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Cronos Group Getting More Than a Sniff from Big Tobacco

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In this market news, Cronos Group Inc. (NASDAQ:CRON) (TSX:CRON), one of the Canadian marijuana stocks, said Altria Group Inc. (NYSE:MO) will take a 45% stake in the Company

SmallCapPower | December 7, 2018: Cronos Group Inc. (NASDAQ:CRON) (TSX:CRON), one of the Canadian cannabis stocks, has seen its stock price climb recently after confirming that it is engaged in discussions concerning a potential investment by Altria Group Inc. (NYSE:MO), which seeks to diversify its business beyond traditional tobacco. Post the legalization of recreational marijuana in Canada in October 2018, the sector has been observed by various big players seeking opportunities for investments.

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On December 7, 2018, Cronos Group announced that Altria Group will buy an approximately 45% ownership interest in the Company at a price of C$16.25 per share. If all warrants are exercised, that stake could increase to 55%.

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In June, London-based tobacco company Imperial Brands Plc. took an undisclosed stake in closely-held Oxford Cannabinoid. Constellation Brands Inc. announced a $3.8 billion investment in Canopy Growth Corp in August, while Coca-Cola Co. said in September it was watching the space for alliances that could potentially help it develop products containing cannabinoid oil.

Altria is the parent company of Philip Morris USA, the maker of Marlboro cigarettes. Cronos Group shares have surged 16% since the announcement on December 3, to close at C$13.98 on Thursday, giving the Company a market value of C$2.5 billion with a price-to-book multiple of 11.4x.

Altria’s share price, meanwhile, has fallen by more than 20% over the past year, as cigarette smoking continues to decline in the United States. Altria has invested in the e-cigarette sector in recent years through its Nu Mark subsidiary. It is also in talks to take a minority stake of between 20% – 40% in e-cigarette maker Juul Labs Inc. A move to diversify from traditional tobacco into marijuana would widely serve to expand its product line and generate new revenue sources.

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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