Marlboro maker Altria officially enters the marijuana business

08 December, 2018, 12:06 | Author: Regina Silva
  • A look at medical marijuana cannabis

Tobacco giant Altira is investing $1.8 billion in Canadian cannabis company Cronos Group.

The investment is a 45% stake and Altria could pay another $1.4 billion for warrants that would increase its stake to 55% over the next five years.

Altria's Chairman and CEO Howard Willard said Cronos will serve as the company's exclusive partner in the global cannabis category.

"This is showing that the entire industry is viable and a huge growth opportunity". Canadian pot stocks have been crushed in recent weeks after a lacklustre start to recreational sales amid reports of countrywide supply shortages.

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.

In June, British tobacco giant Imperial Brands was among investors taking a stake in Oxford Cannabinoid Technologies, a United Kingdom-based medical cannabis startup.

Cronos shares were up 23% in pre-market trading, while Altria's stock gained 2%, according to CNBC.

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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.

With U.S. smoking rates falling fast, Richmond, Virginia-based Altria is under pressure to find new avenues to expand revenue. "This is big for everyone", Cronos CEO Mike Gorenstein said in an interview with Marijuana Business Daily. Altria is in talks to acquire a stake in e-cigarette start-up Juul Labs Inc., according to reports by USA media outlets.

As well, the number of countries that have legalized medical cannabis continues to grow, with South Korea among the latest to give the green light. It has entered into joint ventures to boost its presence and capacity in Canada and overseas, including in Israel and Australia.

Cronos plans to focus on cannabis genetics, innovation and branding, while contracting with farmers to grow the product and working with retailers. Altria shares were up about 2.5 percent.

Cronos has partnered with Boston biotech firm Ginkgo Bioworks Inc.to genetically engineer the active compounds of cannabis. We think that model of growing your own plants is very hard to scale and to execute well.

Altria's stock fell by almost 25 percent this year and revenue is expected to grow by only 1 percent this year and in 2019, CNN Business reported. JPMorgan Chase Bank NA, a subsidiary of JPMorgan Chase & Co., is providing financing to Altria. Canada's top lenders, who have largely refused to serve clients in the cannabis sector for years, are now getting shut out of the sector's biggest transactions.

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

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