The agreement allows Altria to nominate four directors to Cronos' board of directors, including one independent director.
MedMen Enterprises, the CSE-listed company that launched several luxury-focused cannabis retail stores across the USA, announced that its two co-founders have bought a significant amount of shares amid a downturn in the company's stock. 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. A wave of cannabis producers have set up shop in Canada, where recreational use was legalised earlier this year.
- Last summer, Tilray Inc., a medical marijuana company in British Columbia, became the first marijuana business to complete an initial public offering on a major US stock exchange, raising $153 million to expand its operations as Canada prepared to legalize the drug nationwide.
"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. It's a logical fit, because "big tobacco knows how to cultivate crop, knows how to deal with regulators, they are at the forefront of vaporization technology, and they also arguably have less reputational risk than other fast-moving consumer goods", he said. Canopy Growth (CGC) was up 2.6%.
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The transaction is expected to close in the first half of next year. The Altria-Cronos deal is "encouraging" given the broad potential uses for cannabis such as in pharmaceuticals and health and wellness products, she said in a note to clients. Cronos announced earlier this week that Altria could make a possible investment after Reuters reported the tobacco giant was in talks to acquire Cronos.
The parent company of Corona beer acquired a $4 billion stake in Canada-based pot producer Canopy Growth last August, upping its ownership of the company to 38 percent from about 10 percent. Molson Coors Canada owns a 57.5 percent interest in the joint venture.
Altria has agreed to pay $16.25 per share to acquire 146.2 million shares of Cronos, which represents a 41.5 premium above the stock before it confirmed the companies' preliminary discussions. There is also a warrant giving Altria the right to purchase additional shares at $14.25 a share over the next four years.
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.