Beverages, Tobacco, & Cannabis

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SAM $295

​21 Mar 2024

Is Boston Beer now so cheap that it is worthy of a look?
We had been raving fans of The Boston Beer Company (SAM $295), and not just because founder Jim Koch always showed up to CNBC interviews with a Sam Adams in hand. Not only had the brewer remained fiercely independent, unlike Anheuser-Busch, Coors, and Miller—all now foreign-owned entities, it simply brewed great beer. Then it went down the hard seltzer rabbit hole at the expense of its beer lineup, and the shares began to crater. SAM shares have plunged 78% since April 2021, and Koch is brooming the firm's CEO, Dave Burwick, after six years at the helm. But was Burwick really the problem? His résumé, after all, was impressive: he spent time at Peet's Coffee, Deckers Outdoor, Weight Watchers International, and PepsiCo. And it was Koch himself who declared the company's commitment to its ill-fated hard seltzer push. Shipments declined from the previous year in every quarter of 2023, and Q4's results were disastrous. The company lost $18 million (-$1.46/share) on $417 million in revenue over the course of the fourth quarter. Current board member Michael Spillane, a seventeen-year Nike vet, will take over the CEO role as of next month, but we don't see any strategic initiatives which would get us excited about owning the brand once again. Competition is fierce in both the seltzer and craft beer segments, and consumers of the latter generally gravitate toward local brewers rather than large, national brands. One bright spot: the company holds no debt on its books. With interest rates sitting close to two-decade highs, this is one small-cap that doesn't need to worry about refinancing. We wouldn't touch SAM shares until there is some indication that the leadership change will make a positive impact on the company's future. Right now, we would value the shares around $350—hardly an undervalued gem. 

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TLRY $2

​10 Jan 2024

Tilray's new craft beer lineup lit up the company's quarter
Remember all of the excitement surrounding cannabis stocks? To help jog your memory, it occurred about the same time you were buying that Oculus headset to prepare for your future in the metaverse. Our favorite player was, and remains, Canadian player Tilray (TLRY $2), which was acquired by Aphria in a reverse merger in 2021. Last year we reported that Tilray was buying eight craft beer brands from troubled brewer AB InBev. It didn't take long for that acquisition to pay off: Tilray just reported its fiscal Q2 numbers, which included a stunning 117% spike in net revenue from the company's alcohol business. Overall, quarterly net revenue grew 34%, beating expectations. We have long praised the acumen of Tilray CEO Irwin Simon, who has quite the eclectic style. As the firm awaits federal cannabis rulings from DC, its CEO is expanding into yet another complementary category: vegetables. The company will begin growing strawberries, cucumbers, eggplants, and tomatoes in its excess cultivation space in Quebec. One massive hothouse, for example, will have a mix of 20% marijuana and 80% fruits and vegetables in the soil. Tilray points to the big demand for agricultural food commodities in the province. One thing is undeniable: Under Simon's leadership, Tilray will never be accused of being just another boring Canadian cannabis company waiting for legislation from south of the border. Despite its high beta, Tilray remains on track for positive free cash flow, and its financial position is strong. For the aggressive portion of a portfolio, this unique player is worth a look—especially at $2 per share.   

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TLRY $2

08 Aug 2023

Cannabis company Tilray buying eight beer and beverage brands from Bud
It is no secret that our favorite Canadian cannabis company is Tilray (TLRY $2), run by the highly skilled beverage industry veteran Irwin Simon, founder of Hain Celestial Group. Despite the industry falling off the proverbial cliff over the past few years (Tilray shares topped out at $38 in February 2021), we still believe that a handful of players are destined to excel once they can legally operate in the US. In the meantime, Simon has been pursuing a bold path outside of the weed market—exemplified by this week’s news of a rather major acquisition. Tilray has announced the purchase of eight beer and beverage brands from troubled brewer AB/InBev (BUD $56), to include Breckenridge Brewery, Redhook, and Shock Top. The all-cash acquisition, to be completed by the end of the year, will bring the breweries and all brewpubs associated with the brands under the Tilray name, joining Breckenridge Distillery, SweetWater Brewing, and the Alpine Beer Company. The acquisition marks an interesting turn of events for Bud, which had been gobbling up formerly independent brewers at a breakneck pace. The company claims it remains committed to its craft beer portfolio, but recent layoffs and restructuring efforts bring those claims into question. With its $78 billion debt load (versus its market cap of $112 billion), it could certainly use the inflow of cash from the sale. As for Tilray, the purchase will make the company the fifth-largest craft brewer in the US. When a company’s stock is selling for $2.50 per share, you tend to think wildly speculative name. While Tilray’s beta is extremely high (2.445), the company’s finances are actually quite strong (17.4% debt/equity ratio). Couple that with an intelligent strategic plan, and we could see the shares easily trading at $5 before long, which would be a 100% gain from here.    

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KO $65

24 Apr 2023

What consumer slowdown? Penn member Coca-Cola rocks the quarter
We keep hearing anecdotal stories about how the American consumer is pumping the breaks on discretionary spending, and what’s more discretionary than soda pop? Of course, Coca-Cola (KO $65) sells a lot more than “Coke” these days, owning such brands as BodyArmor, Costa Coffee, Dasani, Minute Maid, and around 200 other brands, but we were still expecting a relatively muted quarter. Instead, the 137-year-old beverage maker gave us a blockbuster. The company generated $11 billion in revenue, besting last year’s Q1 numbers and beating analyst estimates, and earned $0.68 per share versus estimates of $0.65. Management also reiterated its full-year outlook for growth between 4% and 5% at a time when most other consumer brands are dampening expectations for the remainder of the year. Most impressively, Coke put these numbers together in the face of an 11% average selling price increase during the quarter. So, not only are consumers still buying Coca-Cola products, they are paying more to do so. Coke has invested heavily in modernizing its supply chain and leveraging its strong bottler relationships in high-growth emerging markets. It has also built an impressive empire of brands, which is paying off in spades around the world. While many investors are looking to add international positions to their portfolio, consider this: Coca-Cola generated 65% of its sales in international markets last year. Costa Coffee alone has some 4,000 retail outlets outside of the United States. While no consumer goods company is completely immune to economic conditions, Coke’s exemplary management team has built an all-weather stalwart. We added shares of Coca-Cola to the Penn Global Leaders Club during the heart of the pandemic downturn—March of 2020—and it has risen substantially since. Although shares have hit our primary price target of $65, this is precisely the type of firm we wish to own in a choppy economic environment.

