2019 Market Update | Day 75

Posted in Beer, Industry, Spirits, Wine.

Corona brewer Constellation is nearing a deal to sell some wine brands to E. & J. Gallo

Constellation Brands is in advanced talks to sell its some of its low-end wine brands to E. & J. Gallo Winery, people familiar with the situation tell CNBC.

Constellation put its U.S. wine business, which includes brands like Clos du Bois, Mark West and Arbor Mist, up for sale last year as part of its move into cannabis.

Sales of non-premium wine have slowed, as millennials focus increasingly on health and alternative indulgences like cannabis.

  • CNBC
  • Lauren Hirsch
  • 15 March 2019

Constellation Brands is in advanced talks to sell its some of its low-end wine brands to E. & J. Gallo Winery, people familiar with the situation tell CNBC.

Constellation, which also sells Corona and Modelo beers, had hoped its wine business would fetch $3 billion. However, the sale is expected to be around $2 billion or less, said one of the people. Talks, however, are still ongoing and could fall apart. Among the points being discussed are which brands will be part of the sale.

Constellation put its U.S. wine business, which includes brands like Clos du Bois, Mark West, Arbor Mist, up for sale last year as part of its push to move further into cannabis. Constellation is the third largest beer company in the United States, behind Anheuser-Busch and MillerCoors. In November, it closed a $4 billion investment in the Canadian marijuana company Canopy Growth.

Sales of non-premium wine have slowed, as millennials focus increasingly on health and alternative indulgences like cannabis. When millennials do drink, they increasingly turn to premium wine or other drinks like spirits and craft beer. In the year leading up to this past November, sales of wines below $9 at retail dropped by 9 percent, according a closely watched report by Silicon Valley Bank.

“Millennials aren’t engaging with wine as hoped. They lack financial capacity, currently prefer premium spirits and craft beers, and have been slow getting into careers,” the report noted.

In January, Constellation acknowledged to analysts the company has been “challenged by the lower end of [its wine] business, which in totality has been flat or down.”

By contrast, its beer business has shown growth, with its Modelo brand over the past five years turning in compound annual growth of more than 20 percent.

Constellation’s premium wine lines, which are priced at more than $11 per bottle, are still performing well. Those brands include Kim Crawford, Meiomi and Prisoner. New products like Meiomi Rose and Svedka Blue Raspberry are “exceeding our expectations,” said Bill Newlands, who became CEO on March 1, in a recent earning call.

For privately held Gallo, the largest exporter of California wines, the deal could add to its scale

Shares of Constellation, which have a market value of $32 billion, are down 25 percent over the past year.

The people asked not to be named because the information is confidential. Both Constellation and Gallo declined to comment, citing company policies not to comment on rumors or speculation.

Four Loko, Joose, and Sparks: an abridged history of caffeinated alcohol

Why is everyone so nostalgic for messing up their bodies?

Remembrances of Four Loko – the super-caffeinated, alcoholic energy drink available in every convenience store for a narrow window of time before intervention by the Food and Drug Administration at the end of the aughts – are their own genre of internet content.

It is, if there is such a thing, the internet’s beverage, even years after the demise of its original formula. “If you can remember your Four Loko experiences, it wasn’t a Four Loko experience,” comedian Kady Ruth recently tweeted, in response to a question from comedian Akilah Hughes asking for stories about the drink’s golden age. “Why tell, when you can show a photo series?” dancer and YouTuber Ava Gordy replied, attaching an image of herself surrounded by Four Loko cans and wearing a gas mask. Photos from Four Loko’s golden days are scattered around on Tumblr and Imgur, captured with the high-flash, red-eyed weirdness of disposable cameras and early iPhones.

In an oral history of Four Loko, published on Grub Street last summer, the team of Ohio State buddies who created it explained how the product went from a small production run in 2005 to a splashy New York City debut in 2009 to more than $100 million in revenue in 2010. In short: They made the cans tall and they gave them a neon camouflage print to make them stand out. Plus, they raised the alcohol level as high as they legally could for a malt beverage.

2010 sounds like such a long time ago that I was honestly surprised when one of the Gawker pieces about the moment mentioned the fact that Obama was president. I wasn’t old enough to drink or permitted to have more than one other person in my car at the time, but even I feel a bubbly sort of weakness in my chest reading a blog post about the founder of Ron Jon Surf Shops getting arrested for driving under the influence of Four Loko or a blog post about Chuck Schumer comparing Four Loko to “a plague” devastating the country.

Four Loko was beloved, and it is beloved in death. But why? What’s so great about caffeinated sugar-water full of booze, in a can, retailing for $2.50, other than the obvious? The drink is infamous, and maybe an important cultural moment, but it’s not unique. There were also micro-eras for the nearly identical drinks Sparks and Joose, and the vodka Red Bull got almost two decades. In fact, there’s a long history of people trying to showily ruin their nights or their lives with disgusting combinations of chemicals dreamed up for some business purpose that doesn’t especially concern them. Caffeine and alcohol shouldn’t mix, but they have always mixed.

“People are always looking for a way to get high,” William Rorabaug, a historian at the University of Washington, tells me. “Throughout history. It seems to be part of the human condition.”

The last super-boozy generation was the baby boomers, he explains, but their children got into a health kick – yoga, meditation, bicycles, running – mostly because they saw a lot of bad stuff happen to their parents and older siblings as a result of alcohol, and because they preferred marijuana. Mothers Against Drunk Driving got big in the 1980s, and heavy alcohol consumption dipped throughout the 1990s. It didn’t rise again until about 2003, he says, when “very sweet mixed drinks” that went down easy and would mess you up with sugar and alcohol at the time became more popular.

Philip Dobard, vice president of the National Food and Beverage Foundation, explains to me that the drinking age was lower when he was a teenager, which was in the 1970s, and that he really liked drinking Long Island iced teas. Though they’ve been rebranded as premium cocktails in recent years, Long Island iced teas used to be Diet Coke and the leftover dregs of various well spirits. “It was the vodka Red Bull of its day,” he reminisces. “It was high alcohol, not particularly high caffeine, but caffeine. It was a test of one’s humanity. A test of one’s mortality. You’re young and healthy and you’re not familiar with loss. Injuries, when they occur, quickly heal.”

“IT WAS A TEST OF ONE’S HUMANITY. A TEST OF ONE’S MORTALITY. YOU’RE YOUNG AND HEALTHY AND YOU’RE NOT FAMILIAR WITH LOSS. INJURIES, WHEN THEY OCCUR, QUICKLY HEAL.”

A current fact sheet from the Centers for Disease Control and Prevention about mixing caffeine and alcohol states that it makes drinkers feel too alert (when they should feel sleepy and want to stop drinking or at least sit down and not risk “alcohol-attributable harms”). It also points out that “caffeine has no effect on the metabolism of alcohol by the liver … (it does not ‘sober you up’) or reduce impairment due to alcohol consumption,” and some studies have found people who mix caffeine and alcohol are three times more likely to leave a bar while still heavily intoxicated and four time more likely to attempt to drive home.

