The maker of Marlboro cigarettes has held early talks to buy the Canadian marijuana company Cronos in what would be the first major takeover of a pot producer by a big tobacco group, according to people briefed on the discussions.
A takeover of Cronos by Altria amid spreading decriminalisation would rank among the largest investments in the budding pot industry. Shares in Cronos, which grows and distributes cannabis, climbed 14 per cent in New York on Monday to $10.39, giving the Canadian company a market capitalisation of $1.9bn.
Cronos said in a statement after the market closed that it was “engaged in discussions concerning a potential investment” by Altria.
The statement added: “No agreement has been reached with respect to any such transaction and there can be no assurance such discussions will lead to an investment or other transaction involving the companies.”
The talks, first reported by Reuters, come as investors have piled into the sector; Canada became the largest country to completely legalise recreational pot use in October, and several US states, including California, have made similar legal changes.
The beer and spirits maker Constellation Brands earlier this year pumped almost $4bn into Canopy Growth, another large Canadian pot group, while rival Aurora Cannabis in May struck a $2bn deal to buy the medical marijuana group MedReleaf. Deals worth more than $10bn have been agreed so far this year, up more than sevenfold from 2017, according to data from Dealogic.
Other large consumer companies have also been eyeing the cannabis sector as decriminalisation of the drug spreads across North America and western Europe.
Coca-Cola, the world largest beverage maker, has held talks with Canada’s Aurora to develop beverages, while Altria has also held talks with Tilray and Aphria. Diageo, the drinks group behind Johnny Walker whisky, has also been exploring investment opportunities in the sector, according to people close to the company.
Cannabis has been legalised in Canada and in more than half of America’s 50 states, although it remains an illegal substance under US federal law. Spending on cannabis is expected to climb to $32bn by 2020 from $9.5bn last year, according to analysts with ArcView and BDS Analytics.
The series of talks come as Washington undertakes a wide-ranging crackdown on tobacco and ecigarettes as concerns mount that a new generation is getting addicted to nicotine.
Altria is also seeking to acquire a stake in Juul Labs, the ecigarette start-up valued at $16bn that has seized three-quarters of the US vaping market since its launch in 2015. It is looking to take a 40 per cent stake in Juul, with an option to take full control at a later stage, according to several people close to Altria.
The US Food and Drug Administration is planning to ban menthol cigarettes and flavoured cigars, and also severely restrict the availability of flavoured ecigarettes to locations that are off limits to anyone under 21.
The industry’s main product, meanwhile, is declining in the west at an accelerating rate. Cigarette volumes are expected to decline by about 4.2 per cent in the US this year, according to Wells Fargo forecasts, a slightly faster rate than the average for recent years.
Shares in Altria, listed in New York with a market capitalisation of $105bn, have fallen 14 per cent in the past month.
Altria did not respond to a request for comment.