Marlboro maker Altria Group Inc.is taking a 45 percent stake in Cronos Group, the Canadian medical and recreational marijuana provider said Friday.
Altria's investment in Cronos as its exclusive partner in the emerging global cannabis category represents an "exciting new growth opportunity" for the company, said its chairman and chief executive officer Howard Willard.
Shares of Cronos surged as much as 33 per cent to $18.56 on the Toronto Stock Exchange from its $13.98 closing price on Thursday.
Altria had been in talks with cannabis companies for months, as its core cigarette business continues to shrink.
Altria's products, however, have lost significant ground to e-cigarette maker Juul Labs Inc over the past year, as have e-cigarette brands from other major tobacco companies.
Cronos will remain a Canadian company, headquartered in Toronto, Gorenstein said.
The agreement allows Altria to nominate four directors to Cronos' board of directors, including one independent director. Other tobacco and alcoholic beverage companies are also looking to get into the cannabis market.
"I think it shows that the US players - Altria and Constellation - will not buy into a USA cannabis company until it becomes federally legal in the US", said Mr. Investors, meanwhile, have been pouring money into cannabis companies that operate in multiple US states, pivoting away from Canada.
Canada on October 17 became the second country in the world to legalize pot for recreational use.
Investors seem to be betting that more deals could be coming.
The parent company of Corona beer acquired a $4 billion stake in Canada-based pot producer Canopy Growth last August, upping its ownership of the company to 38 percent from about 10 percent.
In February, Pyxus bought controlling stakes in two Canadian marijuana producers, Canada's Island Garden and Goldleaf Pharm.
The Canadian subsidiary of Molson Coors (TAP) has a joint venture with The Hydropothecary Corporation to produce cannabis-infused drinks for the Canadian market. 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.
Gorenstein added that Cronos will use the investment from Altria to expand its distribution and infrastructure around the world and also boost its investments in research and development for new brands and products.