Altria Group Inc (MO)

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Altria to Boost Interests in JUUL, Aims to Gain Voting Rights
By: Zacks Equity Research | April 9, 2019

In response to a request from the FTC, Altria Group, Inc. (MO) issued details regarding investment in JUUL Labs, Inc. The tobacco giant is currently seeking to convert non-voting rights in JUUL. Let’s take a closer look.

Efforts to Boost Smokeless Unit Bode Well

Altria controls nearly 35% non-voting interests in JUUL. The company is now trying to convert its rights to voting securities. In this regard, the companies have filed an application with the federal antitrust authorities. When all the mandated norms by the FTC are fulfilled, the companies will be required to observe a waiting period of up to 30 days. Post approval of the conversion, Altria will acquire rights to appoint one-third members to JUUL’s board. However, JUUL will continue to operate as an independent organization.

Altria believes that the investment will strengthen competitive grounds for the companies in the e-cigarette’s arena. Notably, JUUL is renowned for advanced and highly differentiated e-vapor products. Altria had earlier stated that it plans to provide JUUL greater exposure among adult smokers. The company intended to do so by providing inserts in cigarette packs along with extending logistics and distribution support.

We note that the FDA is keeping a close tab on the manufacturing and marketing policies of reduced risk products (RRPs) such as e-cigarettes to regulate usage among youths. Nevertheless, by adhering to safe marketing methods and complying with required regulatory norms, e-cigarette companies can avoid legal discrepancies.

Altria’s investment in JUUL reflects its commitment toward bolstering presence in the RRPs space. Markedly, the company’s existing brands — MarkTen and Green Smoke e-vapor products — are performing well. Also, the marketing and technology sharing agreement between Altria and Philip Morris (PM - Free Report) , currently under FDA review, is expected to boost their respective businesses. Additionally, Altria is interested in expanding in the nascent but booming cannabis industry. In March, 2019, the company announced the completion of investment in the Canadian cannabis company, Cronos Group Inc. (CRON - Free Report) .

Will Efforts Mitigate Challenges?

Declining cigarette sales volumes, stemming from fading consumer enthusiasm and regulatory hurdles, have been marring Altria’s performance for a while. During fourth-quarter 2018, domestic cigarette shipment volumes fell 4.4% year over year. Prior to this, cigarette shipment volumes declined 3.7%, 10.6% and 4.2% in the third, the second and the first quarters of 2018, respectively.



Such factors have lowered investors’ optimism in the Zacks Rank #4 (Sell) stock that declined 9.4% in the past six months compared with the industry’s fall of 3.6%. Apart from Altria, falling cigarette sales volumes are hurting other tobacco players like Philip Morris and British American Tobacco (BTI - Free Report) .

Amid such a scenario, the company’s gradual expansion in other business areas, such as RRPs, is expected to offer respite to a certain extent. This, combined with higher cigarette pricing strategies is likely to drive growth.

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