As the cannabis industry at large continues to undergo a phase of rapid M&A activity, another multi-billion deal has been signed. Cronos Group Inc (NASDAQ: CRON)(TSX: CRON) announced that they had received a C$2.4 billion equity investment from Altria Group Inc (NYSE: MO).
In doing so, Altria will end up acquiring around 45 percent ownership of the cannabis giant, while retaining an option to purchase an additional 10 percent stake in the company over the next four years for an additional C$1.4 billion.
Overall, Altria will end up being the majority owner of the cannabis giant. Additionally, the investment would see several key management staff changes, with four new directors joining Cronos’ Board, a new CFO Jerry Barbato, as well as William Hilson as the new Chief Commercial Officer.
“We are delighted to close this transaction and kick-off a relationship that we expect to lead to significant growth and value creation,” said Cronos Group’s CEO Mike Gorenstein. “Altria’s investment and the services they will provide to Cronos Group will enhance our financial resources, and allow us to expand our product and development and commercialization capabilities, and regulatory expertise to better position Cronos Group to compete, scale and lead the rapidly growing global cannabis industry. We look forward to the many opportunities we expect this relationship to create.”
Despite being a major player in the cannabis industry, Cronos is one of a handful of stocks that analysts consider to be overvalued. Alongside another NASDAQ-listed company, Tilray Inc (NASDAQ: TLRY), analysts believe that these companies are trading well above what traditional financial metrics would justify. Back in February, analysts ended up downgrading Cronos’ stock, saying at the time that “Cronos is still in the early stage of its development with limited revenues in relation to its sizable market cap. Hence, in our view, the company needs to backfill its valuation with capital deployment into the U.S. market, increase its penetration in the Canadian recreational market and continue its international expansion.”
While Cronos group did see it’s share prices jump almost 80 percent in January, there has been little tangible news that would justify this rise in price. Just as a rising tide lifts all ships, most analysts have rationalized this increase in price due to the bullish comeback in cannabis stocks back in January, alongside other factors such as hemp’s legalization in the U.S.
Cronos Group Company Profile
Cronos Group is a globally diversified and vertically integrated cannabis company with a presence across five continents. Cronos Group operates two wholly-owned Canadian licensed producers: Peace Naturals Project Inc., which was the first non-incumbent medical cannabis license granted by Health Canada, and Original BC Ltd., which is based in the Okanagan Valley, British Columbia. Cronos Group has multiple international production and distribution platforms across five continents.
Cronos Group intends to continue to rapidly expand its global footprint as it focuses on building an international iconic brand portfolio and developing disruptive intellectual property. Cronos Group is committed to building industry leading companies that transform the perception of cannabis and responsibly elevate the consumer experience. – Cronos Group
Altria Company Profile
Altria’s wholly-owned subsidiaries include Philip Morris USA Inc. (PM USA), U.S. Smokeless Tobacco Company LLC (USSTC), John Middleton Co. (Middleton), Sherman Group Holdings, LLC and its subsidiaries (Nat Sherman), Ste. Michelle Wine Estates Ltd. (Ste. Michelle) and Philip Morris Capital Corporation (PMCC). Altria holds equity investments in Anheuser-Busch InBev SA/NV (AB InBev), JUUL Labs, Inc. (JUUL) and Cronos Group, Inc (Cronos Group). – Altria