Published: Sat, December 08, 2018
Finance | By Loren Pratt

Marlboro maker Altria Group places $2.6 billion bet on marijuana

Marlboro maker Altria Group places $2.6 billion bet on marijuana

Marlboro cigarette maker Altria Group Inc made a big bet on the rapidly growing marijuana industry on Friday with a $2.4 billion investment in Canadian cannabis producer Cronos Group Inc.

"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 Friday in a statement. Canada legalized recreational cannabis in October.

In June, British tobacco giant Imperial Brands was among investors taking a stake in Oxford Cannabinoid Technologies, a United Kingdom-based medical cannabis startup.

Marijuana, while still illegal on the federal level in the USA, is allowed in an increasing number of states.

Cronos, meanwhile, grows and sells medical and recreational cannabis in Canada, operating two growing facilities in Ontario and one in British Columbia.

The deal will expand Cronos' board from five to seven seats, with Altria getting a total of four of them.

For its initial investment, the tobacco giant will acquire a 45% ownership stake in Cronos. "This is big for everyone", Cronos CEO Mike Gorenstein said in an interview with Marijuana Business Daily.

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

"We believe an investment of this magnitude provides overall legitimacy to the industry as a whole and should represent a positive catalyst for the sector", he said.

The exclusive partnership will give Cronos additional financial resources, regulatory expertise and product development and commercialization capabilities to tap global cannabis opportunities, the company said in the announcement.

Short-seller Andrew Left of Citron Research, who has been a critic of Cronos and was betting against the stock going into Friday, said that this deal shows why Canadian growers trade at a premium to US -based cannabis companies.

That would mean Altria's investment would be in the same league as the US$4b spent earlier this year by Constellation Brands to acquire shares of Canopy Growth Corp., another Canadian pot producer. 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.

Cronos confirmed last Friday that it was in talks with Altria after a Reuters report. It said the deal with Altria does not limit Cronos from any other partnerships.

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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