"Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria", Howard Willard, Altria's chairman and CEO, stated in an announcement.
"Altria brings scale, expertise and complimentary capabilities. that we believe will enable us to expand the scope and enhance the scale of our company", said Mike Gorenstein, chairman, president and chief executive officer of Cronos on a call with analysts on Friday. Canadian pot stocks have been crushed in recent weeks after a lacklustre start to recreational sales amid reports of countrywide supply shortages.
United States traded shares of of Cronos Group Inc. jumped 22 per cent Friday.
As part of the agreement, Altria will have the right to nominate four directors to the Cronos board, which will be expanded to seven members from five.
Cronos, meanwhile, grows and sells medical and recreational cannabis in Canada, operating two growing facilities in Ontario and one in British Columbia.
Coca Cola bottle and glass on picnic table
"I think it shows that the US players - Altria and Constellation - will not buy into a USA cannabis company until it becomes federally legal in the USA", said Mr.
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. It's a logical fit, because "big tobacco knows how to cultivate crop, knows how to deal with regulators, they are at the forefront of vaporization technology, and they also arguably have less reputational risk than other fast-moving consumer goods", he said.
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. "In fact, we think this partnership makes us collectively a more attractive partner" for other potential investors, Gorenstein said on a conference call Friday. The move will help it tap into a customer base outside cigarette smokers, as cigarette smoking declines in the U.S. Doing so would lift Altria's status to a majority shareholder as it would own around 55 percent of the company.
The parent company of Corona beer acquired a $4 billion stake in Canada-based pot producer Canopy Growth last August, upping its ownership of the company to 38 percent from about 10 percent.
Cronos said it will use the capital to accelerate its global growth and expansion, as well as research and development.