First, it was the early reports. Then there was confirmation of the discussions. Now the deal is ready. Cronos Group…
First, it was the early reports. Then there was confirmation of the discussions. Now the deal is ready.
Cronos Group (NASDAQ: CRON) announced Friday that the Tobacco War Altria (NYSE: MO) buys a stake of 45% Cronos for about 1.8 billion dollars 2.4 billion in Canadian dollars). It is the second largest deal in the history of the cannabis industry, only after Constellation Brands “$ 4 billion investment in Canopy Growth .
But what does this monster deal really mean? Here are three things you need to know about the effect of Altrias investment in Cronos.
It is obvious that the immediate impact of Cronos Group is that the company’s valuation only jumped significantly. Altria paid 33% premium over the Cronos Group’s closing price on November 30, 2018 and a 42% premium over the 10-day volume-weighted average price of the share for the period ending November 30, 2018. However, There are even longer term benefits for Cronos Group resulting from the deal.
Cronos will now have a boatload of cash. This means that f companyÖs expansion work will kick into high gear. Cronos CEO Mike Gorenstein is already talking about growing the company’s “global infrastructure and distribution footprint”. He also said that Cronos will use his newfound money to increase investment in research and development and its cannabis brands.
Probably even more important, Cronos Group now has a big partner with a strong record for developing and marketing products in highly regulated markets. With more countries that legalize marijuana, the tight relationship with the Altria Cronos group is in a better position than most of its peers to take advantage of the growth of the global marijuana market.
Tobacco volume has fallen. Altria has looked at ways to move into emerging markets. The company is purportedly interested in purchasing a minority stake in leading electronic cigarette manufacturer Juul Labs. Enlargement to cannabis appears to be a potentially even better feature for Altria, given the potential growth in the global cannabis market.
Altria now has a place at the table in the cannabis industry. And it has a bigger place at the table with Cronos Group than you might think. Cronos expands its board from five to seven leaders. Altria may nominate four of them. Altria will also receive subscription options that will allow its ownership in Cronos to reach 55% for approximately $ 1 billion (approximately $ 1.4 billion).
Do not forget that Altria already owns almost 10% of the beer manufacturer Anheuser-Busch InBev . It would not be surprising if Anheuser-Busch jumped into the cannabis-infused drinks market, where Cronos Group supplies the cannabinoids to these beverages.
Other Canadian marijuana shares rose thanks to Cronos Group’s news about the Altria investment. It’s not hard to figure out why: Investors hope other offers may be on track with other major cannabis producers.
Such hopes are likely to be met. Other big tobacco companies and beverage companies must look at the partnerships that Altria and Constellation Brands have done with leading marijuana producers and realize they do not want to remain.
If nothing else, Altri’s investment in Cronos Group provides additional evidence that the opportunities in the global cannabis industry are real and not just hype. Forking over $ 1.8 billion is not a chump change for Altria. Tobacco giant only made a big effort on cannabis – a bet that it expects to pay.
There is no doubt that Altria investment is good for Cronos Group. But it also seems to be a good deal for all involved.
Perhaps the best confirmation of how good a deal this is comes from investors’ reactions. Altrias share price rose 2% higher in early trading on Friday. It does not seem like an important jump. However, the index S & P 500 decreased more than 1%. The positive move for Altria on a day when the overall market sells shows that investors like the Altria-Cronos agreement.
But is Cronos Group an attractive stock for regular investors to buy after the big start of the Altria transaction? With much money for expansion and a major international partner, Cronos Group’s long-term outlook looks better than ever.