Tobacco Powerhouse Altria Officially Invests $1.8 Billion in Cannabis Company Cronos

Big Tobacco is entering the cannabis space.
Tobacco Powerhouse Altria Officially Invests $1.8 Billion in Cannabis Company Cronos
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Tobacco powerhouse Altria has invested $1.8 billion in Canadian cannabis company Cronos Group, the companies announced in a press release on Friday. Under the terms of the deal Altria, the parent company of the Marlboro cigarette brand, will acquire a 45 percent ownership stake in Cronos. Shares in Cronos Group shot up more than 30 percent and Altria rose 2 percent in early trading on Friday morning after news of the deal was made public.

Cannabis Presents ‘Significant Growth Potential’

Howard Willard, the chairman and chief executive officer of Altria, said in the release that the company will be taking advantage of the new markets created by the legalization of cannabis.

“Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria,” said Willard. “We believe that Cronos Group’s excellent management team has built capabilities necessary to compete globally, and we look forward to helping Cronos Group realize its significant growth potential.”

Mike Gorenstein, Cronos Group’s chairman, president, and chief executive officer, said that Altria’s significant assets will help Cronos Group grow into cannabis markets around the world.

“Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth,” said Gorenstein. “The proceeds from Altria’s investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in R&D and brands that resonate with our consumers. Importantly, Altria shares our vision of driving long-term value through innovation, and we look forward to continuing to differentiate Cronos Group in this area.”

To complete the transaction, Altria will pay $1.8 billion, or $16.25 per share, for newly issued stock representing a 45 percent share of the company. The price per share includes a 41.5 percent premium on the average price over the ten days before a potential deal between the two companies was revealed. The deal includes an option for Altria to purchase more shares over the next four years to increase its ownership stake to 55 percent.

Altria will also be permitted to name four directors to the Cronos board, including one independent director. The number of directors on the board will be increased from five to seven.

News of discussions between Altria and Cronos Group broke on Monday of this week, sending shares of Cronos Group up more than 30 percent before trading was halted temporarily. The stock was still up 12 percent when trading was allowed to resume.

With sales of cigarettes declining steadily in the United States and many other countries, tobacco companies are looking for new markets to invest in. Altria is also rumored to be interested in investing in electronic cigarette manufacturer Juul and another Canadian cannabis company Apria. And in June, Imperial Tobacco in the United Kingdom announced it was partnering with Snoop Dogg’s venture capital firm Casa Verde Capital to invest in Oxford Cannabinoid Technologies.

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