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BUD $58

29 Nov 2022

Budweiser’s awesome response to Qatar’s classless move to ban beer
One might question the wisdom of Budweiser’s (BUD $58) decision to sponsor the World Cup in a nation which loathes alcohol, but the InBev unit paid $75 million for the rights. As could be expected, host nation Qatar—cash in hand—then banned all beer sales in and around World Cup stadiums, making the announcement just two days before the tourney began. They did, however, graciously announce that non-alcoholic Bud Zero would still be allowed. How magnanimous. Bud has been the exclusive beer distributor at FIFA World Cup games since 1986, and had previously renewed their contract after receiving assurances from Qatar that beer would be allowed when they hosted the games. Needless to say, InBev and beer drinking attendees were fuming. We haven’t been the world’s biggest Budweiser fans since the Busch family—specifically Buschies III and IV—lost the company to a foreign entity (InBev) due to egregious mismanagement and stellar arrogance. Nonetheless, their response to Qatar’s slap in the face is worthy of a toast. The company has announced that all of the surplus beer banished from the Islamic state will be hauled to the nation which wins the 2022 World Cup and used as the centerpiece for a massive victory celebration. Bud tweeted: “They…get a victory celebration on us. It’s gonna be big.” Talk about turning a costly indignity into a massive, global PR stunt; brilliant! Trending on Twitter: #BringHomeTheBud. Long live beer!  With the proliferation of great craft beer companies since InBev acquired Anheuser-Busch back in 2008, competition within the industry has been fierce—even for the enormous players like Bud. We last owned BUD in the Penn Global Leaders Club back in 2008 and haven’t really considered adding it back since. Shares seem fairly valued around $65, or just 12% where they now trade. Still, we applaud the hilarious move following Qatar’s deceitful decision. An aside: An odds-on favorite to win the World Cup this year is Brazil, which happens to be one of the two countries (Belgium being the other) which control InBev.      

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TLRY $4

CGC $4

CURLF $6

MSOS $12

07 Oct 2022

Cannabis stocks rocket after Biden requests drug classification changes
It was one of the moves North American cannabis producers have been anxiously awaiting: President Biden has formally requested a review of how marijuana is classified under US law. He further requested that governors move to pardon anyone in a state prison solely for marijuana possession (there are fewer than 10,000 incarcerated in federal prisons under these circumstances). Despite wild success in Canada and much of the rest of the world, leading producers such as Tilray (TLRY $4), Curaleaf Holdings (CURLF $6), and Canopy Growth (CGC $4) have been waiting for the mother lode of being able to freely sell their products in the richest market in the world. That dream is coming closer to fruition. While it will still be a largely states’-rights issue, a change in federal law would allow cannabis companies to access full banking services and list on US exchanges. How did the publicly traded cannabis companies respond to the news? Our favorite, Tilray, run by the highly skilled Irwin Simon (founder of Celestial Seasonings), popped 31% in one session; the AdvisorShares Pure US Cannabis ETF (MSOS $12) surpassed even that performance, jumping 35% on the day. Granted, there is a long way to go before our laws on marijuana resemble those of our neighbor to the north, but investors should also keep in mind that this group has been absolutely hammered over the past year. The cannabis ETF, for example, is still down 65% year to date despite the enormous untapped potential of an open US market. We mentioned Tilray, which is actually the result of a merger between the namesake company and Aphria. Not only did Simon oversee the purchase of SweetWater Brewing Company, he also spearheaded the purchase of Breckenridge Distillery, maker of the high-end line of Breckenridge bourbon whiskeys. We see cannabis-infused booze coming in the not-to-distant future.      

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MO $41

In blow to Altria, the FDA is poised to order Juul e-cigarettes off the market
(22 Jun 2022) In a rather stunning turn of events, the Food and Drug Administration is preparing an order that would force Juul Labs to take its popular e-cigarettes off American shelves. This follows a two-year review of the products, specifically the fruit flavored blends. The FDA’s ruling serves as a capstone to the great downfall of Juul, which was flying high back in 2018 as its products soared to the top of a frenzied market. In what turned out to be a critical miscalculation, 2018 also happens to be the year that tobacco giant Altria (MO $41) decided to take a 35% stake in the company. What might have seemed like a reasonable move to diversify away from its traditional cigarette products (Altria owns the popular Marlboro brand, among others), the company bought in at the worst possible time. Shares of MO had been holding up quite well in 2022 thus far, sitting at where they were trading going into the year. As soon as the news was announced, shares fell 10% and remained stuck there. The 2018 deal valued Juul at around $35 billion; just prior to the FDA decision, the company had a valuation of roughly $5 billion. Adding insult to injury, the FDA also indicated that e-cigarettes made by rivals Reynolds American and NJOY Holdings would be allowed to continue selling their tobacco-flavored vaping devices. Juul lost around $259 million on sales of $1.3 billion in 2021. Somewhat surprisingly, there are still some Altria bulls out there. In addition to a fat 7.88% dividend yield, the company has maintained annual revenues of between $24 billion and $26 billion per year for the past ten years and has generated positive net income in all but one (2019) of those years. We wouldn’t touch the stock, especially considering the firm spun off its international division—Philip Morris International (PM $99)—back in 2008.  

