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Marlboro Maker Leaps Into Cannabis Trade

08 December 2018

One of the world's biggest tobacco companies is diving into the cannabis market with a US$1.8 billion ($2.6b) buy-in.

Virginia-based Altria, parent of the company that makes Marlboro cigarettes, can also invest up to a further $1.4 billion within four years that would increase its ownership stake in Toronto-based Cronos to 55 per cent, under the arrangement.

Cronos CEO Mike Gorenstein said the partnership with Altria doesn't limit the cannabis firm from engaging with other strategic partners.

"This is showing that the entire industry is viable and a huge growth opportunity".

Altria's entry could also help restore confidence in Canada's nascent cannabis sector. Investors, meanwhile, have been pouring money into cannabis companies that operate in multiple US states, pivoting away from Canada.

Altria is paying 16.25 Canadian dollars per share in cash, or about US$12-a 40% premium over Cronos stock's recent trading level on the Toronto exchange, where it dual-lists with the Nasdaq.

Many stocks in the volatile sector were up on Friday after the deal was announced.

An investment from Altria is expected to provide Cronos Group an opportunity for growth and expansion. Altria declined an interview request and didn't speak on a conference call Friday held by Cronos.

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With smoking rates in the United States falling fast, Altria is under pressure to find new sources of revenue. It. Altria is in talks to acquire a stake in e-cigarette start-up Juul Labs Inc., according to reports by US media outlets. It has entered into joint ventures to boost its presence and capacity in Canada and overseas, including in Israel and Australia. It also plans to focus on more reduced-risk tobacco products. Altria shares that vision, Mr. Gorenstein said. "It's worth noting that Altria does not grow their own tobacco".

"That experience, we think, is going to be very important as we try to accelerate new product categories".

Altria can nominate four directors, including one independent director, to the Cronos board, giving it 4-to-3 control. The transaction is expected to close in the first half of 2019. JPMorgan Chase Bank NA, a subsidiary of JPMorgan Chase & Co., is providing financing to Altria.

Canada voted earlier this year to legalise weed.

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

Altria's investment marks the latest move by a US company in an established industry to tap the burgeoning Canadian cannabis industry. Marijuana, while still illegal on the federal level in the USA, is now allowed in an increasing number of states, while Canada now represents a large laboratory for the nascent industry.

Available now: Cannabis Professional, the authoritative e-mail newsletter tailored specifically for professionals in the rapidly evolving cannabis industry. Left, making the big Canadian producers "more valuable for that reason".

Marlboro Maker Leaps Into Cannabis Trade