Altria, Marlboro maker, takes big stake in marijuana company Cronos

Cronos is the fourth largest cannabis company by market value.
Ben Nelms  Bloomberg

Tobacco giant Altira is investing $1.8 billion in Canadian cannabis company Cronos Group.

Altria is also in talks to take a minority stake of between 20 per cent and 40 per cent in e-cigarette maker Juul Labs Inc, sources told Reuters last month. The agreement also includes a warrant that, if exercised, could see Altria's ownership rise to 55 per cent for another $1.4-billion.

Cronos first murmured about Altria's potential takeover this week.

"Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth", said Cronos CEO Mike Gorenstein in a statement.

Shares of Cronos Group Inc. jumped 31 percent and neared an all-time high at the opening bell Friday.

Altria can nominate four directors, including one independent director, to the Cronos board, giving it 4-to-3 control.

Cronos, meanwhile, grows and sells medical and recreational cannabis in Canada, operating two growing facilities in Ontario and one in British Columbia. The decision by Altria to go ahead with an investment in Cronos shows that Altria is serious about investing in marijuana as a new growth area as sales of traditional cigarettes slow.

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The August investment by Constellation, which makes Corona and other beverages, was the largest to date by a major USA corporation in the cannabis market.

Coca-Cola (KO) was rumored to be considering an investment in Canadian cannabis company Aurora (ACB). 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.

Canopy has said it will not sell marijuana products in the US until pot is legalized at both the federal and state level.

"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.

That would mean Altria's investment would be in the same league as the US$4b spent earlier this year by Constellation Brands to acquire shares of Canopy Growth Corp., another Canadian pot producer.

The Canadian subsidiary of Molson Coors (TAP) has a joint venture with The Hydropothecary Corporation to produce cannabis-infused drinks for the Canadian market.

Gorenstein said that Altria has "decades of experience in regulatory, government affairs, compliance, product development and brand management that we expect to leverage, particularly as new markets for cannabis open around the world".

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