In an effort to develop new product lines and expand large-scale cultivation capabilities, Cronos Group Inc. (NASDAQ: CRON; TSX: CRON) just closed a significant equity investment deal with Altria Group, Inc. (NYSE: MO).
Under the terms of the deal that closed this morning, Altria nets 45% control of Cronos in exchange for a $2.4 billion investment.
Citing the significant immediate financial enhancement to the company’s resources as well as additional services the partnership will provide, Cronos Group’s board chairman and Chief Executive Officer Mike Gorenstein commented:
Although falling short of Constellation’s landmark $5 billion investment into Canopy Growth (TSX: WEED; NYSE: CGC) in 2018, the Altria deal still represents one of the single largest investments in the Canadian cannabis industry to date.
The deal further sees Cronos expanding its board of directors to seven members, with four of those members to now be nominated by Altria. Among those extra board members nominated are Murray Garnick – the Executive VP and General Counsel for Altria – along with Altria’s Senior VP of Strategy and Growth, Kevin Crosthwaite Jr.
While the current investment level leaves Cronos Group in effective control, the deal includes a warrant option to bump up Altria’s ownership to a majority stake of 55% for an additional $1.4 billion.
Aside from the board additions, Cronos today also announced a change up of senior management in conjunction with the deal. Altria’s former Senior Director of Corporate Strategy Jerry Barbato will now serve as Cronos Group’s Chief Financial Officer.
The CFO role was most recently held by William Hilson, who is shifting into the newly created Chief Commercial Officer position to focus on research and development.
Finding new products outside the standard dried flower varieties has become a major focus of the legalized Canadian cannabis industry. Edibles, capsules, oils, creams, and even transdermal patches have all been touted by various companies as the next big trend to fill the gap as customers look for new ways to consume cannabis products.
In search of new potential medical uses for cannabis, Cronos Group entered into a research agreement with the Technion Research and Development Foundation late last year to develop products focused on treating acne and psoriasis.
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