Altria investing $2.4B in Canadian cannabis producer Cronos

Altria investing $2.4B in Canadian cannabis producer Cronos

Tobacco giant Altria jumped into the cannabis business Friday morning, with a $1.8 billion deal for Canada's Cronos Group that raises doubts about the vertically integrated approach of most other pot companies.

The Virginia-based parent of the company behind Marlboro, Parliament and other cigarette brands will acquire a 45 per cent ownership stake in Cronos with the initial investment announced Friday.

Altria can also invest up to a further $1.4 billion to increase its ownership stake in Cronos to 55 per cent, under the arrangement.

"Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria", Howard Willard, Altria's chairman and CEO, stated in an announcement.

"Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth", said Mike Gorenstein, Cronos Group Chairman, President, and Chief Executive Officer.

Altria is paying 16.25 Canadian dollars per share in cash, or about US$12-a 40% premium over Cronos stock's recent trading level on the Toronto exchange, where it dual-lists with the Nasdaq.

As part of the agreement, Altria will be able to nominate four members to Cronos Group's board of directors.

As well, the number of countries that have legalized medical cannabis continues to grow, with South Korea among the latest to give the green light.

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One of the largest tobacco companies in the world is getting into the cannabis game. The company could also be positioning itself for the possible legalization of marijuana across the U.S., Quartz added.

The value of publicly-traded Canadian cannabis companies had soared leading up to October 17, when sales of cannabis became legal under rules and regulations established by Ottawa and the provinces.

"We believe an investment of this magnitude provides overall legitimacy to the industry as a whole and should represent a positive catalyst for the sector", he said. The move will help it tap into a customer base outside cigarette smokers, as cigarette smoking declines in the U.S.

That would mean Altria's investment would be in the same league as the US$4b spent earlier this year by Constellation Brands to acquire shares of Canopy Growth Corp., another Canadian pot producer.

Cronos plans to prioritize research and development, innovation and developing brands.

In February, Pyxus bought controlling stakes in two Canadian marijuana producers, Canada's Island Garden and Goldleaf Pharm.

Rapid growth in the cannabis market is expected to continue as legalisation expands in the USA and social norms change.

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