Altria buys 45% stake in cannabis producer Cronos for $2.4 billion

For Cronos the Altria tie-up will provide deep regulatory expertise

For Cronos the Altria tie-up will provide deep regulatory expertise

Altria, the owner of Marlboro and Philip Morris, has made a $1.8bn (£1.4bn) investment in Canadian pot company Cronos Group as Big Tobacco takes one of its biggest bites yet of the fast-growing cannabis market.

Richmond, Va. -based Altria said Friday in a media release that it agreed to pay $2.4-billion to acquire a 45-per-cent stake in Cronos. The move will help it tap into a customer base outside cigarette smokers, as cigarette smoking declines in the U.S. The arrangement also allows for Altria to invest up to a further $1.4 billion to increase its ownership stake in Cronos to 55%.

Altria's investment in Cronos as its exclusive partner in the emerging global cannabis category represents an "exciting new growth opportunity" for the company, said its chairman and chief executive officer Howard Willard.

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.

Cronos's stock closed 22 per cent higher at $17.06 in Toronto, while shares of Altria fell 0.4 per cent.

The deal will expand Cronos' board from five to seven seats, with Altria getting a total of four of them. It said the deal with Altria does not limit Cronos from any other partnerships.

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

- Coca-Cola, Pepsi, Anheuser-Busch and Guinness brewer Diageo haven't jumped in yet, but have said they're watching closely as the market for cannabis and its extracts evolves.

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. 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.

Gorenstein said that Altria has "decades of experience in regulatory, government affairs, compliance, product development and brand management that we expect to leverage, particularly as new markets for cannabis open around the world".

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

Altria has invested in e-cigarettes in recent years through its Nu Mark subsidiary, which sells devices such as the MarkTen e-cigarettes in convenience stores and tobacco shops.

- There are dozens of startups that have attracted millions of dollars in the United States. Altria is in talks to acquire a stake in e-cigarette start-up Juul Labs Inc., according to reports by USA media outlets.

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