Legacy Coors distrib D&D Bev in Brainerd, MN bought legacy Miller Norri Dist in contiguous Virginia, MN mkt.  No further details available at presstime.

Tho Constellation stock price took 6% hit after fiscal 2d qtr results reported yesterday, most Wall St analysts remained optimistic.  “We see an opportunity to own on the pullback,” wrote Credit Suisse’s Kaumil Gajrawala.  Kaumil focused on “beer backbone,” noting “beer humming along amidst noisy quarter” and STZ’s “fastest growing free cash flow story in our space.”  “Stock reaction overdone,” wrote Nik Modi over at RBC Capital markets.  Nik focused on strong beer margin, oppys for top-line boost from Corona Seltzer launch and reaffirmation of guidance amid what he also dubbed as “a lot of noise over the past year.”  “Visibility is poised to improve,” he believes, as wine/spirits biz gets back on track and Canopy losses moderate.  STZ “still the best ‘buy’ in alcohol,” proclaimed Bonnie Herzog at Wells Fargo.  She signaled Modelo Especial’s acceleration, distribution gains for Corona family, positives for Pacifico, Premier and Refresca and “sheer range of innovation STZ ‘unleashing’ in Mar 2020,” announced at NACS show.  “In sum, we are incrementally more bullish on STZ given strong fiscal Q2 beer results and the sheer scale of its 2020 rollout.”  (On conference call, cfo David Klein said that Constellation expects innovation to be 25% of expected high-single-digit net sales growth over next few years.)  Dara Mohsenian at Morgan Stanley more muted: “We see limited beer revenue growth upside vs consensus with a lower STZ distribution opportunity relative to recent history.”  He also cited increasing mkt share pressure in high end from competitive seltzers and Mich Ultra.  Even so, regarding stock drop, “we see a glass more half-full,” given top execs’ confidence that depletions will improve in 2d half, supported by current scan trends. 

Meanwhile, CEO Bill Newlands told Mad Money’s Jim Cramer that “people may have gotten mixed up a little bit in some of the accounting treatments around Canopy,” resulting in stock hit.  Bill focused on “really strong” qtr for beer biz (80% of profit) and “best ever” margins there.  Bill also reiterated that Constellation remains “bullish” on cannabis and its Canopy investment, saying again that Canopy best positioned to win in looming $200-bil global cannabis mkt.  Back on stock price, like Kaumil, Bill suggested “this is a great opportunity for people to buy in because we think some people missed the success that we had during the quarter.” 

Fast-Tracked: Mallika Monteiro Named Exec VP, Chief Growth & Strategy Officer  Mallika Monteiro just moved up again in Constellation ranks.  After coming to Constellation as beer innovation veep in 2016, Mallika got sr veep/chief growth officer position in Oct last yr and just promoted to exec veep and chief growth and strategy officer. She’s been “driving force behind our efforts to capture and translate consumer insights into innovation that helps accelerate growth,” said ceo Bill Newlands.  Mallika played key role in launch of Corona Premier and development of Corona Refresca, as well as new wine/spirits brands.  She also took lead in Constellation’s Focus on Female Founders program, set up to invest $100 mil in female-founded bizzes/start-ups in alc bevs over next decade.

With Modelo Especial Chelada passing Tecate as #10 import brand in $$ sales in IRI MULC scans thru Sep 8, Constellation had 7 of top 10 import brands yr-to-date: 4 in Corona family, 2 Modelos and Pacifico.  Leaves just Heineken, Stella Artois and Dos Equis as #3, #4 and #5.  Look again at concentration in imports.  Top 10 brands had 84 share of import $$, 82 share of import volume.  Add next 5 brands and you’re over 90 share.   

Modelo Especial just passed Miller Lite as #4 brand in $$ sales yr-to-date, at $1.432 bil vs $1.421 bil.  Especial still behind Lite and Bud in cases.  Then too, of import segment’s $298 mil in growth YTD, Especial snagged $232 mil.  Total import volume +6.9 mil cases; Especial alone up 6.96 mil.  Corona Extra indeed flattish in scans (as ceo Bill Newlands said of brand overall on Constellation’s conference call yesterday).  Corona Light

-14%, but Premier +39% and Familiar +11%.  All in, Corona family $$ +$51 mil, 3% and volume +924K cases, 1.8%.  At $1.735 mil in total dollars, Corona portfolio outsold Coors Light/Banquet by $5 mil in scans this period.  Also edged Michelob Ultra family by about $16 mil.  Then too, Pacifico tacked on 400K cases, 14%, plus $13.3 mil, 15%.  Toss in Modelo Chelada’s 102K-case, $5.7 mil gain and Constellation’s top 7 brands expanded $$ by over $300 mil on 8.4 mil additional cases.

