Richmond, Va. -based Altria said Friday in a media release that it agreed to pay $2.4-billion to acquire a 45-per-cent stake in Cronos.
Over this past year, Altria's stock (NYSE:MO) has fallen almost 5%, but its shares rose 25% Friday after this news was released and Cronos (NASDQ:CRON) rose 30%.
"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 Chairman, President, and Chief Executive Officer. Canadian pot stocks have been crushed in recent weeks after a lacklustre start to recreational sales amid reports of countrywide supply shortages.
Altria will acquire 146.2 million Cronos shares at a price of CA$16.25 per share, representing a 41.5% premium to the 10-day average price ending November 30, the last unaffected trading day before Cronos publicly disclosed discussions with Altria.
The agreement allows Altria to nominate four directors to Cronos' board of directors, including one independent director.
As well, the number of countries that have legalized medical cannabis continues to grow, with South Korea among the latest to give the green light.
"I think it shows that the US players - Altria and Constellation - will not buy into a USA cannabis company until it becomes federally legal in the USA", said Mr.
"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.
Many alcoholic beverage, tobacco and other consumer products companies may want to bet on cannabis.
Cannabis investors can't miss the Benzinga Cannabis Capital Conference, the No. 1 networking event for institutional capital and the leading cannabis companies. The move will help it tap into a customer base outside cigarette smokers, as cigarette smoking declines in the U.S.
Canadian marijuana company, Canopy Growth, for example, has received a multibillion dollar investment from Corona owner Constellation Brands, CNN reported.
Altria's stake in Cronos will start at 45pc, with the option to climb to majority control in the future.
Meanwhile, Molson Coors launched a joint venture called Truss with Quebec-based cannabis producer Hexo Corp.in October.
Prior to Friday's announcement, Cronos had confirmed reports that it was in talks with Altria.
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".