Cronos Cannabis Co. Will Provide $51M To GrowCo Toward Facility Expansion Fund

Cronos Group Inc. CRON CRON announced on Thursday the expansion of Cronos Growing Company, a cannabis cultivation business of which the Toronto-based company owns 50%.

What Happened

The investment will be funded by a roughly $51 million (CA$70 million) secured non-revolving credit facility provided by Cronos. It will assist GrowCo's expansion of its purpose-built cannabis facility in Leamington, Ontario, that will produce high-quality cannabis flower, the company said in a press release.

The interest rate under the credit facility is equal to the Canadian Prime Rate plus 1.25% and is payable quarterly. Cronos noted GrowCo is not obliged to start repaying the $51 million principal until the quarter after the commencement of sales from the newly constructed area.

In relation to the investment, the GrowCo board of directors will expand to five members, three of whom will be named by Cronos.

Additionally, the company will have the option to purchase up to 70% of the total production from the expanded facility. As of the third quarter of 2024, the joint venture's results will be consolidated by Cronos in its financial statements.

Uunder the four-year supply deal between Cronos and GrowCo and prior to the first sale of products from the newly constructed area, Cronos will have the option to buy roughly 80% of GrowCo’s production. Once first sales from the newly constructed area occur, Cronos will have the option to purchase 70% of all GrowCo's supplies on an annual basis.

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Why It Matters

Cronos said GrowCo has "consistently demonstrated exceptional cultivation performance," highlighting that in 2023 Cresco purchased roughly $21 million of biomass from GrowCo, and GrowCo sold approximately $20 million to third parties.

GrowCo boasts strong gross margins. Cresco expects them to be accretive on a consolidated basis and deliver positive net income and positive cash flow in 2023.

See also: Cronos Cannabis Company Slashes Losses, Reports Highest Quarterly Net Revenue In Q1 2024

"This investment enables GrowCo to increase its production of high-quality cannabis which supports our ambition to expand across the markets we operate in, and add new international growth opportunities where they arise," Mike Gorenstein, chairman, president and CEO of Cronos, said.

What's Next

Completion of construction of the facility expansion is pending obtaining relevant building and occupancy permits and other customary approvals.

The launch of operations in the additional areas at GrowCo will be subject to obtaining the appropriate licenses under applicable law.

Now read: Canadian Marijuana Company Cronos Expands Into UK After Setting Up In Germany’s Nascent Market

CRON Price Action

Cronos' shares traded 0.22% higher at $2.315 per share at the time of writing early afternoon on Thursday.