Medicinal cannabis company Cronos Australia debuts on ASX

By Jonathan Jackson. Published at Nov 8, 2019, in The 420 Report

Medicinal cannabis company Cronos Australia (ASX:CAU) has successfully listed on the ASX.

Cronos Australia was established as a 50:50 joint venture with global cannabinoid company Cronos Group Inc. (TSE:CRON) and NewSouthern Capital.

The $3.5 billion capped Cronos Group was recently propelled by a big investment from Marlboro maker Altria (NASDAQ:MO).

Altria agreed to invest $1.8 billion for a 45% stake in Cronos Group, which would have given the Canadian cannabis player further confidence to acquire CBD brand, Lord Jones.

Cronos Group announced the Lord Jones acquisition in August.

Stifel analyst Andrew Carter upgraded Cronos Group stock from hold to buy in a research note released late in October. He did, however, trim his price target to CAD14.0 from CAD16.50.

"We believe Cronos will showcase an enhanced revenue growth profile leveraging the distribution capabilities of Altria to build its US CBD business and demonstrate breakthrough product potential in the Canadian vapor segment," Carter said.

Interestingly, CRON’s net income improved from $2 million in 2017 to $498 million in the trailing twelve month (TTM) period. However, in that same period, after-tax operating profit (NOPAT), fell from -$7 million to -$33 million.

Yet, Cronos Group has been riding a wave of positive investor sentiment in the overall legal cannabis market and this could have an impact on Cronos Australia.

Cronos Group holds approximately 31% of the issued capital of Cronos Australia.

What does Cronos Australia do?

Cronos Australia aims to become a leading health and wellness company in the Asia Pacific region through the distribution of premium cannabis products.

"The ASX listing is a significant milestone in the life of Cronos Australia, and we look forward to delivering on our vision of being a leading health and wellness company in the Asia-Pacific Region through a portfolio of successful, premium cannabinoid brands and products," Shane Tanner, Chairman of Cronos Australia noted.

The Australian medicinal cannabis company listed on the ASX following a successful A$20 million initial public offering (IPO) from institutional and sophisticated investors in October.

Cronos Australia offered 40 million shares at A$0.50 each for an indicative market capitalisation at the close of the offer of A$64.4 million.

The company is currently capped at $43.7 million and is trading at $0.340.

Early revenues will be generated from the import and distribution of PEACE NATURALTM medicinal cannabis products which are currently sold in Canada and Germany.

Cronos Australia will import and distribute Peace NaturalTM products.
Cronos Australia will import and distribute Peace NaturalTM products.

Having ready-made products, will enable Cronos Australia to develop its own branded products and also has access to certain elements of Cronos Group's intellectual property – subject to the terms of an IP license agreement between Cronos Group and Cronos Australia.

Cronos Australia is pursuing an asset-light business model under which the cultivation of medicinal cannabis and the manufacturing of medicinal cannabis products is expected to be outsourced to other companies both domestically and overseas.

Cronos Australia Chief Executive Officer, Rodney Cocks, said, "Cronos Australia is excited to join this fast-emerging sector as Australia's newest listed medical cannabis company. Our asset-light business model, backing of Cronos Group and Asia-Pacific focus give the company a unique proposition in our market.

"We look forward to providing future updates to the market as the funds raised are deployed to accelerate the development and commercialisation of our portfolio of medicinal cannabis products."

Cronos Australia was formed to accelerate growth and capture opportunities relating to the emerging cannabis industry domestically and internationally.

Whilst the Australian market is still in its infancy, the requirement for medicinal cannabis is expected to grow as the complexities of legislation and regulation untangle and markets open.

Having Cronos Group in its corner should give the newly listed Cronos Australia, a solid foundation in the burgeoning Australian market, as well a foothold in already developing international markets.

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