The bleeding in marijuana stocks took a breather after tobacco firm Altria (NYSE:MO) said it would invest $1.8 billion in Cronos (NASDAQ: CRON). And while weak weed plays like New Age Beverage (NASDAQ: NBEV) or Tilray (NASDAQ: TLRY) may get a temporary boost, the Altria-Cronos news is actually bad news for them.
Altria will take a 45% ownership in Cronos through Warrants. Over the next four years, it will take a 55% majority ownership in the firm. That Altria did not buy out Cronos is puzzling.
Prior to the deal, the stock was worth around $1.6 billion, below the $1.8 billion deal. Altria probably wants Cronos to keep most of its independence for now but exert some influence, too. Altria will have the right to nominate four directors to serve on the Cronos Board of Directors.
The marijuana market is still young. Altria does not have the expertise to navigate in this sector yet but knows it needs exposure in this market.
Consumers may naturally move from smoking tobacco to smoking marijuana-based products. Also, the tobacco market may shrink while weed demand grows at a faster pace, thanks to its legalization. Altria therefore cannot afford to ignore the market any longer.
Takeaway
Altria injected a healthy amount of cash in an unproven business. Weed firms are not profitable, so the easy money in CRON stock was made. There’s nothing wrong with taking profits at the $13 - $14 level on Cronos stock.
