Finance

Altria can make deals with Juul, Aphria to dig out of bind: analyst

Published

6 years ago

December 4, 2018

Ethel Jiang

marlboro phillip morris altria AP

The cannabis producer Cronos Group confirmed Tuesday that it had held talks with the cigarette maker Altria about Altria taking a stake in the company.
Last week, The Wall Street Journal reported that Altria had held talks to take “a significant minority stake” in the e-cigarette startup Juul.
These two buyouts “should come as no surprise” because the cigarette maker needs innovations to offset its softer top-line growth, according to Cowen analysts.
Watch Altria trade live.

Altria, the maker of Marlboro cigarettes, could dig itself out of a bind by investing in two companies, the marijuana grower Cronos Group and the e-cigarette startup Juul, according to Cowen analysts.

On Tuesday, Cronos confirmed that it was “engaged in discussions concerning a potential investment by Altria” but that “no agreement has been reached.” And last week, The Wall Street Journal reported that Altria had held talks to take “a significant minority stake” in Juul, a three-year-old e-cigarette company based in San Francisco.

A deal with the two companies “should come as no surprise” because the cigarette maker needs innovations to offset its softer top-line growth, according to a group of Cowen analysts led by Vivien Azer.

“In the tobacco category, Altria faces similar structural headwinds, as volume pressure seems to be accelerating with the advent of meaningful vapor innovation that is finally resonating with consumers,” Azer said in a note out Tuesday.

According to Azer, Altria’s management in October told investors during its third-quarter earnings call that the secular decline in combustible cigarettes had accelerated driven by consumer transition to e-cigarettes.

And Altria’s efforts to enter the cannabis game “coincided with a rising interest among the major tobacco companies to explore the cannabis opportunity in the U.S.,” Azer continued. For example. in June, the venture arm of the UK-based Imperial Brands invested in Oxford Cannabinoid Technologies, a biotech company working on research into active compounds in the cannabis plant known as cannabinoids.

“We have asserted since 2016 that cannabis would be a synergistic incremental growth driver for the tobacco industry given the opportunity to leverage IP around heat-not-burn and vapor technology,” Azer said.

And Joseph Lusardi, CEO of the cannabis grower Curaleaf agrees.

“The most interesting part of this pending transaction is that it’s the first time big-tobacco is making a strong foray into the cannabis space; something that people have been talking about since the 1980s,” Lusardi told Business Insider in an email on Tuesday.

“As one of the largest US-based players in the legal cannabis space, we believe this will be the first of possible moves by other multi-national companies into the North American cannabis market. For big companies with limited growth prospects, it will be hard to ignore the cannabis sector.”

Altria is now down 23% to $54.40 at Tuesday’s close.