Cannabis company Cronos Group confirms merger talks but says it's too early to say if it'll reach a deal

By Steve Gelsi

Cronos Group Inc.'s stock fell Friday after the Canadian cannabis company said it is reviewing unsolicited indications of interest from potential buyers but is in the early stages of any possible deal.

The company said late Thursday that it has received "a number" of inquiries about "a potential transaction involving Cronos." It added that it can make no assurances about any deal announcements.

Cronos (CRON.T) fell 0.5% in regular trades Friday despite gains in the broad equities market.

Reuters reported late Thursday that Cronos was working with a financial adviser and that U.S. cannabis company Curaleaf Holdings was among the potential buyers. Cronos is backed by tobacco giant Altria (MO), which owns 41% of its stock after investing $1.8 billion in the company in 2018.

Curaleaf Holdings said Friday that it does not comment on market speculation.

"The company does not intend to make further comment unless required by law," Curaleaf said in a statement.

An Altria spokesperson did not immediately return a phone inquiry from MarketWatch about a potential Cronos deal.

Any potential deal would likely be made with Curaleaf stock, Jefferies analyst Owen Bennett said in a research note viewed by MarketWatch.

If Altria decides to convert its ownership in Cronos to Curaleaf stock, it "could provide a massive endorsement to Cura and the future of the U.S. industry, in turn attracting more institutional ownership," Bennett said.

Jefferies would support the deal but said it offers little cost-savings benefits since the two companies don't have overlapping businesses, he said.

"For Curaleaf, and its long-term global ambitions, as well as potential near-term institutional ownership, assuming little premium to cash value, we would be supportive," Bennett said. "For Altria, while we think they would want out of Cronos, with a cash deal unlikely, we're doubtful they would take shares in an MSO at this stage. Huge for U.S. sentiment if they did though."

Also Read: Canopy Growth's stock pops after it reveals latest plan to enter U.S. cannabis market

The deal talk comes amid potential consolidation in the Canadian market as supply has outpaced demand for cannabis and depressed stock prices throughout the sector.

Hexo's former chief financial officer told MarketWatch he expects more deal-making in the Canadian cannabis sector after the company was acquired by Tilray Inc. (TLRY).

Also Read: As Tilray buys Hexo, former exec sees more consolidation ahead in Canadian cannabis

Overall, cannabis stocks have been moving down sharply in 2023 amid dim prospects for federal legalization in the U.S. and oversupply in the Canadian market.

Cronos stock is down 26% in 2023, compared to a 29.6% drop by the ETFMG Alternative Harvest ETF (MJ) and a 33.2% loss by the AXS Cannabis ETF (THCX). Curaleaf stock is down 19.5% so far this year.

Also Read: Cannabis company TerrAscend draws kudos from analysts with Toronto Stock Exchange listing on tap for next week

-Steve Gelsi

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07-07-23 1310ET

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