If you’re a shareholder of Altria Group (NYSE:MO), life seemingly gets worse by the hour. As you all know, the vaping crisis has riveted the nation. What was once a fringe practice has now exploded onto the mainstream, this time not in a positive light. On the surface, this has extremely poor implications toward Altria stock.
Here’s a quick rundown of the worrying health concern. Earlier this year, federal health agencies noticed an alarming spike in what they believe are vaping-related acute lung illnesses. Recently, The New York Times reported that Centers for Disease Control and Prevention is investigating 530 probable cases. Additionally, the death toll related to this vaping crisis has increased to eight. Even worse, the CDC expects more deaths, spiraling MO stock into a public relations nightmare.
In a bid to shore up demand due to declining cigarette use, Altria bet big on Juul, the e-cigarette company at the heart of the vaping crisis debate. Last year, the big tobacco firm acquired a nearly 35% stake in Juul. For Altria, it’s a double hit because the company also has a significant stake in Cronos Group (NASDAQ:CRON).
Two issues are substantially impacting Altria stock. First, the supposed vaping-related injuries have disproportionately affected very young people. While cigarette smoking has declined among underaged youth, vaping has skyrocketed.
Second, the CDC has reiterated its earlier disclosures that several cases involve THC-laced vaping liquids, or e-liquids. Optically, that puts Altria’s Cronos investment in a negative light, hurting MO stock. Shares are down 7% since the beginning of this month.
Remarkably, though, I believe the vaping controversy is long-term positive for Altria stock. Here are three reasons why:
Vaping Might Not Be the Crisis
Despite mass hysteria over the issue, vaping may not have anything to do with the vaping crisis. As even the CDC suggested, most of these cases involve illegally mixing THC with e-liquids. This practice goes against both the law and e-cigarette and vaporizer manufacturers’ guidelines.
Moreover, according to the Times, more than three-fourths of those sickened are male. That’s a startling statistic because disproportionately more women have tried e-cigarettes than men last year. Thus, if the platform was the issue, you’d expect a much more balanced gender-based ratio for vaping lung illnesses. That right there puts Altria stock in a better light.
Additionally, I’d like to point out the Ohio Department of Health’s underage vaping study. According to their report, 12% of teen males had vaped in the past 30 days since the survey was conducted, while 10.8% of female teens disclosed the same.
From both of these stats, you can see that vaping at least attracts females at the same magnitude as males. So, why the disproportionate ratio in terms of vaping-related illnesses?
We should probably point to the young male personality’s penchant for recreational risk-taking. That’s not surprising, folks. We know that men overall take more “idiotic risks,” using LiveScience’s language.
Again, it’s the (illegal) practice, not the platform that is probably causing this vaping crisis. And that’s very good news for MO stock.
What Will Happen to Altria Stock in a Vaping Ban?
While a rational assessment of this health issue is beneficial to MO stock, rationality is in short order right now. Everywhere you look, the concept of state and federal vaping bans have gained incredible momentum. So, what happens if lawmakers make good on their threats on a mass scale?
Obviously, from the perspective of the Altria stock stakeholder, nothing good. But in the long run, this is actually a positive development for the tobacco firm.
Underlining this health concern is the mainstream media’s lack of understanding of this topic. That hasn’t stopped them from going to print, which is unfortunate.
If you look at Juul e-cigarettes, you’ll notice that their tobacco and flavored e-liquids come in pre-filled packages called Juulpods. After you’re done with a pod, you’re supposed to throw it away. Furthermore, Juulpods feature proprietary formulations.
This is important for MO stock for two reasons. One, you’re not going to find weird junk like THC or Vitamin E acetate in their ingredients. That would only hurt the Juul and Altria brands, perhaps irreparably. Second, the recurring pod sales are what really drives revenue and profitability.
Now, vaporizers represent a different breed. They are devices that allow unlimited e-liquid refills. And currently, there are myriad e-liquid companies like Naked 100 that focus largely on the consumable side of the vaping business. Translation: Juul and Altria are not getting their cut because e-liquids like Naked 100 can be used in virtually any vaporizer.
If vaping bans occur, they will almost surely target flavored e-liquids. That hurts everybody in the business. But it kills independent companies, while Altria can ride out the storm due to its massive resources. It’s a cynical play, but it’s nevertheless a plus for Altria stock.
MO Stock Is Still a Tobacco Investment
I really hate this argument from a moral point of view. Still, from an investment perspective, we must acknowledge the obvious: MO stock is very much a tobacco stock.
If the vaping crisis worsens to an extreme level, it’s possible that government bodies may call for more draconian restrictions. Perhaps the Trump administration might ban all vaporizers from China, which would nuke the industry (except for Juul, of course).
But even if all vaporizers were, well, vaporized, Altria stock will still carry on. It will be limping, to be sure. However, they have a robust tobacco business that commands respect.
Plus, with a new generation of nicotine-addicted consumers, regular cigarettes could make a comeback. Again, I personally hate this argument. As Americans, we should have the right and bear the responsibility to our own choices. But if we go dark, Altria stock still has its own light source.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.