Canada’s Cronos Group Announces Billion Dollar Deal with Altria/Marlboro

Did news of talks with Cronos have negative effect on cannabis company Aphria’s stock price?

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UPDATE (Dec 7, 2018): Canadian cannabis producer Cronos Group this morning announced that recent talks with tobacco branding giant Altria Group, Inc., parent company of Phillip Morris, have proved fruitful.

In a press release, Cronos announced that Altria has agreed to make a $1.8 (USD) billion-dollar equity investment in the cannabis company. The strategic partnership will give Altria a 45 percent share of Cronos stock.

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“Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth,” said Cronos Group Chairman, President, and CEO Mike Gorenstein. “The proceeds from Altria’s investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in R&D and brands that resonate with our consumers.

“Importantly, Altria shares our vision of driving long-term value through innovation, and we look forward to continuing to differentiate in this area. As one of the largest holding companies in the adult consumer products sector, Altria has decades of experience in regulatory, government affairs, compliance, product development and brand management that we expect to leverage, particularly as new markets for cannabis open around the world,” he added.

Cronos also noted that the investment by Altria will allow rapid and increased expansion for the cannabis company, and that Cronos would be able to leverage Atria’s resources in “product design, manufacturing, marketing and distribution capabilities and expertise,” as well as “expertise in successfully navigating complex regulatory landscapes.”

“Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria,” said Altria’s Chairman and CEO Howard Willard. “We believe that Cronos Group’s excellent management team has built capabilities necessary to compete globally, and we look forward to helping Cronos Group realize its significant growth potential.”

TORONTO, Canada–In a post reported exclusively on Monday by news organization Reuters, Canadian cannabis producer Cronos Group confirmed that multinational tobacco brand giant Altria Group Inc., parent company of Phillip Morris USA, was in talks with Cronos. Phillip Morris produces cigarette brand Marlboro, among others.

According to media reports, Reuters initially said Altria was considering Cronos for acquisition, but then the story was updated to affirm that talks had been focused on “investment,” after comments from Cronos.

A press release said, “it is engaged in discussions concerning a potential investment by Altria Group Inc.,” and that “there can be no assurance such discussions will lead to an investment or other transaction.”

Investors reacted with enthusiasm at the news, as Cronos (CRON:Nasdaq) stock soared up to 20 percent yesterday; the stock ended the day up 11 percent, taking the company’s market valuation to $1.8 billion. Altria stock (MO:NYSE) also bounced, up 1.64 percent. The brand giant has seen decreased revenues as the popularity of tobacco products has declined in recent years.

Speculation about major U.S. legacy brands making the transition to cannabis is of great interest to global investors and cannabis industry members, though U.S. cannabis companies are severely limited by ongoing U.S. cannabis prohibition.

Without Drug Enforcement Administration (DEA) rescheduling of cannabis and a federal regulatory scheme for the legal cannabis industry in the U.S., American cannabis companies are left to deal with a hodgepodge of varying state regulations, no access to merchant banking services, and no possibility of entry into the global legal cannabis market for import and export.

Canada, by comparison, which implemented nationwide cannabis legalization this year, has seen several cannabis companies achieve billion-dollar market values, including Cronos Group and other Canadian-based producers, like Canopy Growth, Aurora Cannabis, and Aphria Inc.

In related stock news, Canadian cannabis producer Aphria Inc. (APHA:NYSE) stock today saw a second straight day of losses, after the company disputed recent comments by hedge fund manager Gabriel Grego at the KASE Learning Shorting Conference held in New York. Grego allegedly urged attendees to sell Aphria stock during a presentation. The cannabis company called Grego’s reported comments “false and defamatory.”

Just four weeks ago, reports that Altria/Marlboro had been in talks with Aphria may have also had a negative affect on the company’s stock price, when yesterday’s news of meeting with Cronos Group was revealed. Aphria stock was down 23 percent yesterday and down an additional 25 percent at close today, but is up in after hours trading.

In October 2017, multinational adult beverage company Constellation Brands (STZ:NYSE) parent of Corona Beer, made a $4 billion investment in Canopy Growth (CGC:NYSE). In the a consumer climate where trends change faster than ever, experts sense that legacy brands in adult markets are looking to diversify into products that have appeal in the long term, as consumer tastes change.

Constellation also took a hit at the end of November, when its stock price was downgraded on speculation that its investment in Canopy Growth would not “yield value” to investors any time soon, Barrons.com reported.

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