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Home / Business / Cronos CEO: $ 1.8 billion from Big Tobacco is just one start of the cannabis industry

Cronos CEO: $ 1.8 billion from Big Tobacco is just one start of the cannabis industry



Marijuana companies and legacy companies are currently playing a proverbial speed dating game, says a top cannabis chef who has found an attractive partner.

Cronos Group Inc.

CRON, + 21.72%

CRON, + 22.03%

Chairman Mike Gorenstein said in a telephone interview on Friday that the $ 1

.8 billion Deal with Philip Morris, a parent company, had been announced Altria Group Inc.

MO, -0.40%

is just the beginning for his company and for the industry.

"I'm still on adrenaline," Gorenstein said, explaining that he had not slept much the night before the announcement. "We have just a new partner and now resources – but beyond that, the network and support [Altria] can provide that experience. It's an alignment and a partnership, but it's not that the deal is over. We are all very, very excited about the beginning, and we can now do the things we want to do. "

Gorenstein has good reason to go to sleep because of the deal, because it was about big money. Altria promised a $ 1.8 billion investment in Cronos, representing a 45% interest. Altria has the option to acquire full ownership if it chooses. It's the second deal of its kind, according to Crono's rival Canopy Growth Inc.

CGC, + 3.49%

WEED, + 3.47%

entered into a pact with corona maker Constellation Brands Inc.

STZ, -1.11%

to invest $ 4 billion in the growing pot company.

Watching Marijuana Stocks: Meet Cronos, Weed's Heinz Ketchup

The Cronos-Altria Agreement has continued to gain legitimacy, according to analysts in an industry that has gone into the 21st century granted the range of motorcycle clubs, smugglers and drug dealers. In the Canadian cannabis industry, most, if not all, major pot producers talk to potential partners with deeper pockets and know-how outside of cannabis and assess the benefits and costs of a partnership or a full sale according to various sources in the industry.

Gorenstein admitted that meetings take place across the industry, but said Cronos had systematically evaluated the options for partnerships and met after meeting other potential "strategic partners". He found that Altria executives and his team said the words "We agree" and "We feel the same way" when discussing the future of the growing industry and what a partnership might look like.

"The feeling we had for each other was very important," said Gorenstein.

Altria is not looking for a hedge, because Gorenstein is a business that "borders" on cannabis and is not in direct competition. In his press release announcing the deal, Cronos said he sees opportunities for working with Altria in the field of evaporation technology and pre-rolled cannabis products, and working with regulators, an area where the Marlboro manufacturer has extensive experience.

Gorenstein says Altria's latest move in Cronos' process can help make marijuana a standard consumer product. When Cronos can design a product in terms of use case and psychoactive effects, Altria has the know-how to transform the design into a product that delivers consistent results. In short, every joint of a particular product line can feel and taste the same.

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One aspect of the deal that could be a problem for cannabis users, especially in medical diversity, is Altria's history as a tobacco company, which has been having massive public health implications through decades of producing and selling cigarettes. Cronos has a significant number of medical marijuana assets in both Canada and the rest of the world. The image it tries to convey as a provider of medicines could be compromised by working with a tobacco company.

Gornstein says Altria reduces risk and increases "choice" and moves away from flammable cigarettes.

"I think that's pretty important," he said. "I think it's also a central point that [Altria] is encouraging in terms of medical business, they have much experience with [Food and Drug Administration] and research."

Whether consumers will turn their backs on a cannabis company The large portion of a tobacco company is hard to predict at this time, said Rebecca Brown, founder of Crowns Consulting, a cannabis-focused advertising agency.

"It's inherently exciting that a tobacco company has almost a controlling stake in a medical cannabis company," Brown said over the phone. "It will be interesting to see how they position and package this in a world where we have a degree of empathy for brands that admit mistakes and failures."

A Guide to Pot Stocks: What You Need to Know to Invest in Cannabis Companies

Brown says there's a way to use a narrative that marketing professionals call "flawed" – good because of their shortcomings – but they doubt it Cigarettes could only be left behind with talk and not with any victim.

"I do not think the way forward is to ignore that smoking cigarettes is anything but what it is," she said. "If Altria rejects a piece of this heritage and instead wants to organize a better future and try to help people, could we feel sorry for a tobacco company that acts as a public health penance? I do not know – but there is a potential to win over consumers.

That's the expertise cannabis companies need, analysts said, calling the Friday deal a boon to the industry as a whole. In a statement to clients, PI financial analyst Jason Zandberg said Friday that the investment represents a "significant vote of confidence" for Cronos executives and that it should have a positive and broad impact on the sector. Zandberg increased his Cronos price target from $ 15 to $ 24 and has to buy the name.

"We believe Altria has many benefits for the Cronos Group, including its regulatory, compliance, and government-related experience and expertise in device technology, supply chain management, and marketing," Zandberg said. "We also believe that Altria benefits from Cronos' expertise in cannabinoid-based products and provides an immediate channel for product development in the Canadian market."

Canaccord Genuity analyst Matt Bottomley said in a statement to customers on Friday that Altria's investment would be a boon to the industry as a whole, pushing valuations higher. He demanded C $ 16.25 per share. Altria agreed to pay for the "high rating" based on his team's assessment of future performance. Bottomley rated Cronos with a price target of $ 13.98.

The Cronos stock raged Friday, gaining 22% to $ 12.74 after announcing the Altria transaction. ETFMG Alternative Harvest ETF

MJ, + 4.97%

rose 4.9% on Friday as the S & P 500 rose

SPX, -2.33%

fell 2.2%.


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