Cronos Group closes $2.4B investment from Altria

Cronos Group closes $2.4B investment from Altria

2019-03-08 09:02 ET - News Release

Ms. Anna Shlimak reports

CRONOS GROUP INC. CLOSES C$2.4 BILLION STRATEGIC GROWTH INVESTMENT FROM ALTRIA GROUP, INC.

The $2.4-billion equity investment in Cronos Group Inc. by Altria Group Inc. has closed. As previously announced, Altria's investment represents an approximate 45-per-cent ownership interest in Cronos Group. Altria also has a warrant to acquire additional ownership in Cronos Group, which is exercisable over the next four years. If exercised in full today, the warrant would increase Altria's ownership in Cronos Group to approximately 55 per cent and provide Cronos Group with additional proceeds of approximately $1.4-billion.

"We are delighted to close this transaction and kick off a relationship that we expect to lead to significant growth and value creation," said Mike Gorenstein, Cronos Group's chairman, president and chief executive officer. "Altria's investment and the services they will provide to Cronos Group will enhance our financial resources, and allow us to expand our product development and commercialization capabilities, and regulatory expertise to better position Cronos Group to compete, scale and lead the rapidly growing global cannabis industry. We look forward to the many opportunities we expect this relationship to create."

"We're excited to finalize our investment in Cronos Group and to support their talented team," said Howard Willard, Altria's chairman and chief executive officer. "Cronos Group is our exclusive partner in the emerging global cannabis category and represents an exciting new growth opportunity for Altria."

Director additions

In connection with the closing, the board of directors of Cronos Group has been expanded from five to seven members. The Cronos Group board will include existing directors, Mr. Gorenstein, Jim Rudyk, chief financial officer of Roots Corp., who will serve as lead director, and Jason Adler, founder and managing partner of Gotham Green Partners GP, as well as four new directors nominated by Altria:

• Kevin (K.C.) Crosthwaite Jr., senior vice-president, chief strategy and growth officer of Altria;
• Bronwen Evans, independent consultant and brand strategist;
• Murray Garnick, executive vice-president and general counsel of Altria;
• Bruce Gates, founding partner of Three Oaks Strategies LLC.

The Cronos Group board will continue to have two committees. The audit committee will include Mr. Adler, Ms. Evans and Mr. Rudyk, who will serve as chair of the audit committee. The compensation committee will include Mr. Adler, Mr. Rudyk and Mr. Crosthwaite Jr., who will serve as chair of compensation committee.

"We are pleased to welcome these new directors to the Cronos Group board and look forward to benefiting from their experience and expertise as we continue our strategic growth and international development," said Mr. Gorenstein. "We also extend our gratitude to Alan Friedman and Michael Coates, who will be retiring from the Cronos Group board. We appreciate their service to the company."

Mr. Coates will continue to serve as a Canadian regulatory adviser to Cronos Group's board of directors.

New chief financial officer and chief commercial officer

Cronos Group also announced today that Jerry Barbato, most recently senior director of corporate strategy at Altria, has joined Cronos Group and has been appointed chief financial officer of the company, effective April 15, 2019. Mr. Barbato assumes the CFO role from William Hilson, who will serve as Cronos Group's chief commercial officer, a newly created role, effective April 15, 2019. As chief commercial officer, Mr. Hilson will report to Mr. Gorenstein and be responsible for further enhancing the commercial strategy as well as the product and research development priorities of the company.

"These appointments demonstrate our commitment to a premier leadership team with the skills and experience necessary to support our next phase of growth and development," said Mr. Gorenstein. "In addition to benefiting from Jerry's finance expertise, we expect his first-hand knowledge of Altria to help ensure we fully capitalize on our partnership with them. William is a valuable contributor to our team, and we expect his scientific and pharmaceutical knowledge to further enhance the commercial strategy and R&D initiatives for the company. I am excited to work with Jerry and William as we continue building a leading, innovative global cannabinoid company."

Mr. Barbato joins Cronos Group with 20 years of experience in strategic planning, corporate financial analysis and services, and brand management. Prior to joining Cronos Group, he held various roles within the Altria family of companies. Mr. Barbato joined Altria in 2003 and served in leadership roles within the finance, strategy, and business development and marketing functions, and most recently held the role of senior director of corporate strategy. He has broad experience in both finance and operating roles, as well as managing operations in regulated international markets. Mr. Barbato supported the Marlboro brand and provided analysis that shaped brand strategies for Altria's smokeable segment. He also served as assistant general manager for a joint venture, Richmark GmbH, in Zurich, Switzerland. Mr. Barbato holds a BS in accounting from Marquette University and an MBA from the University of Maryland, University College.

Prior to joining Cronos Group in 2016, Mr. Hilson spent more than 15 years with multinational pharmaceutical companies as the president of Hillhurst Management Inc. and CFO of EMD Inc. and Serono Canada Inc., and director of finance for Hemosol Inc. Mr. Hilson's specialty is in pharmaceuticals with a proven record of driving business objectives and growth, increasing efficiencies, overseeing clinical programs and product launch activities, and increasing profit. Mr. Hilson graduated from the University of Western Ontario with an honours BS in genetics, and from the University of Toronto with a master of science clinical biochemistry. His academic work has been published internationally. Mr. Hilson was a member of the board of directors of EMD Inc., Canada, and EMD Crop Bioscience and he is a member of Chartered Professional Accountants of Canada.