HOUSE_OVERSIGHT_024837.jpg

COWEN
COLLABORATIVE INSIGHTS
February 25, 2019

Cronos Group / Ginkgo Bioworks (September 2018; Valued Up to $122MM)

Cronos Group is a vertically integrated Canadian cannabis company that operates two licensed producers. In addition, the company has developed an assortment of cannabis varietals and has amassed an extensive database on various cannabinoids and their properties. Boston-based Ginkgo Bioworks is a synthetic biology company that has developed a cutting edge, automated platform for biological engineering and fermentation. Using synthetic DNA to modify yeast and other organisms, the company endeavors to produce large amounts of various rare strains through this more efficient, lower-cost, novel process. Indeed, as we asserted in the MO/CRON note (link), we believe that this strategic partnership was integral in informing the entry of the largest tobacco player in the U.S., into the legal global cannabis market.

By way of background, in September 2018, Cronos and Ginkgo announced an agreement to produce cultured cannabinoids. Ginkgo is tasked with developing strains of yeast that can produce eight target cannabinoids. Cronos would then handle large scale production and distribution of those cultured cannabinoids. The total agreement is valued at $122MM; this includes $22MM to fund R&D, and up to $100MM of CRON common shares in tranches in accordance with production milestones. More specifically, the tranches will be issued once each of the target cannabinoids can be produced for less than $1,000/kg of pure cannabinoids at a scale of >200 liters as follows: THC (20%), CBD (15%), THCV (15%), CBC (10%), CBG (10%), CBGV (10%), CBDV (10%), and CBCV (10%). Cronos and Ginkgo expect to reach the milestone for these eight strains within three years.

Figure 12 Cronos and Ginkgo Partnership to Produce Eight Targeted Cannabinoids at Scale

[Table]
Target Cannabinoid | Milestone Shares Issued | %
THC(A) | 2,934,981 | 20%
CBD(A) | 2,201,235 | 15%
CBC(A) | 1,467,490 | 10%
CBG(A) | 1,467,490 | 10%
THCV(A) | 2,201,235 | 15%
CBGV(A) | 1,467,490 | 10%
CBDV(A) | 1,467,490 | 10%
CBCV(A) | 1,467,490 | 10%
Total | 14,674,903 | 100%
Source: Cowen and Company

[Right Sidebar Watermark]
This report is intended for michael.cella@cowen.com. Unauthorized redistribution of this report is prohibited.

COWEN.COM
21
HOUSE_OVERSIGHT_024837