CFN Media Interviews The Cronos Group
December 6th, 2017
News, Top News
The Cronos Group is a vertically integrated cannabis company with unique value and distinctions over its peers. With 100% stakes in two of Canada’s licensed producers, as well as interests in other operations, Cronos is emerging as an industry leader in both cultivation and brand development. The company’s recently reported Q3 financial results are astounding and included a 962% increase in Q3 2017 revenue over the comparable prior year period, strengthened liquidity position by $72.3 million since the start of Q3 2017, and positive cash flow from operations in the quarter ended September 30, 2017.
CFN Media sat down with Michael Gorenstein, CEO, Chairman, and President of The Cronos Group, at the recent MJ Biz Con in Las Vegas to learn more about the company’s impressive growth and its dedication to setting the standard for cultivation practices around the world.
Rachelle Gordon: What is the history of The Cronos Group and how did the company grow to where it is today?
Michael Gorenstein: Cronos used to be a public investment vehicle. They had taken pieces of a bunch of different licensed producers in Canada and subsequently underperformed. The company quickly dropped in terms of stock price, close to insolvency. We saw an opportunity to change it from an investment model and to build it into an actual operating company with a global platform for cannabis. I made an investment, joined the board a few years ago, and about six to nine months later I took over as CEO and started changing the strategy.
RG: What are the two licensed producers you have 100% ownership of?
MG: Peace Naturals was the first LP granted under the Canadian Marihuana for Medical Purposes Regulations (MMPR), now called the Access to Cannabis for Medical Purposes Regulations (ACMPR). We focused Peace Naturals on the global medicinal market. Those products are already being shipped to the German Pharmaceutical Network with 12,000 pharmacies throughout Germany that we distribute through. We are building the largest, purpose built, indoor facility at Peace Naturals at 286,000 square feet. That’s in addition to the other 40,000 square feet of indoor production space and a 28,000 square foot greenhouse.
In British Columbia, we have OGBC, short for Original BC. That is our recreational platform. It’s in the Okanagan Valley, which has really been the area, from the heritage perspective, that has produced some of the best cannabis in Canada. If you’ve heard of “BC Bud,” that’s the Okanagan Valley and we will continue to build out our 31 acres there. It’s a beautiful area with a great climate for growing and we are fortunate to have an experienced team managing that operation.
Cronos also holds a minority stake in Whistler Medical Marijuana Corporation, which we consider to be a long-term core asset. As a strategic partner, Whistlers is currently the only organic LP. They offer premium craft cannabis products and they’re located on Whistler Mountain. They’re currently expanding into a new 60,000 square foot facility.
RG: What distinguishes Cronos from its potential competitors in the space?
MG: We’re a true global company. We don’t think ourselves as a Canadian company that will simply export or do business elsewhere. We see this as a global ecosystem. We started in Canada, but we will produce and distribute wherever it’s most efficient. We will go anywhere in the world that we think is best for Cronos Group and our shareholders. You’ve already seen that with us being the first into Germany and now being the first to have international production base in Israel. That is what distinguishes us – globalization.
RG: How are you planning to attack the quickly-emerging cannabis market?
MG: Rather than trying to build our own distribution network from the ground up, we think it makes sense to leverage existing distribution networks. For example, in Germany we signed a five-year exclusive deal with Pohl-Boskamp, a 182-year-old pharmaceutical company. They distribute their own products in 12,000 pharmacies in Germany alone. It gives us instant access.
On a global scale, it’s important to have sustainable and scalable production. In Israel, we have five thousand acres and a thousand on-site skilled workers. This scale allows us to produce at a much lower cost than in Canada, because of the favorable climate conditions. Continuing to setup these global production bases that allow us to provide affordable medicine is really important.
RG: What is the strategy to build iconic cannabis brands as well as providing patients with personalized care through your own and capitalized producers?
MG: We believe it’s vital to distinguish and to uniquely position brands based on identifying key consumer targets for each platform. Peace Naturals is focused solely on serving medical patients and that will not change when recreational cannabis is legalized in Canada in July. Peace will remain a caregiver brand, and that persona is reflected in the people we hire and in the way that we train our customer care staff. We want employees that are passionate about helping others with medicinal cannabis. Our employees can relate to patients, and some of them have had their own family members struggle with opioids or cancer in the past where cannabis helped them.
On the recreational side, we have two areas that we’ll target initially with two different brands at launch. One’s a mainstream brand catering to a much wider reach. The other is a premium brand, which is not meant to be large scale – it’s more of a craft line.
RG: How is research and development coming into play with your operations?
MG: We are cultivators, but while we grow, a lot of what we’re focusing on is R&D.
We think that the future really comes down to unlocking the science and being able to target usage occasions. Our goal is to create formulated products that are perfect for everything from being active and social with friends, to relaxing at home alone. Our brand promise is to deliver consistent effects and flavor profiles that consumers love.
RG: How does The Cronos Group plan to seize the projected growth of the global cannabis markets?
MG: We’ll have, from what we’ve publicly announced, 40,000 kilos by next summer. But it’s reasonable to assume there will be significantly more expansion coming. There is a lot of infrastructure out there being used for lower margin products and we think the best way to scale is to use existing infrastructure. It’s merely a matter of repurposing it while leveraging our IP for cannabis. You’ll see massive capacity jumps when we are able to do things like that. You can go from 45,000 kilos to a million kilos by leveraging outside expertise.
RG: Why should people invest in Cronos?
MG: From a company perspective, you’re investing in the global growth of the industry. We attack it very aggressively on a global scale, but you’ll hear that from everybody. I think it’s important to judge companies based on their track record and the decisions they make. I took over as CEO because as an investor in the space I was unhappy with the way I was being treated. The capital markets in this industry are not like your typical capital markets. The average investor is getting nothing close to the value that the other private and institutional investors, or quasi-institutional investors are getting. We were frustrated with that.
We went through that issue as investors. That’s why we took over and changed management – in order to guarantee shareholders that we treat you the same way that we treat ourselves. As far as investments, we don’t do convertible debt. We don’t give out warrants. We do equity raises at as tight of a discount as possible. Every single time we do a deal, I want shareholders to be able to look at the details and feel like they haven’t been mistreated. That’s the approach we’ve had since day one.
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