Welcome to "Rising High," The Fly's recurring series focused on the stories impacting cannabis stocks. Shares of cannabis companies are in focus amid a report that cigarette maker Altria (MO) is in talks to acquire Canadian cannabis producer Cronos Group (CRON).
ALTRIA, CRONOS IN TALKS: Altria Group is in early talks to acquire Cronos Group as it looks to diversify business beyond traditional smokers, Reuters reported Monday. The talks between Cronos and Altria are expected to last for several weeks and there is no certainty that the Canadian company will agree to a deal. A transaction would mark one of the biggest combinations between mainstream tobacco and the booming marijuana sector and would come after Altria's shares have dropped by more than 20% over the year as cigarette smoking continues to decrease in the U.S.
CRONOS DECLINES TO COMMENT: Contacted by The Fly after the report, a Cronos Group spokesperson said the company does "not comment on market rumors."
WHAT'S NOTABLE: Last Wednesday, The Wall Street Journal reported that Altria is in talks to take a "significant" minority interest in Juul Labs, a controversial e-cigarette startup that was last valued at $16B in a private fundraising round this summer. Altria has an agreement with Philip Morris (PM) to market IQOS, subject to regulatory approval. Philip Morris is already selling it in 43 countries and has said it could get approved for the U.S. by the end of the year. Juul has drawn criticism over its products' popularity with teens and the U.S. Food and Drug Administration previously announced plans to place restrictions on sales of flavored e-cigarettes. Juul also said it would restrict sales of nearly all its flavored pods to the internet, and stop most social media promotion to combat youth vaping. Following the FDA statement on the agency's proposed steps against underage smoking, Altria General Counsel Murray Garnick said it "welcomed" the FDA's efforts to address the underage use of e-vapor products and said it believes Congress should raise the legal age of purchase for all tobacco products to 21. Altria previously said it would pull its pod-based e-vapor products from the market until approved by FDA. Following the WSJ report, Morgan Stanley analyst Pamela Kaufman said she had no knowledge of a potential deal between Altria and Juul but that taking such a stake could make strategic sense for Altria to gain exposure to a fast growing product that poses a threat to its cigarette business. Altria does not have a robust reduced risk product portfolio and Juul's e-cigs could significantly enhance its competitive position, stated Kaufman, who also believes Altria would likely be buying in at a lower valuation than the previously reported $15B given the FDA recently prohibited flavored pods sales in convenience stores. Additionally in October, Altria was said to be in talks to acquire an equity stake in Canadian cannabis grower Aphria (APHQF). Further, the report said Altria executives had met with Aphria's management on several occasions, but it could take time for the two companies to strike a deal. Following the report, Aphria said in a statement, "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. Aphria will advise the investment community of any material changes, if and when they occur, in accordance with applicable disclosure requirements." On Monday, The Financial Times said Altria has held discussions with Aphria and Tilray (TLRY).
COMPANIES EYE CANNABIS: In September, Coca-Cola (KO) was reportedly monitoring the nascent cannabis drinks industry and in talks with Canadian marijuana producer Aurora Cannabis (ACB) to develop the drinks. Constellation Brands (STZ, STZ.B) previously announced it will spend $3.8B to increase its stake in Canadian marijuana producer Canopy Growth (CGC) and Molson Coors Brewing (TAP) is starting a joint venture with Quebec's Hydropothecary to develop cannabis drinks. In addition, Diageo (DEO) had been holding talks with at least three Canadian cannabis producers regarding a potential deal and Heineken's (HEINY) Lagunitas label has launched a brand focused on non-alcoholic drinks infused with THC.
OTHER CANNABIS STOCKS: Other publicly traded companies in the space include Aurora Cannabis, CV Sciences (CVSI), CannTrust Holdings (CNTTF), Canopy Growth, Cronos Group, General Cannabis (CANN), India Globalization Capital (IGC), Tilray (TLRY), ICC International Cannabis (KNHBF), MedMen Enterprises (MMNFF), Biome Grow (ORTFD), MediPharm Labs (MLCPF) and Indiva (NDVAF).
PRICE ACTION: Shares of Cronos are up 11.8% to $10.23, while Altria rose 1.2% to $55.46 in afternoon trading.
