Friday, 14 December, 2018

Altria buys $1.8 billion stake in a cannabis firm | CMO Strategy

Big Tobacco Company Altria Takes Major Stake in Canadian Cannabis Firm Cronos Group Legal cannabis industry: Altria, Molson-Coors among companies exploring market
Laurie Berry | 08 December, 2018, 22:10

The cigarette maker's move follows modest investments in the cannabis sector in the past year by tobacco companies Imperial Brands and Pyxus International, formerly Alliance One International.

Altria Group Inc., the US maker of Marlboro cigarettes, is paying $1.8 billion for a 45 percent stake in Cronos, a Canadian cannabis firm, Quartz reported.

The Virginia-based parent of the company behind Marlboro, Parliament and other cigarette brands will acquire a 45-per-cent ownership stake in Cronos with the initial investment, announced Friday.

Cronos CEO Mike Gorenstein said the partnership with Altria doesn't limit the cannabis firm from engaging with other strategic partners.

Cronos has benefited in recent months from Canada's legalization of recreational marijuana as well as more states jumping on the recreational and medical pot bandwagon last month through voter initiatives. Constellation brands said at the time that the deal would "position Canopy Growth as the global leader in cannabis production, branding, intellectual property and retailing".

The exclusive partnership will give Cronos additional financial resources, regulatory expertise and product development and commercialization capabilities to tap global cannabis opportunities, the company said in the announcement. If exercised in full, Altria would own 55% of the company. 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.

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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".

Altria's products, however, have lost significant ground to e-cigarette maker Juul Labs Inc over the a year ago, as have e-cigarette brands from other major tobacco companies.

The deal is expected to close in the first half of 2019. It has entered into joint ventures to boost its presence and capacity in Canada and overseas, including in Israel and Australia. We think that model of growing your own plants is very hard to scale and to execute well.

The deal grants Altria the option to acquire a controlling stake in Cronos at CAD $19 per share and to nominate four executives to Cronos Group's board of directors.

Shares of Altria were up 1.2 percent at $55.06 in afternoon trading, while US -listed shares of Cronos were up 22 percent at $12.80.

"I think it shows that the US players - Altria and Constellation - will not buy into a USA cannabis company until it becomes federally legal in the US", said Mr.

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