Marlboro maker Altria Group Inc.is taking a 45 percent stake in Cronos Group, the Canadian medical and recreational marijuana provider said Friday.
Altria also will receive warrants, which, if exercised, would increase its ownership to 55% and provide an additional CA$1.4 billion in proceeds for the integrated marijuana company.
Prior to Friday's announcement, Cronos had confirmed reports that it was in talks with Altria.
"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.
Not surprisingly, investors are cheering this game-changing partnership, bidding up Cronos's shares by as much as 38% in premarket trading today.
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Altria will nominate four directors to an expanded seven-member Cronos board.
Canada on October 17 became the second country in the world to legalize pot for recreational use. Demand for legal cannabis and cannabis-infused products is also growing in the US, where cannabidiol (CBD) product sales are expected to surpass $1 billion in 2018, according to Hemp Business Journal.
With U.S. smoking rates falling fast, Richmond, Virginia-based Altria is under pressure to find new avenues to expand. Constellation brands said at the time that the deal would "position Canopy Growth as the global leader in cannabis production, branding, intellectual property and retailing".
The deal is expected to close in the first half of 2019.
Altria had been assessing market opportunities in the cannabis industry since at least September. Constellation Brands Inc., maker of alcoholic beverages, has invested more than $5-billion for control of Canopy Growth Corp., while Molson Coors Brewing Co.is looking to create cannabis-infused beverages through a joint venture with Quebec's Hexo Corp. Secondly, Altria's decision to enter this space via a rather sizable equity investment should go a long way toward legitimizing this emerging industry in the eyes of both retail and institutional investors moving forward. Altria shares were up about 2.5 percent.
Gorenstein said that Altria has "decades of experience in regulatory, government affairs, compliance, product development and brand management that we expect to leverage, particularly as new markets for cannabis open around the world".