Brand Heineken slipped 0.7% in volume yr-to-date, but $$ up $4 mil, 0.8%.  Dos Equis off less than 1%. Dos is still ahead of Stella in cases in scan outlets, but fell behind in dollars.  Tecate/Tecate Light shed over 1.1 mil cases, 16% and over $20 mil, 14%.  Stella up slightly: +1.1% in volume 1.7% in $$.  Below top 10, Modelo Negra strong at +11% (volume), Labatt Blue/Light each down 6-7%, Guinness Draught/Extra +6%.  MillerCoors gaining volume and share in imports, but Sol (+12.5%) and Peroni (+50%) combined still less than 1 share of segment.  Oddly, while AB InBev such a powerful global brewer, its 2d largest import brand is Estrella Jalisco.  It ranks #41 among AB brands in scan and not even 0.1% of its scan volume.   D’ya think not having Modelo portfolio in US bugs ’em much?

What a weird disconnect.  As increasingly positive September retail scan data comes in from Nielsen and IRI, industry shipments picture thru Aug getting worse.  Indeed, Aug import shipments -223K bbls, -6.9%, reports Beer Inst Economist Michael Uhrich, based on data from Commerce Dept.  That dropoff knocked 8-mo import gain back to +453K bbls, +1.8%.  Note too, import trend helped by big jump in NA imports (mostly Heineken 0.0), up nearly 100K bbls for 8 mos.  Without NAs, import beer -8% in Aug, up just 1.4% yr-to-date.  Recall, Aug taxpaid shipments by domestic brewers down 7.3%, Michael estimates, making Aug softest shipments month in the biz since Jul 2011.  And it wasn’t a tuff comp; total shipments flat in Aug 2018.  All in, US shipments -2.4 mil bbls, -1.7% Jan-Aug.  Again, both Nielsen and IRI report volume gains thru 8 mos, +0.2% and +1.6% respectively.  Be interesting to see if/how these gaps narrow as yr goes on. 

In Aug, Mexican shipments stalled, -8%.  Dutch shipments of beer tanked almost 20%, tho NA’s soared.  Canadian and Irish biz off 10%-12%.  But Belgian-German combo up mid-singles. And Italian/Jamaican brands up sharply.  For 8 mos, Mexican shipments up just 566K bbls, 3.2%.  But that’s still over 100K bbls more than entire import gain.  Dutch shipments -90K bbls, 3%; but that includes additional 85K bbls of NA.  Dutch biz

-6% ex-NAs.  Belgian-German shipments up 62K bbls, 3%.  Canadian shipments off 7%, Irish shipments flat, UK shipments -16%.  Italian shipments way up YTD (+62%); Jamaican shipments way down (-34%).   A final piece of not-so-good news: beer exports continue to tank, -39% in Aug, -1.3 mil bbls, -29% for 8 mos.

A coupla weeks ago, Express noted how home delivery services from various retailer biz models are adopting #1 feature of c-stores: convenience (see Sep 19 issue). And here comes announcement from Circle K owner, Couche-Tard, the “largest independent convenience store operator” in US (in # of company-operated stores), that it will deliver products “including beer” to consumers in “under one hour” from nearly 600 of its stores in Texas.  This follows successful launch in Houston and spreads option to Corpus Christi, Dallas-Fort Worth, San Antonio and more cities.  Circle K will use delivery service called Favor which can obtain an alcohol delivery license for $5K.  Favor responsible for assuring delivery made to legal age recipient.  Circle K will offer free delivery for 30 days after sign up, charge $3 thereafter, it sez in announcement. 

Recall too, we reported that a liquor chain owner in Virginia fretted about costs of home delivery and potential loss of store visits.  But counterpart in NJ, Gary’s Wine & Marketplace, with 4 stores and “thriving e-commerce biz,” recently launched home delivery service to customers within 4-6 miles of its locations in the state.  Gary promises 1-hr delivery by store employee.  Minimum order: $25.  Owner Gary Fisch sez: “When guests come into our store, they receive one-on-one attention from our wine experts and have the chance to sample products to explore their interests. While experience and education are core to our values, we also want to make shopping as convenient for our guests as possible.”             

“Worst kept secret” is secret no more. Constellation ceo Bill Newlands made Corona Hard Seltzer launch “truly” official on this morning’s conference call.  Bill labeled Corona Seltzer the “next big innovation” for Corona Brand family.  Seltzers are “here to stay,” said Bill, and will “accelerate volume shift” to above premium.  Asked on conference call how big seltzers can get, Bill said “that’s an evolving answer. Everyone was somewhat surprised by the aggressive growth,” especially this summer, but Corona Seltzer brings “a unique refreshment profile to this particular category” and expects “to gain significant share” in the high end.  Corona Seltzer will be a “superior product” with “superior margin and profitability structure,” Bill added.  

