Walgreens Boots Alliance (WBA) won't be seeing its stock mover higher anytime soon despite embracing cannabidiol (CBD) and de-emphasizing tobacco products.
Shares of the pharmacy stock have slid significantly in Tuesday trading, marking one of the worst one-day drops in years.
The slump in shares on the disappointing earnings result comes directly after marking a modest gain following the announcement of CBD product sales on March 27. The products will be offered in Oregon, Colorado, New Mexico, Kentucky, Tennessee, Vermont, South Carolina, Illinois, and Indiana in the rollout.
"This product offering is in line with our efforts to provide a wider range of accessible health and wellbeing products and services to best meet the needs and preferences of our customers," Walgreens spokesman Brian Faith said in a statement.
The opportunity for the products is certainly enticing in the long term, with the market expected to hit $22 billion by 2022, according to the Brightfield Group, an industry research firm.
For longer term investors that could be an interesting thesis, but the nascent status of the cannabis industry, and the beleaguered business reflected in Walgreens' "truly terrible print" on Tuesday make this a stretch of a buying thesis.
If one is bullish on the cannabis trade, a cannabis stock will probably satisfy appetites, without the anxiety of buying an ailing pharmacy chain.
Taking a Step Back From Tobacco
The move into CBD could come at a good time for Walgreens however, as it offers an avenue of revenue that could supplant the cigarette sales that Walgreens still relies upon.
The FDA has consistently called out Walgreens for its continued sale of tobacco products after many of its peers cut sales and its lapses that led to sales to minors.
"The stakes are too high for our young people and our country's decades-long fight to reduce the morbidity and mortality that accompanies tobacco product use," FDA commissioner Scott Gottlieb said in a statement on March 4. "Retailers are on the frontlines of these efforts to reduce the health consequences of tobacco use and nicotine dependence."
In a letter specifically addressed to Walgreens management, the statistics were damning for a health-focused chain.
"Since the FDA began its retailer inspection program in 2010, FDA inspectors have found nearly 1,800 instances in which Walgreens stores failed to follow the law," Gottlieb's letter states. "Among pharmacy chains that sell tobacco products, Walgreens is the top violator, with 22% of the stores inspected having illegally sold tobacco products to minors."
In an analyst call on Tuesday morning, the company noted that it's attempting to de-emphasize tobacco sales but was not willing to cut them entirely as CVS has.
"The safety of our patients is very important, but we also have to do what our customers are requiring us to do," Walgreens Boots Chief Executive Stefano Pessina said in a recent interview with the Wall Street Journal. "We see that when we don't sell tobacco, we have a lot of [negative] reactions."
In fact, the de-emphasizing of cigarettes was blamed for declining same store sales. The company will have to hope that CBD can coax consumers back through the doors in the future.
As for now, such a long-dated solution to the myriad of issues facing the core business is unlikely to convince many investors to have any confidence in Walgreens.
For interesting strategies to take advantage of the serious slide in shares, see Stephen "Sarge" Guilfoyle's strategies to play on the day.
Will I Have Enough Money to Retire?
Want to learn about retirement planning from some of the nation's top experts? Join TheStreet's Robert "Mr. Retirement" Powell live in New York on April 6 for our Retirement Strategies Symposium. For a limited time, tickets are available for $99 for this full-day event. Check out the agenda, learn about the speakers and sign up here.