Cronos Group (NASDAQ: CRON) and one of the biggest U.S. integrated cannabis companies, PharmaCann Inc., announced that they’d signed an agreement whereby a Cronos Group subsidiary is set to buy an option to acquire an ownership stake of roughly 10.5% in PharmaCann on a wholly-diluted basis. There are several factors that’ll determine this Option exercise, including the cannabis legalization status in the United States and regulatory approvals in areas where PharmaCann is operating.
PharmaCann has a vast geographic footprint in the United States and has managed to build a scalable, effective and efficient business model, including 23 dispensaries and 6 production facilities housed under the Verlife brand, which are spread out across six license states: Massachusetts, Pennsylvania, Maryland, Ohio, Illinois, and New York. PharmaCann will continue to invest in the company’s brand development and manufacturing infrastructure to capitalize on the consumer retail and B2B wholesale opportunities.
Cronos Group’s CEO and President, Kurt Schmidt, said that their growth strategy in the U.S mainly focuses on providing their shareholders with long-term value by assembling an intellectual property portfolio, creating a top-of-the-class brand, and positioning the company to deploy its products into the United States market via opportunities and investment with U.S leaders and authorities that share the company’s commitment and vision to responsibly distribute CBD-based products that help make people’s lives better.
Mr. Schmidt further stated that they were attracted to PharmaCann because of its compelling licensed retail and manufacturing footprint, strong track record, and disciplined capital allocation.
Transaction Terms
Under the Agreement terms, Cronos’s total purchase price was obligated to pay for the Option was roughly $110.4 million. Cronos deposited this via a 3rd-party agent who was then given the responsibility of paying it directly to the shareholders of PharmaCann. The Option, however, is still subject to certain anti-dilution adjustments.
Following the exercise of this Option, PharmaCann and Cronos Group will enter into a commercial agreement that’ll allow both parties to offer their CBD-based products via either party’s distribution channels.