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Marlboro maker places US$2.4 billion bet on marijuana

Friday, December 07, 2018

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NEW YORK, United States (AP) — One of the world's biggest tobacco companies is diving into the cannabis market with a US$2.4 billion buy-in.

Marlboro maker Altria Group Inc. is taking a 45 per cent stake in Cronos Group, the Canadian medical and recreational marijuana provider said Friday.

Altria will pay another US$1.4 billion for warrants that if exercised, would give the Altria a 55 per cent ownership stake in the Toronto company.

That would mean Altria's investment would be in the same league as the US$4 billion spent earlier this year by Constellation Brands to acquire shares of Canopy Growth Corp., another Canadian pot producer.

The August investment by Constellation, which makes Corona and other beverages, was the largest to date by a major US corporation in the cannabis market.

Whatever hesitation larger corporations in the US had about entering the cannabis market appears to be fading if there is a financial justification.

Altria's huge investment lit up shares of cannabis companies that have begun to set up shop in Canada, where recreational use was legalised this year.

Shares of Cronos Group Inc. jumped 31 per cent and neared an all-time high at the opening bell Friday.

Rapid growth in the cannabis market is expected to continue as legalisation expands in the US and social norms change. On Tuesday, ultra-conservative Utah became the latest state to legalise marijuana use for medical purposes.

Consumers are expected to spend US$57 billion per year worldwide on legal cannabis by 2027, according to Arcview Market Research, a cannabis-focused investment firm. In North America, that spending is expected to grow from US$9.2 billion in 2017 to US$47.3 billion in 2027.

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