Marlboro Maker Investing $2.4 Billion In Marijuana Market

Marlboro Maker Investing $2.4 Billion In Marijuana Market

Marlboro Maker Investing $2.4 Billion In Marijuana Market

Richmond, Va. -based Altria said Friday in a media release that it agreed to pay $2.4-billion to acquire a 45-per-cent stake in Cronos. The deal also includes warrants to acquire additional ownership interest in Cronos at a price of C$19 per share over the next four years, which could raise Altria's stake to 55 per cent.

Cronos first announced that it was in talks with Altria this week.

"Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth", Mike Gorenstein, Cronos's chairman and chief executive officer said in a statement. "And they're seeing a ton of growth", he said in an interview.

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.

The agreement allows Altria to nominate four directors to Cronos' board of directors, including one independent director.

Cronos is a leading player in Canada's cannabis industry, which received full nationwide legalization earlier this year.

Investors seem to be betting that more deals could be coming. Investors, meanwhile, have been pouring money into cannabis companies that operate in multiple USA states, pivoting away from Canada.

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The deal is a "big endorsement" for Cronos and is "reassuring" for the industry, amid rising concerns that pot companies' valuations may be too lofty, Landry said.

Cronos plans to focus on cannabis genetics, innovation and branding, while contracting with farmers to grow the product and working with retailers.

Altria's stock has fallen almost 25% this year and the company is expected to report revenue growth of only about 1% this year and in 2019.

Altria had been assessing market opportunities in the cannabis industry since at least September.

In June, British tobacco giant Imperial Brands was among investors taking a stake in Oxford Cannabinoid Technologies, a United Kingdom-based medical cannabis startup. Constellation Brands Inc., maker of alcoholic beverages, has invested more than $5-billion for control of Canopy Growth Corp., while Molson Coors Brewing looking to create cannabis-infused beverages through a joint venture with Quebec's Hexo Corp.

The Cronos investment follows other deals in this space.

Gorenstein said that Altria has "decades of experience in regulatory, government affairs, compliance, product development and brand management that we expect to leverage, particularly as new markets for cannabis open around the world".

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