But caffeinated alcohol and the type of high it provides is communal, Dobard notes. It’s almost charming, to want to strip yourself of inhibitions in the presence of people you like. “I don’t think that impulse is new,” Dobard adds. “I think the commercial forces are new.”

He’s right. The vodka Red Bull was invented in the late ’90s by none other than . Red Bull, which chased athletes in ski towns and the rave scene on the West Coast by giving cases of free energy drinks to bartenders, even paying them thousands of dollars to put it on the menu. The first mainstream alcohol and fortified caffeine beverage was an industry plant.

As Haley Hamilton noted in MEL’s recent oral history of the vodka Red Bull, combining alcohol with caffeine has a two-part effect: “The alcohol can dull the effects of the caffeine (boring), or more problematically, the caffeine can dull the effects of the alcohol, meaning you can drink way more than you normally would without feeling super-hammered.” Dobard is not personally familiar with Four Loko, but sympathizes with the plight of a generation that just wants to get as drunk as everyone else got to.

“There’s nothing inherently illicit about combining caffeine and alcohol,” he points out, adding that coffee liqueurs and coffee-based cocktails have been around for hundreds of years, commonly used as post-dinner digestifs. “The problem occurs when there’s so much of one or the other and it’s so available that it becomes easily and widely abused as a substance. That’s typically when government agencies step in and recognize it as a public health risk.”

(In 2010, the New York Times offered the following very funny, very ahistoric thought on the demand for Four Loko: “It has long vexed club-hoppers and partygoers: how do you stay awake while drinking alcohol late into the night? For years, alcohol and soda sufficed.” Imagine if we’d just cool-mom-blind-eyed everyone for choosing to drink gas station cocktails instead of doing cocaine!)

Gawker’s Hamilton Nolan commented on the persecution of Four Loko in 2010, writing that it was part of a “full-blown scapegoating operation,” and pointing out the obvious: “Isn’t the real issue here that kids are stupid?”

CAFFEINATED ALCOHOL IS A DISTINCTLY AMERICAN FLAVOR OF STUPID. WE DO IT OVER AND OVER.

That’s a fair question. Budweiser’s alcohol-and-caffeine drink BE was a hit in the United States in the early to mid-aughts but flopped immediately when tested overseas in 2006. Caffeinated alcohol is a distinctly American flavor of stupid. We do it over and over.

A can of Joose, which is 23.5 ounces, contains approximately 380 calories. (Compared to modern Four Loko, which is 660.) While both had 12 percent alcohol by volume and were fortified with caffeine, Joose had a few differentiating features, beyond the fact it was 40 cents cheaper and covered in skulls.

Sparks actually preceded both, and MillerCoors voluntarily removed the caffeine in 2008, before Four Loko even hit its stride. In the two years between its $215 million acquisition from the McKenzie River Corporation and this quiet surrender, Sparks had a 90 percent share of the “alcopop” market, which meant that with its death, Four Loko was primed to become an easy hit.

Today, even in the midst of the “wellness” boom, young people still post exuberantly about knocking back cans of Four Loko and making bad decisions, even though the caffeine has been removed and the current drink is no more dangerous than a wine cooler. In June 2016, long after Four Loko had been rereleased sans caffeine, the strange college journalism platform Odyssey Online published a guide to matching Four Loko flavors with your personality. “Gold Loko is a VERY IMPORTANT new flavor,” the possibly underage author wrote. “The people who drink these LOVE to live on the edge. They aren’t afraid of the challenge (of the added 2 percent alcohol volume).”

But it’s not special. None of it is special. I was a straitlaced high school soccer player during the Four Loko years, but I do remember, with a warm sort of disgust, the acrid taste of college ingenuity – tequila and blue Gatorade, whiskey and strawberry-kiwi Snapple, etc. There was no reason we couldn’t have chosen slightly less revolting combinations, except for the fact that it was kind of romantic not to. In 20 years, are you going to post throwback pics of a rum and Coke? It’s not shorthand for anything, and you would probably drink one now.

In November 2010, one of Four Loko’s creators, Chris Hunter, defended the drink vehemently to Fast Company, arguing that it had the same amount of caffeine as a Starbucks coffee, less alcohol than most craft beers, and less seductive packaging than a Bud Light Lime, and that dozens of other alcoholic beverages were available in the same 24-ounce cans. Asked about a widely publicized incident at Washington State University in which nine college students ended up hospitalized, with Four Loko cited throughout the police report, Hunter got even more defensive, telling reporter Austin Carr:

The police report showed there was supposedly illegal drugs at the party. That was mentioned about 14 times in the police report. There were multiple mentions of hard liquor, but there were only a few, maybe 2 to 3, mentions of Four Loko. It’s really unfair to say our drink was the cause of this.

The same month, his company reached a voluntary agreement with the New York State Liquor Authority to stop shipping Four Loko into the state, and the FDA issued a public warning about caffeine as an “unsafe additive” to alcoholic beverages, as well as private letters to four manufacturers – including Four Loko’s Phusion Projects – that stated, “[The] FDA is not aware of any publicly available data to establish affirmatively safe conditions of use for caffeine added directly to alcoholic beverages and packaged in a combined form.”

The FDA’s letter was sent to Charge Beverages Corporation (which made drinks called Core High Gravity HG Green and Core High Gravity HG Orange), New Century Brewing Company (which made the fortified beer Moonshot), and United Brands, which made Joose.

Jonathan Howland, a community health researcher at Boston University, told Science Daily just after the ban on Four Loko, “Although several manufacturers of caffeinated beer have withdrawn their products from the market, there is no sign that young people have decreased the practice of combining alcohol and energy drinks.”

There have been other gross party beverages meant to recapture the thrill of alcoholic energy drinks without drawing the same unwanted attention. Whipped Lightning, a combination of sugar, heavy cream, grain alcohol, and artificial flavoring had a brief heyday. Forty-proof chocolate milk did not quite. The super-cheap bottled sangria brand Capriccio had a moment, which the company leaned into, saying, “Believe the hype!” MEL’s Miles Klee recently sampled every flavor of a Mark Cuban-endorsed juice-box wine cooler called BeatBox, which has hideous, brightly colored marketing materials and a low price point, but concluded that its 11.1 percent alcohol content wasn’t really enough for anything other than an “unremarkable, if quietly pleasant weekend.”

In fact, even the FDA seems to be over the whole incident. When asked whether it would involve itself in the rise of alcohol-infused cold brew – such as those offered by the California-based Cafe Agave or the forthcoming offering from Skyy Vodka, announced March 15 – a spokesperson said the agency only considers products on a case-by-case basis, when action seems called for, and would have to get back to me.

