Many investors may not be aware of it, but those with assets in the sector could be sorry. Alcohol stocks, and specifically bourbon shares, are in a bubble. Tech has stolen all the limelight, but whiskey stocks—one of America’s oldest industries—have had a great decade. Millennials have revived American whiskey makers, such as Brown-Forman and MGP Ingredients, the latter of which’s shares have jumped from $6 in 2014 to $98 in 2018! P/E ratios are at about 30x and the stocks have recently started to fall sharply. It looks like the bubble is bursting.
FINSUM: The performance of this sector is pretty amazing—doubled revenues in the last decade. That is outstanding for such an old industry. However, valuations seemed to have significantly outpaced realistic value.
This month’s election saw five more states legalize marijuana, including the country’s most populous—California. This development means tens of millions of Americans now have legal access to marijuana, and that is making one industry very nervous—alcohol. Some think weed and alcohol are a natural pairing, but many alcohol companies see marijuana as a competitive threat, with some even funding anti-legalization efforts. Boston Beer Company, the largest craft brewer in the country (owning Sam Adams), said that “It is possible that legal marijuana usage could adversely impact the demand for the company’s products”. Craft beers might be the hardest hit, with one analyst at Bernstein noting “Craft beer tends to appeal to a younger and more hipster crowd who are also more likely to be smoking cannabis … Whereas a typical Budweiser drinker — a blue collar industrialised worker — is less likely to smoke cannabis, so potentially there’s more risk for craft beer than for mainstream beer”.
FINSUM: We could imagine that marijuana could have an impact on craft brewers, however we are more of a mind that marijuana could actually help beer sales rather than hurt them. Marijuana certainly does not stop you from getting thirsty, and many can attest that beer and weed are a strong pairing.
Source: Financial Times
Craft brewing, or the brewing of smaller private label beer, has exploded in the US. Between 2008 and 2014, the number of total brewers jumped from 1,521 to an astonishing 3,200, more than doubling. Growth rates in the sector have been strong. For instance, last year, overall beer sales declined 1.9% in the US, but craft brewing sales jumped 17.2%; smaller firms are grabbing market share from large players. However, the industry is entering a crossroads, and many fear that overcapacity and slowing growth is likely to constrain the young sector. Many, including successful veteran founders, believe the public’s interest in craft brewing is simply a fad, and that when it bursts it will leave many firms with a great deal of capacity and poor margins. Additionally, alongside the success of craft brews, many founders now want to cash out of their shareholdings. This poses a threat to the industry because it will allow large brewers to take big stakes in small brewers, something that could greatly disrupt the sector’s ethos. Some companies have used a method called ESOP, where existing employees are offered shares, as a way to cash out founders.
FINSUM: This is a very good piece covering what is a strongly growing segment. However, the industry seems to be losing its innocence, so to speak, and large companies may start to become involved.