Cronos Group has a unique business model that involves industrial fermentation to extract cannabinoids
Recreational marijuana became legal in Canada today and investors are watching closely to see how the change will affect stocks. One stock that stands out for its unique business model is Cronos Group Inc. TSE: CRON, which is listed on both the Toronto Stock Exchange and the Nasdaq.
Like the popular ketchup company Heinz, Cronos aims to use science to get a unique yield from a plant. Heinz relies on genetically designed tomatoes while Cronos will use a fermentation process to extract rare cannabinoids. Also like Heinz which does not grow its own tomatoes, Cronos does not plan to grow its own marijuana in the long run.
Tetrahydrocannabinol, the psychoactive part of cannabis known as THC, is just one cannabinoid found in the complex plant. There are at least seven other cannabinoids that are believed to have health benefits. Cronos plans to make extracting these potential medicines cheaper and more efficient.
The plan scientific and involves industrial fermentation, DNA and microorganisms. If it is successful, Cronos will be able to mass produce cannabinoids for a lower cost than any other company. They would also establish a business model that is easily repeatable in new markets through the use of existing breweries.
Cronos has been tapping the medical marijuana market for some time but for the past several months it has been focused on the recreational market. It secured partnerships that take advantage of recreational use in Canada.
Shares of the company gained 54 percent so far this year. In June, the company reported a quarterly profit of CAD$762,000 on CAD$3.9 million in sales.