The Marlboro cigarette maker is taking a 45% stake in Cronos Group Inc., the Canadian medical and recreational marijuana provider said Friday.
Rumors of a potential acquisition between the two companies were reported earlier this week. Investors, meanwhile, have been pouring money into cannabis companies that operate in multiple US states, pivoting away from Canada. It also weighed making investments in other growers, such as Aphria and CannTrust Holdings Inc., according to sources familiar with the matter who were granted anonymity because the talks were private.
It's clear Altria has reassessed its competitive position. It also plans to focus on more reduced-risk tobacco products.
However, the global cannabis opportunity remains "large and untapped", said Vivien Azer, an analyst with Cowen.
Altria spokesman Steven Callahan declined to comment beyond the company's press release. Altria shares that vision, Mr. Gorenstein said. The transaction is expected to close in the first half of 2019.
Altria can also invest up to a further $1.4 billion within four years that would increase its ownership stake in the Toronto-based pot producer to 55 per cent under the arrangement.
After the deal is closed, Altria will have the right to nominate four directors, including one independent, to Cronos' board comprising seven directors in total.
Cowen analyst Vivien Azer said it's not surprising that Altria opted for a pathway to a majority control of Cronos.
The deal is a "big endorsement" for Cronos and is "reassuring" for the industry, amid rising concerns that pot companies' valuations may be too lofty, Landry said.
Altria 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. The Philip Morris International CEO also discusses the company's push to create a smoke-free future.
With smoking rates in the United States falling fast, Altria is under pressure to find new sources of revenue. It.
"When we were strategically planning how we would enter cannabis years ago, one of the companies that we looked at and had a lot of respect and admiration for was Altria", he said. Cronos's stock, therefore, may indeed be worth buying following this landmark partnership with Altria. We think that model of growing your own plants is very hard to scale and to execute well.