Fed officials about done with criminal case vs slate of 8 folks led by ex-MC veep David Colletti for defrauding brewer to tune of near $9 mil for events that never happened between 2003 and 2013.  Roderick Groetzinger, #7, pled guilty for billing MC for $2 mil of that, reports Law360.  And #8 “set to plead out later this month.”  Rod ostensibly faces 20 yrs but “more likely to face 41 to 51 mos.”  He also agreed to have assets seized to pay MC for the $2 mil.  MC also has civil suit pending.  

Top exec compensation, and how companies report it, has grown increasingly complex over the yrs.  A coupla pages in annual proxy has ballooned to chapter length.  Thank goodness “summary compensation table” from Molson Coors totes up last 3 years for highest paid execs.  It shows prexy/ceo Mark Hunter came in just under $9 mil in 2016 ($8,929,414).  That’s 2.3X the $3.8 mil he made in 2014 as ceo of Europe for Molson Coors.  And almost $3 mil more than he made in 2015.  Breakout: $1.07 mil salary, no bonus but non-equity incentives based on revs, pre-tax income and free cash flow of $1.6 mil, $3.5 mil in stock awards, $902K in options, a $1.7 mil pop in pension value and $148K in perks.  It adds up.  

MillerCoors ceo Gavin Hattersley more than doubled his total package to $5.5 mil in 2016, up from $2.4-2.5 mil in 2014-15.  Gavin’s salary was $927K.  Most of increase came from $2.3 mil in stock awards (up from $1.2 mil) and big incentive hike, from $272K to $1.345 mil.  Pete Coors’ salary flat at $850K for 3 yrs.  But toss in stock awards, pension value expansion and incentives and his 2016 compensation hit $3.7 mil, a bit less than $4.3-$4.5 mil in previous 2 yrs.  

Molson Coors’ next highest paid exec: ex-cfo Mauricio Restrepo, who left suddenly in mid-Nov last yr, listed at $4.4 mil including big stock award.  Tho he got $450K signing bonus, $362K salary and more, he “was required to pay back certain compensation items,” plus he forfeited equity awards and incentive pay.  Promoted cfo Tracey Joubert came in just under $4 mil, with $576K salary, near $2.7 mil in stock awards/options, $506K incentive pay.  Sam Walker, chief legal/corporate affairs offer, made same $2.5 mil total compensation as in 2014.    

In case you were wondering, Molson Coors does have a “change in control program…in the event that [a participant] is terminated within a specified period following a change in control of the Company.”  It’s complicated, but it’s substantial.  For example, in the event of a change in control, Mark Hunter would get severance payment of $7.9 mil, $1.3 mil in accelerated vesting of options, $7 mil in accelerated vesting of restricted stock/performance stock units, plus modest perks, as currently calculated.  Same package for Gavin is just under $14 mil.    

Several good-sized AB distribs from different parts of country (midwest, southeast, southwest) have reported recent further softening of AB sales.  Not sure what’s going on, but one said sales “getting softer by the day,” another said “drastic” and another talked of big concerns in big state that steeper recent drop-offs are now new trend.  AB STRs down 4.9% in Mar, sez source.  Recall, AB down 3.9% for 4 weeks thru Mar 25 in Nielsen all-outlet.  That was 0.6 steeper than MC.  Last yr, AB’s trend 0.7 better than MC’s for full yr.  MC actually had negative price realization (just a penny, but still) for last 4 weeks, while AB’s up almost 1%. Is MC’s more aggressive subpremium pricing beginning to have an effect?  MC had rough Jan-Feb, but Mar better, said another source.  Also Constellation’s Feb “a little softer than we expected,” said cfo David Klein on conference call, but there’s “danger” in watching such short term #s as “we continue to gain share at about the same rate as we have in the last 12-24 months.” If Feb not as good as expected, Constellation’s 9-10% depletions growth for 1st qtr indicates Mar must have been stronger for it too.  

