Can Altria's Expansion in RRPs & Cannabis Enable a Revival?
With investments in e-cigarettes and the cannabis space, Altria Group Inc. MO is inclined toward exploring options to stay afloat in the troubled tobacco space. Notably, declining cigarette sales volumes, stemming from fading consumers’ enthusiasm and regulatory hurdles, have led the company to look for other lucrative business alternatives for endurance. Let’s take a closer look at some of the strategic initiatives undertaken by the company and see if it can cushion hurdles.
E-cigarettes are a Ray of Hope
Tobacco companies are increasingly placing their bets on reduced risk products (RRPs) such as e-cigarettes that are scientific alternatives for cigarettes. Altria is making impressive strides in this realm and introduced several RRPs that are included in the company’s smokeless category. In fact, its flagship MarkTen and Green Smoke e-vapor products are performing well in this category. Recently, the company acquired 35% stake in JUUL, which is renowned for advanced and highly differentiated e-vapor products. The brand is currently available in almost eight countries. JUUL is committed toward innovation along with plans to further expand global presence. Altria plans to provide JUUL greater exposure among adult smokers by providing inserts in cigarette packs and extended logistics along with distribution support.
Further, Altria’s marketing and technology sharing agreement with Philip Morris PM, which is currently under FDA’s review, is likely to enable the companies to tap greater opportunities in the e-cigarette realm.
We note that e-cigarettes and similar RRPs are viewed as the future products for tobacco companies. However, the FDA is keeping close tab on the manufacturing and marketing policies of RRPs to regulate usage among youths. Other tobacco companies such as British American Tobacco BTI have been expanding their presence in the e-cigarette’s arena.
Strides in the Cannabis Space
With the legalization of recreational use of marijuana in Canada, many companies are foraying into the cannabis space. In fact, companies are monitoring the health impacts of cannabis and have started viewing cannabis-infused products as another recreational option. Altria is also undertaking efforts to expand in the cannabis industry. This is evident from recent announcements to acquire stakes of the Canadian cannabis company, Cronos Group CRON. Notably, Altria is the first tobacco player to show interest in the nascent but booming cannabis industry.
Will Efforts Curate a Revival?
We note that Altria’s shipment volumes in the smokeable category have declined 3.5%, 10.6% and 4.2% in the third, the second and the first quarters of 2018, respectively. Notably, Marlboro — one of the most prominent cigarette brands of the company — is witnessing constant decline in market share. Such headwinds are likely to persist in the forthcoming periods, thanks to tight regulations and consumers’ shift in preferences. Moreover, concerns in the tobacco space are marring investors’ optimism in the stock that declined 17.4% in the past three months compared with the industry’s fall of 19.7%.
With increasing vigilance on tobacco products, it is hard for Altria to escape from the impacts of deteriorating cigarette sales. Against such a backdrop, the company’s gradual expansion in other business areas is expected to offer respite to a certain extent. Apart from RRPs and the cannabis space emerging as a game changer, higher cigarette pricing is boosting revenues for the company. Progressing with such well-woven strategies, we expect the Zacks Rank #3 (Hold) company to uplift investors’ confidence in the forthcoming periods.
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