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Sullivan & Cromwell and Wachtell, Lipton, Rosen & Katz have taken lead roles on Altria Group’s CAD$2.4 billion ($1.8 billion) strategic equity investment in Canadian cannabis producer Cronos Group.

Wachtell is counsel to Altria, one of the world’s largest producers and marketers of tobacco, and Sullivan & Cromwell is providing legal advice to Cronos, in a deal signaling a cultural shift in favor of the expanded production and distribution of cannabis. The drug, commonly referred to as marijuana, has long been illegal under U.S. federal law and also in numerous states, and only recently became legal in Canada for non-medicinal use.

Sullivan & Cromwell attorneys advising Cronos included corporate partner George Sampas, finance partner John Estes and executive compensation and benefits special counsel Rebecca Coccaro. The large Wachtell team representing Altria included corporate partners Andrew Nussbaum and John Robinson, antitrust partner Joseph Larson, finance partner Michael Benn, executive compensation and benefits partner Adam Shapiro and tax partner Jodi Schwartz.

Hunton Andrews Kurth also advised Altria on aspects of the financing.

According to a statement from Altria, the deal gives the tobacco industry giant a 45 percent equity stake in Cronos Group. It also gives the company the right to nominate four directors, including one independent director, to serve on Cronos Group’s board of directors, which will be expanded from five to seven directors. Moreover, the deal provides Altria the option of acquiring a further ownership interest in Cronos for CAD$19 ($14.21) per share, exercisable over four years from the closing date,

Altria’s statement specifically acknowledges that the firm anticipates broad and rapid growth in the cannabis sector in years to come and that the marijuana sector represents an “adjacent category” to Altria’s longtime sweet spot in the tobacco industry.

Cronos Group issued a statement praising the deal as one that will significantly strengthen Cronos’ position as a cannabis industry innovator. The statement cites Cronos’ partnership with the Technion Research and Development Foundation for the purpose of developing cannabis-based skin care treatments, and the research it has undertaken with Ginkgo Bioworks to develop cultured cannabinoids, as two recent examples of its pioneering role in the sector.

“The growth opportunities for Cronos Group are significant and extend across the globe as markets open. With Altria’s resources, Cronos Group expects to be even better positioned to support cannabinoid innovation, create differentiated products and brands across medicinal and recreational categories, and expand its global footprint and growing production capacity,” the statement said.

The deal comes on the heels of the Canadian government’s decision in October to make marijuana use legal for recreational, as opposed to strictly medicinal, use. Some Canadian law firms have responded quickly to the change, appointing a cannabis practice groups. But it is still relatively rare for U.S. law firms to engineer multibillion-dollar transactions with a cannabis component. Some legal professionals have noted a lack of clarity around some of the legal issues in this sector, and notwithstanding recent changes at the regulatory level, the use of marijuana for non-medicinal purposes continues to be controversial.

Further Reading:

McCarthy Tétrault Appoints Heads of Cannabis Law Group Following Historic Legalization

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Higher Law: Canada Goes Legal | Ex-Polsinelli Partners See Green | Who Got the Work

As Legal Marijuana Spreads, Am Law 100 Firm Links With Cannabis Trade Group