While fourth qtr depletions growth of 6.2% “looked a little lackluster,” said Constellation ceo Rob Sands, 1st qtr of calendar yr “bounced back” and “consistent” with expectations, he added on conference call.  “We see nothing inhibiting us from achieving our guidance” of 9-11% sales growth in beer, with pricing of 1-2%, added Rob.  So volume could be up anywhere from 7-10%.  Based on strong Q4 financials and guidance for fiscal ’18, Constellation stock surged to all time high of $175.36 this morn.  At presstime, it’s at $172, up about $11, 7%.  Ain’t many growth stories like this in CPG.  

About 70% of Constellation’s expected growth will be from increased distribution, said Rob.  And with added capacity, Constellation now “extremely well-positioned” for NPD, new product development, like Premier (“too early to call” but STZ “very pleased”) and Familiar (“So far, we are pleased”).  Asked if all the new items from Ballast were straining relationships with distribs, Rob said distrib relations “couldn’t be better” and “not being strained in any way, shape or form.” One distrib yesterday did call to suggest he had significant STZ out-of-stocks again on some Mexican import packages heading in to peak selling season.  But perhaps that’s not such a bad problem to have.

Constellation Brands Beer Division revs jumped $607 mil, 17% in its fiscal yr ended Feb 17, co reported this morn.  And  its operating income up a striking $270 mil, 21% to $1.534 bil.  It is now well ahead of MillerCoors as #2 profit player here in US. And its operating profit margin better than AB’s.  Constellation operating margin at 36.3%, up from 34.9%, including 38% in latest qtr.  “Our beer business continues to be a powerhouse for growth,” said ceo Rob Sands.  “We exceeded our profit and margin goals for the year.”  

Constellation Beers grew volume double digits for the yr.  Up 13% to 246.4 mil cases (17.9 mil bbls), including Ballast Point.  Organic shipments up 11.1% and depletions up 10.4% for fiscal yr.  But with soft Dec, even Constellation depletions trend slowed to 6% in Q4 and organic shipments up 8.7%.  “After a challenging December,” added Rob, “our portfolio posted industry-leading depletion growth in the 9 to 10 percent range for the first calendar quarter of 2017.”  So just a slight hiccup and sales trends seemingly back on track.

Constellation expects the party to continue.  Co “targeting net sales growth in the range of 9-11 percent and operating income growth in the range of 11-13 percent” in coming fiscal yr  thru Feb 2018.  Total Constellation revs hit $7.3 bil and oper income at $2.2 bil.  So beer now 58% of revs and almost 70% of oper income.  

Changing times.  Some very different and more difficult headlines for craft beer pop with increased frequency these days.  Sad day yesterday as Oregon’s oldest craft brewer, BridgePort, laid off 13 people, half its brewing staff, following big reduction in sales.  Also, yesterday small San Antonio brewery Branchline filed Chapter XI, with less than $50,000 in assets and perhaps as much as a half mil in liabilities, reported San Antonio Express.  Then too, there’s now website called CraftBreweryFor Sale.com, which lists several breweries for sale, including one unnamed North Carolina brewery, which has invested $850,000 but only seeks $450,000 for its biz. Another of breweries listed on site, turns out to be Tin Man Brewing of Evansville, IN, identified and written up at length in Chi Trib late last week.  More details on all these changes and much more in our sister pub Craft Brew News.

Molson Coors’ 15% stock price decline since Oct and 5% drop since Feb duly noted in interesting report from Evercore ISI’s Robert Otttenstein, but he reiterated that TAP (Molson Coors) “remains our top pick in Global Beverages.”  So what’s going on? “Our recent investor trips suggest significant investor concerns over TAP’s pricing, volumes and reinvestment, which have some substance, but appear largely overblown,” said Robert.  Yes, “volumes have been soft since December ’16” but that’s due to “weather and holiday timing”; “weakness was broad based across the CPG space,” therefore “not beer specific.”  And yes, there’s “weak pricing in scanner data—particularly for economy brands.”  But Robert believes “underlying fundamentals are unchanged, with pricing generally disciplined and MillerCoors’ market share trends slightly improving sequentially.”  Indeed, price war remains unlikely, tho he does see “risk” that increased emphasis on subpremiums “could cannibalize core/premium brands.”  Yet “a price war does not help anyone, and we do not think one is in the works, least of all between two fairly heavily leveraged companies.”  Third investor concern: “fears that the firm will reinvest most of the cost savings.” Here too, Robert thinks concerns overblown as TAP mgt “does not believe that the firm has underinvested” and it’s not going for “volume at any cost.”   

