Marlboro Owner Altira Invests $1.8 Billion in Canadian Cannabis Company Cronos

A Pack of Marlboro cigarettes

A Pack of Marlboro cigarettes

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

As part of a strategic investment, Altria will acquire a 45-percent equity stake in Cronos at a price of C$16.25 with a warrant to buy incremental shares at a price of C$19 per share which can be exercised over four years from the transaction closing date. It is the Virginia-based company's first foray into cannabis.

Cronos's Gorenstein said his company and Altria agree that developing brands and intellectual property is more valuable than growing plants and should be the focus going forward.

Over this past year, Altria's stock (NYSE:MO) has fallen almost 5%, but its shares rose 25% Friday after this news was released and Cronos (NASDQ:CRON) rose 30%.

At time of publication, Cronos Group was trading up 32 percent to $13.88 per share.

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

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

Altria's bet on Cronos could also prompt more similar deals in the sector, he added.

In August, alcohol giant Constellation Brands said it would invest an additional $5 billion in Canadian pot producer Canopy Growth Corp., increasing its stake to 38 per cent. This week, Aphria Inc., one of the country's largest cannabis growers, was defending itself against accusations of striking deals to enrich insiders made in a widely read short-sellers' report.

Cronos said it will use the capital to accelerate its global growth and expansion, as well as research and development.

Canadian marijuana company, Canopy Growth, for example, has received a multibillion dollar investment from Corona owner Constellation Brands, CNN reported.

As well, USA tobacco leaf merchant Alliance One International said its subsidiary acquired a 75 per cent equity stake in Charlottetown-based Canada's Island Garden in January.

Prior to Friday's announcement, Cronos had confirmed reports that it was in talks with Altria.

The Cronos investment follows other deals in this space.

According to a news release, Altria's resources will better position the Cronos Group "to support cannabinoid innovation, create differentiated products and brands across medicinal and recreational categories, and expand its global footprint and growing production capacity".

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