Marlboro maker Altria Group Inc.is taking a 45 percent stake in Cronos Group, the Canadian medical and recreational marijuana provider said Friday.
It was also revealed on Friday, that they are also going to inject a further CAN $1.4bn (US $1bn / £830,000) for warrants, which would give the Altria a 55 percent ownership stake in the Toronto-based company.
"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 chief executive officer said in a statement.
Altria will nominate four directors to Cronos's board, which will increase to seven directors from five.
Altria's huge investment lit up shares of cannabis companies that have begun to set up shop in Canada, where recreational use was legalized this year. Altria has agreed to buy 146.2 million shares at closing at a price of C$16.25 per share.
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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 most attractive piece of the partnership is Altria's experience dealing with regulatory agencies, he said.
Shares of Altria were up 1.2 percent at $55.06 in afternoon trading, while USA -listed shares of Cronos were up 22 percent at $12.80. Constellation Brands Inc announced a $3.8-billion investment in Canopy Growth Corp in August, while Coca-Cola Co said in September it was watching the space for alliances that could potentially help it develop products containing cannabinoid oil. 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.
With smoking rates in the United States falling fast, Altria is under pressure to find new sources of revenue. It. 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. We think that model of growing your own plants is very hard to scale and to execute well.
The Denver-based brewing company said earlier this year that its Canadian unit would partner with the Hydropothecary Corporation "to pursue opportunities to develop non-alcoholic, cannabis-infused beverages for the Canadian market following legalization".