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Altria to marry pot with big tobacco in $1.8 billion Cronos deal

08 December 2018

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

Canadian cannabis producer Cronos Group announced Friday that it will receive a $2.4 billion equity investment from Altria Group, the maker of Marlboro cigarettes.

Cronos had previously confirmed reports that it was in talks with Altria, which joins Molson Coors, Constellation Brands and other established companies that are making moves in the cannabis space. Several U.S. states have legalized cannabis for medical or recreational use, but pot remains illegal under federal law. 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".

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Altria will acquire 146.2 million Cronos shares at a price of CA$16.25 per share, representing a 41.5% premium to the 10-day average price ending November 30, the last unaffected trading day before Cronos publicly disclosed discussions with Altria. "And they're seeing a ton of growth", he said in an interview.

"As a company that operates predominantly in the highly-regulated tobacco industry, we believe Altria has valuable regulatory and compliance experience that could end up being a key competitive advantage for Cronos, as it competes with other licensed producers for what seems to be a growing set of worldwide opportunities", Canaccord Genuity analysts wrote in a research note.

Coca Cola bottle and glass on picnic table
Coca Cola bottle and glass on picnic table

Reuters had first reported on the deal negotiations on Monday.

With smoking rates in the U.S. falling fast, Altria is under pressure to find new sources of revenue. It. Aurora Cannabis Inc.'s stock rose 7.8 per cent to close at $7.60 after it announced a new supply deal to Mexico. Altria is in talks to acquire a stake in e-cigarette start-up Juul Labs Inc., according to reports by US media outlets. It has entered into joint ventures to boost its presence and capacity in Canada and overseas, including in Israel and Australia.

"That experience, we think, is going to be very important as we try to accelerate new product categories".

Altria will nominate four directors to Cronos's board, which will increase to seven directors from five.

Shares of Altria were up 1.2 percent at $55.06 in afternoon trading, while USA -listed shares of Cronos were up 22 percent at $12.80. The company could also be positioning itself for the possible legalization of marijuana across the U.S., Quartz added.

Altria to marry pot with big tobacco in $1.8 billion Cronos deal