Marlboro Boss Invests Billions In Marajuana Company After Canada Legalised The Drug

Mae Love
December 8, 2018

Marlboro maker Altria Group Inc. will invest $2.4 billion in Canadian cannabis producer Cronos Group Inc. - marking a major foray by Big Tobacco into the pot sector - as the global market for weed continues to grow.

Virginia-based Altria, parent of the company that makes Marlboro cigarettes, can also invest up to a further $1.4 billion within four years that would increase its ownership stake in Toronto-based Cronos to 55 per cent, under the arrangement.

Cronos first murmured about Altria's potential takeover this week.

"Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth", said Mike Gorenstein, Cronos Group's chairman, president and chief executive officer. Canadian pot stocks have been crushed in recent weeks after a lacklustre start to recreational sales amid reports of countrywide supply shortages.

At time of publication, Cronos Group was trading up 32 percent to $13.88 per share.

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

Cronos, meanwhile, grows and sells medical and recreational cannabis in Canada, operating two growing facilities in Ontario and one in British Columbia.

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Altria has agreed to pay $16.25 per share to acquire 146.2 million shares of Cronos, which represents a 41.5 premium above the stock before it confirmed the companies' preliminary discussions.

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

The Denver-based brewing company said earlier this year that its Canadian unit would partner with the Hydropothecary Corporation "to pursue opportunities to develop non-alcoholic, cannabis-infused beverages for the Canadian market following legalization".

"We believe an investment of this magnitude provides overall legitimacy to the industry as a whole and should represent a positive catalyst for the sector, with the news likely to drive valuations higher", said Canaccord Genuity analyst Matt Bottomley, who has a 12-month price target of $9 on Cronos's stock and a "hold" rating.

Altria's investment in Cronos is by far the largest move by Big Tobacco into cannabis, said Martin Landry, an analyst with GMP Securities.

Altria's investment marks the latest move by a US company in an established industry to tap the burgeoning Canadian cannabis industry.

Canadian marijuana company, Canopy Growth, for example, has received a multibillion dollar investment from Corona owner Constellation Brands, CNN reported.

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