The deal gives Altria an up to 55 per cent stake in Cronos and is the latest in a string of investments from consumer companies hoping to benefit from Canada’s move to legalize marijuana for recreational use.
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.
With the Cronos deal, Altria will get a new opportunity to boost revenue as cigarette smoking continues to decline in the United States.
Federal data from November showed cigarette smoking among U.S. adults reached an estimated 14 per cent in 2017, the lowest level ever.
Altria is also in talks to take a minority stake of between 20 per cent and 40 per cent in e-cigarette maker Juul Labs Inc, sources told Reuters last month.
“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 Michael Gorenstein said on call with analysts.
“That experience, we think, is going to be very important as we try to accelerate new product categories.”
As part of the deal, Altria will buy 146.2 million of newly issued Cronos shares at $16.25 per share for a 45 per cent stake. The offer represents a 16.2 per cent premium to the stock’s Thursday close on the Toronto Stock Exchange.
Shares of Altria were up 1.6 per cent at US$55.29 in early trading, while U.S.-listed shares of Cronos were up about 29 per cent at US$13.49. The deal also includes warrants to acquire additional ownership interest in Cronos at a price of C$19 per share over the next four years, which could raise Altria’s stake to 55 per cent.
After the deal is closed, Altria will have the right to nominate four directors, including one independent, to the Cronos board.
Cronos announced earlier this week that Altria could make a possible investment after Reuters reported the tobacco giant was in talks to acquire Cronos.
Altria’s ability to handle regulatory pressures could help the company navigate complex legal issues such as product registration and taxation as more cannabis markets open up around the world, Cronos said.
Separately Altria also said it would discontinue some of its e-cigarette brands, including all of MarkTen and Green Smoke e-vaper products, based on their financial performance and will take a related pretax charge of US$200 million in the fourth quarter.