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Why Cannabis Producer Cronos Jumped 11.9% on Monday

By Brian Orelli, PhD – Mar 19, 2018 at 5:49PM

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A cross-border deal has investors excited.

What happened

Shares of Cronos Group (CRON -2.45%) closed up almost 12% on Monday after the Canada-based company announced a deal with privately held U.S.-based MedMen Enterprises to launch its MedMen stores in Canada.

So what

Cronos and MedMen are setting up a 50-50 joint venture called MedMen Canada. Because financial details of the deal weren't disclosed, it's hard to know exactly how much Cronos will benefit from the deal.

Marijuana on top of small Canadian flags

Image source: Getty Images.

It appears that Cronos struck the deal to help it launch retail stores quickly to make use of its 350,000 plus square feet of production facilities as Canada's federal government moves to legalize adult use of marijuana later this year.

MedMen is the largest cannabis retail chain in California and the company also has stores in Nevada and New York, although it's hard to know whether there's high cross-border name recognition in the budding retail marijuana business. Nevertheless, MedMen's experience with setting up retail stores should prove useful even if the brand itself doesn't bring people in the door.

The joint venture also plans to develop branded products and conduct research and development activities.

Now what

Without any financial details -- or even details like how many stores the pair plans to open -- it's hard to value the deal, but given the wide-open marijuana market in Canada, where speed is likely to be important, having an experienced partner could be very beneficial to Cronos' ability to take early market share.

Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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