Marlboro-Maker Investing $2.4 Billion in Canadian Cannabis Producer Cronos

A Pack of Marlboro cigarettes

A Pack of Marlboro cigarettes

Many alcoholic beverage, tobacco and other consumer products companies may want to bet on cannabis.

According to the Mail, the company behind the tobacco giant, Altria Group Inc. revealed it is investing a reported CAN $2.4bn (US $1.8bn / £1.4bn) into Cronos Group, for a 45 percent stake in the Canadian medical and recreational marijuana provider.

"Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria", said Howard Willard, Altria's Chairman and Chief Executive Officer.

Earlier this year the people of Canada voted to legalise the use of weed, which made it the second country, and by some distance the largest to legalise recreational marijuana use.

Cannabis investors can't miss the Benzinga Cannabis Capital Conference, the No. 1 networking event for institutional capital and the leading cannabis companies. Canadian pot stocks have been crushed in recent weeks after a lacklustre start to recreational sales amid reports of countrywide supply shortages.

Canopy has said it will not sell marijuana products in the USA until pot is legalized at both the federal and state level.

Meanwhile, the number of countries that have legalized medical cannabis continues to grow, with South Korea among the latest to give the green light.

Altria can nominate four directors, including one independent director, to the Cronos board, giving it 4-to-3 control. Doing so would lift Altria's status to a majority shareholder as it would own around 55 percent of the company.

"We believe an investment of this magnitude provides overall legitimacy to the industry as a whole and should represent a positive catalyst for the sector, with the news likely to drive valuations higher", said Canaccord Genuity analyst Matt Bottomley, who has a 12-month price target of $9 on Cronos's stock and a "hold" rating. "And they're seeing a ton of growth", he said in an interview.

Altria's investment marks the latest move by a US company in an established industry to tap the burgeoning Canadian cannabis industry.

In August, alcohol giant Constellation Brands said it would invest an additional $5 billion in Canadian pot producer Canopy Growth Corp., increasing its stake to 38 per cent. As part of the deal, Constellation also received new warrants which, if exercised along with its existing warrants, would increase its ownership in Canopy beyond 50 per cent.

The Canadian subsidiary of Molson Coors (TAP) has a joint venture with The Hydropothecary Corporation to produce cannabis-infused drinks for the Canadian market.

Cronos confirmed last Friday that it was in talks with Altria after a Reuters report.

Rapid growth in the cannabis market is expected to continue as legalization expands in the US and social norms change.

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