More than a month after a report surfaced that Marlboro cigarette maker Altria Group Inc. was in talks with marijuana producer Aphria Inc., the tobacco company is discussing an investment in a different pot company, Cronos Group Inc., as legacy companies continue to look for ways into the marijuana industry.
Citing anonymous sources, Reuters reported Monday morning that the two companies were discussing a potential acquisition. Talks are preliminary, expected to go on for “several weeks” and may not result in a deal, the report cautioned. A source familiar with the matter confirmed to MarketWatch that Altria and Cronos have talked recently.
Cronos confirmed the discussions in a news release Monday evening, saying “it is engaged in discussions concerning a potential investment by Altria Group Inc.” Cronos also said that “there can be no assurance such discussions will lead to an investment or other transaction.”
The Reuters report did not specify how much Altria
was willing to pay for Cronos, which closed Monday with a market capitalization of $2.4 billion, according to FactSet. Altria did not respond to a request for comment.
Shares of Cronos
surged as much as 30% in Monday trading, though gains settled down and the stock closed up 11%. After Cronos confirmed the talks, shares jumped more than 9% in after-hours trading.
A guide to pot stocks: What you need to know to invest in cannabis companies
was hit from multiple angles Monday, closing down 23.4% after a short seller published a report questioning the company’s legitimacy. The stock dipped another 7% in after-hours trading following Cronos’s confirmation.
The talks between Altria and Aphria were for a minority stake in the pot company and executives from both companies met in Leamington, Ontario, where Aphria is located, according to a report from The Globe and Mail. At the time, the Canadian newspaper reported that the deal, if closed, would have a similar structure to Constellation Brands Inc.’s
$4 billion investment in Canopy Growth Corp.
According to a source familiar with the Canadian cannabis sector, there are “a number” of similar deals in the works at the moment.
The news fits in with reports that show Altria attempting to jump into new smoking categories. The Wall Street Journal reported last week that Altria is in discussions with e-cigarette startup Juul Labs Inc. for a minority stake, though a deal has not been reached.
Beverage companies have been ahead of tobacco companies in targeting the marijuana space. MolsonCoors Brewing Co.
is pursuing a joint venture with Quebec-based weed producer Hexo Corp.
and there have been rumors about Smirnoff and Johnnie Walker maker Diageo PLC talking with several Canadian pot companies. A source familiar with the cannabis sector told MarketWatch in the past that a deal with a beverage conglomerate is something of a Holy Grail for Canadian weed makers.
Hindenburg Research published a scathing note Monday about Aphria’s business, calling into question a number of its acquisitions in Latin America — among other things — and said, “We are of the strong opinion that Aphria is part of a scheme orchestrated by a network of insiders to divert funds away from shareholders into their own pockets.”
Aphria called Hindenberg’s note a “malicious and self-serving attempt to profit by manipulating” the company’s stock price “at the expense of Aphria’s shareholders.” The company also said that it paid a fair price for its most recent acquisition in Latin America.
In other pot-stock news, New Age Beverages Corp.
announced the acquisition of a beverage company with international distribution capabilities, Morinda Holdings Inc., and shares gained about 10%. Aurora Cannabis Inc.
announced that its gelcap technology has hit the market.
Cronos’s stock has rallied 47% year to date, while the ETFMG Alternative Harvest ETF
has lost 6.6% and the S&P 500 index
has gained 4.0%.