——

Letter to the Editor: Former Anheuser-Busch CEO on why transparency benefits entire beer industry

During this year’s Super Bowl, beer giant Anheuser-Busch InBev aired three separate TV ads in which its Bud Light brand mocked MillerCoors’ use of corn syrup in Coors Light and Miller Lite. In the month since the spots aired, MillerCoors reportedly pulled out of a planned alliance meant to boost the beer market overall, and continues to fight back in a continuation of the generations-old beer wars between the competing juggernauts.

This week, August A. Busch III, who served as CEO of Anheuser-Busch from 1975 to 2002, and chairman from 1977 to 2006, issued a letter to the Business Journal championing the ad campaign’s underlying message.

To the Editor:

As the oldest brewer in town, I would like to offer my thoughts on the recent conversation around Bud Light’s campaign focused on ingredients transparency. Starting with my great grandfather, Anheuser-Busch has been committed to brewing our beers with the highest quality ingredients. It’s very simple; the combination of the finest ingredients brought together in our strict and time-consuming brewing process yields a beer that is consistent, refreshing, and drinkable.

Anheuser-Busch has worked hard over decades to build relationships with multi-generational growers across the country who supply us with the finest barley, hops, and rice. There is an immense amount of planning that goes into sourcing and producing the ingredients found in Bud Light. Our commitment to quality ingredients has always been a source of pride and now the topic is coming to the forefront as a result of the consumer desiring more transparency into the ingredients found in the products they buy and consume. Take a walk down any grocery aisle and the push towards ingredients transparency in food products quickly becomes evident.

As industry leaders, Anheuser-Busch and the Bud Light brand are smart in taking the initiative towards greater transparency into the ingredients found in beer. They are meeting the needs of today’s consumer and this is how the company has prospered throughout its long history. In business, you can’t be static and expect to survive. You have to constantly adapt to the changing needs of your customers.

I congratulate Bud Light for taking this first step towards greater transparency and believe it is good not only for Anheuser-Busch but also for the beer industry as a whole. Hopefully, the entire beer segment will benefit from the push towards transparency. If the beer industry grows, everyone prospers – retailers, wholesalers, brewers, growers, and ultimately our community.

Sincerely,

August A. Busch III

——

R.H. BARRINGER NOW LARGEST NORTH CAROLINA WHOLESALER, POST JEFFRY’S PURCHASE

  • Beer Business Daily
  • March 15, 2019

Last year we broke news that giant, 17-million case A-B distributor, R.A. Jeffreys, would be sold to three suitors: R.H. Barringer of Greensboro, Rocky Mount’s Carolina Eagle, and Adams Beverages. Now the Triangle Business Journal is reporting R.H. Barringer’s purchase of the R.A. Jeffreys distribution center in Raleigh for $13 million.

“By buying the Raleigh portion of the company, Barringer becomes the state’s largest wholesaler,” story says.

It further pegs Jeffreys total sale price to Barringer, Adams and Carolina Eagle at “north of $350 million.”

No, Thorn Brewing Was Not Sold to a Cannabis Company

Next Green Wave Holdings, a vertically integrated California cannabis company, issued a press release Tuesday erroneously indicating that San Diego’s Thorn Brewing had been sold.

Speaking to Brewbound, Thorn Brewing co-founder Dennis O’Connor confirmed the brewery was not a part of Next Green Wave’s $27 million transaction, which included the acquisition of more than 45 CBD and THC products.

“I don’t know what went awry there, but it was news to me,” he said.

Next Wave Holdings actually purchased SD Cannabis, a company O’Connor said he has been working with independently on the development of water soluble THC and CBD products.

“Through SD Cannabis, we have a prototype that we think will work,” he said.

The relationship with SD Cannabis developed after Thorn Brewing released a 4.20 percent ABV session IPA called OG HighPA, which was brewed with cannabis-derived terpenes. That product, which contained no THC or CBD, was released in 2016 and was made in collaboration with Jetty Extracts.

“Pretty quickly we were reminded by the TTB that we can’t brew with anything that is derived from cannabis, even if it doesn’t have THC of CBD,” O’Connor said.

But O’Connor was still interested in creating a cannabis supplement that could be added to various beverages, so he teamed up with SD Cannabis to research and develop a new product.

“I was pushing for it, trying to scratch an itch for what we were trying to do with our beer,” he said.

Together, SD Cannabis and O’Connor have created multiple products – effervescent tablets, water-soluble drops and a drink mist – that contain THC, CBD and cannabis-derived terpenes.

Next Green Wave acquired the intellectual property for those products, O’Connor said, noting that he anticipates receiving royalties on future sales.

O’Connor also confirmed that SD Cannabis did not own any part of Thorn Brewing, nor did Thorn Brewing own any of the “Brew Bomb” products that have been developed.

Similar to the Nuun electrolyte-enhanced hydration tablets that endurance athletes add to water and use as a recovery aid, O’Connor said the Brew Bomb products are intended to be dropped into all types of beverages, including alcoholic offerings.

“You’d buy it at a local dispensary, and mix it with your beer or your whiskey,” he said, noting that the company plans to launch the products next month, on April 20 (4/20).

When asked about a commercial application, O’Connor said he believes companies could potentially use the effervescent technology on a larger scale to infuse CBD and THC into other beverages.

He also envisions mixologists experimenting with the THC and CBD mists.

——

New York: Doubling NYS alcohol tax could create new fund to help people fighting addiction

Paying a little more for a beer or glass of wine could help double the services offered for people suffering with alcohol and drug addiction. But are New Yorkers already taxed enough?

Down-state democrat Mike DenDekker sponsored the Addiction, Prevention, and Recovery Act to double the tax on alcohol. An additional $260 million dollars a year would be put into a separate fund that will go directly to creating services for people fighting alcohol and drug addiction.

“It’s not a tax to collect revenue,” Dendekker said,”I’m just trying to get more services to people who need it.”

The consumer may or may not see an increase directly. Alcohol manufacturers will see the increased tax per gallon depending on the kind of liquor and then it will be up to the restaurant if they increase their prices.

For an average beer a consumer could see a $0.03 increase, for a glass of wine $0.02, and a shot $0.10.

“I believe it could make the strongest impact statement to the citizens of the state that we are very serious about addiction about the lives we lost,” Dendekker said.

The increase of taxes could take effect a year from now if it makes its way through Albany.

——

North Carolina: Liquor changes: ABC boards skeptical as McGrady plans slate of alcohol bills

Changes are in the works for how North Carolinians buy liquor, and local officials from government representatives to ABC board members are worried about what it might mean for local communities that receive money from sales.

State Rep. Chuck McGrady has filed a bill seeking to make a number of changes to ABC systems across the state, and he’s warming up to file a handful of bills in the coming weeks, leading up to a bill that would privatize liquor sales.

The shift from government-run stores could mean residents would be able to buy liquor at the grocery store, for instance, and perhaps on Sundays. Proposals also call for allowing in-store tastings.

Local ABC board chairs are worried about what that might mean for local stores, and what could happen to hundreds of thousands in contributions made to local governments, education and more thanks to annual ABC sales.

