CONFIDENTIAL BUSINESS INFORMATION, SUBJECT TO PROTECTIVE ORDER
`
`COWEN
`
`EQUITY RESEARCH
`
`September 12, 2018
`
`w Tobacco
`
`Vivien Azer
`646 562 1354
`vivien.azer@cowen.com
`
`Steven Schneiderman
`646 562 1306
`steven.schneiderman@cowen.com
`
`INDUSTRY UPDATE
`
`BIG TOBACCO FINDS A FRIEND IN THE FDA,
`TODAY
`
`THE COWEN INSIGHT
`
`This morning, the FDA announced that they will consider taking more aggressive action on
`e-cigs (including potentially banning flavors) to curb the rapidly growing use of the products
`among underage consumers. Given the competitive threat from JUUL,this is a notable
`positive for big tobacco.
`
`Today, the FDA announced that they have asked all the leading e-cigarette manufacturers
`to submit a plan in 60 days to explain to the agency how they plan on addressing the rising
`prevalence of e-cigarette use among youth. To the extent that the agency does not find the
`plans compelling, the agency indicated they are open to pulling flavored e-cigarettes off
`the market. We do wonder how satisfactory any plan will be given that teens report having
`easy access to a whole host of products that are viewed as dangerous, in particular when
`consumed by underage consumers.
`
`
`
`% Of Students Saying It's Sairly Easy or Very Easy te Obtain (2017)
`
`Vaping Device
`Mi Btr Grade
`@ 10th Grade
`
`Cannabis.
`& 412th Grade
`
`Cigarettes
`
`Alcohol
`
`Source: Monitoring the Future and Cowen and Company
`The Youth Problem
`
`E-cigarette incidence among underage consumershas been growing rapidly. According to
`the University of Michigan’s Monitoring the Future survey, past 30 day use of any vaping
`among 12th graders (ages 17 and 18) was ~17%, meaningfully ahead of the 9.7% past 30
`day Cigarette incidence seen for the same age cohort. Indeed, since the survey began asking
`about e-cigarettes in 2014, the form factor has consistently been reported as more popular
`among youth than cigarettes. See our deep dive on teen use here.
`
`éU
`
`death Grade Past 30-DayVaping Inddence(2017, %}
`
`166
`
`
`
` Vapiig Arty)
`Vaping Flavurs Vaping Nivutine
`Vauitg
`MarijuanawethGrace Mi0thGrade @ 12th Grace
`
`Source: Monitoring the Future and Cowen and Company
`
`Please see pages 3 to 8 ofthis report for importanéAigclpsyres(36 PSSToF'8
`NJOYITCO0148578
`
`9
`
`.
`
`JLI Ex. 2036, Page 1 of 8
`
`

`

`CONFIDENTIAL BUSINESS INFORMATION, SUBJECT TO PROTECTIVE ORDER
`
`COWEN
`
`EQUITY RESEARCH
`
`September 12, 2018
`
`
`
`Implicationsfor e-cigarettes
`
`The growing popularity of JUUL has reinvigorated growth in the overall e-cigarette
`category. In the most recent Nielsen data, JUUL achieved a 72% dollar share of the
`category, and accounted for ~100% of category growth. The growing popularity of JUUL
`seemsto be driven byflavored offerings (in particular Cool Cucumber and Mango). For a
`deep dive on JUUL consumer survey work (18+), see our note here.
`
`
`bollarSalestlaThousanels)
`
`
`| 15800
`40.000
`
`5.000
`
`Yolurse(inThousands]
`
`#50000
`
`40000 -
`50.500
`
`te
`55
`te
`4
`“A
`A,
`a ro » o oe ~
`ef
`¢ ve
`oe Dear Seles yume
`
`Source: The Nielsen Company and Cowen and Company
`
`Implications for Big Tobacco
`
`Among tobacco investors there has been growing concern that the widespread popularity
`of JUUL is having a negative impact on the cigarette industry, which headwind would
`seemingly only grow as JUUL continues to gain traction with consumers. Given that big
`tobacco has yetto find a productive way to meaningfully compete against JUUL, an FDA
`decision to pull flavors from the market would be a notable positive for MO, BATS, IMB, and
`JT as it would reset the competitive landscape in vapor. Maintain Outperform ratings on
`MO, BATS and IMB.
`
`2
`
`COWEN.COM
`
`JLI Ex. 2036, Page 2 of 8
`NJOYITCO00148579
`
`JLI Ex. 2036, Page 2 of 8
`
`

