Altria Investors Could Use A Cigarette As Juul Valuation Stresses Them Out
Last December Altria made two investments to diversify itself away from cigarettes, which has seen its use among U.S. adults hit its lowest level ever. They spent $12.8 billion for a 35% stake in Juul, the e-cigarette company with about a 75% market share, and $1.8 billion for a 45% stake in cannabis company Cronos Group. Altria saw a future with fewer cigarettes and more e-cigarettes and cannabis-related products.
While Altria likely expected heavy scrutiny of Juul due to its high use among teens, they likely didn't foresee how bad it would be less than a year later. Three major issues have hit Juul in the last week. First, the FDA slammed the company for its marketing practices, saying it made statements such as using a Juul is "totally safe" and "a safer alternative than smoking cigarettes." Second, President Trump said he is considering a ban on flavored e-cigarettes, such as the popular mint and mango flavors, leaving only tobacco-flavored products available. Finally, an 18-year old filed a lawsuit against Juul, claiming deceptive marketing left him with the lungs of a 70-year old.
With valuations starting to matter again, when looking at recent IPOs and WeWork, Juul appears to be the latest casualty of analysts revisiting calculations. The company's valuation is reportedly “coming down sharply" in the private markets. Juul is now said to be going in the $225 to $230 range, down from $250 per share where Altria took its stake and well below the $300 per share it was going for earlier this summer.
Altria shareholders are starting to realize Juul may have been an overpriced acquisition on top of a declining cigarette market. Shares of the stock, which you could once count on gradually appreciating and collecting a dividend, are now trading at their lowest level since 2014 and are down 46% from all-time highs.
Altria's stake in Cronos Group isn't faring much better. The stock has fallen 55% since February, making their $1.8 billion stake worth about $1.77 billion.
So while both of these investments could still prove to be successes for Altria, it seems there's a sense of panic internally and amongst shareholders. It's even driven them to enter talks to merge with larger tobacco giant Philip Morris International, who they split from in 2007.
"Bitcoin is too volatile." "Hold my beer." - oil. Brent crude oil futures jumped nearly 20% last night, its biggest move on record, following a Saturday attack on the world's largest oil processing facility. The attack is costing Saudi Arabia a production loss of 5.7 million barrels per day, which is about 5% of the world's daily oil production. With prices soaring, President Trump authorized the release of oil from the Strategic Petroleum Reserve, if needed, to keep the markets well-supplied.
How high do you have to be to do this? The Ontario government sold $64MM worth of cannabis last year, but somehow managed to lose $42MM in the process. You may think that's bad, but Tilray managed to lose more selling less, with losses of $67MM on $43MM in sales. Given Tilray is valued just above $3 billion, down 90% from its high, maybe its time for the Ontario government to take its marijuana business public.
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