Published: Sat, December 08, 2018
Business | By Eloise Houston

Marlboro cigarettes' parent company delves into marijuana market

Marlboro cigarettes' parent company delves into marijuana market

Altria Group, which owns multiple big tobacco brands like Marlboro and Skoal, announced a $1.8 billion investment into Canadian cannabis company Cronos Group at approximately $12.19 a share.

Altria can also invest up to a further $1.4 billion to increase its ownership stake in Cronos to 55 per cent, under the arrangement.

"Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria", Howard Willard, Altria's chairman and chief executive officer said in a statement.

The president and CEO of Cronos, Mike Gorenstein, says the agreement with Altria will give the Toronto-based company the resources to expand more quickly and increase its investments in research and development.

Shares of Altria (MO) rose 2% in early trading Friday while Cronos (CRON) soared more than 30%.

Shares of Cronos Group Inc. jumped 31 percent and neared an all-time high at the opening bell Friday.

Canadian marijuana company Canopy Growth (CGC) already has received a multibillion dollar investment from Corona owner Constellation Brands (STZ). Peers in the marijuana sector also gained, with Aurora Cannabis Inc. rising as much as 11 percent, Aphria Inc. adding 14 percent, Canopy Growth Corp. rising 7.3 percent and Tilray Inc. gaining 4.8 percent.

Cronos will remain a Canadian company, headquartered in Toronto, Gorenstein said.

The cigarette maker's move follows modest investments in the cannabis sector in the past year by tobacco companies Imperial Brands and Pyxus International, formerly Alliance One International.

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. "In fact, we think this partnership makes us collectively a more attractive partner" for other potential investors, Gorenstein said on a conference call Friday.

As well, USA tobacco leaf merchant Alliance One International said its subsidiary acquired a 75 per cent equity stake in Charlottetown-based Canada's Island Garden in January. 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.

In a separate news release Friday, Altria said it is discontinuing its existing e-cigarette brands and will take a US$200-million charge on these assets in its next quarter.

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