McGrady is one of four primary sponsors of the ABC Modernization Bill filed in February that makes several various changes to the ABC system. These changes include requiring the consolidation of ABC systems within counties with more than one.

In Henderson County, Fletcher, Laurel Park and Hendersonville each have ABC stores and boards.

Legislation

The modernization bill passed its first reading in the House and is set to go before the House ABC Committee this Tuesday, according to McGrady. But this bill isn’t all that’s proposed.

Thursday, McGrady filed a bill to allow craft brewers to increase their brewing capacity before having to hire a distributor. Several more bills will be rolled out over the coming weeks, he said, including one that would establish a modern licensure system for distilled liquors, otherwise known as privatization.

Early this week, likely Monday or Tuesday, he plans to file a craft distiller’s bill. A week or so after that, he plans to file an ABC regulatory reform bill which he comparted to a broader version of his previous efforts with craft brewing.

About 10 days after that, he said, he plans to file the modern licensure bill, all of the above being “significant proposals to modernize how we handle alcoholic (beverages).”

The current modernization bill isn’t actually McGrady’s preference, he said. His preference would be for the licensure bill, though the modernization bill could be a way to incrementally move toward a licensure system.

A report McGrady requested from the state Program Evaluation Division served as the impetus for the modernization bill. He said he wanted them to look at where the state had come from and where it ought to go, and pointed out that once PED gets started on the study, it works independently.

The recommendations in that report essentially became the proposals in the modernization bill.

“We can do this better,” McGrady said.

The sticking points

First, the proposal mandates ABC boards within counties consolidate, the main sticking point with local ABC organizations.

The bill would also remove the requirement that a permit be required for transporting more than eight liters of liquor, allow for special orders of less than a case, allow ABC boards to deliver to restaurants, bars or other establishments for a fee as opposed to the current pick-up only system, allow local jurisdictions to decide on allowing Sunday sales and allow in-store tastings.

Charles Byrd, chair of the Hendersonville ABC Board, said there are pros and cons to that bill, but didn’t find the same duality to the potential privatization of liquor sales in the state.

He feels consolidating ABC boards within the county will create a number of headaches, from managing a larger base of inventory to working out exactly how the larger system will work and how the revenues might get distributed to local schools, governments and more.

If the county’s boards merged, they’d likely need to lease or build a new warehouse to hold inventory, as one truck makes deliveries to the local ABC system, he said. He feels that would end up being a cost savings to the state but more expenses for local boards.

“Financially, there’s not going to be that much gain for anybody, and you lose control of it,” said Fletcher ABC Board Chair Larry Waldrop, noting the money Fletcher ABC distributes to local groups, as well as the uncertain future of its financial assets in land and inventory.

On privatization, Byrd said “The issue is, ABC – the C in there is ‘control.'”

He said it’s much harder for distilled spirits to get in the hands of underage residents with the ABC system, and other states have experienced less control after moving to a privatized system.

That is one of the biggest issues for Byrd, alongside losing revenues that are distributed locally. He also expects customers to lose the availability of top-shelf liquor that can be found at an ABC store and pay up to 15 percent more for the liquor that is available.

The state would retain control under a licensure system, McGrady said, adding that some states limit the number of licenses and that the new rules would be whatever the state establishes.

But the majority of states have moved to a licensure method in regulating alcoholic beverages, he said, something North Carolina has already done for beer, wine and cider. Liquor would become a similar system, though there are still lots of details to work out.

Laurel Park opposition

The Laurel Park Town Council heard from the staff of its ABC store during a work session Thursday, directing ABC Assistant Manager and former Laurel Park Town Manager Jim Ball to write a letter voicing concerns and opposition to the current bill.

The council plans to take up the letter and consider action at its 9:30 a.m. meeting Tuesday, with concerns about keeping contributions intact and that nothing in the bill details what will happen to those contributions once boards consolidate.

“We don’t have any real guidelines as to how that board would operate,” Ball said, noting different pay scales for employees, different operational software at stores and concerns about Laurel Park’s one full-time and seven part-time employees.

Ball also noted that about six years ago when the county voted in favor of liquor by the drink, a study was done on consolidating the boards and the county decided against it.

Who gets the money?

Each of the three local ABC Boards in Hendersonville, Fletcher and Laurel Park distribute their funds a little bit differently, splitting contributions up between local governments, education, law enforcement and other organizations.

According to the state ABC Commission’s 2018 annual report, the three stores in Hendersonville did $7.16 million in gross sales in 2018, a 7.2-percent increase over 2017, with forecasts for another year of growth in 2019.

Fletcher’s $2.28 million in gross sales was a 7.73-percent increase, and Laurel Park’s $1.3 million was a 2.81-percent increase over the previous year.

The Hendersonville ABC Board gives 50 percent of its profits to the city of Hendersonville, 25 percent to Henderson County, 24 percent to the county school system and 1percent to the county library system, Byrd said.

In the fiscal year that ended June 30, 2018, that was $175,000 to Hendersonville, $87,500 to Henderson County, $84,000 to Henderson County Public Schools and $3,500 to the library.

The board also gives around $40,000 to other miscellaneous programs with schools and other organizations, like funding speakers who talk to students about alcohol for Project Graduation, for which the board gives $2,500 to each high school.

In its annual reporting, the state lumps those amounts into three categories: local, alcohol education and law enforcement. On its website, the state commission designates Hendersonville’s totals as $350,000 for local, $47,218 to alcohol education and $40,000 to law enforcement.

For Laurel Park, the state reports $60,965 to local, $2,724 for alcohol education and $3,891 for law enforcement. For Fletcher, it’s $75,000 to local, $6,095 to alcohol education and $4,354 to law enforcement.

After paying off its building this year, Waldrop said Fletcher’s local distribution is set to more than double this coming year, up to about $170,000.

Altogether, the three Henderson County systems generated a total $10,754,097 in revenue last fiscal year, according to state data. After $7,444,451 in expenses, state excise taxes took the lion’s share of $2,329,714, compared with $590,247 in local contributions.

That local contribution breaks down according to state data as $485,965 to local governments, $56,037 to alcohol education and $48,245 to law enforcement.

Local ABC boards operate stores without state funds, generating more than $1 billion in statewide revenue each year, the state reports, and during the last fiscal year, $430,635,861 was distributed, with the vast majority – $323,425,611 – going to the state general fund.

The next highest amount, $80,345,396, went to counties and cities, $13,017,215 to local alcohol education, $8,844,597 to local law enforcement, $3,200,218 to county rehabilitation services and $1,802,824 to the state Department of Health and Human Services.

Will governments, schools, police still get funds?

Making up that money to local governments, schools and other organizations is the main obstacle for privatization.

“Those are not just going to disappear,” McGrady said.

It’s a complicated process, with something like eight different fees, taxes and levees on alcohol, all of which has to be untangled and sorted out, he said.

