Analyst: Cronos-Redwood Deal 'Just The Tip Of The Iceberg'

Cronos Group Inc CRON on Friday announced a $300 million buyout of U.S. CBD company Redwood Holdings, owner of CBD brand Lord Jones.

Cronos shares traded lower by 5% in a weak market on Monday, but Bank of America analyst Christopher Carey said the buyout is a shrewd move by Cronos and will likely be the first of many deals and announcements that will be part of the company’s CBD strategy.

What To Know

Lord Jones makes and distributes CBD-based products using hemp-derived oils. Lord Jones is focused on prestige products, with price points of up to $100 per unit. It’s skincare and beauty products are focused on the premium market, including a deal to distribute at 170 Sephora stores.

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Carey said Cronos CEO Mike Gorenstein and director Jason Adler already hold indirect stakes in Redwood through their cannabis investment fund Gotham Green Partners. Carey said Crons should continue to look to Gotham’s portfolio for potential acquisitions, starting with other CBD plays.

Why It's Important

“We view LJ as just the tip of the iceberg for Cronos US CBD; indeed, the much bigger opportunity has yet to be unveiled, which we believe will be a potentially significant launch of CBD products into Altria-familiar channels (230,000 US distribution points), namely convenience stores,” Carey wrote in a note.

Carey said the Altria Group Inc MO $1.8 billion investment in Cronos in late 2018 gives Cronos one of the most attractive balance sheets in the fledgling cannabis space. He said Cronos can continue to use its financial flexibility to aggressively grow its business through moves like the Redwood buyout.

Bank of America has a Buy rating and $19 price target for Cronos. The stock traded around $13.14 per share at time of publication.

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Photo courtesy of Lord Jones.