Family drama kills car mega-marriage

Thursday, June 6, 2019 by Robinhood Snacks | Disclosures
_Booze was already sad. Then tariffs happened_

Booze was already sad. Then tariffs happened

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Hey Snackers,

We're channeling that Friends intro song.

Fresh after its biggest day since January, the Dow jumped another 207 points for a 2nd-straight win. Investors are still enjoying the Fed's smooth hints it'll support the economy through a trade war.

"I'll be there for you."

Sip
1. Jack Daniel's owner revealed it’s losing $125M because of tariffs

Someone got Smirnoff Ice'd... and it's Brown-Forman. Sales for the liquor legend behind Jack Daniel's only rose 1% last quarter, but would've jumped 5%. It's blaming European tariffs on its booze:

  • 1st punch: The US slapped tariffs on steel and aluminum that Americans buy from Europe.
  • Retaliatory punch back: Europe threw tariffs on pure Americana: Harley-Davidson, Levi's, and Jack Daniel's — That made $3.5B/year worth of US goods 25% more expensive in Europe.

Jack can't afford another round... Yesterday, we learned the price tag of these tariffs in dollars for Brown-Forman:

  • A hefty 60% of the American whiskey that Europe imports is Brown-Forman’s (Old Forester. Woodford Reserve. It's got a lot of bourbon brands).
  • The company has lost $125M in potential sales.
  • And the CEO is taking it personally: “We view these tariffs as a targeted campaign against Brown-Forman.” That's because they are.
THE TAKEAWAY

Tequila was the savior — Now it's not... Tequila's only 3% of Brown-Forman's sales so far, but the Herradura and el Jimador brands are growing fast (sales were up 13% last quarter). But Agave prices have surged by 7X as supplies are (barely) keeping up with tequila demand. And just as Brown-Forman's leaning on its south-of-the-border spirits, new tariffs on Mexico are scheduled to arrive this weekend.

Break-ups

If anyone believes these two should not be wed... please speak now. Fiat Chrysler spoke. About itself. The car-glomerate left Europe's Renault on the altar, withdrawing the $40B merger offer it had announced just two weeks ago. Here's the strange family background behind the deal:

  • The French government is Renault's biggest shareholder.
  • Renault also has a loooong relationship with Japan's Nissan, which it owns 43% of (and Nissan incestuously owns 15% of Renault).
  • Fiat Chrysler is part Italian, part American, with a dozen brands including Alfa Romeo, Jeep, and Ram.

Straight up family drama... All those underlying relationships created tension — And within just a few days, a series of events broke up the wedding while the prenup was still getting signed:

  • French officials went into a "marathon board meeting" to discuss the deal Wednesday.
  • Their main focus: Don't let the deal affect Renault's special relationship with Nissan.
  • Then Nissan indicated it may end its relationship with Renault if the deal went through, feeling betrayed it hadn't been consulted before the deal offer became public.
  • So France asked to delay the vote on the merger — That's when Fiat Chrysler withdrew its proposal.
THE TAKEAWAY

This reflects Europe's national divides... With dozens of brands, Europe's carmakers are constantly competing with each other. Alliances or mergers could save money and boost efficiency so that everybody wins — Fiat Chrysler thought committing to Renault would be "transformational" to take on Germany's Volkswagen. But now it's back to national rivalries.

Impressed

Extra green vibes... Last year Canadian cannabis icon Cronos was the first "pure play" pot stock to list on an American exchange. On Wednesday, its shares enjoyed a mellow 11% lifting sensation.

  • Cause: CEO Mike Gorenstein said his company will be "aggressive" with its CBD expansion to the United States, expected this year.
  • Effect: Bank of America's analyst who covers Cronos upgraded the stock by two notches, from "Underperform" to "Buy".

Cronos is hungry for USA... Currently, 99.6% of its sales are in Canada, where recreational Cannabis was legalized last fall. The US is still working on that, but CBD (cannabidiol, which delivers weed's "chill" effect without the "whoa") looks like it's on the faster track to legalization. The TSA is letting some passengers fly with it, and the FDA is holding hearings on its medical benefits.

THE TAKEAWAY

Altria + Cronos = Big Corporate + Weed Dealer... The analyst highlighted Cronos' 45% owner: American tobacco giant Altria. Altria's access to 230K US stores (Altria already sells cigarettes in them) is key for Cronos to get to US customers before the competition. PS: Cronos' weed brands are compelling — look at this slide deck, page #8:

  • "Spinach" is Cronos' recreational marijuana brand, offering "Farm-To-Bowl" for "consumers that don't take life too seriously."
  • "Cove" is for "premium weed customers... focused on every detail of the process." The stuff is "hand-trimmed."
What else we’re Snackin’
  • Drive: Apple reportedly is in the market to buy self-driving car startup Drive.ai
  • Khakis: Stitch Fix jumps 30% as guys start getting into the personal-styling game
  • Flight: Amazon's funky new hexagonal plane/drone delivery thing is now real and will start dropping off things (5lb or less) in a few months
  • IPO'ing: Peloton officially files to go public — Except its IPO paperwork is confidential, so we didn't get any fun numbers
  • Slippery: Oil has officially fallen 22% from its high in April
  • Ugly: Alphabet's YouTube bans supremacist content from its site, along with thousands of channels
Snacks Daily Podcast

Today's 15-minute Snacks Daily pod:

  • An NYC parking spot is valued at $6,570 — That means big opportunity for Bird and its city-mobility buddies
  • GameStop is trying to survive in the era of digital games, but has no leader to wean it off of CDs
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Thursday

Correction: Yesterday we mentioned Spotify's "Stories" app was its 2nd app — It was actually its 4th. "Spotify for Artists" and "Soundtrap" (also for artists) exist as well as the original app.

Disclosure: Authors of this Snacks own shares of Beyond Meat and Amazon.