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article imageVirginia cigarette maker invests in Canada pot company Cronos

By Karen Graham     Dec 7, 2018 in Business
Cronos Group Inc, today announced that it has entered into a subscription agreement with Virginia-based Altria Group Inc. — the maker of Marlboro cigarettes. The Altria investment will give them a 45 percent stake in Cronos.
Altira is making a $1.8 billion (C$2.4 billion) equity investment in Cronos Group, with an option to to increase its stake to 55 percent over the next five years, reports CTV News.
The deal will be a win-win for both companies. Altria is hoping that its move into marijuana will help it grow beyond its stagnant cigarette business. Cronos Group, on the other hand, will be able to take advantage of Altria's expertise in product design, manufacturing, marketing and distribution capabilities, as it explores the global market.
"Altria brings scale, expertise and complimentary capabilities... that we believe will enable us to expand the scope and enhance the scale of our company," said Mike Gorenstein, chairman, president and chief executive officer of Cronos on a call with analysts on Friday.
As part of the deal, the Cronos Board of Directors will be expanded from five to seven members with Altria having the right to nominate four of the members.
"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."
Surge in cannabis stocks
Altria's stock has fallen almost 25 percent this year and the company is expected to report revenue growth of only about 1.0 percent this year and in 2019.
"Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria," Howard Willard, Altria's chairman and chief executive officer, said Friday in a statement.
Shares of Toronto-based Cronos surged as much as 33 percent to $18.56 on the Toronto Stock Exchange from its $13.98 closing price on Thursday. It was trading at $17.25 by late Friday morning.
Cronos stock on the NASDAQ soared by as much as 40 percent to US$14.58 from its previous close of US$10.45, but was trading at $12.96 by Friday morning.
AQs part of the agreement, Altria will pay $16.25 per share to acquire 146.2 million shares of Cronos, which represents a 41.5 percent premium above the stock before it confirmed the companies' preliminary discussions.
More about Altria, Cronos Group, subscription agreement, C$24 billion, Business
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