`

`CONFIDENTIAL BUSINESS INFORMATION, SUBJECT
`
`TO PROTECTIVE ORDER
`
`COWEN
`EQUITY RESEARCH
`
`September 12, 2018
`
`Ticker
`/ MO
`|
`IMB.LN
`| 2914JP
`
`Rating
`Outperform
`Outperform
`Market Perform
`
`“As of 09/11/2018
`
`Price*
`
`$59.47
`2,608.50p
`¥2,915.00
`
`Price Target
`$70.00
`3,300.00p
`¥3,000.00
`
`Ticker
`BATS.LN
`PM
`
`|
`|
`
`Rating
`Outperform
`Market Perform
`
`Price*
`3,554.50p
`$77.45
`
`Price Target
`4,800.00p
`$85.00
`
`
`
`VALUATIONMETHODOLOGYANDRISKS
`
`Valuation Methodology
`
`Tobacco:
`
`Our valuation methodologyis primarily based on Price-to-Earnings(P/E), followed by
`Relative Price-to-Earnings (vs. the respective relative index) as well as Enterprise Value to
`EBITDA (EV/EBITDA). In cases where GAAP net incomeincludes large, non-cash items(e.g.,
`restructuring charges or the resolution of disputed MSA), we may use non-GAAPEPS.
`
`Investment Risks
`
`Tobacco: Global tobacco demand is subject to a number of potential headwinds. Most
`notably, increased awarenessof the risks associated with traditional tobacco use, and
`resultant regulatory actions (e.g., indoor smoking bans, enlarged textual or graphic warnings,
`and / or plain packaging) can negatively impact smoking incidence and/or per capita
`consumption, and thus industry volumes. What is more, the industry is also subject to
`risk from disruptive tax increases, which result in higher prices, and can also depress
`consumption. Further, while diminished, litigation risk also exists.
`
`COWEN.COM
`
`JLI Ex. 2036, Page 3 of 8
`NJOYITCO0148580
`
`JLI Ex. 2036, Page 3 of 8
`
`

