Molson Coors Beverage Company (TAP) Earnings Call Transcript & Summary

Good morning, everyone. I'm Dara Mohsenian, Morgan Stanley's beverage household products and crude analyst, and I'm very pleased to welcome Molson Coors to Morgan Stanley's Global Consumer and Retail Conference. Before we begin, I have to note a few important disclosures. Please see the Morgan Stanley research disclosure website at www.morganstanley.com for important disclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. So Molson Coors is in the middle of implementing its revitalization plan, which was announced late last year with a focus on increasing exposure in above-premium segments of the beer category, increasing investments in core brands such as Coors Light and Miller Lite and expanding in beyond beer categories. And they've recently announced many initiatives to expand into the high-end beer segment such as the Vizzy and Coors Seltzer launches, an agreement with Coca for the production of Topo Chico hard seltzer and the JV with Yuengling. And this morning, they announced some production capacity increases for [ seltzers ]. So joining us today, we have Gavin Hattersley, Molson Coors' CEO; and Tracey Joubert, Molson Coors' CFO. Gavin and Tracey, thank you very much for joining us today.

Thanks for having us, Dara.

Thank you.

So to start with, Gavin, I wanted to discuss some of the near-term COVID-related impacts on your business, starting with North America. You posted a 5% STR decline in Q3 in North America. That was an improvement versus 8% in Q2. So first, can you talk about some of the drivers of that improvement sequentially? Some of the puts and takes as we think about North American growth going forward, particularly in this COVID environment and with increased on-premise prescriptions in some of the U.S. states.

Yes, sure. And again, thanks for having us on, Dara. Look, I mean, the difference between Q3 and Q2, when the pandemic hit us in Q2, obviously, we were not prepared for that. And it took us a bit of time to get all our processes and procedures and how to operate a brewery safely in the environment in which we were operating and make sure that we kept our employees as safe as we possibly could. And so there were certainly growing pains in the first weeks and months of the pandemic, and that was primarily in Q2. And of course, early in Q2, we had almost a complete lockdown of the on-premise environment, both in the U.S. and in Canada and in some parts of our Latin American business, whole countries shut down like Mexico and Panama. So we didn't see the -- those impacts in Q3 as much as we did in Q2. Certainly, the on-premise came back to a degree in Q3. We were -- we've been pretty public about the fact that we went from almost a 90% to 100% shutdown in some parts of Q2. We settled in Q3 at the sort of 40% -- 35% to 45% down range, which -- it settled at that range pretty much through Q3. And then we've gotten really good at operating in a pandemic within the constraints which come with that. I mean, obviously, can supply has been a big issue for us from day 1. We said in Q3 that, that had improved over Q2, and we do expect our inventory levels to recover somewhat in Q4. Having said that, I don't -- it's hard to predict what's going to happen next week, let alone by the end of the year, in terms of shutdowns and so on, but I would say those are the 3 biggest differences between second quarter and third quarter. We -- firstly, we learned how to operate in a pandemic a lot better. Secondly, a decent amount of the on-premise came back. And thirdly, we've been scouring the world for cans, and we've improved our can supply.

Okay. And as you think about volume trends going forward, obviously, a lot of volatility in this environment, is it more sort of tied to on-premise recovery or deceleration and restrictions there? Do you think it's more sort of some internal improvements you've made in terms of the way you're managing the business that are driving sequential improvement? How do you think about the impact of those 2 things going forward?

Yes, I think both of them applied, Dara. We have scoured the world, as I said, for cans, and we've got a bunch of cans coming from far-flung places in the fourth quarter to help with our 12-ounce industry standard can supply. The on-premise and whether it's open or not is going to impact how trends go generally. In the North America, it's about 17% of our revenue, and the off-premise just hasn't spiked enough to offset that. So a prolonged shutdown and impact in the on-premise is certainly not going to be helpful for our business overall. But as I said, we've got more efficient at getting the product out, and I would expect that to continue into the fourth quarter. I mean, certainly, it is our intent to have inventories recover in the fourth quarter, probably not to where we would like them to be just yet. But if inventories recover, that does imply that we're shipping more than we're selling.

Okay. And on the can shortage front, obviously, it's impacted your volume trends. Can you just give us a sense for the magnitude of impact you've seen recently? How quickly do you think you can add capacity on the can front that it becomes less of an issue going forward? When do you -- when are you sort of able to really significantly increase can sourcing to more of a manageable issue?

