A pot stock that truly stands out
George Budwell (Cronos Group): A super-risky pot stock may not sound like a traditional Warren Buffett pick, but Cronos Group is no ordinary cannabis play. In an inchoate industry filled to the brim with would-be competitors, myriad regulatory risks, and weak economic moats, Cronos has slowly built out a business that stands apart from the crowd.
Cronos, for instance, was the first company to sign a major development deal with a partner other than a top beverage-maker. Last year, Cronos and tobacco titan Altria signed a $1.8 billion agreement that gives the company a potentially devastating first-mover advantage when it comes to entering the U.S. cannabis market -- that is, following the eventual end of prohibition in the country. More specifically, Cronos -- through its partnership with Altria -- now has the economy of scale, regulatory expertise, and infrastructure required to edge out most -- if not all -- of its closest competitors in the vast American marijuana market.
But that's not all. Cronos is also trying to figure out a more cost-effective way to produce so-called rare cannabionoids at commercial scales through a partnership with Ginkgo BioWorks. The goal of this development deal is to to scale up the production of certain rare cannabinoids that might be useful in a variety of medical conditions. As such, this seminal partnership could provide Cronos with yet another major advantage over the broader field of cannabis players.
All told, Cronos is one of the few cannabis companies with a clear path toward a viable economic moat, which is a feature that should appeal to even the most conservative of value investors like Buffett.
George Budwell has no position in any of the stocks mentioned. Neha Chamaria has no position in any of the stocks mentioned. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
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