Could Cronos Group be looking to buy troubled pot stock CannTrust Holdings?
Added: (Wed Jul 24 2019)
Pressbox (Press Release) -
As investors it is an extremely likely scenario, that in the next ten years we will look back on the cannabis industry as the greatest growth opportunity of our generation. Looking at the figures, Cannabis produced a relatively small $3.4 Billion USD in worldwide sales in 2014, and just last year that number was over $11 Billion USD, almost 300 percent in four short years. However looking forward over the next decade the growth of the cannabis industry is set to take off. With Canada being one of the first countries to make the move to fully legalize recreational cannabis in October of last year, and a much more positive outlook on federal legalization in the U.S analysts are expecting that annual cannabis sales could easily hit $200 billion.
But investors should note that not every company in an industry moving as fast as the cannabis sector, will survive the storm, to see a prime example, just look at Ontario based CannTrust Holdings, who have lost over 75% of their value since late March of this year. However there could very well be a light at the end of the tunnel for CannTrust as they do have a lot to offer should they be the target of an acquisition.
It’s been said by many analysts who are watching the cannabis industry closely that one of the smartest moves at this point for Cronos Group, would be to put their excess liquidity to use, and acquire struggling companies in the sector. CannTrust is one of these companies. Cronos group certainly have the liquidity for the acquisition after receiving a $1.8 Billion equity investment from tobacco giant Altria, so there is no question of if the company has the money. Now buying out CannTrust would make sense for Cronos for three reasons, firstly CannTrust is one of four well known Canadian cannabis cultivators that supplies produce to 10 of 10 Canadian provinces and Cronos is not quite there yet, but with a swift acquisition could certainly propel themselves in the right direction.
Secondly, Cronos has an incredibly strong focus amongst the Canadian growers on the derivatives market. Now, with CannTrust, who are expecting an annual output of 200,000 to 300,000 kilos almost half of their production will be conducted outdoors. The majority of outdoor cultivation, is of low quality and thus will most probably be used for extraction purposes, which would be perfect for Cronos group, as they have a large selection of extraction deals to work with already.
And thirdly Cronos Group is not yet a top ten cannabis player, if royalty and joint venture companies are considered. However if Cronos were to secure the acquisition of CannTrust it would propel the company into the top five in Canada and solidify its place as one of the top players.
James Xing – Walter International