Yes. Look, we made a decision more than a year ago to put in a new sleek can line into our joint venture with Ball and Golden with the can plant there. So we commissioned that actually in -- at the back end of the third quarter. That will give us 750 million annual capacity from a sleek can point of view. So certainly, that has helped our sleek can capacity. Industry standard, as I said, we have been sourcing. We have -- our suppliers have been really helpful to us, and we have sourced cans from far and wide. And so we have seen a slow start to a recovery in our 12-ounce industry standard can supply, and we would expect that to be sequential as we go into the back end of this year and into the first part of next. And then the tall can, which is what Coors Light and Keystone is in, we've stabilized that and have started to see a small incremental improvement in inventories there as well. So this isn't going to be a quick fix overnight, but we're heading in the right direction.

Okay. And could you compare and contrast what you're seeing in on-premise maybe in Europe versus the U.S., differences in the situation there and how things are evolving under COVID?

But it's much more impactful to us in Europe than it is in the U.S. and in Canada. So North America, as I said, about 17% of our NSR goes through the on-premise. In Europe, it is a much greater proportion, particularly in the U.K., where -- in total, I think Europe is about 55% that goes through the on-premise. And in the U.K., it's more than that. It's closer to 65%, 70% of our NSR goes through the on-premise. We did see a recovery similarly to North America in the third quarter in on-premise. But the U.K. has been shut down for the whole of November. It theoretically reopens tomorrow, but it will be a tiered structure. There will be a 3-tier structure. And a decent chunk of the country will remain in the third tier, which has bars and restaurants that are closed. Certainly, the majority of the country will still be in Tier 3 for the early part of of December. So that's certainly, from a sales point of view, not helpful for us. We are -- especially when you compare us with our competitors, we have a much greater share on the on-premise than some of our competitors do. Again, and I would say even more pronounced in Europe, in the beginning, we really -- we were impacted meaningfully by staff shortages and just weren't able to keep up with off-premise demands. I mean at some points, I think we were operating our off-premise capacity at close to 50%. And over the last 6 months, we've really got to a place where we're very comfortable at operating in the pandemic, and we haven't seen the staff impacts we saw in the beginning. And so we're much better positioned to operate at 100% of off-premise capacity than we were 6 months ago. So whilst that doesn't offset the whole of the on-premise impact, we're certainly better placed now than we were in Q2.

Right. Okay. And as you look out longer term, any thoughts on if the on-premise channel will fully recover at some point, whether it's 12 months or 18 months or whatever it may be? Or if some of the weakness we've seen leads to less bars, restaurants capacity out there and shutdowns in some of those areas? And then I guess, second, do you think you'll see some longer-term deterioration in that piece of the business? Does it shift off-premise? How do you think about that again looking out from a 1- to 2-year perspective as opposed to today?

Yes. Look, I see there's absolutely no doubt in my mind that it's going to take a very long time to recover to 100% of bars and restaurants that were open before the pandemic will reopen. I think that's a long haul, if it ever -- if we ever get back to that place. So we don't see that. Now you can -- whether it's 20% less or 10% less or 25% less, I think time will obviously tell, but there's no doubt that it's going to be less. I think the other thing which we've seen is consumers have migrated back to big, trusted, known brands during this pandemic, particularly when they're in the on-premise. And I think that that's a trend that will be sticky. I do think on-premise owners and bars and restaurant proprietors will want to stick closer to faster-moving brands than perhaps they did. So I think the days of having thousands of bars with some upwards of 100 tap handles are gone. And we're seeing Miller Lite and Coors Light, in particular, as being our 2 biggest on-premise brands in the U.S. are -- have gained a little bit of market share in the on-premise when it does reopen. And so we would expect that trend to continue, both here and with our big brands in Europe when Europe gets back to normal.

Right. Okay. Great. Then maybe we can go deeper into your revitalization plan and look out longer term, obviously, a number of initiatives under that plan, as I mentioned in the intro remarks. Maybe just give us an update on where you think you stand and the key aspects of that plan. How much progress you're seeing, particularly in light of COVID and how that might have changed some of the priorities of that?

