Pot luck: shares in medicinal cannabis play Cronos soar 45pc

Shares in medicinal cannabis outfit Cronos surge, despite the company not growing a gram of the leafy stuff. The CEO reveals its recipe for success.

Cronos CEO Rodney Cocks says he has learnt lessons from overseas where successful cannabis companies have shifted away from cultivation. Picture: Aaron Francis/The Australian

Shares in the ‘Amazon of medicinal cannabis’, Cronos Australia, have surged more than 45 per cent, following the group generating record annual revenue.

The company – unlike many of its rival pot stocks, does not grow or manufacture cannabis, operating as a market place instead – posted customer cash receipts of $70m for the year to June 30 – a 245 per cent increase on the previous year.

Its net cash jumped to more than $16m, creating a war chest for the group to plunder the scores of cannabis-focused companies that have sprung up in the past four years.

Investors lapped up the news, with Cronos shares rallying more than 45 per cent at 32c in morning trade on Monday, before closing at 29c with a market value of $151.9m. This compared a flat performance across the broader share market.

Chief executive Rodney Cocks said the group – which merged with fellow medicinal cannabis business CDA Health in a cash and scrip deal last December – was on the hunt for high-growth acquisitions, rather than commit to paying shareholders a dividend.

“We’re differentiated from a lot of the medicinal cannabis companies out there, insofar as we do make money. There is a lot of business in a lot of pain out there and we’re really happy that we have a differentiated business model and a differentiated financial outcome as a result,” he said.

Cronos buys its medicinal cannabis from Australian and Canadian suppliers. (Picture: Mladen Antonov/AFP

“We’re certainly excited about the growth and with that growth gives us a lot of options. Whether that is acquisitions – and we’re always on the lookout for synergistic acquisitions – or reinvesting in organic growth of business. So there is a range of options that a healthy cash balance provides us.”

But Mr Cocks is adamant the group – with listed on the ASX in late 2019 via a $20m IPO at 50c apiece – will not begin to pursue vertical integration and begin cultivating cannabis or manufacturing medicinal products, maintaining its capital-lite structure.

Mr Cocks said Cronos had learnt lessons from overseas medicinal cannabis markets to create a sustainable, profitable business.

“It’s really interesting to see that the companies that have made it have made a strategic shift away from cultivation. It’s one we’ve taken lessons from and sort of vindicates our decision and our strategy around being asset-lite. But we’re also looking at tech places in the industry moving forward as well.”

It did not take long for fledgling biotechs to try to capitalise on the pandemic. In February 2020 – when Australians could still travel overseas freely – companies from hand sanitiser to surface spray manufacturers were lining up to spruik their wares as Covid-19-­busters, with other businesses soon quickly tapping into the burgeoning medicinal cannabis trade, saying it could relieve ailments associated with Covid-19.

Mr Cocks said the explosion in cannabis-related companies had attracted people looking for alternatives to opioid-based pain relief.

“We’ve seen an increase from very low almost zero numbers through to 100,000 patients. In terms of the conditions we’re seeing … based on anonymised patient data, about 80 per cent of our patients, they’re coming from a position of chronic pain.

“Typically, they’re on opioid-based medicines, they’re suffering side effects and they’re looking for alternatives. And Covid allowed people to explore alternatives as they were sitting at home. A lot of that has flowed through to demand.”

Cronos is now planning to open its second warehouse in Melbourne in coming months that will complement its existing facility on the Gold Coast and cover all of Australia, allowing same day shipping to pharmacies across capital cities.

Almost half of all pharmacies in Australia have accounts on Cronos’ CanView platform, which sold a record 486,000 products last financial year – a 270 per cent increase on the previous corresponding period.