Cronos’s stock price jumped by nearly 16% this week after Reuters reported on the Altria talks.
Closely held Juul, a threeyear-old company with more than 1,000 employees, was valued at $16 billion in a funding round this summer. Juul’s sales have surged over the past year, even as it contends with a crackdown by the Food and Drug Administration aimed at curbing widespread use of its products by teens.
Altria represents 46% of the U.S. market for combustible cigarettes. Its stock has declined more than 20% over the past year, as the company has been buffeted by declines in traditional smokers and a potential U.S. ban on menthols. The tobacco giant still has a market value of more than $100 billion.
The U.S. cigarette industry has for years used price increases to boost revenue and profitsdespite falling cigarette volumes. But that decline has sped up in recent months to a level that some analysts see as unsustainable. Altria’s long-term cigarette volume forecast had
been a decline of between 3% and 4%. For the year ended Nov. 17, its cigarette volumes fell 4.5%, a rate that has steepened to 7.6% in the most recent four weeks, according to a Wells Fargo analysis of Nielsen data.
Altria CEO Howard Willard in October on a conference call with analysts acknowledged the sharpening decline, attributing it to higher gas prices, which reduce discretionary spending, and the growing popularity of e-cigarettes.
“It’s hard to tell how long it’s going to persist,” he said of the slide. “I think we’re going to have to wait and see what happens with both gas prices…and whether or not the growth rate of e-vapor slows down.”
Mr. Willard confirmed that the company was exploring opportunities in the cannabis industry. “We acknowledge that it is currently federally illegal in the U.S., but I think we think it’s worth exploring the category because that might change in the future,” he said.
With these two investments, Altria could buy itself out of a bind, Cowen analyst Vivien Azer said, noting that it will become more difficult to use price increases to offset falling cigarette sales.
Altria has long had an interest in cannabis. An internal document in 1970 said that the Justice Department had asked the tobacco company to perform a chemical analysis of marijuana smoke, and the company viewed the request as an opportunity to explore a controversial product that was increasingly popular among young people.
“We are in the business of relaxing people who are tense and providing a pickup for people who are bored or depressed,” the document said, explaining the decision to grant the DOJ’s request. “The human needs that our product fills will not go away. Thus, the only real threat to our business is that society will find other means of satisfying these needs.”
Jacquie McNish contributed to this article
Altria represents 46% of the U.S. market for combustible cigarettes. Its stock has declined more than 20% over the past year.