Altria to invest $1.8 billion in cannabis company Cronos Group, exits some e-cig brands

Altria Group said Friday it agreed to buy a 45 percent stake in leading cannabinoid company Cronos Group for about $1.8 billion, a sign of the new world in which Altria must compete.

Altria is also weighing an investment in e-cigarette company Juul, CNBC has reported. Those talks could be completed as soon as soon as later this month, a person familiar with the situation tells CNBC.

Sales of cigarettes have slowed and its customers have either turned to other recreational products — like cannabis and e-cigarettes — or are threatening to do so in the future. Those industries, though, are in need of expertise to navigate regulatory hurdles and capital to invest in their company.

“The proceeds from Altria’s investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in R&D and brands that resonate with our consumer,” Cronos CEO Mike Gorenstein said in a statement.

Talks between Cronos and Altria have been ongoing for more than a month, people familiar with the situation told CNBC. Altria is one of several parties with which Cronos considered partnering, the people added.

The minority deal allows Cronos the flexibility to take investments from other companies such as, for example, a big food company, the people said. There is no certainty that Cronos would strike such a deal. As part of the deal, Altria has a warrant that would allow it to increase its stake in Cronos to about 55 percent at a price of $19 per share.

As part of the agreement, Altria will be able to name four directors to Cronos board, including one independent director. These additions will boost the size of Cronos’ board to seven from five directors.

The company also announced plans to discontinue its MarkTen and Green Smoke e-cigarette products and its Verve oral nicotine, citing the financial performance of these products combined with heightened regulatory restrictions for its decision.

Altria said it plans to refocus its resources on more compelling reduced-risk tobacco product opportunities.

In connection with these steps, Altria expects to record a one-time pretax charge of about $200 million in the fourth quarter. Most of the charge will be a non-cash asset impairment charge, and will be excluded from the company’s adjusted earnings.

In premarket trading, Cronos shares were up nearly 36 percent on the news, while Altria shares gain 2 percent.

This entry was posted in Retail. Bookmark the permalink.

Leave a Reply