TORONTO – Cronos Group Inc. is one of two Canadian cannabis producers that has entered into a multi-billion dollar deal with a major US company.
The $ 1.8 Billion Investment by Marlboro Manufacturer Altria Group Inc.
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produced in Cronos
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in December, legitimized in December a company that produces far fewer cannabis than rivals like Canopy Growth Corp.
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Chief Executive Mike Gorenstein, a lawyer in the United States and once a Partner at Alphabet was Google
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venture capital arm, now has a massive war chest to Cronos' ambitions in To finance cannabis.
Previously: Canopy Growth's Quiet Co-CEO on the Ambitions of Top US Companies and More
MarketWatch sat with Gorenstein in the company's downtown offices this week Toronto, the cannabis market, how he deals with the Altria deal and how the cannabis industry is developing, especially in relation to the use of related services.
This interview has been edited for clarity and length.
MarketWatch: Some of your rivals are involved in drinks. What are your prospects for cannabis products in Canada beyond currently available flowers and oils?
Gorenstein: After non-flower categories, the vaporizer is clearly the largest. And then the edibles are next, then the topics, and then you begin to classify pharmaceutical formats. Then come in drinks.
For tetrahydracannabinol or THC, you must now change the way consumers consume. Retailers are no longer equipped for the distribution of beverage masses – the trucks are different, for example. It takes some time for drinks to get dressed. … If you can not order it in a restaurant or bar, it will really hurt the category. At some point we should be able to do that, but I do not see it outside the gate.
MW: The demand for cannabidiol or CBD products has surprised many Canadian license manufacturers by taking into account the volume of commercially available products versus perceived demand. Why was that?
Gorenstein: I think much of it comes from predictions and product mix, and I think if you look at what the provinces originally demanded in orders, you just have to assign your gross base and it takes time to reverse things. You must go through the various stages of cannabis plant cultivation. Initially, the idea was the demand for more THC products, but CBD has proved popular.
If you look at CBD as a category and what it will look like in the US and how we imagined it If you are unable to calculate it and sell it normally, will it compete? It is so much more expensive for a cannabis retailer to accept the middle-man trader and margins, as if it would be almost as if it were just THC and more accessible to CBD. For example, THC is taxed, but CBD is not.
MW: How should investors reflect on the Altria deal and some of the health issues that the company has faced in the past while trying to build medical brands besides recreational products?
Gorenstein: If you're wondering how to reconcile things, invest in something medical, something useful, that you would probably expect from this industry. I think that's a big part of what you see. If you look at the investments Altria made – I can not talk 20 or 30 years ago – but the company is very focused on reducing risk and expanding choices. And that is the defining characteristic of their investments. I think we are in a position that will not hurt Altria if we bring out more medical products, it will not take its existing market share with it. The same applies to leisure products. The same applies to CBD products.
I think in terms of incentives, we still have access to the supply chain, to distribution. I think we have the capital and infrastructure to bring products to market, regardless of the distribution channel.
MW: One of the problems frequently raised by cannabis companies is production throttling points, which have contributed to delivery bottlenecks in the first few days of legalization of the country. Excise stamps are an example of a specific problem. To what extent are the production problems in the industry?
Gorenstein: The big problem is that we also expect the packaging to continue to change. For example, as with tincture bottles, you may decide to fully automate this process. It takes a while for the equipment to be set up. But we now know in October that the packaging rules are changing again. If you want to create this custom automation with tax stamps, the challenge is that you use the package within six months when designing it for a particular package.
I think that's one of the things When we talk about packaging, tax stamps are an insignificant detail, but all these processes are needed – most companies that you think design automation for a single package for five years have, remain unchanged. It is a big innovation project to switch to another packaging piece. Much for us, what we consider to be end-of-the-line packaging, and we still think of packaging that switches back and forth, hoping that the packaging rules will evolve from where they are today.
MW: Does Cronos need cannabis-specialized software companies like the US cannabis companies? What is Oracle Corp., for example?
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Gorenstein: If you ask what the oracle of the pot is, my answer is Oracle. But we have a happy position in Canada. If you ask me who is the oracle of the pots in the US, I do not know. But the question I ask is how long do you think you can build a strong moat that could prevent people from switching to Oracle before it's allowed by law. And do you think Oracle can plug that hole? Does that have any value once cannabis is legal in the US?
MW: What restrictions do you have, if anything, when working with major software vendors and are there still challenges?
Gorenstein: There are no restrictions when it comes to working with software companies. Sometimes there is more diligence because it is a new industry, but not a limitation for us. At least we do not have to deal with this topic now. When we started, we did not even transfer money for the Nasdaq listing fee to the Securities and Exchange Commission. I had to do that personally. They feared we would finance a criminal organization. They stop it because they see cannabis. Sometimes there is such a thing, but eventually you can get it over the line.
These software services are also things you will see and optimize here – enterprise resource planning software, outlets, card processing, material planning software, all this is done, but it's not instant. When they are put online, things will move much smoother. But I think the stigma is mostly eroded.
MW: In which areas of software and technology are there still significant room for improvement in Canada?
Gorenstein: I say data. Now you see Nielsen
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offer some services, but they are not comprehensive.