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TLRY $9

Tilray Brands gains 55% for the week on positive cannabis news, deal with competitor
(26 Mar 2022) A major reason why we added Canadian cannabis player Tilray Brands (TLRY $9) to the Intrepid Trading Platform was its management team: CEO Irwin Simon is the adroit businessman who founded Hain Celestial back in 1993. While the industry's performance has been lacking as of late, to put it mildly, the company had a big turn of luck this past week. First, it announced an alliance with smaller rival Hexo (HEXO $0.74) in which it would help the company straighten out its finances in return for a generous share of the company. Tilray made a similar deal with California-based cannabis player MedMen last year (though the terms of that deal are more convoluted, as a Canadian cannabis firm cannot own a stake in a US-based one as of yet). The market approved of the company's "white knight" approach, pushing shares higher. Then came news that the US House of Representatives would consider a bill to decriminalize marijuana on a national level. Of course, there is no guarantee this one will make it further than previous bills, but it feels as if the movement is getting closer to the finish line. Shares of Tilray rose 55.35% on the week. We own TLRY in the Intrepid with an initial target price of $14 per share. We expect to see major consolidation in the industry, with Tilray becoming one of the industry leaders. Tilray merged with larger industry player Aphria back in December of 2020.  

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TLRY $14

Tilray's convoluted effort to get its foot in the door of the US cannabis market
(26 Aug 2021) We have mentioned before our deep respect for Irwin Simon, founder of Hain Celestial (HAIN $40) and current CEO of Canadian cannabis company Tilray (TLRY $14). That being said, we do not currently own any specific cannabis names within any of the Penn portfolios. It's not that we don't believe in the future of the industry from an investment standpoint; we are simply waiting for the winners to break free from the inevitable losers. We expect Tilray to be a long-term player, but it doesn't yet have the ability to crack the lucrative US market. The company is trying to change that. As a Canadian cannabis company dual listed on the Toronto Exchange and the Nasdaq, the fact that cannabis is still illegal in the US at the federal level precludes Tilray from setting up operations south of their current border. So, in a complex, circuitous route, management just made a very interesting move. They acquired around $170 million of convertible MedMen (MMNFF $0.29) debt through a new limited partnership, with the debt's maturity date being extended out through August of 2028. MedMen is the preeminent cannabis player in the US, with access to roughly 50% of the total addressable (legal) market. The firm has major operations in California, Nevada, and New York. What does this mean for Tilray? The company's CEO made it pretty clear in recent comments: he believes that his Canadian entity will be able to acquire control of MedMen once cannabis is legalized at the federal level. Acquiring $170 million in debt for a micro-cap player in the US may not seem that big of a deal, but we fully expect the adroit Simon to leverage it into a major piece of the action as the domestic market for cannabis expands. While we have played with positions in Tilray as well as Canopy Growth Corp (CGC $18), another major Canadian player, we have yet to add a cannabis company to a portfolio. MedMen may look attractive to some investors, but its current $0.29 share price represents a dramatic fall from the high of $1.47 it hit in February of this year.  All of these firms remain huge money losers, though the space is worth keeping an eye on. 

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SAM $716

Boston Beer's big bet on seltzer hits a wall, shares plummet
(26 Jul 2021) Boston Beer (SAM $716), maker of Sam Adams, has been our favorite name in booze/brewers for a number of years. Fiercely independent (as opposed to the big three, which are all now owned by foreign entities), the company simply makes an excellent product and has an exemplary management team, led by founder and Chairman of the Board Jim Koch. The sheen began to come off the name, however, when SAM started pushing a mediocre beer called Sam 76. That misstep was followed by another: the company  bet big on hard seltzers—the modern version of Zima or Bartles & Jaymes wine coolers—at the expense (in our opinion) of their staple beer business. Hopefully they received the message investors sent them last week. After missing Q2 earnings badly ($4.75/sh vs the $6.60/sh expected), management admitted to increasing production of Truly hard seltzer to meet a summer demand which never fully manifested. For the quarter, SAM generated $602.8M in revenue versus expectations for $675.7M. To make matters worse, the firm cut its guidance for the remainder of the year. All of this was enough to pound SAM shares down 26% in one day and 31% from the week's peak to trough price. We haven't owned SAM shares within the Penn portfolios since our disappointment over the capital expended on the ill-fated Sam 76 campaign, and the hard push into hard seltzers only reinforced our decision. Even if the company does pivot back to its staple, high-end beer business, the field is now crowded with new competitors. Analysts seem to be gravitating toward an average price target of $1,000, but we are waiting to see evidence that management fully understands the problem and is willing to make a mea culpa on their recent moves.  

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BTI

British American Tobacco says it can have a Covid-19 vaccine ready by June. (01 Apr 2020) Who knew that the maker of Lucky Strike cigarettes, British American Tobacco (BTI $27-$35-$46), even had a US biotech division? Apparently the $81 billion tobacco giant does, and the company claims its Kentucky BioProcessing (KBP) unit has already cloned a portion of Covid-19's genetic sequence and inserted the antigen into thousands of tobacco plants. The tobacco plant has the ability to grow antigens faster than conventional methods. If testing goes as planned, British American said it can produce between one and three million doses per week of the vaccine by June. For all the destruction in the economy and the stock market throughout this crisis, the way individuals (minus the toilet paper hoarders) and companies from all industries have responded is heartwarming. Here's to British American's success in this endeavor. And one further note: despite its industry, BTI has a rock-solid balance sheet, strong earnings, an 11 P/E ratio, and a 7.5% dividend yield.