Robert reiterates his reasons for recommending TAP: “Substantial cost synergies, better execution from singular ownership of the U.S. business, improved secular growth potential from Miller international, rapid deleveraging and much enhanced strategic value.”  And in case you didn’t catch his drift on that “strategic” point, Robert then boldfaces this: “We also continue to ballpark 50% odds of Heineken acquiring TAP by the end of 2020.”  

Big changes keep comin’ in state of Wisconsin, one of  most unusual mkts in US.  MillerCoors still has its highest share in US there by far and it’s 1 of 5 states where MC #1 (among 42 where data available; OR, ID, NJ, PA are other 4).   And now a local craft, New Glarus, is #3 supplier in state at 4.4 share, bigger than Constellation and Heineken USA put together.  

MC down 2.5% in WI last yr and fell another 0.9 share.  Dropped under 40, to 39.3 share.  Peaked at 48 back in 2008.  So it’s lost 9 share since formation of JV in what was Miller’s home state.  Volume down 510,000 bbls, 21% in that period too.  Total Wisc mkt dropped 163,000 bbls, 3% in those 8 yrs.  AB up slightly each of last 2 yrs in WI.  Held share since 2013. At 30.4 share there last yr.  But since 2008, it dropped 163,000 bbls, 10%.  And lost 1.8 share.  Constellation up 8% in 2016, but at 3 share in WI. And HUSA down 8% but just a 1 share.

Big gainer is craft, led by New Glarus. In last 8 yrs, All Others (mostly craft) basically doubled.  Up 512,000 bbls, 91%.  New Glarus up 140,000 bbls same period for 27% of that growth.  Last yr, New Glarus up 19,000 bbls, 9.7%.  Jumped to 214,000 bbls, all in its home state (recall New Glarus only sells in one state).  It passed Pabst, which was down 6% to 207K bbls in 2016.     

A handful of new federal bills introduced last Thursday all explicitly take cues from alc bevs laws to create new rules for regulating cannabis across the US. Colo rep Jared Polis intro’d “Regulate Marijuana Like Alcohol” bill for 2d time, revisiting legislation that failed to gain support in 2015. At same time, two Oreg congressmen, Sen Ron Wyden and Rep Earl Blumenauer, announced trio of bills they call “The Path to Marijuana Reform,” which also includes measures that mirror fed alc bev policy for marijuana. Recall, a couple bills that also seek to amend federal cannabis law, including one that employs some familiar language for alc bev lawyers, were intro’d earlier this yr (see Mar 13 issue). All await further action, but the push is on.

All of these new bills come from members of the Cannabis Caucus, with stated goal of harmonizing federal and state laws governing cannabis. Important step is removing marijuana from Controlled Substance Act’s Schedule I listing. Bills also address taxation and research. Perhaps of most interest is final bill in the “Path”-trio. It creates excise tax, “escalating annually to a top rate equal to 25 percent of the sales price,” according to executive summary penned by authors. That’s far different and likely much higher than flat fed excise taxes on alcohol. Also calls for a fed permit for producers, importers and wholesalers, regulated by TTB. So TTB would not license pot retailers either. Finally, “the marijuana industry would be regulated in a manner similar to alcohol,” it sez vaguely before underscoring that “strict rules would prohibit sale or distribution of marijuana in states where it is illegal under state law.” That’s important distinction borrowed from 21st Amendment that creates framework for state-based control. Proponents of these bills remind of increased support for marijuana legalization. But will enough legislators focus on this issue to pass any of these bills in current Congress?

