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Speculation: Altria could buy the balance of Cronos Group

By:
on Nov 8, 2021
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  • Altria could buy the remaining outstanding shares of Cronos Group as soon as next week.
  • A potential deal would be in line with Altria’s vision to go beyond tobacco.
  • Shares of the Canadian cannabis company are up more than 20% on Monday.

Shares of Cronos Group Inc (TSE: CRON) are up more than 20% on Monday after New Cannabis Ventures said Altria Group Inc (NYSE: MO) could buy the remaining outstanding shares of the pot producer as soon as next week.

Altria already has a 45% stake in Cronos Group

Altria currently has a 45% stake in Cronos Group that it took in 2019 for C$2.40 billion. Originally, the plan was to acquire control of the cannabis company with warrants it bought at an exercise price of C$19 – a strategy that New Cannabis Venture no longer sees as feasible.  

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The original plan to acquire control of the company by exercising warrants is now at risk with the warrants way underwater and running out of time. Altria would be prudent, in our view, to rethink its position and buy the balance of Cronos Group now.

At the time of writing, Cronos Group is trading more than 55% below the exercise price of the warrants. The cannabis-focused news platform doesn’t see much downside in CRON if its speculation proves wrong.

A potential deal would be in line with Altria’s vision

According to New Cannabis Ventures, Altria could buy the rest of the Cronos Group for roughly $2.0 billion that represents less than 3.0% of its enterprise value.

This is to say the acquisition wouldn’t come as a shock to its balance sheet. Yet, the combined company could be more aggressive in penetrating the American cannabis industry – in line with Altria’s vision to go beyond tobacco.

Cronos usually announces its conference call at least a week in advance to its investors. It is due to report Q3 results tomorrow, but no such disclosures have been made so far, which as per New Cannabis Ventures, could be an indication that a “deal is brewing”.