To have a chance of passing, the bill will have to make sure local governments continue get revenue from the sale of distilled spirits, McGrady said. But rather than them having to rent or buy buildings or employ people, “what I’m proposing would be to get those revenues through the licensure or tax process,” getting those revenues back to local organizations that way.

There are a lot of different options on how to do that, and his bill will include a recommended method of making up those funds to local organizations, he said. Possibilities include a local option sales tax similar to the one Hendersonville is currently hoping to pass.

“Getting the finance part right is the hardest part,” he said, which is why that bill is taking longer than the others he’s working on.

Something that’s also going to have to be worked out, he said, is how contributions at the county level would be distributed under the single county ABC system if it were to be implemented, as currently towns within the county that don’t have ABC boards, like Mills River and Flat Rock, don’t get any revenues from liquor sales.

McGrady added that he has met with the manager of the Fletcher store and with two of the town’s council members, and is having discussions with various other local officials.

Public favors closing stores

The Program Evaluation Division’s study that prompted the modernization bill itself cited public support for privatization, and detailed a number of ways its recommendations would benefit the state.

The PED report cites two polls, one by Elon University and one from High Point University, and each poll found greater support for closing ABC stores.

The Elon University poll found that 52 percent of respondents were in favor of closing stores, compared to 32-percent opposed. The High Point University poll found 47 percent of respondents in favor.

The polls also found support for issuing permits to sell liquor at any store that sells beer and wine, by margins of 56 percent to 31 percent in the Elon poll and 49 percent to 32 percent in the High Point poll.

The study also compares county boards to counties with multiple boards and finds that merged boards are more likely to outperform other ABC boards in profit and operating margins.

By comparing three sets of two counties with similar outlet densities and location and populations, the PED study found that “overall, each of the three counties with multiple ABC boards had lower profits and higher operating margins than their comparison county with a single board.”

Byrd disagrees that it would save money administratively. His opinion, as well as that of the North Carolina Association of ABC Boards, is that mergers should be voluntary.

“It’s my opinion that it would not be a money saver in administration,” Byrd said, because costs would come up, such as for warehouse managers, store managers, general and assistant managers for all of them and more.

“We think that we do a good job the way we’re doing it,” Byrd added.

He noted that North Carolina ranks 44th in liquor consumption per capita, but seventh in revenue.

Since 2008, only four merged ABC boards have formed, according to the PED study, bringing the total to 11 merged boards. The Triad Municipal ABC Board is the largest with 14 stores serving Winston-Salem and six other communities in Forsyth, Davie, Guildford and Yadkin Counties.

Statewide, the study found that 19.6 percent of all local ABC boards have a profit margin of 10 percent or higher, while 40 percent of merged boards have a profit margin of 10 percent or higher.

“Based on the experience of merged ABC boards, moving to a system with a single board would reduce operating costs and increase profitability with counties with multiple ABC boards,” the study says.

State association weighs in

According to an email shared by Ball, the state Association of ABC Boards doesn’t oppose all the measures. It favors most of the ones proposed in the bill, including orders of less than a full case and deliveries for a fee, which it says it has long advocated for.

The association is opposed to the merger requirement and Sunday sales, but is neutral on the issue of liquor tastings.

The bill also doesn’t address some issues that Waldrop said he would like to see considered, including the requirement that permitees like restaurants purchase their liquor from ABC stores in the same county.

For Fletcher, he pointed out that many establishments very near to the ABC store are actually in Buncombe County and therefore can’t simply go across the street to the Fletcher store for their purchases.

“They ought to be just like us,” he said. “They ought to have the right to buy from the closest store.”

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Wall Street cuts profit forecasts for US retailers

  • ft.com
  • Alistair Gray
  • March 17, 2019

Wall Street has cut profit forecasts for US retailers as concerns mount that a weaker than expected holiday season marked the beginning of an extended slowdown.

Estimates for the current quarter have been reined in for 62 US retail companies over the past three months and increased for only 16, including Amazon.

Reductions in consensus earnings per share forecasts accelerated, according to a Financial Times analysis of Bloomberg data, after a mixed batch of earnings reports in recent weeks dulled hopes of a bumper Christmas shopping season.

“The outlook is not disastrous, but it’s much more pessimistic than it once was,” said Neil Saunders, managing director at GlobalData Retail. Retailers have been facing rising expenses, from transport to logistics costs, as well as a slowdown in demand, he added. “The two things together don’t make for a very nice picture.”

Mall-based companies that have struggled to deal with changing shopper tastes have been subject to some of the biggest forecast declines.

Victoria’s Secret-owner L Brands is at the bottom of the list, with estimated earnings 87 per cent lower than three months ago. Quarterly losses at Barnes & Noble are expected to be 69 per cent wider than three months ago, and 28 per cent wider at JC Penney.

Yet analysts have also turned more cautious on companies that have performed far better in the digital era. Walmart’s forecast profits for the quarter ending in April have been sliced 5 per cent, even though fourth-quarter results from the world’s biggest retailer were well-received.

Recent macroeconomic data have also pointed to weakness in US retail sales, which dropped 1.6 per cent in December – the biggest decline in a decade – and recovered only 0.2 per cent month-on-month in January.

Executives and analysts offered a wide range of other potential explanations for the weak start to the year, from bad weather and a late Easter, to smaller than usual tax refunds.

“I think it’s all of those things and probably more,” David Jaffe, chairman and chief executive of clothing retailer Ascena Retail Group, said on Friday. Shares in the company, which owns women’s clothing chain Ann Taylor, slumped 28 per cent after its quarterly losses widened to $72m.

“Until we get to warmer weather and Easter, we’re not really going to be able to tell if there is an across-the-board slowdown in consumer apparel spending,” he said.

Earnings estimates have been cut for retailers that operate in a wide range of markets, from the upscale department store chain Nordstrom (down 14 per cent) to the hard discounter Dollar Tree (16 per cent).

Analysts have become more optimistic on retailers including consumer electronics chain Best Buy, for which forecasts are up 5 per cent, and Foot Locker, up 4 per cent. Near the top of the list is Amazon, for which profit forecasts are up almost 12 per cent.

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SCOTCH WHISKY ASSOCIATION LOSES TARTAN TRADEMARK BATTLE IN SINGAPORE

The Scotch Whisky Association (SWA) has lost a trademark dispute against Japanese retailer Isetan Mitsukoshi over use of the word ‘tartan’, having claimed that it could function as a GI for whisky.

Isetan had been attempting to register the trademark ‘Isetan Tartan’ at the Intellectual Property Office of Singapore (IPOS), however the SWA had put in an objection. This is the first time that IPOS has heard such as case, after the Geographical Indications (GI) Act came into force in 1999.

