Following a new development, PI Financial analyst Jason Zandberg has raised his price target on Cronos Group (Quote, Chart TSX:CRON, Nasdaq:CRON).

This morning, Cronos Group and Ginkgo Bioworks announced they will partner to produce cultured cannabinoids, which they believe have multiple medical uses, including for the treatment of nausea and chronic pain.

“Cronos Group is building the world’s most innovative cannabinoid platform,” Cronos CEO Mike Gorenstein said. “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 tetrahydrocannabinol and cannabidiol. We are thrilled to partner with Ginkgo; their biological engineering capabilities and disruptive technology platform are unrivalled. Together we can revolutionize the cannabis industry.”

Zandberg says this is a move with expansion potential.

“Achieving a cost effective way to produce trace cannabinoids at scale would have significant value to Cronos and could be used to formulate unique medicinal products,” the analyst says. “Furthermore, Gingko’s technology, once perfected, could be duplicated in other jurisdictions (Canada, internationally) at relatively low capex.”

In a research update to clients today, Zandberg maintained his “Buy” rating on CRON, but raised his one-year price target on the stock from $12.00 to $15.00, implying a return of 17.1 per cent at the time of publication.

Zandberg thinks Cronos Group will generate EBITDA of $2.02-million on revenue of $27.7-million in fiscal 2018. He expects those numbers will improve to EBITDA of $22.8-million on a topline of $85.4-million the following year.

The analyst explained the reasoning behind the price target bump.

“The increase is due to the expansion of multiples within the cannabis space since the Constellation / Canopy announcement in mid-August,” he said. “We continue to believe that Cronos Group represents one of the best cannabis companies based not only on its superior innovation (including this partnership) but also its strong sales potential in Canada and in International medical markets. Our target represents an EV/EBITDA of 48x based on our FY20 estimates (previously 36x).”