Marl­boro-maker Al­tria in takeover talks with Cana­dian mar­i­juana group

Al­tria makes big to­bacco’s first push into le­galised cannabis

The Star (St. Lucia) - Business Week - - FRONT PAGE - BY ERIC PLATT, ALIS­TAIR GRAY AND JAMES FON­TANELLA-KHAN IN NEW YORK

The maker of Marl­boro cig­a­rettes has held early talks to buy Cana­dian mar­i­juana com­pany Cronos in what would be the first ma­jor takeover of a pot pro­ducer by a big to­bacco group, ac­cord­ing to peo­ple briefed on the dis­cus­sions

The maker of Marl­boro cig­a­rettes has held early talks to buy Cana­dian mar­i­juana com­pany Cronos in what would be the first ma­jor takeover of a pot pro­ducer by a big to­bacco group, ac­cord­ing to peo­ple briefed on the dis­cus­sions.

A takeover of Cronos by Al­tria amid spread­ing de­crim­i­nal­i­sa­tion would rank among the largest in­vest­ments in the bud­ding pot in­dus­try. Shares of Cronos, a Cana­dian group that grows and dis­trib­utes cannabis, climbed 14 per cent in New York on Mon­day to $10.39, giv­ing the com­pany a mar­ket cap­i­tal­i­sa­tion of $1.9bn.

The talks, first re­ported by Reuters, come as in­vestors have piled into the sec­tor; Canada be­came the largest coun­try to com­pletely le­galise recre­ational pot use in Oc­to­ber, and sev­eral US states, in­clud­ing Cal­i­for­nia, have made sim­i­lar le­gal changes.

Beer and spir­its maker Con­stel­la­tion Brands ear­lier this year pumped al­most $4bn into Canopy Growth, an­other large Cana­dian pot group, while ri­val Au­rora Cannabis in May struck a $2bn deal to buy med­i­cal mar­i­juana group MedRe­leaf. Deals worth more than $10bn have been agreed so far this year, up more than seven-fold from 2017, ac­cord­ing to data from Dealogic.

Other large con­sumer com­pa­nies have also been eye­ing the cannabis sec­tor as de­crim­i­nal­i­sa­tion of the drug spreads across North Amer­ica and west­ern Europe.

Coca-Cola, the world largest bev­er­age maker, has held talks with Canada’s Au­rora to de­velop bev­er­ages, while Al­tria has also held talks with Til­ray and Aphria. Di­a­geo, the drinks group be­hind Johnny Walker whisky, has also been ex­plor­ing in­vest­ment op­por­tu­ni­ties in the sec­tor, ac­cord­ing to peo­ple close to the com­pany.

Cannabis has been le­galised in Canada and in more than half of Amer­ica’s 50 states, al­though it re­mains an il­le­gal sub­stance un­der US fed­eral law. Spend­ing on cannabis is ex­pected to climb to $32bn by 2020 from $9.5bn last year, ac­cord­ing to an­a­lysts with Ar­cView and BDS An­a­lyt­ics.

The se­ries of talks come as Washington un­der­takes a wide-rang­ing crack­down on to­bacco and eci­garettes as con­cerns mount that a new gen­er­a­tion is get­ting ad­dicted to nico­tine.

Al­tria is also seek­ing to ac­quire a stake in Juul Labs, the eci­garette start-up val­ued at $16bn that has seized three-quar­ters of the US va­p­ing mar­ket since its launch in 2015. It is look­ing to take a 40 per cent stake in Juul, with an op­tion to take full con­trol at a later stage, ac­cord­ing to sev­eral peo­ple close to Al­tria.

The US Food and Drug Ad­min­is­tra­tion is plan­ning to ban men­thol cig­a­rettes and flavoured ci­gars, and also se­verely re­strict the avail­abil­ity of flavoured eci­garettes to lo­ca­tions that are off lim­its to any­one un­der 21.

The in­dus­try’s main prod­uct mean­while is de­clin­ing in the west at an ac­cel­er­at­ing rate. Cig­a­rette vol­umes are ex­pected to de­cline by about 4.2 per cent in the US this year, ac­cord­ing to Wells Fargo fore­casts, a slightly faster rate than the av­er­age for re­cent years.

Shares in Al­tria, listed in New York with a mar­ket cap­i­tal­i­sa­tion of $105bn, have fallen 14 per cent in the past month.

Al­tria did not im­me­di­ately re­spond to a re­quest for com­ment. Cronos could not be im­me­di­ately reached for com­ment.

Cannabis has been le­galised in Canada and in more than half of Amer­ica’s 50 states, al­though it re­mains an il­le­gal sub­stance un­der US fed­eral law

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