Brewbound Podcast: All the Angles of a Potential Boston Beer Sale

[00:00:00] Justin Kendall: Heading to CBC? Kick things off the day before at Brewbound's meetup at Love City Brewing in Philly, Sunday, April 19th from 5 to 7 p.m. Connect with beer industry leaders, grab a drink, and catch up with the Brewbound team. It's free to attend and walking distance from the convention center. Head to Brewbound.com slash lovecity.rsvp. And don't forget to catch the Brewbound team at booth 956 during CBC. Next on The Brewbound Podcast, Wall Street analyst Nadine Sarwat covers all the angles of a potential Boston Beer sale. Welcome to The Brewbound Podcast. I'm Justin Kendall.

[00:00:50] Jessica Infante: I'm Jessica Infante.

[00:00:52] Zoe Licata: And I'm Zoe Licata.

[00:00:54] Justin Kendall: And this week, our featured interview, as I mentioned, is Nadine Sarwat from Bernstein. Nadine is here. She's done a ton of research on the pros and cons of a potential Boston Beer sale. We'll cover the potential sale to Suntory, why a deal with Green Thumb Industries may be a non-starter, other potential suitors, how the street views craft beer, and much more, so stay tuned for that. But first, we gotta talk about Brewbound Live. It's coming up December 11th and 12th in Marina del Rey, California. We have a host of new speakers just announced. Mary Mills from Three Tier Beverages, Arthur Moyet from Full Circle Brewing, Brian B.K. Kruger from Bump Williams Consulting, and Kaylee Thorault from NIQ. So, Lots more names to come, and we've got a whole list of other speakers we've already announced, so check out Brewbound.com for that. Get your tickets. We'll be there.

[00:01:52] Zoe Licata: We will be there.

[00:01:54] Justin Kendall: So how are you all doing?

[00:01:55] Zoe Licata: Wonderful. Good. Excellent. Likely not coming to work on Friday, just FYI.

[00:02:05] Jessica Infante: Oh, yeah, yeah, yeah. Yeah, you should go to the parade.

[00:02:08] Zoe Licata: You might see me in the morning and then I might slowly disappear around 10, 30, 11 o'clock.

[00:02:15] Justin Kendall: I'm into your duck boat in the afternoon. So what's the reason for this?

[00:02:19] Zoe Licata: As everyone should know, the Celtics won the NBA Finals last night at the time we were recording this. The streets were alive with lots of very excited folk that I got to go run around with. No crazy things happened that I'm aware of, I don't think. I think everyone was relatively well-behaved except for a couple frat bros jumping on one police truck. Yes, it was a very exciting night. And it was like a significant victory. We won by like 20 points. It was great.

[00:02:55] Justin Kendall: It wasn't much of a series.

[00:02:57] Jessica Infante: I have a question. Corners of the internet were suggesting that they deliberately lost the game before this one to force the return to Boston to win at home. And I would kind of believe that. But the other thing that I realized The date was the same three numbers. Okay, so I'm not crazy.

[00:03:18] Zoe Licata: The date yesterday- The date was significant.

[00:03:22] Jessica Infante: June 17th, which makes it spell out 617, which is also Boston's area code.

[00:03:28] Zoe Licata: And also the day that we last won a NBA championship in 2008 was June 17th. So it was a lot of significance for 617 day yesterday.

[00:03:40] Jessica Infante: I know I sound like a loon, but I think- Yeah.

[00:03:43] Justin Kendall: as Rick Ross would say, accusations. And I think that those type of accusations would lead to suspensions and other things.

[00:03:53] Zoe Licata: Yeah. Also, we don't have a great track record with playoffs for the past couple of years. So I would hope they aren't risking anything like losing any games. But Yes, it was very conveniently a significant day.

[00:04:10] Jessica Infante: I mean, I would call this fan service rather than suggesting there's anything untoward happening. Yes.

[00:04:17] Justin Kendall: Accusations. But did you see the postgame chugging?

[00:04:24] Zoe Licata: I witnessed some of it after the fact. I ran into the streets as soon as the game was over, so I didn't see it happen live on TV. But Miller Lights, right, was like the beer of choice.

[00:04:34] Justin Kendall: Controversy make a liberal threat is the NBA sponsor.

[00:04:38] Zoe Licata: Yeah.

[00:04:39] Jessica Infante: Well who's making accusations now?

[00:04:42] Justin Kendall: I Mean, it's factual It's on video tape.

