10 December, 2018
Altria, the parent company of Ste.
The deal with Cronos gives Altria a foothold in Canada, which in October became the first major economy to legalize marijuana for adult use on a federal level.
The deal also includes warrants to acquire an 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 percent. Cronos will remain a Canada-based company and will continue to be led by its existing management team.
"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 Chairman and Chief Executive Officer. Reuters reports that the initial purchase price represents a 16.2% premium compared to the cannabis company's stock price at closing on Thursday on the Toronto Stock Exchange.
Subsequently, earlier this week, MarketScreener has reported that the tobacco giant is also in separate talks with Canadian cannabis company Cronos Group Inc. Aurora Cannabis Inc.'s stock rose 7.8 per cent to close at $7.60 after it announced a new supply deal to Mexico.
Cronos CEO Mike Gorenstein said the investment "puts us in an unbelievable position to succeed in a number of areas". "We don't plan on using the capital to build greenhouses around the world".
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"We'll work with them on genetics, technical assistance, taking back the product and ultimately processing it, formulating it, branding it and distributing it", he said. "We believe it is an adjacent business and a complementary business". As a term of the investment, Altria will name four directors to Cronos' board, which will expand from five to seven members.
Altria had been assessing market opportunities in the cannabis industry since at least September.
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News of the deal has caused to Cronos' stock price to jump by almost 25% in pre-market trading.
As well, USA tobacco leaf merchant Alliance One International said its subsidiary acquired a 75 per cent equity stake in Charlottetown-based Canada's Island Garden in January.
This story will be updated throughout the day.