Altria Archives - Green Market Report

StaffStaffMay 10, 2019
shutterstock_178709456.jpg

10min6520

A 6.0% dividend yield tells you all you need to know

By Will Ashworth, InvestorPlace Contributor May 3, 2019, 2:07 pm EDT

It’s been almost two months since Altria (NYSE:MO) closed its deal to buy 45% of Cronos Group (NASDAQ:CRON) for C$2.4 billion. And the cigarette maker’s latest earnings disappointment would suggest Cronos Group stock is the better buy of the two if you’re looking to make a play on marijuana stocks.

However, before you jump on your discount broker’s website to buy some CRON stock, you might want to consider the argument for considering MO instead.

Earnings in Transition

In my opinion, free cash flow is the metric that rules most, if not all, investment decisions. That’s because if you’re a company with minimal debt and growing free cash flow, it’s pretty hard to get into too much trouble in an economic downturn.

And while an economic downturn doesn’t appear to be imminent here in the U.S., economies have a way of turning sour in a hurry. Donald Trump’s economic policies are all the rage right now with (a whopping 56% of ) Americans, but when the benefits of his tax cuts wear off and the country’s debt problem worsens, you better own companies whose financials are rock solid.

Altria reported Q1 2019 results April 25. On the top line, revenues net of excise taxes fell 6.0% year over year to $4.4 billion. On the bottom line, adjusted earnings per share decreased 5.3% to $0.90.

As if that wasn’t bad enough, Altria missed the analyst estimate for earnings by two cents and revenues by $200 million.

Ouch.

Free Cash Flow Set to Grow

However, the company is in the early stages of a cost reduction program that should generate significant savings over the next year. In addition, investments such as Cronos and Juul should change the company’s growth trajectory in the years to come. A short-term decline in earnings isn’t a big deal.

From a free cash flow perspective, despite the downturn in earnings, Altria still managed to generate $2.25 billion in the first quarter. On a trailing 12-month basis, it’s free cash flow is $7.6 billion providing CEO Howard Willard with plenty of cash to pay down the $16.3 billion in 4.1% unsecured debt it issued in February to pay for Juul and Cronos along with general corporate purposes.

As long as it can commit to paying down a billion a year over the next five years, the increased cash flow from Juul along with gains from its Cronos investment should bring the total debt down to close to two times EBITDA from 2.8 after the first quarter.

Willard put it best in the company’s Q1 2019 press release

“After taking steps to position Altria for long-term success at the end of 2018, we entered 2019 with an evolved business platform that includes our strong core tobacco businesses and new strategic investments with tremendous potential for growth,” Willard stated.

With 2019 adjusted earnings expected to grow by 4%-7%, there’s an excellent possibility that free cash flow could surprise in 2019.

Cronos Stake Worth Less

Since Altria closed its deal in early March, Cronos Group stock has fallen in value by 23%. That’s prompted InvestorPlace contributor Luce Emerson to suggest Altria overpaid.

“With CGC and TLRY already off the market, Altria jumped for CRON,” Emerson wrote April 11. “There are certainly synergies across Altria’s core business with cannabis than with beer. Still, it is hard to justify paying a price to sales multiple of 267x (compare that to CGC’s 86x).

She goes on to suggest that if you compare Canopy Growth’s (NYSE:CGC) market cap to kilograms sold with Cronos Group’s, you’ll see that Altria paid approximately $1.8 million per kilogram of cannabis sold or three times as much as investors pay for Canopy Growth.

COMPARE BROKERS

I’m as big a fan of unconventional metrics as anyone. However, in this case, I don’t think we’re talking about an apples-to-apples comparison.

The fact is, we’re not talking about mature companies here, such as Altria or Philip Morris International (NYSE:PM), where the price-to-sales comparison is a perfectly logical metric. Comparing P/S ratios at this point in the game when it comes to cannabis makes less sense than it did during the dot.com boom.

Emerson is right about one thing.

Altria knew it had to act sooner rather than later because it needed to have a place in line once the U.S. government legalized cannabis federally.

Why?

To show that the company and its partners are experienced in the production of cannabis and worthy of licenses in all 50 states.

As I stated in December, compared to the price Altria paid for its 35% stake in Juul, its C$2.4 billion investment in Cronos Group was a steal given the long-term prognosis for cannabis in its various forms including edibles and infused drinks.

Sometimes you have to pay a little more to gain entry to an exclusive club. Altria’s now a member in full standing.

For safety reasons, I’d buy Altria over Cronos Group stock.

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


StaffStaffMay 9, 2019
shutterstock_1005701752.jpg

10min6980

Forget the marijuana stocks, their partners are more of a sure thing

By Aaron Levitt, InvestorPlace Contributor Apr 4, 2019, 12:24 pm EDT

Marijuana stocks are all the rage these days as legalized cannabis has hit the scene. Analysts now project that the market for both medical and recreational cannabis use will reach a staggering $200 billion in global sales in just five years. As a result, stocks in the sector have surged on the wave of optimism.