[00:04:46] Zoe Licata: I feel like Miller Lite is the go-to for Celebrations though. I feel like I see that for just not in NBA like all across the board I feel like I usually see Miller lights is the beer of choice.

[00:05:00] Justin Kendall: I imagine there's some angry people in st. Louis though, so

[00:05:04] Jessica Infante: When another Boston sports team recently also won its world championship, however many years ago 2018 was, that sports team has a local beer brand as its official sponsor, but that global beer brand is the official sponsor of the entire league. So our local team got very upset, was drinking the local beer and the global company got real mad and things were stopped. There was no more Sam 76 in the locker room.

[00:05:34] Zoe Licata: I think just logistically, one, because I don't see many people drink it out of cans. I feel like it's in bottles a lot. And you're not having glass bottles in a locker room. Not safe.

[00:05:50] Justin Kendall: No, they're having the metal ones. It's always like the aluminum.

[00:05:54] Zoe Licata: Yeah, I guess that's true. But yeah, it just feels I feel like you need like a just classic short little can, not a skinny can, not an aluminum bottle. Something about an old school beer can feels right. Though I will choose a Michelob Ultra over Miller Lite in my own personal life. Interesting, I would not.

[00:06:18] Justin Kendall: You're sharing all the secrets today.

[00:06:20] Zoe Licata: If I have to choose one of those beers, I am almost always picking Michelob Ultra. You and many other people.

[00:06:31] Justin Kendall: Well, let's get into some of the news of the week and all the rage is celebrity loggers and it kicked off with Jason and Travis Kelsey. They have invested in Garage Beer and as listeners of the show know. Garage Beer was started by Braxton Brewing Company, but acquired by Andy Sauer. And we had Andy and Corey from Garage Beer on here on this show to discuss, you know, their plans for the future. And when we talked to them, of course, they didn't mention that the Kelsey brothers were in the future.

[00:07:06] Zoe Licata: And they probably didn't know that at that time, but... No, I think it was long enough ago that it probably wasn't even a thing yet.

[00:07:12] Justin Kendall: Right. What a coup, I would say, to score these celebrities.

[00:07:18] Jessica Infante: Yeah. I mean, we don't even need to talk about Travis. I just feel like Jason's kind of everywhere right now. I don't know if this reached your spheres. I'm sure it didn't, but his wife recently was in New Jersey at the shore somewhere. And a fan came up to him, was like badgering her to take a photo. And she was like, no, like I'm like, I'm with my kids. Like, I don't really want to take a photo with him. And it became like a statewide scandal with most people siding with Mrs. Kelsey. but the two of them, Mr. and Mrs. Chase and Kelsey, are starring in Wawa ads right now, which I love. Good for them. It's hoagie fest.

[00:07:56] Justin Kendall: Oh, I was unaware.

[00:07:57] Jessica Infante: Yeah, they're everywhere. They are. I mean, you strike while the iron's hot. Yeah. So yeah, I think this is huge for Garage. Huge, huge, huge.

[00:08:05] Zoe Licata: And there's rumors that Jason could possibly do some sort of like TV announcer type stuff now that he's retired.

[00:08:14] Jessica Infante: I'm surprised that hasn't happened already.

[00:08:16] Zoe Licata: Yeah.

[00:08:17] Justin Kendall: I don't think he's fully mapped out his plan, but he would not be the only aspiring beer mogul then in the announcer booth with Troy Aikman from eight.

[00:08:27] Jessica Infante: True. Another celebrity logger.

[00:08:30] Justin Kendall: How soon does Taylor get involved?

[00:08:33] Jessica Infante: Never.

[00:08:34] Justin Kendall: see like a casual like social post with her and a Garage Beer?

[00:08:39] Zoe Licata: I just don't think her fan base and Garage Beer's demographic match up enough. Unless Garage Beer changes its marketing to try to aim towards more like women, it doesn't seem in line with what they're all about.

[00:08:57] Jessica Infante: I don't think beer at all is part of her brand.

[00:09:00] Zoe Licata: There was that one clip where she was at a game and she chugged a beer. I think it was a Bud Light and everyone went crazy. That's right. That's right. I forgot. But yeah, I don't think it's. Honestly, like sure, there's a personal connection, she could do it as a favor, but she would probably want that money. And I don't even think Garage Beer has the money to pay for a Taylor Swift sponsorship.

