Provides Cronos Group with Additional Capital
and Complementary Expertise to Accelerate Its
Expansion and Innovation in the Rapidly Growing Global Cannabis
Industry
TORONTO, Dec. 7, 2018 /PRNewswire/ - Cronos Group Inc.
(NASDAQ: CRON) (TSX: CRON) ("Cronos Group" or the "Company") today
announced that it has entered into a subscription agreement (the
"Subscription Agreement") with Altria Group, Inc. (NYSE: MO)
("Altria") pursuant to which Altria has agreed to make an
approximately C$2.4 billion equity
investment in Cronos Group (the "Transaction") on a private
placement basis in exchange for common shares in the capital of the
Company (the "Shares"). Altria will also receive Warrants of Cronos
Group (the "Warrants"), 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%. This strategic partnership provides
Cronos Group 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. 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."
Benefits of the Transaction
- Accelerates Cronos Group's pace of growth and expansion.
The growth opportunities for Cronos Group are significant and
extend across the globe as markets open. With Altria's resources,
Cronos Group expects to be even better positioned to support
cannabinoid innovation, create differentiated products and brands
across medicinal and recreational categories, and expand its global
footprint and growing production capacity.
- Bolsters Cronos Group's ability to be an innovation leader
in the cannabis industry. Cronos Group's research
collaborations with Gingko Bioworks to develop cultured
cannabinoids and its partnership with the Technion Research and
Development Foundation for cannabinoid-based skin care treatments
are just two recent examples of how the Cronos Group intends to use
innovation and its growing intellectual property portfolio to
develop new applications for cannabinoids across a range of
products and categories. Altria shares Cronos Group's commitment to
innovation, medical cannabis research and state of the art product
development.
- Leverages Altria's product design, manufacturing, marketing
and distribution capabilities and expertise. Cronos Group
expects to work with Altria to rapidly expand its product offerings
in markets as regulations permit, including device technology.
Altria has significant expertise that can serve as building blocks
for cannabis vape products. Altria also brings considerable
experience with large-scale manufacturing automation, pre-roll
technology and supply chain management. In addition, by investing
the incremental capital, Cronos Group expects to enhance its
attractiveness as a potential partner to other medicinal and
consumer focused partners that may work with the Company to further
expand its product offerings and distribution capabilities for the
benefit of its shareholders.
- Provides expertise in successfully navigating complex
regulatory landscapes. Altria has a strong record of managing
multi-faceted regulatory, compliance and government affairs
environments related to taxation, product registration, shipping
and other legal issues that Cronos Group expects to be able to
leverage as cannabis markets develop and open around the
world.
- Raises capital at a premium valuation and delivers even
greater upside opportunities for Cronos Group shareholders,
employees and partners. 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 the Company's 10-day volume
weighted average price ("VWAP") on the TSX, ending November 30, 2018, the last unaffected trading
day prior to when Cronos Group publicly disclosed preliminary
discussions with Altria. The strategic investment combined with
Altria's expertise and complementary capabilities are expected to
better position Cronos Group for significant growth and value
creation with benefits to all of the Company's stakeholders,
including its holders of Shares (the "Shareholders"), employees and
partners.
Board Recommendation
The Board of Directors of Cronos Group (the "Board"), after
consultation with its legal and financial advisors, has unanimously
determined that the Transaction is in the best interest of Cronos
Group and is unanimously recommending that Shareholders vote in
favor of the Transaction. The Board has received an opinion from
its financial advisor, Lazard Canada Inc., that as of the date
thereof and subject to the assumptions, qualifications and
limitations set forth therein, the consideration to be received by
the Company pursuant to the Transaction is fair, from a financial
point of view, to the Company.
Key Transaction Terms
Equity Investment
Pursuant to the Subscription Agreement, Altria has agreed to
acquire 146.2 million Shares at closing at a price of C$16.25 per Share, which represents a 41.5%
premium to the 10-day VWAP of the Shares on the TSX on November 30, 2018, the last unaffected trading
day prior to when Cronos Group publicly disclosed preliminary
discussions with Altria.
