Full Press Release Details
Cronos Group Inc. Announces C$2.4 Billion
Strategic Investment from Altria Group, Inc.
Provides Cronos Group
with Additional Capital and Complementary Expertise to Accelerate Its
Expansion and Innovation in the Rapidly Growing Global Cannabis Industry
TORONTO, Dec. 7, 2018 /CNW/ - Cronos Group
Inc. (NASDAQ: CRON) (TSX: CRON) ("Cronos Group" or the "Company") today announced that it has entered into
a subscription agreement (the "Subscription Agreement") with Altria Group, Inc. (NYSE: MO) ("Altria") pursuant
to which Altria has agreed to make an approximately C$2.4 billion equity investment in Cronos Group (the "Transaction")
on a private placement basis in exchange for common shares in the capital of the Company (the "Shares"). Altria will
also receive Warrants of Cronos Group (the "Warrants"), 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% ownership interest in Cronos Group (calculated on a non-diluted basis), exercise of the Warrants would
result in incremental ownership of 10% for a total potential ownership position of 55%. 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, scale and lead 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
Accelerates Cronos Group's pace of growth and expansion.
The growth opportunities for Cronos Group are significant and extend across the globe as markets open. With Altria's resources,
Cronos Group expects to be even 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.
Bolsters Cronos Group's ability to be an innovation
leader in the cannabis industry. Cronos Group's research collaborations with Gingko Bioworks to develop cultured cannabinoids
and its partnership with the Technion Research and Development Foundation for cannabinoid-based skin care treatments are just two
recent examples of how the Cronos Group intends to use innovation and its growing intellectual property portfolio to develop new
applications for cannabinoids across a range of products and categories. Altria shares Cronos Group's commitment to innovation,
medical cannabis research and state of the art product development.
Leverages Altria's product design, manufacturing,
marketing and distribution capabilities and expertise. Cronos Group expects to work with Altria to rapidly expand its product
offerings in markets as regulations permit, including device technology. Altria has significant expertise that can serve as building
blocks for 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.
Provides expertise in successfully navigating complex
regulatory landscapes. Altria has a strong record of 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.
Raises capital at a premium valuation and delivers
even greater upside opportunities for Cronos Group shareholders, employees and partners. Under 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% premium
to the Company's 10-day volume weighted average price ("VWAP") on the TSX, ending November 30, 2018, the last unaffected
trading day prior to when Cronos Group publicly disclosed preliminary discussions with Altria. The strategic investment combined
with Altria's expertise and complementary capabilities are expected to better position Cronos Group for significant growth and
value creation with benefits to all of the Company's stakeholders, including its holders of Shares (the "Shareholders"),
employees and partners.
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
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% 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% (calculated
on a non-diluted basis). Additionally, the Warrants will contain certain anti-dilution provisions.
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
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.
Lazard Canada Inc. is serving as financial