Altria investing $2.4B in Canadian cannabis producer Cronos

Kenny Grant
December 8, 2018

Altria will pay an additional $1.4 billion for warrants that, if exercised, would give Altria a 55% ownership stake in the Toronto company.

"Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria", said Howard Willard, Altria's Chairman and Chief Executive Officer.

"This is showing that the entire industry is viable and a huge growth opportunity". Constellation brands said at the time that the deal would "position Canopy Growth as the global leader in cannabis production, branding, intellectual property and retailing". The stock closed at $17.06, up 22 per cent.

Many alcoholic beverage, tobacco and other consumer products companies may want to bet on cannabis.

Coca-Cola (KO) was rumored to be considering an investment in Canadian cannabis company Aurora (ACB). The offer represents a 16.2 per cent premium to the stock's Thursday close on the Toronto Stock Exchange. The decision by Altria to go ahead with an investment in Cronos shows that Altria is serious about investing in marijuana as a new growth area as sales of traditional cigarettes slow.

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The entry of Altria - owner of Marlboro maker Philip Morris USA and an investor in alcohol giant Anheuser-Busch InBev - is another major milestone for the marijuana sector, coming on the heels of Constellation Brands' bombshell investment in Canopy Growth in August.

Altria's products, however, have lost significant ground to e-cigarette maker Juul Labs Inc over the past year, as have e-cigarette brands from other major tobacco companies. Altria declined an interview request and didn't speak on a conference call Friday held by Cronos.

Gorenstein added that Cronos will use the investment from Altria to expand its distribution and infrastructure around the world and also boost its investments in research and development for new brands and products. It said it was doing so because it doesn't "see a path to leadership with these particular products", as well as the regulatory burden it faces to bring them to market.

Altria is also in talks to take a minority stake of between 20 percent and 40 percent in Juul, sources told Reuters last month. A wave of cannabis producers have set up shop in Canada, where recreational use was legalised earlier this year. But Cronos is not among Canada's largest cannabis producers - it generated just $3.8-million in revenue in its most recent quarter. It also plans to focus on more reduced-risk tobacco products. Altria shares were up about 2.5 percent. "It's worth noting that Altria does not grow their own tobacco".

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