Malboro: Cigarettes and cannabis?

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The tobacco company announced the purchase of a large part of the leading cannabinoid company in Canada and their plan to expand IGNORE INTO an emerging market

Altria Group, the company that owns the tobacco company Phillip Morris and a large part of the SAB Miller brewery, announced last Friday that they agreed to purchase 45% of the company Cronos Group, the leader in cannabinoid production in Canada.

Leer en español: Malboro ¿Cigarrillos y cannabis?

The purchase was valued at 1.8 billion dollars and the news generated a rise of 22% in the shares of Cronos and a rise of 1.1% in the shares of Altria.

As part of the agreement, Altria has the possibility to increase its participation in Cronos up to 55% paying 19USD per share. Likewise, Cronos has the flexibility to take investments from different companies, such as food companies. Likewise, Altria will be able to name four of Cronos' directors, including an independent director, making Cronos go from having five directors to seven.

Also read: Would you drink a Coca-Cola with cannabis?

In search of a good investment in cannabis

According to CNBC, conversations between the two groups have been ongoing for more than a month and Cronos was not the only cannabinoid company considered by Altria to make business. However, this company was chosen because of its high performance in Canada, where it’s based is in Toronto.

There, cannabis has been legal nationwide since October of this year, while in the United States this industry is still illegal at the federal level, but it is legal in the District of Columbia and in 33 states, which is why Cronos has not, yet had operations in the country.

For its part, Altria markets large quantities of tobacco in the United States and owns the National Smokeless Tobacco Company in Canada. So, if cannabis were legalized at the federal level in the United States, Cronos could receive great benefits from its alliance with Altria.

Mike Gorenstein, CEO of Cronos said in a statement published by CNBC that "Altria's investment earnings will allow us to expand our global infrastructure and distribution footprint more quickly, while increasing investments." He also pointed out that "the most important aspect of growth will be innovation," because "Altria's experience with vaping products attracted Cronos, who sees the opportunity to personalize vaporizers for cannabis."

Another diversification of the business, electronic cigarettes

In addition to the purchase of 45% of Cronos shares, Altria is considering investing in the Juul electronic cigarette company. According to CNBC, these talks could be completed by the end of this year.

These investments by Altria are made since, the sales of cigarettes have been decreasing, as their customers are beginning to resort to new recreational products such as cannabis and electronic cigarettes. However, until now Altria decides to invest in them because these products present different regulatory obstacles.

For these same reasons, Altria also announced its intention to discontinue some of its MarkTen and Green Smoke electronic cigarette products and Verve oral nicotine, due to its low sales performance and regulatory restrictions.

Thus, the company indicated that it prefers to refocus its resources on tobacco producers more attractive and with reduced risks. According to CNBC "The agreement is the latest in a series of conversations that have taken place in the consumer industry, where the threat of cannabis growth spreads over established and hungry growth industries that include tobacco, soft drinks and beer. No longer known only for its smoked product, cannabis has evolved to offer products for health, well-being, sleep and socialization."

LatinAmerican Post | Sofía Carreño

Translated from: 'Malboro ¿Cigarrillos y cannabis?'