Editor's Note: Our Cannabis research team added Cronos Group (CRON) as a Best Idea on November 2nd. The stock is up 60% since it was added. Below is an update written earlier this morning. If you are an institutional investor interested in receiving access to our research email sales@hedgeye.com.
Cronos Group (CRON) is on the Hedgeye Cannabis Best Ideas list as a LONG
Altria’s (MO) investment is a huge validation of the CRON business model and their approach to the industry. MO has agreed to make a C$2.4B equity investment in CRON for a 45% ownership interest, MO will also receive warrants which would provide additional proceeds of C$1.4B, bringing total ownership to a potential 55% position.
CRON has been knocked for many things; from lack of production capacity, lack of brands, and the lack of ability to grow as well as others. We viewed, and continue to view CRON as an asset light cannabis play (MO is an asset light tobacco player), that is acting conservatively and methodically as they build out their infrastructure to take advantage of the growing (but young) cannabis market globally.
Clearly their approach was appreciated by smart investors, as MO saw CRON as a strong players that knows Canada is not where you want to focus your growing capacity long-term! Although maybe early, given lack of legality on a federal level in the U.S., MO didn’t want to lose out on one of the best players in the space.
CRON teaming up with MO throws any doubt in their capabilities in marketing, R&D, distribution and manufacturing out the window given MO’s expertise across all areas, not to mention MO knows who the smokers are!
Given the growth of vapor in all smoking markets (cannabis and tobacco), MO is surely excited about the potential with the CRON/Ginkgo Bioworks partnership. Also from a regulatory perspective, Mike Gorenstein (a former corporate attorney at Sullivan & Cromwell LLP), is teaming up with MO who knows the regulatory environment all too well.
We look forward to watching these two great companies and management teams combine forces to grow cannabis globally.
Please call or e-mail with any questions.
Shayne Laidlaw
Director
Howard Penney
Managing Director
