Published: Sat, December 08, 2018
Economy | By

Malboro Maker Invests $2.4 Billion into Cannabis Company-T.CRON-P.CANNABIS

Malboro Maker Invests $2.4 Billion into Cannabis Company-T.CRON-P.CANNABIS

Many alcoholic beverage, tobacco and other consumer products companies may want to bet on cannabis.

Altria Group, which owns multiple big tobacco brands like Marlboro and Skoal, announced a $1.8 billion investment into Canadian cannabis company Cronos Group at approximately $12.19 a share.

The Altria-Cronos deal is "encouraging" given the broad potential uses for cannabis such as in pharmaceuticals and health and wellness products, she said in a note to clients. Canada legalized recreational cannabis in October. Investors, meanwhile, have been pouring money into cannabis companies that operate in multiple USA states, pivoting away from Canada. Canadian pot stocks have been crushed in recent weeks after a lacklustre start to recreational sales amid reports of countrywide supply shortages. Marijuana, while still illegal on the federal level in the US, is now allowed in an increasing number of states, while Canada now represents a large laboratory for the nascent industry.

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.

After the deal is closed, Altria will have the right to nominate four directors, including one independent, to the Cronos board.

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

Many stocks in the volatile sector were up on Friday after the deal was announced. "And they're seeing a ton of growth", he said in an interview. The move will help it tap into a customer base outside cigarette smokers, as cigarette smoking declines in the U.S.

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. As part of the deal, Constellation also received new warrants which, if exercised along with its existing warrants, would increase its ownership in Canopy beyond 50 per cent.

In February, Pyxus bought controlling stakes in two Canadian marijuana producers, Canada's Island Garden and Goldleaf Pharm.

Also, the Canadian subsidiary of Molson Coors has a joint venture with The Hydropothecary Corporation for the production of "cannabis-infused drinks" in Canada.

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

Cronos plans to prioritize research and development, innovation and developing brands. The most attractive piece of the partnership is Altria's experience dealing with regulatory agencies, he said.

Rapid growth in the cannabis market is expected to continue as legalisation expands in the U.S. and social norms change.

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