Marlboro maker places $1.8 billion bet on marijuana

The cigarette giant has invested almost $4m into the Canadian firm. Credit PA

The cigarette giant has invested almost $4m into the Canadian firm. Credit PA

Canadian cannabis producer Cronos Group says it will receive a $2.4 billion equity investment from Altria Group, one of the biggest tobacco companies in the world.

The deal gives Altria an up to 55 per cent stake in Cronos and is the latest in a string of investments from consumer companies hoping to benefit from Canada's move to legalize marijuana for recreational use.

Altria also agreed to make Cronos its exclusive partner for global cannabis opportunities.

Cronos said it will use the capital to accelerate its global growth and expansion, as well as research and development.

As part of the deal, Altria will buy 146.2 million of newly issued Cronos shares at $16.25 per share for a 45 per cent stake. Aurora Cannabis Inc.'s stock rose 7.8 per cent to close at $7.60 after it announced a new supply deal to Mexico.

Gorenstein said the proceeds will enable Cronos to continue to grow the business overseas and in Canada.

"When we were strategically planning how we would enter cannabis years ago, one of the companies that we looked at and had a lot of respect and admiration for was Altria", he said.

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Marijuana, while still illegal on the federal level in the USA, is allowed in an increasing number of states.

With U.S. smoking rates falling fast, Richmond, Virginia-based Altria is under pressure to find new avenues to expand revenue. 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.

Investors seem to be betting that more deals could be coming. 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.

In February, Pyxus bought controlling stakes in two Canadian marijuana producers, Canada's Island Garden and Goldleaf Pharm.

Also, the Canadian subsidiary of Molson Coors has a joint venture with The Hydropothecary Corporation for the production of "cannabis-infused drinks" in Canada.

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

Separately on Friday, Altria said it would discontinue some of its e-cigarette brands, including all of MarkTen and Green Smoke e-vaper products, based on their financial performance and will take a related pretax charge of $200 million in the fourth quarter.

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