Concerns Regarding The Ballast Point Brewing & Spirits Public Offering

Earlier this week, the national news wires reported that San Diego veteran craft brewery Ballast Point Brewing & Spirits has filed an S-1 for an initial public offering (IPO).  While many are still rattled by the AB-InBev/SABMiller talk, craft beer enthusiasts and pundits seemed largely unphased by the news of Ballast Point being a publicly traded company.

I’d like to start by saying I’m personally a fan of Ballast Point, and have been since I first tried them back in 2005. They have been leaders in San Diego, fostering the home brew community, and being a great “brother” to other local breweries in San Diego.  Opening four production and destination facilities cannot be cheap, especially in Southern California, where real estate and utilities are at a premium.  It has also been interesting to see the exponential growth, as outlined in the S-1.  Not too long ago, us folks in Los Angeles were lucky if we could snag a 22 oz. bottle of Sculpin IPA, fast forward to today, and you will see a stack of Sculpin and Grapefruit Sculpin stacked the the ceiling. I’ve been proud of their success, I’ve been still enjoying their beer, but have been slightly concerned about the speed in which they are growing, as I was sure they were the next brewery to sell to a larger corporation. And I was kind of right. Make no mistake about it, those who’ve built this awesome company deserved to be rewarded.

Concerns

When I say I was “kind of right”, I mean, sure AB-InBev didn’t purchase Ballast Point. Not being a business analyst or an economics major, I can say that Ballast Point won’t be owned by one large corporation, but rather many.  Sure, you and I will be able to buy shares of Ballast Point through regular channels like day trading websites or through a finance manager, and that will seem fun and cool. “Hey, I own shares of my favorite brewery!”  Like all other publicly traded companies, a good bit of shares will be in the hands of board members and national and global finance management firms.  At that point, Ballast Point is no longer a maker of artisanal hand made beer, but rather just another company that makes a product and owes it’s shareholders value and potential growth quarter over quarter and year over year.  If you look at the S-1, you will see Ballast Point lists their risks being raw material shortages (hops, malt and water), distribution issues and alcohol law issues among other things.  While I would love to think Ballast Point and the craft beer industry just keeps trending up with no end in sight, that’s just not going to happen. So here are a few scenarios that I’m hoping don’t happen and am not looking forward to, but are quite possible.

Should Ballast Point not hit their targets, what would they have to immediately do?

• Increase sales presence. That doesn’t seem so bad.
• Use tactics to bully their way on to more shelves and ballparks. That sounds mean, but that’s business.
• Cut corners on their production by using inferior raw ingredients or stretch product expiration window.  This would help in the immediate, but could have potential backlash with core loyalists.

Should Ballast Point exceed expectations of the market, what would they have to immediately do?

• They will have to keep feeding the monster, and continue opening production and destination facilities.
• They will have to get far more aggressive with sales to continue to please shareholders. This will have implications on their “brothers in craft” for sure.

Should Ballast Point’s stock take off to the moon and reach the production level of Sierra Nevada or Boston Beer, what will likely happen?

• AB-InBev will make an offer to purchase the brand. Unless Ballast Point is the majority shareholder, there will be little to stop this. Even then, it will be hard to turn away something that makes perfectly sound business sense. Wallstreet does not care about craft beer or the craft beer movement.

Conclusion

So while Ballast Point deserves rewards for their awesome work, and the owners don’t need to drain their family’s wealthy to expand the business, they have now put their brewery into the hands of not only your every day Joe who likes to play with stocks, but also some greedy, shrewd money managers.  Feel free to call me out on these concerns, I might be way off base, but this is how I truly feel.