos Group and Scotts Miracle-Gro compare.

  Small figures push bushes with marijuana buds on top of $ 20 bills in a money clip shaped like a dollar sign

Image Source: Getty Images.

The case for Cronos Group

Cronos Group's prospects should be very good in the long run. The Canadian recreational marijuana market has just begun. The country's total cannabis market should grow to around 5.5 billion by 2022, according to forecasts from Arcview Market Research and BDS Analytics.

Europe's opportunities for Cronos look even more promising. The company already has a delivery agreement in Germany, which is likely to be the fastest growing marijuana market in the world over the next four years. Cronos also has a delivery agreement in Poland.

And there are even more international growth drivers for Cronos Group. The Marijuana producer has joint ventures in Australia, Israel and Latin America.

The most important thing for investors to know about Cronos Group is that it is probably in the two two Canadian marijuana producers that are best positioned to expand internationally. This is because Cronos recently announced the second largest investment from a larger company outside the cannabis industry. Earlier this month, the tobacco giant chose Altria (NYSE: MO) Cronos Group as a cannabis partner, and bought 45% of the company for around 1[ads1].8 billion dollars.

This agreement gives the Cronos Group a nice amount of money that will be used to increase its global footprint, something the company's CEO, Mike Gorenstein, said is eager to do. Cronos now also has a big partner on its part with great expertise in launching products in highly regulated markets worldwide.

There is another opportunity for Cronos Group to pay a great deal if everything goes well. Cronos joined Ginkgo Bioworks in an attempt to produce high purity cannabinoids from genetically engineered yeast strains. The potential exists to dramatically reduce the costs associated with today's methods of producing cannabinoids by extracting from cannabis plants.

The Case of Scotts Miracle-Gro

What about Scotts Miracle-Gros prospects? Back in the gold hopping times it was said that the biggest winners were not the miners, but instead they were the ones who delivered picks and spades to gold miners. With the green rush of cannabis going on, Scotts definitely fits into the pick-and-shovel category.

A few years ago, Scotts Miracle-Gro took a determined decision to become a major player in the American cannabis industry. Hawthorne Gardening's subsidiary went on a shopping spree with a number of acquisitions. Now Hawthorne is the largest supplier of hydroponics solutions to American marijuana manufacturers. The company also supplies products such as fertilizers, lighting systems, irrigation systems and ventilation systems.

The largest Hawthorne market right now is California. Although California's recreation market started to be a stupendous start in 2018, the size of the market should more than double to $ 7.7 billion by 2022. But there are even greater opportunities for Scotts outside of California.

Thirty US states have legalized medical marijuana, with 10 now allowing legitimate use of leisure marijuana. Scotts is especially excited about the latter group.

Several major states, including Illinois, New Jersey and New York, could also legalize recreational marijuana in the not too distant future. These combined states can give Scotts' new markets as a whole about the size of the California market.

Of course, we also need to look at the prospect of Scotts Miracle Gro's core business and garden products. Certainly, the growth opportunities in the consumer spreads and garden products are not as exciting as in the cannabis industry. However, there are some things to consider.

First, Scotts continues to launch new products that can boost sales for core business. Secondly, the company distributes from longer, warmer seasons. Climate change could actually work in Scotts favor. Third, the Scotts' lawn and garden sector generate solid cash flow that the company uses to fund its dividend program. Scotts's dividend currently yields almost 3.4%.

The better marijuana stock

I think that both Cronos Group and Scotts Miracle-Gro will be winners in the long run. But which one is the better marijuana stock? It depends.

Conservative investors are probably better off picking Scotts Miracle-Gro. The company is profitable. Its yield is attractive. Scotts provides a way to earn on the flourishing cannabis industry, while offering more financial stability.

Aggressive investors still like the Cronos Group. Thanks to the Altria agreement, Cronos seems to have an excellent position to capitalize on growth in the global cannabis market. There can be a lot of volatility, but I see Cronos Group more favorably than I have before.

And for what's worth, Cronos has the difference between being the most effective marijuana warehouse all the time. It's not a bad proof of having.



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