Cronos Group Inc (NASDAQ: CRON) is having an incredibly strong start to the trading session this morning, and for good reason. The company announced that it has entered into an agreement with Altria Group, Inc. (NYSE: MO) with regard to a large investment. Of course, the news excited investors, sending the stock screaming for the top. Today, we’ll talk about:
- The investment;
- why it’s so important
- what we’re seeing from CRON stock as a result; and
- what we’ll be watching for ahead.
CRON Announces Subscription Agreement
As mentioned above, Cronos is having a great day in the market today after announcing that it has entered into a subscription agreement with Altria Group. Under the terms of the agreement, MO will be investing approximately C$2.4 billion in CRON on a private placement basis in exchange for common shares.
The agreement also stipulates that Altria will receive Warrants of CRON. If these warrants are fully exercised, they will provide the company will an additional C$1.4 billion. At the close of the agreement, Altria will own approximately 45% of the company. However, if the warrants are fully exercised, that ownership will go up to 55%, a controlling interest in the company.
In a statement, Mike Gorenstein, Chairman, President and CEO at CRON, had the following to offer:
Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth. 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 consumers. Importantly, Altria shares our vision of driving long-term value through innovation, and we look forward to continuing to differentiate in this area. As one of the largest holding companies in the adult consumer products sector, Altria has decades of experience in regulatory, government affairs, compliance, product development and brand management that we expect to leverage, particularly as new markets for cannabis open around the world.
The above statement was followed up by Howard Willard, Chairman and CEO at MO. Here’s what he had to say:
Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria. We believe that Cronos Group’s excellent management team has built capabilities necessary to compete globally, and we look forward to helping Cronos Group realize its significant growth potential.
Why This News Is So Important
First and foremost, looking beyond Cronos and looking at the news from an industry-wide perspective, the news is incredibly important. It shows that a well-established company with vast experience in working with highly-regulated products, sees an opportunity for growth in the cannabis industry. This bode of confidence is leading to strong gains across the industry, not only in CRON, but in CGC, TLRY, ACB, and many others.
From a company specific standpoint, the news means a lot for CRON. First and foremost, the large investment will help to bolster the company’s balance sheet, making it a more attractive investment to more investors.
Also, the funds from the transaction will help to accelerate the rate of growth and expansion at Cronos Group. As the company expands across the global market, the funding from this transaction, and the relationship with Altria, creates a strong position for the company to take advantage of global opportunities.
CRON also said that the rlationship will give the company the ability to become an innovation leader in the space. In the release, the company said that examples of the types of innovation it plans on driving are collaborations with Gingko Bioworks to develop cultured cannabinoids and Technion Research and Development Foundation for cannabinoid-based skin care treatments.
Finally, the transaction will allow CRON to leverage Altria’s expertise in the navigation of complex regulatory pathways considering the level of regulation surrounding cannabis.
What We’re Seeing From The Stock
One of the first lessons that we learn when we start to work in the market is that the news leads to moves. When it comes to Cronos Group, the news proved to be overwhelmingly positive. After all, this large investment from Altria will do quite a bit for the company. So, it’s not surprising to see that excited investors are pushing the stock on a run for the top. As is normally the case, our partners at Trade Ideas were the first to alert us to the gains. Currently (10:43), CRON is trading at $12.88 per share after a gain of $2.43 per share or 23.24% thus far today.
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What We’ll Be Watching For Ahead
Moving forward, the iWatch Markets team will continue to keep a close eye on CRON. In particualr, we’re interested in following the story surrounding the transaction with Altria and how the company uses the funding and the relationship to move toward aggressive expansion. We’re also watching the cannabis sector as a whole as changing regulations around the world seem to be creating compelling opportunities. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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