Constellation unloads $1 billion craft-beer acquisition Ballast Point to Chicago-area brewery

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In a stunning deal that shows how much the craft-beer industry has changed in recent years, Constellation Brands Inc. on Tuesday unloaded the Ballast Point beer brand — which it bought for a record price in 2015 — to a little-known Chicago-area brewer for an undisclosed sum.

Highwood, Ill.-based Kings & Convicts Brewing Co. announced it has reached a deal with Constellation STZ, -0.85%   to acquire the Ballast Point brand, as well as its production facilities and brewpubs — four in California and one in Chicago — with the exception of a facility in Virginia that Constellation will keep. A price was not announced, though it is likely to be a significant discount from the $1 billion that Constellation spent when it acquired Ballast Point in 2015, the largest single amount ever paid for a craft beer company.

Ballast Point was founded in San Diego in 1996 and grew to become one of the nation’s largest and most respected independent brewers before its sale to Constellation, charging a premium price for its beer when few thought that craft beer could sell for that much more than mass-produced rivals. It rapidly expanded under Constellation, but became overextended, closing three facilities in the past year, laying off workers and canceling plans to open a brewpub in San Francisco. Still, Ballast Point is expected to produce 200,000 barrels in 2019, and is distributed in 50 states and 19 countries, according to a statement.

Read: Budweiser maker to buy Kona Brewing and more craft beers for a discount

Kings & Convicts is a privately held brewer that launched in 2017 and operates a single 5,000-square-foot brewery and taproom on Chicago’s North Shore. It is not well-known nationally, with only 200 Twitter followers before of the announcement, and its beer is only available in the Chicago area and southern Wisconsin. In a statement, the brewer said it would take on all of Ballast Point’s workforce — which totals more than 500 — and plans to use Ballast Point’s distribution network to expand.

“As craft brewers, we have long admired the quality and spirit of the Ballast Point brand and team,” Kings & Convicts Chief Executive Brendan Watters said in a statement. “Our goal is to leverage Ballast Point’s deep know-how, talented and passionate employee base, and outstanding operating team to grow both Ballast Point and Kings & Convicts together.”

For much of the past decade, giant brewing companies have been acquiring smaller craft brewers to capitalize on that segment’s rapid growth. But craft-beer growth has slowed in recent years, and the Ballast Point deal is likely among the industry’s biggest misses.

See: Fat Tire brewer New Belgium is latest to sell in craft-beer buying bonanza

“Trends in the U.S. craft beer segment have shifted dramatically since our acquisition of Ballast Point,” Constellation CEO Bill Newlands said in a statement. “Ballast Point remains one of the most iconic craft beer brands in the country and we’re pleased to transition the business to an owner that can devote the resources needed to fuel its future success. At the same time, this decision allows Constellation to focus more fully on maximizing growth for our high-performing import portfolio and upcoming new product introductions.”

Constellation has since shifted its attention to a different intoxicating substance that has provided questionable valuations to some companies: Cannabis. The company invested $4 billion in licensed Canadian cannabis producer Canopy Growth Corp. CGC, +4.63% WEED, +4.48%  last year and has established a majority of directors on that company’s board, which dismissed co-Chief Executive Bruce Linton in June amid unhappiness from Constellation with the company’s direction.

Constellation also owns the Corona and Modello beer brands, as well as numerous wine and spirits labels. The Ballast Point deal is expected to close before the end of Constellation’s 2020 fiscal year.

Constellation shares were unchanged in after-hours trading, and are up 15% year to date, compared with the S&P 500’s SPX, -0.66%   23% gain in 2019.