[00:09:24] Jessica Infante: I also like, I don't know, guys, I wouldn't be surprised if The time on that has run its course, like the whole relationship in general. Hot take. I know. A little spicy.

[00:09:38] Justin Kendall: This has turned into TMZ. Kelsey's weren't the only ones getting into the beer game. Hulk Hogan is in, which was a mild surprise, I think, to Anybody who knew that he had announced his sobriety in 2023, and I asked Real American Beer CEO, Terry Francis, about this, I was like, what's up? You know, is this another sober celebrity starting an alcohol brand? And she said, no, he has chosen the life of moderation. And I have seen videos of him doing launch events for this, chugging beers. So moderation is maybe in quotes.

[00:10:19] Zoe Licata: Well, they also said that they're exploring potential non-ALC offerings too, right?

[00:10:25] Justin Kendall: Yes. Like that's a little further down the line, but yeah, they could open up the portfolio to sort of capture that market or try and get into that market as well. I don't know. Are you going to be chugging real American beers on the Jersey shore, Jess? I am not, but thank you for asking.

[00:10:43] SPEAKER_??: I try.

[00:10:46] Justin Kendall: That wasn't the only news of the week. The other big story coming out was that, yes, Athletic is the one that's taking over the Ballast Point facility in Miramar. So they have two San Diego breweries now that were formerly owned by Ballast Point. And one of the things that you noticed, Jess, was they're not going to be contract brewing for Ballast Point.

[00:11:09] Jessica Infante: No, they are not. And I don't know if previous reporting from another publication had said exactly that. And that publication has scrubbed all mention of this from their story and have not issued a correction that I've seen. And they seem to be citing Ballast Point social media saying something along the lines of like, never fear, this new person is going to make our stuff for us and that is also gone. So I'm not really sure where this rumor came from, but we had reported it. So, you know, we acknowledge this in our new story to say athletic will not be making Ballast Point because how would that work? I had assumed it's a little tricky, you know, like a dedicated non-alcohol brewery is not really able to flip the switch and become a regular full alcohol beer brewery. And I think athletic needs the capacity themselves anyway.

[00:12:02] Justin Kendall: I don't know if there was a thought that they would be able to do it in the interim between while they're doing these upgrades to be able to produce not out yet.

[00:12:10] Jessica Infante: Because they are keeping the Ballast Point Tavern open.

[00:12:13] Justin Kendall: Right. So I don't know if the thought was that while they were doing all these renovations, because they won't be brewing in there until 2025 is what they said. Like the end of 2025. Right. So that's a long lead time. And then the question is, where does Ballast Point go? And we haven't been able to solve that mystery yet, but the mystery of who is taking over the Miramar facility, and it's a big one. This'll put Athletic at around up to a million barrels of capacity, right?

[00:12:49] Jessica Infante: Yeah, and they've got some planned enhancements to it that, like I want to say right now, the capacity of the building in its current state is under 500,000 barrels, but they've got some planned additions to it that could bring that up closer to like three quarters of a million barrels. And with their other breweries, including their other San Diego brewery, which is basically across the street and their Connecticut brewery, like that's a lot, a whole lot of non-alcohol beer. I actually picked up a 12 pack of Run Wild at Market Basket the other day, I think, because I just was so surprised to see 12 packs of it. That's not really what my Market Basket is usually into. Their non-out beer section is quite small.

[00:13:29] Zoe Licata: Yeah, Athletic is at all the grocery stores over here. It's like everywhere. Have you bought any lately, Zoe?

[00:13:36] Jessica Infante: Mm-mm. Because they asked me for my birthday.

[00:13:39] Zoe Licata: Yeah, they still, like, have ID'd me every time, and you can't take them through self-checkout. Hmm. At Shaw's, at least, even though it's non-alcoholic.

[00:13:50] Jessica Infante: Interesting. I mean, they didn't need to see my ID, because once I revealed the year I was born, they were like, oh, okay, cool. I also, like, had Cora with me and looked exhausted, so. wasn't fooling anybody. But the fact that you need to prove that you're 21 to buy something that is less than half a percent alcohol, when orange juice probably has a little bit more, is wild.

[00:14:10] Zoe Licata: Yeah. There've been times where I've bought non-alcoholic beers, and I've been asked for an idea, and then I said, by the way, do you know that it's non-alcoholic? And they're like, oh no, I had no idea. So I feel like that's also part of it, where just staff don't even know that they are non-alcoholic options, because they look like regular beers. Makes sense.

