2018 was undoubtedly a challenging year for a number of U.S. beer companies. The year was marked by layoffs, brewery closures and sluggish sales as more than 7,000 breweries battled for shrinking market share.
As beer professionals throughout the country prepare to flip their calendars to 2019, let’s take a look back at three of the most notable storylines that helped shape the narrative this year.
Brewery Closures and Bankruptcies Accelerated
It’s not yet known exactly how many breweries will shutter this year– the Brewers Association’s (BA) final tally won’t emerge for a few months – but early estimates point to as many as 300 closures in 2018.
According to BA chief economist Bart Watson, the pace of brewery closures is on the rise, and the gap between openings and closings is beginning to shrink.
As competition within craft beer has stiffened, a number of breweries have either voluntarily closed their doors, or been forced to declare bankruptcy in the face of crippling debt and slowing sales.
Perhaps the earliest sign that this storyline would be a recurring one came in mid-January, when San Diego’s Green Flash Brewing announced plans to pull distribution from 32 states and cut 15 percent of its workforce.
One month later, Brewbound broke news that Green Flash had taken on too much debt to expand and that it was exploring a sale of the business.
In the face of a possible closure, and after Green Flash ceased operations at a secondary production facility in Virginia Beach, the company was unloaded via a foreclosure sale to a new investor group.
But Green Flash’sfinancial troubles proved to be the tip of the iceberg, and a wave of craft brewery closures and bankruptcy sales would soon follow. Well-known companies such as Smuttynose Brewing, Mendocino Brewing, Olde Saratoga Brewing, Tallgrass Brewing and most recently Big Bend Brewing, among many others, all struggled financially in 2018.
New Hampshire’s Smuttynose Brewing was eventually sold to a VC Firm in March, after it was revealed in January that mounting debt and missed growth projections had forced the company’s lender, Provident Bank, to sell the business at a public auction.
Around the same time, Mendocino and Olde Saratoga Brewing ceased operations as the Indian government attempted to extradite billionaire Vijay Mallya, who owned both breweries, from London on fraud and money laundering charges in excess of $1 billion. A California winery owner eventually purchased Mendocino Brewing, while the equipment inside Olde Saratoga Brewing was sold at an auction.
Dozens of other notable breweries – Michigan’s Arcadia Brewing, Colorado’s Fate Brewing, and Chicago’s Baderbrau, for example – have faced financial troubles, closed or are in the midst of bankruptcy and foreclosure proceedings.
Layoffs Plagued Brewers Large and Small
One of the biggest challenges many breweries grappled with in 2018 was the issue of workforce size. When craft beer sales were growing double-digits, breweries grew their sales and marketing divisions and expanded their brewery production teams.
But as craft beer sales have slowed to low single-digits, and as thousands of new competitors have entered the space, many companies have been forced to make cuts.
Most recently, Oregon’s Deschutes Brewery slashed 7 percent of its workforce, and affected positions came from sales, marketing and operations.
Deschutes president and CEO Michael LaLonde told Brewbound that his company had “staffed up to grow over the past two years” but needed to scale back when growth never materialized.
Several other craft beer makers — including Lagunitas, New Belgium, Green Flash, Avery Brewing, and Ninkasi, among others – as well as four major beer suppliers (Anheuser-Busch, MillerCoors, Constellation Brands and Pabst Brewing) made significant cuts that collectively impacted hundreds of beer industry professionals.
In nearly every scenario, changing marketplace dynamics or a need to cut costs were listed as reasons for the layoffs.
“We are looking at some correction within the market,” New Belgium spokesman Bryan Simpson told Brewbound in February, when the layoffs were announced. “We fully anticipate getting back to growth someday, but at the moment we had to right-size the business.”
Cannabis Comes On
If closures and layoffs illustrate the present reality for many breweries, the investments alcohol companies made in cannabis in 2018 could be a sign of things to come.
Nearly every major beer company made a cannabis-related investment this year, but the biggest bet came from Constellation Brands.
In August, the New York-based beer, wine and spirits company said it would invest approximately $4 billion to acquire 104.5 million shares of Canopy Growth Corporation.
The investment came less than a year after Constellation spent $191 million to acquire a 9.9 percent stake in Canopy. It now owns about 38 percent of the Canadian cannabis company, and outgoing Constellation CEO Rob Sands believes cannabis could be the “most significant global growth opportunity for the next decade.”
According to BDS Analytics, which tracks cannabis industry trends, legal sales of cannabis in North America are expected to grow to $24.2 billion by 2021.
That’s one of the reasons why the world’s largest beer company, Anheuser-Busch InBev, inked a partnership with Canada’s Tilray that is aimed at better understanding the market for cannabis-infused beverages.
Under the terms of that partnership, A-B subsidiary Labatt Breweries of Canada will work with Tilray subsidiary High Park Company, an adult-use cannabis company that makes, sells and distributes cannabis brands in Canada, to research non-alcoholic beverages infused with THC (tetrahydrocannabinol) and CBD (cannabidiol). The two companies each plan to invest up to $50 million.
Meanwhile, Molson Coors Brewing Company formed a joint venture with HEXO, a cannabis company based in Quebec. And in June, California’s Lagunitas Brewing, which is 100 percent owned by Heineken International, announced the launch of Hi-Fi Hops – a line of non-alcoholic beverages containing THC and CBD that are produced in partnership with CannaCraft.
Craft Brew Alliance is also eyeing the cannabis space as a source of innovation.
Additionally, the Wine & Spirits Wholesalers of America (WSWA), a Washington, D.C., trade group that works to advance the interests of distributors and brokers of wine and spirits, announced “an official policy position in favor of a state’s right to establish a legal, well-regulated, adult-use cannabis marketplace.”
Recreational use of cannabis in the U.S. has not been legalized at the federal level, however 10 states (Alaska, California, Colorado, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, Washington) and Washington, D.C., currently permit both recreational and medical cannabis sales.
A total of 36 states have legalized some form of medical cannabis use (including the use of CBD products only).
According to Marijuana Moment editor Tom Angell, Connecticut, Illinois, Minnesota, New Jersey, New Mexico, New York, Rhode Island, and Vermont are the states most likely to legalize recreational use cannabis in 2019.