Tobacco company Altria Group to invest $2.4B in Canadian cannabis producer

A Pack of Marlboro cigarettes

Tobacco giant Altria jumped into the cannabis business Friday morning, with a $1.8 billion deal for Canada's Cronos Group that raises doubts about the vertically integrated approach of most other pot companies.

The first Canadian cannabis grower to list its shares on a USA 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.

"Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth", Cronos Group CEO Mike Gorenstein said. Canadian pot stocks have been crushed in recent weeks after a lacklustre start to recreational sales amid reports of countrywide supply shortages.

Cronos's stock closed 22 per cent higher at $17.06 in Toronto, while shares of Altria fell 0.4 per cent.

The agreement allows Altria to nominate four directors to Cronos' board of directors, including one independent director.

Meanwhile, the number of countries that have legalized medical cannabis continues to grow, with South Korea among the latest to give the green light.

Marijuana, while still illegal on the federal level in the U.S., is allowed in an increasing number of states. "And they're seeing a ton of growth", he said in an interview. "In fact, we think this partnership makes us collectively a more attractive partner" for other potential investors, Gorenstein said on a conference call Friday.

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The Denver-based brewing company said earlier this year that its Canadian unit would partner with the Hydropothecary Corporation "to pursue opportunities to develop non-alcoholic, cannabis-infused beverages for the Canadian market following legalization".

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.

For its initial investment, the tobacco giant will acquire a 45% ownership stake in Cronos.

Corona beer maker Constellation Brands announced a US$4 billion investment in Canadian cannabis producer Canopy Growth in August, the biggest investment so far in the industry.

Cronos confirmed last Friday that it was in talks with Altria after a Reuters report.

Gorenstein said that Altria has "decades of experience in regulatory, government affairs, compliance, product development and brand management that we expect to leverage, particularly as new markets for cannabis open around the world".

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