`

`CONFIDENTIAL BUSINESS INFORMATION, SUBJECT TO PROTECTIVE ORDER
`
`COWEN
`
`EQUITY RESEARCH
`
`September 12, 2018
`
`oeCompanyName
`
`MO
`
`
`Altria Group
`
`Each author of this research report herebycertifies that(i) the views expressed in the research report accurately reflect his or her personal views about anyand all of the subject
`securities or issuers, and (ii) no part of his or her compensation was,is, or will be related, directly or indirectly, to the specific recommendations or views expressed in this report.
`
`important Disclosures
`Cowen and Company, LLC and or its affiliates make a market in the stock ofAltria Group, British American Tobaccop.l.c., Imperial Brands and Philip Morris International securities.
`Cowen and Company, LLC compensates research analysts for activities and services intended to benefit the firm's investorclients. Individual compensation determinations for research
`analysts, including the author(s) of this report, are based on a variety of factors, including the overall profitability of the firm and the total revenue derived from all sources, including
`revenues from investment banking,sales and trading orprincipal trading revenues. Cowen and Company, LLC does not compensate research analysts based on specific investment
`banking transactions or specific sales and trading or principal trading revenues.
`The Nielsen material contained in this report represent Nielsen’s estimates and do not representsfacts. Nielsen has neither reviewed nor approved this report and/or anyof the
`statements made herein.
`
`
`
`Our research reports are simultaneously available to all clients are on our client website. Research reports are for our clients only. Not all research reports are disseminated, e mailed
`or made available to third-party aggregators. Cowen and Company, LLC is not responsible for the redistribution of researchby third party aggregators. Selected research reports are
`available in printed form in addition to an electronic form. All published research reports can be obtained on the firm's client website, httos://cowenlibrarybluematrix.com/client/
`libraryjsp.
`
`The information, opinions, estimates and forecasts are as ofthe date of this report and subject to change without prior notification. We seek to update our research as appropriate, but
`various regulations may prevent us from doing so. Research reports are published at irregular intervals as appropriate in the analyst's judgement.
`
`Further information on subject securities may be obtained from our offices. This research report is published solely for information purposes, and is not to be construed as an offer
`to sell or the solicitation of an offer to buy any security in any state where such anoffer or solicitation would beillegal. Other than disclosures relating to Cowen and Company, LLC,
`the information herein is based on sources webelieve to be reliable but is not guaranteed by us and does not purport to be a complete statement or summaryofthe available data.
`Any opinions expressed herein are statements of our judgment on this date and are subject to change without notice. The opinions and recommendations herein co not take into
`accountindividual client circumstances, objectives or needs and are not intended as recommendations of investment strategy. The recipients of this report must make their own
`independent decisions regarding any securities subject to this research report. In some cases, securities and other financial instruments may bedifficult to value or sell and reliable
`information about the value or risks related to the security or financial instrument maybe difficult to obtain. To the extent that this report discusses any legal proceedingsor issues,
`it has not been prepared to express or intended to express any legal conclusion, opinion or advice. Our salespeople, tracers and other professionals may provide oral or written
`market commentary or tracing strategies to our clients that reflect opinions that are contrary to the opinions expressed in our research. Our principal trading area and investing
`businesses may make investmentdecisions that are inconsistent with recommendations or views expressed in our research. Cowen and Company, LLC maintains physical, electronic
`and procedural information barriers to address the flow of information between and among departments within Cowen and Company, LLC in order to prevent and avoid conflicts of
`interest with respect to analyst recormmendations.
`For important disclosures regarding the companies that are the subject of this research report, please contact Compliance Department, Cowen and Company, LLC, 599 Lexington
`Avenue, 20th Floor, New York, NY 10022. In addition, the same important disclosures, with the exception of the valuation methods andrisks, are available on the Firm's disclosure
`website at httns://cawen.bluematrix.com/sellsice/Disclasures.action.
`
`Equity Research Price Targets: Cowen and Company, LLCassignsprice targets on all companies covered in equity research unless noted otherwise. The equity research price target
`for an issuer's stock represents the value that the analyst reasonably expects the stock to reach over a performance period of twelve months. Any price targets in equity securities
`in this report should be considered in the contextofall prior published Cowen and Company, LLC equity research reports(including the disclosures in any such equity report or on
`the Firm's disclosure website), which may or may notinclude equity research price targets, as well as developmentsrelating to the issuer,its industry and the financial markets. For
`equity research price target valuation methodology and risks associated with the achievement of any given equity research price target, please see the analyst's equity research report
`publishing such targets.
`
`Cowen Credit Research and Trading: Due to the natureof the fixed income market,the issuers or debt securities of the issuers discussed in “Cowen Credit Research and Trading”
`research reports do not assign ratings and price targets and may not be continuously followed. Accordingly, investors must regard such branded reports as providing stand-alone
`analysis and reflecting the analyst's opinion as of the date of the report and should not expect continuing analysis or additional reports relating to such issuers or debt securities of the
`issuers.
`
`
`
`Trom time to time “Cowen Credit Research and Trading” research analysts provide investment recommendations on securities that are the subject of this report. These
`recommendations are intended only as ofthe time and date of publication and only within the parameters specified in each individual report. “Cowen Credit Research and Trading”
`investment recommendations are made strictly on a case-by-case basis, and no recommendation is provided as part of an overarching rating systern or other set of consistently
`applied benchmarks. The views expressed in this report maydiffer fram the views offered in the firm’s equity research reports prepared for our clients.
`
`Notice to UK Investors: This publication is produced by Cowen and Company, LLC which is regulated in the United States by FINRA.It is to be communicated only to persons of a kind
`described in Articles 19 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. It must not be further transmitted to any other person without our
`consent.
`
`4
`
`COWEN.COM
`
`JLI Ex. 2036, Page 4 of 8
`NJOYITCO0148581
`
`JLI Ex. 2036, Page 4 of 8
`
`

