The value of Marlboro maker Altria Group Inc., has dropped by 13% over the past 12 months, which explains why it would want a slice of Juul Lab's pie, especially when the renowned e-cigarette startup is known to be ever expanding in foreign markets. The deal also includes a warrant, which if exercised could take Altria's ownership stake in the Toronto-based medical and recreational marijuana provider to 55 percent over the next four years. Demand for legal cannabis and cannabis-infused products is also growing in the US, where cannabidiol (CBD) product sales are expected to surpass $1 billion in 2018, according to Hemp Business Journal.
Reuters had first reported on the deal negotiations on Monday.
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However, the global cannabis opportunity remains "large and untapped", said Vivien Azer, an analyst with Cowen. The move will help it tap into a customer base outside cigarette smokers, as cigarette smoking declines in the U.S.
"It's a very attractive future growth opportunity for Altria", Willard said of the cannabis industry.
Canadian marijuana company Canopy Growth (CGC) already has received a multibillion dollar investment from Corona owner Constellation Brands (STZ). Molson Coors Canada owns a 57.5 percent interest in the joint venture. Altria will receive 146.2 million Shares of Cronos at closing at a price of CAD $16.25 per Share, representing a 41.5% premium to the 10-day VWAP of the Shares on the TSX on November 30, 2018. A wave of cannabis producers have set up shop in Canada, where recreational use was legalised earlier this year. It said the deal with Altria does not limit Cronos from any other partnerships.
"Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth", Cronos Group CEO Mike Gorenstein said.