Tobacco Giant Altria Invests USD 1.8 Billion in Cronos Group

altria

It was announced that Marlboro cigarette producer Altria would invest $1.8 billion in Canadian cannabis producer Cronos Group Inc., acquiring a 45% stake in the company. After the legalization of marijuana in Canada on October 17, and before that, the American beer manufacturer Constellation Brands invested $ 4 billion in Canopy Growth, another Canadian cannabis company, notto mention the rumors in September that Coca-Cola was in talks with Canadian business Aurora Cannabis, a marijuana grower, to develop CBD-based drinks and news from Altria-Cronos is not expected to shock industry watchers. With the Canadian market providing businesses with a legally accessible point of contact to enter into a thriving but still fragmented industry, this was to be expected.

Tobacco Declining

This is largely due to the sluggishness of the tobacco market in the United States. According to a recent report by the Centers for Disease Control and Prevention, smoking in the United States reached a record low in 2017 with only 14% of use detected in adults. That may be good news for Americans’ health, butit’s bad news for big tobacco companies like Altria, whose stock dropped by more than 20% during the year. It is not surprising that Altria is turning to other sectors to increase its market share and declining revenues, such as e-cigarettes, as evidenced by the fact that the company is in talks to acquire a minority stake in Juul Labs and now cannabis.

Cannabis legality on the rise

Of course, cannabis professionals welcome news with a mix of excitement and anticipation. Joseph Lusardi, CEO of Curaleaf, a multi-state cannabis operator,described the news as a vote of major confidence in the cannabis industry. But like other American cannabis professionals, Lusardi expresses his frustration with the country’s persistent prohibition. Companies aspire to invest in the flourishing cannabis industry, worth billions of dollars, but they have to transfer their money into other countries, such as Canada, to invest. It is high time for the federal government to relax the restrictions so American companies could invest in the US cannabis industry, creating jobs and more business opportunities. Michael Gruber, the managing partner of Salveo Capital,a cannabis-focused investment company, said the Altria-Cronos deal could pave the way for similar deals, especially as the US market moves closer to federal legalization.

Altria’s interest in Cronos will probably be just one of the contracts we’ll see, said Gruber, expressing his thoughts just before the news of the Altria-Cronos deal became official. With the increasing legalization of adult cannabis use, tobacco and alcohol companies are going to fight to position themselves with the main cannabis players, which will allow them to gain a foothold in this market. Once Altria gets involved, it is a known fact that others will not want to be left out, even if it’s just an announcement of their exploration of their involvement.


Lucrative Canadian Cannabis Market

The Canadian legal market is the easiest entry point for large companies,according to Grube. But it is also likely that partnerships will be created through joint ventures, research collaborations and other minority investments in the US strengthening education and strategic planning of how these companies will bet more aggressively on US federal legalization. It will be fascinating to see in six months to a year how all is well. Canadian marijuana company Cronos Group also saw its inventory increase by almost 25% over the last two days, while the leading tobacco manufacturer, Altria, was in the early stages of trading to invest in the company. While Cronos confirmed the negotiations,there was no assurance that they would reach an agreement. The discussions come at a time when interest in marijuana is soaring, amid legalization of recreational marijuana in multiple the U.S and in Canada, as well as an increasing use of cannabis for medicinal purposes.

About Anand Sai 87 Articles
Anand Sai, A Research Consultant with 5+years of experience in handling research operations of various domains.

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