Altria buys 45 percent stake in Canadian marijuana company

Marcus Newton
December 9, 2018

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.

Canadian cannabis producer Cronos Group announced Friday that it will receive a $2.4 billion equity investment from Altria Group, the maker of Marlboro cigarettes.

Altria will buy 146.2 million of newly issued Cronos shares at C$16.25 per share for a 45-percent stake.

Cronos CEO Mike Gorenstein said the partnership with Altria doesn't limit the cannabis firm from engaging with other strategic partners. Several U.S. states have legalized cannabis for medical or recreational use, but pot remains illegal under federal law. Constellation Brands Inc., maker of alcoholic beverages, has invested more than $5-billion for control of Canopy Growth Corp., while Molson Coors Brewing Co.is looking to create cannabis-infused beverages through a joint venture with Quebec's Hexo Corp. It is the Virginia-based company's first foray into cannabis.

Canadian marijuana company, Canopy Growth, for example, has received a multibillion dollar investment from Corona owner Constellation Brands, CNN reported. The offer represents a 16.2 per cent premium to the stock's Thursday close on the Toronto Stock Exchange. 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'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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With smoking rates in the USA falling fast, Altria is under pressure to find new sources of revenue. It.

Shares of other cannabis companies rallied after the announcement.

Altria is also in talks to take a minority stake of between 20 percent and 40 percent in Juul, sources told Reuters last month.

"In Canada the focus seems to still be on capacity, but that is not what this is about", the Cronos CEO added. We think that model of growing your own plants is very hard to scale and to execute well.

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.

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

Other reports by MaliBehiribAe

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