`

`CONFIDENTIAL BUSINESS INFORMATION, SUBJECT TO PROTECTIVE ORDER
`
`COWEN
`
`EQUITY RESEARCH
`
`September 12, 2018
`
`Notice to European UnionInvestors: Individuals producing recommendations are required to obtain certain licenses by the Financial Regulatory Authority (FINRA). You can review the
`author’s currentlicensing status and history, employment historyand, if any, reported regulatory, customer dispute, criminal and other matters via “Brokercheck by FINRA”at nttp://
`brokercheck.tinra.org/. An individual's licensing status with FINRA should not be construed as an endorsement by FINRA. General biographical information is also available for each
`Research Analyst at www.cowen.com.
`
`
`
`Additionally, the complete preceding 12-month recommendations history related to recommendationin this research reportis available at httos://cowen.bluematrix.com/seliside/
`Disclosures.action
`
`The recommendation contained in this report was produced at September 12, 2018, 11:33 ET. and disseminated at September 12, 2018, 11:33 ET.
`Copyright, User Agreementand othergeneral informationrelated to this report
`© 2018 Cowen and Company,LLC. All rights reserved. Member NYSE, FINRA and SIPC. This research report is prepared for the exclusive use of Cowen clients and may not be
`reproduced, displayed, modified, distributed, transmitted or disclosed, in whole orin part, or in any form or manner,to others outside your organization without the expressprior
`written consent of Cowen. Cowen research reports are distributed simultaneouslyto all clients eligible to receive such research reports. Any unauthorized use or disclosureis
`prohibited. Receipt and/or review of this research constitutes your agreementnot to reproduce,display, modify,distribute, transmit, or disclose to others outside your organization.
`All Cowen trademarksdisplayed in this report are owned by Cowen and may not be used without its prior written consent.
`
`Cowen and Company, LLC. New York 646 562 1010 Boston 617 946 3700 San Francisco 415 646 7200 Chicago 312 577 2240 Cleveland 440 331 3531 Atlanta 866 544 7009
`Stamford 646 616 3000 Washington, D.C. 202 868 5300 London(affiliate) 44 207 071 7500
`
`COWEN AND COMPANYEQUITY RESEARCH RATING DEFINITIONS
`
`Outperform (1): The stock is expected to achieve a total positive return of at least 15% over the next 12 months
`
`Market Perform (2): The stock is expected to have a total returnthatfalls between the parameters of an Outperform and Underperforrn over the next 12 months
`
`Underperform (3): Stock is expected to achieve a total negative return of at least 10% over the next 12 months
`
`Assumption: The expected total return calculation includes anticipated dividend yield
`
`Distribution of Ratings/Investment Banking Services(IB) as of 07/02/18
`
`Rating
`Count
`Ratings Distribution
`Count
`IB Services/Past 12 Months
`
`Buy (a)
`476
`63.55%
`113
`23.79%
`
`Hold (b)
`266
`35.51%
`18
`6.74%
`
`Sell (c) 0.00% 7 0.93% 0
`
`
`
`(a) Corresponds to “Outperform”rated stocks as defined in Cowen and Company, LLC's equity research rating definitions. (b) Corresponds to "Market Perform"as defined in Cowen
`and Company, LLC's equity researchratings definitions. (c) Corresponds to "Underperform"as defined in Cowen and Company, LLC's equity research ratings definitions. Cowen and
`Company Equity Research Rating Distribution Table does not include any companyfor which the equity research rating is currently suspended or any debt security followed by Cowen
`Credit Research and Trading.
`
`Note: “Buy”, "Hold" and "Sell" are not terms that Cowen and Company, LLC uses in its ratings system and should not be construed as investment options. Rather, these ratings terms
`are used illustratively to comply with FINRA regulation.
`
`
`
`
`dan 16
`Apr 16
`Jul 16
`Oct 16
`Jan 17
`Apr 17
`Jul 17
`Oct 17
`
`Oct 15
`
`dan 18
`
`Apr 18
`
`
`wul 18
`
`
`Closing Price memeTarget Price ~
`
`COWEN.COM
`
`JLI Ex. 2036, Page 5 of 8
`NJOYITCO0148582
`
`5
`
`JLI Ex. 2036, Page 5 of 8
`
`