Meanwhile, our neighbors to the North have promised that recreational (adult-use) cannabis will be legal across Canada by next July, according to numerous reports. Officials expect a formal bill next week and a clear path to being “the largest developed country to end a nationwide prohibition of recreational marijuana,” per AP/USA Today. But that’s got some in the alc bev biz in Canada with same concerns about how it’ll impact sales as those in US. “If marijuana is legalized in Canada, we will see a decrease in purchases of beer, wine or spirits,” a Deloitte researcher told Canadian Broadcasting Co. But that story largely repeats same fears and reports that circulated stateside late last year. So in more ways than one, it’s still very much a game of “wait and see.”

Privatization of alc bev biz in largest control state Pennsylvania ain’t happenin’ in one fell swoop.  But legislators keep takin’ steps in that direction.  Meanwhile, two recent legal opinions from PA Liquor Control Board make it easier for brewers to bypass distribs and sell direct to consumers.  House Liquor Committee passed bill yesterday that could extend off-premise liquor sales (limited to 3 liters per customer) to over 11K restaurants, bars, c-stores and grocery stores for a $2000 permit, reports CBS.  This tracks similar bill that widened wine sales last yr.  Sponsor said: “I believe it will ultimately create that one-stop shop that so many consumers talk about, a place where they can buy their beer, wine and spirits without having to go to three different locations.”  Distilled Spirits Council cheered.  It projects possible big tax windfall for state.  But liquor committee chair questioned need for broader access, noted potential loss of state-store jobs.  And PA Gov said he doesn’t support bill. Could be full House vote as early as tomorrow.  Companion bill intro’d in Senate.

Recent state Liquor Control Bd opinions clarified that in-state and out-of-state brewers can bypass distribs and sell/ship direct to consumers, atty Ted Zeller, who works with Yuengling and Brewers of PA, pointed out in two recent blog posts.  First opinion allows NY brewery Southern Tier to ship beer direct to its Pittsburgh brewpub for direct sale to consumers.  Brewpub’s gotta also manufacture 250 bbls per year on-site.  But it can’t sell to another licensee without beer going thru distrib, Ted points out.  While query to LCB involved Southern Tier, gotta note AB plans Goose Island brewpub in Philly for summer 2017 opening.

Second LCB opinion “supports the proposition that a brewery’s direct sales to consumers are exempt from the franchise laws.”  In-state breweries will need proper license and there are restrictions on who can deliver, how “sale” is made and assurances that purchaser is of legal age.  But there’s no limit on how much can be sold and “the brewery can sell cans, bottles, growlers, crowlers, or kegs and deliver them directly to a consumer’s house or place of business (as long as the beer is not being purchased for resale),” Ted wrote.  Wearing his brewer advocate hat, Ted concludes: “With the explosion of breweries across the country and in Pennsylvania, this Pa. LCB opinion further reduces the stranglehold (directly caused by the franchise laws) that a beer wholesaler has over a brewery.”  Recall, there’s been lotsa chatter about franchise reform in PA, tho no bill currently before legislature. And lotsa flux in alc bev laws in that state these days.  

A Slippery Slope in SC?  Predictably, South Carolina liquor retailers not reacting positively to Total Wine’s win in State Supreme Ct last week tossing state’s 3-licence limit (see Mar 30 Express).  Recall, Court ruled that simply protecting one class of retailers “not a constitutionally sound basis for regulating liquor stores.”  ABC Stores of SC, retailer assn, already asking for review of decision, warning about “national chains” invading the state, wondering whether any cap on licenses can be possible and if a new “legislative solution” is in order, reports Post and Courier.  That ain’t all.  Assn suggests “if the three-store limit is unconstitutional, a lot of other things could be unconstitutional as well.” As other defenders of state regs have commented after loss of specific law/reg, prexy of assn fears recent opinion “will eliminate the successful and simple system South Carolina has worked under for nearly 80 years.”  He noted too that other courts have upheld “nearly identical regulations, emphasizing states’ legitimate interest in protecting morals, limiting excessive advertising, over-consumption and looking after the general public.” Tensions between modernization and regulation continue.