[00:14:30] Justin Kendall: Yep, makes total sense. That's a lot of non-alcoholic beer and a lot of forecasting for the future there.

[00:14:39] Jessica Infante: And a lot less Ballast Point in the world. A lot less. That was something that just kind of struck me was like, they had so many facilities in their heyday and they've shed two now to Athletic, their Scripps Ranch place is now... Juneshine. Juneshine. Yeah, like I feel like there could be a whole club of Ballast Point hermit crabbings.

[00:15:02] Justin Kendall: And what was the St. Archer brewery in San Diego became a Kings and Convicts brewery and now it's a fall brewing.

[00:15:12] Jessica Infante: Like how long could Kings and Convicts possibly have had it? Two years? If that. Yeah. No money was reported or revealed or disclosed in the athletic deal, but we looked up the county records and the land and building are assessed at $18.6 million. And just given the way the real estate market is, you can assume that it probably sold for more than that.

[00:15:36] Justin Kendall: So that was a big one.

[00:15:37] Jessica Infante: Yeah, we were real journalists last week. It was fun.

[00:15:41] Justin Kendall: We should do that more often. So other stories that are out there and they're not great ones. You've covered quite a bit of these. We've got breweries basically in legal trouble with loans like Urban Chestnut. There's accusations of embezzlement that involves Big Storm Brewing. And then Eagle Rock Brewery announced that it's closing later this month after 15 years in business. Sounds like it was just time to move on for them.

[00:16:13] Jessica Infante: That's a bummer. I think Eagle Rock was, you know, years ago had been hosting like a women in beer club. Yep. They stick out in my brain for, for having done that, which was cool. But yeah, the, uh, urban chest and a big storm stories are up on brewbond.com. Uh, insiders can read all the details. I spent a lot of time with some lawsuits and, uh, you can read the highlights cause I read everything else.

[00:16:37] Justin Kendall: We do the work. With that, let's get to our featured interview with Nadine Sarwat from Bernstein. Boston Beer Company sale rumors emerged in the Wall Street Journal in late May, claiming the company was in talks to sell to Suntory. Suntory quickly shot down the talk just days later. And then, just days after that, a cannabis firm, Green Thumb, sent a letter to Boston Beer founder Jim Cook expressing interest in a merger. How is Wall Street viewing this sale chatter? And how much smoke is there to this fire? Here to discuss is Nadine Sarwat, an analyst with Bernstein. Thanks for being here, Nadine.

[00:17:18] Nadine Sarwat: Thanks for having me, Justin.

[00:17:20] Justin Kendall: So these rumors, they pop up all the time. I think I've been at Brewbound since around 2016, 2017, and at least a handful of times in my time here, I've heard these rumors come up. And it's always, you know, whether it's Heineken or Molson Coors or whoever, But I wonder why this time might feel a little bit different. And I want to get some perspective from you, because we've seen a lot of interest in the beer space from Japanese brewers. We've seen deals from Kirin, Asahi, Sapporo and others. So why do you think this might be different?

[00:17:56] Nadine Sarwat: Yeah, Justin, it's a great question. I think there are sort of a couple of ways you can answer that. The first is a really broad one, which doesn't answer the why now, but answers why in the first place. And that's that U.S. alcohol is an incredibly attractive market. A lot of the times, investors or commentators will focus a bit too much on the fact that beer volumes are on average flat for the last 10, 15 years. But when you look under the hood, there's a huge amount of premiumization of growth and decline within segments, which means that you can have the stability of consumer packaged goods, but have growth opportunities like we've seen, whether that's with craft, with super premium Mexican imports, with self-serves, et cetera. And that's even before we get to the fact that the US, because of its scale and the three-tier system, amongst many other reasons, is also a highly profitable region. And that's why you see a lot of brewers wanting to get a foothold in that market one way or another. Then we get on to the question of why now? You know, you're right that rumors on an acquisition of Boston Beer will come up at some point almost every year. It's a question I get asked frequently. And I think a couple of reasons for what's going on now, two in particular. The first is that Boston Beer has sort of been struggling for a while. Twisted Tea is still doing really well, but we see the other brands struggling, including Seltzer's. Further down the income statement, expansion of margins is a key focus of investors. And this is all against a backdrop of Jim, whom many people, investors included, view as a real visionary of the company, getting older. And there are questions on succession planning. And so against the backdrop of no improvement in share price, Jim, and also the portfolio, I think a lot of people are keeping an eye for where is this company realistically going over the next couple of years. Maybe the last thing I'd add is the role of F&Bs. Sometimes I get asked, well, would Molson get acquired? And we can come on to talk about that. But the reason a lot of the times Boston gets brought up, especially recently, is its innovation. It's had four successive waves of innovation, craft beer, cider, tea with Twisted, and hard seltzers. And it's one of the few players that's been able to do that consistently. And it's pretty apparent that that beyond beer fourth category is here to stay in some way, shape, or form. And so if you want to get a foothold, acquiring someone like Boston could be a smart move to do so. And so that sort of answers the question of not only why is the US attractive should there be a foreign buyer, but why Boston Beer might be an attractive target.

