Altria Keeps Mum on Marijuana Details -- for Now

Tobacco giant Altria Group (NYSE: MO) announced its first-quarter financial results last week, and most investors weren't too happy with what they saw. Between falling revenue and net income, plunging cigarette shipment volumes, and a reduced dividend from its major investment in beer maker Anheuser-Busch InBev, Altria didn't get off to the strong start to 2019 that it had wanted to see.

One way that Altria investors hope that the tobacco king will recover from its growth woes is through its recent investments beyond the cigarette industry. In particular, Altria's $1.8 billion investment in Cronos Group (NASDAQ: CRON) added marijuana to the mix, with all the growth potential that budding market brings to the table. In their most recent quarterly discussion with shareholders, Altria CEO Howard Willard and his fellow executives didn't have a lot to say about its marijuana strategy, instead preferring to talk about what's happening with its core tobacco businesses. Here are some of the key points that Willard made about Altria's overall product vision.

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1. Let Cronos handle cannabis

As you know, we recently closed the deal with Cronos, and through our board representation, we are significantly exposed to their ideas and obviously provide them with ideas on how to further grow their business in the future. ... We've obviously been thinking quite proactively on our own and are now thinking with Cronos which strategic moves make sense over the next year. I don't have anything to talk about today, but our intention in making the investment into Cronos and capitalizing them quite competitively versus the other cannabis companies in this space was really designed to enable them to make the kind of moves that are necessary to build out our leadership position.
-- Willard

Analysts pressed Altria for details on what Cronos Group's strategy will be, especially in light of moves from Cronos' rivals to build up exposure to the U.S. market through strategic acquisitions and production facility announcements. Willard doesn't see any need to front-run Cronos' developments, remaining confident that Altria's presence on Cronos' board will ensure appropriate input from the tobacco giant on the cannabis company's future moves. Willard did promise, though, to have more to say in the next year or two about marijuana and Altria's role in the industry.

2. JUUL doesn't seem to be cannibalizing Marlboro

We have not detected any specific impact of JUUL on Marlboro. I would say that JUUL's growth continues to be more broadly from the cigarette category generally, and we haven't seen any specific impact on our brands.
-- Willard

The other, much bigger strategic move Altria recently made was its investment in e-cigarette giant JUUL Labs, which gave the tobacco giant exposure to the leading player in the category. Some have argued that buying a stake in JUUL effectively gives Altria a hedge against declining cigarette use, which showed up dramatically in this quarter's 14% drop in cigarette shipment volume. Altria doesn't attribute its Marlboro decline directly to JUUL, but Willard did say that he expects the financial contribution from JUUL to gain in significance in the years to come.

3. Picking cigarette alternatives is a customer choice