The cigarette maker Altria looks set to enter the cannabis market.

Marlboro cigarette maker Altria Group Inc (MO.N) is in talks with Canadian cannabis producer Cronos Group Inc (CRON.TO) about a possible investment, Cronos said Monday.

The announcement was made after Reuters announced Monday that Altria was in talks to acquire Cronos, as the tobacco giant seeks to diversify its business beyond traditional smokers. Altria Group is keen to find a way to grow as smoking rates decline. The company appears poised to enter the cannabis market. CEO Howard Willard, who took over at Altria last May, is clearly looking for a way to overcome steadily falling smoking rates.

cigarette, Marlboro

This year, Canada legalized the recreational use of marijuana and is seen as a testing ground for marijuana makers who plan to expand globally as other countries follow suit. Canada legalized marijuana for recreational use in October - the first Group of Seven country to do so - giving businesses a vast proving ground. Although cannabis is still federally illegal in the United States, many states have taken steps to legalize it.

The U.S. industry is on track to generate $ 11 billion in revenue in 2018, Arcview Market Research and BDS Analytics said in a report released earlier this year. As more states move towards legalization, the U.S. cannabis market could reach 75 billion dollars by 2030, according to an estimate by Cowen & Co.

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cigarette, Marlboro

Cronos said no deal had been reached on any transaction, adding that there was no guarantee that such discussions would lead to an investment or other transaction involving the companies. The acquisition of Cronos, the fourth largest cannabis company in Canada according to the market assessment, would give Altria a way to enter the growing marijuana industry. It would also be the first foray of a major tobacco company into the sector. The alcohol industry has already started investing in cannabis, and companies that are "most at risk of substitution" - like tobacco companies - are expected to follow suit.

Altria, the parent company of Philip Morris USA, did not respond to requests for comment.

Nasdaq-listed Cronos shares on Monday closed 11% higher at $ 10,17, giving the company a market value of around $ 1,8 billion. Shares of Altria closed up 1,64% at $ 55,73 on the New York Stock Exchange on Monday. Shares of the Canadian company climbed to 9,2% at the end of the trading day after the announcement.

A deal would mark one of the most significant associations between tobacco and the thriving but volatile marijuana industry, which has attracted interest from various large consumer companies who are monitoring the industry for disruptive threats and opportunities to fast growing products.

In June, London-based Imperial Brands Plc (IMB.L), based in London, took an undisclosed stake in Oxford Cannabinoid. Constellation Brands Inc. announced a $ 3,8 billion investment in Canopy Growth Corp (WEED.TO) in August, while Coca-Cola Co (KO.N) said in September it was monitoring opportunities for alliances that could help him develop products containing cannabinoids.

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cigarette, Marlboro

Cronos would represent a significant investment in cannabis for Altria, with a market value of $ 1,8 billion. The company, headquartered in Toronto, operates on five continents and has a Canadian production capacity that is expected to reach 40 kilograms per year. It has a joint venture with US cannabis retailer MedMen Enterprises Inc. to develop products and open stores across Canada. It has also partnered with Ginkgo Bioworks Inc. for the genetic engineering of cannabinoids.

The American group, weakened by the fall in the cigarette market, like its counterpart Philip Morris International, which markets its brands in the rest of the world. The two groups are also handicapped by the delay in taking off from iQos, the system of tobacco to heat invented by the PMI, a priori less harmful to health ...

cigarette, Marlboro
"Iqos is working in France and sales are increasing, even if the market is still in its infancy," says Jeanne Pollès, president of Philip Morris France. Carlo Allegri / REUTERS

"Cronos Group is committed to becoming a leading player in this industry, which can transform the perception of cannabis and which, in a responsible manner, elevates the consumer experience", state the two companies.

Altria is not planning on quitting cannabis. According to the Wall Street Journal, the tobacco company is in discussions to take a stake in Juul Labs, American leader in e-cigarettes, which has just launched in France.

Tags : BusinessExchangetobacco
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