Altria has made a move in the cannabis industry by making a deal to acquire a 45% stake of Cronos Group Inc (NASDAQ:CRON) at the cost of $1.8 billion. Following the agreement, Altria has the option of purchasing the majority share of Cronos. The deal is among the diversification strategies that Altria is taking to move from the shrinking cigarette market. The arrangement will benefit Cronos significantly from a strategic and financial perspective.
The proceeds from the deal will result in substantial cash that will help Cronos in expanding production as well as their distribution footprint. Cronos has already taken steps to up their manufacturing capabilities, from the current 6,630 kilograms as per the last quarter, by constructing additional facilities in Canada as well as overseas through joint ventures. Therefore the addition of the cash from the acquisition will enable them to double down on greenhouse constructions as well as the building of processing facilities.
Similarly, the cash received is likely to boost research and development with Cronos likely to accelerate the progress of projects such as the development of the cultured cannabinoids. Currently, they are in a better position to scale up production of cannabis extracts and oils that require substantial capital investment as a result of the complicated extraction process involved.
Cronos is also expected to benefit strategically in some ways. Numerous cannabis market opportunities are opening up across the globe, and the alliance with Altria is expected to benefit them as they can easily leverage its international reach to venture into new markets. Also, Altria has massive regulatory experience, and thus the move could work in Cronos’ advantage as the scaling of the growing cannabis industry looks imminent.
Cronos has pointed out that they could get sufficient support from Altria in turning cannabis into a consumer product that is standardized. Although Cronos has what it takes to produce a primary cannabis product they nonetheless could benefit strategically from Altria’s market understanding that will help them produce and distribute premier products as they consider scaling up.
Cronos is could also benefit from Altria’s technological experience such as vaporization technology.