Maker of Marlboro cigarettes invests $2.4B in Canadian cannabis producer Cronos
- Author: Wendy Palmer Dec 10, 2018,
Dec 10, 2018, 1:33
Altria's total investment will be in the same league as the $4 billion spent earlier this year by Constellation Brands to acquire shares of Canopy Growth Corp., another Canadian pot producer.
Altria's ability to handle regulatory pressures could help the company navigate complex legal issues such as product registration and taxation as more cannabis markets open up around the world, Cronos said.
"The proceeds from Altria's investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in (research and development) and brands that resonate with our consumers", he continued. Demand for legal cannabis and cannabis-infused products is also growing in the USA, where cannabidiol (CBD) product sales are expected to surpass $1 billion in 2018, according to Hemp Business Journal.
Coca-Cola, Pepsi, Anheuser-Busch and Guinness brewer Diageo haven't jumped in yet, but have said they're watching closely as the market for cannabis and its extracts evolves.
"As a company that operates predominantly in the highly-regulated tobacco industry, we believe Altria has valuable regulatory and compliance experience that could end up being a key competitive advantage for Cronos, as it competes with other licensed producers for what seems to be a growing set of global opportunities", Canaccord Genuity analysts wrote in a research note.
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. Canopy Growth (CGC) was up 2.6%. The transaction is expected to close in the first half of 2019. Altria has agreed to buy 146.2 million shares at closing at a price of C$16.25 per share.
With the Cronos investment, Altria will get a new opportunity to boost revenue as cigarette smoking continues to decline in the United States.