In an impressive and comprehensive 90-minute presentation yesterday for Constellation’s Investor’s

Day, Beer Division prexy/corporate evp Paul Hetterich made compelling case for STZ’s growing prominence

in beer’s high end and how that should make it more of “thought leader” and “insights provider” for retailers.

Here’s some key components of his highly detailed rap (Paul speaks at Beer Insights Seminar next Monday).

This summer, Constellation took over #1 $$ share in high end (all above premium) from AB, said Paul. It got

25 share of the high end, compared to AB’s 24 nationwide in IRI multioutlet + convenience for 12 weeks thru

Sep 4. Heineken at 11 share, MillerCoors at 8 and Boston Beer at 5. So those 5 big cos are 73% of high end $$

sales. But both MC and Boston lost share of high end in this period. Constellation gaining share of high end

and widening gap with AB. It’s been the category growth leader for last 3 yrs, Paul showed, getting 30% of all

$$ sales growth in beer last 3 yrs.

While high end beer is about 33% of total volume, it’s 47% of consumer $$ spend, 48% of retailer gross profit

and 49% of distrib gross profit, estimates Constellation And it’s more than 100% of growth. All in, high end

beer has grown nearly 6% a yr for last 10 yrs, Paul showed, while all other beer down 1.5% per yr. And

Constellation expects high end to grow 5-6% a year over the next 3 yrs, with its own growth exceeding that.

Importantly, Constellation is 100% high end. Meanwhile, AB is 23% (including Ultra), and MC 15%. In other

words, Constellation is totally focused on high end beer, while AB and MC have got to “try and keep their low

end shored up,” meaning both premium and subpremium. And yet “most of the set work is done by AB” and

MC “does a fair amount” too. So far, there is “no clear high end advocacy in the category.” As the #1 high end

player, providing the biggest growth, exclusively focused on high end, Paul maintained that Constellation

should take leadership to “be advocate” for high end, “influence set flow” and “provide guidance.” STZ’s goal

is to become “preferred consumer insights provider” for retailers on high end. Constellation will invest in

people and having the right insights to make that happen, Paul said.

Beer Insights 23d annual seminar is

next Sunday eve and all-day Monday at the Waldorf Astoria in NYC. You won’t want to miss this premiere

industry event. A few seats remain. Click here for agenda. Click here to sign up.

Recall,

Constellation stock rallied Monday following Wall St’s expectation of a Clinton win, but took big hit initially

today after Donald Trump elected. It was down 8% or so to start the day, down almost that much at presstime.

But mkt also started down big, now up. STZ investors perhaps concerned about potential excise tax on goods

imported from Mexico under a Trump presidency. Today, Constellation has scheduled an afternoon with

investors, which should be fascinating.

While govt nannyism took heavy blow yesterday with passage of pot measures, a number of communities went other way by adopting soda taxes. Soda taxes headed to passage by wide margins in San Fran, Oakland and Albany, CA News, Numbers, Info, and More 200+X a year published by Beer Marketer's INSIGHTS, Inc. and Boulder, CO. In Calif cities, penny per ounce taxes will be imposed at distrib level but expected to be passed onto consumers and raise price on 2-liter bottles by around 67 cents and add $1.44 to 6-pk cost, per NY Times. Boulder tax is double that at 2 cents per ounce. Soda taxes cut both ways. On one hand, they may deflect advocates’ and legislators’ attention away from hiking beer and other alc bev taxes. On the other hand, they could simply create more momentum, acceptance of tax as health policy tool and/or revenue raiser.

Supporters of

recreational pot among the biggest winners in yesterday’s elections. Voters in 4 more states -- California,

Maine, Massachusetts and Nevada -- ok’d recreational use. Legalization failed in only 1 state: Arizona. Three

other states cleared medical marijuana. Outcome could add $7-$8 bil in annual marijuana sales, estimates

Marijuana Biz Daily. Importantly, over 20% of US population now lives in states where recreational pot legal,

including entire west coast. Will fed stance change with President Trump? No one knows.

