Here’s the real reason Altria bought a billion dollar stake in Cronos Group

Altria’s billion-dollar investment in Cronos Group is the talk of investors currently but what does this purchase mean for both companies?

Cronos Group (TSE:CRON) is one of the safest pot stocks to buy currently as the brand consistently performs well in the market. The cannabis brand gained more attention from investors when tobacco giant, Altria, bought a $1.8 billion stake at the company. The US-tobacco company made quite the purchase in the cannabis industry but what was the motive behind it?

Cigarettes now have a lot of competition to go up against including cannabis and e-cigarettes. This certainly took a toll on companies like Marlboro, which is one of the major brands under Altria. Despite the declining sales, Altria still manages to meet successes financially. However, it is likely that Altria is seeing the passing of the torch between tobacco and cannabis and it saw Cronos Group as the best gateway into the emerging industry.

Wall Street analysts are in favor of Altria’s investment in Cronos Group says CNBC. Cowen analyst Vivien Azer says that if Altria is hoping to diversify its services to include emerging markets like e-cigarettes and marijuana, then Cronos Group is the way to go. She adds that Altria’s shares could rally to $74 by next year. At the start of the week, it was already trading above the $53 mark.

Cronos Group focuses not on the plant, but on its compound instead. This unique approach allows the brand to dip into the emerging market for cannabidiol (CBD). The compound has found its way into a huge market in the US. It is accessible in top hotels, spas, cafes, and restaurants.

“Together, Cronos can leverage Altria’s operational capabilities and expertise in order create value-added form factors while focusing on ingredient composition without reliance on a massive cultivation (farming) infrastructure,” says Azer.

Cannabis mergers earlier this year

cannabis
Cannabis companies have been forging partnerships and mergers. (Source)

Altria is not the first major brand to step into the cannabis industry this year, says Fool. In fact, other companies have decided to merge with other Canada-based cannabis brands. Last Aug. 1, Molson Coors Brewing announced a joint venture with Quebec-based Hexo. After that, Corona and Modelo beer maker Constellation Brands closed a $4 billion investment in Canopy Growth.

Canada’s strong market and knowledge for cannabis make it an attractive venture for companies outside the region. These brands have two goals in mind; first of which is that they are bracing for the inevitable boom of marijuana in the US. The second is that they want to dive into the market as early as possible so that they are already able to establish their place in it.

It is hard to see exactly what Altria is planning with its major investment in Cronos Group. However, if it is planning on getting into the emerging cannabis industry, then it came to the right place. As the demand for cannabis steadily grows in the US and Canada, we’ll be able to see just how much Altria gains from the deal.

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