U.S. tobacco giant Altria Group Inc. is in talks to acquire an equity stake in Canadian cannabis grower Aphria Inc., multiple sources say.
Details of Altria’s proposed investment in Aphria are still being finalized, said the sources, who asked to remain unnamed because the talks are private. They said Altria has expressed an interest in acquiring a minority stake in the Leamington, Ont.-based grower with the intention of eventually holding a majority of the company’s shares.
The sources cautioned that it could take time for the two companies to strike a deal and that talks could still fall through.
With a market capitalization of US$119-billion, Virginia-based Altria makes tobacco, cigars and wine. It owns Philip Morris USA, the maker of Marlboro cigarettes, and has a significant stake in Anheuser-Busch InBev SA/NV, the world’s largest brewing company. Meanwhile, Aphria’s market value on Wednesday afternoon was $4.3-billion. Its stock price has doubled since mid-August and was trading at $20.06, up more than 15 per cent on Wednesday afternoon.
Altria executives have met with Aphria’s leadership team in Leamington on several occasions, the sources said. The most recent in-person discussions took place on Monday, with senior representatives making the trip from the U.S.
Altria spokesman Steven Callahan declined to comment.
Aphria did not immediately return requests for comment on Wednesday.
Big consumer companies are increasingly looking to forge alliances with cannabis growers, which is helping fuel a frenzy and driving stock prices higher as Canada prepares for the legalization of recreational marijuana next Wednesday. Global alcohol giant Constellation Brands Inc. unveiled its plan to boost its stake in Canopy Growth Corp. to a majority position in August after having initially taken a 10-per-cent stake last fall. Molson Coors Brewing Co. has also moved into the cannabis space through a joint venture announced this summer with Quebec-based grower Hexo Corp.
Sources said Altria is pursuing a Constellation-style deal rather than a joint venture in the mould of Molson-Hexo.
Aphria is known for being a low-cost cultivator of marijuana, boasting a cash cost per gram of less than $1. Its production site has been a revolving door of late, with the company hosting tours for a number of beverage and consumer goods companies that want to learn about the cannabis business.
In its last fiscal year to Dec. 31, 2017, Altria recorded US$25.6-billion in net revenues, a slight decline from the last year. And US$22.6-billion of these sales are from smokeable products. It booked US$10-billion in net earnings.
Altria has been making a push to expand beyond conventional cigarettes by introducing products that are seen to be less harmful. Its portfolio of non-combustible products includes smokeless, oral and heated tobacco and e-vapor.
Altria’s stake in Belgium’s Anheuser-Busch InBev SA/NV, which makes popular brands such as Budweiser and Stella Artois, is about 10 per cent. In 2017, Altria received more than US$800-million in dividends – thanks to its interest in AB InBev.
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