Altria Group CFO Highlights Benefits of Cronos Investment

Altria Group (NYSE:MO) CFO Billy Gifford says the tobacco producer is bullish on its investment in Ontario-based Cronos Group (NASDAQ:CRON,TSX:CRON).

During an earnings call with investors and analysts on Thursday (October 31), Gifford said Cronos is making strides with its growth strategy in the active cannabis space.

The executive pointed to Cronos’ recent acquisition of Redwood Holding Group as a beneficial move towards the cannabis company’s goal of establishing itself in the US cannabidiol (CBD) sector.

As a part of the deal, Cronos is getting hold of the Lord Jones line of CBD-infused skincare products.

“We believe the acquisition fits well into Cronos’ strategy of building differentiated brands and disruptive intellectual property,” said Gifford. “We’re very excited about the future prospects of the cannabis industry and the opportunity for Cronos to position itself for long-term leadership.”

The Redwood Holding Group deal was valued at US$300 million, with US$225 million in cash and the balance paid in Cronos common shares.

Altria originally invested in Cronos back in 2018 after pumping US$1.8 billion into the cannabis firm. The company now has a 45 percent ownership stake, making it Cronos’ largest shareholder.

In its Q3 results, released on Thursday, Altria reported mark-to-market losses of US$636 million on Cronos-related financial instruments to buy more shares of the company. The cost was offset by US$87 million from Altria’s share of Cronos’ non-cash change in the fair value of Cronos’s derivative financial instruments associated with the issuance of additional shares.

For the second quarter, Cronos reported net revenue of C$10.2 million, up 202 percent from the same quarter last year. Cronos also noted C$2.4 billion in proceeds from Altria’s investment in Q2.

Aside from its Cronos investment, Altria has cut the value of its stake in e-cigarette company JUUL by US$4.5 billion amid a vape health crisis in the US that has hit the cigarette and cannabis industries alike.

Altria said the factors that weighed on its decision to slash its stake in JUUL include an increased likelihood that the US Food and Drug Administration will decide to pull flavored e-vapor products from the market, as well as vape bans across the country. The deal was originally valued at US$12.8 billion in 2018, representing 35 percent ownership.

Share prices for both Altria and Cronos fluctuated during the trading day on Thursday.

Altria fell 2.6 percent in New York and sat at US$44.90 as of 2:50 p.m. EDT. Cronos dipped 1.4 percent from an opening price of C$10.88 to C$10.73 by 2:40 p.m. EDT.

Year-to-date, Cronos shares have been hit with a 30.3 percent decrease in value.

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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.