Big Tobacco’s Altria Group issued an announcement last Friday claiming that it has agreed to purchase a 45 percent share in the Canadian cannabis company Chronos for a staggering $1.8 billion. Just the week prior, additional rumors swirled around the Marlboro manufacturer’s alleged attempts to entice the world’s leading vaping retailer Juul into a similar minority shareholder agreement. The latter discussions could be finalized by year’s end.
Altria has good reason to be interested in broadening its portfolio of products into vaping and marijuana alternatives. Since the year 2000, Altria’s U.S. cigarette volume has diminished by nearly 50 percent as smoking becomes increasingly less popular worldwide. Previously selling about 212 billion units 18-years ago, the company now boasts an abysmal 116.6 billion units in 2017. In fact, Altria’s cigarette shipment volume plummeted 6.3 percent during the first nine months of 2018 alone.
Altria has a fiduciary responsibility to its investors to find new ways and products that make money. Vaping and now cannabis are two of the more obvious options.
Since Canada recently passed legislation allowing for the legalization of marijuana at the federal level, Altria and other global conglomerates across multiple industries are pouncing on the Canadian cannabis market as a possible cash cow for new product lines. Even the Coca-Cola Company is said to be in “serious talks” with Toronto-based Aurora Cannabis over a new line of CBD-infused soft drinks.
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Juul executives remain relatively silent on the proposed deal with Altria, saying that they do not like to issue statements about “rumors.” Meanwhile, The Chronos Group is only too happy to confirm reports of Altria’s infusion of financial capital into its fledgling enterprise. Chronos spokesperson Howard Willard issued the following statement courtesy of The Street.
“Investing in Cronos Group as our exclusive partner in the emerging global cannabis category represents an exciting new growth opportunity for Altria. We believe that Cronos Group’s excellent management team has built capabilities necessary to compete globally, and we look forward to helping Cronos Group realize its significant growth potential.”
Willard further states that Altria is “the ideal partner for Cronos Group, providing the resources and expertise we need to meaningfully accelerate our strategic growth. The proceeds from Altria’s investment will enable us to more quickly expand our global infrastructure and distribution footprint, while also increasing investments in R&D and brands that resonate with our consumers.”
When the announcement of the Chronos Altria collaboration hit Wall Street last Friday, December 8, Chronos stocks soared a whopping 21.7 percent. Already, the move has proven extremely profitable for a young marijuana company as well as its shareholders.
Why would Juul or Chronos want to partner with Altria?
Employee reaction to the news that Juul is considering taking on Altria as a minority shareholder was swift. On December 1 just days after the news was leaked to the mainstream media, Gizmodo reported that many employees refused to believe the rumor since Juul products are designed and marketed as an anti-smoking alternative. One worker is alleged to have said that if the rumors are true, then the proposed investment by Altria is “a deal with the devil.”
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So, why would a vaping company, especially one like Juul which has repeatedly distanced itself from Big Tobacco, choose to allow one of the world’s most profitable cigarette companies to become a significant minority investor? One possible motive is Altria’s extensive history and expertise in fighting government regulations through aggressive courtroom litigation.
Meanwhile, Altria theoretically gains a toehold in the vaping market after trying unsuccessfully to do so on its own. Its lackluster e-cigarettes brands of MarkTen and Green Smoke have recently been pulled from store shelves.
Furthermore, just last month the U.S. Food and Drug Administration (FDA) issued a nationwide ban on the sales of flavored vapes through conventional brick-and-mortar stores. FDA Commissioner followed up with an immediate and rather aggressive warning to both the vaping and tobacco industries-at-large.
On CNBC’s Squawk Box, Gottlieb stated that if teen vaping rates do not decline quickly and at an ”astonishing” rate, then more FDA bans are sure to come. Additional FDA regulations might be enacted without warning which could ban everything from menthol cigarettes to flavored cigars and even the sales of all flavored e-liquids entirely – even online.
Perhaps Altria wants to cover all possible bases. If the FDA criminalizes vaping at some point in the future as Gottlieb is threatening, then Altria will always have marijuana products as a fallback.