Altria will also receive Warrants at closing entitling it to
acquire up to an additional 10% ownership position in the Company
exercisable from time to time, for a period of four years following
closing for an exercise price of C$19.00 per Share, which represents an implied
premium of 65.5% to the 10-day VWAP of the Shares on the TSX on
November 30, 2018. Altria's ownership
interest in Cronos Group would be approximately 55% (calculated on
a non-diluted basis). Additionally, the Warrants will contain
certain anti-dilution provisions.
Governance Rights
Pursuant to an investor rights agreement to be entered into, at
closing (the "Investor Rights Agreement"), Altria will have the
right to nominate four directors, including one independent
director, to serve on the Board of Directors of Cronos Group, which
will be expanded from five to seven directors in connection with
the Transaction.
Altria's Exclusive Cannabis Partner
Under the Investor Rights Agreement, Altria has agreed to make
Cronos Group its exclusive partner for pursuing cannabis
opportunities throughout the world (subject to certain limited
exceptions.
At closing, the parties are also expected to enter into
commercial support agreements under which Altria will provide
services relating to marketing and brand management, government
affairs, regulatory affairs, and research and
development.
Closing and Approvals
The Transaction is expected to close in the first half of 2019,
subject to certain customary closing conditions including the
receipt of approval from the TSX, and receipt of regulatory
approval pursuant to the Investment Canada Act. In addition,
under applicable TSX rules, the Transaction will require approval
by at least the majority of the votes cast by Shareholders present
at a special meeting of Shareholders as the Transaction is expected
to materially affect control of Cronos Group.
Additional Information
Further information regarding the transaction will be included
in the management information circular to be mailed to Shareholders
in connection with the Company's special meeting of Shareholders to
approve the transaction. Copies of the Subscription Agreement and
the agreements attached thereto as exhibits, including the form of
Warrant and the form of Investor Rights Agreement, will be filed on
the Company's profile on SEDAR at www.sedar.com and EDGAR at
www.sec.gov. The above descriptions of the terms and conditions of
the Subscription Agreement and the agreements attached thereto as
exhibits, including the form of Warrant and the form of Investor
Rights Agreement, are qualified in their entirety by the terms of
the Subscription Agreement which will be filed on the Company's
profile on SEDAR at www.sedar.com and EDGAR at www.sec.gov.
Advisors
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.
Analyst / Investor Conference Call and Webcast
Cronos Group will host a conference call and webcast today,
Friday, December 7 at 8:30 a.m. ET to discuss today's announcement.
The conference call can be accessed by dialing (647) 427-7450
for callers from the U.S. and (888) 231-8191 for international
callers. The confirmation code is 9359909.
A live webcast of the conference call will be available at
https://thecronosgroup.com/investor-relations.
A replay of the conference call will be available for
approximately two weeks, from December 7,
2018 through December 21,
2018, and can be accessed by dialing (855) 859-2056 and
providing the 9359909 confirmation code.
The webcast will also be archived at
https://thecronosgroup.com/investor-relations.
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 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.
About Altria
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. Altria holds
an equity investment in Anheuser-Busch InBev SA/NV (AB InBev).
The brand portfolios of Altria's tobacco operating companies
include Marlboro®, Black & Mild®, Copenhagen®, Skoal®, VERVE®,
MarkTen® and Green Smoke®. 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.
Take a closer look at Altria and its companies on
altria.com.
Follow Altria on Twitter at @AltriaNews.