[00:20:48] Justin Kendall: Yeah, and especially for Suntory, which is aiming to be a top FNB player in the U.S., you acquire that Boston Beer portfolio with Twisted Tea and Truly, even with Truly Struggles, you're already right in the game right away.

[00:21:06] Nadine Sarwat: Exactly. You have a strong footprint, and you're also hoping, I would assume, to acquire capabilities. So it's not just the brands. If we look at the brands themselves and the premium from a valuation investment standpoint that Boston Beer trades at, it's really elevated versus peers, even in times where its portfolio has struggled. And part of that is people think it's going to get acquired at any point, but also it's because it has this built-in culture of innovation. And I wouldn't be surprised if you don't just want the brands and footprint, but everything that comes along with it, too.

[00:21:39] Justin Kendall: We saw that with Monster and I should say Sapporo, too. I mean, the brand comes along with it as far as like Stone goes. But Sapporo was very interested in bi-coastal brewing facilities. Monster, they pretty much said upfront, you know, we're getting all of this alcohol infrastructure. And I think that they, you know, have really put their focus on the beast unleashed and nasty beast. So, you know, that's sort of played out. But I think you bring up a good point too about Boston Beer. And when we talk about succession planning, the company is really in a transition period because they just underwent like a CEO change at the top. Michael Spillane came in, Dave Berwick exited, and, you know, you've got fresh eyes in there. Although Michael has been on the board before, something we saw with Dave as well, but it is a transition period. That was a little bit surprising, though, to start hearing these rumors right after that. For me, at least.

[00:22:39] Nadine Sarwat: Yeah. And I think, you know, some of your listeners might remember what Jim would answer when someone asks him about succession planning and his answer is don't die. Yeah. Which, you know, commend Jim for his commitment to Boston Beer. And I think that's very reflective of their culture. But from an investor standpoint, if so much of that innovation secret sauce is coming from top down and Jim's leadership, And the CEO, while having some experience with Boston, as you've said, is to many investors at least a sort of unknown quantity in terms of his understanding of the practicality of that innovation cycle and applying that focus on Jim's role. And therefore, what does that mean for the strategic future of Boston Beer becomes ever more important.

[00:23:28] Justin Kendall: When the sale chatter popped up on that Friday, I noticed that the stock price, it definitely spiked when you saw that interest from Suntory. How does Wall Street view a potential deal? Because you've really laid out like the pros and cons of what this transaction could be, but do they look favorably upon a potential Sapporo deal for Boston?

