Altria’s recent investments
In December, Altria Group (MO) made two big announcements. First, on December 7, Altria announced that it would invest $1.8 billion in Cronos Group (CRON), a vertically integrated cannabis company, for a 45% stake, which could increase 10% over the next four years with a warrant at a price of 19.00 Canadian dollars per share. Second, on December 20, Altria announced a $12.8 billion investment in JUUL Labs for a 35% stake in the e-cigarette company.
In this series, we’ll look at Altria’s need to invest in other businesses and the growth prospects of these investments.
The decline in US cigarette shipment volume
Over the long term, the decline in cigarette shipment volume was estimated between 3% and 4% in the United States. For 2017, Altria’s management estimated the rate of decline at 4% due to the implementation of California State’s excise tax of $2 per pack in the second quarter of 2017 and the initial growth phase of e-vapor cigarettes. However, management added that the acceleration in the growth of e-vapor cigarettes sales and higher gas prices led the US cigarette industry volume to fall 4.5% in 2018, outside of its 3%–4% range.
For 2019, management expects the US cigarette industry’s volume to decline between 3.5% and 5.0%. From 2019 through 2023, the cigarette industry’s volume is expected to fall 4%–5%.
The decline in Altria’s cigarette shipment volume
From the above graph, we can see that Altria’s cigarette shipments have been declining year-over-year over the last four years, and the rate of decline had accelerated in the last year. In 2018, Altria’s cigarette shipment volume fell 5.8%, primarily due to the industry’s rate of decline, unfavorable inventory movements, and a drop in retail share, partially offset by one extra day of shipping.
So the accelerated decline of cigarette shipment volumes appears to have prompted Altria to invest in e-cigarette and cannabis companies. Next in this series, we’ll look at its investment in JUUL Labs and its growth prospects.