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Constellation Brands expects Corona seltzer to launch in growing category

Constellation Brands Inc. sees plenty of opportunity in the hard seltzer market as it prepares to enter the category under the banner of one of the company's most prominent brands.

Constellation Brands plans to spend more than $40 million in marketing to support the spring launch of its hard seltzer Corona Seltzer, said Constellation Brands CEO Bill Newlands during a Jan. 8 call with analysts. Newlands said the marketing spend for Corona Seltzer was the largest ever single brand investment for Constellation Brands' portfolio.

"We've already started to take orders from distributors and have received incredibly positive feedback from retailers who are excited about the prospects of Corona Seltzer," Newlands said.

Constellation Brands beat expectations for its third-quarter earnings for fiscal 2020, which the company reported Jan. 8. The company's increase in net sales for the quarter was driven by 8% growth in beer net sales and offset by a 10% decline in wine and spirit net sales. Net sales grew 1% year over year to $2 billion for the fiscal third quarter.

Producers sold about 60 million cases of hard seltzer in 2019, and the category could grow to double or triple that size, Newlands said. Constellation Brands' research shows that hard seltzer's growth is taking market share from beer, wine and spirits, Newlands said.

"The seltzer consumer has generally been increasing their overall consumption of the total alcoholic beverage category, which I think speaks well for the overall category of seltzer going forward," Newlands said.

Additionally, Constellation Brands is upbeat about its investment in the Canadian cannabis company Canopy Growth Corp. despite the struggles of the marijuana industry. Constellation Brands reported a $534 million decrease in the fair value of Canopy investments for Constellation Brands' most recent fiscal quarter.

"We remain bullish on the Canadian cannabis market as the conversion of the illicit market to the legal market continues to strengthen," Newlands said.

In December 2019, Canopy introduced a line of hemp-derived cannabidiol products in the U.S., Newlands said. CBD, a chemical component in cannabis plants that does not contain psychoactive components, has garnered interest for its purported health benefits and market potential. Constellation Brands' CFO David Klein will become the CEO of Canopy Growth in less than a week, Newlands said.

"I believe he will bring more focus and discipline to that business in executing their strategic priorities," Newlands said.