Cronos catapults higher after saying it plans to enter the US CBD market within the next year

  • Cronos Group CEO Mike Gorenstein on Tuesday said the company would expand to the US within the next year.
  • Bank of America Merrill Lynch upgraded the stock to “buy” from “underperform.”
  • Shares were up more than 15%.
  • Watch Cronos trade live.

Cronos Grou soared more than 15% Wednesday after the Canadian cannabis company announced it plans to launch cannabidiol, or CBD, in the US within the next six to 12 months.

Following the announcement, Bank of America Merrill Lynch gave the stock a double upgrade – to “buy” from “underperform,” with analyst Christopher Carey raising his price target to $US20 a share – nearly 40% above where shares settled on Tuesday.

The timeline for the US launch was shared by Cronos CEO Mike Gorenstein at a Consumer Analyst Group of New York (CAGNY) luncheon on Tuesday.

The announcement comes less than a week after the Food and Drug Administration held a public hearing to gather information about CBD products.

The cannabis industry is growing fast, but some of its future potential depends on how the substance is ultimately regulated. Wall Street thinks that the CBD market, currently $US1 billion, could soar to as much as $US16 billion by 2025.

“In particular, we would expect CRON to focus on topicals and vapour, initially, given the current regulatory framework,” Cowen analysts Vivien Azer and Steven Schneiderman wrote after attending the CAGNY event. “However, Gorenstein commented that CBD would likely lend itself better to edibles and beverages than THC, and thus we look for CRON to enter these segments once deemed permissible for interstate commerce by the FDA.”

Cronos also discussed its partnership with Altria Group, one of the largest producers and marketers of tobacco products. Azer and Scheiderman think the pairing is good for both parties, and expect Cronos to start leveraging the relationship in the near term. In the US, Cronos will have access to Altria’s domestic farmer network, which will position the company to source hemp locally. It will also be able to leverage Altria’s distribution arm, which includes 230,000 retail locations.

Cronos is up 53.7% year, including Wednesday’s gain.

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