Altria takes stake in Canadian cannabis company Industries

Altria takes stake in Canadian cannabis company Industries

Troy Powers
December 10, 2018

— In August, New York-based Constellation Brands announced a $4 billion investment in another Canadian pot producer, Canopy Growth Corp., the largest to date by a major USA corporation in the cannabis market.

That will give Altria a 45% stake in the company, with an option for Altria to increase its stake to 55% over the next five years. In addition, Altria will receive purchase share warrants, valued at CAD $1.4 billion, which if exercised would give the company an additional 10% in Cronos.

The exclusive partnership will give Cronos additional financial resources, regulatory expertise and product development and commercialization capabilities to tap worldwide cannabis opportunities, the company said in the announcement. "Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth", said Mike Gorenstein, CEO of Cronos. Pot producer Canopy Growth Corp's shares in Toronto rose 3.5 per cent to close at $41.75.

It is the Virginia-based company's first foray into cannabis.

However, the global cannabis opportunity remains "large and untapped", said Vivien Azer, an analyst with Cowen.

Altria's investment marks the latest move by a US company in an established industry to tap the burgeoning Canadian cannabis industry.

Tobacco giant Altria (MO) is jumping on the cannabis bandwagon.

Coca Cola bottle and glass on picnic table
Coca Cola bottle and glass on picnic table

The investment comes a little more than a year after Corona beer distributor Constellation Brands announced that it would invest billions of dollars in Canopy Growth Corporation (NYSE: CGC).

— There are a handful of companies listed on the Toronto Stock Exchange devoted exclusively to cannabis, either for medicinal or recreational use, or both: Canopy Growth Corp., Aurora Cannabis Inc. and Cronos Group Inc.

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

Altria will acquire 146.2 million Cronos shares at a price of CA$16.25 per share, representing a 41.5% premium to the 10-day average price ending November 30, the last unaffected trading day before Cronos publicly disclosed discussions with Altria.

— This fall, Canada became the second nation — and by far the largest — to legalize recreational marijuana use and has become the epicenter of large cannabis companies. Altria will make Cronos its exclusive partner for all world-wide cannabis-related investments, with some limited exceptions.

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

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