Cronos Group (CRON) is one of the most popular Canadian cannabis companies that is set to become a leader. The company involves in the production and sale of marijuana and the sub-products obtained from marijuana with facilities located across five continents. Moreover, the company was set up in 2012, with tobacco company Altria Group (MO) as its major shareholder.
Cronos Group has two license holders. The company’s license holders are Peace Naturals and Original BC Ltd (OGBC). Peace Naturals owns manufacturing centers near Ontario. Also, OGBC has a production plant in British Columbia. Also, the company has five strategic joint ventures in Canada, Israel, Australia, and Colombia.
The beginning of Cronos
Lorne Michael Gertner and Paul Rosen first developed PharmaCan Capital in August 2012. Later, in February 2017, it was named Cronos Group. In the beginning, Gertner served as the chairman of Cronos Group. Currently, he is the CEO and chairman at Hill & Gertner Capital Corp. Moreover, he sits on the board of Green Acre Capital and Emblem Corp. (EMMOF).
Further, Rosen, one of the founders of the Cronos Group, served as its president and CEO for three and a half years. He was responsible for the company’s investment strategy. Currently, Rosen acts as the CEO and chairman of Tidal Royalty Corp. (TDRYF). The company is involved in royalty financing business. Also, the company mainly targets the growing US cannabis industry. Apart from that, he is the mastermind behind BreakWater Venture Capital.
Strong vision and powerful strategies
This cannabis giant chose the public platform in December 2014. Shares of Cronos Group started trading on the largest stock exchange in Canada, the Toronto Stock Exchange. Its shares traded flat for more than two years until 2016. After that, the company picked up to reach a peak in March 2019.
Cronos Group aims “to transform industries through cannabinoid innovation.” In order to be the leader in the global cannabis sector, the company’s prime concerns are “establishing an efficient global production footprint; developing a diversified global sales and distribution network; creating and monetizing disruptive intellectual property; and growing a portfolio of iconic brands that resonate with consumers.”
Cannabis brand sales
Cronos Group primarily involves in the sale of products, including dried cannabis, pre-rolls, and cannabis oils. This distribution is carried out via wholesale and direct-to-client channels labeled in various brands. Peace Naturals is the company’s wellness brand. Also, the company’s two adult-use brands are Cove and Spinach.
First, let us take a look at Cronos Group’s Peace Naturals brand. This brand plans to make great cannabis and cannabis products. Moreover, it is geared towards the growing global medical marijuana market and contributes to fitness. This brand places more importance on eating habits and lifestyle. As per an IMARC report, this market should grow by 22.9% CAGR, reaching $44.4 billion by 2024.
Cronos Group’s product brands
In 2018, Cronos Group came up with two more brands called Cove and Spinach for the Canadian adult-use market. Taking Cove into consideration, it is a high-quality brand positioned to attract its customers. The purpose of this premium brand is to ensure every experience is a realization for its customers.
On the other hand, Cronos Group’s Spinach brand is well placed as a conventional adult-use brand. This brand is directed towards a broad scope of consumers that live life in their own way and seek enjoyable ways to carry on their activities. Further, this refreshing Spinach brand pays attention to this particular offering Farm-To-Bowl products. The purpose of this brand is to make consumers’ life fun-filled and enjoyable.
Dried cannabis: The dominant segment
Cronos Group has two business segments. The primary business segments are dried cannabis and cannabis oil. Of these, the dried cannabis segment makes up more than 81% of its net revenue for the year ending in December 2018. This segment exploded by nearly 225% YoY (year-over-year).
In fact, the segment made more than $12.7 million as of December 2018. A 236% YoY rise in volume propelled this revenue growth during the same period. Moreover, the popularity and sales of all of the brands across the globe are leading to this massive volume increase. This volume increase compensated for the decline of the selling price of dried cannabis during the same period.
Cannabis oil: a fast-growing segment
As of December 2018, Cronos Group’s cannabis oil segment contributed just 19% of its total net revenue. As of December 2017, this segment contributed to just 4% of the company’s net revenue. This shows a big improvement in the segment’s contribution to the total net revenue.
The sales volume growth is leading to this huge improvement happening in this segment. In other words, the volume sold inflated by more than 3x YoY, as of December 2018. This proves that there is great demand for cannabis oil. Further, the Market Study Report, LLC analysis expects the global cannabidiol oil market to grow by 39.5% CAGR by 2025, reaching $3.86 billion.
Huge capacity to capture the scale benefits
In the process of achieving its objectives, Cronos Group is actively growing its production capacity. The company plans to continue spreading its leadership domestically as well as internationally. To pursue this, Cronos Group worked with others to ensure superiority and improve production efficiencies. As of December 2018, the company has an existing capacity amounting to an estimate of 40,150kg in Canada. Further, nearly 77,000kg capacity expansion is in progress across its footprint in foreign countries.
Cronos Group’s gross profit improvement is the result of the efficiencies from the huge capacities available for production. The company’s gross profit before fair value adjustments for the year ending in December 2018 rose 294% YoY. This led to a 100 basis point improvement in gross margin to 51% in the same time frame. The huge volume of sales of cannabis caused this increase.
The Cronos Group – Altria deal
In December 2018, the tobacco giant Altria Group (MO) bought a 45% stake in the Cronos Group for $1.8 billion. With this acquisition, Cronos Group will use Altria’s strong supply chain system to tap into the US cannabidiol business segment.
“The proceeds from Altria’s investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in R&D and brands that resonate with our consumer,” said Cronos CEO Mike Gorenstein.
Acquisitions – International expansion
Since 2016, Cronos Group grows mostly through buying companies to achieve its vision. These acquisitions enable the company to cover a wide footprint across the globe and capture market share. We will cover some of the important acquisitions here.
On September 6, 2017, the company entered into a strategic joint venture with Gan Shmuel, an agricultural area in Israel, to form Cronos Israel. This venture makes up four companies. These companies will make and supply medical cannabis across the globe.
Then, in February 2018, Cronos Group declared a joint venture with NewSouthern Capital Pty Ltd in Australia. With this venture, the company expanded its presence in the Asian Pacific region. The company maintains this as a core center to conduct its business in South East Asia, Australia, and New Zealand.
Recently, in September 2019, Cronos Group said that it bought four of Redwood Holding Group’s subsidiaries for $300 million. This acquisition enables the company to strengthen its presence in the fast-growing cannabidiol market. Further, the analysts from the Brightfield Group expect this market to amount to $24 billion by 2023.
Adding to the benefits, it also leads to an extension in its product line and distribution channels in the US. This is as a result of hemp-driven CBD legalization. So, this will help the company buy market share in the US cannabis market. Some analysts estimate this opportunity to reach $100 billion over the next 10 years if legalization happens.