Lexaria Bioscience (OTCQX:LXRP) subsidiary Lexaria Nicotine LLC inks agreements with Altria Group (MO -1%) subsidiary Altria Ventures aimed at developing new reduced-risk nicotine consumer products leveraging Lexaria's DehydraTECH platform.
Altria will fund R&D in exchange for a minority stake in Lexaria Nicotine and certain rights to DehydraTECH. Initial funding will be $1M with an option to invest up to an additional $12M in the venture.
Lexaria says DehydraTECH enhances the performance of beneficial compounds in ingestible products across four categories: taste & smell, speed of action, bio-absorption and bioavailability.
New York Governor Andrew Cuomo has proposed raising the state's minimum sales age for tobacco and electronic cigarette products to 21 from 18, according to an official statement.
The legislation would also ban the sale of tobacco and e-cigarette products in pharmacies, restrict their display in retail stores that are not adult-only, and require that e-cigs be sold only by licensed retailers.
FDA Commissioner Scott Gottlieb tweets that he will reach out to e-cigarette manufacturers for meetings regarding "epidemic" teen use of the products.
Gottlieb, in another tweet: "There's no reason manufacturers must wait for FDA to forcefully address the epidemic. Yet some already appear to back away from commitments made to the FDA and the public."
In November, the FDA announced new regulations on flavored tobacco products, which included restricting sales of fruity or sweet tobacco at retail stores.
MO is effectively signaling doubts about the future of its core cigarette business, Spielman says, and the deal weakens MO's existing business as it allows Juul to directly contact the company's current consumers to try to persuade them to switch from Marlboro to Juul.
Morgan Stanley's Pamela Kaufman also thinks MO's move comes at a high price, noting the $38B valuation represents more than double the $16B valuation that Juul received in an investment round last summer.
Kaufman, who maintains his Equal Weight rating and $54 price target on MO, also sees risk in MO's lack of operating control and the potential for further FDA regulation.
Stifel analyst Christopher Growe calls the $38B valuation "unusually high" and believes the price paid offsets most of the future potential benefit from the addition of JUUL, while Deutsche Bank's Steve Powers says the deal is "not the holiday gift we'd hoped for."
Alongside the confirmation of its $12.8B investment in Juul Labs, Altria (NYSE:MO) announces a cost-reduction program with the goal of trimming $500M-$600M in annualized expenses by the end of next year.
That amount should offset most of the interest expense associated with the Juul and Cronos Group investments. Altria expects $0.09-$0.11 per share of pretax restructuring costs, most of which will be booked in Q4.
Full-year guidance for adjusted EPS of $3.95-$4.03 remains in place, but 2019 EPS growth is seen at slightly below the low end of the company's 7-9% target. This is mostly thanks to the debt incurred from the Juul and Cronos buys.
Top 10 Holdings as of 11/29/2018: Procter & Gamble Co (PG): 5.14641%, Visa Inc Class A (V): 4.81162%, Mastercard Inc A (MA): 4.37679%, Apple Inc (AAPL): 4.36353%, Walt Disney Co (DIS): 3.91668%, Starbucks Corp (SBUX): 3.46263%, NVIDIA Corp (NVDA): 2.99614%, Altria Group Inc (MO): 2.97964%, Union Pacific Corp (UNP): 2.83436%, Adobe Inc (ADBE): 2.74872%
Piper Jaffray says Altria (MO +1%) has enough financial firepower after its investment in Cronos to partner with Philip Morris International (PM +0.8%) on a stake in Juul and still hold on to its investment-grade debt rating.
Analyst Michael Lavery says he is unaware of any restrictions that would stand in a way of a Altria-Philip Morris joint stake in Juul (per Bloomberg).
Altria Group (NYSE:MO) announces that it will discontinue the development and distribution of all MarkTen and Green Smoke e-vapor products and VERVE oral nicotine-containing products, citing their expected financial performance and the current regulatory environment.
It says it will refocus its resources on more compelling reduced-risk tobacco opportunities.
Nasdaq has suspended trading in Cronos Group (NASDAQ:CRON) pending the release of news.
Update: Altria Group (NYSE:MO) has agreed to take a 45% stake in CRON via the purchase of stock at C$16.25 per share totaling ~C$2.4B (US$1.8B). MO will have the right to nominate four directors, including one independent, and will receive a warrant to acquire an additional 10% stake at C$19.00 per share.
Shares will resume trading at 7:45 am ET.
Canopy Growth (NYSE:CGC) and Tilray (NASDAQ:TLRY) are up 2% and 4%, respectively, premarket.