In 2018, Altria’s share price had slumped over 30%, making it one of the worst in history for the cigarette maker’s shareholders. A number of factors are thought to have contributed to this, including various negative regulatory announcements from the FDA, and the ever increasing declines in cigarettes sales.
Following these investments in Cronos and Juul, Altria‘s dividend yield now sits at 6.7%, its highest level since the Financial Crisis. “These investments complement our very strong core tobacco businesses and provide exciting opportunities for future growth,” said Altria’s CEO Howard Miller,
However, despite the fact that cannabis and vaping are both booming businesses, analysts, investors, and credit rating agencies are very skeptical about these investments. Infact S&P and Fitch just downgraded Altria two notches to BBB and Moody’s downgraded it to a negative outlook.
Why the skepticism?
Altria’s investment represents a valuation of $38 billion, which is 2.5 times Juul’s most recent capital raise earlier this summer, meaning that Juul’s growth will need to be tremendous for Altria’s investment to pay off.
As for cannabis and Cronos, while the legal cannabis market is expected to expand at a fast rate, there is no certainty that Cronos will be able to actually become a dominant global name. Simply put, Altria is paying a very rich price for both Cronos and Juul, in order to access the potential for large future growth to offset steady declines in cigarette volumes, which are likely to continue forever. While the upside to these investments is still a question mark, the high cost and large amount of debt Altria is taking on are very real and objective risks.
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