Altria Group Inc., the U.S. maker of Marlboro cigarettes, is paying $1.8 billion for a 45 percent stake in Cronos, a Canadian cannabis firm, Quartz reported.
Why is this happening?
Altria, formerly known as Phillip Morris, is getting into the market amid declining cigarette sales. The company could also be positioning itself for the possible legalization of marijuana across the U.S., Quartz added. Canada legalized recreational cannabis in October.
"Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria," Howard Willard, Altria's chairman and CEO, stated in an announcement. "We believe that Cronos Group's excellent management team has built capabilities necessary to compete globally, and we look forward to helping Cronos Group realize its significant growth potential."
Altria, meanwhile, is scaling back its tobacco alternatives and discontinuing vaping products such as MarkTen and Green Smoke. It also plans to focus on more reduced-risk tobacco products.
"Altria expects its investment to help Cronos Group accelerate its growth strategies and its R&D and intellectual property development," according to the statement. "Additionally, Altria will provide expertise to help Cronos Group thrive in the growing global cannabis market. These services may include regulatory affairs, regulatory science, compliance, government affairs and brand management."
Altria's stock fell by nearly 25 percent this year and revenue is expected to grow by only 1 percent this year and in 2019, CNN Business reported.
"With Democrats winning control of the U.S. House, Congress may finally pass the Farm Bill, which would make it legal to produce hemp and potentially open the door for more products containing cannabidiol or CBD," the report stated.
Are there similar partnerships?
Nearly 50 years ago, speculation began over whether Marlboro-branded marijuana cigarettes would ever become reality. Other tobacco and alcoholic beverage companies are also looking to get into the cannabis market.
Canadian marijuana company, Canopy Growth, for example, has received a multibillion dollar investment from Corona owner Constellation Brands, CNN reported.
Also, the Canadian subsidiary of Molson Coors has a joint venture with The Hydropothecary Corporation for the production of "cannabis-infused drinks" in Canada. And a beer brand owned by Heineken, Lagunitas, is selling a cannabis-infused sparkling water brand in California.