It was on the cards for some time, and on March 8th, Cronos Group (NASDAQ:CRON) officially closed the $2.4 billion CAD deal with Altria Group (NYSE:MO).
A few days on, and the stock is still on a decline. Touted as one of the biggest partnerships in cannabis, investors may have imagined CRON stock would skyrocket. So what does this mean for the cannabis producer and why is CRON reacting negatively?
Cronos Group Closes Deal with Altria
In short, the deal closed on Friday, March 8th. And now, the tobacco giant owns a 45% stake in Cronos. There is potential for this percentage to increase to 55% in the next four years.
Cronos Group has, effectively, sold nearly half its business to a tobacco behemoth. For all the positives this brings, is there major potential for the company to be usurped? Are investors taking issue with this chunk of ownership signed to Altria?
Change in Management
Further, along with the deal came a significant change in management. According to the press release, the board has been increased from five members to seven.
And the role of Chief Financial Officer will be taken over by Altria SVP of Corporate Strategy, Jerry Barbato. Former Cronos Group CFO, William Hilson, will transition to the newly created role of Chief Commercial Officer.
Again, that’s all well and good, but as the adage goes, if it ain’t broke don’t fix it, and as the fifth largest cannabis company by market cap, Cronos Group was already doing steady business on its own esteem.
Yes, the deal will offer revenue opportunity as the pair look to create cannabis-infused products, but did Cronos need to give away so much ownership to do so?
At the time of writing, CRON stock is down 2.55% in premarket trading.
Shares have dropped from $22.31 to $21.23 since the deal closed. With today’s current drop, sentiment doesn’t seem to be changing.
The potential for revenue gaining here is significant and the additional capital now at Cronos’s exposure means the company can grow its operations. As CEO Mike Gorenstein said during the press release:
“[The deal] will enhance our financial resources, and allow us to expand our product development and commercialization capabilities, and regulatory expertise to better position Cronos Group to compete, scale and lead the rapidly growing global cannabis industry.”
Investors might be wondering, however, for some sizeable capital, did Cronos Group just sell-out? Where do you think CRON stock will go from here?
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