Constellation’s last cash investment in cannabis for the foreseeable future
Constellation Brands exercised warrants on Friday afternoon to increase its stake in Canopy Growth to 38.6%. Constellation Brands had previously said it did not plan to make additional cash contributions in Canopy beyond exercising warrants. Constellation Brands has two sets of Canopy warrants. The first set of warrants were issued in Nov. 2017 with an exercise price of C$12.98 and were purchased for $60M. This set of warrants was exercised and injected C$245M or $174M into Canopy, representing 5% of the outstanding shares. These warrants were also set to expire in May, so we had modeled the warrants being exercised in FQ1. The second set of warrants has three tranches and was purchased in Nov. 2018 for $1.1B. These warrants are well out of the money and have expiration dates in 2023 and 2026. Since their exercise will depend upon a much higher Canopy share price and the U.S. federally legalizing cannabis, STZ investors should be able to set aside additional cash going towards Canopy for the foreseeable future. Constellation Brands now holds 142.25M shares and 139.75M warrants and C$200M in principal amount of senior notes. STZ is on our long bias list.
Spending shift to grocery (K.R., SFM, G.O.)
According to Kantar, during the pandemic, there has been a reduction in spending of roughly $400 per household per month in the U.S., as seen in the illustration below. The reduction has been across credit card (-30%) and debits card spending (-18%), but surprisingly despite contactless spending, ATM withdrawals (-14%) have declined less. This is likely due to the categories seeing the largest declines. Spending on travel and restaurants are down significantly while grocery spending is up. Everywhere in the world, people are spending less money than normal despite the rising grocery food bill.
Beer spending decelerates (BUD, STZ)
The beer category sales in the off-premise channel grew 12.3% for the week ended April 18, YOY, according to Nielsen. That marks the lowest growth rate since the pandemic restrictions began impacting sales but did include Easter Sunday, as seen in the chart below. Wine sales grew 13% and also decelerated from its six week average of 28%. Spirits sales grew 37% decelerating slightly from its six week average of 39%. Beer category growth in the convenience store channel grew 17%, outpacing the 15% growth in the grocery channel. Imports grew 20% in the convenience store channel compared to the 1% growth in the grocery channel. Hard seltzers grew 422% in the convenience store channel compared to 221% in the grocery store channel. According to Bump Williams Consulting, hard seltzers now account for 8% of the beer category sales. The premium light beers grew 1.5%, and below premium, beers grew 1.7%, indicating a return to pre-pandemic trends. Craft beers grew 5.8% while hard teas grew 28.4%. Large pack sizes (24 and 30 cans), which grew 20%, continued to outpace smaller sizes like six-packs, which decreased 2%, reflecting the consolidation of shopping trips by consumers. The number of households making alcohol shopping trips is up 27% for the week ended April 11, while the total alcohol spends per buyer is up by 13%. Nielsen surveyed 10,000 alcohol beverage drinkers and found that only 17% said they stocked up on alcoholic beverages over the last month compared to their normal behavior, and 41% said they didn’t stock up. However, their actual spending shows a 25% increase in spending. Consumers who said they kept the same amount of alcohol on hand increased their spending by 13%. Frequent on-premise drinkers were 80% more likely to have purchased alcohol online from a bar or restaurant.
