Marlboro owner Altria invests $1.8 billion in cannabis company Cronos

Altria hopes pot is the key to help it grow beyond its stagnant cigarette business.Tobacco giant Alti...

Posted: Dec 7, 2018 11:00 AM
Updated: Dec 7, 2018 11:00 AM

Altria hopes pot is the key to help it grow beyond its stagnant cigarette business.

Tobacco giant Altira is investing $1.8 billion in Canadian cannabis company Cronos Group. That will give Altria a 45% stake in the company, with an option for Altria to increase its stake to 55% over the next five years.

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Reports of an Altria-Cronos deal first surfaced earlier this week. The decision by Altria to go ahead with an investment in Cronos shows that Altria is serious about investing in marijuana as a new growth area as sales of traditional cigarettes slow.

Altria's stock has fallen nearly 25% this year and the company is expected to report revenue growth of only about 1% this year and in 2019.

"Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria," said Howard Willard, Altria's CEO, in a statement.

Shares of Altria (MO) rose 2% in early trading Friday while Cronos (CRON) soared more than 30%.

"Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth," said Cronos CEO Mike Gorenstein in a statement.

Gorenstein added that Cronos will use the investment from Altria to expand its distribution and infrastructure around the world and also boost its investments in research and development for new brands and products.

Cronos 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 other consumer products companies may want to bet on cannabis.

Canadian marijuana company Canopy Growth (CGC) already has received a multibillion dollar investment from Corona owner Constellation Brands (STZ).

Coca-Cola (KO) was rumored to be 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.

Investors seem to be betting that more deals could be coming. Shares of Canopy, Aurora, Tilray (TLRY) and Aphria (APHA) all surged Friday morning.

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