The problem is, marijuana stocks aren’t exactly a slam dunk.

Many are fraught with some big-time risks, hefty volatility, zero profits, etc. At this point, many marijuana stocks are just speculative bets. They could pay off or they could crash and burn. But one thing many of the top cannabis stocks do have is partners. Specifically, major corporate partners that are as far from speculative plays as you can get.

It’s here that more conservative investors can cash in on the marijuana stock mania and benefit from everything it has to offer. Sure, these stocks won’t rise as much as some of the pure marijuana stocks. But, you know what? They won’t fall as much either and they’ll still be able to reap potential billions in revenues derived from cannabis.

With that, here are the 3 top partners of the marijuana stocks and why you should focus on them.

Constellation Brands (STZ)

Seemingly overnight, Constellation Brands(NYSE:STZ) become one of the biggest marijuana stocks out there. That’s thanks to its big partnership with Canopy Growth(NYSE:CGC). For a cool $4 billion, STZ purchased a 38% stake in Canopy last year. The firm now owns warrants that would allow it own a majority stake in 2021.

The end game STZ is pretty simple. Marijuana would be perfect “fourth leg of a stool” to the company’s beer, wine, and spirits operations. Constellation owns over 100 world class beverage brands including Corona beer, Svedka Vodka, and Robert Mondavi wines. These are highly regulated consumer products. The end goal is for STZ to do the same with cannabis. Apply its vast branding knowledge and distribution network to get various pot products into the hands of the masses.

Constellation has already started working with Canopy on cannabis-infused drinks. At the same time, it’s looking to parlay is vast marketing knowledge into other cannabis areas such as edibles and other consumable products. These can and will be all major sources of revenues once the switch is flipped and full legalization happens.

In the meantime, STZ is no slouch with regards to what it already generates money on and its recently undergone some moves to shore up its balance sheet and pay for CGC purchase. This allows it to be a safer play than any of the marijuana stocks.

Novartis (NVS)

One of the main reasons why marijuana stocks have surged so far has been the growing use of medical marijuana and cannabis treatments. Demand here has already begun to surge and it could grow further as doctors look for alternatives to addictive opioids for pain relief.

International drug giant Novartis (NYSE:NVS) saw the writing on the wall and decided that it needed to get into the cannabis game. This prompted it to partner with major grower Tilray (NASDAQ:TLRY).

That partnership allows for NVS division Sandoz to develop and distribute TLRY’s medical marijuana in legal jurisdictions around the world. With the deal, Tilray is able to tap into Novartis vast distribution network and will allow TLRY to help commercialize its non-smokable/noncombustible medical cannabis products. For NVS, it’s able to collect fees and revenues from sales. Moreover, the deal allows it to co-brand some products to help enhance sales further.

For both partners, the deal seems like a win-win. NVS gets its hands-on fast-growing medical marijuana, while Tilray can actually sell its products to more consumers. Given how good the deal is, both firms decided to expand more on those partnerships and look into developing new cannabis-related drugs.

The win for investors by choosing NVS over TLRY is that you get the backing of one of the largest drug manufacturers on the planet.

Altria (MO)

Big Tobacco has been eyeballing legalized cannabis sales for what seems like decades, so it’s no surprise that cigarette-king Altria(NYSE:MO) would be looking at the marijuana stocks for a partnership. That came from a $1.8 billion investment in pot grower Cronos Group(NASDAQ:CRON). MO now has a 45% stake in the firm.

Traditional cigarette sales continue to fall and MO has been looking for ways to expand its portfolio and reduce potential revenue loss. This helps explain its major purchase of vaping specialist Juul Labs. Its CRON buy helps expand on that vaping tech.

Speculation has already begun that Altria could fill Juul Pods with CBD once pot is legal everywhere or add it to its other vaping/e-cigarette brands. Meanwhile, MO’s huge production facilities could instantly be flipped towards smokable marijuana products. The deal also allows for CRON to co-develop new products that could be sold on Altria’s large network. Together, it gives Altria an instant foothold in a growing business.

And that’s important for the firm. Potentially, it gives Big Tobacco a way to really reduce its multi-year declines. Last quarter again, Altria managed to miss estimates for sales.

Meanwhile, investors buying MO over other marijuana stocks gets plenty of stability, profits and hefty 5.93% dividend yield.

Disclosure: At the time of writing, Aaron Levitt did not hold a position in any of the marijuana stocks mentioned.


