Marlboro maker sinks $1.8 billion into the pot business

Altria Group, the maker of Marlboro cigarettes for the U.S. market, is pushing into the Canadian cannabis industry, marking the major tobacco company’s first foray into the nascent sector. Altria agreed to acquire 146.2 million newly issued shares for C$16.25 each -- a 16 percent premium from yesterday’s close. That would give Altria a 45 percent stake in the Canadian cannabis producer. Altria will also get warrants that will give the option to increase its stake to 55 percent.

Key Insights

Craig Giammona and Tiffany Kary 

The deal with Cronos gives Altria a foothold in Canada, which in October became the first major economy to legalize marijuana for adult use on a federal level. Cronos, meanwhile, gets “product development and commercialization capabilities, and deep regulatory expertise,” the company said in a press release. The biggest companies have avoided investing in U.S. cannabis businesses, which are legal in a handful of states, because of the federal prohibition on the drug. That’s made Canada an attractive place for investors and businesses to push into the growing sector. Altria has been grappling with the steady decline of tobacco smoking rates and sees potential to tap into a new segment of growth as marijuana moves into the mainstream. Chief Executive Howard Willard said the investment is “an exciting new growth opportunity for Altria.”

Market Reaction

Investors cheered the news, sending the company’s shares up as much as 1.5 percent in early trading. Altria had declined 24 percent this year through Thursday’s close.Shares of cannabis peers gained on the news.

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Altria Marlboro Cronos