Cannabis Watch: Marijuana stocks to watch: Meet Cronos, the Heinz Ketchup of weed

The following article is part of a package of stories that MarketWatch is publishing to mark the start of full legalization of cannabis for adult recreational use in Canada on Wednesday. For more, go here.

Heinz designs the genetic makeup of the tomatoes used for its renowned ketchup, but it doesn’t own the farms that grow the fruit.

Toronto-based weed company Cronos Group Inc., which is listed on the Toronto Stock Exchange CRON, -1.84% and the Nasdaq CRON, -1.87% is aiming to duplicate that model. The company doesn’t want to be in the business of growing cannabis in the long run, or at least it is not convinced that’s the best strategy. Instead, as Chief Executive Michael Gorenstein put it on a recent call with analysts, the company thinks of the marijuana industry in terms of chemistry.

Read first: A guide to pot stocks: What you need to know to invest in cannabis companies

The theory says that marijuana plants are valuable because they produce compounds called cannabinoids, the most common and abundant of which are tetrahydrocannabinol, or THC, and cannabinol, or CBD. THC is the chemical that produces the psychoactive effect associated with pot, while CBD is believed to have health benefits while not producing a buzz.

But there are at least six other cannabinoids in marijuana plants beyond THC or CBD, and Cronos wants to make it cheaper and more efficient to extract more of them, which could lead to discovery of new uses for them. While many analysts and investors are currently modeling the cost per gram of pot, Gorenstein believes the future lies in modeling the cost of the cannabinoid itself.

More marijuana stocks to watch: Canopy Growth is the cannabis business’s $4 billion gorilla

Here’s how the company plans to do that:

Intellectual property

One of the key partnerships Cronos has struck is with a privately held American company called Ginkgo Bioworks. Ginkgo has agreed to use its own technology that designs and prints new DNA to create microorganisms that will produce eight target cannabinoids at industrial scale through industrial fermentation. Cronos has struck a deal to use the technology around the world and claims it will drive the cost of producing cannabinoids to less than $1,000 per kilogram.

If successful, the company would lower its capital-expenditure costs when moving into new markets, since it would be able to use existing breweries and other pharmaceutical facilities. And, in addition to producing cannabinoids at a lower cost, it may be able to mass-produce some cannabinoids that currently account for less than 1% of a typical marijuana plant.

The company has filed a number of patents without disclosing the total, but says it will do so in the future.

More marijuana stocks to watch: Tilray has big plans and a highly volatile stock

What business is it in: recreational or medical?

Cronos is currently involved in both the recreational and medical markets. The company owns a portfolio of companies and has secured partnerships that for now are tapping the medical market where legal, but it’s positioning itself to take advantage of adult recreational cannabis when it begins in Canada on Wednesday. The Ginkgo partnership would likely apply to both markets.

Supply agreements

The company has signed agreements with British Columbia, Nova Scotia, Ontario and Prince Edward Island. No province has indicated precisely how much of its total weed-buying budget it will allocate to a particular company. It also remains to be seen which companies’ recreational products will be successful.

More marijuana stocks to watch: GW Pharma is a drugmaker that grows its own cannabis plants

Cronos currently has medical distribution agreements in Germany and Poland. It also has a joint venture in Australia that it views as a jumping off point for Asia, as well as a licensed producer of medical cannabis in Israel and operations in Colombia, where it is in the process of securing a license.

How much weed does it grow and at what cost?

At the moment Cronos says it can grow roughly, 6,650 kilograms on 69,500 square feet — all of which is located in Canada.

More marijuana stocks to watch: Aphria is positioning itself as a low-cost pot producer

According to its most recently quarterly filing, Cronos sells weed for C$7.21 ($9.35) a gram. It sold 477 kilograms in the three-month period and produced a total of 1,145 kilograms at a cost of C$1.64 per gram.

How much weed can it eventually grow?

Cronos has 1.2 million square feet in development in Australia, Canada and Israel, which it believes can result in growing 110,500 kilograms of pot a year.

In the June quarter, the company posted profit of C$762,000 on sales of C$3.9 million.

Cronos shares have gained 54% in 2018, while the S&P 500 SPX, +2.15%  has gained about 5% and the Dow Jones Industrial Average DJIA, +2.17%  has gained 4%.

Be Sociable, Share!

Related Posts


MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.

This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.

The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The educational training program and software services are provided to improve financial understanding.

The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.