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PEP

KO

Pepsi will buy Rockstar Energy for $3.85 billion. (11 Mar 2020) Both Pepsi (PEP $115-$134-$147) and Coca-Cola (KO $45-$54-$60), two companies which could have easily declined into obscurity had they continued to rely on the sale of sugary sodas for growth, have done a masterful job at moving into more lucrative markets, such as bottled water, tea, and energy drinks. Pepsi's latest move highlights the enormous growth potential of that last group: the company announced it would buy Rockstar Energy for $3.85 billion. While Pepsi has had a distribution agreement with Rockstar since 2009, the agreement limited what the $186 billion company could do with respect to the distribution of competitor brands, to include its own Mountain Dew Kickstart, GameFuel, and AMP lines. The energy drink business has been one in which both Coke and Pepsi have been struggling to gain traction against entrenched private players, such as Monster and Red Bull, so this deal will mark a huge win for Pepsi's relatively new CEO, Ramon Laguarta, who took over for Indra Nooyi in late 2018. Pepsi's last big acquisition was that of Israeli-based SodaStream in 2018 for $3.2 billion. Both Pepsi and Coca-Cola have held up better than the S&P 500 index—of which they are both members—during the recent downturn. Both have low betas (risk measure) roughly equal to half that of the S&P 500, and both carry a reasonable P/E ratio of 25. Ironically, both also carry nearly identical dividend yields of just below 3%. Both are probably pretty safe bets right now (we don't own either in the Penn strategies), but we would give the slight edge to Coca-Cola at $52 from a valuation standpoint.

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MO

After taking a $4.1 billion write-down on disastrous Juul investment, is there any value to be found in Altria shares? (04 Feb 2020) It was supposed to be yet another tactical move to diversify away from its much-maligned tobacco business: pay $12.8 billion for a 35% stake in e-cigarette phenom Juul. Instead, this move has been nothing short of a nightmare for the leading US cigarette and smokeless tobacco company, Altria (MO $39-$47-$58). After taking yet another write-down on its Juul investment ($4.1 billion), its 35% stake is now worth just about $4 billion. With both their cigarette and e-cig businesses under relentless attack by the government and anti-smoking forces, why would an investor want to buy in right now? Actually, there are a number of factors that make MO look attractive at current prices. First is the company's fat 7% dividend yield, which looks to be safe. Secondly, it still appears the company might reunite with its former Philip Morris International (PM) unit which became a separate company back in 2008. Under withering assault, it just makes sense for these allied forces to combine. A third reason to look at MO shares has to do with their successful diversification attempts. The firm now owns a 10.2% stake in Anheuser-Busch InBev (BUD), and has been increasing its stake in cannabis companies. Finally, there is a lot of promise around a new "heat-don't-burn" cigarette technology known as IQOS. This system heats the tobacco to 650°F without any actual combustion taking place. With shares down following news of the Juul charge, yield-hungry investors might want to take a nibble at $47 per share. While we don't own either MO or PM in any of the Penn Strategies, we would place a fair value on Altria shares at $55.

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CGC

Our Canopy Growth marijuana holding spikes double-digits following upgrade, praise for product lineup. (28 Jan 2020) We added medical and recreational marijuana company Canopy Growth Corp (CGC $14-$24-$53) to the Intrepid a few weeks ago not because we are bullish on the industry (we're really not), but because the company appears best positioned to take advantage of the medical marijuana niche going forward. Additionally, our favorite booze company, Constellation Brands (STZ), took a big position in the firm last year. Shares of Canopy popped 11% on Tuesday following glowing comments from BMO's Tamy Chen, who raised her rating on the stock to Outperform and posited a pretty strong growth story for the firm going forward. She also likes Canopy's new mix of value-added products which should resonate well with Canadian customers. She raised her price target on Canopy shares to C$40, or roughly $30.50. The shares have risen 20% since our purchase, and are about halfway to our target price of $30.

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MO

PM

Eleven years after they split, Philip Morris and Altria are set to reunite. (28 Aug 2019) Back in 2008, we recall mulling over the pending jettison of Philip Morris (PM $65-$75-$93) from Altria (MO $42-$46-$66), with the former focused on the international tobacco market and the latter remaining focused on US smokers. At the time, an enormous number of Asians were daily smokers, while the habit was coming under fierce fire in this country. We recall wondering how Altria would possibly hold up without the overseas market. Ironically, over the past ten years Altria has risen 153% in value while Philip Morris is up just 62%. Now, it appears the two are set to re-merge in a deal that would create a company with a $200 billion market cap. While both firms face ever-mounting anti-smoking headwinds, Altria has been strategically diversifying away some of that risk, taking a 10% stake in ABInBev (BUD), a 35% stake in JUUL Labs (e-cigs), and a 45% stake in pot grower Cronos Group (CRON). Furthermore, both are set to take the lead in the next technology innovation for the industry (after e-cigs), IQOS—a "heat don't burn" system that heats tobacco up to a temperature of 650°F, without the combustion, fire, ash, or smoke. While both companies ended up falling the day that the deal was announced, it makes more sense that these two large players band back together than continue going it alone. Is there any value in the shares of either company right now? Well, both have beaten-down share prices, both have a low P/E ratio of around 15, both have a dividend yield north of 5%, and the merger should create some nice cost-saving synergies. We see about a 20% to 25% upside to either at their current respective prices. Then again, it's always risky investing in an industry so clearly in the cross-hairs of both regulators and public opinion.

