Malboro Maker Invests $2.4 Billion into Cannabis Company-T.CRON-P.CANNABIS

Cronos is the fourth largest cannabis company by market value.
Ben Nelms  Bloomberg

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.

- 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.

"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. "And they're seeing a ton of growth", he said in an interview. The company could also be positioning itself for the possible legalization of marijuana across the U.S., Quartz added. Canopy Growth (CGC) was up 2.6%.

The agreement allows Altria to nominate four directors to Cronos' board of directors, including one independent director.

The transaction is expected to finalize within the first half of 2019.

That will give Altria a 45% ownership interest in Cronos.

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

Altria's ability to handle regulatory pressures could help the company navigate complex legal issues such as product registration and taxation as more cannabis markets open up around the world, Cronos said.

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

The parent company of Corona beer acquired a $4 billion stake in Canada-based pot producer Canopy Growth last August, upping its ownership of the company to 38 percent from about 10 percent.

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.

Cronos confirmed last Friday that it was in talks with Altria after a Reuters report. There is also a warrant giving Altria the right to purchase additional shares at $14.25 a share over the next four years.

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

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.

Separately Altria also 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 US$200 million in the fourth quarter.

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