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.
Marlboro maker Altria Group Inc.is taking a 45 percent stake in Cronos Group, the Canadian medical and recreational marijuana provider said Friday.
The deal also includes warrants to acquire an additional ownership interest in Cronos at a price of C$19 per share over the next four years, which could raise Altria's stake to 55 percent.
"Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria", Howard Willard, Altria's chairman and CEO, stated in an announcement.
The president and CEO of Cronos, Mike Gorenstein, says the agreement with Altria will give the Toronto-based company the resources to expand more quickly and increase its investments in research and development. "And they're seeing a ton of growth", he said in an interview.
Not surprisingly, investors are cheering this game-changing partnership, bidding up Cronos's shares by as much as 38% in premarket trading today.
Atria, formerly Philip Morris, makes the move after watching its stock tumble 25 percent this year and outlook on the company's growth projected at about one percent this year and 2019.
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.
Investors seem to be betting that more deals could be coming.
The deal is a "big endorsement" for Cronos and is "reassuring" for the industry, amid rising concerns that pot companies' valuations may be too lofty, Landry said. 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.
Marijuana, while still illegal on the federal level in the USA, is allowed in an increasing number of states.
Altria had been assessing market opportunities in the cannabis industry since at least September.
Separately Altria also said it would discontinue some of its e-cigarette brands, including all of MarkTen and Green Smoke e-vaper products, based on their financial performance and will take a related pretax charge of US$200 million in the fourth quarter.