I'm super excited about how well we've actually done with our revitalization plan, notwithstanding all the challenges that have been thrown at us. I mean we obviously had the shooting, which was a very internal issue for us. Then we had the pandemic, and then we had all the social unrest that came with that. And in the face of that, when you look at the 5 [indiscernible] of our revitalization plan and how we've done, obviously, from a cost savings side, the organizational structure, the design, the premises that we're going to close, we are well on track with that plan. And Tracey could talk more about the cost savings associated with that. But in terms of where we wanted to be and where we are, we're exactly where we had planned we wanted to be and the cost savings are coming out as we expected. In terms of reinvesting in capability, ironically, the pandemic has pushed us to move even quicker there, particularly in social media, the online space. We've insourced our digital agency. We've increased our employee base in the e-commerce space. And I think what we were planning to do has been accelerated much quicker, and we were forced to do that, and that was a good thing. We've also built out capacity for seltzers and Blue Moon LightSky, which was capability we didn't have. So I feel really good about those 2 sides of it. If you look at the brand side of it, obviously, we're maintaining focus on our core brands, Miller Lite, Coors Light, Molson Canadian, Carling in the U.K. I think we're in a really good place there. I mean Miller Lite and Coors Light are growing almost double digits in the off-premise per Nielsen. The brand health of those 2 brands are stronger. Their campaigns are resonating really well. And they're both in a really, really good place. From an above-premium point of view, it's probably a little bit more mixed. I mean, Peroni -- we have visions at Peroni being the next Heineken or [ stellar ] European import, and our plan was to double down behind that. Right now, that makes no sense because of the on-premise being so closed. So we've kind of put that program on ice. It's coming, but it -- now is not the right time. But Blue Moon in the off-premise has done extraordinarily well. And then Blue Moon LightSky is the #1 new beer brand according to Nielsen in the U.S. So we've launched that just before the pandemic. And of course, we were worried about the impact that, that would have. But we've been selling everything we can make, and that's why the investment in our Milwaukee Brewery, which came online this week, is going to really put a further boost behind that brand. So a little bit of a mixed a mixed performance in above-premium because of the circumstances. And then beyond beer, we're actually a little further ahead than I was expecting us to be. The deals that we did with L.A. Libations are producing the new products. We've launched the new cannabis-infused ready-to-drink products in Canada, and we've gained significant market share already. We're the -- by far and away, the #1 brand in Québec, and we see a path to being the #1 RTD cannabis-infused supplier in Canada as a whole. So we've made great progress there. And then we've done the deals that we've announced, the La Colombe deal, the Yuengling deal and Topo Chico. Topo Chico is probably the one that we didn't know about when we started the revitalization plan. That sort of came at us [indiscernible]. So Dara, that's a long-winded way of saying, I'm very pleased with where we are. I think we've made -- we've laid a great foundation in 2020, which we can springboard on in 2021.

All right. Okay. Great. I think, Tracey, maybe we can shift to margins. First off, I wanted to talk about plans for reinvestment. One of the planks of the revitalization plan was introducing cost savings and reinvesting some of that back behind the business. Obviously, COVID has changed plans somewhat with the MG&A declines the last couple of quarters on a year-over-year basis. I guess, first, just looking at marketing spend, clearly, 2020 is below what was originally planned given COVID. To some extent, your margin base is probably inflated leaving this year. Are you expecting a big step-up as you look out to next year? You talked about an increase in Q4. But just trying to understand the level of spend in this COVID environment and how you guys manage that going forward.

Thanks, Dara. So look, we haven't given real specifics around our absolute marketing spend, and we haven't commented on marketing trends for the full 2020 year. We did say, you're right, on our Q3 call that we expect our marketing investments in Q4 to increase from prior year period as we build on the strength of our core brands. We ramp up support for our key innovations, like Gavin mentioned, Blue Moon LightSky. We'll continue to invest behind that brand. It's doing really, really well. Vizzy, Coors Seltzer that we just launched in October. Vizzy we launched earlier in the year. So there will be additional support against those innovation brands. In addition, there will be continuing and incremental support behind our core brands like Miller Lite and Coors Light, for sure. In terms of what next year looks like, I think it's really difficult to predict because a lot of our spend is around live events like sports and fairs and festivals, et cetera. And so we'll just have to adjust our timing of marketing investments behind those brands and packs depending on when those sports come back online for live for spectators to go into stadiums, et cetera, and our ability to activate behind those live events. So that's a little bit up in the air. I can't really talk to what next year is going to look like. But what I can tell you, we'll continue to be nimble. We're adapting to the environment so that we can ensure that we get the highest possible return on our marketing investments. Gavin spoke about e-commerce and moving into more social media spend, et cetera. And we'll just continue to support our brands. When we've got innovations and things like that in the market, we're going to put money behind it. I just can't tell you what that spend is going to look like for next year. So as we continue to deliver against the revitalization plan and get the cost savings, I mean part of that is to go to spend behind our brands so that we can drive that top line. But in terms of breaking it out, I just can't do it at this stage because we just don't know what next year is going to look like.

