Altria Group Inc., the U.S. maker of Marlboro, made a $1.8 billion investment in a Canadian pot company Friday based on a simple premise: Cannabis is growing fast, and cigarettes are not.
Altria has agreed to take a 45 percent stake in Toronto-based marijuana producer Cronos Group Inc., marking a major tobacco company’s first foray into cannabis. It has the option to take majority control in the future. The tobacco giant simultaneously said it will kill two of its next-generation products, fueling talk that a potential deal with Juul Labs Inc. could come soon.
“We believe cannabis is an excellent strategic fit for tobacco,” Jefferies analyst Owen Bennett said in a research note earlier this week. 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.
Altria’s efforts to enter the cannabis space “coincided with a rising interest among the major tobacco companies to explore the cannabis opportunity in the U.S.,” Vivien Azer, a Cowen analyst recently said.
“We have asserted since 2016 that cannabis would be a synergistic incremental growth driver for the tobacco industry given the opportunity to leverage IP around heat-not-burn and vapor technology.”
In June, the venture arm of the UK-based Imperial Brands invested in Oxford Cannabinoid Technologies, a biotech company working on research into active compounds in the cannabis plant known as cannabinoids. But it’s not just tobacco companies that are rushing into cannabis. Beverage makers have also been entering the industry.
In August, Constellation Brands, the beverage maker behind Corona beer and Svedka vodka, announced a $4 billion investment in the Canadian cannabis producer Canopy Growth, giving it a 38% stake once the deal is complete.
And in September, Coca-Cola reportedly held talks with Aurora Cannabis to develop beverages infused with CBD, one of the nonpsychoactive compounds found in cannabis. Cronos was up 80% this year through Thursday.