If you are in the marijuana industry and you follow the stock market trends, then you have probably heard about Cronos Group (TSX:CRON) (NASDAQ:CRON), a Canadian cannabis producer. Cronos Group's stock rose sharply in the first week of August after the company announced it would buy parts of a US company that produces CBD-based products.
Cronos Group stock rocketed to 13.84% on August 2. The decision to purchase Redwood Holding Group was part of the Canadian company’s effort to enter the largest marijuana market.
Cronos Group follows the path of many other marijuana companies forming partnerships in order to grow their business quickly. The company is now looking to capitalize on the growing demand for CBD-based beauty products. Countless companies are already doing so by incorporating CBD into their beauty products.
About Cronos Group
Cronos Group Inc is a company based in Toronto, Canada. It was founded in 2012 and has expanded to form many partnerships since. Cronos Group prides itself with being an innovative global cannabis company committed to cannabis research and product development. The company owns two brands: a health and wellness platform called PEACE NATURALS and COVE and SPINACH. Cronos Group operates across five continents building a global network.
Recently, Cronos Group announced its plan to acquire four subsidiaries of Redwood Holding Group, a company that makes CBD-based beauty products such as CBD topicals, tinctures, lotions, bath salts, oils, edibles, and so on under the brand name of Lord Jones. Lord Jones products are infused with CBD derived from hemp grown in the United States.
The pot company will pay roughly $300 million for the US CBD beauty line. $225 million will be paid in cash while the rest will be paid through issuing common shares (valued at $14.74). The deal is expected to close towards the end of the year.
Redwood Holding Group was founded in 2017 by Robert Rosenheck and Cindy Capobianco, who will be joining Cronos Group in some capacity.
Unlike many other cannabis companies that have a hard time raising capital, Cronos Group is known to have a substantial cash reserve. This enables the company to invest in partnerships and enter the ever-increasing US hemp market.
In July 2019, Cronos Group also announced its decision to purchase a manufacturing and fermentation facility in Winnipeg, Canada. It’s comprised of fully equipped facilities where quality control and method development are being conducted. CRON stock rose more than 2% immediately following the statement.
However, the company’s growth began in 2018 when Cronos Group entered a partnership with a bioengineering company from Boston called Ginkgo Bioworks in order to produce cannabinoids via biosynthesis. This method is significantly cheaper when compared to the traditional one (extracting cannabinoids from the marijuana plant). The partnership was reported to be worth about $122 million.
Besides being able to reduce the cost of cannabis production, this method would enable the company to produce minor cannabinoids such as THCV in large quantities. Tetrahydrocannabivarin, or THCV, is only present in small amounts in the cannabis plant. This cannabinoid is known to have numerous health benefits that other, more dominant cannabinoids such as THC or CBD do not have. THCV is known for its ability to naturally suppress appetite, which makes it better for weight loss than the commercially available medicines and supplements.
Ginkgo will make an effort to produce cannabinoids using yeast instead of growing the plant. But it is not the only marijuana company looking to give this method a go. Other companies are also interested in using biosynthesis to reduce the cost of cannabis production.
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