Summary
- Altria announced a $1.8 billion investment in Cronos.
- Altria gets a "cheap option" on the rapidly growing cannabis industry.
- Cronos gets to monetize its equity at a premium valuation and has the validation from Altria as a top-tier cannabis industry player.
On December 7th, 2018, Altria (MO) announced it would acquire a 45% stakein Cronos (CRON) with warrants to increase its stake to 55% over the next 4 years. Altria paid $1.8 billion in cash or CAD $16.25 per share for its Cronos stake. In addition, Altria will take control of Cronos’ board with 4 of 7 director seats.
The transaction is very bullish for both companies.
Altria has established a toe-hold in the adjacent market for cannabis. The consideration of $1.8 billion is a premium valuation for Cronos but it represents less than 1 quarter of cash flow for Altria. In other words, Altria acquired a “cheap option” in a rapidly growing market.
Cronos got a very good deal. The company needs the capital to execute its growth plans and was able to sell equity at a significant premium over where its stock had been trading. Altria will also help Cronos with various aspects of operating its business including supply chain management, marketing, and regulatory affairs. Finally, Altria has validated Cronos as a top-tier producer. Altria’s blessing gives clout to the company when it will come time to attract business partners for marketing, distribution, and strategic partnerships.
