Marlboro owner Altria makes £1.4bn bet on cannabis

Irving Hamilton
December 8, 2018

Altria, the owner of Marlboro and Philip Morris, has made a $1.8bn (£1.4bn) investment in Canadian pot company Cronos Group as Big Tobacco takes one of its biggest bites yet of the fast-growing cannabis market. 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.

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

Cronos shares were up 23% in pre-market trading, while Altria's stock gained 2%, according to CNBC.

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

As well, the number of countries that have legalized medical cannabis continues to grow, with South Korea among the latest to give the green light.

Canopy has said it will not sell marijuana products in the US until pot is legalized at both the federal and state level.

For its initial investment, the tobacco giant will acquire a 45% ownership stake in Cronos.

"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.

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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.

The value of publicly-traded Canadian cannabis companies had soared leading up to October 17, when sales of cannabis became legal under rules and regulations established by Ottawa and the provinces.

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.

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.

This will bring the megabucks investment up to the same level as the CAN $4bn (US $3bn / £2.3bn) which Constellation Brands spent earlier this year when they bought out Canopy Growth Corp., a cannabis producer also based in Canada.

Prior to Friday's announcement, Cronos had confirmed reports that it was in talks with Altria.

Rapid growth in the cannabis market is expected to continue as legalization expands in the USA and social norms change.

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