Altria's Investment Record Weak, Should Stick to Smoking Products

Perhaps Altria (MO1.00%) should stick to producing cigarettes and other nicotine-related products as their track record in investing in other businesses is not ideal.

So far, this tobacco giant has:

In fact, the entire $13 billion investment in e-cigarette manufacturer Juul Labs has been cancelled. Since merging with SABMiller in 2016, it has written down half of its investment in Anheuser-Busch InBev, which amounts to around $9 billion. It has just announced that its investment in cannabis stock Cronos Group (CRON-3.42%) will incur a loss of $438 million and relinquished its right to purchase more shares in the company.

This phrase is an idiom in Chinese that literally means "ashes fly and smoke disappears." Idiomatically, it can be used to describe a sudden and complete destruction. However, it does not translate well into standard journalistic English as it is not a phrase commonly used in English news reporting.

According to records, Altria suffered a loss of $438 million in income tax this year due to its 45% ownership interest in Cronos, and has no plans to purchase additional shares in the company.

In fact, it will assess the operations of this cannabis company with a focus on selling its existing stocks to the market. Altria also relinquished its warrants to purchase an additional 84 million shares of stock at a price of 19 Canadian dollars per share.

On the Friday prior to Altria's application, Cronos stock closed at $3.91 CAD per share and had not traded above $6 CAD per share for over a year.

Altria has purchased the stock at a price of $16.25 per share.

On the Nasdaq stock exchange, the price of Cronos has fallen by 37% in the past year and recently closed at less than $3 per share. The stock reached a high of around $24 per share in 2019.

Altria will temporarily hold on to its 156.6 million shares of Cronos stock.

The stock warrants will expire in March and it is expected that the share price of Cronos, a tobacco company, will not reach the threshold soon. These warrants will allow Altria to purchase an additional 84.2 million shares of Cronos stock and increase its ownership stake to 55%.

The future of smoking.

When it comes to investing, Altria sees cannabis as a "growth opportunity in an adjacent category." However, due to regulatory confusion in Canada and a lack of federal legalization efforts in the U.S., the cannabis industry has run into difficulties and has stifled much of the market.

Since Constellation Brands became the first major company to invest in the cannabis industry by investing $4 billion in Canopy Growth, making money in the cannabis sector has proven to be challenging.

For Altria, reducing losses and moving forward may be the best option.

While there may be long-term potential in the market, if legalization occurs and the business begins to thrive, there will be ample time to resume operations in the future. In the meantime, this tobacco giant can better utilize these funds to provide capital for its primary business.

As part of its plan to narrow its focus on "beyond smoking" initiatives by 2030, Altria has announced that it will be discontinuing Juul and divesting its stake in Ste. Michelle Wine Estates, instead of purchasing more shares in Cronos.

For decades, cigarettes have been in a long-term decline, despite remaining highly profitable. However, the future of the industry lies with reduced-risk products such as electronic cigarettes and vaping pens.

Better opportunities have arisen.

Altria, which is more focused on next-generation vape products, is set to boost the bottom line of its tobacco stocks. For instance, it is collaborating with Japan Tobacco to introduce a tobacco heating device in the US that could eventually go international, providing the spark it needs for growth.

Profits from cigarettes continue to drive Altria's significant dividend yield, which currently stands at 8.1%. However, owning equipment that can provide consumable products with the Marlboro brand for sale in the market should be considered a successful strategy.

The stock price of Altria has fallen by 2% so far this year, which is not bad considering that the drop in the S&P 500 index is slightly higher than 20%.

The tobacco stock, which is solely focused on its industry's development, may now be a good choice as the past price-to-earnings ratio was 18 times, but the expected ratio for next year is only 9 times.