The US hemp business is very attractive and is the supposed next big driver of revenue for cannabis companies. Unlike Canada, the US currently doesn’t allow for the sale of marijuana at the federal level. In its press release, Cronos Group’s chair, president, and CEO, Mike Gorenstein, stated that the company wished to “capitalize on the significant demand for skincare and other consumer products derived from hemp” through the acquisition of Redwood.
Hemp doesn’t include some of the psychoactive properties contained in a traditional marijuana plant. For more information, read Investing in the Cannabis Industry.
Cronos isn’t the first cannabis company to make a foray into the US. Earlier this year, Canopy Growth (WEED) (CGC) acquired AgriNextUSA, which will drive its hemp business in the US. To learn more, read Why Is the US CBD Market So Attractive? Aurora Cannabis (ACB) and Tilray (TLRY) are also making similar forays into the US hemp market.
Cronos Group plans to enter the market in a variety of formats through this acquisition. For example, Redwood makes cannabidiol-based skincare products as well as consumer products infused with cannabis. Under the terms of the agreement, the company will pay almost $300 million, which includes $225 million to be paid in cash. The company will also issue new shares in order to raise cash for this transaction. It said the transaction is expected to close in the third quarter.
Like other cannabis stocks, Cronos Group has seen significant selling pressure in the last few months. The cannabis industry has seen dampened sentiments as earnings have failed to impress and the market has run into scandals.
However, there’s a silver lining. Aphria (APHA) reported its earnings yesterday and proved that the industry is very much alive and kicking. Aphria surged almost 30% after reporting its results. Read Here’s Why Aphria Is Surging Today to learn more. You can also read about how the company performed in Aphria Stock Rises on Earnings Beat.