While legal pot spreads quickly over next few years, 3.2 beer could disappear. That’s likely outcome of

Oklahomans passing measure to modernize that state’s alc bev laws. Most important, Question 792, which goes

into effect Oct 1, 2018, clears grocery and c-stores to sell full-strength beer. Those outlets currently limited to

selling 3.2 beer; strong beer only sold in liquor stores. Measure has other features and legislature has slew of

laws to pass since alc bev law now out of state Constitution. Importantly, OK accounts for 56% of all 3.2 beer

sold in US, calculates Utah Beer Wholesalers Assn. Another 29% of 3.2 beer sold in Utah. With 3.2 likely

going away in OK and Colorado too in coupla yrs, that would cut 3.2’s share of US beer to well under 1% and

possibly doom the product or severely restrict offerings. (That’s even while AB InBev and other producers talk

about broadly expanding lower-alc products in US and globally.) Indeed, Utah policymakers already concerned

about fate of 3.2. Utah has same set up as OK: 3.2 sold in grocery stores, high-strength only in state liquor

stores. Utah “merchants say they cannot handle the high demand and keep up their stock if grocery stores and

convenience stores aren’t helping with the demand,” Fox News reports.

States “Legalizing Weed Wrong,” Declares Policy Expert; Pros and Cons of Alcohol Model No one’s

thought more about marijuana legalization than Mark Kleiman, public policy prof who has advised several

states and written extensively on issue over the years. His deep dive for Slate just before Election Day

concluded that most efforts so far have failed to minimize key harms associated with pot, specifically issues

around pot abuse, youth use, pricing policy and more. He also draws some positive and negative parallels to

alcohol policy. Tho lotsa legalization advocates have used phrase “regulate cannabis like alcohol,” that’s “ugly

policy,” sez Kleiman, since “current alcohol laws fail spectacularly to control the harm alcohol does to drinkers

and the harm drinkers do to others.” Key problems with alcohol regulation, in Kleiman’s view: they allow for

profit motive and marketing, both of which he sez are “at odds with public health.” Interestingly, he echoes

authors of famous Toward Liquor Control blueprint for alcohol policy here. In another echo, Kleiman sez state

control of pot sales might be “best solution,” tho that clearly can’t happen with continued federal Prohibition.

Profits mean lobbying muscle, Kleiman argues, and: “You don’t want the people who sell cannabis for a living

writing the cannabis laws any more than you want Exxon Mobil guiding fossil fuel policy.” Private enterprise

also means 1 st amendment commercial speech rights, Kleiman adds; mktg will only expand use, he believes.

One place where Kleiman sez current alc policy should be a guide: “tax according to THC content, just as

distilled liquor is taxed according to alcohol content.” Price is another important concern for Kleiman.

Currently, he calculates cost of an “intoxicated hour” at just 50 cents for pot, “already a far more cost-effective

recreational drug than beer.” And that cost only going down. Another uncomfortable parallel to alcohol: heavy

pot users represent vast majority of consumption, he sez. No one knows, or is saying, how to prevent casual

users from moving on up, but “pricing matters; so does marketing,” Kleiman insists. All in, state ballots are

“lousy way to legislate,” he concludes, since they offer “far less scope than the normal legislative process for

careful policy design and for taking into account multiple competing interests.” This is same point made

yesterday in Express about one-off piecemeal privatization of alc bevs with “unintended consequences,” vs

“cogent, comprehensive” reform.

Beer Insights 23d annual seminar is

next Sunday eve and all-day Monday at the Waldorf Astoria in NYC. You won’t want to miss this premiere

industry event. A few seats remain. Click here for agenda. Click here to sign up.

Part of recently passed law in Pennsy to allow home D distribs to sell 6-packs creates headache for some in

rural and other mkts, reports Morning Call. Also points to perils of piecemeal privatization vs thoughtful,

comprehensive approach. Turns out, wholesalers have territory protections in PA. And home D distrib/retailers

have to buy beer from distrib in their territory. But home Ds can and do ship to bars/restaurants located nearby,

sometimes located in another PA wholesaler’s territory. New law effectively shuts down cross-border sales by

adding penalties for both home Ds and retailer.

Different folks have very different reactions to provision. Morning Call focused on home D in rural county

who sez he’ll lose half his biz, which now goes into next county, covered by different wholesaler than who he

buys from. He’s extremely unhappy. Prexy of home D assn sez “this was not the intent of the bill,” and wants

a fix. State Senator who sponsored bill doubts it will be issue for majority of home Ds, and accused home D

who’s complaining of “crossing territory in a predatory way to steal business from people in another county that

can’t compete.” Home D calls cherry-picking charge “completely false.” What about the wholesalers? They

support provision. Indeed, they lobbied for it, according to paper. Jay Wiederhold, prexy of Pennsy Beer

Alliance, pointed out provision needed to strengthen system. Why’s that? “The problem we’ve had in

Pennsylvania for a while,” said Jay, is “when we have a retail distributor taking from one area and driving it

into another wholesaler’s area. There’s no transparency, no ability to track that product.” Brewers have same

concern; they oppose transshipping. Recall wild west days of NY when beer was shipped all over the state.

