Published: Sat, December 08, 2018
Business | By Tara Barton

Marlboro maker Altria Group places $2.6 billion bet on marijuana

Marlboro maker Altria Group places $2.6 billion bet on marijuana

The deal will expand Cronos' board from five to seven seats, with Altria getting a total of four of them.

The value of publicly-traded Canadian cannabis companies had soared leading up to October 17, when sales of cannabis became legal under rules and regulations established by Ottawa and the provinces.

Earlier this year the people of Canada voted to legalise the use of weed, which made it the second country, and by some distance the largest to legalise recreational marijuana use.

Altria's Chairman and CEO Howard Willard said Cronos will serve as the company's exclusive partner in the global cannabis category.

Cronos and other cannabis stocks have been thrust into the spotlight in the past few months following the legalization of recreational marijuana in Canada in October, as well as legalized recreational and medical pot in several U.S. states last month.

The Marlboro maker's $2.4 billion bet on Cronos is by far the largest move by Big Tobacco into cannabis, and bodes well for the overall sector, said Martin Landry, an analyst with GMP Securities. 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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The deal is expected to close in the first half of 2019.

Cowen analyst Vivien Azer said it's not surprising that Altria opted for a pathway to a majority control of Cronos.

Investors seem to be betting that more deals could be coming. The Altria-Cronos deal is "encouraging" given the broad potential uses for cannabis such as in pharmaceuticals and health and wellness products, she said in a note to clients. Constellation Brands Inc announced a $3.8-billion investment in Canopy Growth Corp in August, while Coca-Cola Co said in September it was watching the space for alliances that could potentially help it develop products containing cannabinoid oil. USA exchanges have begun listing those companies as well. Molson Coors Canada owns a 57.5 percent interest in the joint venture.

- There are a handful of companies listed on the Toronto Stock Exchange devoted exclusively to cannabis, either for medicinal or recreational use, or both: Canopy Growth Corp., Aurora Cannabis Inc. and Cronos Group Inc.

Prior to Friday's announcement, Cronos had confirmed reports that it was in talks with Altria. There is also a warrant giving Altria the right to purchase additional shares at $14.25 a share over the next four years.

The deal structure was driven by an appetite on Cronos' part to entertain discussions with other parties, although it is not guaranteed that any future discussions will result in product partnerships or new deals, according to one person familiar with the matter.

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