High hopes as Cronos mulls listing

Medicinal cannabis play Cronos Australia is hoping to be the latest locally listed player in the space.

Medicinal cannabis play Cronos Australia won’t grow the leafy stuff. Picture: Bloomberg

Medicinal cannabis play Cronos Australia is hoping to be the latest locally listed player in the space, going up against more than 20 local stocks leveraging the changes in legislation but with one difference.

It won’t grow any of the leafy green.

Unlike the bourse’s largest pot stock Cann Group, which is developing a huge marijuana greenhouse in regional Victoria, or Elixinol Global, which is awaiting approval to grow in NSW’s Northern Rivers, Cronos scrapped its cultivation plans in favour of a product and marketing-centred approach.

Chief Rodney Cocks says the model makes the company more “agile” and “flexible” as the market evolves.

“We examined global dynamics in the industry in relation to cultivation and production, and have come back with a differentiated strategy which has been well received by the market,” he told The Australian.

It’s a marked shift from the company’s first ASX tilt at the end of last year — when the group touted licences for research, growing and manufacturing, and put forward plans to build a growing facility on a site in Daylesford.

The group this week launched its $20m IPO at 50c apiece, a significant reduction on its hopes at the end of last year.

But the change reflects a shift in the sector away from the pot stock euphoria at the end of last year.

In the 12 months since its last attempt, Australian competitors have emerged, patient access numbers have risen and cannabis-related stocks have mostly pulled back but, paramount to its latest run to the boards, Cronos notes that investors are more informed about the sector.

“The cannabis investor not just in Australia but also offshore, has become more discerning,” he says.

“There are still companies coming to market with what we think is not the right strategy and that is why we have really pushed ourselves to bring a differentiated strategy to the market, which we think over the long term will not only be sustainable but will bring significant shareholder value.”

The company is a joint venture with the $4.5bn Nasdaq and Toronto-listed Cronos Group, and hopes to leverage its expertise in the sector for the Australian market and into the Asia-Pacific.

“We are working with partners within the Cronos Group and beyond in order to secure product from a cultivation and manufacturing point of view, enabling us to focus on where we see the real value-add and margins downstream,” Mr Cocks said.

The 50:50 joint venture provides Cronos access to parts of Cronos Group’s IP, via a sole territorial licence, and operational know-how with Cronos director Jason Adler and Cronos Group chairman and chief Mike Gorenstein both on the local firm’s board.

With Australia as its “beachhead”, Mr Cocks says Cronos Australia is setting its target on the rest of the Asia-Pacific — starting with our trans-Tasman neighbours before venturing further to Southeast Asia.

He points to growth rates in Therapeutic Goods Administration approvals of medicinal cannabis under the Special Access Scheme as the best barometer.

In December last year, about the time of the company’s first IPO attempt, the number of SAS category B approvals was 490. Last month, the regulator approved 2916.

“We are encouraged by that increase, which to us infers a better understanding of the use of the product and the type of products that are sold in the market,” Mr Cocks said.