Marijuana Stocks Fly High On Cronos-Ginkgo Deal

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Cronos Group

Investors in publically traded marijuana companies had every reason to smile on Tuesday, after Cronos Group Inc. entered a $122 million deal with Ginkgo Bioworks.

News of the partnership, which seeks to extract the active compounds in cannabis that are believed to have multiple medical uses, sent pot stocks on a run for the top. Toronto-listed shares in Cronos gained as much as 16% in early hours of regular trading. Canopy Growth stock, meanwhile, increased 14%, as Tilray moved up 17%.

Cronos Group stock chart

Cronos is partnering with Ginkgo Bioworks to genetically engineer the THC in marijuana. Ginkgo also partners with Cargill Inc., Bayer AG, and Archer-Daniels-Midland Co. The company, which is one the largest medical-cannabis company, hopes that the new deal Ginkgo Bioworks will help it extract and produce important compounds in marijuana that appear in tiny quantities.

The partnership between the two companies will focus on the consistent and scalable production of various cannabinoids such as CBD and THC, among other rarer and lesser known products. Though identical to the cultured cannabinoid compounds that are extracted from traditionally-grown plants, these molecules are created through fermentation by leveraging biological manufacturing power.

Companies like Cronos can make use of lab-engineered cannabis to increase their profit margins since they do not require more care compared with traditional cannabis to grow well. It also appears that most consumers are shying away from traditionally-grown plants as a way of getting high. Vaporizers oils and edibles produced from lab-grown cannabis can also provide more regularity in terms of effect and dosage.

The Chief Executive Officer of Cronos Group, Mike Gorenstein offered the following remarks on the deal: “Cronos Group is building the world’s most innovative cannabinoid platform. The potential uses of cannabinoids are vast, but the key to successfully bringing cannabinoid-based products to market is in creating reliable, consistent, and scalable production of a full spectrum of cannabinoids, not just THC and CBD. We are thrilled to partner with Ginkgo; their biological engineering capabilities and disruptive technology platform are unrivaled. Together we can revolutionize the cannabis industry.”

Under the terms of the deal, Ginkgo will receive approximately $22 million to fund development and research of microorganisms that are capable of creating certain target cannabis compounds in a highly effective and scalable manner. Assuming all milestones are achieved, Cronos is also expected to issue around $100 million worth of common shares in tranches.

“Legal cannabis is a multibillion-dollar industry with no signs of slowing down, but providers will need to innovate to keep up with demand for better products, including those taking advantage of rare and difficult to extract cannabinoids. Engineering strains of yeast that can produce these cannabinoids via fermentation is a perfect fit for our organism design platform and we are excited to be working with Cronos Group as they lead the way to high-quality cannabinoid treatments,” commented Jason Kelly, co-founder and Chief Executive of Ginkgo Bioworks.

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