Altria Group has agreed to make an approximately C$2.4 billion equity investment in Cronos Group on a private placement basis in exchange for common shares in the company.
Altria will also receive Warrants of Cronos Group, that if fully exercised, would provide the company with an additional approximately C$1.4 billion of proceeds.
The shares issuable to Altria (pursuant to the Subscription Agreement) will result in Altria holding an approximately 45% ownership interest in Cronos Group (calculated on a non-diluted basis). Exercise of the warrants would result in incremental ownership of 10% for a total potential ownership position of 55%.
Tobacco giant Altria’s wholly-owned subsidiaries include Philip Morris USA Inc., U.S. Smokeless Tobacco Company LLC, John Middleton Co., Sherman Group Holdings, LLC and its subsidiaries, Nu Mark LLC, Ste. Michelle Wine Estates Ltd. (Ste. Michelle) and Philip Morris Capital Corporation.
Its strategic partnership with Cronos Group will provide the latter with additional financial resources, product development and commercialization capabilities, and deep regulatory expertise to better position the company to compete, scale and lead the rapidly growing global cannabis industry.
“Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth,” said Cronos Group’s Mike Gorenstein, Chairman, President and Chief Executive Officer.
“The proceeds from Altria’s investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in R&D and brands that resonate with our consumers. Importantly, Altria shares our vision of driving long-term value through innovation, and we look forward to continuing to differentiate in this area.
“Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth.”
Mike Gorenstein, Cronos Group
“As one of the largest holding companies in the adult consumer products sector, Altria has decades of experience in regulatory, government affairs, compliance, product development and brand management that we expect to leverage, particularly as new markets for cannabis open around the world.”
“Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria,” said Howard Willard, Altria’s Chairman and Chief Executive Officer. “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.”
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.
Under the terms of the agreement, Altria has agreed to acquire 146.2 million Shares at a price of C$16.25 per Share. The price per Share represents a 41.5% premium to Cronos Group’s 10-day volume weighted average price (“VWAP”) on the TSX, ending November 30, 2018.
The Board of Directors of Cronos Group is unanimously recommending that Shareholders vote in favor of the Transaction. Lazard Canada Inc. is serving as financial advisor to Cronos Group, and Sullivan & Cromwell LLP and Blake, Cassels & Graydon LLP are legal counsel.
Perella Weinberg Partners LP is serving as financial advisor to Altria, and Wachtell, Lipton, Rosen & Katz and Goodmans LLP are legal counsel. Hunton Andrews Kurth LLP is providing legal counsel to Altria regarding the financing.Cannabis Business Worldwide