Altria investing $2.4B in Cronos cannabis producer

Altria investing $2.4B in Cronos cannabis producer

Altria investing $2.4B in Cronos cannabis producer

Altria, owner of Marlboro cigarettes, is making a $2.4 billion (USD) investment into Canadian medical and recreational marijuana company Cronos Group. Federal data from November showed cigarette smoking among USA adults reached an estimated 14 per cent in 2017, the lowest level ever.

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'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.

Altria will buy 146.2 million of newly issued Cronos shares at C$16.25 per share for a 45-percent stake. The transaction is expected to close in the first half of 2019.

Cronos's Gorenstein said his company and Altria agree that developing brands and intellectual property is more valuable than growing plants and should be the focus going forward.

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

- There are a handful of companies listed on the Toronto Stock Exchange devoted exclusively to cannabis, either for medicinal or recreational use, or both: Canopy Growth Corp., Aurora Cannabis Inc. and Cronos Group Inc.

The deal structure was driven by an appetite on Cronos' part to entertain discussions with other parties, although it is not guaranteed that any future discussions will result in product partnerships or new deals, according to one person familiar with the matter.

Cronos shares were up 23% in pre-market trading, while Altria's stock gained 2%, according to CNBC. Constellation Brands Inc announced a $3.8-billion investment in Canopy Growth Corp in August, while Coca-Cola Co said in September it was watching the space for alliances that could potentially help it develop products containing cannabinoid oil.

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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The cigarette giant has invested nearly $4m into the Canadian firm.

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

- There are dozens of startups that have attracted millions of dollars in the United States.

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

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