Altria to marry pot with big tobacco in $1.8 billion Cronos deal

Mike Gorenstein marijuana firm Cronos Group's founder and CEO speaks during an interview in New York U.S

This week, Aphria Inc., one of the country's largest cannabis growers, was defending itself against accusations of striking deals to enrich insiders made in a widely read short-sellers' report.

Altria Group Inc., the maker of Marlboro cigarettes, has struck a deal to buy a large stake in Cronos Group Inc., a cannabis grower in Toronto.

The deal gives Altria an up to 55 per cent 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.

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

Cronos has benefited in recent months from Canada's legalization of recreational marijuana as well as more states jumping on the recreational and medical pot bandwagon last month through voter initiatives. Canopy Growth received a multibillion-dollar investment from Corona owner Constellation Brands in August, CNN Business reported.

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.

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After the deal is closed, Altria will have the right to nominate four directors, including one independent, to the Cronos board. "And they're seeing a ton of growth", he said in an interview.

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. The decision by Altria to go ahead with an investment in Cronos shows that Altria is serious about investing in marijuana as a new growth area as sales of traditional cigarettes slow.

Shares of Altria (MO) rose 2% in early trading Friday while Cronos (CRON) soared more than 30%. We think that model of growing your own plants is very hard to scale and to execute well.

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

With smoking rates in the United States falling fast, Altria is under pressure to find new sources of revenue. It. For example, legislation that would allow for the full legalization of industrial hemp in the US and ease restrictions on the cannabis compound CBD is working its way through the USA legislative process.

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