Constellation Brands, Inc. engages in the production, marketing, and distribution of beer, wine, and spirits. It operates through the following segments: Beer, Wine and Spirits, and Corporate Operations and Other and Canopy. The Beer segment includes imported and craft beer brands. The Wine and Spirits segment sells wine brands across all categories-table wine, sparkling wine and dessert wine-and across all price points. The Corporate Operations and Other segment comprises of costs of executive management, corporate development, corporate finance, human resources, internal audit, investor relations, legal, public relations and information technology. The Canopy segment consists of canopy equity method Investments. The company was founded by Marvin Sands in 1945 and is headquartered in Victor, NY.
International operations, worldwide and domestic economic trends and financial market conditions, geopolitical uncertainty, or changes to international trade agreements and tariffs, import and excise duties, other taxes, or other governmental rules and regulations
Dependence on limited facilities for production of our Mexican beer brands, and expansion and construction issues
Operational disruptions or catastrophic loss to breweries, wineries, other production facilities or distribution systems
Supply of quality water, agricultural and other raw materials, certain raw materials and packaging materials purchased under short-term supply contracts, limited group of suppliers of glass bottles
Reliance on wholesale distributors, major retailers and government agencies
Reliance upon complex information systems and third party global networks, cyber-attacks, and design and implementation of our new global enterprise resource planning system (“ERP”)
Contamination and degradation of product quality from diseases, pests and weather conditions
Climate change and environmental regulatory compliance
Cannabis is currently illegal under U.S. federal law and in other jurisdictions; we do not control Canopy’s business or operations
Potential decline in the consumption of products we sell; dependence on sales of our Mexican beer brands
Acquisition, divestiture, investment, and new product development strategies
Sale of a portion of our wine and spirits business
Our Canopy investments are dependent upon an emerging market and legal sales of cannabis products
Dependence upon trademarks and proprietary rights, failure to protect our intellectual property rights
Intangible assets, such as goodwill and trademarks
Changes to tax laws, fluctuations in our effective tax rate, accounting for tax positions and the resolution of tax disputes, and changes to accounting standards, elections or assertions
Securities measured at fair value
Canopy’s Corporate Governance
Class action or other litigation relating to abuse of our products, the misuse of our products, product liability, or marketing or sales practices
The increase in Beer net sales is primarily due to $85.4 million of volume growth within our Mexican beer portfolio, which benefited from continued consumer demand, increased marketing spend, and new product introductions and a $37.9 million favorable impact from pricing in select markets within our Mexican beer portfolio. The increase was partially offset by a decline in craft beer net sales. The shipment timing benefit that occurred at the end of Fiscal 2019 partially reversed in Second Quarter 2020.
The decrease in Wine and Spirits net sales is primarily due to a $70.1 million decline in branded wine and spirits volume. The decrease in volume is partially attributable to timing as shipment volumes were accelerated for Second Quarter 2019 in advance of then expected continuing logistic and transportation constraints. The Wine and Spirits Second Quarter 2020 results have been negatively impacted by transition activities with distributors who are repositioning for ownership of brands upon closing the Wine and Spirits Transaction and the Black Velvet Transaction.
Our ownership interest in Canopy allows us to exercise significant influence, but not control, and, therefore, we account for our investment in Canopy under the equity method. Amounts included for the Canopy segment represent 100% of Canopy’s reported results on a two-month lag, prepared in accordance with U.S. GAAP, and converted from Canadian dollars to U.S. dollars. Although we own less than 100% of the outstanding shares of Canopy, 100% of the Canopy results are included and subsequently eliminated in order to reconcile to our consolidated financial statements. See “Income (Loss) from Unconsolidated Investments” below for a discussion of Canopy’s net sales, gross profit, selling, general, and administrative expenses, and operating income (loss).