David George-Cosh

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Cronos Group Inc. plans to release the first lab-grown cannabis products to the Canadian recreational market later this year, a move that could usher in a new wave of cheap pot that isn't derived from the plant at all. 

While Cronos Executive Chairman Mike Gorenstein didn't provide specifics, he said this year the company will commercially release products containing cannabinoids created using biosynthesis, an engineering process similar to brewing beer that can make THC and CBD for pennies on the dollar. 

"Ultimately, the cannabinoids are the same whether they're coming from the plant or from fermentation," Gorenstein said in an interview. "They're completely fungible. It's just when you use the rare cannabinoids, you're able to get them in a higher quantity from fermentation than from cultivation." 

Biosynthesis essentially uses simple organisms like bacteria or yeast and coaxes them to become tiny factories that can pump out high-value chemicals like those found in the cannabis plant. The process can then be scaled to create pure cannabis molecules could be made for as low as 10 cents a gram, a fraction of what it costs to grow cannabis plants in high-end indoor facilities, according to a recent report by Raymond James. 

"We're waiting on licencing but one of our biggest initiatives for this year is making sure we can actually bring something to the market," Gorenstein said. 

Unlike its peers in the Canadian cannabis market, Cronos has been a relatively quiet player. The company hasn't made any significant moves since acquiring high-end CBD brand Lord Jones in August 2019 for US$300 million and currently sits on US$1.74 billion in cash. Tobacco giant Altria Group Inc. remains a significant shareholder in the company despite writing down the fair value of their initial investment in the company to about US$800 million, according to recent financial statements. 

Still, the company is relatively small in Canada by design - it controls about two per cent of the Canadian cannabis market, far behind larger companies like Aphria Inc. and Canopy Growth Corp. - but views the country as a testing ground to see what products work and which don't. 

While Canada continues to be Cronos's main revenue generator, Gorenstein is keeping a close eye south of the border. 

Like many of his Canadian-based peers, Gorenstein can't fully participate in the U.S cannabis market given the federal illegality of the drug. Cronos does have a small CBD presence under its Lord Jones and Happy Dance brands as well as its partnership with Altria, but the company's U.S. entry into the THC market remains Gorenstein's top priority. 

"[The cash] is certainly not burning a hole in our pocket," he said. "But we have a huge focus on making sure that we can deploy it in a creative way. And a lot of that is really focused on the U.S."

And while acknowledging that Cronos is one of the most capitalized companies in the cannabis space, Gorenstein isn't worried about funds rotating out of Canada and into the U.S. where it appears that there's more opportunity as Congress appears ready to introduce new bills that could effectively legalize the drug federally. 

"Less capital pouring into Canada may actually be a good thing for the industry," he said. "It may make people make rational decisions. You're gonna have spending be a little bit more measured, and I think that will help the industry reach profitability."

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the ongoing growth of the Canadian recreational cannabis industry. Read more here and subscribe to our Cannabis Canada newsletter to have the latest news delivered directly to your inbox every week.