Altria Group—the biggest tobacco company in the world and owner of the Marlboro brand—is in active negotiations to either invest in, or outright acquire, the Cronos Group, a major Canadian cannabis producer.
At this point, both companies have said, no contracts have been signed; but they have agreed to keep negotiations going, although Toronto-based Cronos made it clear that there is no guarantee that the two sides will come to a deal. “No agreement has been reached with respect to any such transaction and there can be no assurance such discussions will lead to an investment or other transaction involving the companies,” the company announced in a statement.
It’s an interesting, if not completely surprising, move for the Virginia-based tobacco giant, formerly known as Phillip Morris. According to the World Health Organization’s World Cancer Report, Canada consumes the 67th most tobacco in the world, while the US is 69th—the numbers for both countries have been dropping steadily for decades. And Altria has felt the results.
In 2003, the company ranked 11th on the Fortune 500 list of biggest corporations; by 2010, it had fallen to 137th and now ranks 154th. Altria CEO Howard Willard said of the downturn in tobacco use: “It’s hard to tell how long it’s going to persist; I think we’re going to have to wait and see what happens with both gas prices… and whether or not the growth rate of e-vapor slows down.”
Altria has diversified in the past. It gained controlling interest in Kraft Foods; later spinning it off for a significant profit. The company also owns Chateau Ste. Michelle winery and has a minority interest in Anheuser-Busch InBev, the world’s largest brewer. Similarly, it has also invested heavily in e-cigarette use, acquiring Nu Mark and a big stake in Juul Labs.
The move to cannabis makes sense as interest in the recreational use of the product has increased as that of tobacco has dwindled. And, it’s not just gaining popularity, it’s becoming more legally accepted. Currently, all 37 million Canadians and more than 80 million Americans live in jurisdictions that have legalized adult-use cannabis.
Still, the US federal government considers cannabis to be illegal and actively fights against movement of the product over international and even state borders. “We acknowledge that it is currently federally illegal in the US,” Willard said, “but I think we think it’s worth exploring the category because that might change in the future.”
News of the talks has led to investors flocking to Cronos stock. It closed Tuesday at $10.74—up for the second consecutive day—giving the company a market cap of almost $1.9 billion. That makes an almost 40% increase from a year ago.
Tobacco Companies Eyeing Cannabis
A merger or acquisition between the two companies would not mark the first deal between an established tobacco company and a newer cannabis firm. Last June, the world’s fourth-biggest tobacco firm, Imperial Brands of London, England, acquired Oxford Cannabinoid, a British cannabis company.
Similarly, Constellation brands—well known for its Corona and Modelo beer brands as well as Black Velvet whiskey and Svedka vodka—invested $3.8 billion in Canopy Growth, a Canadian cannabis grower. And Atlanta-based Coca-Cola has publicly investigated several cannabis companies in an effort to integrate cannabis into its beverages.
Altria actually has a long history with cannabis. Back in 1970, the US Department of Justice asked the company to analyze cannabis and determine why people would choose it over tobacco. Their report reads something like a rejected script for Mad Men. It says, in part: “We are in the business of relaxing people who are tense and providing a pickup for people who are bored or depressed. The human needs that our product fills will not go away. Thus, the only real threat to our business is that society will find other means of satisfying these needs.”
Of course, nearly half a century later, more people are relaxing with cannabis than tobacco. And Altria appears to be trying to get in on that.