Altria buys 45 percent stake in Canadian marijuana company
08 December, 2018, 17:01 | Author: Eric Barnett
According to the Mail, the company behind the tobacco giant, Altria Group Inc. revealed it is investing a reported CAN $2.4bn (US $1.8bn / £1.4bn) into Cronos Group, for a 45 percent stake in the Canadian medical and recreational marijuana provider.
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.
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. The transaction is expected to close in the first half of 2019.
Altria can nominate four directors, including one independent director, to the Cronos board, giving it 4-to-3 control.
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.
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.
Cronos will remain a Canadian company, headquartered in Toronto, Gorenstein said.
"Altria's experience is very wide-ranging - not just in tobacco, but in adult beverages in different categories and decades of experience in how to bring different products to market", Cronos chief executive Michael Gorenstein said on call with analysts.
The Cronos investment follows other deals in this space. We think that model of growing your own plants is very hard to scale and to execute well.
Canadian marijuana company Canopy Growth (CGC) already has received a multibillion dollar investment from Corona owner Constellation Brands (STZ).
Short-seller Andrew Left of Citron Research, who has been a critic of Cronos and was betting against the stock going into Friday, said that this deal shows why Canadian growers trade at a premium to USA -based cannabis companies.
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. Altria is paying 25 times forward sales, she said, and in her view, Altria is "buying their way out of a bind" after nearly two decades of volume decline for US cigarettes, and a challenging 2018 for e-cigarettes. Altria is in talks to acquire a stake in e-cigarette start-up Juul Labs Inc., according to reports by US media outlets.
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