Corona’s “refreshment characteristics,” inherent in the brand’s “DNA” make it a “perfect match” with hard seltzers.  Constellation also unveiled Corona Seltzer at Natl Assn of Convenience Stores (NACS) conference in Atlanta this week, as Evercore ISI’s Robert Ottenstein reported from show. “We believe investment behind Corona Seltzer” next yr “will be greater than the $35 million STZ invested behind Premier in year 1,” he added.  Robert bullish on Corona Seltzer as product that “has the potential to be significantly incremental to STZ and bring new consumers into the Corona brand family.” 

Robert also detailed other coming Constellation innovations “highlighted” at NACS.  Those include 7 oz bottles of Modelo Especial called Modelito, a Mango Chili flavor of Modelo Especial Chelada, a Corona Refresca Mas extension with 8% ABV in 2 flavors, Mango Citrus and Tropical Berry.  And Constellation is also testing a hard coffee in Pac NW and Two Lane American Golden Lager.

Constellation is #1 in high end beer and got 25% of high-end growth in Jun-Aug qtr, said ceo Bill Newlands, adding that it grew share over every summer holiday.  Bill gave several reasons why execs remain bullish on STZ beer growth, including ongoing tradeup, that premiumization in big midwest states like OH and MI “becoming more prevalent,” that Hispanic population growing at CAGR of 3%. Then too, STZ brands have “ample distribution runway” with initiatives like Shopper First and a “strong innovation pipeline.”  Modelo Especial “en fuego,” said Bill.  Now the #1 import and #5 brand overall in IRI.  In latest qtr, it got double digit depletion growth in 44 of 50 states.  But its household penetration still low at 5-6% of non-Hispanic households, only about half that of Corona.  On-premise, it’s in 50% fewer accounts than Corona.   All of this gives Modelo “significant runway for growth well into the future.”  Meanwhile, Constellation plans to increase mktg investments, especially on Corona brands, in fiscal 2d half.  Corona Extra “flattish,” Bill acknowledged, but Corona is “#1 high end beer family,” Premier “accelerating” and Corona Seltzer coming next yr (see below).   

But STZ Stock Under Pressure; Wine Writedown of Up to $300 Mil Next Qtr Constellation stock fell as much as 7% today, before climbing back a bit.  Down 5.4% at presstime. That’s a loss of over $2 bil in mkt cap.  Much of that related to equity loss on Canopy Growth, but delays in closing Gallo deal can’t help.  Because “contingent consideration” based on “future performance” now factored in as part of deal for Gallo to buy brands, Constellation expects to take up to $300 mil loss on its wine and spirits biz in 3d qtr, cfo David Klein said.  It now expects its wine biz to be down 15-20% and operating income down 25% in fiscal 2020.

National Cannabis Industry Assn (NCIA) represents numerous cannabis bizzes and calls itself “the leading policy voice for the state-regulated cannabis industry.”  NCIA just released a report with “reasoned and responsible approaches” that feds could adopt to regulate cannabis.  Report proposes a “4-lane” system based on different types of products (medical/non-medical, higher/lower THC levels).  Most relevant for recreational use is lane 2: “Ingested, inhaled or topically applied products with more than de minimis amounts of THC (+0.3%).”  These products would be “regulated like alcohol,” NCIA explicitly advises, with oversight shared by TTB, FDA and state regulators.  States would have “primary regulatory responsibility,” especially over retail sales, “with TTB playing a significant oversight role on the federal level,” consulting with FDA where appropriate, as it does on alcohol.  TTB’s experience with alcohol means it could “hit the ground running” with cannabis.  As with alcohol, TTB would oversee permitting, approve labels, perform inspections, collect taxes, regulate imports and “ensure only ‘qualified persons’ work” in the biz.  Only producers/manufacturers and wholesalers would need fed permits, NCIA advises.  There would be no limit on number of permits and TTB would have right to inspect premises (as would FDA).  States would permit and regulate retailers. 

TTB would also regulate cannabis labeling to ensure labels accurate, not misleading and provide adequate info.  NCIA doesn’t say too much about a TTB role in advertising regs, tho it does say that cannabis should be able to make certain health claims (unlike alcohol, but like supplements) given already established medical cannabis programs. Another difference: cannabis labels should not have to be pre-cleared by TTB (no COLAs).  Rather, TTB should issue specific label guidance and have oppy to require recalls/changes if labels do not comply.  Fed excise tax “could be imposed,” tho NCIA “silent” on the level other than to advise it be “reasonable” so as not to incent illegal sales. 

