Fresh on heels of mega-retailer Total Wine’s victory at US Sup Ct tossing Tenn’s residency requirement, Massachusetts Superior Judicial Court handed Total (another) loss linked to how Total must operate under a state’s pricing laws.  Recall, Total lost challenge of Connecticut’s pricing laws at US Appeals Ct earlier this yr.  It seeks review of decision by full Appeals Ct panel.  If that doesn’t work, Total could go back to US Sup Ct, as NBWA’s Alc Law Review, reminds.  Don’t put it past ’em.

In Mass, ABC tagged Total a coupla yrs ago after competitors complained it was selling product to consumers at below its invoiced cost from distribs, illegal in Mass.  ABC investigated and found multiple instances where Total sold product for less than what invoices show it paid distribs for same product.  ABC ordered (modest) license suspensions for 2 Total stores. Total went to court.  Argued it wasn’t selling below cost, because it knew it would get subsequent cumulative quantity discounts (CQDs) from distribs and simply factored those discounts into its cost and subsequent price to consumers.  Lower court agreed with Total, ruling that ABC “disregarded the substantive realities of transactions” in liquor biz and commission’s “inflexible” position was disconnected from state’s aim to prohibit unfair competition.  But higher court just reversed.  It ruled that “plain language of [the statute] requires that the net cost of liquor or wine sold to a licensed retailer, including any credits applied to that sale from CQDs, be reflected in the invoice for that particular sale.”   Net-net: “invoiced cost” means invoiced cost, not the net based on subsequent discounts.  What’s more, ABC “reasonable” in both its interpretation of statute’s “plain language” and “in light of its legislative mandate and the administrative demands of efficient and uniform enforcement,” Superior Court ruled.   

Total argued that the ABC could do the math just as Ttoal did to figure impact of future quantity discounts.  But Superior Ct rejected that, saying “it would be considerably more difficult” and “far from simple in practice” to do so.  Total can pass on CQDs to consumers, judges noted, “if and when the CQDs are applied to a future purchase.”  And while lower court judge found ABC to be “inflexible,” Superior Court found commission’s original decision “was not arbitrary and capricious or otherwise unreasonable.”  Sent case back to lower court to “enter judgment in favor of the commission.”  Mass Package Store Assn cheered result, noting that Superior Ct “affirmed what we all know.  Total Wine was engaged in a pricing scheme that gave them an unfair advantage.”  

Lotsa confusing Bell’s-related action continues in VA and now DC too.  Bell’s reportedly just terminated its DC/VA distrib Hop & Wine; it sold as much as 150K cases between 2 locations.  Bell’s presently without a distrib in DC as Bell’s works out final details of deal to buy its brands from Hop & Wine, source said.  Bell’s gave 30-day notice about a month ago of termination without cause, which it claims as a right under its contract with Hop & Wine.  When Bell’s gave notice, Hop & Wine reportedly filed complaint with VA ABC.  Recall, Hop & Wine also had rights to Bell’s in northern VA. But Bell’s pulled from state of VA and is embroiled in battle at ABC in VA, that started after Reyes Beer Div bought Loveland in Richmond last Dec. 

Back and forth it’s gone, with most recent ruling reversing earlier decision that compelled arbitration as per Bell’s contract.  On 2d thought, VA ABC said it would hear case.  Just filed: another Bell’s motion seeking “reconsideration” from ABC, asking VA to “vacate” its order remanding case to be heard by VA ABC and allowing Bell’s 2 weeks to file supplemental briefs “on the issue of whether the Board has jurisdiction to hear a case the parties agreed to arbitrate.”  That same Reyes-related rationale may have propelled Bell’s DC actions, as Reyes reportedly in talks to buy approx 1-mil-case Hop & Wine.  Finally, all this plays out as potential trades for Dogfish Head could factor in too.  Oh what a tangled web we weave!

