Cronos said Friday that the Richmond, Virginia, tobacco company will pay another $1.4 billion for warrants that if exercised, would give Altria a 55 percent majority ownership stake.
"Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria", said Howard Willard, Altria's CEO, in a statement.
"Altria brings scale, expertise and complimentary capabilities. that we believe will enable us to expand the scope and enhance the scale of our company", said Mike Gorenstein, chairman, president and chief executive officer of Cronos on a call with analysts Friday.
Matt Bottomley, an analyst with Toronto-based investment firm Canaccord Genuity, wrote in a research note that he expects the news to drive valuations higher - particularly considering the sector's recent pullback. The offer represents a 16.2 per cent premium to the stock's Thursday close on the Toronto Stock Exchange.
Altria's huge investment lit up shares of cannabis companies that have begun to set up shop in Canada, where recreational use was legalized this year. This week, Aphria Inc., one of the country's largest cannabis growers, was defending itself against accusations of striking deals to enrich insiders made in a widely read short-sellers' report.More news: Ocasio-Cortez Calls on D.C. to Pay Higher Wages for Staffers
In June, London-based tobacco company Imperial Brands Plc took an undisclosed stake in closely held Oxford Cannabinoid. The company could also be positioning itself for the possible legalization of marijuana across the U.S., Quartz added.
After the deal is closed, Altria will have the right to nominate four directors, including one independent, to Cronos' board comprising seven directors in total.
Investors seem to be betting that more deals could be coming.
Corona beer maker Constellation Brands announced a US$4 billion investment in Canadian cannabis producer Canopy Growth in August, the biggest investment so far in the industry.
The Canadian subsidiary of Molson Coors (TAP) has a joint venture with The Hydropothecary Corporation to produce cannabis-infused drinks for the Canadian market.
Prior to Friday's announcement, Cronos had confirmed reports that it was in talks with Altria. It said the deal with Altria does not limit Cronos from any other partnerships.