What does Altria’s latest billion dollar investment mean to the cannabis industry?
Five days before Christmas, tobacco giant Altria Group Inc. (NYSE:MO) announced the closing of their $12.8 billion investment in JUUL. JUUL is one of America’s largest sellers of electronic cigarettes and vape pens. JUUL’s mission statement over the years has been to switch adult smokers to e-vapor. Teaming up with Altria - the major producer of Marlboro cigarettes - at first seems counterproductive, but in reality, the investment signals a change in the relationship between the tobacco and cannabis industries.
“We are taking significant action to prepare for a future where adult smokers overwhelmingly choose non-combustible products over cigarettes…” said Altria CEO Howard Willard. “We have long said that providing adult smokers with superior, satisfying products with the potential to reduce harm is the best way to achieve tobacco harm reduction. Through JUUL, we are making the biggest investment in our history toward that goal. We strongly believe that working with JUUL to accelerate its mission will have long-term benefits for adult smokers and our shareholders.”
Through the investment agreement, JUUL will remain a fully independent company and retain control of their operations. JUUL’s flavored products will remain exclusively online through JUUL’s website, but Altria is giving the company’s tobacco and menthol-based products access to their distribution. JUUL’s tobacco-based products will also be stocked in shelves alongside Altria’s combustible cigarettes, and Altria has agreed to include inserts in their cigarettes that promote JUUL’s safer alternative to smoking.
JUUL recently released a statement regarding Altria’s investment to reassure their shareholders that the move did not contradict the company’s mission of switching adult smokers from combustible cigarettes:
“We understand the controversy and skepticism that comes with an affiliation and partnership with the largest tobacco company in the US. We were skeptical as well. But over the course of the last several months we were convinced by actions, not words, that in fact this partnership could help accelerate our success switching adult smokers.”
The statement lists the qualifications Altria had to meet to invest in the vape company, which includes supporting JUUL’s mission “with tangible actions and real value outside of its financial investment.” But Altria’s flexibility and support of electronic cigarette use should not come as a surprise to investors. Altria was in support of stricter regulations on the tobacco industry back in 2000, and their investment in JUUL coincides with the tobacco company’s own long-term goals of reducing tobacco use among adult and underage smokers.
What does this investment mean to the cannabis industry?
JUUL itself is not a cannabis company, but Altria’s investment in JUUL comes days after the tobacco giant announced their $1.8 billion growth investment in Cronos Group (TSX:CRON) (NASDAQ:CRON). Altria now owns a 45 percent stake in the pot stock and intends for their cannabis investment to accelerate Cronos’ research and development of new products and expand the global reach of their brands. This will give Altria a significant position in the growing cannabis sector. Combined with their new position in the electronic cigarette sector, Altria seems more prepared than any other tobacco company to take on the changing tide of these industries.
The timing around Altria’s latest investments in electronic cigarettes and cannabis could not be better. Altria’s support of and experience with the evolving FDA regulations of tobacco over the past decade means that they are more than ready to take on the emerging regulatory framework in America’s cannabis industry. In a statement to Cannabis Business Times, Cronos Group CEO Mike Gorenstein pointed out this strategic advantage:
“Altria has decades of experience in regulatory, government affairs, compliance, product development and brand management that we expect to leverage, particularly as new markets for cannabis open around the world,” he said.
Gorenstein’s words reflect the sentiment of many cannabis investors looking for a way to capitalize on a changing industry. There is no doubt that cannabis is and will continue to be a major competitor with the tobacco industry, especially as new legalized markets are opening up across the globe. But by taking a preemptive step into the changing industry, Altria is showing investors and other tobacco companies that is possible for there to be harmony among rivals. More than that, the tobacco giant is reassuring not only their shareholders but other investors that is possible to embrace healthier products, support federal regulation, and expand your portfolio all at the same time.
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