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

Marlboro-maker Altria has made a $2.4-billion investment in licensed cannabis producer Cronos

Marlboro-maker Altria has made a $2.4-billion investment in licensed cannabis producer Cronos

Altria's stake in Cronos will start at 45pc, with the option to climb to majority control in the future.

Coca-Cola (KO) was rumored to be considering an investment in Canadian cannabis company Aurora (ACB).

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

"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. It said the deal with Altria does not limit Cronos from any other partnerships.

It's clear Altria has reassessed its competitive position.

Cronos plans to focus on cannabis genetics, innovation and branding, while contracting with farmers to grow the product and working with retailers. The company attributed this to regulatory restrictions and lack of financial prospects for those products. Altria shares were up about 2.5 percent.

As part of the deal, Altria will buy 146.2 million of newly issued Cronos shares at $16.25 per share for a 45 per cent stake.

Altria is paying 16.25 Canadian dollars per share in cash, or about US$12-a 40% premium over Cronos stock's recent trading level on the Toronto exchange, where it dual-lists with the Nasdaq.

Altria's products, however, have lost significant ground to e-cigarette maker Juul Labs Inc over the past year, as have e-cigarette brands from other major tobacco companies.

After the deal is closed, Altria will have the right to nominate four directors, including one independent, to Cronos' board comprising seven directors in total.

However, the global cannabis opportunity remains "large and untapped", said Vivien Azer, an analyst with Cowen.

Altria, formerly known as Phillip Morris, is getting into the market amid declining cigarette sales.

Investors seem to be betting that more deals could be coming.

Philip Morris International Inc., which was spun off from Altria and sells the Marlboro brand internationally, has been trying to get USA approval for Altria to market its IQOS device.

Gorenstein said the proceeds will enable Cronos to continue to grow the business overseas and in Canada. 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.

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