Philip Morris owner Altria completes C$2.4bn investment into Cronos Group – and is keen to take control

A C$2.4 billion equity investment in Cronos Group by Altria Group has now closed.

Altria’s investment represents an approximate 45% ownership interest in Cronos Group, but Altria also has a warrant to acquire additional ownership, exercisable over the next four years.

If exercised in full today, the warrant would increase Altria’s ownership in Cronos Group to approximately 55% and provide Cronos Group with additional proceeds of approximately C$1.4 billion.

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.

Altria’s wholly-owned subsidiaries include Philip Morris USA Inc. (PM USA), U.S. Smokeless Tobacco Company LLC (USSTC), John Middleton Co. (Middleton), Sherman Group Holdings, LLC and its subsidiaries (Nat Sherman), Ste. Michelle Wine Estates Ltd. (Ste. Michelle) and Philip Morris Capital Corporation (PMCC).

“We are delighted to close this transaction and kick-off a relationship that we expect to lead to significant growth and value creation,” said Mike Gorenstein, Cronos Group’s Chairman, President and Chief Executive Officer.

“Altria’s investment and the services they will provide to Cronos Group will enhance our financial resources, and allow us to expand our product development and commercialization capabilities, and regulatory expertise to better position Cronos Group to compete, scale and lead the rapidly growing global cannabis industry. We look forward to the many opportunities we expect this relationship to create.”

“We’re excited to finalize our investment in Cronos Group and to support their talented team,” said Howard Willard, Altria’s Chairman and Chief Executive Officer. “Cronos Group is our exclusive partner in the emerging global cannabis category and represents an exciting new growth opportunity for Altria.”

In connection with the closing, the board of directors of Cronos Group has been expanded from five to seven members.

The Cronos Group Board will include existing directors, Mike Gorenstein, Jim Rudyk, Chief Financial Officer of Roots Corporation, who will serve as lead director, and Jason Adler, Founder and Managing Partner of Gotham Green Partners GP, as well as four new directors nominated by Altria:

  • Kevin “K.C.” Crosthwaite, Jr., Senior Vice President, Chief Strategy and Growth Officer of Altria;
  • Bronwen Evans, Independent Consultant and Brand Strategist;
  • Murray Garnick, Executive Vice President and General Counsel of Altria; and
  • Bruce Gates, Founding Partner of Three Oaks Strategies LLC

The Cronos Group Board will continue to have two committees. The Audit Committee will include Mr. Adler, Ms. Evans, and Mr. Rudyk who will serve as Chair of the Audit Committee. The Compensation Committee will include Mr. Adler, Mr. Rudyk, and Mr. Crosthwaite Jr. who will serve as Chair of Compensation Committee.

“We are pleased to welcome these new directors to the Cronos Group Board and look forward to benefitting from their experience and expertise as we continue our strategic growth and international development,” said Mike Gorenstein. “We also extend our gratitude to Alan Friedman and Michael Coates, who will be retiring from the Cronos Group Board. We appreciate their service to the Company.”

Mr. Coates will continue to serve as a Canadian regulatory advisor to Cronos Group’s Board of Directors.

Cronos Group also announced today that Jerry Barbato, most recently Senior Director of Corporate Strategy at Altria, has joined Cronos Group and has been appointed Chief Financial Officer of the Company, effective April 15, 2019.

Mr. Barbato assumes the CFO role from William Hilson, who will serve as Cronos Group’s Chief Commercial Officer, a newly created role, effective April 15, 2019. As Chief Commercial Officer, Mr. Hilson will report to Mr. Gorenstein and be responsible for further enhancing the commercial strategy as well as the product and research development priorities of the Company.

“These appointments demonstrate our commitment to a premier leadership team with the skills and experience necessary to support our next phase of growth and development,” said Mike Gorenstein.

“In addition to benefiting from Jerry’s finance expertise, we expect his first-hand knowledge of Altria to help ensure we fully capitalize on our partnership with them. William is a valuable contributor to our team, and we expect his scientific and pharmaceutical knowledge to further enhance the commercial strategy and R&D initiatives for the Company. I am excited to work with Jerry and William as we continue building a leading, innovative global cannabinoid company.”Cannabis Business Worldwide

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