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. Federal data from November showed cigarette smoking among USA adults reached an estimated 14 per cent in 2017, the lowest level ever. The agreement also includes a warrant that, if exercised, could see Altria's ownership rise to 55 per cent for another $1.4-billion.
"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.
Shares of Cronos surged as much as 33 per cent to $18.56 on the Toronto Stock Exchange from its $13.98 closing price on Thursday.
"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 global opportunities", Canaccord Genuity analysts wrote in a research note.
The deal is expected to close in the first half of 2019.
After the deal is closed, Altria will have the right to nominate four directors, including one independent, to the Cronos board.
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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. 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.
Big tobacco, meet Canadian cannabis. It also weighed making investments in other growers, such as Aphria and CannTrust Holdings Inc., according to sources familiar with the matter who were granted anonymity because the talks were private.
MedMen Enterprises, the CSE-listed company that launched several luxury-focused cannabis retail stores across the US, announced that its two co-founders have bought a significant amount of shares amid a downturn in the company's stock.
In a separate news release Friday, Altria said it is discontinuing its existing e-cigarette brands and will take a US$200-million charge on these assets in its next quarter.
The cigarette giant has invested nearly $4m into the Canadian firm. We think that model of growing your own plants is very hard to scale and to execute well.
- There are dozens of startups that have attracted millions of dollars in the United States.