Okay. Makes sense. And then as you think about marketing longer term out over the next couple of years, obviously, there's been a near-term pullback in this environment. Is there -- as you look at it, are there some rooms for efficiency on that line item? Or maybe you don't have to spend as much that you've sort of realized as a result of the structural change in the last couple of quarters? Or do you look at it more as it's a temporary phenomenon and eventually, pretty comfortable, you're going to put that sort of full effort back in place when live sports do return, whether it's 2 years out or a year out or whatever it may be? How do you think about that?

Look, I think one thing that this sort of pandemic has taught us is that our marketing team can be very agile and they're very flexible, and we're able to move quite quickly into spaces like the digital space or streaming platforms, Hulu and those kinds of things, they were able to adapt and shift very quickly. So we know that we can do that. And we run all of our investments ideas through our ROMI model, our return on marketing investment model, to see where we get the highest returns. So I think we're learning every day, and I think our marketing team has certainly proven that they are agile. So in terms of big step-ups in that next year, I think again, it's -- we'll have to see how the environment plays out, whether on-premise comes back online, as Gavin mentioned earlier, whether live sports comes back. Because, obviously, live sports and that is important to brands like ours. And when that does come back online, we do want to execute at least that. But right now, I can't tell you if it's the ideal amount of spending or not. I think we're going to just have to see how various things play out for next year.

Right. Okay. And you mentioned supporting recent innovations with marketing as well as the core brands. How do you balance the investment needs between those 2 areas? And give us some sense for where the spend is really focused as we look out over the next [ few ] quarters here. And maybe also, just stepping back, maybe you can talk about how you measure ROI in general from marketing and how that might have changed in recent periods.

Yes. Sure. So again, we have quite a sophisticated return on marketing investment model. We built our own MMA model, and we update that all the time. So that gives us a little bit of insights as to where the best investment is by brand, by geography, et cetera. So we'll continue to use that. We do know that our core brands are really important, Miller Lite and Coors Light. And so we will continue to invest behind those brands. They're big brands for us. They're important. And as Gavin mentioned as well, as we're seeing on-premise come back online -- or we did, we saw those retail accounts turning back to those big trusted brands like Miller Lite and Coors Light. And so we'll continue to invest behind those brands. In terms of how we decide which brands to invest behind, as I said, we look at a lot of our return on marketing investment. We do a lot of surveys and focus groups, et cetera, as to where we should be spending our money, especially behind the digital space. Gavin, I don't know if you want to add anything?

I mean maybe just build on one point you made, which is, as bad as the pandemic has been, Dara, there are some things that have come out of it that have forced us to think about things differently and that have been good. And I mean, certainly, we do a lot of partnerships, we do a lot of sponsorships. And I think it's safe to say that we've learned a lot about what works and what doesn't work and what is beneficial and what isn't beneficial. And so I think over the years ahead, how we engage from a sponsorship and an alliance point of view will be different, and we've learned that through the process. I also think we've learned what marketing programs are working and which ones aren't working in a more effective way, as Tracey said. And so we're leaning in, particularly in the social media and digital space, in quite a more meaningful way than we were before.

Great. And then, Tracey, can you give us an update around some of your cost savings plans? Have they been impacted by COVID at all or not? Is there a larger bucket of opportunity maybe than you originally anticipated thinking about how the business is structured coming out of COVID? That would be helpful.

Yes. So I'll just step back. If you recall, prior to October of last year, we announced our next 3-year cost savings program, so 2020, '21 and '22. And we announced a $450 million of cost savings, and primarily, that was focused on COGS, so the cost of sales line. When Gavin came in, in October, and we announced our revitalization plan, we added another $150 million to that. So in total, a 3-year cost savings program of $600 million, really split equally, 1/3, 1/3, 1/3 over the next 3 years. In terms of how we are delivering against it, as Gavin said, I'm really -- we both are very comfortable that we're delivering against that. We're achieving the targets that we've set ourselves for this year. So that's the known costs that we came into the year going after. I think the pandemic has also made us look at things a little bit differently. So we just -- we spoke about the marketing spend, but also things like travel, where a company like ours, we do spend quite a bit of money on travel and entertainment, as you can imagine. And just finding new ways to interact. So Zoom meetings, for example, or team meetings doesn't require all the travel. So there are new pockets of cost savings that we're going to go after and have a look at. But we'll give you more information on that as we sort of go into next year and give some guidance. But just to say, we are really comfortable on delivering the cost savings program that we've already announced.

