Cronos Group Inc.. Announces C$2.4 Billion Strategic Investment from Altria Group, Inc..

Announces C$2.4 Billion Strategic Investment from Altria Group, Inc..

Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) 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 create 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 profits. 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 lead to incremental ownership of 10 percent for a total potential ownership position of 55%. This strategic partnership provides Cronos Group with financial resources, product development and commercialization capabilities, and experience to position the Company.

Cronos Group (CNW Group/Cronos Group Inc.)

“Altria is the ideal companion for Cronos Group, providing the tools and experience we will need to meaningfully accelerate our strategic growth,” stated Cronos Group’s Mike Gorenstein, Chairman, President and Chief Executive Officer. “The profits from Altria’s investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also raising investments in R&D and brands that resonate with our consumers. Importantly, Altria shares our vision of driving value through innovation, and we look forward to continuing to distinguish in this region. As one of the largest holding companies in the adult consumer goods sector, Altria has decades of experience in regulatory, government affairs, compliance, product development and brand management that we expect to leverage, especially as new markets for cannabis open across the globe.”

“Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria,” stated Howard Willard, Altria’s Chairman and Chief Executive Officer. “We feel that Cronos Group’s excellent management team has built capabilities necessary to compete internationally, and we look forward to assisting Cronos Group realize its significant growth potential.” 

Benefits of the Transaction

  • Accelerates Cronos Group’s speed of growth and growth. The growth opportunities for Cronos Group are significant and expand across the globe as markets open. With Altria’s resources, Cronos Group expects to be even better positioned to support innovation, produce products and brands across recreational and medicinal classes, and expand its footprint and 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 skincare treatments are only two recent examples of how the Cronos Group plans to use innovation and its growing intellectual property portfolio to create new programs for cannabinoids across a range of goods 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 experience. Cronos Group expects to operate with Altria to rapidly expand its product offerings in markets as regulations allow, including device technology. Altria has experience that could serve as building blocks for cannabis vape solutions. Altria also brings considerable experience with manufacturing automation engineering and supply chain management. In addition, by investing the incremental funds, Cronos Group expects to enhance its attractiveness as a potential partner to consumer and other medicinal focused partners that may work together with the Company to expand its product offerings and distribution capabilities for the benefit of its shareholders.
  • Offers experience in successfully navigating complex regulatory arenas. 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 across the world.
  • Raises funds at a premium valuation and delivers even greater upside opportunities for Cronos Group investors, partners and employees. Under the conditions of the agreement, Altria has agreed to acquire 146.2 million Shares at a cost of C$16.25 per Share. The cost per Share represents a 41.5% premium to the business’s 10-day volume weighted average price (“VWAP”) on the TSX, ending November 30, 2018, the last unaffected trading day before when Cronos Group publicly revealed preliminary discussions with Altria. The strategic investment coupled with Altria’s experience and complementary capabilities are expected to better position Cronos Group for significant growth and value creation with benefits to all of the business’s stakeholders, including its holders of Shares (the”Shareholders”), partners and employees.

The Board of Directors of Cronos Group (the”Board”), after consultation with its legal and financial advisors, has 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 viewpoint, to the Company.

Pursuant to the Subscription Agreement, Altria has agreed to acquire 146.2 million Shares at closing at a cost 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 before when Cronos Group publicly revealed 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 after closing for an exercise price of C$19.00 per Share, which represents an implied premium of 65.5percent to the 10-day VWAP of the Shares on the TSX on November 30, 2018. Altria’s ownership interest in Cronos Group will be approximately 55 percent (calculated on a non-diluted basis). Moreover, 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 be able to nominate four directors, including one individual director, to serve on the Board of Directors of Cronos Group, which will be expanded from five to seven directors in relation to the Transaction.

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 will also be expected to enter support agreements under which services will be provided by Altria.  

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 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 Info

Further information concerning the transaction will be included in the management information circular to be mailed with the Company’s special meeting of Shareholders to approve the trade. Copies of this Subscription Agreement and the agreements attached thereto as exhibits, including the form of Warrant and the Kind 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 this Subscription Agreement and the agreements attached thereto as exhibits, including the kind of Warrant and the kind of Investor Rights Agreement, are qualified in their entirety by the terms of the Subscription Agreement which will be submitted on the business’s profile on SEDAR at www.sedar.com and EDGAR at www.sec.gov.

Advisors

Perella Weinberg Partners LP is serving as financial advisor and Wachtell, Lipton, Rosen & Katz and Goodmans LLP are counsel. Hunton Andrews Kurth LLP is currently providing legal counsel to Altria concerning the funding.

The confirmation code is 9359909.

A live webcast of this conference call will be accessible at https://thecronosgroup.com/investor-relations.

A replay of the conference call will be available from December 7, 2018, for approximately two weeks through December 21, 2018, and may be accessed by dialing -LRB-855-RRB- 859-2056 and supplying the 9359909 confirmation code.

The webcast will also be archived at https://thecronosgroup.com/investor-relations.

Cronos Group is a globally diversified and integrated cannabis firm with a presence across five continents. Cronos Group operates two wholly-owned Canadian licensed manufacturers: Peace Naturals Project Inc., which was the first non-incumbent medical cannabis license granted by Health Canada, and Original BC Ltd., which is based in the Okanagan Valley, British Columbia. Cronos Group has global production and distribution platforms across five continents. Cronos Group plans to continue to rapidly expand its footprint as it focuses on developing disruptive intellectual property and building an brand portfolio that is iconic. Cronos Group is dedicated to industry companies that are construction that transform the perception of cannabis and responsibly elevate the customer experience.

