Altria’s Investment in Cannabis Sinks Profits

Atria’s surprising investment into Canadian cannabis company, Cronos, did not pan out as they had hoped, eating into the major tobacco company’s first-quarter profits.  According to a statement, made Thursday, first-quarter net income of $1.12 billion, which is the equivalent of 60 cents per share.  This is down 41 percent, from $1.89 billion (or about $1 per share) last year. 

Not including unrealized losses (associated with this Cronos investment, as well as other items), Altria earned 90 cents per share. This is less than the 92 cents per share analysts had expected in an earlier survey.

With that, Altria shares took a 5 percent dive in premarket trading, on Thursday.

Altria CEO Howard Willard comments, “As expected, Altria’s first quarter adjusted diluted EPS declined in the mid-single digit range as we incurred higher interest expense as a result of our recently issued debt, without the full benefit of savings from our cost reduction program, which began to ramp up at the end of the quarter.”

In December, Altria had said that it would cost $575 million in annual expenses by the end of the year.  Then, in the first quarter, Altria recorded a set of pre-tax charges worth nearly $160 million—the equivalent of 6 cents per share—in relation to its Juul and Cronos investments.

Apparently, Altria is still hedging its bets that Cronos and Juul will grow as its core business continues to decline. Indeed, the maker of Marlboro cigarettes—the best-selling brand in the United States—hit some major bumps.  For one, fresh debt to finance its $1.8 billion investment, in Cronos, established higher financing costs. The same happened with Altria’s $12.8 billion stake in Juul.  

Indeed, this is a move that Altria must make in order to keep pace at a time when cigarette sales are in massive decline.  Cigarette volumes, alone, are down 14 percent from the same period one year ago.  Adjusted for trade inventory movements—and one fewer shipping day—this decline totaled only 5 percent. Still, the downward momentum in cigarettes certainly indicates where consumer interests lie. 

All that in mind, Wall Street expects Altria’s earnings per share will fall from 92 cents to an adjusted 90 cents per share.  Also, they expect revenue will fall from $4.59 billion to $4.39 billion.