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BUD

Anheuser-Busch InBev yanks its Asian IPO due to lack of interest. (16 Jul 2019) Leuven, Belgium-based AB InBev (BUD $65-$89-$107) hoped to raise up to $10 billion on the deal. The plan was to sell a minority stake in the company's Asia-Pacific business through an IPO on the Hong Kong stock exchange. There was just one problem: a lack of interest. While the official excuse from the company for yanking the deal was "prevailing market conditions," the truth is they simply couldn't convince enough high-rolling investors that the reward would be worth the risk. China, where BUD offers dozens of different brews, has certainly been the company's fastest-growing market, but the company has been losing market share in the communist country to other European competitors like Heineken and Carlsberg. BUD will now look for other ways to reduce its hefty balance sheet, to include potentially cutting its dividends, which currently yield 2.3%. Shares are now trading approximately where they were back in October of 2012. We shed no tears for this formerly-great American company, which lost its way thanks to the arrogant offspring of a brilliant brewer. 

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STZ

CGC

Constellation Brands' strategy: ditch the cheap wine, load up on the beer and the pot. (08 Apr 2019) Last August we argued that, despite our support of booze maker Constellation Brands' (STZ $150-$193-$237) minority purchase of pot joint Canopy Growth (CGC), the stock was still a bit overvalued. At the time, STZ was sitting at $202/share. Now, Constellation is making an even bolder move: the company just sold 30-some brands of its lower-end wines (like Clos du Bois and Mark West) to E. & J. Gallo Winery for $1.7 billion to focus in on its beer and pot business lines—going after a younger demographic group. Investors seemed to like the news, sending the price up double-digits after the latest earnings report came out. Constellation owns such beers as Corona, Modelo, and Pacifico. While it continues to be our favorite booze joint, we would wait until STZ was between its one-year low and $175/share before picking back up. Shares are still down 15% over the past year.

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FIZZ
​2019.03.08

LaCroix maker National Beverage Corp misses, but the real story was the CEO's bizarre rantings. You may not be familiar with the name National Beverage Corp (FIZZ $66-$54-$127), but you probably pass the company's colorful LaCroix brand sparkling water cans every time you go to the grocery store. FIZZ just reported earnings, and it wasn't pretty. Sales dropped 3% from the same quarter last year, to $221 million, and net income plummeted 40%, from $41 million to $24.8 million. As bad as those numbers were, they are not solely responsible for the stock dropping 22% on Friday, punching through its old 52-week low. CEO Nick Caporella (and his sideshow act) was the real culprit. In the earnings release, the CEO said that "Negligence nor mismanagement nor woeful acts of God were not the reasons (sic)—much of this was the result of injustice!" That piqued our curiosity. But it gets better. He went on to compare managing a brand like LaCroix to caring for someone who becomes handicapped. Huh? What an idiotic, tone deaf comment. Caporella was apparently pointing to a class-action lawsuit claiming false advertising in the LaCroix ingredients list. In his defense, some of the articles written of this suit have been far from responsible, and bordering on the ludicrous. Claims that "LaCroix uses a chemical found in cockroach insecticide" may be true; as true as making the same claim about water. The chemical in question is linalool, a naturally-occurring substance found in extracts from the likes of tangerines, lemons, and cinnamon. (And yes, it may be added to "cockroach insecticide). Interesting hit job. Unfortunately, the billionaire CEO of National Beverage is making some headlines of his own: the 82-year-old is being sued by two male pilots of his business jet for "inappropriate touching."  Forget the claims of non-natural ingredients—those lawsuits will ultimately be thrown out. The real concern is Caporella's unprofessional commentary in the earnings report. FIZZ had a market cap of $5.7 billion last September, but that number now sits at $2.5 billion due to the cratering of the share price. Its 15 P/E ratio may make the shares look attractive, but we don't think the fallout is over. Plus, what industry is currently more saturated than the flavored sparkling water business?​​

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SAM

​BUD

A US beer company spikes, while a foreign beer company plummets. (30 Oct 2018) The chart is simply remarkable. American brewer Sam Adams (SAM, Boston Beer Co) is up 63% YTD, while Brazilian/Belgian brewer Anheuser-Busch (BUD) is down 34% YTD. Why? It couldn’t just be that Fenway Park has dumped BUD for SAM. Maybe it’s the fact that A-B saw a 10% drop in revenues this past quarter, while Boston Beer saw a 24% spike in sales. Speaking anecdotally, our consumption of SAM also spiked after BUD was forced into foreign hands by the bungling mismanagement (our opinion) of Buschies III and IV. 

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KO

Coca-Cola just bought one of the world's largest coffee chains. (31 Aug 2018) A few weeks ago it was BodyArmor. This week it is British coffee chain Costa. Coca-Cola (KO $41-$45-$49) is suddenly making some serious strategic moves, and we like it. As for Costa, Coke will pay $5.1 billion to buy the firm from Whitbread, Plc, giving it immediate ownership of nearly 4,000 locations across 31 countries. 
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​Don’t look for Coke to compete with Starbucks’ (SBUX) 28,000 stores however; this deal was more about getting the company’s toe in the door of a red-hot industry. While physical storefronts do build brand awareness, Coke plans to use its global leverage to get Costa products in stores, restaurants, and office buildings around the world. The company’s fizzy drink business has seen slowing growth over the past several years, so it will use this new addition to become adept at competing in a high-growth arena.

To that end, Coke plans on keeping the entire Costa team in place, and it will glean what it can about the industry from the inside. When Coke CEO James Robert Quincey learned that Whitbread wanted to divest itself of the holding, he moved quickly—paying a $1 billion premium in the process—to snag the brand before another coffee chain was able to make an offer. Quincey, who is British, was very familiar with the Costa name—about half of the chain’s shops are located in England.

Ultimately, expect to see Costa beans and drink products in grocery and convenience stores everywhere, as Coke’s massive marketing team and logistical advantage help push the brand. Also, expect the company to continue opening physical locations in China, Costa’s quickest-growing market. KO was down about 1% on news of the acquisition, while Whitbread Plc (WTBDY) was trading up around 14%.

