(Reuters) – Marlboro cigarette maker Altria Group Inc made a big bet on the rapidly growing marijuana industry on Friday with a $1.8 billion investment in Canadian cannabis producer Cronos Group Inc.
Mike Gorenstein, marijuana firm Cronos Group’s founder and CEO, speaks during an interview in New York, U.S., September 4, 2018. REUTERS/Brendan McDermid
The deal gives Altria an up to 55 percent stake in Cronos and is the latest in a string of investments from consumer companies hoping to benefit from Canada’s move to legalize marijuana for recreational use.
Corona beer maker Constellation Brands announced a $4 billion investment in Canadian cannabis producer Canopy Growth in August, the biggest investment so far in the industry.
With the Cronos deal, Altria will get a new opportunity to boost revenue as cigarette smoking continues to decline in the United States.
Federal data from November showed cigarette smoking among U.S. adults reached an estimated 14 percent in 2017, the lowest level ever.
Altria will buy 146.2 million of newly issued Cronos shares at C$16.25 per share, a 16.2 percent premium to the stock’s Thursday close on the Toronto Stock Exchange.
The deal includes a warrant to acquire additional ownership interest in Cronos at a price of C$19 per share over the next four years, which could raise Altria’s stake to 55 percent.
After the deal is closed, Altria will have the right to nominate four directors, including one independent, to the Cronos board.
Cronos announced earlier this week that Altria could make a possible investment after Reuters reported the tobacco giant was in talks to acquire Cronos.
Shares of Altria were up 1.1 percent at $54.99 in premarket trading, while U.S.-listed shares of Cronos were up about 35 percent at $14.06 premarket.
Reporting by Uday Sampath in Bengaluru; Editing by Saumyadeb Chakrabarty and Shinjini Ganguli