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Altria investing $2.4B in Canadian cannabis producer Cronos

08 December 2018

Altria is also in talks to take a minority stake of between 20 per cent and 40 per cent in e-cigarette maker Juul Labs Inc, sources told Reuters last month. Altria has the option to gain majority control in the future. Federal data from November showed cigarette smoking among USA adults reached an estimated 14 per cent in 2017, the lowest level ever.

"We believe cannabis is an excellent strategic fit for tobacco", Jefferies analyst Owen Bennett said in a research note earlier this week. "This is big for everyone", Cronos CEO Mike Gorenstein said in an interview with Marijuana Business Daily. It also plans to focus on more reduced-risk tobacco products. Altria shares were up about 2.5 percent.

Cronos shares, meanwhile, surged as much as 33 percent to $13.95 in NY.

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Shares of Cronos surged as much as 33 per cent to $18.56 on the Toronto Stock Exchange from its $13.98 closing price on Thursday. Constellation brands said at the time that the deal would "position Canopy Growth as the global leader in cannabis production, branding, intellectual property and retailing".

As part of the agreement, Altria will be able to nominate four members to Cronos Group's board of directors.

However, the global cannabis opportunity remains "large and untapped", said Vivien Azer, an analyst with Cowen. Altria is paying 25 times forward sales, she said, and in her view, Altria is "buying their way out of a bind" after nearly two decades of volume decline for US cigarettes, and a challenging 2018 for e-cigarettes.

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The first Canadian cannabis grower to list its shares on a US stock market, Cronos said it plans to spend the money on product innovation, noting Altria's expertise in device technology and automation, and fuel Cronos's expansion into new countries amid a global shift toward loosening restrictions on the drug. It said the deal with Altria does not limit Cronos from any other partnerships.

Altria now has been grappling with a Food and Drug Administration that's intent on strengthening restrictions on some of the vaping products that have caught on with younger users. Separately, it has asked for regulatory permission to say the device carries a lower health risk than regular tobacco products. 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.

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.

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Altria investing $2.4B in Canadian cannabis producer Cronos