Altria buys $1.8 billion stake in a cannabis firm | CMO Strategy

Altria buys $1.8 billion stake in a cannabis firm | CMO Strategy

The cigarette maker's move follows modest investments in the cannabis sector in the past year by tobacco companies Imperial Brands and Pyxus International, formerly Alliance One International.

As the marijuana industry continues to grow in MA, one of the world's biggest tobacco companies is diving into the cannabis market with a $2.4 billion buy-in.

Altria can also invest up to a further $1.4 billion to increase its ownership stake in Cronos to 55 per cent, under the arrangement.

Altria also agreed to make Cronos its exclusive partner for worldwide cannabis opportunities.

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.

The value of publicly-traded Canadian cannabis companies had soared leading up to October 17, when sales of cannabis became legal under rules and regulations established by Ottawa and the provinces. Canadian pot stocks have been crushed in recent weeks after a lacklustre start to recreational sales amid reports of countrywide supply shortages. Several U.S. states have legalized cannabis for medical or recreational use, but pot remains illegal under federal law.

Meanwhile, the number of countries that have legalized medical cannabis continues to grow, with South Korea among the latest to give the green light.

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The deal will expand Cronos' board from five to seven seats, with Altria getting a total of four of them.

"We believe an investment of this magnitude provides overall legitimacy to the industry as a whole and should represent a positive catalyst for the sector, with the news likely to drive valuations higher", said Canaccord Genuity analyst Matt Bottomley, who has a 12-month price target of $9 on Cronos's stock and a "hold" rating. "This is big for everyone", Cronos CEO Mike Gorenstein said in an interview with Marijuana Business Daily.

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

In February, Pyxus bought controlling stakes in two Canadian marijuana producers, Canada's Island Garden and Goldleaf Pharm.

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

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. There is also a warrant giving Altria the right to purchase additional shares at $14.25 a share over the next four years. The most attractive piece of the partnership is Altria's experience dealing with regulatory agencies, he said.

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