Altria, the owner of Marlboro and Philip Morris, has made a $1.8bn (£1.4bn) investment in Canadian pot company Cronos Group as Big Tobacco takes one of its biggest bites yet of the fast-growing cannabis market.
The deal also includes warrants to acquire an additional ownership interest in Cronos at a price of C$19 per share over the next four years, which could raise Altria's stake to 55 percent. It said it was doing so because it doesn't "see a path to leadership with these particular products", as well as the regulatory burden it faces to bring them to market.
Altria has agreed to pay $16.25 per share to acquire 146.2 million shares of Cronos, which represents a 41.5 premium above the stock before it confirmed the companies' preliminary discussions.
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. "This is big for everyone", Cronos CEO Mike Gorenstein said in an interview with Marijuana Business Daily.
Coca-Cola (KO) was rumored to be considering an investment in Canadian cannabis company Aurora (ACB). First and foremost, Cronos will have a much healthier balance sheet in the wake of this deal - enabling it to accelerate the build-out of its production facilities and perhaps even start making some fairly large acquisitions of its own.
Altria's stock fell by almost 25 percent this year and revenue is expected to grow by only 1 percent this year and in 2019, CNN Business reported.
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Cronos plans to focus on cannabis genetics, innovation and branding, while contracting with farmers to grow the product and working with retailers.
"With Democrats winning control of the U.S. House, Congress may finally pass the Farm Bill, which would make it legal to produce hemp and potentially open the door for more products containing cannabidiol or CBD", the report stated.
Altria's investment marks the latest move by a USA company in an established industry to tap the burgeoning Canadian cannabis industry. This initial equity investment equates to a noteworthy 45% ownership stake in Cronos.
Meanwhile, Molson Coors launched a joint venture called Truss with Quebec-based cannabis producer Hexo Corp.in October. Altria shares were up about 2.5 percent. It said the deal with Altria does not limit Cronos from any other partnerships.
In a separate news release Friday, Altria said it is discontinuing its existing e-cigarette brands and will take a US$200-million charge on these assets in its next quarter.