Altria Likely To Invest In Juul To Bolster E-Cigarettes Unit

Per sources, Altria Group, Inc. (NYSE:MO) is planning to invest in Juul Labs Inc., a popular e-cigarette company. Well, the company is quite enthusiastic when it comes to reduced-risk tobacco alternatives and taking robust strides to expand in this category. Let’s take a look at how this rumored deal is likely to benefit the company.

Prospects From Altria-Juul Partnership

Altria is trying to fortify footing in the smokeless arena, which is low risk and scientific alternatives for cigarettes. In this respect, e-cigarettes are becoming increasingly popular. The company has introduced several reduced risk tobacco products (RRPs) that are boosting revenues.

If the deal materializes, it is likely to bolster Altria’s position in the smokeless arena. Sources have stated that Altria is planning to acquire almost 35% stake in Juul that will amount to nearly $12.8 billion. Juul is quite a popular brand among smokers trying to quit cigarettes and holds a strong position in the market. Moreover, the company is likely to benefit from Juul’s growing popularity in foreign markets.

We note that in the smokeless category, Altria’s flagship MarkTen and Green Smoke e-vapor products are performing well. Further, Altria’s marketing and technology sharing agreement with Philip Morris (NYSE:PM) , which is currently under FDA’s review, is likely to enable the companies to benefit from opportunities in the e-cigarette realm. Additionally, the company is striving to receive FDA’s approval for the marketing of smokeless products with lower risk claims. In this respect, the company recently submitted a modified risk tobacco product application to FDA for Copenhagen Snuff. With the probable addition of the Juul brand, Altria will hold a stronger portfolio of reduced risk products.

Will Regulations Cause Harm?

The FDA is keeping a close tab on the manufacturing and marketing policies of RRPs to regulate usage among youths. Recently, Juul and other e-cigarette manufacturing companies have been asked to submit detailed plans to prevent teens from using such products. Although FDA’s strict vigilance is an obstacle, JUUL and other e-cigarette manufacturing companies can avoid legal discrepancies by adhering to foolproof methods to prevent the usage of e-cigarettes among youngsters.

Apart from this, regulatory authorities have long been issuing strict directives to curb sales and marketing of traditional cigarettes. Consequently, sales of similar products have been negatively impacted. Although it is difficult for Altria to escape from the impacts of soft cigarette sales, gradual expansion in other lucrative business areas is expected to offer some respite. We note that e-cigarettes and similar RRPs are viewed as the future products for tobacco companies. To this end, we note that other tobacco manufacturing companies such as Phillip Morris and British American Tobacco (NYSE:BTI) are also taking strides to expand in this realm.

In fact, Altria is also been taking efforts to expand in the cannabis industry, evident from its recent announcements to acquire stakes of the Canadian cannabis company, Cronos Group (NASDAQ:CRON) . We expect that such strategies can help this Zacks Rank #3 (Hold) company to revive its stock performance that has declined 17.5% in the past three months compared with the industry’s fall of 18.1%.

You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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