The SWA argued that trademarks cannot be registered if they contain a GI. It said that tartan is an iconic symbol of Scotland and can function as a geographical indication for whisky. It cited the Intellectual Property Law of Singapore (2013) which states: “GIs often consist of the actual geographical name of the place of origin of the products but other indicating terms may also suffice as GIs as long as they identify the goods as originating in the territory, region or locality in the territory. Thus, it may be argued that iconic symbols such as the Eiffel Tower, the Great Wall of China or the Taj Mahal may serve as GIs of products from France, China or India.”

It also stressed Scotland’s long association with tartan and submitted evidence to show that Scotch producers often incorporated different tartan patterns onto their labels.

However, IPOS’ principal assistant registrar, Tan Mei Lin, rejected this argument, taking issue with whether tartan was a GI in the first place.

According to documents from the hearing, it states: The Opponent’s [SWA] submission is, however, misconceived. The relevant issue is not whether tartan is or is not iconic of Scotland, whether consumers associate tartans with Scotland or even whether it can or cannot function as a geographical indication but whether the tartan (or more precisely, the word “Tartan”), is a geographical indication.”

“GIs are used to identify goods with a given quality, reputation or other characteristic attributable to their origin. However, there was no evidence that “Tartan” is used to identify whiskies, or show what characteristics “Tartan” whiskies possess, and the association’s opposition failed.”

The report also noted that the GI Act only protects GIs that are protected in their country of origin. It stated that there was no evidence presented that demonstrates that “Tartan” is protected as such in the UK.

It added: “In this regard, the Opponent [SWA] furnished evidence of the registration of “Scotch Whisky” as a geographical indication with the Department for Environment, Food and Rural Affairs, which administers the Protected Food Name scheme, including spirit drinks in the UK. However, the Opponent did not produce any evidence to show that “Tartan” is also accorded protection as a geographical indication in the UK.”

Lindesay Low, legal deputy director at SWA, said: “We are obviously disappointed with this decision. We now need to consider its contents carefully and decide upon our next steps.”

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WHISTLEPIG NAMES NEW EXECS, BOARD CHAIRMAN

  • Wine & Spirits Daily
  • March 15, 2019

Nearly two months after merchant bank BDT Capital Partners took a stake in Vermont-based WhistlePig Whiskey [see WSD 01-17-2019], the company has announced new board members and other executive leadership.

Roland van Bommel, chairman of the board of managers, is retiring after ten years with the company. Taking his place is industry veteran John Esposito, who previously worked at Moet Hennessy, Bacardi, Stoli Group and most recently High West.

Marty Birkel, former president at Constellation Brands, along with principal of BDT Capital Partners Reza Sultan, have also joined WhistlePig’s board of members.

Moreover, the company has appointed a new chief sales officer and new cmo to the team. Barnaby Hawken will be the new chief sales officer. He has more than two decades of industry experience, most recently working as the national sales manager of Swish Beverages and previously Pernod Ricard, The Wine Group and Allied Beverage. Meanwhile, Jason Newell will take on the role of cmo, joining the company from Rossingol Group North America.

“WhistlePig is thrilled to add Marty and Reza to our board of managers, and also welcome Barnaby and Jason to our in-house executive management team,” says ceo Jeff Kozak, adding, “They each bring a unique skill set to the company, which we know will allow us to grow the brand considerably both in the US and internationally over the coming years.”

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Outback Steakhouse manager arrested for embezzling $70G from restaurant, spent $40G on landscaping home

The former general manager of an Outback Steakhouse in Louisiana has been arrested for embezzling more than $70,000 from his previous place of work, reportedly spending roughly $40,000 of the stolen money on landscaping and $30,000 on plumbing for his own private residence.

On March 7, Zachary Addison of New Orleans was charged and booked with felony theft for allegedly stealing the hefty sum from the Metairie location of the steakhouse, Nola.com reports.

The 39-year-old man had already been fired from his position at the restaurant in January for reasons unrelated to the reported theft. His supervisor, however, discovered that money was missing from the eatery when he started closing out his contract.

According to the outlet, the 39-year-old man had already been fired from his position at the restaurant in January for reasons unrelated to the reported theft. His supervisor, however, discovered that money was missing from the eatery when he started “closing out Addison’s employment contract” that month, Capt. Jason Rivarde of the Jefferson Parish Sheriff’s Office said.

Upon further investigation, the Outback staffer realized that Addison billed Outback for around $70,000 in invoices for work that was never performed between February 2017 and December 2018, Fox 8 reports. The missing funds apparently went unnoticed because the man had permission to pay up to $1,000 in invoices per diem without further approval.

Addison’s illegal spending spree included $41,204 spent on landscaping services and $30,200 for plumbing at his “newly built” home in the quaint English Turn area, Fox 8 reports.

The man was released on the same day of his arrest on a $7,500 bond, Nola.com reports.

The case remains under investigation.

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Britain hailed gin tourism hotspot after distilleries report huge increase in international visitors

Britain has been hailed as a gin tourism hotspot after distilleries reported seeing huge rises in international visitors.

The gin market is worth an estimated £1.9 billion with more than 66 million bottles being sold last year – almost double the number in 2016.

Fuelling this boom is an increase in the number of foreign visitors, who are flocking to the country for tasting sessions, tours of distilleries and even checking into hotels for an “immersive” weekend.

Other holidaymakers are delving into the history of the alcoholic drink and foraging for ingredients to make their own recipes.

Gin enthusiasts are flying in for a taste of the traditional tipple at such a rate that distillery guided tours are being offered in multiple foreign languages.

The Ginstitute, a renowned distillery on the world famous Portobello Road in Notting Hill, has seen their number of bookings jump by a staggering 2,000 per cent since 2015.

Built over four floors, it offers boutique rooms so tourists can settle down for the night, as well as a museum in its basement where guests can enjoy an “immersive gin history session”.

It even offers bespoke wedding packages “designed especially for betrothed gin-fans”, which involves couples making their own unique blend for their big day and a pop-up gin bar so guests can do tasting sessions.

Tom Coates, brand director, said: “As the world’s love for the gin has increased, so has it’s interest in the history of gin and how it is made.

“As such we have seen a significant increase in international tourists attending our gin experience, The Ginstitute, to learn all about the history of gin and make their very own unique blend.

“Since 2015, international visitor numbers have increased 20 times over.

“In 2016, we opened The Distillery on Portobello Road Gin which is a four floor mecca for discerning drinkers and gin lovers with two bars, a working distillery, hotel rooms and a number of experiences that include immersive dining, cocktail masterclasses and gin-making classes.

“It has been incredibly popular with visitors from both home and abroad, who will either join us for one of our experiences or simply to sample a Portobello Road Gin and tonics at one of The Distillery’s two bars.”

Beefeater Gin, one of Britain’s best-known brands, has welcomed tourists from countries across the world including Russia and Australia.

Their distillery, based in Kennington, south east London, is visited by more than 2,000 people every month.

A spokesperson told The Telegraph: “Our visitors come from all over the world, with the experience being particularly popular with tourists from the USA, Germany, France and Spain. We’ve also had a recent influx of tourists visiting from Australia, Latin America and Russia as the thirst for learning more about gin spreads worldwide.”

