After rumors had been swirling for months, Altria Group (NYSE:MO) finally made its move, announcing today that it is investing $1.8 billion in marijuana stock Cronos Group(NASDAQ:CRON).
The investment by Altria — maker of top cigarette brands including Marlboro — gives it exposure to a global market that could be worth $200 billion in 15 years. And it provides Cronos Group with the cash and regulatory experience to capitalize on marijuana legalization worldwide…
A big deal
Altria’s investment isn’t as large as the investment made by wine and spirits company Constellation Brands (NYSE:STZ) in Canopy Growth (NYSE:CGC) last year, but it’s the second-largest investment by a U.S. company in a Canadian marijuana company.
At a price of $16.25 Canadian per share ($12.12), Altria’s $1.8 billion investment nets it a 45% equity stake in Cronos. Altria will nominate four directors to Cronos Group’s board, one of whom will be independent, and it’s receiving a warrant allowing it to boost its ownership by an additional 10% within four years at a price of CA$19 per Cronos share.
This deal is particularly significant because it injects confidence into the fledgling marijuana industry at a time when it’s needed.
Marijuana stocks, including Cronos, rallied sharply higher ahead of the opening of Canada’s recreational marijuana market in October, but they’ve been declining ever since on reports of supply shortages; uncertainty over when Health Canada will expand the products allowed in its recreational market to include high-margin vapes, edibles, and beverages, and concern over valuations.
Why Altria is investing in marijuana
Marijuana remains a schedule 1 drug in the United States, so it’s prohibited federally. But 33 states have legalized marijuana use in one form or another, including 10 that have created recreational marijuana marketplaces.
The momentum toward legalization is likely to continue given that 66% of Americans (including over 50% of conservative Republican voters) favor it, according to Gallup. Washington could still crack down on marijuana companies operating in states where it’s legal, but evidence suggests the likelihood of that is declining.
For example, Congress recently included laws in its latest farm bill allowing farmers more freedom to grow hemp, a low-THC variation of cannabis sativa, and the Food and Drug Administration granted…
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