Forward-Looking Statements
This communication contains "forward-looking information" and
"forward-looking statements" within the meaning of applicable
securities laws (collectively, "forward-looking statements"). All
statements contained herein that are not clearly historical in
nature may constitute forward-looking statements. In some cases,
forward-looking statements can be identified by words or phrases
such as "may", "will", "expect", "likely", "should", "would",
"plan", "anticipate", "intend", "potential", "proposed",
"estimate", "believe" or the negative of these terms, or other
similar words, expressions and grammatical variations thereof, or
statements that certain events or conditions "may" or "will"
happen, or by discussions of strategy. Forward-looking statements
include estimates, plans, expectations, opinions, forecasts,
projections, targets, guidance or other statements that are not
statements of historical fact. Forward-looking statements are
provided for the purposes of assisting the reader in understanding
our financial performance, financial position and cash flows as at
and for periods ended on certain dates and to present information
about management's current expectations and plans relating to the
future and the reader is cautioned that such information may not be
appropriate for any other purpose. Some of the forward-looking
statements contained in this communication, include, but are not
limited to, statements with respect to: the proposed investment by
Altria Group in Cronos Group (the "proposed transaction"), our
business and operations, our strategy for future growth, expanding
our global footprint, including the timing thereof, our intention
to build an international iconic brand portfolio and develop
disruptive intellectual property and our ability to build an
industry leading company that transforms the perception of cannabis
and responsibly elevates the consumer experience. No
forward-looking statement can be guaranteed and Cronos Group cannot
guarantee the future statements contained herein. Forward-looking
statements are based upon certain material assumptions that were
applied in drawing a conclusion or making a forecast or projection,
including management's perceptions of historical trends, current
conditions and expected future developments, as well as other
considerations that are believed to be appropriate in the
circumstances. While we consider these assumptions to be reasonable
based on information then currently available to management, there
is no assurance that such expectations will prove to be correct. By
their nature, forward-looking statements are subject to inherent
risks and uncertainties that may be general or specific and which
give rise to the possibility that expectations, forecasts,
predictions, projections or conclusions will not prove to be
accurate, that assumptions may not be correct and that objectives,
strategic goals and priorities will not be achieved. A variety of
factors, including known and unknown risks, many of which are
beyond our control, could cause actual results to differ materially
from the forward-looking statements in this communication. Such
factors include, without limitation, the ability to complete the
proposed transaction between Cronos Group and Altria Group on
anticipated terms and timetable; the ability to obtain approval by
the shareholders of Cronos Group related to the proposed
transaction and the ability to satisfy various other conditions to
the closing of the transaction contemplated by the subscription
agreement; the ability to obtain governmental approvals of the
proposed transaction on the proposed terms and schedule, any
conditions imposed on the parties in connection with consummation
of the proposed transaction; the risk that the cost savings and any
other synergies from the proposed transaction may not be fully
realized or may take longer to realize than expected; disruption
from the proposed transaction making it more difficult to maintain
relationships with customers, employees or suppliers; future levels
of revenues; consumer demand for cannabis products; Cronos Group's
ability to manage disruptions in credit markets or changes to its
credit rating; future levels of capital, environmental or
maintenance expenditures, general and administrative and other
expenses; the success or timing of completion of ongoing or
anticipated capital or maintenance projects; the business
strategies, growth opportunities and expected investment; the
adequacy of our capital resources and liquidity, including but not
limited to, availability of sufficient cash flow to execute our
business plan (either within the expected timeframe or at all); the
potential effects of judicial or other proceedings on our business,
financial condition, results of operations and cash flows;
continued or further volatility in and/or degradation of general
economic, market, industry or business conditions; compliance with
applicable environmental, economic, health and safety, energy and
other policies and regulations; the anticipated effects of actions
of third parties such as competitors, activist investors or federal
(including U.S. federal), state, provincial, territorial or local
regulatory authorities, self-regulatory organizations or plaintiffs
in litigation; and the factors discussed in Cronos Group's current
MD&A and Annual Information Form, both of which have been filed
on SEDAR and EDGAR and can be accessed at www.sedar.com and
www.sec.gov, respectively. Readers are cautioned to consider these
and other factors, uncertainties and potential events carefully and
not to put undue reliance on forward-looking statements.
Forward-looking statements contained herein are made as of the date
of this communication and are based on the beliefs, estimates,
expectations and opinions of management on the date such
forward-looking statements are made. Cronos Group undertakes no
obligation to update or revise any forward-looking statements,
whether as a result of new information, estimates or opinions,
future events or results or otherwise or to explain any material
difference between subsequent actual events and such
forward-looking statements, except as required by applicable law or
regulation.
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SOURCE Cronos Group Inc.