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How Altria Aims to Accelerate Cronos Group’s Growth

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Feb. 5 2019, Updated 11:15 a.m. ET

Altria’s deep pockets

In the earlier part of this series, we discussed how picking the cannabis companies that will ride the cannabis boom opportunity successfully will remain a key focus for investors. Naturally, companies will need a lot of capital to fund their working capital and capital expenditures in order to capture growth potential. A company with deep pockets could be a perfect partner for cannabis companies, and Altria’s stake in Cronos Group (CRON) may give the latter the required ammo to expand.

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Synergies

Altria’s (MO) experience in the tobacco business could be leveraged to accelerate penetration in the marijuana market, thus providing a valuable synergistic potential to both companies. In its earnings call, Altria’s chair and CEO, Howard Willard, stated, “selecting the right partner in this category was critical and we’ve done just that” and further added that “our investment will allow Cronos to more quickly expand its global footprint and production capacity.”

Together, the companies will work to develop and innovate products under the medicinal and recreational cannabis segments. Altria commented that the company is not restricting itself with regards to the possibilities and formats for developing differentiated cannabis products. However, the company added that it doesn’t expect income from Cronos to have a material contribution to the company’s earnings in 2019.

Unlike tobacco, cannabis has much wider utility due to different strains and a combination of CBD and THC in a marijuana plant. Thus, creating differentiated products is possible for companies (HMMJ) such as Canopy Growth (WEED), CannTrust (CNTTF), and Aphria (APHA).

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