Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Altria bets big on cannabis with $1.8 billion investment in Canada's Cronos

Published 12/07/2018, 09:54 AM
Updated 12/07/2018, 09:54 AM
© Reuters. Mike Gorenstein, marijuana firm Cronos Group's founder and CEO, speaks during an interview in New York

© Reuters. Mike Gorenstein, marijuana firm Cronos Group's founder and CEO, speaks during an interview in New York

By Uday Sampath Kumar

(Reuters) - Marlboro cigarette maker Altria Group (NYSE:MO) Inc made a big bet on the rapidly growing marijuana industry on Friday with a $1.8 billion investment in Canadian cannabis producer Cronos Group Inc.

The deal gives Altria an up to 55 percent stake in Cronos and is the latest in a string of investments from consumer companies hoping to benefit from Canada's move to legalize marijuana for recreational use.

Corona beer maker Constellation Brands (NYSE:STZ) announced a $4 billion investment in Canadian cannabis producer Canopy Growth in August, the biggest investment so far in the industry.

With the Cronos deal, Altria will get a new opportunity to boost revenue as cigarette smoking continues to decline in the United States.

Federal data from November showed cigarette smoking among U.S. adults reached an estimated 14 percent in 2017, the lowest level ever.

Altria is also in talks to take a minority stake of between 20 percent and 40 percent in e-cigarette maker Juul Labs Inc, sources told Reuters last month.

"Altria's experience is very wide-ranging - not just in tobacco, but in adult beverages in different categories and decades of experience in how to bring different products to market," Cronos Chief Executive Officer Michael Gorenstein said on call with analysts.

"That experience, we think, is going to be very important as we try to accelerate new product categories."

As part of the deal, Altria will buy 146.2 million of newly issued Cronos shares at C$16.25 per share for a 45 percent stake. The offer represents a 16.2 percent premium to the stock's Thursday close on the Toronto Stock Exchange.

Shares of Altria were up 1.6 percent at $55.29 in early trading, while U.S.-listed shares of Cronos were up about 29 percent at $13.49.

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 percent.

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

Cronos announced earlier this week that Altria could make a possible investment after Reuters reported the tobacco giant was in talks to acquire Cronos.

Altria's ability to handle regulatory pressures could help the company navigate complex legal issues such as product registration and taxation as more cannabis markets open up around the world, Cronos said.

© Reuters. Mike Gorenstein, marijuana firm Cronos Group's founder and CEO, speaks during an interview in New York

Separately Altria also said it would discontinue some of its e-cigarette brands, including all of MarkTen and Green Smoke e-vaper products, based on their financial performance and will take a related pretax charge of $200 million in the fourth quarter.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.