Marlboro maker leaps into the cannabis trade with $2.4B

Mike Gorenstein marijuana firm Cronos Group's founder and CEO speaks during an interview in New York U.S

Mike Gorenstein marijuana firm Cronos Group's founder and CEO speaks during an interview in New York U.S

Altria also will receive warrants, which, if exercised, would increase its ownership to 55% and provide an additional CA$1.4 billion in proceeds for the integrated marijuana company.

"Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth", Mike Gorenstein, Cronos's chairman and chief executive officer said in a statement.

11, 2018, file photo shows a marijuana plant in San Luis Obispo, Calif. Cronos will remain a Canada-based company and will continue to be led by its existing management team.

Altria will nominate four directors to Cronos's board, which will increase to seven directors from five.

Shares of Cronos Group Inc. jumped 31 percent and neared an all-time high at the opening bell Friday. A wave of cannabis producers have set up shop in Canada, where recreational use was legalised earlier this year.

However, the political climate south of the border has been warming up to cannabis.

During the US midterm elections, MI became the latest state to approval the legalization of recreational cannabis and Utah and Missouri approved the drug for medical purposes. Other tobacco and alcoholic beverage companies are also looking to get into the cannabis market. It said it was doing so because it doesn't "see a path to leadership with these particular products", as well as the regulatory burden it faces to bring them to market.

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

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Big tobacco, meet Canadian cannabis.

Many stocks in the volatile sector were up on Friday after the deal was announced. Canopy Growth (CGC) was up 2.6%.

Cannabis companies are hot right now.

Cowen analyst Vivien Azer said it's not surprising that Altria opted for a pathway to a majority control of Cronos.

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

As well, USA tobacco leaf merchant Alliance One International said its subsidiary acquired a 75 per cent equity stake in Charlottetown-based Canada's Island Garden in January. Molson Coors Canada owns a 57.5 percent interest in the joint venture.

Prior to Friday's announcement, Cronos had confirmed reports that it was in talks with Altria. That is a 16.2% premium over the stock's Thursday close, according to Reuters. Altria has agreed to buy 146.2 million shares at closing at a price of C$16.25 per share. It said the deal with Altria does not limit Cronos from any other partnerships.

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.

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