Debra BorchardtDebra BorchardtDecember 4, 2018
cigarette.jpg

4min10160

Cronos Group Inc. (CRON) (TSX: CRON) confirmed on Tuesday that it was having discussions concerning a potential investment by tobacco company Altria Group Inc. (MO) in Cronos Group. The company statement said that “No agreement has been reached with respect to any such transaction and there can be no assurance such discussions will lead to an investment or other transaction involving the companies.”

The stock closed 11% higher on Monday after rumors of such talk sparked a run on the shares. The confirmation of the talks sent the stock another 15% higher and was lately trading at $11.23, below its 52-week high of $15.30. Yesterday Cronos sent an email to MarketWatch saying, “We do not comment on market rumors.” Last week, it was reported by The Wall Street Journal that Altria was considering taking a significant minority stake in e-cigarette company Juul Labs Inc.

In October, Altria, the maker of Marlboro cigarettes, was making headlines when it was rumored that it was in talks with another cannabis company Aphria. The Globe and Mail reported that Altria was considering an equity stake in Aphria (APHQF). However, the story source cautioned that a deal could take time to reach and that it could possibly end up not occurring. The Globe’s source said that the leadership teams from Altria and Aphria have met on several occasions. It was rumored that Altria would start with a minority stake and then ultimately push it to a majority stake.

Aphria issued a statement saying, “That there is no agreement, understanding or arrangement in place with a potential investor at this time” and then added, “Aphria will advise the investment community of any material changes, if and when they occur, in accordance with applicable disclosure requirements.”

Declining Sales

The Center for Disease Control and Prevention (CDC) reported that during 2017, about 249 billion cigarettes were sold in the United States—a 3.5% decrease from the 258 billion sold in 2016. Four companies—Philip Morris USA, Reynolds American Inc., ITG Brands, and Liggett—accounted for about 92% of U.S. cigarette sales.

By state, the average retail price of a pack of 20 cigarettes (full-priced brands), including federal and state excise taxes, ranged from $5.12 in Missouri to a high of $10.66 in New York, as of November 2016. On average, federal and state excise taxes account for 44.3% of the retail price of cigarettes.

Altria History

Altria was once known as called Philip Morris. It is based in Richmond, VA and its roots as a tobacco company date back to 1847 when it was founded in London. It was split off from Philip Morris in 2002. Its subsidiary NuMark is focused on developing and marketing e-vapor products for adult smokers and vapers. It also has a 10 percent equity investment in Anheuser-Busch InBev NV, the maker of Budweiser beer.

Altria generated more than $25.5 billion dollars in sales in 2017.


Debra BorchardtDebra BorchardtOctober 10, 2018
shutterstock_531543478.jpg

3min12310

It has long been expected that big tobacco would want to get into the cannabis business. The legal status in the U.S. has been the one thing holding back tobacco companies. While it hasn’t seemed to matter to alcohol brands, tobacco has mostly remained on the fringes until today’s report from The Globe and Mail.

The Canadian publication reported that Altria (MO), which is the maker of Marlboro cigarettes was considering an equity stake in Aphria (APHQF). However, the story source cautioned that a deal could take time to reach and that it could possibly end up not occurring. The Globe’s source said that the leadership teams from Altria and Aphria have met on several occasions and most recently on Monday. It is rumored that Altria would start with a minority stake and then ultimately push it to a majority stake.

Aphria issued a statement saying, “That there is no agreement, understanding or arrangement in place with a potential investor at this time” and then added, “Aphria will advise the investment community of any material changes, if and when they occur, in accordance with applicable disclosure requirements.”

Aphria is a leading global cannabis company headquartered in Leamington, Ontario – the greenhouse capital of Canada. The company is known for its low-cost production of safe, clean and pure pharmaceutical-grade cannabis at scale, grown in the most natural conditions possible. Aphria has strategic partnerships with a presence in more than 10 countries across 5 continents.

Aphria stock jumped over 14% on Wednesday to lately trade at $15.30 on the OTC Markets. This is lower than its 52-week high of $19.86. Altria stock fell slightly during the day and closed down 19 cents to $62.91.

Traditional beverage brands have also been eyeing cannabis. Constellation Brands (STZ) made an almost $5 billion investment into Canopy Growth not long ago. Last week. Molson Coors (TAP) agreed to a joint venture with The Hydropothecary Corp. or Hexo (HEXO) to develop non-alcoholic cannabis drinks.

 

 



About Us

The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


READ MORE



Recent Tweets

@GreenMarketRpt – 2 hours

$ZYNE ⁦@ZynerbaPharma⁩ Stock Lifts After Positive Study Results For #MedicalMarijuana…

@GreenMarketRpt – 1 day

$AHPA ⁦@aphriainc⁩ Leaves ⁦@NYSE⁩ , Moves To ⁦@Nasdaq⁩ $ICE $NDAQ

@GreenMarketRpt – 5 days

Green Market Report’s Marijuana Money May 22, 2020

Back to Top

You have Successfully Subscribed!