[00:23:52] Nadine Sarwat: Yeah, so I'll give you both sides, the Boston Beer side and the Suntory side, bearing in mind that Suntory is a private company, so they don't answer to institutional shareholders, meaning that they can do essentially what they think is right, regardless of what I or other investors think. So starting on the Boston Beer side, you know, if I was an investor in Boston Beer, and I hear a lot of people tell me this, You know they're facing a bit of uncertainty at the top line also the profit level and you can see this in the share price performance and you've also seen this in terms of the management changes. So I'm sure there are many investors out there going if someone is offering to buy out this company at a thirty percent premium or more, this could actually be an attractive exit for me given the struggles that it has had and may well continue to have for the foreseeable future. So that's from the Boston side. From the century side, I think as you've touched on, there is, I believe, this desire to be more present in FMBs and RRTDs and the importance and growth that we've seen in the U.S. of that. makes the US an important place to be if you want to drive that strategy. So on paper, that makes sense. In practice, there are still, I think, a number of things that, you know, I were in charge of that deal at Centauri, which I clearly am not, I would be asking myself. The first is, what are your standard synergies? Here, they're going to be pretty low. Suntory operates largely in spirits in the US. And because of all your wholesaler and retailing laws, you're not going to get many synergies from there, whether that's from a cost or revenue standpoint. And you can do crossover brands anyways without having to do a full-blown acquisition. So at least on a on-paper standard M&A, benefits, that isn't a huge one. And then the real question you have to ask is to what extent can you maintain the Boston Beer secret sauce, which is the whole reason that you would acquire Boston Beer in addition to the one brand that's growing today, which is Twisted Tea. And this is where I think there are probably still some question marks. Boston Beer has a very unique and independent way of thinking. They fully embrace following wherever the American consumer goes with no qualms about where that takes them. And we've seen that with Twisted and with Truly and the innovation that they've put out. And I think there would be questions as to what extent can you maintain that culture when A, you're part of a bigger company, and B, you're part of a bigger company that might not be as plugged in to that American zeitgeist perspective. I use the term might, I don't work there, but if I were to at least speculate. But then coming back to practically, if Century feels like that is a gamble that they want to take and that it is in the best interest of their business, they can well go ahead and nothing's going to stop them. The real question is, does Jim think that that is a good option because he has majority voting? And this is the real unknown. None of us are in Jim's head. You know, he put out a comment to his employees a couple of days after some of this news came out that I think if you read it sort of at least. Maybe somewhat acknowledged some talks, but largely put it to bed with a focus on the independence of Boston Beer. Look, maybe if they offered an enormous premium, Jim would say yes, but there's no way we can predict that. So I think those are all moving parts of how Wall Street is thinking about this now.

[00:27:34] Justin Kendall: Yeah, I read most, if not all of those statements to the employees. And to my eye, they didn't really deny much, at least the initial ones. And, you know, you could probably attribute some of that too to NDAs, but I was surprised at how definitive Suntory was in shooting it down. So you kind of have like a dichotomy there.

[00:27:59] Nadine Sarwat: Yeah, and you know, you see this often, if you know, some of your listeners, right? Remember when a couple of years ago, there were the constellation monster rumors that were spreading around and everyone was trying to figure out not only how real were they, but what side it would have been initiated on. And this is part and parcel with publicly traded companies. And the best you can do is assess, does this actually make sense? And will shareholders who, at least when they can have an influence, would they back that choice?

[00:28:28] Justin Kendall: Yeah. And then we have a wild card here with Green Thumb, which is the cannabis firm that I mentioned at the top. You pointed out in your research that a THC company would be a different game in sector fundamentals and federal regulation and probably would stop conversations before they even got started here. Is that sort of the view you still have of, you know, a potential Green Thumb Boston Beer deal?

[00:28:54] Nadine Sarwat: Yeah, I think there are two ways to look at this. The first is, again, on paper and in practice. On paper, if I really engage in some blue sky thinking and encourage your audience to think with a wide open frame of mind, I wouldn't be surprised if at some point in many years down the line, we do see some form of alcohol cannabis combination. I mean, we already saw it. Canopy and Constellation, ABI and Tilray had a joint venture. We have Heineken and Leitmita. Molson had Trust in Canada. And I wouldn't be surprised in a more permissible regulatory environment for brewers to say, hey, well, we know how to put stuff in a can. We know how to operate in highly regulated environments with branded products that can only be sold to legal drinking-age consumers. We have a right to play here. And if you think that at least some consumers are switching away from beer to cannabis, we've done a bit of work on that that shows early signs of that. No reason to panic just yet. Then could that be a nice diversification strategy? Sure, but everything I said is on paper. And it sort of makes two really crucial assumptions that are missing today, without which I don't think any deal has happened for Boston. The first is the performance of cannabis companies is really challenged at the moment. You've had a supply glut of cannabis products, both in Canada and the US, that has resulted in falling prices. that has made achieving strong profitability ever more challenging. Excise taxes have been a real burden, and as well as the 280E law, which affects, at least for the moment, U.S. cannabis companies. And if you are a jam cook or a Boston Beer investor, that is a very different kettle of fish to the far more stable performance of Boston Beer, even though As far as beer goes, Boston is a far more volatile company than some of the other ones out there. So I think that's the first point. But the second point is the federal regulatory environment. Cannabis is still, for the moment, a Schedule 1 drug. The DEA has Approved it to be rescheduled to schedule three, but that still leaves a lot in question when it comes to listing on stock exchanges for recreational cannabis. We still have a lot of unanswered questions. It's still going to be in a weird legal gray area. And that means that, you know, this joint entity wouldn't be able to continue to list on the major exchanges. Would investors be willing to stomach that? And would Jim be willing to accept an equity stake in this combined entity? And so much of this is so far from what people currently involved in Boston Beer signed up for that I think it's really unlikely. So it's one of those where I'd say I wouldn't be surprised, Justin, if we were sitting here in 10 years And we were seeing joint alcohol, cannabis companies with some cross involvement, but I don't think we're gonna see that anytime soon at the moment.

