Rumours of the deal began to circulate when Reuters reported the negotiations on Monday. In a release, Altria confirmed the agreement, which includes a clause allowing the cigarette company to become the majority shareholder in four years.
Once the deal is closed, Altria will also nominate directors to four of the seven board spots, one of which must be independent.
With declining tobacco-use rates across North America, the brand responsible for Malboro cigarettes is trying to stay competitive by establishing footholds in emerging markets. Recently, Altria also talked about diverting funds from investments in dwindling U.S.-based vaporizer technology companies, like MarkTen and Green Smoke, to more successful e-cigarette companies like Juul Labs Inc.
For the Canadian company—which has a porfolio of federally licensed producers including Whistler Medical Marijuana Co.—this means capitalizing on the tobacco industry's funds and experience operating in a highly regulated environment.
“The proceeds from Altria’s investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in R&D and brands that resonate with our consumers,” said Mike Gorenstein, Cronos Group’s president and CEO in a release.
While it is the largest investment into the Canadian market, it’s not the first time a major tobacco company has shown an interest in weed.
In February, a subsidiary of the cigarette company Alliance One International Inc. aquired a large equity stakes in licensed cannabis producer Canada’s Island Garden Inc. and license applicant Goldleaf Pharm Inc. The deal was one of the first indications of the corporatization of cannabis ushered in by the slackening laws.
Three corporate pillars
As the world watched Canada careen towards the federal legalization of adult-use weed, ears pricked on the Big Three. After decades of funding the War on Drugs, big pharma, alcohol, and tobacco quickly shifted their mindset from prohibition to profit. Why? It's not because weed produces cheaper and healthier commodities competitive to all three industries. It's because that same plant now has a legal and economically profitable infrastructure. And the Big Three want in.
Last year, a report from the consultancy firm EY surveyed a handful of Canada's licensed producers (LPs). The results showed that 75 percent of LP executives predicted big pharma, tobacco, and alcohol would monopolize the market in the near future. By mid-2018, major corporations in two of the three adjacent industries had invested in Canadian bud. With Altria’s most recent investment, big tobacco is catching up to its tycoon triplets.
For years, tobacco CEOs and shareholders shrugged off questions regarding interest in the burgeoning and rapidly legalizing weed industry. Since some of the world’s largest pharmaceutical and alcohol companies have now put down their picket signs and picked up their checkbooks, however, cigarettes c-suiters are taking note.
Big pharma and alcohol already heavily invested
In March, Tilray, a B.C.-based cannabis company, formed a “strategic partnership” with Sandoz Canada, an affiliate of the Swiss pharmaceutical giant Novartis AG, to develop medical grade products like oils and gel capsules for a global market.
Since then, according to the Washington, D.C.-based analytics firm New Frontier Data, seven of Canada’s top 10 cannabis patent holders are now globally established pharmaceutical companies.
Shoppers Drug Mart—Canada's largest pharmacy chain—even celebrated a Health Canada stamp of approval to sell medical cannabis in September.
Big alcohol was right on its heels.
Being that weed-infused edibles aren’t legal in Canada, only established breweries and brands with extensive capital can afford the placeholder price tag.
The Molson deal was one-upped when the company that makes Corona beer, Constellation Brands, invested a whopping $5 billion CAD in exchange for 38 percent of Ontario-based cannabis producer Canopy Growth Corp.
Currently, beverage companies investing in the weed industry is just an entrance fee in the race to secure patents and intellectual property. Updates to the law to include cannabinoid-infused food and beverages are expected sometime next year.
With this latest investment, it is clear tobacco has now also turned like Tolkien’s Eye of Sauron on the cash growing out of cannabis stalks.
Altria's deal is expected to close in the beginning of 2019.More