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PEP

​SODA

PepsiCo to buy SodaStream for $3.2 billion. (20 Aug 2018) And the battle of the cola wars continues. Last week we reported that Coca-Cola (KO) was purchasing sports drink phenom BodyArmor—a blow to PepsiCo (PEP $96-$115-$123) and its Gatorade brand. Now, the latter is making a big move into the DIY at-home soda market with its purchase of Israeli beverage firm SodaStream (SODA $57-$143-$143). If you own one of the wonderful SodaStream machines, you have probably noted in the past that Coke syrups are everywhere, but not Pepsi. After Pepsi's $3.2 billion takeover of the company, expect that to change dramatically. Just one month ago, SODA was trading at $84 per share and had a $2 billion market cap. It now trades at $142.80—a new 52-week high—and has a market cap equal to Pepsi's offer price. Did the company overpay? We don't believe so. This is a growing niche space in the industry, and SodaStream is the hands-down leader. The company, while under Pepsi ownership, will continue to operate as a separate entity.   ​​

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STZ

​CGC

Constellation Brands makes huge bet on cannabis. (15 Aug 2018) Last October, we made note of our favorite booze company, Constellation Brands (STZ $196-$202-$237), showing interest in the cannabis arena. Now, the company is putting its money where its mouth is with a whopping $4 billion investment in Canadian cannabis firm Canopy Growth (CGC $7-$30-$37). Immediately following the announcement, Canopy spiked 25%, while the maker of Corona, Robert Mondavi, and Svedka, fell 9%. To recognize the scope of the investment, Canopy had a market cap of just $5 billion before the deal was announced. Why on earth would a world-class booze company pay a 51% premium for a Smiths Falls, Canada pot joint? STZ' outspoken CEO, Rob Sands, believes the sky is the limit with respect to the global marijuana business. While you can expect Constellation to come out with some pot-infused nonalcoholic drinks, the company will also share in the profits from Canopy's edibles, vaping, and smoking lines of business. That company's CEO, Bruce Linton, is especially excited about the German, Latin American, and African markets over the next twelve months. He also wants Canopy to offer medical cannabis across five continents within that timeframe. After the drop, we would love to take a stake in STZ, but no matter how we calculate the numbers we still come to a fair value of right around where the stock is trading after the drop. We believe it would be, however, a safer bet for anyone wanting to take part in the mushrooming cannabis business than trying to identify the winning pot stock in which to invest. ​

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KO

Coca-Cola made a good tactical decision by investing in BodyArmor. (14 Aug 2018) In the recent past, we've generally liked the decisions coming from the Pepsi (PEP) C-suites over those made by Coca-Cola's (KO $41-$46-$49) board. Having said that, the latter just made a bold move into the sports drink arena we strongly applaud. In an effort to take on Pepsi's category killer, Gatorade, Coke just invested in BodyArmor with the ultimate goal of taking full ownership of the startup. While Coke already owns Gatorade competitor Powerade, BodyArmor is being marketed as a healthier alternative to other sports drinks. More importantly, athletes are flocking to the new drink. BodyArmor uses a base of coconut water (though we couldn't really taste it), doesn't use artificial colors or high-fructose corn syrup, and provides about twice the electrolytes as Gatorade using potassium instead of sodium. The energy sports drink segment generates nearly $10 billion in sales annually, with Gatorade controlling about 60% of that amount. With plenty of room for future growth, and with Americans becoming more cognizant of what they put in their bodies, this was a brilliant move by Coca-Cola.   ​

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PEP

PepsiCo beats estimates on back of strong Frito-Lay sales. (10 Jul 2018) For all the talk of consumers moving en masse to healthier snacks, it turned out to be robust sales of Cheetos, Doritos, and Tostitos that helped beverage and food maker PepsiCo (PEP $96-$108-$123) top Q2 expectations. Revenue grew from $15.71 billion in Q2 of 2017 to $16.09 billion this past quarter, though net income drop from $2.12 billion to $1.82 billion over the same time frame on increased advertising and commodity costs (Pepsi owns Quaker, which has been impacted by higher grain prices, for example). While higher sales of Frito-Lay snacks helped the company beat its top-line number, the company's new Bubly sparkling water and "G Zero" zero calorie Gatorade lines also padded the numbers. G Zero hit grocery shelves across America in June. We see the fair value of PEP at $125 per share—about 16% higher than its current share price. ​

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KO

In its constantly-evolving diversification strategy, Coke enters a brand new arena
(29 May 2018) Coca-Cola (KO $41-$42-$49) has never shied away from pushing the envelope of its industry through bold initiatives. Perhaps the best piece of evidence for that argument was the disastrous introduction of "New Coke" back in 1985 (though some believe it was actually a brilliant marketing ploy). Now, the company founded by inventor John Pemberton back in 1886 is entering into a new arena, albeit on a limited scale. For the first time in its history, Coke is experimenting with booze-infused drinks. Cans of Lemon-Do, a fizzy, lemon-flavored drink with up to 7% alcohol, hit shelves across Japan early this week to an eager audience. Overall, reviews have been positive, but Coke faces stiff competition in the country with entrenched competitors like Kirin Holdings (KNBWY $20-$29-$30), a company we introduced to members through the Under the Radar section last December (at $22 per share).  This is a testbed for Coke: if the launch is successful in Japan, we can expect to see the line move into other markets around the world. 

