Aphria Rumored to Court Deal with Marlboro Producer

Tobacco leading corporation and Fortune 500 company Altria Group (NYSE:MO) is eyeing a stake in a Canadian cannabis producer, according to a new report.

On Wednesday (October 10), The Globe and Mail reported the parent company of Philip Morris USA, maker of Marlboro cigarettes, was in a position to buy a portion of Aphria (TSX:APH).

The report indicated the deal is not in the final stages and could still take some time to finalize. The proposition could also be scrapped at this time, according to the reporting.

Aphria issued a statement on Wednesday claiming no deal is finalized yet.

While Aphria engages in discussions with potential strategic partners and/or investors from time to time, the Company notes that there is no agreement, understanding or arrangement in place with a potential investor at this time.

Altria Group is a company with over US$100 billion in valuation, with additional assets like Ste. Michelle Wine Estates and a substantial share of control for alcohol producer Anheuser-Busch InBev (NYSE:BUD). Aphria has grown to reach nearly a C$5 billion market capitalization.

Difficult optics for tobacco entry, says financial expert

As the cannabis market continues its expansion thanks to the legalization worldwide trend, major companies from established markets have started to make bets into cannabis.

Doug Waterson, CFO and portfolio manager with Faircourt Asset Management and manager of the Ninepoint UIT Alternative Health Fund, told the Investing News Network he had expected tobacco’s play in to cannabis to take longer than alcohol or pharmaceuticals.

“Tobacco you would think … they have their own baggage obviously to deal with,” Waterson said. “I would say it’s more important to them to do a deal but it’s also probably more difficult just politically, [with] shareholders, everything. It’s a challenging thing.”

Investor takeaway

Shares of Aphria jumped after the report went live and closed the day with a 16.29 percent spike and finishing with a price tag of C$20.06.

On Thursday the stock balanced with a minor drop at the start of the trading session. As of 12:37 EST, APH is valued at C$20.12, representing a 0.55 percent increase.

Shares of the tobacco company dropped following the revelation of its talks with Aphria. The stock reached a week high of US$64 before it started falling, finishing the day at a price of US$62.92.

As of 12:30 p.m. EST on Thursday, MO was down 1.19 percent, representing a loss of US$0.75, for a share price of US$61.93.

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.