Confident-sounding ABI cfo Felipe Dutra insisted that ABI faces “no refinancing pressure for the foreseeable future,” pointing to its retained cash flow (RCF) and cash equivs of about $17 bil as of Jun 30. So why sell Aussie biz, asked Redburn analyst Tristan van Strien. That was only remotely tuff question following overall strong qtr. Felipe’s answer had more to do with potential Asian IPO than ABI’s debt level.  Overall, investors really liked AB results globally and stock still up 4% today at presstime.  But strikingly, on conference call, literally not a single question asked about ABI’s US biz (that’s gotta be a first).   What’s more, ABI ceo Brito didn’t show one slide about ABI’s US performance either. US reduced to 1 bullet point on a slide about different mkts.  That surprised.  INSIGHTS is used to global Heineken deemphasizing its smaller US biz on its conference calls, but not ABI.  After all, US remains ABI’s largest and most important market, that is over one qtr of earnings.  And while US earnings up slightly, volume continued soft, as ABI reported.  Yet amidst global growth, it warranted little notice on call.

With one less shipping day, domestic brewers taxpaid shipments tumbled 850K bbls, 5.2% in Jun, Beer Inst economist Michael Uhrich estimates.  For 6 mos, taxpaids -1.3 mil bbls, -1.5%.  Import gain thru May was 346K bbls, 2.3%.  With Jun import report still to come, looks like total US shipments down about 750K bbls,

-0.7% or so in 1st half.  Meanwhile, AB InBev reported industry STRs -2.8% in Q2, following 1.6% decline in Q1.  That implies STRs off more than 2% Jan-Jun.  A one-pt difference amounts to about 1 mil bbls.  What’s the diff?  Not totally clear, but higher inventories and tuff-to-measure taproom biz (that’s not STRs) probably part of explanation.

AB hired Jenn Morris as communications veep, filling slot that was vacated by Gemma Hart, who left for Danone, back in Apr.  Jenn worked at Visa for several yrs thru mid-2016, then became sr veep at pr agency Edelman between 2016 and Mar 2018, and for last 1+ yrs Jenn served as strategic communications consultant who “created public affairs and communications campaigns for leading brands in the energy, news, and financial services sectors,” according to her LinkedIn page, working in DC metro area.  Earlier, Jenn worked on several US Senatorial campaigns.  Jenn will move to NY next mo.  

Diageo Beer Co USA continued to far outperform a sluggish US beer biz in 1st half of 2019, even while it slowed a bit from breakout 2d half of 2018.  Lookin’ at 12 mos thru Jun 2019, DBC USA volume rose 8%, organic net sales +10%.  Both trends slightly off 6-mo trends in back half of 2018 when volume +10%, net sales +13%.   FMB $$ sales jumped 18% for 12 mos (vs 24% in last 6 mos of ’18), still riding Smirnoff Spiked Seltzer and Ice Smash.  Net sales for beer +2%, matching Jul-Dec trend; Guinness +3%. Opening of MD brewery and “expanding home consumption occasions supported Guinness growth,” Diageo reported.  In Nielsen all outlet scans, DBC USA volume +11% yr-to-date thru Jun; $$ +12% as it gained 0.1 share of each. 

Diageo had good year globally too.  Organic net sales +6.1% to $16.1 bil on 2.3% volume gain.  Operating profits jumped 9% to $5.05 bil.  In key US spirits, Diageo scored 2% volume gain, 5% net sales increase.  Smirnoff Vodka “base business” stabilized (it can happen with established, once-declining brand) and got modest pop from extensions.  Whiskies did better.  Global results reflect “steady progress,” said CEO Ivan Menezes in release. “In the medium term I expect Diageo to maintain organic net sales growth in the mid-single digit range and to grow organic operating profit ahead of net sales in the range of 5%-7%.” 

