Marlboro cigarettes' parent company delves into marijuana market

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The exclusive partnership will give Cronos additional financial resources, regulatory expertise and product development and commercialization capabilities to tap worldwide cannabis opportunities, the company said in the announcement.

According to a news release, Altria's resources will better position the Cronos Group "to support cannabinoid innovation, create differentiated products and brands across medicinal and recreational categories, and expand its global footprint and growing production capacity". If exercised in full, Altria would own 55% of the company.

Altria is also in talks to take a minority stake of between 20 per cent and 40 per cent in e-cigarette maker Juul Labs Inc, sources told Reuters last month. Canada legalized recreational cannabis in October.

The Denver-based brewing company said earlier this year that its Canadian unit would partner with the Hydropothecary Corporation "to pursue opportunities to develop non-alcoholic, cannabis-infused beverages for the Canadian market following legalization". But Cronos is not among Canada's largest cannabis producers - it generated just $3.8-million in revenue in its most recent quarter. It also announced Friday that it will discontinue two of its next-generation tobacco products and its oral nicotine-containing ones to focus on "more compelling reduced-risk tobacco product opportunities". Altria shares were up about 2.5 percent.

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Cronos has partnered with Boston biotech firm Ginkgo Bioworks Inc.to genetically engineer the active compounds of cannabis. "It's worth noting that Altria does not grow their own tobacco".

The deal is expected to close in the first half of 2019.

After the deal is closed, Altria will have the right to nominate four directors, including one independent, to Cronos' board comprising seven directors in total. We think that model of growing your own plants is very hard to scale and to execute well. JPMorgan Chase Bank NA, a subsidiary of JPMorgan Chase & Co., is providing financing to Altria. There weren't any Canadian-headquartered advisers involved in either deal.

Cronos shares were up 23% in pre-market trading, while Altria's stock gained 2%, according to CNBC. Marijuana, while still illegal on the federal level in the US, is now allowed in an increasing number of states, while Canada now represents a large laboratory for the nascent industry. "This puts a bid under the market for the next year".

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