Al­tria buys $1.8B stake in Canada pot pro­ducer

The Olympian - - Stay Connected - BY TIFFANY KARY AND KRIS­TINE OWRAM Bloomberg News

Al­tria Group Inc., the U.S. maker of Marl­boros, made a $1.8 bil­lion in­vest­ment in a Cana­dian pot com­pany Fri­day based on a sim­ple premise: Cannabis is grow­ing fast, and cig­a­rettes are not.

Al­tria has agreed to take a 45 per­cent stake in Toronto-based mar­i­juana pro­ducer Cronos Group Inc., mark­ing a ma­jor tobacco com­pany’s first fo­ray into cannabis. It has the op­tion to take ma­jor­ity con­trol in the fu­ture. The tobacco gi­ant si­mul­ta­ne­ously said it will kill two of its next-gen­er­a­tion prod­ucts, fu­el­ing talk that a po­ten­tial deal with Juul Labs Inc. could come soon.

With U.S. smok­ing rates fall­ing fast, Rich­mond, Va.-based Al­tria is un­der pres­sure to find new av­enues to ex­pand. Mar­i­juana is al­lowed in an in­creas­ing num­ber of states but is still il­le­gal on the fed­eral level in the U.S. That makes Canada, which le­gal­ized recre­ational use in Oc­to­ber, a large lab­o­ra­tory for the nascent in­dus­try.

“We be­lieve cannabis is an ex­cel­lent strate­gic fit for tobacco,” Jef­feries an­a­lyst Owen Ben­nett said in a re­search note ear­lier this week. It’s a log­i­cal fit, be­cause “big tobacco knows how to cul­ti­vate crop, knows how to deal with reg­u­la­tors, they are at the fore­front of va­por­iza­tion tech­nol­ogy, and they also ar­guably have less rep­u­ta­tional risk than other fast-mov­ing con­sumer goods,” he said.

Al­tria also said Fri­day that it will dis­con­tinue two of its next-gen­er­a­tion tobacco prod­ucts and its oral nico­tine-con­tain­ing ones to fo­cus on “more com­pelling re­duced-risk tobacco prod­uct op­por­tu­ni­ties.”

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