What the Cronos-MedMen Joint Venture Means for Both Marijuana Companies

cronos medmen partnership
iStock.com/AmazingDream

U.S. Marijuana Company Joins Hands With Canadian Marijuana Producer

News flash, my friends! One of Canada’s largest marijuana companies, Cronos Groups Inc. (NASDAQ:CRON), has just joined hands with one of America’s popular marijuana brands, MedMen Enterprises. (otherwise known as MM Enterprises USA, LLC).

The former is the only Canadian marijuana company publicly listed on a U.S. stock exchange. The latter is a privately held U.S. company planning to list on a Canadian stock exchange. The Cronos-MedMen joint venture is consequential; let me explain.

After the news was made public on Monday morning, Cronos stock shot through the roof.

Take my word on it that, were MedMen stock publicly traded, we’d have seen a similar spectacular rally in its price. Why? Because this joint venture creates a synergistic opportunity for both companies, one that they’ve long been waiting for.

Advertisement


Chart courtesy of TradingView.com

Let me shed more light on why this peculiar union will hold significance for investors.

MedMen’s expertise lies in marijuana retail. Cronos’s strengths lie in marijuana production. The move has been made at a time that competition is about to get stiffer in the marijuana industry. So, by joining forces, the two create a company capable of fighting on both fronts.

But there’s more to this alliance than just that.

The joint venture will give birth to a subsidiary of sorts called MedMen Canada Inc., led by Cronos in Canada. On paper, the partnership allows both companies to hold a 50/50 stake in it. (Source: “Cannabis Giants Join Forces in Cross Border Venture,” Canadian Newswire, March 19, 2018.)

But from where I see it, the balance is slightly tipped in MedMen’s favor.

For Cronos, the partnership is an opportunity to step up its game in branding and retail. Cronos gets access to MedMen’s sales mastery, a department where it lags its better-established Canadian peers.

The Canadian company may also get to roll out its Cannabis products at MedMen’s U.S. stores in two of the largest legal markets south of the border: California and Nevada.

But the deal offers much greater value to MedMen. The alliance gives the American company access to the Canadian sales channels.

Mind you, Canada has one of the fastest-growing marijuana markets in the world. As we inch closer to the full legalization day, the Canadian market is set to become the biggest hub of marijuana production and sales activity.

Obviously, many U.S. marijuana companies are wishful of entering the Canadian market. But here’s the catch.

As I’ve discussed before, Canadian laws do not allow any company to list on their stock exchange if they run a business deemed illegal by the federal government in its home country.

It simply means that MedMen cannot enter Canada on its own or take the conventional route of an initial public offering (IPO). It will need a partner.

What MedMen has been planning all along is a reverse takeover. The initial plan was to create a shell company in Canada, get it listed on a Canadian exchange, and acquire it in a cross-border takeover—effectively achieving a public listing in Canada via this indirect channel. (Source: “US cannabis companies look to Canada when going public,” CNBC, January 24, 2018.)

But more recently, MedMen began seeking a local partner to achieve the same objective. Cronos finally came forward to lend a hand.

Analyst Take

In a nutshell, the Cronos-MedMen joint venture strengthens their positions at home as well as in their respective neighborhoods.

For holders of Cronos stock, in particular, the partnership further levels the playing field for Cronos against its bigger rivals, Canopy Growth Corp (OTCMKTS:TWMJF, TSE: WEED), Aurora Cannabis (OTCMKTS:ACBFF,  TSE:ACB), and Aphria Inc (OTCMKTS:APHQF, TSE:APH).

Keep close tabs, my friends, for the Cronos-MedMen joint venture may create a marijuana juggernaut that the marijuana heavyweights may find hard to tackle.