ASX cannabis share Cronos has soared 80% in a month. What's going on?

This cannabis share has been on fire this month…

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It has been a stunning few weeks for the Cronos Australia Ltd (ASX: CAU) share price.

Since this time last month, the medicinal cannabis company's shares have risen over 80%.

This led to the Cronos Australia share price reaching a record high of 75 cents earlier today.

Why is the Cronos Australia share price on fire this month?

While the company released a positive update last week which boosted its shares, the majority of the gains were made earlier in the month.

The catalyst for that appears to have been a bullish broker note out of Bell Potter.

According to the note from 5 September, the broker initiated coverage on the company's shares with a buy rating and 60 cents price target.

At the time, the Cronos Australia share price was fetching 46 cents, so this implied potential upside of 30% for investors.

Why is Bell Potter bullish?

Bell Potter explained that its bullish view was based largely on the company's leadership position in medicinal cannabis distribution. It commented:

Cronos Australia is a medicinal cannabis company that is the market leader in distribution to pharmacies and provides patient consulting services through its clinic business. The key driver for the impressive growth in the past 24 months has been the CanView platform which provides the widest range of medicinal cannabis products compared to competitors (Anspec, Health House).

In addition, Bell Potter points out that Cronos Australia is profitable and even pays a dividend. That makes it the only one of its kind in the Australian cannabis industry. It explained:

We initiate coverage on Cronos with a Buy recommendation. We expect the momentum observed in FY22 to continue into FY23 and translate into strong revenue and earnings growth. Cronos is currently the only profitable dividend paying medicinal cannabis company on the ASX and the valuation does not appear demanding relative to the expected growth.

Though, with the Cronos Australia share price now trading higher than Bell Potter's valuation, it's worth considering that it could have peaked for the time being.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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