Last Call: Beer Institute Blasts Reduced RTD Taxes in Vermont; Ippolito Christon Warns of ‘Convenience Terminations’

Beer Institute Condemns Vermont’s ‘Handouts” to Big Spirits Through RTD Bill

The Beer Institute (BI) has called the RTD regulatory changes signed into law last week in Vermont a “massive handout” for the spirits industry, and warned legislators of the impact it will have on taxpayers, in a blog post Thursday.

On June 8, Vermont Gov. Phil Scott signed H.B. 730, reducing the tax rates of spirits-based RTDs to $1.10/gallon (previously $7.68/gallon), and expanding where RTDs can be sold from 81 state-operated stores, to more than 1,000 retail outlets, effective July 1. The news came less than 24 hours after the BI had published a blog post urging lawmakers to “stand up” against such changes.

In its most recent post, the BI said the change is “likely to hurt Vermont taxpayers, while boosting profits for a few big, out-of-state liquor companies.”

“New legislation significantly reduces the tax rate on canned cocktails and directs more money into the coffers of out-of-state liquor companies,” the BI wrote. “It also allows Vermont’s private beverage retailers to start selling liquor-based drinks for the first time — edging out the state’s beer products that have long supported local communities and businesses.”

Similar bills were passed last year in Michigan and Nebraska. The BI raised concerns that the “real motive” for spirits companies to pass these changes is for “profit for big liquor companies,” noting that the price of RTDs in Michigan and Nebraska increased more than 2% in the 12-week period ending February 20, despite tax cuts, while RTD prices declined -1.3% nationally, according to data from NielsenIQ.

More than 60 independent brewers operated in Vermont, according to the BI. In 2020, the beer industry contributed over $300 million in wages to the state, supporting nearly 7,000 jobs.

‘Convenience Terminations’ on the Rise, Andy Christon Writes

In a note titled “Ominous Aspects of Maturing Consolidation,” Ippolito Christon & Co. president Andy Christon wrote that as the lines blur among beer, spirits, wine and non-alcoholic offerings and the business matures, “other challenges are emerging that threaten to erode the value of the independent beverage distributor.”

Namely, Christon pointed to the growing number of supplier terminations without cause — which he called “convenience terminations” — to transfer distribution rights to larger wholesalers who possess “significant market power” and “cover a broader territory.” Christon pointed to recent distributor terminations by New Belgium, Bell’s, Diageo, and Athletic Brewing.

“These major players are consolidating distribution of new and emerging secondary brands across state lines, shutting out independent distributors from secondary brands and the critical mass they provide,” he wrote. “This process will cause significant erosion of value to the independent distributor’s remaining business over time.”

Christon warned that terminated wholesalers “rarely” receive “fair compensation” for those brand rights, “even at valuation multiples that appear to be ‘high’ and thus arguably ‘fair.’”

“Instead, a supplier creates the illusion of fairness by offering a distributor payment based on market comparables derived from other arms-length transactions,” Christon wrote.

Even in deals with willing buyers and sellers, the “agreed upon price is often less than the full economic value of the ‘Golden Cases’ transferred,” Christon wrote. The “shortfall” is due to a “discount for lack of marketability” in private markets for things such as beer franchise rights.

“Due to the effects of having limited pools of buyers and the supplier’s right to approve transfers, it can come to a 30-50% discount off of the brand’s true economic value,” Christon wrote. “This discount is an unfair penalty in a convenience termination, because the unwilling seller is deprived of the full value of all the future income attributable to the brands.”

Christon implored wholesalers to “vigorously defend the value of your brand rights if terminated without cause,” and hire expert counsel and a valuation expert “to combat the supplier’s self-serving argument.” He also encouraged distributors to partner with “like-minded distributors to strengthen” market power. Terminated wholesalers should also explore “downsizing” operations to cut expenses and protect the value of their remaining business. Distributors should also look to bolt on “incremental volume without piling on unnecessary SKUs” and negotiate terms of contracts before signing.

Finally, Christon wrote that distributors should join national and state associations and advocate for “legislation that provides fair and balanced treatment of a distributor’s ability to operate without fear of termination without cause.”

“At a minimum, seek fair compensation for all damages incurred upon a convenience termination,” he concluded.

Drizly: RTDs, Rice Lagers and BeatBox Big Winners in May

Ready-to-drink alcoholic beverages (RTDs) had another strong month on Drizly, continuing to drive summer sales growth on the e-commerce alcohol delivery platform, with “no signs of stopping,” according to Liz Paquette, Drizly’s head of consumer insights.

As previously reported, RTDs had a particularly strong Memorial Day weekend, passing hard seltzers in share of sales for the first time on the platform. The segment recorded a 4.8% share of sales on Drizly during the holiday, while hard seltzer recorded a 4.4% share.

RTD variety packs from brands such as Gallo’s High Noon Sun Sips, Anheuser-Busch InBev’s (A-B’s) Cutwater Spirits and Nütrl Vodka, led growth in the segment over the month, “indicating that summer get-togethers are starting early,” according to Drizly’s May consumer insights report.

Drizly also noted that consumers were ordering earlier in the week. Sunday (12%), Monday (13%) and Tuesday (13%) each gained three points order share month-over-over, while Monday and Tuesday also gained share year-over-year.

Other beyond beer brands recorded significant growth in the month, including BeatBox Beverages’ hard “party punch,” which had the largest year-over-year sales increase on Drizly, driven by flavors Fruit Punch, Tropical Punch and Blue Razzberry. Strainge Beast Hard Kombucha was one of the fastest growing beer brands year-over-year in May, with flavors such as Ginger, Lemon, and Hibiscus; Passion Fruit, Hops, and Blood Orange; and Blueberry, Acai, and Sweet Basil.

