Dec 7, 2018

Cronos CEO says he immediately ‘hit it off’ with Altria

Cronos deal an 'intelligent move' for Altria: Analyst


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Altria Group Inc. (MO.N), the U.S. maker of Marlboro cigarettes, made a US$1.8 billion investment in Canadian pot firm Cronos Group Inc. (CRON.TO). Toronto-based Cronos has emphasized intellectual property and genetics over growing cannabis, although it’s currently expanding its Canadian facility to grow 40,000 kilograms a year. One of its top projects is an attempt to genetically engineer cannabinoids, the active compound in marijuana. Cronos Chief Executive Officer Mike Gorenstein, 32, was previously an M&A lawyer, then moved into venture capital where he was an early investor in cannabis. He spoke to Kristine Owram following the deal. His comments have been edited and condensed.

Will this deal allow you to enter the U.S. market?

It’s certainly helpful that Altria already has a relationship with local contract farmers in the U.S. I think that with the IP and technical materials and operating procedures we have in genetics, we can help those farmers transition immediately into cannabis cultivation. We are set up now to move rapidly into markets as they open and that’s not specific to the U.S., that’s really any market in the world.

Will you stop growing cannabis?

Our focus has always been on the IP and product-development side, but we do want to have a certain amount of in-house cultivation that allows us to make sure we have the blueprint to develop what we think are best-in-class techniques for cultivating, the best genetics, and we know how to do everything on site so we can use that as a model to train and help our partners and other cultivators. That model will not change.

Does this place you in the top tier of pot companies?

We don’t really think of tiers of competition. There are a lot of great companies and there’s so much upside and opportunity in the industry. But we do feel that this puts us in an amazing position to succeed in a number of areas. We still don’t plan on going in and competing in retail or competing in cultivation, but on the IP, product development and marketing side, we think that we picked the strongest possible partner, we’re very excited they picked us, and this pushes us to exactly where we wanted to be.

Was reputational risk a concern in partnering with Big Tobacco?

We think Altria’s a very unique company. They’re one of the largest diversified adult consumer-product companies. They’re across a number of different parts of the value chain. One of the things that attracted us to them, and this management team specifically, is they’ve had a very strong focus on reducing risk and increasing consumer choice. Their work with the FDA, work on innovation and different types of hardware really attracted us. We think they’re an ideal partner and their ability to create shareholder value over the long term is very strong.

Why did Altria choose Cronos?

We immediately hit it off. We work very well together, we’re both very strategic in the way we think of things and where things are going to be, not next month or next year, but in five years and 10 years. Altria is a company that definitely does their diligence, we are as well, so we both made sure we understood exactly what the landscape of potential partners was and we’re happy that we were able to get our first choices.

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