Aphria buys a brewer of weed tasting beer (APHA)
Aphria announced that it would purchase SweetWater Brewing for $300M, including $50M of stock. The purchase will be accretive to 2020 results. The purchase will give Aphria a brand in the U.S. that will help it launch a line of THC beverages in Canada. The acquisition price seems expensive based on comparable deals in the space at 13.5x 2019 EBITDA (12.5x LTM EBITDA) and 4.5x sales. SweetWater does have surprisingly attractive EBITDA margins at 33%, though (especially considering revenue of $256 per barrel or $.78 a bottle). If the business hits the 2023 earnout targets, the purchase price will increase another $66M, but the valuation would be 11x EBITDA. Boston Beer purchased Dogfish Head a year and a half ago for $300M when it was the 13th largest craft brewer. (The Dogfish Head co-founders received 406,000 shares as part of the acquisition, which would make the acquisition price $416M more at today’s stock price.) Dogfish Head was expected to have sales of $120M on 300,000 barrels in the year it was acquired.
SweetWater is the 14th largest craft brewer in the U.S. at 261,000 barrels and $67M in revenue. The brewer is based in Atlanta and has distribution to 27 states. It does have a taproom, but the majority of its sales are through packaged goods stores. With its Atlanta base, SweetWater does have distribution on Delta flights, giving it more brand exposure. SweetWater says it is distributed through 29,000 off-premise locations and 10,000 restaurants and bars. The brewer has a special series of beers dedicated to cannabis, with each beer made to harness the aroma, flavor, and vibes of a cannabis strain. The ingredients in the beer only lend to the smell and flavor of cannabis without any THC.
As Constellation Brands’ acquisition of Ballast Point showed, the craft industry has increasingly favored local beers, not national brands. With the number of craft acquisitions Anheuser-Busch InBev and Molson Coors have made in the craft industry, tap handles available for non-local craft beers have become very competitive. It has become very competitive to get a distributor to focus on a craft brand further away from its base.
Grocery demand remains elevated (ACI)
The week ended Oct. 25, total CPG demand increased 13%, flat to the prior week. The edible category was also up 13% even with the prior week, while non-edibles were up 8% even with the prior week, as seen in the chart below. The frozen category led the edible categories up 20%. The frozen category has been elevated for some time and has decelerated some from August, so it isn't easy to point to a stockpiling effect. The fresh produce category was up 9%, decelerating 2% from the prior week but still showing elevated at-home meal preparation. The meat department was up 15%, the second strongest perimeter department after seafood. The grocery channel continued to outperform the multi-outlet channel by 4%. The outperformance for grocery is more in non-edibles +4% than edibles +2%, which may reflect the one-stop shopping customers have shifted towards during the pandemic.
On-premise was improving (BUD)
Several states report tax data for on-premise alcohol sales comprising 12.5% of the country’s legal drinking age population. In April, on-premise spend on alcoholic beverages was down 84.4%. In August, the spending was down 38.6%. Since most of the states that report the data re-opened on-premise earlier, the country as a whole were likely weaker than the reported figure. In Texas, alcoholic beverage taxes were down 24.2% in October compared to the prior year, improving from -24.2% in September, as seen in the chart below. On-premise trends were improving before some states passed some restrictions on bars and restaurants recently. Texas has a 14.95% on-premise tax on beer, 6.7% on liquor, and 14% on wine.