Right. Okay. And then, Gavin, maybe we can move over to discussing the hard seltzer category. You laid out what seems like a pretty ambitious target of reaching double-digit market share in the U.S. by the end of next year. A, what gives you confidence that you can reach that level? B, maybe can you talk about which brands are most important in reaching that goal from a market share perspective?

Yes. Yes. I think it is a -- you could call it a lofty goal, ambition, but we think it's a very reasonable one, given the portfolio which we've got. And we've got currently 2 seltzer brands in the marketplace, and we've got 2 more coming next year. And why do we believe that, that can be so successful is because we think we have the most differentiated and -- or will have the most differentiated hard seltzer portfolio of any supplier out there. The 2 we've launched this year, we've got Vizzy, which is a very -- that's an ingredient-based seltzer. It's got an acerola cherry, which has vitamin C naturally coming from that, which -- if you see it on shelf, the bright orange packaging, it really stands out. And consumers, particularly the 21- to 35-year-olds, are interacting very well with Vizzy. Coors Hard Seltzer is the second one we launched just a couple of months ago. The research we've done says it has the most chance of success of beer in the brand names. It's -- obviously Coors has got its Rocky Mountain heritage, the water. We've got the partnership with -- which changed the course. And again, with the younger legal drinking age consumer, that's resonating very well as well. And then we've got Topo Chico and Proof Point coming next year. And Topo Chico has generated an enormous amount of excitement. I mean it's -- obviously, it's a non-alcohol mineral water under the -- in the Coke platform, and it's got a mass following, particularly in the Southern part of the country, but also in many of the biggest cities in the Northern part. And the reception we've had from retailers and distributors has been overwhelming. It is the easiest sell for our chain teams when they go into the big retailers to sell next year's plan. Topo Chico is, right, you've got that one. Let's talk about the rest. So we're very excited about what Topo Chico can bring to us. And then we've got Proof Point, which is going to be spirits based and also quite different. Coming into this year, we had less than 2% share of the seltzer market. We've now doubled that with a limited offering of brands in a limited time period in 2020. So we think getting from 4% to double digits by the end of next year is a reasonable goal, and we think we've got the portfolio to do it.

And which brand do you think is most important to get to that goal, which one has the biggest opportunity?

Yes. You want me to pick my favorite child, Dara, and that's a tough answer for me to give. I think they're all very exciting brands. I think they've all got lots of potential. So I'm not going to pick my favorite child on this one. I like all of them.

Fair enough. Fair enough. And what are your thoughts around -- obviously, there's a lot of competition moving into the category, we have a couple of entrenched, established brands, a number of brands that have been introduced over the last 18 months, including from yourself, and we've got more brands to come here over the next few quarters. So as you think about this segment getting a lot more crowded with multiple brands in it, how do you think that impacts category growth? How do you think about that dynamic in terms of what it means for the category itself in terms of hard seltzer?

Gavin, you're on mute.

Okay. Thanks, Tracey. I think that's going to be the sentence of the year this year, right, you're on mute. If you look at the overall category, we think that the overall beer category is going to grow this year in 2020. And obviously, seltzer plays a large part in that. Having said that, more than half of the volume that seltzer is generating comes from outside of the beer category, whether it's bringing new drinkers in who haven't actually tried alcohol or not alcohol consumers or whether it's coming from wine and spirits, it is incremental to the overall segment. So we think it's good for the category. Is it going to continue to grow to 300%? It's obviously not, right? The law of math doesn't allow that. But it's the fastest-growing alcohol in the market at the moment, and certainly, nothing is growing quicker than that in the beer segment. And so whether it's 50% or 100%, it's still really good growth. So contributing favorably towards the overall segment. I think it's very, very positive for us.

Okay. And you touched on the fact that you think the hard seltzer category is incremental to the beer category. A lot of the volume is sourced from spirits or wine or bringing in more alcohol consumption. Within beer, though, the piece that is cannibalizing from beer, which segment do you think is cannibalizing the most? And are you seeing any shelf space pressure, in particular subcategories, to free up volume for hard seltzer, which obviously, you're participating in also?

