Markets

Marlboro maker places $1.8 billion bet on marijuana

Marlboro maker places $1.8 billion bet on marijuana

Marlboro cigarette maker Altria on Friday became the latest major company to explore an entry into the legal cannabis market as more states approve the once-taboo substance for medical or recreational use.

For its initial investment, the tobacco giant will acquire a 45% ownership stake in Cronos. 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. The decision by Altria to go ahead with an investment in Cronos shows that Altria is serious about investing in marijuana as a new growth area as sales of traditional cigarettes slow. The offer represents a 16.2-percent premium to the stock's Thursday close on the Toronto Stock Exchange.

Cronos shares, meanwhile, surged as much as 33 percent to $13.95 in NY.

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.

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.

One of the largest tobacco companies in the world is getting into the cannabis game.

As part of the agreement, Altria will be able to nominate four members to Cronos Group's board of directors. 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.




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Marijuana, while still illegal on the federal level in the USA, is allowed in an increasing number of states.

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

Corona beer maker Constellation Brands announced a US$4 billion investment in Canadian cannabis producer Canopy Growth in August, the biggest investment so far in the industry.

Meanwhile, Molson Coors launched a joint venture called Truss with Quebec-based cannabis producer Hexo Corp.in October.

Cronos confirmed last Friday that it was in talks with Altria after a Reuters report.

In a separate news release Friday, Altria said it is discontinuing its existing e-cigarette brands and will take a US$200-million charge on these assets in its next quarter.