Tobacco company Altria Group (NYSE:MO)'s C$2.4-billion ($1.8 billion) investment in cannabis mega player Cronos Group (NASDAQ:CRON) was completed March 8.

This gives Altria a 45-percent stake in the Canadian cannabis brand; the now-finalized deal is the tobacco industry’s largest investment in cannabis to date.

Per the agreement, Altria has a warrant by which it can acquire additional ownership over the next four years.

Cronos said the investment helps with company financial resources and product development while adding regulatory experience to its leadership. The investment also expands Cronos' board from five to seven members, with Altria nominating four.

The announcement of the investment's closing also brought the news that Jerry Barbato, Altria's senior director of corporate strategy, is being appointed as the chief financial officer at Cronos.

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'The Next Quantum Leap'

Industry watchers seem generally unsurprised by the Altria-Cronos partnership. In most cases, those who spoke with Benzinga viewed the deal as a step toward normalizing and validating the cannabis industry.

Bethany Gomez, director of research at the analytics and market research firm Brightfield Group, sees the news as "a big step" toward normalizing this type of cannabis industry tie-up.

Altria's involvement is a means of producing lower-cost products and competing with the black market, she said.

"A company like Altria has the global supply chain and expertise to help develop a line of products that will be much more competitive in the global marketplace than the direction that most are currently taking."

Alex Somjen, president and CEO of global investment firm Resinco Capital Partners (OTC:RSCZF), said the deal greatly benefits both parties.

"Cronos is on the brink of profitability and needed capital to take the next quantum leap. Altria is contending with waning demand for traditional cigarette products and needs to invest in the future," said Somjen.

Like Gomez, Somjen also pointed out Altria's significant financial resources, its ability to commercialize new products and regulatory expertise.

Evan Eneman, CEO of ELLO Insights, a professional services firm for the cannabis industry, said the investment is a "massive capital infusion" that supports Cronos' expansion efforts beyond Canada and into Altria's markets. That said, he understands the ambivalence such investments tend to generate.

"It also goes without saying that not everyone will view this type of transaction as positive for the industry, given the historical challenges of the tobacco industry and the desire of most to ensure the cannabis industry does not succumb to the same fate."

What’s Next

The trend of large-scale investments in cannabis from outside industries is expected to trend upward in the coming years.

"I absolutely see this as a trend and the wave of the immediate future as large, traditional, non-cannabis-related companies look to enter the industry," said Cresco Capital Partners Managing Partner Matt Hawkins. "Big companies like Altria investing in cannabis further validates the size and scope of the industry as a whole.”

Brightfield Group's Gomez said she expects an increase in investments in Canadian LPs this year.

The analytics firm expects the global cannabis market to reach $34.6 billion by 2021, with Canada only accounting for $5.6 billion of that figure, she said.

“This indicates a strong need for export and global strategy amongst Canadian LPs, so partners that can provide an infusion of capital — as well as a global distribution network — are clearly a key differentiator for these companies.”

Altria last closed at $56.13 per share, while Cronos closed at $21.14 per share.

Analysts: Altria And Cronos Make A Good Team

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