Cronos Group Expects to Enter U.S. CBD Market by End of Year, CEO Says
Canadian cannabis producer Cronos Group plans to leverage its U.S. relationships, including an investment from Altria, to launch CBD products in the U.S. ー perhaps as soon as later this year.
Canadian cannabis producer Cronos Group may be less vocal about its plans for the U.S. than some of its contemporaries ー looking at you, Canopy Growth ー but that doesn’t mean it’s forgotten about the U.S. And its official foray into the U.S. CBD market could come by the end of the year.
“We are Americans in Canada that always planned on coming back to the U.S.,” Mike Gorenstein, Cronos Group CEO and co-founder told Cheddar in an exclusive interview.
A $4.5 billion company with cannabis cultivation, processing, and distribution operations, and partnerships in Australia, Canada, Columbia, Germany, and Israel, Cronos Group ($CRON) was the first plant-touching cannabis company to trade on a major U.S. exchange. It listed on Nasdaq in February 2018; followed closely by Canopy Growth’s ($CGC) listing on the New York Stock Exchange; and Tilray ($TLRY), which went public on Nasdaq.
Marlboro-maker Altria ($MO) then invested a 45 percent stake in Cronos for $1.8 billion, flooding the cannabis company with capital for international growth.
Both Altria’s investment and Cronos Group’s close ties with cannabis-focused private equity group Gotham Green Partners, which Gorenstein co-founded, will serve as infrastructure the company needs to expand into the U.S. by the year’s end, “pending any regulatory changes,” Gorenstein clarified. Through its partnership with Altria, Cronos Group has access to over 200,000 retail stores across the U.S., plus a network of farmers that can pivot from farming tobacco to farming hemp.
“[I’m] comfortable saying we plan on launching CBD products at some point this year,” he added.
When Congress passed the 2018 Farm Bill in December of last year, it opened up the floodgates to an essentially unregulated free-for-all market for hemp-based products in the U.S. Cannabidiol, or CBD, is by far the most popular cannabis-derived compound. It’s been touted as a panacea, despite lack of research, and can be found in everything from balms to cocktails. The Food and Drug Administration released a statement forbidding companies from making egregious health claims about the compound and including it in food products, but only held its first public hearing to help the agency decide how to go about regulating the stuff on Friday.
“I think a lot of people were scrambling to draw big conclusions from that meeting, but I don’t know that there’s anything there to draw a conclusion from,” Gorenstein said. “I think status quo is the message that we got from that.”
Despite the uncertain regulatory landscape, companies are anxiously awaiting their opportunities to cash in on what could be a $16 billion market by 2025, according to Cowen analysts.
For Cronos Group, that opportunity in U.S. CBD could come in a variety of forms ー not exclusively vape products, which happen to be the company’s primary focus in Canada as the government gears up to permit sales of vapes, edibles, and beverages this fall.
“It will be a number of formats, it’s not going to be one,” Gorenstein said. “Simply because in Canada for intoxicating products vapes is the priority, that shouldn’t be reflective of what we would do in the U.S. I think they are very, very different markets.”
Cronos Group got some heat for generating lower sales numbers in its most recent financial report. But Gorenstein pushed back, arguing that Cronos Group has been constrained by the primarily cannabis flower-focused market in Canada. Since the company is positioning itself more as a consumer packaged goods company, it has been taking its time investing in research and development. And Gorenstein said he anticipates more of Cronos Group’s sales to come from products in the future.
“The flower market in Canada, it’s not where we see the future for our company. Spending ahead to be able to have next generation vaporizers, great edible products that are fast-acting, we want to make sure we get all the flavors right, the brand positioning, the marketing spend ー so it’s a typical CPG market,” Gorenstein said.