[00:31:53] Justin Kendall: Right. And Boston has its own cannabis vehicle in Canada, Teapot, that they're exploring with. They've already dipped a toe, I guess, into the space. So, you know, maybe they're not interested in going forward with somebody else. One of the things you mentioned was the volatility of the beer market, and we've seen that with the light loggers and everything on top, but it's also been a rough ride in recent years for craft, and that's really what Boston has built its business on, and then bolted on with these beyond beer offerings, cider, hard seltzer, tea, et cetera. But what's your read on how the craft segment is shaking out, and the interest there that Wall Street has in that space?

[00:32:39] Nadine Sarwat: Yeah, Wall Street's interest, I would say, is very minimal at the moment because performance has been much weaker for the craft segment, but also really varied depending on which brand you're looking at. If we were here a decade ago, it would be a bit more for rising tide lifts all boats, whereas now you might still have a couple that are doing well, but overall we're still seeing some struggling. And I think when I reflect on what investors are really interested in, it's the segments of the market that are growing very consistently, namely super premium Mexican imports of Constellation's portfolio. And so it's not to say that there aren't some little interesting pockets there, ability to improve performance, another marrying of cannabis and alcohol was Tilray's acquisition of the brands from EBI and them trying to turn around those brands. But when I look at where investor attention is at the moment, it's definitely not with Kraft in the way that it used to be.

[00:33:44] Justin Kendall: And then, you know, we mentioned that these rumors pop up every now and again, and a couple of names that always get thrown out there are Heineken and Molson Coors, among others, but those are two of the main ones that get thrown out around Boston Beer. And I guess, how realistic do you view them as potential acquirers? Because I feel like they both have their own challenges, let alone, you know, taking on Boston Beer that has one growing brand and a lot of brands that have been in decline for a couple of years now.

[00:34:17] Nadine Sarwat: Yeah, so let's start with Molson. I guess the first question is, do we think from an antitrust perspective it would pass? I guess it depends on how you segment beer and do you view it as the whole market or certain segments? I'm no antitrust expert, so I'll leave that to those who are far more knowledgeable. But I guess that's just the first thing to flag. The second is Molson has made it quite clear that they want the string of pearls M&A approach, little strategic businesses to add on, but nothing transformational, which would immediately put Boston Beer out of the running, especially from a market cap perspective and the premium Molson would have to pay. And lastly, when Molson had their investor day last year, you know, coming off of the big volume gains that they had from Bud Light, they chose to announce a share buyback for use of the cash. And so that sending quite a strong signal that at least for the moment, that's where they view their priority in terms of use of cash. So returning it to shareholders. And then the classic question is, to what extent could you again maintain that secret sauce of Boston? And so to what extent does a Molson shareholder also think that's a good use of capital? Because a Molson shareholder could just own the two separately or choose one versus the other. Heineken I think is more interesting. I think we were one of the first, if not the first, a year or two ago to actually look at that potential deal in a huge amount of depth. And it took a lot of investors by surprise, usually because they operate in two completely separate regions, at least in terms of their stock listing. And I think that one has the potential not only to make more sense, but also be more successful. So when we consider Heineken at the moment, you know, it's U.S. business hasn't done fantastic. And when we consider why that is, it's a brand problem and not a distribution problem. So sometimes the acquisition that gets floated around is could Heineken buy Molson? And that wouldn't fix their problem. Because of the three-tier system, you don't necessarily need to buy distribution in order to be successful. You need strong brands. to lead you into consumers wanting to drink those brands and therefore distributors wanting to hold those brands. So coming back to Heineken, Boston Beer with both still having some growth in twisted tea, but having that secret sauce of brand development and innovation could be quite a nice solution to Heineken. And it could then also act as a sort of learning hub for testing ideas that you could actually not just apply to the US, but maybe internationally as well. The second thing is how do you protect that secret sauce? Remember, we said that that would be quite challenging for Molson, that would be quite challenging for Beam. Heineken does have a track record of at least letting the operations of certain countries be a bit more arm's length from Amsterdam. And given that they have a small U.S. footprint, at least relative to the importance that many other countries like Mexico places in the portfolio, you could imagine that Boston Beer still being allowed within Heineken to have its own bubble, if you will, at least in a best case. And then, you know, the last thing is we're going to come back to Jim because he has the majority voting control. Could Heineken Keep Jim on for a couple of years, offer him in part some equity in Heineken, a more diversified assets globally as well. And this is also a global brewer. So it's not something that is totally out of Jim's wheelhouse either in terms of his involvement with Boston. Now, Heineken is still digesting the deal it did with Distel. So we still have a little while to go. And I would be really surprised if Heineken investors would be happy for that deal to happen, given Boston Beer's performance today. I think they'd want to see stabilization. But I think at least if I look at the strategic pieces and the greatest chance for success, that's the one that sort of makes a bit more sense to me.

