Cronos Group Inc. (TSXV:CRON) has access to global markets and plans to further build its international portfolio through strategic partnerships
SmallCapPower | March 21, 2018: Cronos Group Inc. (TSXV:CRON), based in Toronto, is a diversified and vertically-integrated cannabis company present in four continents. CRON operates two wholly-owned licensed cannabis producers within Health Canada’s Access to Cannabis for Medical Purposes Regulations (ACMPR) framework: Peace Naturals Project Inc. (Ontario) and Original BC Ltd. (British Columbia).
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Cronos Group has several production and distribution platforms worldwide, such as Cronos Israel and Cronos Australia. The Company has an exclusive supply agreement with Germany-based Pohl-Boskamp, whereby it has access to over 12,000 German pharmacies. CRON’s joint venture with NewSouthern Capital in early February 2018 is aimed at catering to markets in Australia, New Zealand, and Southeast Asia.
On March 5, 2018, Cronos Group announced its trading ticker change on the TSX Venture Exchange from ‘MJN’ to ‘CRON’. The Company’s stock looks appealing on a forward-looking basis because of its capacity expansion measures in addition to the forthcoming recreational legalization in Canada.
Investment Thesis
- First cannabis company to get listed on a U.S. stock exchange
- Sprawling marijuana production capacity
- Strategic partnerships beyond the domestic Canadian market
First cannabis company to get listed on a U.S. stock exchange
In January 2018, the U.S. Justice Department had revoked an Obama-era policy pertaining to enforcement of federal marijuana laws in the states that legalized the drug. As per U.S. federal law, the usage of cannabis is prohibited even though certain states, such as California are enforcing legalization. However, on February 27, 2018, despite the pushback from the Trump Administration, Cronos Group became the first cannabis company to get listed on a United States stock exchange (NASDAQ:CRON). The listing marks a significant milestone for the Company and the Canadian cannabis sector overall.
Cronos Group’s CEO Mike Gorenstein said, “This NASDAQ listing is a major corporate milestone and reflects the significant progress we have made in strengthening our corporate governance and expanding our global footprint. We believe this will increase long-term shareholder value by improving awareness, liquidity, and appeal to institutional investors.”
Furthermore, the NASDAQ listing enables U.S. investors to invest in a Canadian marijuana stock.
Cronos Group’s listing on the U.S stock exchange has paved way for other marijuana companies to seek listing on international exchanges. Aurora Cannabis is looking at the NASDAQ, the New York Stock Exchange (NYSE) or the AIM – a division of the London Stock Exchange (LSE), whereas Canopy Growth has hinted at listing on the NASDAQ.
Sprawling marijuana production capacity
Cronos Group’s main asset, Peace Naturals, has 95 acres of land dedicated for marijuana production. At present, Peace Naturals has production capacity of 7,000 kg within the fully functional 70,000 sq. ft. The domestic capacity is expected to reach over 40,000 kg by 2019, once the expansion is completed by summer 2018. The expansion plans include a state-of-the-art 286,000 sq. ft indoor production facility and a 1,200 sq. ft. extraction lab. Peace Naturals has Good Manufacturing Practice (GMP) certification from Germany, which signifies the high-quality practices being followed by the producer.
The Company’s other core asset, Original BC based in Okanagan Valley, has 31 acres of land exclusively zoned for cannabis production with premium genetics obtained from WMMC. The region provides climate and power cost advantages to Cronos Group compared to other Canadian jurisdictions.
Strategic partnerships beyond Canada
Apart from having three core assets in Canada – Peace Naturals, Original BC, and Whistler Medical Marijuana Company – Cronos Group has access to global markets and plans to further build its international portfolio through strategic partnerships. Through an exclusive supply agreement with Pohl-Boskamp, Cronos Group is tapping the German market, which experiences a large shortfall of medical cannabis. The partnership with Pohl-Boskamp has given Cronos access to over 12,000 German pharmacies.
In Israel, Cronos Group is building a production facility in a joint venture with Kibbutz Gan Shmuel, which already exports to 35 countries across Europe and Asia. In early February 2018, Cronos Group formed a joint venture with NewSouthern Capital to market cannabis products to Australia, New Zealand, and Southeast Asia. Such partnerships will aid in creating revenue diversity in terms of geography, as well as ease any potential hiccups in marijuana demand.
Outlook and Valuation
On March 5, Cronos Group announced the change of its ticker on TSX Venture Exchange from ‘MJN’ to ‘CRON’. In terms of valuation, CRON currently trades at market capitalization of $1.96 billion with price-to-book multiple of 26.0x. Over the past year, CRON’s share price has risen ~200%, in tandem with its Canadian counterparts, due to the likelihood of legalization of recreational consumption in Canada by summer 2018. The stock looks attractive in the near term on the back of an expanding global footprint, which will positively impact the revenues coupled with upcoming recreational pot legalization where the market size is anticipated to be in the range of $4.2 billion to $12 billion annually.
Disclosure: Neither the author nor his family own shares in the company mentioned above.
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