Monster Beverage Corp. (NASDAQ: MNST) is contemplating a deal with Constellation Brands Inc. (NYSE: STZ). According to a report by Bloomberg, sources suggest the energy drink company may be considering a transaction with the alcohol beverage behemoth.

Details pertaining to the potential transaction between the two powerhouse companies are still unknown. However, the sources, who wish to remain anonymous, claim that Monster has reached out to advisers regarding the possibility of a Constellation deal.

The deal, if struck, would bring together the two massive beverage companies, both of which are worth a pretty penny. Monster boasts a market value of almost $48 billion while Constellation is worth a reported $44 billion.

Analysts Weigh In

Industry experts are busy weighing the pros and cons of a possible merger or another type of agreement between MNST and STZ. Dara Mohsenian, an analyst with Morgan Stanley, explained, “We have long been of the opinion that a STZ/MNST hard seltzer agreement between the two entities could make sense given MNST has been hesitant to launch in a crowded hard seltzer space and STZ’s lack of success so far in the segment, with MNST providing its brand name, and STZ potentially producing, as well as distribution the brand through its system.”

During a recent earnings call Monster’s co-CEO, Rodney Sacks, teased the idea of a hard seltzer beverage. “We are still looking at the market,” he admitted. “But how we do it and what we do it is still not being determined and still not — we don’t have a firm direction. So all I can really say is just that we are addressing it, but you shouldn’t assume that we are definitely going to go ahead or definitely not going to go ahead or how.” Monster has even gone as far as filing several “intent to use” trademarks with the The United States Patent and Trademark Office for hard seltzer style products. But as of now, the brand has yet to release a hard seltzer.

Constellation Brands has not pursued hard seltzers as broadly as many other beverage companies, as Mohsenian pointed out. However, the maker of Corona and Modelo launched Corona Hard Seltzer in 2020 and the brand has since become a force to be reckoned with in the seltzer category. Corona Hard Seltzer now has eight flavors and two variety packs to its name. The brand also recently launched Corona Hard Seltzer Limonada and produces Corona Refresca, a line of tropical ready-to-drink (RTD) malt beverages.

Others are concerned about the consequences a potential agreement between MNST and STZ might have on Monster’s distribution deal with the Coca-Cola Company. Kenneth Shea, a senior analyst at Bloomberg Intelligence stated, “I see such a transaction, if effected, as jeopardizing Monster’s exclusive distribution agreement with Coca-Cola, which could derail its international growth ambitions.”

Monster-Sized Energy Producer

Monster partnered with Coca-Cola in 2015, as part of the exclusive deal Monster took over the distribution of Coke’s energy brands while Coke became responsible for the distribution of Monster’s non-energy products. At the time of the agreement, the Coca-Cola Company also acquired a 16.7% stake in the energy drink company, which is now closer to 20%. Earlier this month the Coca-Cola Company acquired full control of the sports drink company BodyArmor for a whopping $5.6 billion. It is unclear what a Monster deal with Constellation would mean for Coke’s partnership.

Shea also expressed concerns regarding the potential products the two companies could create and the regulations that would have to be taken into consideration, “I see little synergy between these two companies, as regulators would not welcome drinks that combine caffeine and alcohol,” Shea stated. “The products produced would have to leverage their respective brands but be mindful of the limitations with product formulations.”

Stifel analyst Mark Astrachan offered a more optimistic outlook, “We think any combination reflects Monster management’s ongoing interest in alcohol, especially hard seltzer as a dynamic category with long-term growth, especially outside the U.S. It also likely reflects its view that doing so will require partners. This potentially includes The Coca-Cola Company, where any combination would have implications for its ~20% stake in Monster. We are unsure how MNST shares trade on this news given limited information. That said, we think absent Monster acquiring Constellation Brands, we view most potential scenarios more favorably for MNST shares.”

Cannabis Infused Beverage Possibilities

Another factor to consider in a Monster and Constellation deal would be the potential future creation of CBD, and eventually THC, infused beverages. Along with exploring hard seltzers, Monster has eyed CBD beverages for some time, but has not pursued either category in an effort to uphold its image. But that could all change if a deal is made with Constellation.

Constellation currently controls a nearly 40% stake in Canopy Growth Corporation, a cannabis company based in Ontario. Canopy knows a thing or two about cannabis beverages. The Canadian company recently released two new THC-infused drinks, Tweed Fizz Seltzer and Tweed Iced Tea, both of which contain 5mg of THC distillate. Canopy also launched Quatreau, a CBD-infused sparkling water, in the United States this spring. Partnering with Constellation could open up the CBD beverage market to Monster, as well as the future THC beverage market as regulations surrounding the products ease in the US.

Neither Monster nor Constellation has made an official statement regarding the potential partnership. There are many scenarios to explore in a possible deal, but one thing is certain, investors and competitors alike will be closely watching the two companies for any signs of collaboration.

Shirani Jayasuriya
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