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Cronos CEO: 'Watershed moment' for marijuana

Michael Gorenstein, CEO of Cronos Group, says legalized recreational marijuana in Canada "gets the ball rolling" globally.

Posted: Dec 4, 2018 6:34 PM
Updated: Dec 4, 2018 6:44 PM

The company that makes Marlboro cigarettes may be looking for a new vice. Altria could find that the red-hot cannabis industry is a much-needed supplement to its stagnant tobacco business.

Canadian cannabis company Cronos Group surged Monday after Reuters reported Altria may want to buy the company. The stock was up nearly 30% at one point before it was briefly halted for trading midday Monday. Shares were still up 12% when trading resumed.

Cronos (CRON) confirmed in a statement that it was discussing a potential investment by Altria, but Cronos said the two companies had not yet reached an agreement. Altria (MO) was not immediately available for comment.

Tobacco sales haven't budged much in recent years. That's why the cigarette giant reportedly had reportedly been interested in taking a minority stake in another Canadian pot company, Aphria (APHA) -- although Aphria's shares plunged Monday after one short seller referred to the company as a "black hole."

Altria is also rumored to be considering a big investment in e-cigarette company Juul in order to diversify beyond cigarettes.

Cronos, Aphria and other cannabis stocks have been thrust into the spotlight in the past few months following the legalization of recreational marijuana in Canada in October, as well as legalized recreational and medical pot in several US states last month.

With Democrats winning control of the US House, Congress may finally pass the Farm Bill, which would make it legal to produce hemp and potentially open the door for more products containing cannabidiol, or CBD.

Many alcoholic beverage, tobacco and even other consumer products companies may want to bet on cannabis. One Canadian marijuana company, Canopy Growth (CGC), already has received a multibillion dollar investment from Corona owner Constellation Brands (STZ).

Coca-Cola (KO) teased the possibility it could get into the cannabis business, saying in September it was "closely watching" the growth of CBD as a possible ingredient for so-called wellness beverages. CBD is a non-psychoactive component of marijuana.

At the same time, rumors swirled that Coke was considering an investment in Canadian cannabis company Aurora (ACB).

But Coke shot down the talk in October. CEO James Quincey said the company "doesn't have any plans at this stage" to enter the CBD market.

Coke's archrival Pepsi (PEP) hasn't completely ruled out a move into cannabis. Chief Financial Officer Hugh Johnston told analysts during its earnings call in October that "it's fair to say we look at everything" in response to a question about cannabis.

The Canadian subsidiary of Molson Coors (TAP) has a joint venture with The Hydropothecary Corporation to produce cannabis-infused drinks for the Canadian market.

Lagunitas, a beer brand owned by Heineken (HEINY), is selling a cannabis-infused sparkling water brand in California. UK alcoholic beverage giant Diageo (DEO) also could be interested in cannabis.

So it may be only a matter of time before a large US or European company winds up taking the plunge and buys a pot company outright.

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