Maybe Altria (MO +0.25%) should just stick to making cigarettes and other nicotine-related products, because its track record in investing in other businesses is less than ideal.
So far, the tobacco giant has:
- Virtually written off its entire $13 billion investment in electronic-cigarette maker Juul Labs.
- Written down half of its investment, or about $9 billion, in Anheuser-Busch InBev since the merger with SABMiller in 2016.
- Just announced it would be taking a $438 million loss on its investment in marijuana stock Cronos Group (CRON +0.80%) and walking away from its right to acquire more stock in the company.
Up in smoke
According to the filing, Altria is taking a $438 million loss on its 45% ownership interest in Cronos on its income taxes for the year and has no plans to buy any more shares in the company.
It will, in fact, evaluate the cannabis company's business with an eye toward dumping shares it already owns onto the market. Altria is also abandoning the warrants it holds to acquire an additional 84 million shares at 19 Canadian dollars per share.
Cronos stock closed at CA$3.91 per share on the Friday before Altria made the filing and has not traded above CA$6 per share in over a year.
Altria bought the stock for CA$16.25 per share.
On the Nasdaq exchange, Cronos shares are down 37% over the past year and recently closed below $3 a stub. The stock had hit a high of around $24 a share back in 2019.
Altria will be keeping those 156.6 million Cronos shares for the time being.
The warrants expire in March, and the tobacco stock doesn't anticipate Cronos shares hitting that threshold anytime soon. The warrants would have allowed Altria to buy another 84.2 million Cronos shares, raising its ownership interest to 55%.
NYSE: MO
Key Data Points
The future of smoking
Altria had seen marijuana as "a new growth opportunity in an adjacent category" at the time of the investment. However, the cannabis industry has cratered as regulatory fumbling in Canada combined with a lack of federal legalization action in the U.S. stubbed out much of the market.
It's been difficult to make money in cannabis since Constellation Brands became the first big company to invest in the space -- $4 billion in Canopy Growth.
It may be best for Altria just to cut its losses and move on.
While there is likely long-term potential in the market, there's plenty of time to get back into the business in the future, should legalization happen and business begin to boom. In the meantime, the tobacco giant could better use the money to finance its primary operations.
Writing off Juul, selling off its Ste. Michelle winery business, and not buying more Cronos stock are all part of Altria's plan to narrow its focus to "move beyond smoking" by 2030.
Cigarettes have been in a secular decline for decades, even as they remain very profitable. However, the industry's future lies in reduced-risk products like e-cigs and vape pens.
Image source: Getty Images.
Better opportunities to come
An Altria that's more narrowly focused on next-generation vape products will further bolster the tobacco stock's bottom line. For instance, it's partnering with Japan Tobacco to introduce a heated tobacco device in the U.S. With the goal of eventually going international, that could be the spark it needs for growth.
Profits from cigarettes still light up Altria's lucrative dividend, currently yielding 8.1% annually. But having a device on the market that can offer consumables marketed under the Marlboro brand ought to be a successful strategy.
Altria's stock is down 2% year to date, which isn't bad considering the S&P 500 is sitting just above a 20% loss.
At 18 times trailing earnings and just 9 times next year's estimates, this tobacco stock concentrating on where its industry is heading could be a good bet now.