Sipsmith, based in Chiswick, west London, offers gin masterclasses, a sipping club and tours of their distillery.

A spokesperson told The Telegraph that increasingly more people are visiting during business trips and holidays to the UK.

And leading gin review site Gin Foundry agree that international visitors are “part and parcel” of the surge of people visiting British distilleries.

The UK tourism board has confirmed that there is a “strong interest from international travellers” in trying British gin.

Patricia Yates, the director of VisitBritain, added: “The growing and diverse range of gin distilleries and gin-inspired visitor experiences across the country, from tasting activities to trying your hand at distilling and mixing, is helping to boost Britain’s profile on the international stage as a food and drink destination.”

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This Machine Makes Canned Beer Taste Like Draft

I couldn’t believe it, but the Fizzics actually works

At first glance, the Fizzics looks like something that you might see at Sharper Image or a “Gifts All Dads Will Love” Father’s Day roundup next to an NFL team tie. But this thing works wonders.

How it works: you open your can or bottle of beer (up to the 20 oz.) put it inside, insert the metal straw into your beverage, and put the Fizzics top back on. Then, either powering it by batteries or with a plug, you pull the handle down and the beer comes up out of the bottle or can and into your cup as if you were pouring a draft beer. Finish the can, open up the Fizzics, pop in a new one, rinse, and repeat.

You also have the option of pushing the tap forward rather than pulling it down to utilize the “Micro-Foam Technology.” This uses sound waves to turn the beer into foam. Basically, if you like a really thick head on your beer, you can just pour foam right out of the tap. Personally, not for me, but hey, it does what it says. The beer comes out at a nice constant rate with the novel pull of the tap, and it doesn’t go flat in the process.

So we have covered that it does indeed pour beers, but who would spend money on something that can be accomplished by tipping a can over? The real question, what does it do to the taste? For my test, I went with the most basic beer I could find, a cheap beer, something that if the flavor changed, I’d be sure to notice: Labatt Blue Light. Crack the can, take a sip as a base test, put it in the Fizzics, pour, taste.

It worked. It made it taste like a draft beer. What the Fizzics did was remove that sour, funk taste that comes in cheap canned pilsners. It’s not a huge taste, it’s not the dominant flavor, but right there at the back of your mouth is that small tinge-As if the beer sat in the sun a bit before refrigerating. Its absent in the draft beers, but the cans, it’s always just slightly there.

I made my roommates try it to make sure I wasn’t crazy, but my thoughts were only confirmed. The only downside is it is annoying to take the whole device apart to open only a single beer, but it’s a small price to pay for taste.

Now the adventure is seeing what flavors it can unlock in other brews.

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COWEN’S CIGARETTE & CANNABIS CIRCULAR

  • cowen
  • March 15, 2019
  • The cowen insight

Our Cowen Cigarette & Cannabis Circular highlights important news in the tobacco and cannabis industry for the week ending 3/15/2019.

Cannabis

  • According to Health Canada, total dried cannabis volumes decreased 4% MoM in January while cannabis oil volumes increased 4%.
  • U.S. Representatives filed a bill designed to provide protections for federal workers who consume cannabis in compliance with state laws.
  • NJ Governor Phil Murphy (D) and state legislative leaders formally announced that they have agreed on legislation to legalize adult use cannabis.
  • The NY State Senate and Assembly included cannabis legalization language in their annual budget legislation, despite caution from Governor Andrew Cuomo (D) on the likelihood of final passage.
  • CT House Democrats released draft legislation to legalize adult use cannabis.
  • SD Governor Kristi Noem (R) vetoed a bill to legalize industrial hemp cultivation.
  • AK finalized a law to allow on-site consumption of cannabis.
  • The UN Chief Executives Board endorsed the decriminalization of drug possession and use in a policy statement.
  • Israeli Prime Minster Benjamin Netanyahu said he would examine the possibility of legalizing adult use cannabis.
  • The United Kingdom opened its first dedicated medical cannabis clinic.
  • ACB announced that it appointed Nelson Peltz as a strategic advisorFor more information, please see our note here.
  • HEXO announced that it will acquire Newstrike Brands for C$263 mm.
  • HARV announced it will acquire Verano Holdings for $850 mm.
  • Tobacco
  • FDA Commissioner Scott Gottlieb released the agency’s draft policy restricting e-cigarette sales. For more information, please see our note here.
  • The Trump Administration proposed to add e-cigarette manufacturers and importers to the list of companies required to pay user fees to the FDA.
  • National Cancer Institute Director Ned Sharpless was named as Interim FDA Commissioner. For more information, please see our colleague Eric Assaraf’s note here.
  • India’s health ministry has called to ban JUUL from entering the country.

Cannabis related Story:

https://www.latimes.com/opinion/op-ed/la-oe-spitz-legal-cannabis-california-20190315-story.html

AURORA CANNABIS – WHAT DOES PELTZ SEE? PROFITABLE POTENTIAL

  • cowen
  • March 15, 2019
  • The cowen insight

We recently hosted investor meetings with Cam Battley, Aurora’s Chief Corporate Officer. Herein we provide our takeaways. ACB remains our Top Pick in cannabis, and our #3 pick overall.

Plenty of Potential with Peltz

Much of our discussions focused on the recently announced strategic advisory position for Nelson Peltz. We think Peltz should help open a number of doors for ACB as they develop their next legs of growth. According to Battley, Peltz has been providing ACB advice for months in an informal role, and the announcement puts together a formal position and incentive structure. As we indicated previously (here), we do not see this as an activist coming in to change the existing business model, but rather to help accelerate performance. Given Peltz’s vast rolodex of contacts, within CPG and beyond, ACB believes that they have an ally who will be able to provide counsel on strategic partnerships, including partner selection, timing and structure.

To date, ACB has taken a more patient approach to partnership selection, aided by Peltz’s counsel. We would look for the company to make at least one partnership during 2019, although it may or may not involve an equity investment similar to MO/CRON and WEED/STZ. Both ACB and Peltz are aligned in not offering shares too early in their growth journey, reflective of confidence in their ability to drive sales and profitability, resulting in a higher valuation. We look for ACB to focus on opportunities across a number of consumer and medical verticals.

Finally, we note that ACB and Peltz are also well aligned on incentives. Peltz’s 20 mm share options vest over four years, but contain certain accelerators to speed up the time frame. These accelerators include M&A/partnerships of certain size/industry verticals as well as ACB’s stock price performance, including if the stock reaches thresholds of C$31 and $C41 vs. ~C$12 currently. As such, we see the arrangement as a win-win for both parties.

