Beer-To-Go a Go in Texas?

Dear Client:

Beer-to-Go sales for production brewers in Texas now seems all but inevitable.

It started to become a shadow of a reality back in February when the Beer Alliance of Texas wholesaler group and Texas Craft Brewers Guild finally agreed on language to allow beer sales to go from breweries.

Their compromise riffed off Guild-backed legislation proposed earlier in the year that sought to edit current lawful language to simply extend the 5,000-barrel taproom sales limit to include off-premise sales too [see CBD 02-14-2019].

The two revised it and agreed on the following provisions:

  • Sales for off-premise consumption in amounts up to two cases per calendar day, per person (of course, total sales for both off- and on-premise still subject to 5,000-barrel cap)
  • Certain reportage provisions
  • A 12-year moratorium on dealing with any of these caps — fluid oz., or barrelage caps — dealing with malt beverage in the alcoholic beverage code
  • And craft brewers’ support of retaining the cash law in the Sunset Bill. (Basically ensuring that distributors are paid in cash/electronic transfer of funds. It’s more of a prompt payment deal, before or upon delivery.)

STILL, SOMEBODY’S MISSING. The Wholesale Beer Distributors of Texas were a notable holdout on the February agreement between the Beer Alliance and the Guild.

But then just yesterday, all three parties struck an agreement.

What changed?

WBDT president Larry Del Papa told BBD: “In order to help passage of the TABC Sunset Bill, we agreed to negotiate a more reasonable beer-to-go carve out.”

Agreement language we were privy to seemed to signal one pertinent change: The agreement now permits off premise sales of only one case per customer per day, rather than two.

“The continuation of the TABC to protect the health and safety of the people of Texas is much more important than this carve out for certain breweries,” said Larry. “With this issue resolved, we hope that we can move forward together as an industry for the betterment of the state.”

The agreement is of course subject to bill’s passage. We’re told the TABC Sunset Bill will likely hit the Senate floor Friday.

“We are encouraged by this agreement,” which “paves the way to passage. The bill then goes back to the House for concurrence or the appointment of a Conference Committee,” Beer Alliance chief Rick Donley said.

ACTIVIST SHAREHOLDER WANTS CBA TO SELL

As Craft Business Daily reported yesterday, an activist shareholder, David Cohen, founder of private investment fund, Midwood Capital, penned a note to the Independent Directors of CBA’s Board and made it public via news release, urging it to pursue a sale to Anheuser-Busch InBev or another company.

“Our interest in the company is simple … to see shareholder value maximized,” the note said.

Why now? A-B’s August 23 deadline to buy looms, ahead of an increasing discrepancy between CBA’s stock price at $15ish vs. A-B’s current Qualifying Offer price at $24.50 per share, per their commercial agreement struck back in 2016. Also, the Boston and Dogfish deal.

MIDWOOD’S RATIONALE. When Midwood invested in 2017, the company’s agreements with A-B made it attractive, as did Kona, said David. Fast forward to today and Widmer and Rehook continue to drag on the company, and revenue has grown at an average annual rate of less than 1% over the past two years, while “operating income in 2018 was essentially the same as operating income in 2014,” writes Dave.

Kona, however, is still the (or a) pretty girl in the room. And Midwood believes that brand alone is worth about the Qualifying Offer price (again, $24.50 per share).

Using the $1,000/barrel rough estimation we just saw in the Boston/Dogfish announcement, Midwood opines, and based on Kona’s 500,000 barrel 2019 estimate, the brand is worth about $500 million; minus a little debt, that works out to roughly $23 a share for equity holders.

The point? “We would argue (based primarily on comparable industry transactions) that the intrinsic value of Kona alone – excluding all other CBA brands – should approach the current Qualifying Offer threshold of $24.50 per share.”

And “despite Kona’s virtues as a brand and its solid growth, the intrinsic value of this highly attractive asset will not be recognized by the public market with CBA as a stand-alone company.” Midwood thinks they lack the margin structure and scale of larger guys to grow profits etc. consistently.

“Shareholder value will then only be maximized through a transaction in which another entity determines what CBA is worth.”

IN THE END. Obviously, “CBA’s leadership cannot control ABI’s willingness to execute on a Qualifying Offer. And we also know that if such deliberations were occurring now, CBA would not comment on them,” David wrote.

Still. Bottom line:

If ABI makes a Qualifying Offer, “we believe CBA’s board should absolutely accept it.”

If they don’t, “we believe the board should immediately announce a strategic alternatives process with a plan to sell the company.”

But who would buy CBA besides A-B, with the former completely A-B network aligned?

Until tomorrow,

Harry, Jenn, and Jordan

“Walking isn’t a lost art: one must, by some means, get to the garage.

– Evan Esar

———- Sell Day Calendar ———-

Today’s Sell Day: 12

Sell days this month: 23

Sell days this month last year: 23

This month ends on a: Fri.

This month last year ended on a: Thurs.

YTD sell days Over/Under:  0