Marlboro’s owner invests $1.8 billion in Canadian cannabis company

A look at medical marijuana cannabis

Marlboro cigarette maker Altria Group Inc made a big bet on the rapidly growing marijuana industry on Friday with a $2.4 billion investment in Canadian cannabis producer Cronos Group Inc.

The entry of Altria - owner of Marlboro maker Philip Morris USA and an investor in alcohol giant Anheuser-Busch InBev - is another major milestone for the marijuana sector, coming on the heels of Constellation Brands' bombshell investment in Canopy Growth in August. 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.

Cronos first murmured about Altria's potential takeover this week.

"Altria brings scale, expertise and complementary capabilities. that we believe will enable us to expand the scope and enhance the scale of our company", Mike Gorenstein, chairman, president and chief executive officer of Cronos, said on a call with analysts Friday. Canadian pot stocks have been crushed in recent weeks after a lacklustre start to recreational sales amid reports of countrywide supply shortages.

After the news was announced shares of Cronos Group Inc. jumped 31 per cent and neared an all-time high at the opening bell on Friday.

Altria will nominate four directors to an expanded seven-member Cronos board. Marijuana, while still illegal on the federal level in the US, is now allowed in an increasing number of states, while Canada now represents a large laboratory for the nascent industry.

"We believe an investment of this magnitude provides overall legitimacy to the industry as a whole and should represent a positive catalyst for the sector", he said.

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The country has largely been celebrating ever since, but in an unexpected step one of the biggest cigarette firms in the world has announced that it is pumping an incredible CAN $3.8 billion (US $2.9bn / £2.2bn) into the cannabis market. "And they're seeing a ton of growth", he said in an interview.

Altria's investment in Cronos is by far the largest move by Big Tobacco into cannabis, said Martin Landry, an analyst with GMP Securities.

That would mean Altria's investment would be in the same league as the $4 billion spent earlier this year by Constellation Brands to acquire shares of Canopy Growth Corp., another Canadian pot producer.

The value of publicly-traded Canadian cannabis companies had soared leading up to October 17, when sales of cannabis became legal under rules and regulations established by Ottawa and the provinces.

The Canadian subsidiary of Molson Coors (TAP) has a joint venture with The Hydropothecary Corporation to produce cannabis-infused drinks for the Canadian market.

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

Cronos said it will use the capital to accelerate its global growth and expansion, as well as research and development.

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