TTB Should Not Adopt Required 3-Tier System, Nor Tied-House Regs Where should cannabis not be regulated like alcohol, in NCIA’s view?  “Mandatory 3-tier system,” adopted as a “unique” response to alcohol prohibition, “should not be applied reflexively to the cannabis industry,” NCIA advises.  So far, states have experimented broadly with different systems, with some requiring distribs, others not.  “Accordingly, distributors should be allowed and permitted, but they should not be required.”  Then too, TTB should not adopt “tied-house prohibitions” on cannabis biz, sez NCIA, “effectively prohibiting vertical integration.”  These efforts, originally adopted to halt “aggressive practices of certain large brewers,” aren’t applicable to cannabis, NCIA believes.  Indeed, “many states have required cannabis companies to be vertically integrated.”  So, no tied house rules.  Finally, states would develop their own regulations “to limit sales,” decide on allowed locations and any purchase limits.  This “split system” between feds and states, NCIA believes, “strikes an important balance between providing clarity for businesses while respecting state laws and local political conditions.”      

Pennsy Pol Sez State Liquor Stores Should Sell Cannabis  Some policy and public health advocates have suggested governments should follow control-state model and have state stores sell cannabis, tho that hasn’t happened yet.  Pennsy state rep will intro a bill that would use current state liquor stores to sell cannabis there if cannabis made legal, reports WGAL.  Rep David Delloso sez plan would create over 18K jobs and $581 mil in state taxes. 

Constellation Brands Beer Division delivered solid results, but Constellation recorded a $484 mil equity loss on Canopy Growth and $525 mil net loss overall, its wine and spirits deals are slow getting done, and its stock down 3% in pre-market trading.  Beer shipments up 4.6 mil cases, 5.3% in 2d fiscal qtr thru Aug 31^st and sales-to-retailers up 6.2%.  But that doesn’t include factoring in 1 less selling day; selling-day adjusted Constellation STRs still up a strong 7.5%.  Shipments also up 5.3% for 6 mos, depletions up 6.4%.  Net sales up 7% both periods too.  Suggests near 2% rev per bbl increases.  Net revs up $215 mil to over $3 bil for mos.  And oper income up $115 mil to $1.265 bil.  Already best-in-class, Constellation oper margin again expanding in fiscal 2020 so far.  Its over 40% for 6 mos (40.6), up one full point.

Meanwhile, Modelo Especial depletions jumped 15% in qtr.  Since Modelo about 40% of Constellation biz, suggests rest of Constellation Brands Beer Division not much better than flat in qtr.   But Corona Premier and Pacifico each up double digits too. Premier “has become the fastest growing beer in the on-premise.”  And Refresca a “‘top 5’ U.S high end beer market share gainer with accelerating depletion growth throughout the summer months.”  

Sale of chunk of Constellation’s wine and spirits biz “now expected to close by year-end fiscal 2020.” Constellation originally expected to close wine sale to Gallo in 1^st half 2019.   Constellation wine and spirits depletions dropped 13% in 2d qtr.  Wine and spirits operating income down 20% to $160 mil. Canopy Growth “equity losses and related activities for second quarter fiscal 2020 totaled a loss of $484.4 million,” reported Constellation.  Not a word on Ballast Point in release.

Crook & Marker, founded by Bai’s Ben Weiss, is doubling down on its portfolio of “better-for-you” alc bevs while distinctly steering clear of the “hard seltzer” label. Starting this mo, Crook & Marker is launching new line of “Spiked Sodas” with 4% ABV, zero sugar, less than 1g of carbs, “no artificial flavors” and just 80 calories, co announced. Flavors include Classic Cola, Lemon Lime, Ginger Ale and Root Beer. It’ll initially launch in MT and WI both on and off premise, including in chains such as Target, Total Wine, Town Pump, Albertson’s, Woodman’s, Festival Foods and Piggly Wiggly, before rolling out nationally by early next year.  

Ben and co are sticking to their story: “we believe hard seltzers were just the first stop in consumers’ pursuit of a better way to drink,” Ben states in release. “Soda has become a bad four-letter word in many households across America,” but “not because anyone ever fell out of love with the taste of soda, just the sugar and broken ingredients that came with it,” he added. So this line of hard sodas is distinctly differentiated from existing brands that sometimes have up to 30g of sugar, co points out.

Crook & Marker Spiked and Sparkling line sales also have picked up in natl scan data more recently, with $$$ sales of $5.85 mil from 114K cases YTD thru Sep 8 in IRI mutli-outlet + convenience data.  And co touted its silver medal in “the People’s Choice category at America’s first-ever hard seltzer competition.” But at this point, consumers are clearly (pun intended) running toward hard seltzers. Crook & Marker (along with everybody else) is largely playing catch up to White Claw and Truly.