Marlboro maker, Cronos join forces in exclusive CA$2.4 billion deal to tap global cannabis opportunities

(This story has been updated to include an interview with Cronos CEO Mike Gorenstein.)

Altria Group, one of the largest tobacco companies in North America, has agreed to invest 2.4 billion Canadian dollars ($1.8 billion) in Ontario-based cannabis producer Cronos Group – the most significant foray by Big Tobacco into the rapidly growing cannabis industry to date.

Altria also agreed to make Cronos its exclusive partner for international cannabis opportunities.

The entry of Altria – owner of Marlboro maker Philip Morris USA and an investor in alcohol giant Anheuser-Busch InBev – is another major milestone for the marijuana sector, coming on the heels of Constellation Brands’ bombshell investment in Canopy Growth in August.

“This is showing that the entire industry is viable and a huge growth opportunity. This is big for everyone,” Cronos CEO Mike Gorenstein said in an interview with Marijuana Business Daily.

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 Nov. 30, the last unaffected trading day before Cronos publicly disclosed discussions with Altria.

That will give Altria a 45% ownership interest in Cronos.

Altria also will receive warrants, which, if exercised, would increase its ownership to 55% and provide an additional CA$1.4 billion in proceeds for the integrated marijuana company.

The exclusive partnership will give Cronos additional financial resources, regulatory expertise and product development and commercialization capabilities to tap international cannabis opportunities, the company said in the announcement.

The transaction is expected to close in the first half of next year.

Gorenstein said the proceeds will enable Cronos to continue to grow business overseas and in Canada.

“We plan to use a lot of it this to open new markets and keep growing out, but our innovation hub is Peace Naturals in Canada, and that will continue,” he said.  

Cronos plans to prioritize research and development, innovation and developing brands.

“In Canada, the focus seems to still be on capacity, but that is not what this is about,” Gorenstein added. “We don’t plan on using the capital to build greenhouses around the world. We want to work with local partners to create value in the supply chain.

“We’ll work with them on genetics, technical assistance, taking back the product and ultimately processing it, formulating it, branding it and distributing it,” he said.

Matt Bottomley, an analyst with Toronto-based investment firm Canaccord Genuity, wrote in a research note that he expects the news to drive valuations higher – particularly considering the sector’s recent pullback.

“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,” he said.

Altria will nominate four directors to an expanded seven-member Cronos board.

Altria had been assessing market opportunities in the cannabis industry since at least September.

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.

In February, Pyxus bought controlling stakes in two Canadian marijuana producers, Canada’s Island Garden and Goldleaf Pharm.

In June, British tobacco giant Imperial Brands was among investors taking a stake in Oxford Cannabinoid Technologies, a United Kingdom-based medical cannabis startup.

Cronos is traded on the Toronto Stock Exchange and the Nasdaq under the ticker symbol CRON.

Matt Lamers can be reached at [email protected]

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6 comments on “Marlboro maker, Cronos join forces in exclusive CA$2.4 billion deal to tap global cannabis opportunities
  1. Vito Cusano on

    this reaffirms that there is interest from much larger players.
    So now we have 1 Alcohol player ( Constellations) 1 Tobacco player (Altria) and 1 Beer player in form of a joint venture( Molson-Coors) involved win Cannabis.
    There are still many others than could come in and I still believe that TGOD has great potential for a takeout.

    Reply
    • George Bianchini on

      SACRAMENTO – The Bureau of Cannabis Control (Bureau) today announced the release of the proposed cannabis regulations currently under review by the California Office of Administrative Law (OAL). The Bureau’s rulemaking action regarding these regulations, initially noticed on July 13, 2018, was submitted to OAL for review on December 3, 2018.

      Reply
  2. Roger Christie on

    @@@

    Aloha. I’m pleased to see growing acceptance of Cannabis – and I wish everyone a healthy, wealthy and happy life. That said, I maintain that government has no – rightful – jurisdiction to prohibit Cannabis, or any other natural, God given plant bearing seeds from We the people. Full and free access to all the natural plants is part of our inheritance as Homo Sapiens born on planet Earth.

    Cannabis is a plant, not a drug; they are two vastly different things. “You can make a drug from a plant, but you can’t make a plant from a drug.”

    I believe that Cannabis as a spiritual sacrament is worthy of First Amendment protections in everyone’s backyard garden, or farm. Let’s fully repeal Cannabis hemp, or “marijuana” prohibition now. Thank you.

    Roger Christie
    Hilo, Hawai’i

    Reply
  3. mike on

    well there it is-the reason for the overregulation to squeeze out all the small guys to clear the path for the big boys. the process may still give some room for small growers when they said that they would buy from existing growers but take it from there. kinda the same as for small growers of oranges or avocados can sell or grow for the big business. but nevertheless all hopes and dreams for little guys to produce or sell will be gone in a few years due to prohibitive regs.

    Reply
  4. DJF on

    The question remains: will this be craft beer all over again? Smaller growers, who have gained the respect and admiration of their customers, selling out to big cannabis to cash in on a pay day. Let’s just say I hope not, but I understand that unless a smaller business can compete on something other than price that this may be a foregone conclusion. The battleground is being set: Craft Cannabis versus Big Cannabis. Just going to sit back and watch for the time being and hope for the best here.

    Reply

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