Does Big Tobacco Have a Long-Term Strategy?

If you can’t beat ‘em, join ‘em. That’s what Altria Group executives must have been thinking when they decided to buy a 35% stake in Juul, a market-leading e-cigarette company, late last year.

This was an unwelcome development for Altria analysts and investors. Citi Research analyst Adam Spielman downgraded the company’s stock from “neutral” to “sell,” sending shares tumbling –2%. Spielman sees the Juul investment as a clear sign that Altria is “doubtful about the future of its core business.” Likewise, analysts at Independent Research, Stifel, and Morgan Stanley have all slashed their Altria price targets since news of the deal broke.

Moves like Altria’s are becoming commonplace within the Big Tobacco space. For years, tobacco companies have offset declining volumes with higher unit prices. But this strategy has an expiration date. Increasingly, the industry is hedging its bets by investing in so-called tobacco “alternatives,” from e-cigarettes to tobacco-heating products to cannabis.

While new products and devices may help Big Tobacco at the margins, cigarette revenue will remain the industry’s…