Altria buys 45 percent stake in Canadian marijuana company

Jeannie Matthews
December 9, 2018

"Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth", said Cronos CEO Mike Gorenstein in a statement.

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. 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.

"When you look at the commitment that Altria makes, they're obviously looking at the sector for the next 10 to 20 years".

The exclusive partnership will give Cronos additional financial resources, regulatory expertise and product development and commercialization capabilities to tap global cannabis opportunities, the company said in the announcement.

"Altria's experience is very wide-ranging - not just in tobacco, but in adult beverages in different categories and decades of experience in how to bring different products to market", Cronos chief executive Michael Gorenstein said on call with analysts.

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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. Constellation brands said at the time that the deal would "position Canopy Growth as the global leader in cannabis production, branding, intellectual property and retailing". Doing so would lift Altria's status to a majority shareholder as it would own around 55 percent of the company.

In February, Pyxus bought controlling stakes in two Canadian marijuana producers, Canada's Island Garden and Goldleaf Pharm. The offer represents a 16.2-percent premium to the stock's Thursday close on the Toronto Stock Exchange.

Prior to Friday's announcement, Cronos had confirmed reports that it was in talks with Altria.

It will also acquire warrants that will allow Altria to buy more stock at $19 per share within four years. The new relationship represents an "exciting new growth opportunity" and Cronos is backed by an "excellent management team". It said the deal with Altria does not limit Cronos from any other partnerships.

Gorenstein added that Cronos will use the investment from Altria to expand its distribution and infrastructure around the world and also boost its investments in research and development for new brands and products.

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