Altria, the producer of Marlboro cigarettes, had acquired a 45% stake in Cronos Holdings for $1.8 billion (USD). The Cannabis network, including the marijuana seeds shipping worldwide industry, took an in-depth look at the report. The contract includes a $1.05 billion possibility to buy an extra 10% in the future. While Cronos had admitted that discussions were in the process, the stock still hit up 28% when it goes into the market.
A work in progress.
In hindsight, it was clear that Altria was working to make a step into the Cannabis market at some point. If we look at the cigarette market, the enterprise has covered fewer Canadians smoking each year since the nineteen sixties. Lately, there has been a notable uptick in the vaping industry led by JUUL Labs. Then, another company, Altria, is bartering with for a stake. Yet, that does not change the long-term aims facing the company’s core industry in cigarettes.
Altria can lean on regular smoking to render high cash flow and pay dividends for a long season to come. The company is looking for plans to broaden its product base. By entering the cannabis market, expressly at this opening quarter, Altria can drive to take market share, research products, and setting itself in new markets as they open.
In short, this is a plausible proactive move for the firm, and it should adjust well with its current practices, R&D, and product lines. For investors in Altria, it is appealing to envision a company with the kind of funds that progress. Finance that exists today coupled with growth in cannabis and a high dividend. An appealing blend and one that Altria could not overlook for long. A move into the cannabis network by Altria was inevitable.
Altria is choosing the perfect partner to dance with.
So that points us to the following question of why they decided to partner with Cronos Group. Cannabis stock experts are arguing that it is prudent to define the Canadian cannabis market. As a limited contender in the cannabis business led by only a few proficient players. The largest is the Canopy Growth, a company that is currently 38% owned by Constellation Brands with options to advances the ownership up to 51% in the future.
If we look at the remaining players, Cronos Group was the one who fit right to Altria’s style and structure in the tobacco market. Cronos favored expanding new products and brands while converging on delivery and Research and Development (R&D) rather than focusing on growing supply.
Cronos Group has worked hard to be at the front edge of medical cannabis. It is a place that is much nearer to moving towards legalization in global markets compared to recreational marijuana. Their partnership with Ginkgo Bioworks is clearly focused on improving innovative products. This means that they could establish value for the medical side of the cannabis business. Ginkgo Bioworks is a biotech company founded in 2009 by scientists from MIT. They are experts in using genetic engineering to produce bacteria with a modern approach.
Dancing to the tune of the potential of medical cannabis.
There are primarily two chemicals in cannabis that most users are talking about nowadays, Tetrahydrocannabinol (THC) and Cannabidiol (CBD) cannabinoids. THC is the drug that gets a person high and is the reason people desire to use cannabis recreationally. CBD does not get a person high but has been displayed to probably aid patients with epilepsy, swelling, pain, psychosis, and other concerns.
Yet, there are at least a hundred of other cannabinoids that have been secluded from cannabis. Results can cause a variety of positive effects on everything from hunger suppression to diabetes remedies. Many of these cannabinoids are only trace quantities in natural cannabis. Yet, the research and studies of Cronos and Ginkgo Bioworks places them in a situation to create strains —a new strain that highlights these cannabinoids for new treatments and innovation in medical cannabis.
And when the music plays, so as the dancing.
This partnership shows that Cronos gains access to Altria’s design, production, marketing, and delivery roles. Using that, Cronos is in excellent condition to dance into a market-leading status in the developing global market for medical cannabis. Altria has settled a standard in the global medical cannabis market with this sale.
Or, they could create new products or treatments that centered entirely on addressing these other cannabinoids. A good example is what we see with CBD oils nowadays. This would allow Cronos to deliver innovative products to market that are truly bizarre.
A note for a note
It is nice that advanced in the progress of many markets, investors and companies concentrate on metrics that will not matter in the future. For cannabis, the focus is on how much cannabis a partnership can produce. Long term, we would expect more partnerships to produce their own cannabis, much like few cigarette companies produce their own tobacco.