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As I've been predicting since I first started covering the field in late 2016, Big Tobacco is diving headfirst into legal cannabis.
Altria Group Inc. (NYSE: MO), maker of Marlboro cigarettes and other major brands, said early last Friday, Dec. 7, that it's taking a $1.8 billion, 45% equity stake in Canadian cannabis leader Cronos Group Inc. (Nasdaq: CRON). Plus, Altria has the option to take over Cronos through 55% ownership over the next four years.
The "bigness" of this news is evident in the price. Altria paid $12.14 per share – an 18% premium over Cronos' stock price as of Thursday, Dec. 6, and approaching the stock's all-time high of $15.30.
And it's evident in how Cronos absolutely skyrocketed on the news.
Altria's dive into pot makes sense, of course. Its long-running global experience in the highly regulated tobacco industry is going to come in handy for an internationally oriented cannabis firm like Cronos, which has operations not just in Canada, but also in Colombia, Germany, Poland, Israel, and Australia.
And Cronos should supply a nice shot in the arm for Altria, which, like all tobacco firms, has been hit hard by public health laws and anti-tobacco campaigns. It no doubt hopes the Cronos deal will help turn the tide.
As for what happens from here – for Cronos and the rest of the legal cannabis industry we follow so closely – no one can say for sure.
But we've seen this story play out before – and can make some pretty good guesses.
Recall Aug. 15, one of legal cannabis' biggest days ever.
That's when Corona beer parent Constellation Brands Inc. (NYSE: STZ) announced that it was taking a major stake in Canadian marijuana leader Canopy Growth Corp. (NYSE: CGC) in a headline-grabbing $3.8 billion deal.
Canopy went on to surge 19% in one day, and then explode another 51% in the week following.
But here's the even more important point: Canopy's rise brought up just about every other pot stock along with it.
About the Author
Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.