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Cronos CEO: $ 1.8 billion from Big Tobacco is just a beginning for the cannabis industry

Marijuana companies and older companies play a proverbial speed dating game right now, according to a top cannabis who managed…

Marijuana companies and older companies play a proverbial speed dating game right now, according to a top cannabis who managed to land an attractive partner.

Cronos Group Inc.

+ 21.72%

CRON, + 22.03%

CEO Mike Gorenstein said in a phone call Friday that the $ 1.8 billion deal was announced earlier with Philip Morris parent company Altria Group Inc.

MO, -0.40%

is just the start of his business as well as for industry.

“I’m still driving on adrenaline,” says Gorenstein, explaining that he had not slept very much the night before the announcement. “We have just got a new partner and now resources &#821

1; but beyond that, the network and support [Altria] can offer – to get that experience. It’s a customization and partnership but it’s not like the deal is over. We are all very happy at the beginning, and we can now go and do things we want to do. ”

Gorenstein has good reason to lose sleep over the store as it was too big money. Altria promised an investment of $ 1.8 billion in Cronos, which means that 45 percent of Altria is able to increase to full ownership if chosen on the road. It is the second deal of its kind, after Cronos rival Canopy Growth Inc.

CGC, + 3.49%

WEED, + 3.47%

made a covenant with Corona maker Constellation Brands Inc.

STZ, -1.11%

to invest $ 4 billion in the cultivation company.

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The Cronos-Altria Agreement, according to analysts, has granted another legitimacy to an industry that until the 21st century was the Guidelines for motorcycle clubs, smugglers and drug traffickers. Currently, in the Canadian cannabis industry, most major potato producers talk to potential partners with deeper pockets and expertise beyond cannabis and evaluate the benefits and costs of a partnership or direct sales, according to several sources in the industry.

Gorenstein acknowledged that meetings are taking place throughout the industry, but said that Cronos was systematic to evaluate its opportunities for partnership by reviewing the meeting after the meeting with other potential strategic partners. He found that Altria’s managers and his team said the words “We agree” and “We feel the same way” when discussing the future of emerging industry and how a partnership can see.

“The feeling we had for each other was very important,” said Gorenstein.

Critically, Altria is not looking for a hedge because it is in a company that Gorenstein says is “contiguous” to cannabis, not in direct competition. In his press release announcing the deal, Cronos said that it sees opportunities to work with Altria on vaporization technology, as well as forcible cannabis products and to work with regulatory agencies, an area where the Marlboro manufacturer has a lot of experience.

Gorenstein says Altria can help with the final step in Crono’s process of transforming marijuana into a common consumer product. If Cronos can design a product with regard to use cases and psychoactive effects, Altria has the ability to transform the design into a product that can deliver consistent results, he said. In short, it can make each collection of a particular product line feel and taste the same way.

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An aspect of the deal that can be a problem for cannabis consumers, especially of the medical variety, is Altris history as a tobacco company that has produced massive public health impact through decades of producing and selling cigarettes. Cronos has a significant number of medical marijuana assets in both Canada and the rest of the world, and the image it seeks to project as a drug provider can be harmed by contacting a tobacco company.

Gornstein says Altria reduces the risk and “increases the choice” and moves away from combustible cigarettes.

“It’s something I think is quite important,” he said. “I think it is also an important point that [Altria] encourages medical activities, they have extensive experience in [Food and Drug Administration] and research.”

If consumers are to turn away from a cannabis company because of a large proportion of a tobacco company, it is difficult to measure at this point, “said Rebecca Brown, founder of Crowns Consulting, a advertising agency focusing on cannabis.

“Of course, it’s exciting for a tobacco company to hold close to a majority stake in a medical cannabis unit,” Brown said on a telephone. “It will be interesting to see how they position and package it in a world where we have a certain amount of empathy for trademarks that recognize failures and mistakes.”

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Brown says there may be a way to utilize a story that marketing staff describes as “flawsome” – good because of the shortcomings – but she doubts that it would be possible to leave cigarettes with just talking and no actual victims.

“I do not think the way forward here is to ignore smoking cigarettes is anything but what it is,” she said. “If Altria is playing is to relinquish this legacy, and instead to organize and gather a better future and try to help people, can we feel empathy for a tobacco company that triggers public health as a form of fines? I do not know – but There is certainly an opportunity to win over the consumers. “

It is the kind of expertise that cannabis companies need, analysts said, describing the Friday Agreement as a blessing to the industry as a whole. 19659002] In a note to customers, Friday PI Financial Analyst Jason Zandberg said that investment is a “high confidence” for Cronos executives and that it has a positive and broad impact on the sector has a whole. Zandberg raised its Cronos price target to C $ 24 from C $ 15 and has a purchase on the name.

“We believe Altria brings many benefits to Cronos Group, including their experience of regulatory, compliance and government relations as well as their expertise in device technology, supply chain management and marketing,” wrote Zandberg. “We also believe in the Altria benefits of Crono’s expertise in cannabinoid-based products and is an immediate channel for product development in the Canadian market.”

Canaccords Genetic analyst Matt Bottomley also said in a note to customers Friday that Altria investment would be a blessing for the whole sector and will drive the valuation higher. He called $ 16.25 per share. Altria agreed to pay for the investment a “high” score based on his team’s estimates of future performance. Bottomley Awards Cronos a stock with a price target of 13.98 SEK.

The Cronos share hit Friday and received 22% to $ 12.74 after the company announced the Altria transaction. ETFMG Alternative Harvest ETF

MJ, + 4.97%

rose 4.9% Friday as S & P 500

SPX, -2.33%

decreased 2.2%.

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