Cronos, a Canadian marijuana company, announced on Friday that it was buying access to the U.S. CBD market by acquiring Redwood Holding Group for $300 million. Redwood Holding Group is the company behind one of the most popular CBD beauty products brand Lord Jones.
The Lord Jones brand sells CBD-infused lotions, bath oils and salts, as well as gummies. This brand was the first CBD-products line to secure a spot on the shelves of the beauty retailer Sephora.
This acquisition gives Cronos a foothold in the CBD market which is growing rapidly throughout the U.S. This growth literally exploded last year when Congress passed the 2018 Farm Bill in which hemp and its products became legal across the U.S. After the announcement of the deal, the shares of Cronos closed the trading week on a 9 percent gain.
Robert Rosenheck and his wife Cindy Capobianco founded Lord Jones back in 2015. Once this acquisition by Cronos is completed, the duo will join Cronos during the third quarter of this year when the deal is expected to be finalized.
Mike Gorenstein, the CEO of Cronos Group, said in a press statement that his company would do everything possible to preserve the integrity that Rosenheck and his wife Capobianco had worked so hard to create for their brand. He added that Cronos would learn from Lord Jones while also using its resources to leverage a stronger position in the CBD market.
Of the $300 million sum agreed as the cost of the acquisition, $225 million will be paid to the sellers of Redwood Holding Group in cash. The balance of that sum will be in the form of newly issued shares in Cronos Group.
It should be remembered that Cronos Group accepted $1.8 billion from tobacco giant Altria towards the end of last year. That deal gave the tobacco company a 45 percent ownership stake in the pot company.
It is widely believed that the tobacco company wanted to shore up its market position by diversifying into the cannabis space given the dwindling sales of tobacco products. In turn, Cronos would benefit from the extensive experience that Altria has in distributing its products and navigating the often turbulent regulatory waters in the U.S and around the world where the company has subsidiaries.
Industry analysts believe that other CBD industry players, such as Canopy Rivers Inc. (TSX.V: RIV) (OTC: CNPOF) and ChineseInvestors.com Inc. (OTCQB: CIIX) will feel challenged by the deal pulled off by Cronos Group and will also look for ways to make significant inroads into the lucrative U.S. CBD market.
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