Canada: Ramping Up Production and Driving Strong Margins

During 2Q19 (December), ACB produced ~7,800 kg, the highest level of kilograms produced among the LPs and exceeded WEED despite having a significantly smaller amount of licensed square footage. The company continues to progress on its infrastructure build-outs, particularly on Aurora Sky, Aurora Sun and Nordic Sky facilities, and anticipates reaching annualized capacity of over 500,000 kg by mid-2020. In addition, Battley commented that ACB’s focus and execution using indoor grows will become a competitive advantage as it will allow the company to minimize crop losses compared to greenhouse or outdoor grows. We note that unlike WEED, ACB plans to retain its production over the long-term, as they believe that it is a core competency and will generate substantial returns off their assets, which Battley estimated as a four month ROI at peak capacity.

In the near term, while the company expects to have 25,000 of saleable kilograms available in 4Q19 (June), Battley commented that growth will not be linear. As such, we estimate production of ~12,000 kg and net revenue of C$85 mm in 3Q19 vs. consensus of C$90 mm.

As ACB continues to realize increased production efficiencies, it expects to see a meaningful decline in cash costs, from C$1.92 per gram currently to under C$1 per gram. In turn, Battley expects that ACB’s ability to drive a lower cost base and focus on higher-margin medical channels will allow ACB to generate industry-leading gross margins. To be sure, ACB is off to a good start even with scale opportunities ahead of them, having delivered one of the highest gross margins on a trailing twelve month basis, among the leading Canadian LPs.

Canada: Novel Form Factors Will Be Centered Around Vape

With additional novel form factors expected to come online in Canada by October 2019, ACB will place an outsized emphasis on vape, consistent with their existing category leadership, having already brought the first CBD only vape pen to the market (Aurora Cloud). This strategy seems appropriate to us, given the growing popularity of vapor that we have seen in U.S. adult use states, where the category now accounts for 20% of sales, having displaced share of combustion. The opportunity for vapor share gains could further be bolstered by continued innovation, in particular around technology. According to Battley, integrated apps could create occasion-based crossover into multiple verticals (e.g., movies/TV shows, food delivery, and music). Beyond vape, we expect ACB to have a diverse portfolio, but likely not placing the same emphasis on beverages that we have heard from its peers.

International Markets to Model After Canada

While Canada will provide the largest near-term opportunity, ACB wll continue to drive international expansion as it has a presence in 23 countries, excluding Canada. As the international market continues to grow, ACB will look for countries to take a similar approach as Canada; starting with medical legalization, followed by destigmatization and decriminalization before turning to adult use legalization. Battley commented that Australia, the Netherlands, Germany, and Mexico were the most likely countries to go down that path in the near-term. Longer-term, ACB believes that Europe will be the best global market for cannabis, given high anticipated levels of regulation similar to Canada (creating barriers to entry) and fewer current market participants.

U.S. Option Through Australis

As cannabis momentum in the U.S. continues to build, ACB is well positioned through its future option (once legally permissible) to acquire shares of independent spin-off, Australis Capital (CSE: AUSA). As it currently stands, Las Vegas-based Australis has been focused on making early stage investments in U.S. cannabis, across a diverse range of sectors including vertically-integrated multi-state operators, real estate, technology, dispensaries, intellectual property, and brands, among others.

M&A Also Likely for U.S.

While Australis represents one entry point into the U.S., ACB will also likely pursue M&A to enter the market, particularly targeting the multi-state operators. In the interim, ACB will be evaluating the various operators to determine which have the potential for best-in-class operations and profitability (recognizing that scale benefits are not available to these companies, given the prohibition on inter-state commerce). Should the market allow for cross-border transactions, ACB would leverage their internal competencies around low-cost production and likely establish large centers of excellence in priority geographies like California and New York (which would likely require additional capital).

Patient Approach to Hemp-Derived CBD

As we stated in our 11-analyst Ahead of the Curve CBD report (here), we believe the U.S. market can generate $16 bn in revenues by 2025 (incremental to our outlook for $80 bn in marijuana by 2030). With the passage of the 2018 Farm Bill, we have already seen entry into the U.S. market from some of the large Canadian LPs and as such, ACB’s future plans in this category was a natural focus point for investors. Battley indicated that despite actions from their competitors, ACB will not be pressured into rushing into the category, largely driven by what he believes to be uncertainty around the margin opportunity (he expects CBD to be dilutive to their 40% EBITDA margin target). Assuming they progress into the category down the road, Battley envisions a scenario where their CBD portfolio will be carved out into a separate company.

Bright Financial Outlook

We continue to forecast total company revenues of C$305 mm in FY19, C$742 mm in FY20, C$1,033 mm in FY21, and C$1,341 mm in FY22 while capturing ~20% total Canadian market share. In addition, we expect international to be a focal point of revenue growth, with the segment contribution reaching ~37% of company sales by FY22. ACB communicated aspirations of a 40% EBITDA margin target, although we conservatively forecast below that target in the medium-term, given costs to stand-up international locations. That said, we remain confident in the company’s ability to be among the first to produce positive EBITDA and free cash flow, and believe ACB has attractive economics compared to the other Canadian LPs. We are retaining our C$14 price target and ACB remains our Top Pick in cannabis. Maintain Outperform.

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Brexit, yellow vests take fizz out of champagne sales

Brexit and France’s “yellow vest” protest movement pushed the number of bottles of French champagne sold last year to its lowest since 2004, trade group data showed on Sunday.

The Comité Interprofessionnel du Vin de Champagne (CIVC) said the number of bottles sold fell 1.8 percent to 302 million in 2018, though total revenue edged up 0.3 percent to a record 4.9 billion euros ($5.6 billion) as prices rose.

“The fall in volume is becoming a bit worrying, with the slowdown in France and Britain not compensated by higher sales outside the European Union,” CIVC co-president Jean-Marie Barillere told Reuters.

French and UK sales together account for about 60 percent of total sales by volume. French sales fell 4.2 percent to 147 million bottles, with more bottles sold abroad than in France for the first time in 100 years, as a slow economy and the yellow vest anti-government protest movement weighed on sales.

Barillere said the protests had hit Paris tourist arrivals and French household confidence, hurting demand.

Total export sales edged up 0.6 percent to nearly 155 million bottles, but total export revenue rose 1.8 percent to 2.9 billion euros as the focus on value of big houses, such as LVMH’s Moët & Chandon and Pernod Ricard’s Mumm , the world’s best-selling champagne, paid off.

In Britain, sales fell for the third year in a row, due in part to uncertainty sparked by the country’s planned departure from the European Union. Volumes dropped 3.6 percent to 26.8 million bottles for total revenue of 406 million euros. Volumes had already fallen 11 percent in 2017 and 9 percent in 2016.

CIVC said champagne was feeling strong competition from Italian prosecco, which is three to four times cheaper.

Sales to the United States increased 2.7 percent to 23.7 million bottles for revenue of 577 million euros.

Sales to Japan were up 5.5 percent to 13.6 million bottles, while sales to Hong Kong and China – each accounting for more than 2 million bottles – were up 12 and 10.1 percent respectively.

The biggest sales increase was seen in South Africa, where volume was up more than 38 percent to 1.1 million bottles.

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