Marlboro's Parent Company Altria Buys Massive Stake In Cannabis Firm Cronos

Roman Schwartz
December 8, 2018

The Denver-based brewing company said earlier this year that its Canadian unit would partner with the Hydropothecary Corporation "to pursue opportunities to develop non-alcoholic, cannabis-infused beverages for the Canadian market following legalization".

One of the world's biggest tobacco companies is diving into the cannabis market with a $2.4 billion investment in Cronos Group, a Canadian medical and recreational marijuana company.

That will give Altria a 45% stake in the company, with an option for Altria to increase its stake to 55% over the next five years.

Altria also agreed to make Cronos its exclusive partner for global cannabis opportunities. As part of the deal, Constellation also received new warrants which, if exercised along with its existing warrants, would increase its ownership in Canopy beyond 50 per cent.

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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. 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. Peers in the marijuana sector also gained, with Aurora Cannabis Inc. rising as much as 11 percent, Aphria Inc. adding 14 percent, Canopy Growth Corp. rising 7.3 percent and Tilray Inc. gaining 4.8 percent.

An investment from Altria is expected to provide Cronos Group an opportunity for growth and expansion.

Coca Cola bottle and glass on picnic table
Coca Cola bottle and glass on picnic table

After the deal is closed, Altria will have the right to nominate four directors, including one independent, to Cronos' board comprising seven directors in total.

The deal is expected to close in the first half of 2019.

Prior to Friday's announcement, Cronos had confirmed reports that it was in talks with Altria.

Shares of Altria were up 1.2 percent at $55.06 in afternoon trading, while US -listed shares of Cronos were up 22 percent at $12.80.

According to a news release, Altria's resources will better position the Cronos Group "to support cannabinoid innovation, create differentiated products and brands across medicinal and recreational categories, and expand its global footprint and growing production capacity".

"I think it shows that the US players - Altria and Constellation - will not buy into a USA cannabis company until it becomes federally legal in the US", said Mr.

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