By: Philip MacKellar

Published: August 25, 2026

Pot stocks have been on our radar for years. Before the pandemic, the sector was booming. Initial public offerings involving cannabis companies hit the market amid widespread hype and fanfare. For a while, no valuation, analyst scrutiny, or level of insider selling could undo the momentum or feel-good story associated with the legalization of marijuana.

Then the boom turned to bust. In 2022, many names were down more than 90 per cent, and we argued the sector was contrary but uninvestable. This was because most companies had poor revenue trends, lost stunning amounts of money, and devoured cash. Insiders were selling millions in stock, cash balances were thin, and the capex associated with the pot infrastructure build-out was expensive as sectoral competition was fierce. To paper over their woes, many corporations diluted existing owners into oblivion.

Then in 2025, we returned to the topic and discussed a marginally altered landscape. Though certain players were continuing to lose tons of money, dilute owners, and see their business prospects decline, others – including Aurora Cannabis and Cronos Group – were starting to look interesting and were showing signs of stabilization.

As such, we added both companies, and eventually a few more pot stocks, to our watchlist, and have taken a stake in the industry. In January, we added Cronos to our portfolio at $3.52 a share and then during the March market selloff, a second smaller purchase occurred at $3.36. This brings our average purchase price to $3.47.

Cronos is a global player. It operates in Canada where it provides recreational and medical products. It also supplies medical cannabis products in Israel and is branching out into Australia and various European countries. It is in the process of acquiring CanAdelaar BV, for example, the largest recreational cannabis provider in the Netherlands.

Unlike many of its peers, Cronos has a lot going for it. In March, 2019, Altria (Philip Morris’s parent company), invested US$1.8-billion for a 45-per-cent stake. This backing occurred at cycle highs as Cronos shares had peaked in February, 2019.

This financial strength basically guarantees Cronos will survive as the industry matures. Moreover, during this maturation phase, Cronos will have significant flexibility. It can invest more in research and development, enter new markets organically, or engage in M&A to access new markets or new products. The acquisition of CanAdelaar exemplifies this point.

In addition to having its finances in order, Cronos is a well-diversified player with strong brands in recreational and medical marijuana. In Canada, its recreational products cover everything from edibles to vaporizers. In Israel, it has a leading position in the country’s medical space. Cronos is using its experience in Canada and Israel to push into new countries and make further gains in its existing markets.

The company’s operations are supported by a robust supply chain. Cronos has a handful of wholly-owned facilities to produce medical marijuana in Canada and has established a joint venture with Greenhouse Partners called Cronos GrowCo. This joint venture operates a greenhouse facility in Kingsville, Ont., and gives Cronos the right, but not the obligation, to purchase the vast majority of the cannabis it produces. The story is similar in Israel, where it has a joint venture with Kibbutz Gan Shmuel. This supply chain control means Cronos is vertically integrated.

As for risks, in some ways, the organization’s position within its sector reminds me of Major Drilling. It is an industry leader with good finances, a unique business, sectoral tailwinds, and high insider alignment. Despite these ingredients, Major Drilling has been a portfolio laggard for us and the risk is that it happens with Cronos, too.

The cannabis industry is still in its infancy, regulations are evolving, and the regulatory landscape between jurisdictions represents a complex patchwork. The industry’s prospects are also subject to the vagaries of politics and election cycles. This generates a tricky regulatory framework, and that is before contemplating the possibility of health consequences, new regulations, and litigation associated with vaping.

Meanwhile, Cronos has been accused of dumping Canadian medical cannabis products into Israel. Israel’s watchdog has launched an investigation into the matter, but the company disputes the allegations. The timing and outcome of the investigations are unknown, but a negative outcome could affect Cronos as the market accounted for roughly 28 per cent of sales in the latest quarter.

Potential M&A activity is something of a mixed blessing. While mergers can turn out great, as Bird Construction and Enerflex have demonstrated, a few poorly priced or integrated acquisitions can damage the corporation’s prospects. An investment in Cronos is a bet on management deploying its war chest prudently.

Finally, the space is competitive. This has implications for profitability and valuations. If Cronos can boost profitability and buy peers on the cheap, the enterprise is likely inexpensive, but if it cannot improve profitability the shares could trade sideways for a long time.

Despite the risks, the shares have increased since it was purchased earlier this year, the fundamentals are impressive compared to industry peers, and we think significant upside remains.