TORONTO, Dec. 7, 2018 /CNW/ - Cronos Group Inc. today announced that it has entered into a subscription agreement with Altria Group Inc., pursuant to which Altria has agreed to make an approximately C$2.4-billion equity investment in Cronos Group on a private placement basis in exchange for common shares in the capital of the Company. Altria will also receive Warrants of Cronos Group, that, if fully exercised, would provide the Company with an additional approximately C$1.4 billion of proceeds.
The Shares issuable to Altria pursuant to the Subscription Agreement will result in Altria holding an approximately 45-percent ownership interest in Cronos Group (calculated on a non-diluted basis); exercise of the Warrants would result in incremental ownership of 10 percent, for a total potential ownership position of 55 percent. This strategic partnership provides Cronos Group with additional financial resources, product development and commercialization capabilities, and deep regulatory expertise to better position the Company to compete in the rapidly growing global cannabis industry.
"Altria is the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth," said Cronos Group's Mike Gorenstein, Chairman, President and Chief Executive Officer. "The proceeds from Altria's investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in R&D and brands that resonate with our consumers. Importantly, Altria shares our vision of driving long-term value through innovation, and we look forward to continuing to differentiate in this area. As one of the largest holding companies in the adult consumer products sector, Altria has decades of experience in regulatory, government affairs, compliance, product development and brand management that we expect to leverage, particularly as new markets for cannabis open around the world."
"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 Chairman and Chief Executive Officer. "We believe that Cronos Group's excellent management team has built capabilities necessary to compete globally, and we look forward to helping Cronos Group realize its significant growth potential."
Benefits of the Transaction
With Altria's resources, Cronos Group expects to be better positioned to support cannabinoid innovation, create differentiated products and brands across medicinal and recreational categories, and expand its global footprint and growing production capacity.
Cronos Group will collaborate with Gingko Bioworks to develop cultured cannabinoids and its partnership with the Technion Research and Development Foundation for cannabinoid-based skin care treatment.
Cronos Group expects to work with Altria to rapidly expand its product offerings in markets as regulations permit, including device technology (i.e. cannabis vape products). Altria also brings considerable experience with large-scale manufacturing automation, pre-roll technology and supply chain management. In addition, by investing the incremental capital, Cronos Group expects to enhance its attractiveness as a potential partner to other medicinal and consumer focused partners that may work with the Company to further expand its product offerings and distribution capabilities for the benefit of its shareholders.
Altria has experience managing multi-faceted regulatory, compliance and government affairs environments related to taxation, product registration, shipping and other legal issues that Cronos Group expects to be able to leverage as cannabis markets develop and open around the world.
the terms of the agreement, Altria has agreed to acquire 146.2 million Shares at a price of C$16.25 per Share. The price per Share represents a 41.5-percent premium to the Company's 10-day volume weighted average price on the TSX, ending Nov. 30, 2018, the last unaffected trading day prior to when Cronos Group publicly disclosed preliminary discussions with Altria.
Board Recommendation
The Board of Directors of Cronos Group (the "Board"), after consultation with its legal and financial advisors, has unanimously determined that the Transaction is in the best interest of Cronos Group and is unanimously recommending that Shareholders vote in favor of the Transaction. The Board has received an opinion from its financial advisor, Lazard Canada Inc., that as of the date thereof and subject to the assumptions, qualifications and limitations set forth therein, the consideration to be received by the Company pursuant to the Transaction is fair, from a financial point of view, to the Company.
Key Transaction Terms
Equity Investment
Pursuant to the Subscription Agreement, Altria has agreed to acquire 146.2 million Shares at closing at a price of C$16.25 per Share, which represents a 41.5-percent premium to the 10-day VWAP of the Shares on the TSX on November 30, 2018, the last unaffected trading day prior to when Cronos Group publicly disclosed preliminary discussions with Altria.
Altria will also receive Warrants at closing entitling it to acquire up to an additional 10% ownership position in the Company exercisable from time to time, for a period of four years following closing for an exercise price of C$19.00 per Share, which represents an implied premium of 65.5% to the 10-day VWAP of the Shares on the TSX on November 30, 2018. Altria's ownership interest in Cronos Group would be approximately 55 percent (calculated on a non-diluted basis). Additionally, the Warrants will contain certain anti-dilution provisions.
Governance Rights
Pursuant to an investor rights agreement to be entered into, at closing (the "Investor Rights Agreement"), Altria will have the right to nominate four directors, including one independent director, to serve on the Board of Directors of Cronos Group, which will be expanded from five to seven directors in connection with the Transaction.
Altria's Exclusive Cannabis Partner
Under the Investor Rights Agreement, Altria has agreed to make Cronos Group its exclusive partner for pursuing cannabis opportunities throughout the world (subject to certain limited exceptions).
At closing, the parties are also expected to enter into commercial support agreements under which Altria will provide services relating to marketing and brand management, government affairs, regulatory affairs, and research and development.
Closing and Approvals
The Transaction is expected to close in the first half of 2019, subject to certain customary closing conditions including the receipt of approval from the TSX, and receipt of regulatory approval pursuant to the Investment Canada Act. In addition, under applicable TSX rules, the Transaction will require approval by at least the majority of the votes cast by Shareholders present at a special meeting of Shareholders as the Transaction is expected to materially affect control of Cronos Group.
Additional Information
Further information regarding the transaction will be included in the management information circular to be mailed to Shareholders in connection with the Company's special meeting of Shareholders to approve the transaction. Copies of the Subscription Agreement and the agreements attached thereto as exhibits, including the form of Warrant and the form of Investor Rights Agreement, will be filed on the Company's profile on SEDAR at www.sedar.com and EDGAR at www.sec.gov. The above descriptions of the terms and conditions of the Subscription Agreement and the agreements attached thereto as exhibits, including the form of Warrant and the form of Investor Rights Agreement, are qualified in their entirety by the terms of the Subscription Agreement which will be filed on the Company's profile on SEDAR at www.sedar.com and EDGAR at www.sec.gov.
Advisors
Lazard Canada Inc. is serving as financial advisor to Cronos Group, and Sullivan & Cromwell LLP and Blake, Cassels & Graydon LLP are legal counsel.
Perella Weinberg Partners LP is serving as financial advisor to Altria, and Wachtell, Lipton, Rosen & Katz and Goodmans LLP are legal counsel. Hunton Andrews Kurth LLP is providing legal counsel to Altria regarding the financing.
