Economy

Marlboro maker places $1.8 billion bet on marijuana

Marlboro maker places $1.8 billion bet on marijuana

Marlboro cigarette maker Altria Group Inc made a big bet on the rapidly growing marijuana industry on Friday with a $2.4 billion investment in Canadian cannabis producer Cronos Group Inc.

Altria will pay an additional $1.4 billion for warrants that, if exercised, would give Altria a 55% ownership stake in the Toronto company.

With the Cronos investment, Altria will get a new opportunity to boost revenue as cigarette smoking continues to decline in the United States.

"Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth", said Mike Gorenstein, Cronos Group's chairman, president and chief executive officer.

An investment from Altria is expected to provide Cronos Group an opportunity for growth and expansion.

Shares of Cronos surged as much as 33 per cent to $18.56 on the Toronto Stock Exchange from its $13.98 closing price on Thursday. It also weighed making investments in other growers, such as Aphria and CannTrust Holdings Inc., according to sources familiar with the matter who were granted anonymity because the talks were private.

Cronos's Gorenstein said his company and Altria agree that developing brands and intellectual property is more valuable than growing plants and should be the focus going forward.

More news: Obsidian’s The Outer Worlds is an amazing-looking space-based Fallout game

"I think it shows that the US players - Altria and Constellation - will not buy into a USA cannabis company until it becomes federally legal in the US", said Mr.

Philip Morris International CEO Andre' Calantzopoulos discusses why his company is keeping clear of the cannabis industry.

Cronos is a leading player in Canada's cannabis industry, which received full nationwide legalization earlier this year.

Altria will nominate four directors to an expanded seven-member Cronos board. 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.

Corona beer maker Constellation Brands announced a US$4 billion investment in Canadian cannabis producer Canopy Growth in August, the biggest investment so far in the industry. Molson Coors Canada owns a 57.5 percent interest in the joint venture. 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.