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KO

Big soda producers beat back the inevitable by diversifying their portfolios
(16 Feb 2018) Shares of $191 billion beverage behemoth Coca-Cola (KO $41-$46-$49) were trading up about 2% after the company's Q4 earnings release. KO beat expectations both on top line revenue ($7.51B vs $7.37B) and bottom line earnings ($0.39EPS vs $0.38EPS), but both were still down from the previous year. For the entire year, Coke had net sales of $35.4 billion, which represented a 15% drop from 2016. Both Coca-Cola and arch-rival Pepsi (PEP $106-$111-$123) have been battling soda stagnation by investing in sports drinks and bottled water, and experimenting with new soda offerings. For example, Diet Coke just launched four new flavors. We see the company fairly valued at its current price of $46 per share, especially considering its rather rich 44 PE ratio. After Pepsi's recent fall from $122 to $111 per share (and its 33 PE ratio), we find that company a better value.

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DPS
​KDP

Dr. Pepper Snapple spikes 25% as Keurig agrees to buy the beverage giant
(29 Jan 2018) Dr. Pepper Snapple (DPS $83-$120-$127) will accept an offer to merge with privately-held Keurig Green Mountain to create a new, $11 billion, publicly-traded beverage company. DPS shot up 25% on the news. Under the terms of the deal, Keurig, which was purchased by investment firm JAB in 2016, will control 87% of the company, which will be called Keurig Dr. Pepper (sorry, Snapple) and trade under the symbol KDP. Shareholders of DPS will get a one-time special payment of $103.75 per share, and retain 13% of their prior stake. So, if you want to get an idea where KDP shares will initially trade, subtract $103.75 from the current share price of $120, leaving $16.25 or thereabouts. What do we think of this acronym-laden fizzy mess? Just that—it will be a mess. JAB is about "financial engineering," which we use as a pejorative. The private company is all about shuffling papers, making green come out for themselves in the process—not for shareholders. We wouldn't touch KDP.

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STZ

Constellation Brands getting into the weed business?
(30 Oct 2017) Our favorite booze maker, Constellation Brands (STZ $144-$213-$215), is taking a 10% stake in Canadian cannabis-dealer Canopy Growth, a $2 billion company trading on the Toronto exchange under the symbol WEED. Both companies said they will use the partnership as a testbed to study the seemingly-inevitable trend of marijuana as a (legal) recreational drug in the US.  Constellation, Brown-Forman (Jack Daniels), and Boston Beer Co. (Sam Adams) all made note in their annual reports of the potential threat of pot eating into their North American market share. Constellation owns most major Mexican beer companies (Corona, Modelo, Pacifico), SVEDKA Vodka, and a number of other spirits.

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HEINY

A new wild yeast has been discovered, and Heineken bought the rights
(26 Sep 2017) Amsterdam, Netherlands-based Heineken NV (HEINY $36-$49-$53) is taking full advantage of a new strain of yeast discovered in the mountains of Patagonia, Argentina. It has licensed the rights to use the yeast in it beers, and is creating an entirely new line of brews, called wild lagers, to put the species in the mugs of beer drinkers everywhere. Yeast used in brewing has, up until now, fallen under three distinct categories: ale, lager, and sour. This scientific discovery could lead to a brand-new category which uses only wild yeasts. It took Heineken’s chief brewmaster two years to create his first wild-yeast beer, which is named H41 after the latitude of where the yeast was discovered. This first beer in the series should hit American shores next year.

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KNBWY

Under the Radar: Japanese booze company
​(14 Sep 2017) Alright, technically the company is called Kirin Holdings (KNBWY $16-$22-$24), but its main business unit used to be called Japan Brewery. Ever hear of Kirin Beer? Founded 110 years ago, this Tokyo-based holding company manufactures booze and pharmaceutical products. There’s a combination. There are actually four divisions to the company: Japanese alcoholic and non-alcoholic beverages, overseas alcoholic/non-alcoholic beverages, pharmaceuticals, and biochemicals. With a market cap of $20 billion, the firm boasts 40,000 employees worldwide and 2016 sales of nearly $27 billion. The company’s price-to-earnings ratio is in the single digits. Kirin has begun showing interest in independent craft brewers, most recently taking a 25% stake in Brooklyn Brewery. 

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BUD

Non-American company Budweiser to lay-off 90% of craft sales force
(08 Sep 2017) Budweiser (BUD $98-$122-$136). Not a big fan. I love the American Spirit emanating from the German immigrant who built the company. I hate the “manslaughtering” offspring and his father whose arrogance and sense of entitlement led to the company being sold to a foreign entity. I root for the American craft beer companies; the ones who refuse to be bought-out by the Belgium-based Bud. So, what is happening to the craft beer companies snatched up by the mega-brewer whose new slogan is “Budweiser: This is not a hobby” (in a slam at craft beer companies)? Bud just announced that they would be laying off 90% of the sales force for “The High End,” the company’s craft beer division. Is anyone surprised?

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PEP
​

(11 Jul 2017) Pepsi's secret to success?  Sell less for more.  Pepsi (PEP) has been winning the cola wars of late, returning 8.5% for investors over the past year versus Coke's (KO) paltry 1.14%.  The New York-based cola company, which also owns Frito Lay, Gatorade, Aquafina, and a number of other brands, just cobbled together another decent quarter, despite slumping sales of its sugary namesake product.  On revenues of $15.71 billion, the company earned $2.11 billion—both figures are slightly higher than the same quarter last year.  The secret to growth in a flat market?  Sell smaller, higher-margin packs in the US while cutting back on advertising the larger, discount packs.  Have you seen how small those cans are getting?

