Saturday, 15 December, 2018

Altria, Marlboro maker, takes big stake in marijuana company Cronos

The Altria Group Inc. corporate headquarters in Richmond Va. is shown The Altria Group Inc. corporate headquarters in Richmond Va. is shown
Orlando Vargas | 08 December, 2018, 22:12

The maker of Marlboro cigarettes would acquire a 45 per cent ownership stake in Cronos under the initial investment. 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'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 deal marks the entry of another consumer-goods giant into Canada's legal cannabis industry. Canopy Growth received a multibillion-dollar investment from Corona owner Constellation Brands in August, CNN Business reported.

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.

Philip Morris International CEO Andre' Calantzopoulos discusses why his company is keeping clear of the cannabis industry. The offer represents a 16.2-percent premium to the stock's Thursday close on the Toronto Stock Exchange.

Cronos said it will use the capital to accelerate its global growth and expansion, as well as research and development.

Altria's huge investment lighted up shares of cannabis companies that have begun to set up shop in Canada, where recreational use was legalized this year. "And they're seeing a ton of growth", he said in an interview.

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Altria is also in talks to take a minority stake of between 20 percent and 40 percent in Juul, sources told Reuters last month. Canada legalized recreational cannabis in October.

"In Canada the focus seems to still be on capacity, but that is not what this is about", the Cronos CEO added.

Altria shares rose as much as 3.2 percent to $56.14 on Friday. "It's worth noting that Altria does not grow their own tobacco. We think that that model of growing your own plants is very hard to scale and execute well".

The agreement allows Altria to nominate four directors to Cronos' board of directors, including one independent director.

Reports of an Altria-Cronos deal first surfaced earlier this week. JPMorgan Chase Bank NA, a subsidiary of JPMorgan Chase & Co., is providing financing to Altria. Marijuana, while still illegal on the federal level in the USA, is now allowed in an increasing number of states, while Canada now represents a large laboratory for the nascent industry. Left, making the big Canadian producers "more valuable for that reason".

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