Marlboro Maker Investing $2.4 Billion In Marijuana Market

The Altria Group Inc. corporate headquarters in Richmond Va. is shown

Marlboro cigarette maker Altria Group Inc made a big bet on the rapidly growing marijuana industry on Friday with a $2.4 billion investment in Canadian cannabis producer Cronos Group Inc.

Altria has agreed to take a 45 percent stake in Toronto-based marijuana producer Cronos Group Inc., marking a major tobacco company's first foray into cannabis.

The deal also includes warrants to acquire an additional ownership interest in Cronos at a price of C$19 per share over the next four years, which could raise Altria's stake to 55 percent.

The first Canadian cannabis grower to list its shares on a USA stock market, Cronos said it plans to spend the money on product innovation, noting Altria's expertise in device technology and automation, and fuel Cronos's expansion into new countries amid a global shift toward loosening restrictions on the drug.

"Altria brings scale, expertise and complimentary capabilities. that we believe will enable us to expand the scope and enhance the scale of our company", said Mike Gorenstein, chairman, president and chief executive officer of Cronos on a call with analysts Friday. The new relationship represents an "exciting new growth opportunity" and Cronos is backed by an "excellent management team".

Altria's shares increased two percent in early Friday trading while Cronos' shares soared to more than 30 percent.

Cronos shares, meanwhile, surged as much as 33 percent to $13.95 in NY.

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Altria had been in talks with cannabis companies for months, as its core cigarette business continues to shrink.

Shares of other cannabis companies rallied after the announcement. The company could also be positioning itself for the possible legalization of marijuana across the U.S., Quartz added.

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

"When we were strategically planning how we would enter cannabis years ago, one of the companies that we looked at and had a lot of respect and admiration for was Altria", he said.

Philip Morris International CEO Andre' Calantzopoulos discusses why his company is keeping clear of the cannabis industry. "And they're seeing a ton of growth", he said in an interview.

Investors seem to be betting that more deals could be coming.

With smoking rates in the U.S. falling fast, Altria is under pressure to find new sources of revenue. It.

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