With most of the states in the US seeking to legalize cannabis, some farmers are now seeing potential in marijuana cultivation. With the decline of US Smoking Rates, Altria Group Inc., a manufacturer of Marlboro cigarettes in the US, invested in Cronos Group Inc. on December 7 for $1.8 billion.
With the option for Altria to take majority control in the future, the partnership may see the company’s US tobacco suppliers shift to cannabis once it is legal, as per Mike Gorenstein, CEO of Cronos based in Toronto. Though there are a few states that have legalized marijuana, it is still federally prohibited.
With the investment by Altria, Gorenstein explained in a phone interview how much it’d help farmers in assisting with an immediate transition in the cannabis cultivation.
Attention to Genetics
Altria spokesman Steven Callahan said that they value the relationships with the thousands of tobacco farmers that they have worked and there is no speculation on any future decisions that they may make. Growing its cannabis in a 120-kilometer facility, Cronos is more focused on the intellectual property and the genetics rather than cultivation as per Gorenstein.
With the Altria deal, the shares of Cronos went up to 22 percent to a market value of $2.3 billion, the fourth biggest pot company. Gorenstein also noted that Altria did not grow their tobacco and said that the model of developing your plants is somewhat difficult to execute well.
With the Altria investment, Cronos boosts in the top 2 of global cannabis companies regarding financial funds and execution competencies as said by Martin Landry, GMP Securities analysts, in a note that printed Monday.
Farmers are already making the change to marijuana with a variation of cannabis that won’t get you high in some parts of the US tobacco belt like Kentucky. If the US farm bill this month with fully legalizing marijuana and its extracts, the shift is expected to continue.
Cannabis to Help Soybean Farmers
With the current trade war between the US and China, Bloomberg Analyst Alvin Tai said that marijuana could also help soybean farmers who have been affected by the Chinese Tariffs. Cannabis farming can make up with the loss in income from the trade war by just 16 kilograms of marijuana which only requires 300 square feet of planting area compared to the 444-acre farm of soybeans, he added.
Cronos is not the only Canadian company that’s seeking to lower its dependence on cultivation favoring to its activities like brands and intellectual properties. Ongoing talks between CannTrust Holdings Inc and the farmers in the Niagara region of Ontario who is also looking to a possible switch from crops to cannabis, said Peter Aceto, CEO, from last month’s interview.
He said that they have spoken to farmers who are eager to make that switch, adding that it’d help CannTrust reach its goal of decreasing its cost of production from 83 cents a gram to 30 cents a gram by outsourcing to farmers. The lowest cost producers in the industry of Canadian marijuana.