Is Cronos Stock Reaching a Tipping Point?

Cronos Group Inc. (CRON) stock moved sharply higher on Tuesday morning before giving up ground by late morning. The stock has been in play since Piper Jaffray increased its price target for Canopy Growth Corp. (CGC) – the largest cannabis company in the space – from $40.00 to $60.00, citing the company’s New York hemp license approval. The increase marked a 36% premium to the then-current price of Canopy Growth, as well as a significant vote of confidence in the industry.

In recent months, the cannabis industry has experienced a number of regulatory wins. Attorney General nominee William Barr appears less opposed to cannabis legalization than his predecessor, saying that he would not "go after" marijuana companies in states where the drug is legal. The U.S. Farm Bill also legalized the production of hemp on a federal level and removed hemp-derived products from Schedule I status under the Controlled Substances Act.

From a technical standpoint, the stock broke out from an ascending triangle at $14.00 and R2 resistance at $16.39 earlier this month. The ascending triangle price target is roughly $21.50, and the moving average convergence divergence (MACD) remains in an uptrend, but the relative strength index (RSI) has moved well into overbought territory at 84. These indicators suggest that the stock could see some near-term consolidation before a potential move higher.

Traders should watch for some consolidation above R2 support at $16.39 over the coming sessions. If the stock continues to move higher, traders could watch for a move toward the ascending triangle price target at about $21.50. If the stock breaks down from R2 support, trendline support at $14.00 and R1 support at $13.39 provide strong price support. Traders should also keep an eye on evolving news within the cannabis industry, which is a key driver of price action.

The author holds no position in the stock(s) mentioned except through passively managed index funds.