Altria to marry pot with big tobacco in $1.8 billion Cronos deal

Altria Group, one of the largest tobacco companies in North America, has agreed to invest 2.4 billion Canadian dollars ($1.8 billion) in Ontario-based cannabis producer Cronos Group - the most significant foray by Big Tobacco into the rapidly growing cannabis industry to date.

Altria will pay an additional $1.4 billion for warrants that, if exercised, would give Altria a 55% ownership stake in the Toronto company.

"Altria's experience is very wide-ranging - not just in tobacco, but in adult beverages in different categories and decades of experience in how to bring different products to market", Cronos Chief Executive Officer Michael Gorenstein said on a call with analysts.

Cronos Chairman and CEO Mike Gorenstein said Altria is an ideal partner as it can offer the "resources and expertise we need to meaningfully accelerate our strategic growth". Several U.S. states have legalized cannabis for medical or recreational use, but pot remains illegal under federal law.

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The transaction is expected to finalize within the first half of 2019.

Major pot stocks have generally pulled back from their highs in recent weeks amid reports of supply shortages and complications with the sales process under the new regime. The Altria-Cronos deal is "encouraging" given the broad potential uses for cannabis such as in pharmaceuticals and health and wellness products, she said in a note to clients.

Shares of Altria were up 1.6 per cent at US$55.29 in early trading, while USA -listed shares of Cronos were up about 29 per cent at US$13.49.

In June, British tobacco giant Imperial Brands was among investors taking a stake in Oxford Cannabinoid Technologies, a United Kingdom-based medical cannabis startup. The new relationship represents an "exciting new growth opportunity" and Cronos is backed by an "excellent management team". Constellation Brands Inc announced a $3.8-billion investment in Canopy Growth Corp in August, while Coca-Cola Co said in September it was watching the space for alliances that could potentially help it develop products containing cannabinoid oil. Altria will make Cronos its exclusive partner for all world-wide cannabis-related investments, with some limited exceptions.

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