ABI reported very mixed bag of results for US biz this morn, but good results globally.  In US, AB revs up 1.8% and EBITDA up 2.8% in Q2 on back of 4.2% rev per bbl growth, including Apr price increase “that was earlier than in prior years.”  And shipments were almost 2 points higher than depletions. But sales-to-retailers stayed stubbornly soft.  AB STRs dropped a tuff 4% in Q2 (bad weather in May, timing of July 4).  That meant AB STRs down 3% in 1^st half.  Trend virtually unchanged from 2.7% drop in 2018, 3% drop in 2017.  Yet shipments tracked much better.  AB shipments down 2.3% in Q2. That’s a 1.7 point differential between shipments and STRs, and lends credence to distribs that complained inventories high.  AB shipments down “just” 1.7% for half.  Suggests 400-500K extra bbls of beer in system at end of first half. Shipments and depletions trends usually even out over course of full yr.  

AB Got 57% of Innovation Volume  AB’s uneven performance also extended to its brands.  It’s still gaining share above “core,” 80 basis points, it estimates.  Even as AB estimates it lost 55 basis points of share overall (down 1 full share in scan data).  AB’s “mainstream” brands lost 135 basis points of share.  Mich Ultra growth “accelerated,” AB regional craft portfolio “grew double digits” and AB captured “57% of the innovation volume within the category this year.” 

Total US Biz Down 2.8% in Qtr  Total US biz in serious doldrums, according to ABI estimates.  Industry STRs down 2.8% in 2d qtr, sez ABI, “driven primarily by unfavorable weather conditions.”  That’s softest industry STR trend INSIGHTS can remember in a qtr.  (Editor’s note: weather didn’t seem to hurt seltzer performance.)  Industry depletions down 2.2% for half, ABI reports.  What is going on?

Global Results Beat Consensus; Stock Pops But US a “Standout on the Weak Side”  Globally, ABI got its best volume growth in a qtr in 5 yrs, it said, beating estimates all the way around.  Global beer volume grew by 2.2% in qtr and 1.7% in half.   Global EBITDA up 9.4% in qtr and 8.8% in half.  ABI still has $104 bil in debt, unchanged.   AB stock up a striking 5% this morn. After “falling nearly 40% last year,” noted Financial Times, ABI shares up 48% so far this yr, but “remain one third below where they traded in October 2016 when the SABMiller deal closed,” FT wrote. 

While analysts praised “strong beat across the board” (Macquarie’s Caroline Levy), “solid beat” with “very strong operating set of numbers” (Bernstein’s Trevor Stirling) and “good results” that “were broad based” (Consumer Edge’s Brett Cooper), US remained a sore spot.  US “a standout on the weak side,” said Brett, as “continued softness within mainstream is a weight that is proving difficult for ABI to overcome.”

Cannabis legalization hit DC radar again in recent days.  A number of high-profile Democrats, including chair of House Judiciary Committee Jerrold Nadler and Dem prexy candidates Kamala Harris (bill’s Senate sponsor) and Elizabeth Warren, intro’d the Marijuana Opportunity Reinvestment and Expungement Act.  Broad-based reform bill removes cannabis from Schedule 1 status in Controlled Substances Act, expunges criminal records of those convicted of cannabis crimes and provides financial support for start-up minority bizzes in budding cannabis biz.  Notably, bill addresses key issues (the latter two) that ultimately stymied legalization efforts in NJ and NY earlier this yr as state legislators could not come to agreement on them.  But new bill takes direct aim at both, including not only expungement of prior convictions, but 5% sales tax on cannabis sales to fund services to communities “most adversely impacted” by War on Drugs and assist minority-owned startups.  There are also provisions that ensure those with prior convictions aren’t denied federal public benefits, nor suffer “adverse impact” under any immigration laws.  Not surprisingly, and likely as a result, among 4 Senate co-sponsors and 27 in House, only one Repub signed on so far.  Net-net from this bill and recent hearing that raised same criminal justice/biz assistance issues: bipartisan support for reform may be losing momentum. 

