Marlboro maker places $1.8 billion bet on marijuana

Andrew Cummings
December 8, 2018

Marlboro cigarette maker Altria Group Inc announced a $1.8 billion investment in Cronos Group Inc on Friday, which could give it up to 55-percent ownership of the Canadian cannabis producer.

"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 chief executive officer said in a statement.

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

"As a company that operates predominantly in the highly-regulated tobacco industry, we believe Altria has valuable regulatory and compliance experience that could end up being a key competitive advantage for Cronos, as it competes with other licensed producers for what seems to be a growing set of worldwide opportunities", Canaccord Genuity analysts wrote in a research note. That is a 16.2% premium over the stock's Thursday close, according to Reuters.

As part of the deal, Altria will buy 146.2 million of newly issued Cronos shares at $16.25 per share for a 45 per cent stake.


FOX Business breaks down other companies that have eyed investments in the cannabis industry below.

Cronos's Gorenstein said his company and Altria agree that developing brands and intellectual property is more valuable than growing plants and should be the focus going forward. For example, legislation that would allow for the full legalization of industrial hemp in the US and ease restrictions on the cannabis compound CBD is working its way through the USA legislative process.

Altria can nominate four directors, including one independent director, to the Cronos board, giving it 4-to-3 control.

The deal represents by far the biggest investment by a major tobacco conglomerate in a cannabis company.

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


Altria's bet on Cronos could also prompt more similar deals in the sector, he added.

Philip Morris International CEO Andre' Calantzopoulos discusses why his company is keeping clear of the cannabis industry.

Prior to Friday's announcement, Cronos had confirmed reports that it was in talks with Altria. It's a logical fit, because "big tobacco knows how to cultivate crop, knows how to deal with regulators, they are at the forefront of vaporization technology, and they also arguably have less reputational risk than other fast-moving consumer goods", he said.

With smoking rates in the United States falling fast, Altria is under pressure to find new sources of revenue. It.


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