One of the largest tobacco companies in the world is getting into the cannabis game.
As part of a strategic investment, Altria will acquire a 45-percent equity stake in Cronos at a price of C$16.25 with a warrant to buy incremental shares at a price of C$19 per share which can be exercised over four years from the transaction closing date.
"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.
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 USA states last month. Constellation brands said at the time that the deal would "position Canopy Growth as the global leader in cannabis production, branding, intellectual property and retailing".
Coca-Cola (KO) was rumored to be considering an investment in Canadian cannabis company Aurora (ACB).
FOX Business breaks down other companies that have eyed investments in the cannabis industry below. It said it was doing so because it doesn't "see a path to leadership with these particular products", as well as the regulatory burden it faces to bring them to market.
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Shares of other cannabis companies rallied after the announcement. We think that model of growing your own plants is very hard to scale and to execute well.
Altria will nominate four directors to an expanded seven-member Cronos board.
The deal is expected to close in the first half of 2019.
Cronos confirmed last Friday that it was in talks with Altria after a Reuters report.
Cronos shares were up 23% in pre-market trading, while Altria's stock gained 2%, according to CNBC.
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. The company could also be positioning itself for the possible legalization of marijuana across the U.S., Quartz added.