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In an anticipated move, MNST announced that it will be marketing its product as a beverage rather than as a dietary supplement.  The company certainly has the leeway to make the change, as dietary supplements are “regulated” by the FDA as a category of foods (rather than as a drug), so movement between the two categories is relatively easy.  From the Dietary Supplement and Education Act of 1994:


The term "dietary supplement":

  • means a product (other than tobacco) intended to supplement the diet that bears or contains one or more of the following dietary ingredients:
  • a vitamin;
  • a mineral;
  • an herb or other botanical;
  • an amino acid;
  • a dietary substance for use by man to supplement the diet by increasing the total dietary intake.

Based on the definition, it is pretty easy to see how “energy drinks” can pick and choose classifications.  One difference between the two categories is that manufacturers of supplements are required to submit to the FDA reports of serious adverse consequences involving the product whereas notification as a food product is voluntary, and MNST will likely continue to self-report. Investors have suggested to us that this would be a benefit to MNST, but quite frankly we can’t see how – it isn’t  the self-reported data that the company has run aground on – it’s the data from DAWN (see below), as well as claims filed by plaintiffs’ attorneys.


From the DAWN report (Drug Abuse Warning Network):


Within DAWN, an ED visit is categorized as an adverse reaction when the chart documents that a prescription or over-the-counter pharmaceutical, taken as prescribed or directed, produced an adverse drug reaction, side effect, drug-drug interaction, or drug/alcohol interaction. Although energy drinks are not treated as drugs by the Food and Drug Administration, ED visits involving energy drinks were classified as adverse reactions if the chart documented them as such. If other substances are reported on the chart as involved in the visit, an energy drink is not necessarily the sole reason for the adverse reaction.


The data contained in DAWN is collected directly from hospitals, so we will likely continue to hear the drumbeat of energy drinks and emergency room visits.


One move on the part of MNST that we are digging in on is the disclosure of caffeine content – the company needed to get ahead of this issue, because we saw it as likely to be mandated sooner rather than later.  One other thing we would like to see the company do is change/eliminate any marketing that potentially impacts the 18 year old and younger age group.  Getting in front of the issue usually tends to be a better strategy as the company can be in a position to be a part of the debate rather than have the debate take place around them and the results forced upon the company.


Recently, we have also seen a (small) effort on the part of some jurisdictions to require age verification for the purchase of energy drinks.  We think this is basically a non-starter, as retail trade associations would likely rail against the potential incremental cost and hassle of age verification, particularly if it were at a level other than the current legal age limit for tobacco and alcohol (21).  Further, if the age limit were pushed to 21, we think age restrictions on caffeine for 18-20 year olds are the height of stupidity.


Finally, classification as a beverage allows for the use of food stamps to purchase the product - again we aren't seeing a significant material benefit associated with that aspect of the company's decision.


Where does that leave us?


Well, right back where we started when MNST was a dietary supplement – negative news flow that is likely to persist, though we think the end result of the debate is that significant regulation of caffeine is a Pandora’s box that no reasonable legislator should want to open.  We continue to think that the company needs to be more proactive with respect to this debate.  Finally, our bigger near-term concern is that we remain below consensus for 1H.


Call with questions,



Robert  Campagnino

Managing Director




Matt Hedrick

Senior Analyst