Imelda Cotton
November 7, 2019
Medicinal cannabis company Cronos Australia (ASX: CAU) debuted on the ASX today following an IPO which raised $20 million at $0.50 per share.
The company opened on Thursday down 30% at $0.355 before lifting slightly to trade at $0.395 early afternoon.
Cronos joined about 30 other stocks in the sector and intends to become a leading supplier of premium THC and CBD products in Australia’s emerging medicinal cannabis industry.
The company has entered the market with operator licences from relevant Australian authorities which allow for the import, export, cultivation, manufacture and research of cannabis.
Cashflow highs
The company is targeting a route to early cashflow highs through the proposed importation and sale of medicinal cannabis products sourced under supply agreements, such as the in-market brand Peace Naturals, developed by Canada’s Peace Naturals project and currently sold in Canada and Germany.
At the same time, it will be developing its own Australian-branded THC and CBD medicinal cannabis products for distribution throughout Australia and target export markets such as New Zealand and the Asia Pacific.
The company has a team in Hong Kong to conduct business development activities in Asian markets as laws regarding medicinal cannabis products in those markets continue to evolve.
Cronos chief executive officer Rodney Cocks said the IPO was an opportunity for investors to become part of a market-ready medicinal cannabis company.
“This offering is an exciting step for Cronos as we work to develop Australian cannabis products and brands to respond to both the domestic and international demand as the local and regional markets continue to evolve,” he said.
Outsourcing plans
Mr Cocks said Cronos will be following an “asset-light” business model, under which the cultivation and manufacturing of medicinal cannabis is planned to be outsourced to domestic and international companies.
“[This] strategy will give us the flexibility and agility to respond to a rapidly evolving market and allow us to focus on the development of a range of medicinal brands and products,” he said.
Joint venture
Cronos was established as a 50:50 joint venture between global CBD company Cronos Group Inc and a Melbourne-based private equity firm controlled by two executive directors of Cronos.
The company will have access to Cronos Group’s intellectual property including a selection of cultivars from the group’s genetic bank of 140 cannabis cultivars, as well as licences in respect to trademarks, processes and designs.
Additionally, Cronos will be able to leverage the group’s marketing, licencing, design, production and manufacturing expertise.
Cronos currently has supply, manufacture and research agreements in place with US-based CBD ingredient manufacturing business Mile High Labs and MediPharm Labs Australia for the potential manufacture and supply of medicinal cannabis products under its own branding.
It is also working with Agriculture Victoria Services bioscience facility regarding research in relation to genetic material of cannabis which may lead to commercialisation opportunities.
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