Altria, Marlboro maker, takes big stake in marijuana company Cronos

A look at medical marijuana cannabis

"Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth", said Cronos CEO Mike Gorenstein in a statement.

An investment from Altria is expected to provide Cronos Group an opportunity for growth and expansion.

The agreement allows Altria to nominate four directors to Cronos' board of directors, including one independent director.

"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 CEO, in a statement.

Altria will buy 146.2 million of newly issued Cronos shares at C$16.25 per share for a 45-percent stake.

ASSOCIATED PRESS This July 17, 2015, file photo, shows a pack of Marlboro cigarettes, an Altria brand, at a Smoker Friendly shop in Pittsburgh. Canada legalized recreational cannabis in October. It comes after Canada legalized the recreational use of marijuana this year, and several other jurisdictions, including some states in the United States, follow suit.

However, the political climate south of the border has been warming up to cannabis.

- Medicinal marijuana is legal in 31 US states.

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. BNN Bloomberg recently reported that Organigram had a commanding 24 per cent share of the Nova Scotia and PEI recreational pot markets in the first month of legalization.

"When you look at the commitment that Altria makes, they're obviously looking at the sector for the next 10 to 20 years". 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.

Many stocks in the volatile sector were up on Friday after the deal was announced. Peers in the marijuana sector also gained, with Aurora Cannabis Inc. rising as much as 11 percent, Aphria Inc. adding 14 percent, Canopy Growth Corp. rising 7.3 percent and Tilray Inc. gaining 4.8 percent.

Major pot stocks have generally pulled back from their highs in recent weeks amid reports of supply shortages and complications with the sales process under the new regime.

Cowen analyst Vivien Azer said it's not surprising that Altria opted for a pathway to a majority control of Cronos. 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. US exchanges have begun listing those companies as well.

Also, the Canadian subsidiary of Molson Coors has a joint venture with The Hydropothecary Corporation for the production of "cannabis-infused drinks" in Canada.

Prior to Friday's announcement, Cronos had confirmed reports that it was in talks with Altria. The offer represents a 16.2-percent premium to the stock's Thursday close on the Toronto Stock Exchange.

Cronos plans to prioritize research and development, innovation and developing brands. The most attractive piece of the partnership is Altria's experience dealing with regulatory agencies, he said.

In a separate news release Friday, Altria said it is discontinuing its existing e-cigarette brands and will take a US$200-million charge on these assets in its next quarter.

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