Marlboro's Parent Company Altria Buys Massive Stake In Cannabis Firm Cronos

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Marlboro cigarette maker Altria Group Inc announced a $1.8 billion investment in Cronos Group Inc on Friday, which could give it up to 55-percent ownership of the Canadian cannabis producer.

While the beverage giant has yet to announce any formal partnership, Bloomberg reported last September that Coca-Cola was in advanced talks on a deal with Aurora Cannabis, another Canada-based firm.

"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 Friday.

An investment from Altria is expected to provide Cronos Group an opportunity for growth and expansion.

Altria's shares increased two percent in early Friday trading while Cronos' shares soared to more than 30 percent.

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Cronos is traded on the Toronto Stock Exchange and the Nasdaq under the ticker symbol CRON.

Altria's huge investment lighted up shares of cannabis companies that have begun to set up shop in Canada, where recreational use was legalized this year.

Shares of other cannabis companies rallied after the announcement.

Cronos will remain a Canadian company, headquartered in Toronto, Gorenstein said.

The deal grants Altria the option to acquire a controlling stake in Cronos at CAD $19 per share and to nominate four executives to Cronos Group's board of directors.

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Marijuana, while still illegal on the federal level in the U.S., is allowed in an increasing number of states. This week, Aphria Inc., one of the country's largest cannabis growers, was defending itself against accusations of striking deals to enrich insiders made in a widely read short-sellers' report.

Cannabis companies are hot right now.

Investors seem to be betting that more deals could be coming. Molson Coors Canada owns a 57.5 percent interest in the joint venture. It's a logical fit, because "big tobacco knows how to cultivate crop, knows how to deal with regulators, they are at the forefront of vaporization technology, and they also arguably have less reputational risk than other fast-moving consumer goods", he said.

Separately on Friday, Altria said it would discontinue some of its e-cigarette brands, including all of MarkTen and Green Smoke e-vaper products, based on their financial performance and will take a related pretax charge of $200 million in the fourth quarter.

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