The world’s largest tobacco company just paid a 41.5% premium for a cannabis company that has been selling recreational product for less than two months. It shows the smart money is buying in on cannabis, not selling off.
And just like that, “Big Tobacco” is now a major player in the cannabis industry.
Altria Group Inc. today made a massive CAD$2.4 billion (US$1.8 billion) investment in Cronos Group Inc. official just days after word quickly spread about negotiations of some kind of mega-deal. That’s good for a 45% ownership of one of Canada‘s “Big Five” cannabis companies. The tobacco giant also received warrants which, when exercised, will put another CAD$1.4 billion into the company and give it 55% of the company.
This is the kind of huge deal we’ve been predicting here at the National Institute for Cannabis Investors. After all, we said Altria would be one of the next three major players to enter the cannabis industry in The Millionaire-Making Mergers & Acquisitions Set to Happen This Year report that we released to our Cannabis Investor’s Report lifetime-level members in conjunction with October’s historic American Cannabis Summit.
We’ve been saying since our October launch of the Institute – and in publications like MoneyMorning.com since mid-August – that the massive Constellation Brands Inc. deal to buy a little more than one-third of Canopy Growth Corp. would not be a climax point for the industry. Rather, it was a sign of things to come.
In June, Cronos CEO Michael Gorenstein sat down with my research team and me in New York for an interview, which is available now at NICinvestors.com by clicking here. On camera and off, talking with Gorenstein gave us great insight not just into what had happened in cannabis, but more importantly what was coming.
In fact, Gorenstein said in no uncertain terms that there would be at least one “Big Alcohol” investment in cannabis that summer. Within 10 weeks, Molson Coors Canada invested millions into Quebec-based producer Hexo Corp. (formerly Hydropothecary), and Constellation Brands made its second of two investments into Canopy, the one that was worth CAD$5billion (US$3.8 billion).
He played cards close to his vest regarding Big Tobacco, which makes all the sense in the world now.
An important takeaway from that June catch-up session with Gorenstein, whom we first met in early 2017 and mostly recently reconnected with in recent weeks at the massive MJBizCon, was that such predictions came during a bit of a downturn in the cannabis stock market. Some more old-school, traditional analysts were proclaiming at the time – wrongly – that interest in cannabis investing had run its course.
And soon enough came one of the great surges in modern investing history.
Let’s take a look at this deal and why history is poised to repeat itself…
Altria Brushes Off Market Downturn Before Writing Giant Check to Cannabis
The strategic benefits to Altria are numerous. Primarily, purchasing about half of the Cronos ownership stake gets it access to the fastest-growing industry – one that has similarities as a highly regulated, adults-only business – at a time of drastically shrinking tobacco use.
Cronos benefits, too, because of Altria’s regulatory experience, product development, and brand management. One benefit that Cronos mentioned on its investor conference call is Altria’s experience managing farmers and ensuring that they share in the success of the product. And it’s true – tobacco farmers do better finally than farmers of just about any other agricultural product.
Carrying farmers’ success over to cannabis will be important to the industry’s success. Remember, part of the selling point for lawmakers is that cannabis as a new and legal industry puts money into the hands of law-abiding, tax-paying workers rather than members of criminal cartels.
In the first event of its kind, we brought together the cannabis industry’s heaviest hitters for one reason – to show you how to get rich from America’s biggest cash crop. Former Speaker of the House John Boehner just revealed the three events set to catapult the industry… and your potential profits. Take a look…
Cronos is now positioned to increases its legal cannabis sales massively with this investment. And that surefire sale bump will happen even before Cronos reinvests the money it is receiving into building and acquiring the best brands and into developing new products and even processes. It’s something Cronos CEO Mike Gorenstein talked about with us a couple of weeks ago, when we caught up with him again in Las Vegas. That’s available for our Cannabis Investor’s Report members right now by clicking here.
But the best part this deal is the price. Altria is paying CAD$16.25 per share for its initial stake in Cronos and will pay CAD$19.00 per share when it exercises the warrants. For those who track the stock on the Nasdaq, that’s US$12.13 for the initial share purchase and a US$14.18 price for the exercise of the warrants, adjusted for any exchange rate changes between now and the time of the exercise.
Not only is that a 41.5% premium to Cronos’ price in the 10 days prior to November 30 (when the rumor broke), it is close to Cronos’ record high. And the warrant price is well above that all-time high.
A company like Altria would only agree to pay that price because they think the company is worth much more than that going forward.
Deal Sets the Stage for Industrywide Price Run
Anyone who doubts the Institute’s belief that the recent sell-off of cannabis stocks is unwarranted should read the above paragraph again.
The world’s largest tobacco company just paid a 41.5% premium for a cannabis company that has been selling recreational product for less than two months. And its next investment will be well above the company’s all-time high.
The smart money – Altria, Constellation, Canopy, and Cronos – is buying in on cannabis, not selling off. The smart companies like Canopy and Cronos that are making these big deals aren’t selling their shares cheap. There’s no panic here. They negotiated a premium because they know that this industry is going to keep soaring.
Speaking of Canopy, it’s important to recall what happened in the wake of its deal. Of course, Canopy’s stock hit a record high in the weeks that followed. But there was a significant collateral effect – dozens of smaller marijuana firms rode the wave to their record levels as well.
Take a look at a couple of the Institute‘s proprietary indices tracking the industry as an example. Over the course of exactly one month starting with the close of business just before the August 15 Constellation-Canopy deal, the NICI 50 (which tracks the largest companies in cannabis globally) jumped 45.26%. And the NICI U.S. Index (which tracks American cannabis companies) shot up 38.5% even through the deal involved a Canadian company – albeit, the largest one – with no investments in the U.S. cannabis industry.
During that same short time period, one of the picks in our Cannabis Investor’s Report portfolio more than doubled.
Make no mistake: More smart money will be coming into the cannabis industry.
You can be in front of them – and the subsequent spike in the market that will follow. If you are, your portfolio will look at lot better than those of investors who waited anxiously on the sidelines for everything to fall into place or those who were scared away after some temporary losses
Thanks for being an important member of The National Institute for Cannabis Investors,
Executive Director, National Institute for Cannabis Investors
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8 responses to “Breaking: Big Tobacco Makes Multi-Billion-Dollar Buy-in to Cannabis Industry”
December 07 2018