Monster Beverage Corporation co-CEOs Rodney Sacks and Hilton Schlosberg discussed their company’s acquisition of the CANarchy Craft Brewery Collective and shed light on Monster’s aspirations in the beverage-alcohol space during a conference call for investors Thursday evening following news of the sale.
“We’ve been evolving a strategy to enter the alcoholic beverage market and this is, we believe, our best strategy of achieving this objective,” Schlosberg said.
With the $330 million cash deal – which includes the CANarchy organization and its seven brands (Cigar City, Oskar Blues, Wild Basin, Deep Ellum, Wasatch, Squatters and Perrin) – Monster acquires the capacity to brew 616,000 barrels of beer and 211,000 barrels of hard seltzer annually across the company’s seven production facilities. CANarchy posted $134 million in retail sales in 2021, and sells its products across the U.S. and in 20 countries and U.S. territories.
Below is a transcript of Sacks’ and Schlosberg’s presentation and answers to analysts’ questions about the CANarchy deal.
What does the deal include?
For Monster, one of CANarchy’s biggest strengths is that it offers a turnkey platform to enter the beverage-alcohol industry.
“The company – and this is really important – already operates with the people, the distribution network, the licenses, the alcohol beverage development expertise, the manufacturing capability and the infrastructure necessary to grow our alcohol business,” Schlosberg said. “And we really are excited to build and expand upon CANarchy’s existing brands with innovative new products.”
The CANarchy brand family includes some bigger names than others and the Monster executives did not name-check its smaller regional players: Wasatch, Squatters and Perrin.
“The Cigar City brand is a very strong brand. It’s growing,” Sacks said. “We think that’s a brand that’s got a lot of legs nationally. Oskar Blues is a good brand.”
Sacks added that Deep Ellum has “a lot of potential to grow and redevelop.” As a whole, CANarchy gives Monster a footprint across the U.S., he added.
“Some brands are regional, but other brands are national,” Sacks said. “If you add it all together, they’ve got a good system network of distributors, and we thought that was important. They also have quite a big network of employees and staff and sales. So we thought this was a good base for us to utilize and to focus on.”
CANarchy’s sales and production will remain an independent entity within the Monster organization. Sacks and Schlosberg said they expect collaboration in some disciplines, such as marketing.
Acquiring CANarchy nearly in full gives Monster a “more sophisticated model” to leverage into alcohol, rather than the partnerships that other non-alcoholic players, such as PepsiCo and Coca-Cola have forged with beer companies, such as Boston Beer, Molson Coors and Constellation Brands, Schlosberg said.
“We could have done that years ago,” he added. “We chose not to do it.”
Monster’s Own Alcohol Ambitions
Monster has long hinted at launching its own hard seltzer, which Sacks confirmed is on the way.
“We actually are pretty advanced now in the development of our own seltzer, which is a different brand,” he said. “We will be proceeding quite quickly now with the development now that we have this acquisition under our belt, and we hope to close it soon.”
However, any new beverage alcohol products are unlikely to bear the Monster name.
“I actually am vehemently opposed to putting a brand that’s a strong consumer brand onto an alcoholic product,” Schlosberg said. “I think it’s just opening up for major issues down the road … This vision of kids being stopped, and they claim that they thought they were drinking non-alcoholic products.
“I think it’s very much a slippery slope and I think we have to be really careful,” he continued.
What does alcoholic beverage innovation look like?
Although CANarchy does not produce any spirits-based products for wide distribution, Monster is interested in the possibility of developing them, as well as continuing to grow some of CANarchy’s existing brands.
“The opportunity, as we spoke earlier, is to build on the CANarchy brands that they have and to introduce new alcoholic brands, whether they be in beer, in seltzers, in mixed cocktails, in spirits,” Schlosberg said. “We have an open playbook to be able to launch a business and develop a business in the alcohol space.”
“We have a complete blank chalkboard,” Sacks said. “We can go into spirits. We can go to sprits-based, ready-to-drinks. All of those things we will develop as we continue to put together a strategy on the alcohol side through CANarchy.”
Monster’s founders also said they’re open to potential acquisitions in the future within the beverage-alcohol space, either large or small.
They expect that CANarchy will collaborate with Monster’s in-house flavor development team. Additionally, Monster is beginning construction on a distillery in Hawaii, but Schlosberg called the project “too premature to talk about.”
How will current CANarchy products and future innovation offerings be distributed?
CANarchy will maintain its existing network of beer distributors, which is 50% Molson Coors houses, 30% Anheuser-Busch InBev houses and 20% independent wholesalers. What happens if Monster wants to bring a spirits-based product to market?
“In many states, you can take spirits products through the beer distributors and in those states that you can’t, we will obviously go to the liquor wholesalers where they … in many cases have existing relationships as well, or we’ll develop them,” Sacks said. “So there’ll be a hybrid system ultimately for any spirit-based products.”
Potential for International Sales
Coca-Cola, Monster’s largest shareholder, gets right of first refusal on any alcoholic beverages produced for international markets, Sacks said.
“That’s one of the opportunities and great potentials we have for the future is being able to develop alcoholic products internationally and to do so in partnership with the Coke bottlers in certain areas,” he said.
However, the company wants to “walk before we run,” Sacks continued.
“We have 1,000 people overseas that would love the opportunity to sell alcoholic products, and we’d have to be careful to ensure that they don’t distract from their work on the strategic brands and the affordable brands,” Schlosberg added. “But we have the infrastructure to be able to accommodate international sales, when we deem it appropriate to do so.”
Is there an appetite for cannabis innovation?
Asked if the CANarchy acquisition provides a runway to enter the cannabis space, especially with Oskar Blues headquartered in the country’s oldest legal cannabis market, Sacks declined to comment for now.
“We’ve sort of steered away from it until we just get some more clarity on where we go,” he said. “We don’t want to have regional brands. And I think even from the CANarchy side, that’s not going to be first and foremost in our focus.”