Cronos Group Joins Altria to Bet on Cannabidiol Market

Cannabis company Cronos Group (CRON) has expanded its presence in the US CBD (cannabidiol) market through a tie-up with tobacco company Altria Group (MO). In December 2018, Altria acquired a 45% stake in Cronos. In its earnings call last week, Altria explained why the Altria-Cronos deal was the right move for both companies.

Altria reported its third-quarter results on October 31. In the company’s earnings call that day, CFO Billy Gifford discussed its Cronos investment. He said, “We’re very excited about the future prospects of the cannabis industry and the opportunity for Cronos to position itself for long-term leadership.” In December 2018, Altria purchased a 45% stake in Cronos for 2.4 billion Canadian dollars.

Altria seems confident in its Cronos investment. As part of the deal, it can increase its Cronos stake over the next four years. That possibility should be profitable for Altria once the US cannabis and CBD market kicks off.

On September 5, Cronos closed its Redwood Holding Group acquisition. According to the press release, “The transaction provides Cronos Group with a leading U.S. hemp-based products platform including hemp-derived cannabidiol infused skincare and other consumer products.”

Altria feels the Redwood acquisition is a perfect fit for Cronos’s strategy to develop a varied product portfolio. Cronos has entered into joint ventures to strengthen its manufacturing and supply chain capabilities. To learn more, read Cannabis 2.0: What Cronos Group Has in Store.

Cronos plans to announce its Q3 results before the market opens on November 12. Its revenue growth has been falling. It will be interesting to see how Cronos’s strategies are affecting its revenue and profitability.

Canopy Growth (CGC) (WEED) is set to report its fiscal 2020 second-quarter results on November 14. To know more, read Canopy Growth and Cronos Group’s Earnings Next Week. Aurora Cannabis (ACB) is also set to report its fiscal 2020 first-quarter earnings next week.

Analysts have low expectations for cannabis companies’ revenue this year. Furthermore, they don’t expect Cannabis 2.0 legalization revenue until later next year. Cronos, Canopy, and Aurora have all invested in edibles.

Many market observers think the marijuana industry will outperform tobacco and beverages (alcoholic and non-alcoholic) in future years. Therefore, many companies are merging with cannabis companies. Currently, cannabis is legal in 11 states and Washington, DC. Broader legalization could be highly profitable for the cannabis industry.

Through their Truss Beverage joint venture, HEXO (HEXO) and Molson Coors plan to launch CBD- and tetrahydrocannabinol-infused beverages. Furthermore, Constellation Brands (STZ) has invested in Canopy to launch beverages this year. It also plans to launch CBD-infused health beverages through its BioSteel Sports Nutrition acquisition. And Tilray’s and Anheuser-Busch InBev’s joint venture, Fluent Beverage, plans to launch CBD-infused drinks in December.

Yesterday, Cronos and Aurora stocks rose 1.8% and 4.4%, respectively. Meanwhile, CGC and HEXO fell by 1.2% and 0.48%. For more on marijuana investments, refer to Cannabis Investment: How to Buy ACB, CGC, and Others and 420 Investor Daily.