[00:38:29] Justin Kendall: Do you think that there's any scarring that they may have from the Lagunitas acquisition or do you think that they probably view that very differently because Lagunitas is very much a craft beer producer and Boston Beer has such a diversified portfolio beyond craft?

[00:38:49] Nadine Sarwat: You know, Justin, I'm not sure. I can only comment on maybe how investors would view it. I don't know how the Heineken executives think about it. I think Heineken investors would say, well, if we're going to pay such an elevated premium for Boston Beer, because not only does it trade at a high multiple today, you need to offer a premium on top of that. You want to be really sure of the future of Boston Beer. You want to know what is this asset we're spending on because otherwise you could be spending it on other things that could be more creative to us as shareholders. And I think that's why it's so important to at least have some greater visibility into Boston Beer's future. You know, at what point is truly going to stabilize? Where are margins expanding to? What is realistic in this portfolio? How are some of those new innovations doing? So that you can, with greater confidence, put a price tag that you're willing to pay.

[00:39:42] Justin Kendall: As far as the takeout value, I think I've seen in the five to $7 billion range for a Boston Beer, is that sort of what your research has led you to as well?

[00:39:52] Nadine Sarwat: So we haven't assigned an estimate or a value largely because it would depend on many things, who's acquiring it, what synergies you would get out of it, and therefore how accretive it would be. All the more complicated by the fact that if it is a Suntory that acquires it, they can sort of do whatever they want. It's a private company. I don't think that means they would pay triple the amount that Boston is currently trading at today. But when you have so little information, it can be really hard. But you know, you could use a rough rule of thumb, take the market cap today and apply a standard historical premium that gets you to somewhere in the range you just gave me. But without knowing specifics of what you're hoping to achieve, who's the acquirer, would they have synergies? It's really tough to say.

[00:40:35] Justin Kendall: And then overall, how are you viewing large-scale brewery M&A at this point? What's your perspective on where it stands at the moment and where it could potentially be in the next few years?

[00:40:47] Nadine Sarwat: Yeah, large scale, you know, I think we went through a lot of the big ones over the last decade or two. The one that keeps cropping up is always Boston Beer because of the size, which means, you know, both from a price tag and a volume standpoint, it can be a bolt on for many people. So from that perspective, I think that's one that, you know, again, just focusing on the US here is when I get a lot of questions on. I always get a question about, What about Constellation? Would someone buy Constellation? I think given the geographic exclusivity, that it has to stay in the US, and the valuation, and the size, it's really difficult to find someone that is willing to pay that price for a US-only business, even though I really like Constellation as a business, and I think a great respect to the team that has built up those brands as well. I don't think there's anything obvious beyond what happens to Boston, and that's probably why it's captured so much attention, because it's been on so many people's radars for so long.

[00:41:53] Justin Kendall: Yeah, and I think you've laid out all the reasons why, and it comes down to one man and his decision whether, you know, he wants to move on or, you know, be part of a different organization for a time period. You know, it's all up to Jim Cook at this point.

[00:42:09] Nadine Sarwat: Yeah. So, Jim, if you're listening, please call us in and say what you think. We would love that.

[00:42:15] Justin Kendall: Right on. Well, Nadine, thank you for the time. I appreciate it.

[00:42:19] Nadine Sarwat: Thank you, Justin. Great being here.

[00:42:21] Justin Kendall: And that's our show for this week. Thanks to Nadine Sarwat for joining us. Thanks to Jess and Zoe for all they do. Thanks to our one-man audio team, Joe. And thanks to all of you for listening. We'll be back next week.