Tobacco giant Altria Group Inc (NYSE:MO) has made its move in the cannabis industry. The Marlboro cigarettes maker has confirmed an investment deal of $2.4 billion with Canadian cannabis company Cronos Group Inc (NASDAQ:CRON). The deal will give Altria a 45% ownership stake with an additional option of another 55% over the next five years.
Speaking about the new move, the president and CEO of Cronos, Mike Gorenstein, said that they have everything to gain from the agreement. The Virginia-based Altria will bring on board expertise and complementary capabilities, which will enhance the scope and scale of Cronos.
Reassurance to the industry
The exclusive deal will not only benefit the Toronto-based Cronos but also the cannabis industry at large. According to Martin Landry, an analyst with GMP Securities, there have been rising concerns about pot companies’ valuations.
Despite some jurisdictions claiming that it is illegal, Canada legalized cannabis a few months ago. The United States also legalized recreational and medical pot in several of its states, though it is still illegal on the federal level, making banking quite difficult for companies, as banks are federally chartered and must follow federal law.
In any case, Landry remarked, “When you look at the commitment that Altria makes, they’re obviously looking at the sector for the next 10 to 20 years. And they’re seeing a ton of growth.”
CRON stock is soaring as a result of the investment deal
An investment in Cronos explains the seriousness that Altria has in tapping into the burgeoning Canadian cannabis industry. It has also brought goodies to Cronos, of course. The company’s shares soared more than 30% and there is much more coming. Aurora Cannabis and Canopy Growth Corp’s shares also went up with by roughly 9% and 3.5%, respectively.
Meanwhile, many other tobacco, alcoholic beverage, and other consumer product companies are likely to invest in the cannabis market. There is already a rumor indicating that Coca-Cola may have joined in the bandwagon.