The transaction represents a 45 percent equity stake in Cronos, at a price of CAD $16.25 per share, for an aggregate investment by Altria of approximately $1.8 billion (approximately CAD $2.4 billion).
As part of the agreement, Altria can nominate four directors, including one independent director, to serve on Cronos Group’s Board of Directors, which will go from five to seven directors. The agreement also allows Altria to acquire an additional ownership interest in Cronos at a price of CAD $19 per share exercisable over four years from the closing date. If exercised in full, it would increase Altria’s ownership in Cronos to approximately 55 percent.
“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, in a press release. “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.”
In addition, Altria revealed it would discontinue two of its tobacco products, MarkTen and Green Smoke e-vapor products, as well as its oral nicotine-containing products, to focus on “more compelling reduced-risk tobacco product opportunities.” As a result, the company will record a $200 million writedown.
As Altria has faced declining tobacco smoking rates, this deal enables it to enter the cannabis market in Canada. Altria is also reportedly in talks to buy a stake in Juul, another company taking on the traditional cigarette space.
News of the Cronos deal sent Altria’s shares up as much as 2.5 percent in early trading, while Cronos’ shares went up 36 percent. Other companies in the space also saw gains, with Aurora Cannabis rising 8.3 percent, Aphria going up 8 percent, Canopy Growth gaining 6 percent and Tilray rising 5 percent.