Like many people, I used business school as an opportunity to have conversations with alumni who took interesting career paths. One of the most memorable conversations I had was with the CEO of an independent craft beer brand, who noted that an increase of HBS alumni interested in a career path was often correlated with the top of a bubble. Less than a year later, that business was sold for an eye-popping valuation multiple. A few years later, the brand had declined by 50% and was sold for about one-tenth of the price to another strategic buyer. Guess I wasn’t the only phone call this alum received, and he and his company timed the market perfectly.

While craft beer may have been a hot topic with a subset of students, the 3G Capital model of management was orders of magnitude more popular. Just imagine – fresh out of school, with authority over a significant portion of business at a ubiquitous brand like Burger King, Budweiser, or Kraft. 3G’s model was based on ruthless, zero-based budgeting, which in hindsight brought out the worst instincts of MBAs – confusing activity and change for adding value, and making short-term profit generating decisions that eroded a ton of brand equity. And the stock prices of the companies in question reflect the ultimate failure of the strategy. Anheuser-Busch’s stock is down from over $100 during my business school days to about $51 today (and it’s barely hit $60 in the last couple years, so no, this isn’t because of Dylan Mulvaney / wokeness / recent boycotts), Kraft Heinz’ stock price is down from the $80s to about $35, and while Restaurant Brands (Burger King, Tim Horton’s, Popeye’s and Firehouse Subs owner) has done better, it hasn’t meaningfully outperformed other QSR concepts.

The unwind of the craft beer bubble and equity value destruction by a 3G Capital company came together this week with the sale of eight craft beer brands by Anheuser-Busch to Tilray Brands, a once-high flying marijuana company that’s diversifying into alcohol after its own massive destruction of shareholder value over the last few years.

As an aside – I remember arguing with compliance at an old job that we should be allowed to invest in small-cap marijuana stocks because there was no way we’d ever do a take-private of a marijuana company, and so the enterprise value restrictions that kept us from trading small cap stocks shouldn’t apply. I lost that argument despite the obvious logic, but I’m glad I did as I almost certainly would’ve lost money had I invested. There’s probably a lesson in there too, beyond trying to use reason with the compliance department.

Anyway – Anheuser-Busch accumulated a bunch of regional craft beer brands including Breckenridge, 10 Barrel, and Widmer (all of which I’ve visited over the years) as that’s where the American palette was headed, only for everyone and their brother to start a brewery, leaving the larger legacy craft brands to stagnate, and the brands acquired by “big beer” to lose many of their original customers over “selling out”. And with an oversaturated, over SKU’d beer case, fewer new customers showed up to these brands. Which is sad because many of the brands ABI acquired had some real winners (Goose Island’s Sofie, Wicked Weed’s various IPAs, and Breckenridge’s flagship Vanilla Porter among them).

For Tilray, this diversified their portfolio from a largely Southeastern beer portfolio (driven by Sweetwater, whose 420-themed beers were a perfect acquisition for Tilray as they entered the beer category), to gaining some scale in New York (Montauk) and SoCal (Green Flash), to all of a sudden having meaningful regional share in the beer-loving Rockies and Pacific Northwest. And for $85 million, the volume came at roughly $150 per barrel (8 million barrels and 13.78 cases per barrel), well below the $1,000 per barrel that Sam Adams paid for Dogfish Head and the over $3,000 per barrel that Constellation (over)paid for Ballast Point at the peak. What Tilray will do with the brands remains to be seen, but assuming they can get some SG&A synergies and get some scale in the facilities they acquired through in-sourcing any contract brewed volumes, regionally shifting volume closer to end customers, or closing some of the acquired facilities, this feels like an interesting cash flow buy. Whether it will bring back any of the customers turned off by the Anheuser “big beer” taint is tbd, but I’m not sure they need innovation or growth to have the acquisition work. Whereas Anheuser-Busch is concentrating their bets in the larger, more successful craft brands in their portfolio like Kona and Goose Island, after previously paying prices for many of these brands that did require growth to be successful. Growth that apparently didn’t really materialize.

I hope whoever engineered these acquisitions for Anheuser-Busch is enjoying a cold one to take the edge off destroying that equity value, and I hope the HBS alum who sold at the top is enjoying one for his market foresight. That’s the paradox – we drink to remember, and we drink to forget. Cheers!