Cronos Group Inc (NASDAQ:CRON) is a cannabis play that we at Insider Financial have been bullish on since April 2017 when the stock was trading at just $2 a share. Since that time, the stock is up over 800% and showing no signs of slowing down as it continues to make new highs. Let’s take a look at why Cronos Group remains one of our top picks in the cannabis space.
For those that are not familiar with Cronos Group, here’s a little background info. Cronos Group is a globally diversified and vertically integrated cannabis company with a presence across five continents. Cronos Group operates two wholly-owned Canadian licensed producers: Peace Naturals Project Inc., which was the first non-incumbent medical cannabis license granted by Health Canada, and Original BC Ltd., which is based in the Okanagan Valley, British Columbia. Cronos Group has multiple international production and distribution platforms across five continents.
In December, Cronos Group got a C$2.4 billion investment from tobacco giant Altria Group Inc (NYSE:MO). For its investment, Altria purchased 45% of the company and can expand its investment to 55% after exercising warrants for another C$1.4 billion. Cronos Group said the strategic partnership provides the company with additional financial resources, product development and commercialization capabilities, and deep regulatory expertise to better position the Company to compete, scale and lead the rapidly growing global cannabis industry. CEO Mike Gorenstein said:
“Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth. The proceeds from Altria’s investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in R&D and brands that resonate with our consumers. Importantly, Altria shares our vision of driving long-term value through innovation, and we look forward to continuing to differentiate in this area. As one of the largest holding companies in the adult consumer products sector, Altria has decades of experience in regulatory, government affairs, compliance, product development and brand management that we expect to leverage, particularly as new markets for cannabis open around the world.”
We believe that this deal is much bigger and more beneficial to Cronos Group than the one Canopy Growth Corp (NYSE:CGC) did with Constellation Brands Inc (NYSE:STZ). For one, Constellation is just a liquor company whereas Altria is a tobacco company. It’s more of a natural fit in terms of product, marketing, legal, and strategy. This deal effectively puts Altria in the cannabis business based on these key highlights.
- Leverages Altria’s product design, manufacturing, marketing and distribution capabilities, and expertise. Cronos Group expects to work with Altria to rapidly expand its product offerings in markets as regulations permit, including device technology. Altria has significant expertise that can serve as building blocks for cannabis vape products. Altria also brings considerable experience with large-scale manufacturing automation, pre-roll technology and supply chain management.
- Provides expertise in successfully navigating complex regulatory landscapes. Altria has a strong record of managing multi-faceted regulatory, compliance and government affairs environments related to taxation, product registration, shipping and other legal issues that Cronos Group expects to be able to leverage as cannabis markets develop and open around the world.
- Under the Investor Rights Agreement, Altria has agreed to make Cronos Group its exclusive partner for pursuing cannabis opportunities throughout the world.
Currently trading with a market cap of $2.8 billion, Cronos Group is one of the top cannabis plays for investors looking for exposure to the marijuana industry. With the smart money from Altria buying in at C$16.25 a share, the folks at Altria are expecting the stock to be much much higher in the future. For those looking for a long-term cannabis play, Cronos Group might be the best of the best.
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Disclosure: We have no position in CRON and have not been compensated for this article.
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