Altria’s wholly-owned subsidiaries include Philip Morris USA Inc., U.S. Smokeless Tobacco Company LLC, John Middleton Co., Sherman Group Holdings, LLC and its subsidiaries, Nu Mark LLC, Ste. Michelle Wine Estates Ltd. (Ste. Michelle) and Philip Morris Capital Corporation. Altria retains an equity investment in Anheuser-Busch InBev SA/NV (AB InBev).

The brand portfolios of the tobacco operating companies of Altria comprise reg, Marlboro &;, Black & reg & Mild;, Copenhagen & reg;, Skoal®, VERVE®, Green Smoke & reg; and MarkTen ®. Ste. Michelle produces and markets premium wines sold under various labels, including Chateau Ste. Michelle®, Columbia Crest®, 14 Hands® and Stag’s Leap Wine Cellars&commerce;, and it markets and imports Antinori®, Champagne Nicolas Feuillatte&commerce;, Torres® and Villa Maria Estate&commerce; products in the United States. Service marks and trademarks related to Altria are the property of Altria or its subsidiaries or are used with permission. More information about Altria is available at altria.com and on the Altria Investor app.

Take a closer look at Altria and its firms on altria.com.

Follow Altria on Twitter.

Forward-Looking Statements

This communication contains”forward-looking information” and”forward-looking statements” within the meaning of applicable securities legislation (collectively,”forward-looking statements”). All statements contained herein that are not clearly historical in nature may constitute forward-looking statements. Sometimes, forward-looking statements can be identified by words or phrases such as”may”,”will”,”expect”,”probably”,”should”,”would”,”plan”,”anticipate”,”intend”,”potential”,”proposed”,”estimate”,”believe” or the negative of those terms, or other similar words, expressions and grammatical variations thereof, or statements that certain events or conditions”may” or”will” occur, or by discussions of strategy. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of historical fact. Forward-looking statements are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash flows as at and for periods ended on specific dates and to present information about management’s current expectations and plans relating to the future and the reader is cautioned that such advice may not be appropriate for any other purpose. Some of the forward-looking statements contained in this communication, include, but are not limited to, statements with respect to: the proposed investment by Altria Group at Cronos Group (the”proposed transaction”), our business and operations, our plan for future growth, expanding our global footprint, including the timing thereof, our aim to build a global iconic brand portfolio and develop disruptive intellectual property and our ability to build an industry leading company that transforms the perception of cannabis and responsibly elevates the customer experience. No forward-looking statement can be guaranteed and the future statements included herein can not be guaranteed by Cronos Group. Forward-looking statements are based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including management’s perceptions of historical trends, current conditions and expected future developments, as well as other considerations that are thought to be appropriate in the circumstances. While we consider these assumptions to be reasonable based on information then available to management, there’s absolutely no assurance that such expectations will prove to be correct. By their nature, forward-looking statements are subject to inherent risks and uncertainties that may be specific or general and which give rise to the risk that predictions, expectations, predictions, projections or decisions won’t prove to be accurate, that assumptions may not be correct and objectives, strategic objectives and priorities won’t be achieved. A variety of factors, including known and unknown risks, many of which are outside our control, could cause actual results to differ materially from the forward-looking statements in this communication. Such factors include, without limitation, the ability to complete the proposed transaction between Cronos Group and Altria Group on anticipated terms and timetable; the ability to obtain approval by the shareholders of Cronos Group related to the proposed transaction and the ability to meet various other conditions to the closing of the transaction contemplated by the subscription agreement; the ability to obtain governmental approvals of the proposed transaction on the proposed terms and schedule, any conditions imposed on the parties in connection with consummation of the proposed transaction; the risk that the cost savings and any other synergies from the proposed transaction may not be fully realized or may take longer to realize than expected; disruption in the proposed transaction making it more difficult to maintain relationships with customers, employees or suppliers; future levels of revenues; customer demand for cannabis products; Cronos Group’s ability to handle disruptions in credit markets or changes to its credit rating; future levels of funding, environmental or maintenance expenditures, general and administrative and other expenses; the success or time of completion of ongoing or anticipated capital or maintenance projects; the business plans, growth opportunities and anticipated investment; the adequacy of our capital resources and liquidity, including but not limited to, access to sufficient cash flow to implement our business plan (either within the anticipated timeframe or at all); the potential effects of judicial or other event on our business, financial condition, results of operations and cash flows; continued or further volatility in and/or degradation of overall economic, market, business or business conditions; compliance with applicable environmental, economic, health and safety, energy and other policies and regulations; the anticipated effects of activities of third parties such as competitors, activist investors or federal (including U.S. national ), state, provincial, territorial or local regulatory authorities, self-regulatory associations or plaintiffs in litigation; and the factors discussed in Cronos Group’s present MD&A and Annual Information Form, both of which have been filed on SEDAR and EDGAR and can be accessed at www.sedar.com and www.sec.gov, respectively. Readers are cautioned to consider these and other factors, uncertainties and potential events and not to put undue reliance on forward-looking statements. Forward-looking statements contained herein are based on the beliefs, estimates, expectations and opinions of management on the date and are made as of the date of this communication. Cronos Group undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to clarify any material difference between subsequent real events and such forward-looking statements, except as required by applicable law or regulation.

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Investor Relations Contact: Anna Shlimak, -LRB-416-RRB- 504-0004, investor.relations@thecronosgroup.com; Media Contact: Adam Pollack or Mahmoud Siddig, Joele Frank, Wilkinson Brimmer Katcher, -LRB-212-RRB- 355-4449Copyright CNW Group 2018

Published at Fri, 07 Dec 2018 12:19:39 +0000

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