CRON up 35% after deal with a major tobacco firm!

The cannabis market is back in the news after Altria Group announced that it will buy a 45 percent stake in leading cannabinoid company Cronos Group for about $1.8 billion. Cronos shares rose by 35% following the news!.

Altria Group is an American multinational and one of the world’s largest producers and marketers of cigarette and tabacco related products. The company was part of the Philip Morris family of companies until the spin off in 2008.

"The proceeds from Altria's investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in R&D and brands that resonate with our consumer," Cronos CEO Mike Gorenstein said in a statement.

Talks between Cronos and Altria have been ongoing for more than a month and this minority deal allows Cronos the flexibility to take investments from other companies such as, for example, a big food company.

As part of the deal, Altria has a warrant that would allow it to increase its stake in Cronos to about 55 percent at a price of $19 per share.

Like other big tobacco companies, Altria is under pressure to find new sources of growth as cigarette sales slow. While the industry has poured billions in recent years to develop alternative “reduced risk” tobacco products, take-up for these heated products has been slower than expected, with consumers preferring “vaping” instead.

Earlier this year, Coca-Cola said it was examining the market for cannabis-related products. Corona beer maker Constellation Brands recently invested just under $4bn into Canadian cannabis group Canopy Growth, lifting its stake to 38 per cent.

Should we invest in these companies?

Here at investingmoney we have already discussed these companies months ago when things were less attractive (see previous articles below):

Cannabis hype building up - bubble or opportunity?

Pot stocks on the run - should we consider?

Analysis on some cannabis stocks

I personally think that such market offers a very interesting opportunity at this stage because it is still in its early stages and demand is slowly building up. There are of course various risks associated with this sector however, it makes perfect sense to have at least some minor exposure in a market that is already established and posed for growth.


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