Dear Client:
Yesterday the Wall Street Journal reported that Constellation Brands is taking a 9.9% stake in a Canadian marijuana company, in order to “develop and market” non-alcoholic, cannabis-infused beverages. The WSJ reports the deal, expected to close early next month, to be worth about $191 million.
The company, Canopy Growth, is the largest publicly traded cannabis company, with a valuation of more than 2 billion Canadian dollars on the Toronto Stock Exchange.
Deal terms include the option for Constellation to increase its stake to almost 20% (time frame unspecific in the article).
This is not a total surprise: Late last year Constellation chief Rob Sands told Bloomberg they were “looking at” the space. “There are going to be alcoholic beverages that will also contain cannabis,” he told the publication last November [see BBD 11-11-2016].
Rob Sands said they think nationwide U.S. marijuana legalization is “highly likely,” and they’re “trying to get a first-mover advantage in the space” with the deal. (Marijuana is currently legal in 8 U.S. states and D.C., and more than 20 states allow for medical use.)
Clearly, the brewer “doesn’t plan to sell” any sort of cannabis-infused beverage in the U.S. before national legalization. But Rob apparently told the outlet they could sell it in Canada, “where edible and drinkable cannabis products are expected to be legalized by 2019, or other countries where recreational marijuana is permitted.”
As for Canopy Growth CEO Bruce Linton, such a deal with Constellation is desirable because the bev alc company’s distribution expertise should be “helpful for the cannabis company as it determines how to distribute and package recreational cannabis,” per WSJ. Canadian regulators are still working on a sales framework for the industry.
Of the recent hot question of whether MJ could be taking a bite out of beer, Rob Sands told WSJ, “yes, I guess it could be,” but that they’re “not going to stand around twiddling our thumbs” over that.
SEPTEMBER DOMESTIC TAX PAIDS DOWN ALMOST 5%
More weather induced malaise for the beer industry: Friday the BI reported that domestic beer shipments were down 4.9% in September. That was on one less selling day than the comp, but even adjusting for that, domestic shipments volume would have been down 0.4%.
Economist Michael Uhrich explained that while September 2016 “was among the hottest Septembers on record,” September 2017 was milder, especially in the Southeast. “The cooler temperatures contributed significantly to September’s declines in domestic shipment volume,” he said.
That puts YTD domestic tax paids down 2.6%. Only three months have not been down for domestic beer shipments this year: January, May and June (which was about flat).
NYC BANS ALCOHOL ADS ON BUSES AND SUBWAYS
The Metropolitan Transportation Authority reached a decision last week to ban bev alc marketers from advertising on New York City buses, subway cars and stations, reports Ad Age. The ban begins at the start of 2018.
Although it sounds like a major blow, the decision is “more a of a speed bump than a pothole for booze marketers,” writes Ad Age, as the MTA “collected a mere $2.8 million in alcohol ad revenue last year.”
Still, the publication notes that the ban could raise the price tag on other out-of-home ad space in NYC. “The pressure is on the advertising agencies that buy for these big alcohol brands to keep the ROI high and the cost down,” says Ken Sahlin, CEO of DoMedia, which operates a media buying and selling platform for agencies. “So if there is some pressure on the supply side and demand goes up a little bit, that will put a little pressure on pricing.”
NYC joins a handful of other big cities whose transit agencies have put the kibosh on alcohol transit ads like Los Angeles, San Francisco, Detroit, Seattle, San Diego, and Baltimore. All have done so in an attempt to prevent young people from being exposed to alcohol ads.
TRADE ASSOCIATIONS RESPOND. In a conversation with Ad Age, the Distilled Spirits Council pointed out how other cities like Chicago, Charlotte and Washington D.C. “have recently overturned bans on alcohol advertising on public transit with each city experiencing absolutely no negative effects.” So the MTA’s ban is “misguided and unsupported by the scientific research,” Jay Hibbard, a Northeast lobbyist for DISCUS, said in a statement.
“The research is clear-parents and other adults are the most influential factors in a youth’s decision whether or not to drink alcohol, not advertising,” Jay said. “In fact, in New York underage drinking has declined by more than 20 percent over the last 10 years and binge drinking is at an all-time low.”
On the beer side of things, suppliers have for decades complied with a voluntary marketing code stipulating that “all beer advertising and marketing materials are intended only for adult consumers of legal drinking age,” said Beer Institute chief Jim McGreevy. “We are disappointed that the MTA made this decision, especially since studies have shown underage drinking is at record-low levels.”
BEER SUMMIT SPONSORSHIP OPPORTUNITIES We will be accepting a limited number of sponsorships for our 2018 Summit at The Breakers hotel in Palm Beach, FL in January. Register here or for more info on sponsorship opportunities, please email rena@beernet.com
Until tomorrow, Harry, Jenn, and Jordan
“Saying what we think gives us a wider conversational range than saying what we know.” – Cullen Hightower
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