Tobacco giant Altria makes massive bet on cannabis

Tobacco giant Altria makes massive bet on cannabis

The Marlboro cigarette maker is taking a 45% stake in Cronos Group Inc., the Canadian medical and recreational marijuana provider said Friday.

The first Canadian cannabis grower to list its shares on a US stock market, Cronos said it plans to spend the money on product innovation, noting Altria's expertise in device technology and automation, and fuel Cronos's expansion into new countries amid a global shift toward loosening restrictions on the drug.

Cronos has benefited in recent months from Canada's legalization of recreational marijuana as well as more states jumping on the recreational and medical pot bandwagon last month through voter initiatives. Constellation Brands Inc., maker of alcoholic beverages, has invested more than $5-billion for control of Canopy Growth Corp., while Molson Coors Brewing Co.is looking to create cannabis-infused beverages through a joint venture with Quebec's Hexo Corp.

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.

Canadian marijuana company Canopy Growth (CGC) already has received a multibillion dollar investment from Corona owner Constellation Brands (STZ). Altria's offer of C$16.25 a share represents a 16 percent premium from Thursday's closing price. "And they're seeing a ton of growth", he said in an interview. The new relationship represents an "exciting new growth opportunity" and Cronos is backed by an "excellent management team".

Separately on Friday, Altria 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 $200 million in the fourth quarter.

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Reports of an Altria-Cronos deal first surfaced earlier this week. Aurora Cannabis Inc.'s stock rose 7.8 per cent to close at $7.60 after it announced a new supply deal to Mexico. It has entered into joint ventures to boost its presence and capacity in Canada and overseas, including in Israel and Australia.

As part of the agreement, Altria will have the right to nominate four directors to the Cronos board, which will be expanded to seven members from five.

Cronos shares were up 23% in pre-market trading, while Altria's stock gained 2%, according to CNBC.

Marijuana, while still illegal on the federal level in the USA, is allowed in an increasing number of states.

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

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