Meanwhile, Senate Banking Committee recently held hearing to consider reforming laws that mostly force cannabis biz into being cash-only and stifle investment.  Committee chair Mike Crapo acknowledged “strong case” for need to resolve banking issues, reports Marijuana Business Daily.  But he apparently has “concerns” as well and concluded that banking reform “is an important, complex issue that we need to get right.”  Up to Crapo whether SAFE Act, which would clear banks to serve cannabis bizzes without being tagged for prosecution by feds, advances in Senate.  SAFE has passed House committee.  But, in perhaps another sign of fading bipartisan support for cannabis reform, only about 1/3 of Senate Banking Committee members even attended the hearing, MJBiz reported.

Cases involving retailers shipping alc bevs across state lines are hot topic in wake of recent US Sup Ct decision tossing Tennessee residency requirement for liquor retailers.  A number of such cases have been decided in fed courts; others still winding their way thru ’em.  And while Rex case in Mississippi testing match-and-redirect provision in AB contract continues to slowly work its way thru state court there, another MS case, involving internet shipping, could be next US Supreme Ct case, suggests NBWA’s Alcohol Law Review (ALR).  Case now before MS Supreme Ct and losing party could (likely to?) appeal to high court; 11 of 75 cases heard by Sup Ct this yr came from state courts, ALR reminds.

What’s the beef?  In 2017, MS officials did sting and found out-of-state internet sites knowingly shipped alcohol into dry counties and to underage buyers in MS, profiting to tune of over $200K by violating state alc bev laws.   State filed suit to stop ’em and get penalties.  But lower court dismissed suit, claiming state had no “personal jurisdiction” over these retailers since, per an FOB agreement in online purchase order docs, “‘title to the goods’ (i.e. the unlawful sale of alcoholic beverages) passed to Mississippi consumers ‘at the time of purchase,’ and thus either to New York or California.”  MS appealed to state Supreme Court, insisting lower court erred and that “the repeated and knowing violations of the State’s laws subject [these internet sites] to specific personal jurisdiction in the courts of Mississippi.”  Predictably, sellers included in their brief a dormant Commerce Clause argument in wake of recent Tennessee decision, claiming discrimination vs out-of-state entity.  But MS should not even entertain that argument since it hadn’t been brought up before, MS AG argues.  Besides, no discrimination here, since MS law bars all direct shipments of alc bevs from retailers to consumers. 

Per usual, lotsa interested parties weighed in.  That includes MS Beer Distrib Assn, which signed on to friend-of-the-court brief that: 1) supports the state’s “policy of strict regulation of the alcohol industry”;  2) makes a public safety argument regarding prevention of sales to minors and counterfeit alcohol; 3) points out MS law provides economic benefits to the state.   Oral argument expected this fall.

First priority of Pabst for 2019 as stated in series of regional meetings late last year: to raise Pabst Blue Ribbon prices to premium.  But that clearly didn’t work.  PBR, which is half of Pabst volume, almost immediately declined at far faster rate. Losses even steeper in 2019.  And now at least in some geographies, Pabst has told distribs it will lower prices on Pabst, starting next month, sources said.  Not all the way back to where they were but lower than where they are now, we’re told.  More details when we get ’em.  Pabst Blue Ribbon volume down 14% yr-to-date thru Jul 13 in Nielsen all outlet and 16% for 4 weeks. Avg price up $1.07, over 6% per case last 4 weeks to $18.07.  That’s almost $2/case higher than Busch, $2.70/case higher than Natty Light.  But $$ sales still down 11% same period. Total Pabst Brewing volume down 11% YTD, $$ down 8%. 

Is Pabst Hard Coffee A Ray of Hope? Pabst recently getting lotsa ink for its new Hard Coffee (5% ABV), made with “rich, creamy American milk,” and debuting in 5 states (PA, ME, NJ, FL and GA).  Anecdotal reports suggest brand is selling outta gate.  Sold for $14.99 per 4-pack in PA, according to NY Post.  But caffeine/alcohol mix occasionally a lightning rod for industry critics (i.e. the original Four Loko, with much higher ABV).  Then too, Pabst and its distribs reportedly a little gun-shy after what happened with Not Your Father’s Root Beer (boom/splat), so Pabst trying not to get too far ahead of itself. Then again, if it’s selling…