Cigarette maker invests $4.2B in Canadian cannabis producer
TORONTO — Marlboro maker Altria Group will invest $2.4 billion in Canadian cannabis producer Cronos Group Inc. — marking a major foray by Big Tobacco into the pot sector — as the global market for weed continues to grow.
The Virginia-based parent of the company behind Marlboro, Parliament and other cigarette brands will acquire a 45 per cent ownership stake in Cronos with the initial investment, announced Friday.
Altria can also invest up to a further $1.4 billion within four years that would increase its ownership stake in the Toronto-based pot producer to 55 per cent under the arrangement.
“Altria brings scale, expertise and complementary capabilities that we believe will enable us to expand the scope and enhance the scale of our company,” said Mike Gorenstein, chairman, president and chief executive of Cronos on a call with analysts Friday.
Cronos will remain a Canadian company, headquartered in Toronto, Gorenstein said.
As part of the agreement, Altria will have the right to nominate four directors to the Cronos board, which will be expanded to seven members from five.
Altria’s investment in Cronos as its exclusive partner in the emerging global cannabis category represents an “exciting new growth opportunity” for the company, said chairman and chief executive officer Howard Willard.
“We believe Cronos Group’s excellent management team has built capabilities necessary to compete globally, and we look forward to helping Cronos Group realize its significant growth potential,” he said in a statement.
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 was trading at $16.79 by Friday afternoon.
Canada on Oct. 17 became the second country in the world to legalize pot for recreational use. Several U.S. states have legalized cannabis for medical or recreational use, but pot remains illegal under federal law.
However, the political climate south of the border has been warming up to cannabis. For example, legislation that would allow for the full legalization of industrial hemp in the U.S. and ease restrictions on the cannabis compound CBD is working its way through the U.S. legislative process.
During the U.S. midterm elections, Michigan became the latest state to approval the legalization of recreational cannabis, and Utah and Missouri approved the drug for medical purposes.
As well, the number of countries that have legalized medical cannabis continues to grow, with South Korea among the latest to give the green light.
And as global cigarette consumption continues to decline, Big Tobacco has been looking for new areas for growth such as ecigarettes and, now, pot.
Marlboro maker Altria is diving into the Canadian cannabis market with a $2.4-billion investment in Toronto-based medical and recreational marijuana provider Cronos Group.