The Marlboro cigarette maker is taking a 45% stake in Cronos Group Inc., the Canadian medical and recreational marijuana provider said Friday.
Altria will pay another $1.4 billion for warrants that if exercised, would give the Altria a 55 percent ownership stake in the Toronto company.
Cronos first announced that it was in talks with Altria this week.
With the Cronos deal, Altria will get a new opportunity to boost revenue as cigarette smoking continues to decline in the United States. Altria's offer of C$16.25 a share represents a 16 percent premium from Thursday's closing price.
Shares of Cronos Group Inc. jumped 31 percent and neared an all-time high at the opening bell Friday.
Altria's huge investment lit up shares of cannabis companies that have begun to set up shop in Canada, where recreational use was legalized this year. Aurora Cannabis Inc.'s stock rose 7.8 per cent to close at $7.60 after it announced a new supply deal to Mexico.
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Cronos will remain a Canadian company, headquartered in Toronto, Gorenstein said.
Altria can nominate four directors, including one independent director, to the Cronos board, giving it 4-to-3 control.
The Denver-based brewing company said earlier this year that its Canadian unit would partner with the Hydropothecary Corporation "to pursue opportunities to develop non-alcoholic, cannabis-infused beverages for the Canadian market following legalization". For example, legislation that would allow for the full legalization of industrial hemp in the US and ease restrictions on the cannabis compound CBD is working its way through the USA legislative process. "In fact, we think this partnership makes us collectively a more attractive partner" for other potential investors, Gorenstein said on a conference call Friday.
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In August, alcohol giant Constellation Brands said it would invest an additional $5 billion in Canadian pot producer Canopy Growth Corp., increasing its stake to 38 per cent. It's a logical fit, because "big tobacco knows how to cultivate crop, knows how to deal with regulators, they are at the forefront of vaporization technology, and they also arguably have less reputational risk than other fast-moving consumer goods", he said.
Separately Altria also said it would discontinue some of its e-cigarette brands, including all of MarkTen and Green Smoke e-vaper products, based on their financial performance and will take a related pretax charge of US$200 million in the fourth quarter.