Plus, Altria has more than US$5 billion in cash on the balance sheet. Canadian marijuana company Cronos Group has seen its stock rally by close to 25% over the last two days, amid reports that Tobacco major Altria is in early-stage talks to invest in the company. In other words, Altria has more than enough capital to throw at the wall to see what sticks. in Economics, Sean specializes in the healthcare sector and investment planning. While Cronos group did see it’s share prices jump almost 80 percent in January, there has been little tangible news that would justify this rise in price. It decided to make a C$2.4 billion ($1.8 billion) strategic investment into Cronos, confirming the earlier rumors. Regulatory and procedural issues in Canada have, by far, been the biggest issue for Cronos, along with the rest of its peers. Cronos announced on 7 December that they have agreed to a $2.4 billion (Canadian dollars) investment from Altria Group. Altria, on the other hand, is a United States tobacco corporation. While the more established cannabis stocks trade at enterprise value/sales (EV/Sales) ratios of 30 and below, Cronos trades at an EV/Sales ratio well over 50. The only question at this point is, does Altria want the hassle of owning a cannabis company? As the cannabis industry at large continues to undergo a phase of rapid M&A activity, another multi-billion deal has been signed. Regardless, both sides seem to be excited. Altria made this possible by handing over $1.8 billion in cash in exchange for a 45% stake. Its market cap is just US$1.9 billion. Back in February, analysts ended up downgrading Cronos’ stock, saying at the time that “Cronos is still in the early stage of its development with limited revenues in relation to its sizable market cap. Wall Street projections have suggested that worldwide weed sales could grow somewhere between fivefold and 18-fold over the next decade, with the loftiest estimate implying that $200 billion in annual global sales may be possible. Altria gains a larger share of Cronos stock at lower prices. While this may allow the tobacco giant to gain a toehold into the pot space at a lower price, Cronos shareholders are going to lose in the long run. Market Data powered by QuoteMedia. RT=Real-Time, RTB=Real-Time EDGX Price/Quote; not sourced from all markets, RTN=Real-Time NASDAQ Basic+ Price/Quote; not sourced from all markets, EOD=End of Day, PD=Previous Day. While they got off the chopping block—which should not come as a surprise given that Philip Morris spends millions on lobbying—this did nothing to garner faith in their brand. A monopolistic market is typically dominated by one supplier and exhibits characteristics such as high prices and excessive barriers to entry. Cronos' share price has tumbled by two-thirds since the equity investment was finalized. That's insanely low, and it's effectively driven consumers to the black market, if they weren't already purchasing from illicit producers. That’s because they are an evil corporation. Unfortunately, investments don't always pan out as planned, as Altria shareholders have found out in recent months. In 1965, more than 40% of U.S. residents regularly smoked cigarettes. Cronos Group Inc (NASDAQ: CRON)(TSX: CRON) announced that they had received a C$2.4 billion equity investment from Altria Group Inc (NYSE: MO). But this premium to peers may not be irrational. Although Altria is getting into the cannabis game, that doesn’t mean the tobacco company is giving up on cigarettes just yet. Now valued at $70 billion, the tobacco behemoth has advantages that smaller competitors simply don’t possess. After making their $1.8 billion investment in 2018, Altria is clearly in the driver’s seat. At $16.25 per share, the price tag on that investment comes out to about $1.8 billion USD ($2.4 billion CAD) — the largest investment in the marijuana industry by a U.S. tobacco company to date. Altria Group doesn’t own tobacco fields. Not to alarm you, but you’re about to miss an important event. That's a big problem for Altria, which has simply chosen to increase its prices at this point to combat the shipment volume slowdown. Without this cash, Cronos' $300 million acquisition of Redwood Holdings, owner of the Lord Jones brand of cannabidiol-based beauty products, probably wouldn't have been possible. This is the definition of a long-term bet. Cronos Group operates two wholly-owned Canadian licensed producers: Peace Naturals Project Inc., which was the first non-incumbent medical cannabis license granted by Health Canada, and Original BC Ltd., which is based in the Okanagan Valley, British Columbia. With a bargain valuation, it’s growing likely that Altria will completely acquire the cannabis producer. Beginning in 2018, merger and acquisition (M&A) activity, and outside investment into the North American marijuana industry, really began to pick up. The Good, The Bad, The Investment: Cronos Group and Altria. Last quarter, Cronos had US$1.3 billion in cash and $0 in long-term debt. Altria Group (NYSE: MO) is joining the mega-cap firms eager to hedge against a potential decline in their home business. That pressure forced Altria to make some desperate investments, including a $1.8 billion stake in the cannabis company Cronos Group and a $12.8 billion investment in the e … He is inspired by art and human culture and occasionally gives us a sneak peek into what is happening behind the scenes at Veriheal. Even after a more than 67% decline, Cronos (NASDAQ:CRON) stock remains overvalued. Altria’s stocks do well enough, and other investors will see the investment as a power move. Cumulative Growth of a $10,000 Investment in Stock Advisor, Here's How Much Altria Has Lost on Its Cronos Investment @themotleyfool #stocks $MO $CRON, Wall Street's hottest investment opportunity, top-selling cannabis derivative in the U.S. market, continues to lose money on an operating basis, $1.5 billion in cash, cash equivalents, and short-term investments, 4 Top Value Stocks on Sale to Buy Right Now, 5 Turnaround Stocks That Are Screaming Buys, 3 Dividend Stocks That Pay You Better Than Coca-Cola Does, Got $3,000? Please read the Privacy Statement and Terms of Service for more information. This strategy could be the smarter way to build a scalable marijuana-focused company. Let's conquer your financial goals together...faster. That's left the Canadian weed industry in a precarious situation, whereby some growers are contending with oversupply, yet the bulk of market demand still isn't being met by legal-channel product. Click Here to Get Your Free Report Today! I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. But what was important here is that each company gained access to what they sorely needed. While the larger pot names focus on expanding production facilities, Cronos is moving to a global supply chain model. Even if Altria acquired the remaining shares of Cronos, based on its Nov. 25 closing price, at a 20% premium to the close, it would get the remaining shares for free given the $1.5 billion in cash currently sitting in the company's coffers. But it seems Altria was okay with this deal, as both Cronos insiders recused themselves from the negotiations. © 2020 The Motley Fool Canada, ULC. These 5 Beaten-Down Stocks Are Begging to Be Bought, Copyright, Trademark and Patent Information. Altria Group (NYSE:MO) is a giant company. High growth projections drive this valuation for CRON stock. After the ever-increasing quantity of published research and studies demonstrating the medical and holistic effectiveness of cannabis, it would make sense that further funding goes into better…, The NYPD is no stranger to being sued by fellow officers. At today’s prices, it’s difficult to see why Altria wouldn’t pull the trigger and acquire the remainder of Cronos stock. And that's an answer I don't have.