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08 December 2018, 10:10 | Joann Bryant
Legal cannabis industry: Altria, Molson-Coors among companies exploring market
Tobacco giant Altira is investing $1.8 billion in Canadian cannabis company Cronos Group.
Altria's investment in Cronos as its exclusive partner in the emerging global cannabis category represents an "exciting new growth opportunity" for the company, said its chairman and chief executive officer Howard Willard.
The president and CEO of Cronos, Mike Gorenstein, says the agreement with Altria will give the Toronto-based company the resources to expand more quickly and increase its investments in research and development. The offer represents a 16.2-percent premium to the stock's Thursday close on the Toronto Stock Exchange.
At time of publication, Cronos Group was trading up 32 percent to $13.88 per share. Doing so would lift Altria's status to a majority shareholder as it would own around 55 percent of the company.
Altria's products, however, have lost significant ground to e-cigarette maker Juul Labs Inc over the previous year, as have e-cigarette brands from other major tobacco companies.
Gorenstein said the proceeds will enable Cronos to continue to grow the business overseas and in Canada.
The deal grants Altria the option to acquire a controlling stake in Cronos at CAD $19 per share and to nominate four executives to Cronos Group's board of directors. A wave of cannabis producers have set up shop in Canada, where recreational use was legalised earlier this year.
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. "And they're seeing a ton of growth", he said in an interview. The company could also be positioning itself for the possible legalization of marijuana across the U.S., Quartz added. "In fact, we think this partnership makes us collectively a more attractive partner" for other potential investors, Gorenstein said on a conference call Friday.
Cannabis companies are hot right now.
That would mean Altria's investment would be in the same league as the $4 billion spent earlier this year by Constellation Brands to acquire shares of Canopy Growth Corp., another Canadian pot producer.
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 US$200 million in the fourth quarter.
Prior to Friday's announcement, Cronos had confirmed reports that it was in talks with Altria.
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