A fix is likely. “The practical consequences for delivery distributors and their customers [in this provision]

were not recognized by most, if not all parties,” Cris Hoel, atty for home Ds, told INSIGHTS. “They recognize

News, Numbers, Info, and More 200+X a year published by Beer Marketer's INSIGHTS, Inc.

them now. It seems likely that a correction can and will occur. No one targeted these businesses, they were

collateral damage in an attempt to prohibit captive distributors.” What are captive distribs? Wholesalers are

concerned that chain c-stores/grocery would obtain home D licenses and use them to ship beer to their stores all

around the state. But bid to get central warehousing ban didn’t pan out. Language to fix issues could emerge

in 60-day period before bill takes effect, assuming Gov signs or otherwise allows bill to pass. (There’s remote

possibility of veto.) There may be attempts to fix other provisions in lengthy bill as well. Gotta note too, while

home Ds unhappy, taverns in general “furious” about bill that allows home Ds to sell 6-packs, which only

taverns/other on-premise licensees can sell now. For Brewers of Pennsy, assn that includes Yuengling, Boston

Beer and state’s small craft brewers, situation illustrates “why we need cogent, comprehensive liquor code and

franchise law revision as opposed to one-offs with unintended consequences,” BoP’s atty Ted Zeller told us.

But one-offs appear to be, at least for now, the road Pennsy’s taking toward privatization.

First round bids due today for a bunch of

ABI’s Eastern European assets, including Pilsner Urquell. And ABI got 6 of ’em, Reuters reported, expected to

be in range of $5.5 bil. Asahi Holdings was the only brewer definitely in there; most bidders were investment

firms. Czech investment firm PPF, plus private equity investors Bain Capital “joined forces” with Europe’s

Advent and other intl investment firms. A Hungarian “energy group” teamed up with a Polish juice maker and

a Polish insurer in a “joint offer.” Second round bids will be submitted next mo. Once ABI sells off these

assets and Coke in South Africa, it will have sold assets worth $25 bil or more, or about ¼ of deal.

Sep was a very rough mo for beer and Oct had 1

less selling day. But Oct wasn’t horrible apples-to- apples we hear, and it shows in scans, according to latest

Nielsen data. Beer volume up 0.6% for 4 weeks thru Oct 29 in Nielsen all-outlet and 0.5% YTD. Meanwhile,

on-premise biz down 2.9% for 52 weeks thru mid-Sep, Nielsen also reported. So overall, beer biz ain’t in great

shape, but it’s not falling apart either.

Trading Up Slowed; Premium Lights Lost Less Share Key trends in recent mos continue: trading up has

slowed somewhat overall as craft and FMBs flattened out. Premium lights and subpremiums losing less share

lately. But avg price of subpremiums down. Above premium segments gained 1.7 share of $$ for last 4 weeks,

compared to 2.2 YTD. FMBs down 0.3 share of $$ and cider down 0.2. Craft up just 0.1. So it’s a different

high end, dominated by imports (up 1.4 share of $$), specifically Constellation. Constellation up 1.4 share of

$$ last 4 weeks all by itself, now up 1.3 YTD. Premium lights lost 0.7 share of $$ for 4 weeks, 1 full share

YTD. Economy lost 0.8 share of $$ for 4 weeks, 0.9 YTD. But big improvement on volume share, down 0.7

share for 4 weeks vs 1.2 share YTD as avg economy prices down 14 cents, 0.9% last 4 weeks.

Hot Getting Hotter; Ultra Gained 0.8 Share, Especial 0.7 Two brands, Michelob Ultra and Modelo Especial,

gained almost as much share as the entire high end in the last 4 weeks. Michelob Ultra $$ sales up 26% and it

gained 0.8 share of $$ (0.7 YTD). Modelo Especial $$ sales up 25.6% and it gained 0.7 share (0.6 YTD).

Beer Insights 23d annual seminar is

next Sunday eve and all-day Monday at the Waldorf Astoria in NYC. You won’t want to miss this premiere

industry event. A few seats remain. Click here for agenda. Click here to sign up.