Tobacco giant Altira is investing $ 1.8 billion in the Canadian cannabis company Cronos Group. This will allow Altria a 45% stake in the company, with an option for Altria to increase its stake to 55% over the next five years.
Reports of an Altria-Cronos deal emerged for the first time at the start of this week. Altria's decision to pursue an investment in Cronos shows that Altria is serious about investing in marijuana as a new growth area as traditional cigarette sales slow down.
Altria's shares have fallen by almost 25% this year and the company is expected to grow revenues of around 1% this year and in 2019.
"Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents a new and exciting growth opportunity for Altria, "said Howard Willard, CEO of Altria, in a statement
The actions of Altria (MO) are up 2% at the start of trading on Friday while Cronos (CRON) increased by more than 30%.
"Altria is the ideal partner for Cronos Group, which provides the resources and expertise needed to significantly accelerate our strategic growth," Cronos CEO Mike Gorenstein said in a statement.
Gorenstein added that Cronos will use the investment from Altria to expand its distribution and infrastructure around the world and also increase its investment in research and development for new brands and products.
Cronos and other cannabis stocks were put in the spotlight in recent months after the legalization of recreational marijuana in Canada in October, as well as the recreational and medical plate legalized in several US states last month.
With Democrats winning control of the US House, Congress could finally approve the law on the farm, which would make it legal to produce hemp and potentially open the door to more products containing cannabidiol or CBD.
Many alcohol companies, tobacco companies, and other consumer products may wish to gamble on cannabis.
Canopy Growth (CGC), a Canadian marijuana company, has already received a multi-billion dollar investment from the owner of the Corona Constellation Brands (STZ).
Coca-Cola (KO) would have considered an investment in the Canadian cannabis company Aurora (ACB).
But Coca-Cola broke down the speech in October. CEO James Quincey said the company "has no plans at this stage" to enter the CBD market.
Coke's Archrival Pepsi (PEP) did not completely rule out a cannabis move. Financial director Hugh Johnston told analysts during his earnings in October that "it's fair to say that we look at everything" in response to a question about cannabis.
The Canadian subsidiary of Molson Coors (TAP) has a joint venture with The Hydropothecary Corporation to produce cannabis-infused beverages for the Canadian market. Lagunitas, a beer brand owned by Heineken (HEINY), sells a brand of sparkling water infused with cannabis in California.
Investors seem to bet that further agreements may be coming. The actions of Canopy, Aurora, Tilray (TLRY) and Aphria (APHA) increased on Friday morning.