Altria Becomes Largest Shareholder in Cronos Group, a Leading Global Cannabinoid Company
March 08 2019 - 8:30AM
Business Wire
Altria Invested USD $1.8 Billion for
Approximately 45% Ownership Interest with Warrant to
Increase Ownership over the Next Four Years
Altria Group, Inc. (Altria) (NYSE:MO) announced today the
completion of its approximately USD $1.8 billion (CAD $2.4
billion)1 investment in Cronos Group Inc. (Cronos Group) (TSX: CRON
and NASDAQ: CRON), a leading global cannabinoid company, following
receipt of shareholder and Canadian regulatory approvals.
Altria’s investment represents an approximate 45% economic and
voting interest in Cronos Group with a warrant to acquire
additional ownership at a price of CAD $19.00 per share,
exercisable over the next four years. If exercised in full today,
the warrant would increase Altria’s ownership in Cronos Group to
approximately 55%. The aggregate exercise price for the warrant is
approximately USD $1.0 billion (CAD $1.4 billion)2.
Under the terms of the transaction, Altria nominated four
directors who were recently elected to serve on Cronos Group’s
seven member board: Kevin C. Crosthwaite, Jr., Murray R. Garnick,
Bruce A. Gates and Bronwen Evans.
“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.”
“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.”
Accounting Treatment
Altria expects to account for its investment in Cronos Group
under the equity method of accounting. Altria will report its share
of Cronos Group’s results using a one-quarter lag because Cronos
Group’s results will not be available in time for Altria to record
them in the concurrent period. For example, Altria’s share of
Cronos Group’s results for the relevant, post-closing portion of
the first quarter of 2019 will be recorded in Altria’s 2019
second-quarter statement of earnings.
Altria will record changes in the fair value of the warrant as
gains or losses in Altria’s consolidated statements of earnings in
the periods in which the changes occur and exclude these amounts
from Altria’s adjusted results.
Altria’s Profile
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). Altria
holds equity investments in Anheuser-Busch InBev SA/NV (AB InBev),
JUUL Labs, Inc. (JUUL) and Cronos Group Inc. (Cronos Group).
The brand portfolios of Altria’s tobacco operating companies
include Marlboro®, Black & Mild®, Copenhagen® and Skoal®. Ste.
Michelle produces and markets premium wines sold under various
labels, including Chateau Ste. Michelle®, Columbia Crest®, 14
Hands® and Stag’s Leap Wine Cellars™, and it imports and markets
Antinori®, Champagne Nicolas Feuillatte™, Torres® and Villa Maria
Estate™ products in the United States. Trademarks and service marks
related to Altria referenced in this release are the property of
Altria or its subsidiaries or are used with permission.
More information about Altria is available at altria.com and on
the Altria Investor app, or follow us on Twitter, Facebook and
LinkedIn.
About Cronos Group
Cronos Group is a globally diversified and vertically integrated
cannabis company with a presence across five continents. 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 and partnerships across five continents. Cronos Group
intends to continue to rapidly expand its global footprint as it
focuses on building an international iconic brand portfolio and
developing disruptive intellectual property. Cronos Group is
committed to building industry leading companies that transform the
perception of cannabis and responsibly elevate the consumer
experience.
Cronos Group has no U.S. operations, and cannabis remains
illegal at the federal level.
Forward-Looking and Cautionary Statements
This release contains projections of future results and other
forward-looking statements that involve a number of risks and
uncertainties and are made pursuant to the Safe Harbor Provisions
of the Private Securities Litigation Reform Act of 1995.
Important factors that may cause actual results and outcomes to
differ materially from those contained in such forward-looking
statements include, without limitation, the possibility that the
expected benefits of the transaction may not materialize in the
expected manner or timeframe, if at all; the potential inaccuracy
of the financial projections; prevailing economic, market, or
business conditions negatively affecting the parties; risks that
the transaction disrupts Cronos Group’s current plans and
operations; the fact that Altria’s reported earnings and financial
position and any dividends paid by Cronos Group on shares owned by
Altria may be adversely affected by unfavorable foreign currency
exchange rates, tax and other factors, including the risks
encountered by Cronos Group in its business; risks related to the
disruption of the transaction to Altria, Cronos Group and their
respective management; risks related to the effect of announcement
of the transaction on Cronos Group’s ability to retain and hire key
personnel and maintain relationships with customers, suppliers and
other third parties; and the other factors detailed in the parties’
publicly filed documents, including Altria’s Annual Report on Form
10-K for the year ended December 31, 2018 and Cronos Group’s
filings with the Canadian Securities Administration and the United
States Securities and Exchange Commission.
Altria cautions that the foregoing list of important factors is
not complete and does not undertake to update any forward-looking
statements that it may make except as required by applicable law.
All subsequent written and oral forward-looking statements
attributable to Altria or any person acting on its behalf are
expressly qualified in their entirety by the cautionary statements
referenced above.
___________________________________
1 Based on exchange rate of 0.7557 USD / CAD which includes the
impact of derivative financial instruments that Altria entered into
to hedge its exposure to currency exchange rate movements. 2
Based on reference exchange rate of 0.7432
USD / CAD at market close on March 7, 2019 as quoted by
Bloomberg.
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