Wednesday, 19 December, 2018

Marlboro maker places US$2.4 billion bet on marijuana

For Cronos the Altria tie-up will provide deep regulatory expertise For Cronos the Altria tie-up will provide deep regulatory expertise
Priscilla Morrison | 08 December, 2018, 12:05

Marlboro cigarette maker Altria on Friday became the latest major company to explore an entry into the legal cannabis market as more states approve the once-taboo substance for medical or recreational use.

The maker of Marlboro cigarettes would acquire a 45 per cent ownership stake in Cronos under the initial investment.

Cronos CEO Mike Gorenstein said the partnership with Altria doesn't limit the cannabis firm from engaging with other strategic partners. Canadian pot stocks have been crushed in recent weeks after a lacklustre start to recreational sales amid reports of countrywide supply shortages.

Cronos shares were up 23% in pre-market trading, while Altria's stock gained 2%, according to CNBC.

As part of the agreement, Altria will have the right to nominate four directors to the Cronos board, which will be expanded to seven members from five.

Altria's stake in Cronos will start at 45pc, with the option to climb to majority control in the future. Federal data from November showed cigarette smoking among US adults reached an estimated 14 per cent in 2017, the lowest level ever.

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. It's a logical fit, because "big tobacco knows how to cultivate crop, knows how to deal with regulators, they are at the forefront of vaporization technology, and they also arguably have less reputational risk than other fast-moving consumer goods", he said.

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"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", he said.

Cannabis investors can't miss the Benzinga Cannabis Capital Conference, the No. 1 networking event for institutional capital and the leading cannabis companies. Cronos announced earlier this week that Altria could make a possible investment after Reuters reported the tobacco giant was in talks to acquire Cronos.

Altria's investment marks the latest move by a USA company in an established industry to tap the burgeoning Canadian cannabis industry.

This will bring the megabucks investment up to the same level as the CAN $4bn (US $3bn / £2.3bn) which Constellation Brands spent earlier this year when they bought out Canopy Growth Corp., a cannabis producer also based in Canada.

Meanwhile, Molson Coors launched a joint venture called Truss with Quebec-based cannabis producer Hexo Corp.in October.

Rapid growth in the cannabis market is expected to continue as legalisation expands in the United States and social norms change.

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