

Cronos Group (NASDAQ:CRON) announced on Friday that tobacco giant Altria (NYSE:MO) is buying a 45% stake in Cronos for around $1.8 billion (2.4 billion in Canadian dollars). It's the second-biggest deal in the history of the cannabis industry, trailing only Constellation Brands' $4 billion investment in Canopy Growth

But what does this monster deal really mean? Here are three things you need to know about the impact of Altria's investment in Cronos.

Businessman holding a lot of cash in his hands that cover his face

Image source: Getty Images.

1. What it means for Cronos Group

Obviously, the immediate impact for Cronos Group is that the company's valuation just jumped considerably. Altria paid a 33% premium over Cronos Group's closing price on Nov. 30, 2018, and a 42% premium over the stock's 10-day volume-weighted average price for the period ending Nov. 30, 2018. But there are even greater long-term benefits for Cronos Group resulting from the deal.

Cronos will now have a boatload of cash. That means the company's expansion efforts will kick into high gear. Cronos Group CEO Mike Gorenstein is already talking about growing the company's "global infrastructure and distribution footprint." He also said that Cronos will use its newfound cash to increase investments in research and development and its cannabis brands.

Probably even more important, Cronos Group will now have a big partner with a strong track record in developing and marketing products in highly regulated markets. With more countries legalizing marijuana, the tight relationship with Altria puts Cronos group in a better position than most of its peers to capitalize on growth in the global marijuana market.

2. What it means for Altria

Tobacco sale volumes have been falling. Altria has been looking at ways to move into new growth markets. The company is reportedly interested in buying a minority stake in leading electronic cigarette manufacturer Juul Labs. Expanding into cannabis appears to be a potentially even better move for Altria, considering the potential growth in the global cannabis market.

Altria now has a place at the table in the cannabis industry. And it has a bigger place at the table with Cronos Group than you might think. Cronos is expanding its board of directors from five to seven directors. Altria gets to nominate four of them. Also, Altria will receive warrants that allow it to increase its ownership in Cronos to 55% for around $1 billion (roughly CA$1.4 billion).  

Don't forget that Altria already owns nearly 10% of beer maker Anheuser-Busch InBev. It wouldn't be surprising if Anheuser-Busch jumps into the cannabis-infused beverage market, with Cronos Group supplying the cannabinoids for those beverages. 

3. What it means for the rest of the cannabis industry

Other Canadian marijuana stocks received a boost thanks to Cronos Group's news of the Altria investment. It's not hard to figure out why: Investors are hoping other deals could be on the way with other major cannabis producers.

Such hopes are likely to be fulfilled. Other major tobacco companies and beverage companies have to be looking at the partnerships that Altria and Constellation Brands have made with leading marijuana producers and realizing that they don't want to be left behind.

If nothing else, Altria's investment in Cronos Group provides further evidence that the opportunities in the global cannabis industry are real and not just hype. Forking over $1.8 billion isn't chump change for Altria. The tobacco giant just made a big bet on cannabis -- a bet that it expects to pay off. 

Confirmation this is a good deal

There's no question that the Altria investment is great for Cronos Group. But it also appears to be a good deal for all involved. 

Perhaps the best confirmation of just how good a deal this is comes from investors' reactions. Altria's share price moved 2% higher in early trading on Friday. That might not seem like a significant jump. However, the S&P 500 index dropped more than 1%. The positive move for Altria on a day where the overall market is selling off shows that investors like the Altria-Cronos deal.

But is Cronos Group an attractive stock for regular investors to buy after the big run-up on the Altria transaction? With a lot of cash for expansion and a major international partner at its side, Cronos Group's long-term prospects look better than ever.