`

`CONFIDENTIAL BUSINESS INFORMATION, SUBJECT TO PROTECTIVE ORDER
`
`COWEN
`
`EQUITY RESEARCH
`
`September 12, 2018
`
`British American Tobacco p.Lc. Rati ng History as of 09/17/2018
`
`
`Jalrix
`po
`d by: Bl
`‘jl
`
`
`
`
`
` ‘Apr16
`
`
`
`Jul 46
`Oct 16
`Jand7
`Apr 17
`Jul 17
`Oct 17
`Jan18
`Apr 18
`Jul 48
`
`
`
`
`
`
`imperial Brands Rating History as of 09/11/2018
`d by.
`BlueMatrix
`
`4):p4.4k
`(1):p4.3k
`y1p4.4k
`(1):p4.6k
`
`03/3047
`
`5/0516
`0/0418
`
`
`
`
`06/20/16 05/0347
`
`Oct 15
`
`Jan 16
`
`Apr 16
`
`Jul 16
`
`Oct 16
`
`Jan 17
`
`Apr 17
`
`Jul 17
`
`Oct 17
`
`Jan 18
`
`Apr 18
`
`Jul 18
`
`
`
`
`
` t ,
`
`Jan 16
`Apr.16
`dul16
`“Oct 16
`Jan 17
`Apr i7
`Jul?
`Oct 17
`Jan 18
`Apr 18
`Jul 18
`
`
`Target Price ~
`Closing Price
`
`
`6
`
`COWEN.COM
`
`JLI Ex. 2036, Page 6 of 8
`NJOYITCO0148583
`
`JLI Ex. 2036, Page 6 of 8
`
`

`

`CONFIDENTIAL BUSINESS INFORMATION, SUBJECT TO PROTECTIVE ORDER
`
`COWEN
`
`EQUITY RESEARCH
`
`September 12, 2018
`
`(2)¥4.3k
`(2yMA.
`||
`M4 5k
`4.
`| (2yme.2k
`
`1455||12/2215 18 | ! 110118
`
`
`§,000
`
`
`
`Japan Tobacco Rating History as of 09/11/2018
`OY
`cowered by) BluaMatrix
`
`
`
`4,500
`
`4,000
`
`3,500
`
`
`
`3,000
`
`
`
` 2,500 —»
`
`
`
`
`
`
`
`
`Jan 17
`
`Oct 15 Jan 46 Apr 16 Jan18—Apr18Jul 16 Oct 16 Apr 17 Jul 47 Oct 17 Jul 18
`
`
`
`
`
`Legendfor Price Chart:
`| = Initiation| 1 = Outperform | 2 = Market Perform | 3 = Underperform | UR= Price Target Under Review|T= Terminated Coverage | Sxx = PriceTarget | NA = Not Available |
`S=Suspended
`
`COWEN.COM
`
`JLI Ex. 2036, Page 7 of 8
`NJOYITCO0148584
`
`7
`
`JLI Ex. 2036, Page 7 of 8
`
`

`

`CONFIDENTIAL BUSINESS INFORMATION, SUBJECT TO PROTECTIVE ORDER
`
`COWEN
`
`EQUITY RESEARCH
`
`September 12, 2018
`
`Vivien Azer
`
`New York
`
`646 562 1351
`
`
`
`vivien.azer@cowen.com
`
`Steven Schneiderman
`
`New York
`
`646 562 1306
`
`steven.schneiderman@cowen.com
`
`Vivien Azer is a senior analyst covering
`beverages, tobacco and cannabis. She
`joined Cowen in 2014.
`
`Steven Schneiderman is an associate
`covering tobacco and cannabis. He joined
`Cowen in 2018.
`
`Reaching Cowen
`
`Main U.S, Locations
`
`New York
`
`Boston
`
`Cleveland
`
`San Francisco
`
`TwoInternational Place
`Boston, MA 02110
`617 946 3700
`800 343 7068
`
`Chicago
`181 West Madison Street
`Suite 3135
`Chicago, IL 60602
`312 577 2240
`
`20006 Detroit Road
`Suite 100
`Rocky River, OH 44116
`440 331 3531
`
`Stamford
`262 Harbor Drive
`Stamford, CT 06902
`646 616 3000
`
`One Maritime Plaza, 9th Floor
`San Francisco, CA 94111
`415 646 7200
`800 858 9316
`
`Washington, D.C.
`2900 K Street, NW
`Suite 520
`Washington, DC 20007
`202 868 5300
`
`599 Lexington Avenue
`New York, NY 10022
`646 562 1010
`800 221 5616
`
`Atlanta
`3399 Peachtree Road NE
`Suite 417
`Atlanta, GA 30326
`866 544 7009
`
`international Location
`
`Cowen International Limited
`
`London
`
`41 Snowden Street - 11th Floor
`London EC2A 2DQ
`United Kingdom
`44 20 7071 7500
`
` fH. COWEN INC.
`
`8
`
`COWEN.COM
`
`JLI Ex. 2036, Page 8 of 8
`NJOYITCO0148585
`
`JLI Ex. 2036, Page 8 of 8
`
`