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DEO
​STZ

(23 Jun 2017)  Diageo overpays for Clooney's Tequilla.   Talk about star power.  British distiller Diageo (DEO $99-$120-$123) has agreed to purchase actor George Clooney's high-end Tequilla brand Casamigos for up to $1 BILLION.  The booze distributor said it would pay $700 million up front, with the potential for $300 million more to be paid out over ten years based on the performance of the line.  That is crazy.  This is less about the quality of the liquid and more about the star who happened to co-found the brand.  It really brings into question the fiscal responsibility of Diageo's management team.  For distillers, we much prefer Constellation Brands (STZ $144-$184-$187), owner of Corona, Modelo, Casa Noble Tequilla (which it bought for $30 million), and other strong lines—their margins are better, and they apparently negotiate much better deals.  (Photo: OK, the bottles are really cool, but $1 billion?  C'mon.)

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 Bud ups Bid for Miller
(12 Oct 15) Beer conglomerate AB InBev raised its offer for rival beer maker SABMiller after being rebuffed last week on a previous offer.  The current proposal is a deal valued at $103 billion, which equates to a $67 per share market price.  While certainly a premium to where the shares were trading before the merger talks were announced, Miller still claims that it undervalues the company.

Under British merger rules, if a deal isn’t done soon, the Belgian company must walk away for at least six months, unless an extension is requested by SABMiller, the British side of the equation.  

Both sides really need a deal to be done.  InBev, the world’s largest brewer, has been witnessing an erosion of market share thanks to independent craft brewers and wineries, and SABMiller has large exposure to countries which have had economic troubles as of late­—the likes of Australia, Columbia, and Peru.

One sticking point has been the concentrated ownership of two Miller shareholders which have yet to give their full blessing to the deal.  Cigarette maker Altria owns about a quarter of outstanding shares, and the Santo Domingo family of Columbia owns another 15% or so.  Without the support of these two interests, it would be hard to get a deal done.  Altria has signaled a willingness to support a merger, but the Santo Domingo family has been a holdout.

In the end, we expect the deal will get done.  However, we also believe that the big beer conglomerates will face ever-stiffening competition from independent brewers.  Cheers to that.  (Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 39.)  
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So, you Think You are Drinking an American Beer?  Nice try, Budweiser
(17 Mar 15) Back in the very first issue of the Journal (check it out here), I wrote why Budweiser is no longer an American icon.  Actually, it isn’t even American-owned, thanks to the TFBs (Trust Fund Babies) who let the company slip into foreign hands back in 2008.  Since that imbroglio (Coors and Miller had already been purchased by foreign conglomerates), I have migrated to the upstart American craft beers.  Ironically, so has Budweiser.

I had to laugh at the farce of a commercial Bud (InBev) ran during the Superbowl, equating their beer drinkers to manly men, and craft beer drinkers to cerebral girly-guys.  There are a couple of reasons why that made me spew and guffaw in the direction of the big screen.  Let’s start with the “manly” level of the beer itself (hey, Budweiser made the comparison, not me).  After drinking a few American-made stouts, like the one in the photo, switching to a Bud Light was like going from a Kansas City Strip to a bowl of hospital oatmeal.  Can you really catch a buzz from that lemon chiffon-colored stuff?

But the biggest joke, which Budweiswer was playing on the American public, was the fact that they have been buying up American craft beer companies while they impugn their patrons in deficient Superbowl ads.

The latest US company to fall is Seattle-based Elysian Brewing Company, which Bud bought for an undisclosed amount.  Add that to the Belgian company’s 2014 purchase of Long Island’s Blue Point Brewing and Oregon-based 10 Barrel Brewing, in addition to the 2011 pickup of Chicago’s prized Goose Island Beer Company, which it bought for nearly $40 million.

Don’t get us wrong, protectionism is the white flag of a country that knows it cannot compete on the world stage (just look at how hard it is for an American firm to buy a French company).  And, when the dollar was sitting at an anemic $1.60 per euro back in 2008, a European company had every right to take over Bud from Trust Fund Baby IV, who had been involved in the death of two young women (read the book Bitter Brew—The Rise and Fall of Anheuser-Busch and America’s Kings of Beer, available at Amazon).  But for a foreign company like Bud to make fun of American craft brewers, while it is simultaneously gobbling them up, is pretty slimy.  

Perhaps the money line in the silly Bud ad was “Let them sip their pumpkin peach ale, we’ll be brewing us some golden suds.”  Really?  How is that Elysian Great Pumpkin Ale selling for you, Bud?

Here’s the bottom line: if you find a beer you like, buy it.  But if you are buying a Bud Light because it looks American, you are being hornswoggled.  So, with InBev buying up as many American micro-brewers as it can get its hands on, how do you know what really is American?  Here are a few that are still red, white and blue: Sam Adams, Sierra Nevada, Free State Brewing (think Ad Astra Ale), Deschutes, Breckenridge, and Shiner Beers.  (2017 update: Breckenridge is now owned by BUD)

Of course, there are a lot of others, so it pays to do a little research on who remains fiercely independent.  While the mega-brewers have been on a downward trajectory for the past decade, the craft companies have continued to grow in popularity, now accounting for about 15% of total market share.  

Yes, most of the people I know still drink Bud, in one brew or another, but the landscape is changing.  And what symbolizes the American Spirit more than a frosty bottle of real, American beer? 
​
(Reprinted from this coming Sunday’s Journal of Wealth & Success, Vol. 3, Issue 12.)
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Carlsberg Paying a Stout Price for its Big Bet on Russia
(18 Feb 2015) Chalk it up as another victim left in the wake of Blizzard Vlad.  Carlsberg, the Danish brewer and fourth largest beer company in the world, announced that its CEO, Jorgen Buhl Rasmussen, would be “retiring early” following a plunge in profit due to weak Russian sales and a falling ruble.
​
The first batch of Carlsberg beer finished its brewing process on 10 November, 1847…
(Read the entire story in the Journal of Wealth & Success, Vol. 3, Issue 8.  Not a member?  Click Here.)