Rice lagers recorded the most growth in beer out of all other subsegments, led by brands such as Asahi, Orion Breweries and Berryessa Brewing Co. – a trend that carried over from March.

Bevana Launches E-Commerce Platform Offering Direct-to-Consumer Shipping

Bevana has launched a new e-commerce platform, allowing consumers in 42 states to buy and ship craft beer directly from producers around the world.

Bevana – formerly Community Brewing Ventures or CBV – was formed in 2020 to help small- and medium-sized craft beer producers get to market. Its portfolio of brands include Bay Cannon Beer Company (Tampa, Florida); Bold Mariner Brewing Company (Norfolk, Virginia); D9 Brewing Co. (Cornelius, North Carolina); Fatty’s Beer Works (Charleston, South Carolina); Side Hustle Brews & Spirits (United Arab Emirates); Steam Theory Brewing Co. (Dallas, Texas); Unknown Brewing (Newton, North Carolina); UpDog Kombucha (Newton, North Carolina); and Urban Brew Labs (Chicago, Illinois).

“Rather than buying inventory through the traditional three-tier system,” Bevana’s new platform “works directly with its partners” to connect drinkers to products, “without passing on hidden costs and fees to the customer,” according to a press release.

“Buying alcohol online has always been a frustrating, expensive process for many customers,” Matthew Juaire, Bevana’s director of e-commerce, said in the release. “Individual beverage companies can often only ship within their home state, and it’s a significant burden for them to manage even then. For other marketplaces, oftentimes they either have to warehouse enormous amounts of products that they may never be able to sell, or they have to buy it directly from a retailer. Either way, that’s a lot of added expense that usually gets passed on to the customer.

“With Bevana, we can offer an unbeatable selection of different beverages without that extra step,” he continued. “That gives us the ability to connect people and makers not only more affordably, but with better quality control and better service, wherever we ship.”

Tilray Brands Announces Amendments to HEXO Transaction

Global cannabis giant Tilray Brands announced amendments this week to its debt acquisition agreement with HEXO Corp, giving Tilray a 10.8% discount on the principal balance of HEXO.

In March, Tilray announced it would be taking on $211 million of debt from fellow Canadian-based cannabis producer HEXO, placing Tilray in a “significant equity ownership position.” Per the agreement, HEXO will pay Tilray an $18 million annual fee for “advisory services.” The “strategic alliance” is projected to create $80 million in “shared cost-saving synergies” for the two companies within two years, according to a press release.

The company reported that $185 million remain outstanding from HEXO’s debt, as well as accrued and unpaid interest. Through the amended agreement, Tilray will pay 89.2% of the outstanding principal balance. The agreement is expected to close July 15, although the amended agreements “extend the outside date for closing the transaction to August 1,” according to the release.

The two companies are still working on a commercial agreement, which would guarantee the production of HEXO products through Tilray (as a third party) and would require HEXO to source its cannabis products for international markets (outside U.S. and Canada) exclusively from Tilray. Tilray will also nominate two directors to HEXO’s board of directors, and one “board observer.”

“The strategic alliance with Tilray Brands accelerates HEXO’s operational turnaround and unlocks capital to expand our market leadership globally,” Charlie Bowman, HEXO’s president and CEO, said in the release. “The partnership is an essential next step in improving our capital structure, and we’re confident that the synergies realized will reset the industry.”

Tilray owns over 20 brands across 30 countries, including beverage-alcohol suppliers SweetWater Brewing, Green Flash, Alpine Beer Company, and Breckenridge Distillery. CEO Irwin Simon discussed some of Tilray’s ambitions on Brewbound Frontlines earlier this year. Watch here.

TTB Product Approvals in 12 Months Through May Increase +2.1% YOY

The Alcohol and Tobacco Tax and Trade Bureau (TTB) approved more than 117,700 products in the 12-month period (through May 2022), a +2.1% increase year-over-year (YOY), bw166 reported.

About 43,600 beer products were approved in the period (+7.5% YOY), with 11,900 in the last three months (+9.1% YOY). Similarly, 22,400 spirits products were approved in the period (+9.1% YOY), with 6,500 approved in the last three months (+9.3% YOY).

Wine approvals declined -1.1% in the 12-month period with about 111,600 products approved, 33,400 of which were in the last three months (-5.4% YOY).

81,600 import products were approved in the period, increasing +3.5% YOY. However, the last three months were down -3.4% YOY with 24,100 approvals. About 96,100 domestic products were approved in the 12-month period (+1% YOY), 27,700 of which were in the last three months (+1.8% YOY).

A-B Launches New Stella Ad Campaign ‘It’s Time to Dine Again’

Anheuser-Busch InBev has launched a new Stella Artois campaign, “It’s Time to Dine Again,” focused on striking the balance between work life and home life, which have blurred over the last couple of years during the pandemic. The 360 marketing campaign — with TV, social and out-of-home marketing — will encourage Stella drinkers with the tagline: “Sign Off, Dine In, Bon Appetit.”

Heineken Focuses on Work-Life Balance with ‘The Closer” Bottle Opener

Work-life balance is also the focus of a new Heineken ad campaign, “The Closer.” The global campaign centers around a high-tech bottle opener that puts computers to sleep when drinkers pop the top on a Heineken. And the bottle opener is real, although limited.