Altria Group, the name behind Marlboro and Virginia Slim cigarettes, has made a bold move into the legal cannabis sector, making a US$1.8 billion investment in Canadian cannabis company Cronos Group in exchange for a 45 percent minority stake in the company.
As sales of traditional cigarettes stagnate, Altria reported revenue growth of only 1 percent, and a decline in its stock value of nearly 25 percent this year. And this investment reflects the extent to which Altria sees cannabis as an opportunity for growth.
“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. “We believe that Cronos Group’s excellent management team has built capabilities necessary to compete globally, and we look forward to helping Cronos Group realize its significant growth potential.”
It also reflects the vast difference between funding possibilities in Canada, which recently legalized recreational marijuana on October 17, and the U.S. where the legal marijuana industry is still dealing with inter-state regulatory issues. This lack of legalization on a federal level has left those operating legally within the sector with a lack of commercial credit, however, state-level legalization of recreational and/or medical marijuana continues to spread. Together with advancements in cultivation systems, the development of new strains, and the strengthening of supply chains, the market has been quick to gain a level of credibility. Indeed, a recent Gallup poll indicates that 66 percent of survey respondents in the U.S. support legalization.
This investment by Altria echoes another multi-billion dollar investment made in August when global alcohol giant Constellation Brands invested $4 billion in rival Canadian marijuana grower Canopy Growth.
Constellation made its first foray into the legal marijuana sector in October 2017, when the group acquired a 10 percent stake in Canopy Growth for $191 million with the goal of developing non-alcoholic, cannabis-infused beverages as part of the company’s “long term strategy to identify, meet and stay ahead of evolving consumer trends and market dynamics…” This subjectively huge deal (at the time) marked the first time an alcohol company had decided to enter the legal marijuana space.
Like Constellation, this investment by Altria gains for the company a bold entry into a rapidly growing complementary and promising market, which it believes will see significant growth over the next decade.
For Cronos, the capital gained will give it a war chest that will enable it to take advantage of opportunities as global markets being to open. It also will give Cronos the needed resources to further advance as an innovation leader in the cannabis space. And as Cronos works with Altria to quickly expand its product line using Altria’s deep design, marketing, and distribution expertise, the company will be able to leverage Altria’s long experience in navigating complicated regulatory issues.
“Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth,” said Mike Gorenstein, Cronos Group’s chairman, president, and chief executive officer. “The proceeds from Altria’s investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in R&D and brands that resonate with our consumers. Importantly, Altria shares our vision of driving long-term value through innovation, and we look forward to continuing to differentiate Cronos Group in this area.”
-Lynda Kiernan