Marlboro cigarettes' parent company delves into marijuana market

Canada voted earlier this year to legalise weed. Credit PA

Tobacco giant Altria jumped into the cannabis business Friday morning, with a $1.8 billion deal for Canada's Cronos Group that raises doubts about the vertically integrated approach of most other pot companies.

The investment is a 45% stake and Altria could pay another $1.4 billion for warrants that would increase its stake to 55% over the next five years.

"Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria", Howard Willard, Altria's chairman and CEO, stated in an announcement. "And they're seeing a ton of growth", he said in an interview.

Shares of Altria (MO) rose 2% in early trading Friday while Cronos (CRON) soared more than 30%.

After the deal is closed, Altria will have the right to nominate four directors, including one independent, to Cronos' board comprising seven directors in total.

Canada on October 17 became the second country in the world to legalize pot for recreational use.

"This is a huge validation of the industry and our model", Mike Gorenstein, chief executive at Cronos, said by phone.

In June, London-based tobacco company Imperial Brands Plc took an undisclosed stake in closely held Oxford Cannabinoid.

During the USA midterm elections, MI became the latest state to approval the legalization of recreational cannabis and Utah and Missouri approved the drug for medical purposes. 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. The transaction is expected to close in the first half of 2019.

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.

The Canadian subsidiary of Molson Coors (TAP) has a joint venture with The Hydropothecary Corporation to produce cannabis-infused drinks for the Canadian market. Altria shares that vision, Mr. Gorenstein said.

Cronos plans to prioritize research and development, innovation and developing brands. It said the deal with Altria does not limit Cronos from any other partnerships.

Philip Morris, which was spun off from Altria and sells the Marlboro brand internationally, has been trying to get approval for Altria to market IQOS in the U.S. Separately, it has asked for regulatory permission to say the device carries a lower health risk than regular tobacco products.

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