Not from premium lights. So we've not seen much impact on Miller Lite and Coors Light. And you can see that in the off-premise performance of Miller Lite and Coors Light, continue to gain significant share of the segment, growing per Nielsen close to double digits. So certainly not from our light portfolio. I think where you're seeing the impact, particularly on shelf space, is craft. A lot of slower-moving craft brands are ceding shelf space to seltzers, and I think that trend will continue because I think the days of hundreds and hundreds of SKUs of craft in some of the chains are over and seltzer will be taking some of that space. Our flavored malt beverages probably a little bit as well. So it certainly has taken from flavored malt beverages and probably a little bit from economy shelf spaces as well. But the big premium lights import brands, no, we haven't seen much impact there. And Miller Lite is actually -- in the last 4 weeks -- and in fact, I think it's the last 2 reads of Nielsen for the last 4 weeks is growing in the overall category, not just the segment. It's been growing in the segment for multiple years, but in the overall category, it's growing. And we haven't seen that too often from a brand like Miller Lite.

Right. Okay. And thinking about your mix evolution towards higher-end beer looking out longer term, I guess, can you break down sort of mix percentage you expect at the high end to get at eventually for your portfolio versus today? Or how much of your growth do you think comes from the high end versus the rest of the portfolio? And how you sort of manage driving that high-end growth but also driving growth on the rest of the business at the same time?

Yes. Well, our #1 priority remains, obviously, the core brand portfolio of our business, the core brand. So Miller Lite, Coors Light, Blue Moon, Carling in the U.K and so on. So we're not going to take our eye off that ball. And we're certainly investing the right amounts of money from our perspective behind that portfolio. But we've been very clear about the fact that we need to change the mix of our portfolio. And in the third quarter, actually, we had the highest percentage of above premium of our portfolio I think since the joint venture started in 2008. So we've certainly laid the foundation and we're making progress there. Beyond beer is an important component of it. That is why we did get feedback as to what does this mean. So that's why we put up the sort of $1 billion revenue target that we have for our emerging growth division in 3 years. And most of that is above premium. But I can't think of anything that's not in the sort of above-premium better-for-use space from a nonalcohol point of view. So we think the savings that we've generated, which Tracey talked about, give us the opportunity to invest the right amount of money behind both of those goals of ours. And we've seen significant progress in the first -- well, in the third quarter, really. I'm not going to talk yet about the fourth quarter.

Okay. And Tracey, turning to capital allocation. You suspended the dividend in 2020, obviously, to preserve cash, given the negative COVID impacts on your business and the environment. Assuming a gradual recovery of your business going forward, my assumption not necessarily yours, but how big a priority is a reintroduction of the dividend as you look out going forward?

Yes. Dara, so look, when we suspended the dividend for the remainder of the year, back in May, it was obviously a really, really difficult decision because our company has a very long history of paying dividends. And yes, it was difficult. So while I can't speak to the dividend strategy beyond 2020 because we are continuing to have those conversations with the Board, we do fully intend to reinstate the dividend as soon as appropriate. It's -- there's various internal targets. We obviously want to just see how the rest of this year pans out under the pandemic and really evaluate early in the year with our Board. As I say, we're having ongoing conversations with them as to how and when to reinstate the dividend. But again, as I said, we fully intend to reinstate it as soon as appropriate. It certainly is important, returning cash to our shareholders is important, and yes, we're looking at that.

Okay. And on the share repurchase front, you focus more on dividends historically as a way to return cash to shareholders. How do you think about share repurchases? How do you come to the decision there? And I guess I'm also sort of wondering, look, it's a different environment here with COVID. The volatility is obviously going to linger for some time. So is maintaining more flexibility as you think about your capital allocation becoming more important as you look going forward?

Yes. So I mean, in terms of buybacks, with our Board, we always evaluate the capital allocation priorities. We run everything through our PACC model, our profit after capital charge model. And we have a look at what we believe the future looks like from what we need to invest behind -- in our business, et cetera, and what ultimately gives the greatest potential return for our shareholders. So during the coronavirus, the uncertainty was in -- was sort of driving the decisions around capital allocation. So making sure that we kept our employees safe, had proper business continuity and had adequate liquidity. Now that uncertainty still remains and those -- so do those priorities. And also, one of our focus areas, priorities is to maintain our investment-grade rating, and we believe that that's important not just for our bondholders, but for all stakeholders. And so that is a focus. And I would say that we've made great progress in improving our liquidity position. We've reduced our net debt position by over $1.2 billion since we announced the revitalization plan. We've amended our RCF to provide more headroom around the financial covenants. And so we've done a lot of work around liquidity. So I guess, at the end of the day, the uncertainty still remains, but so do our priorities. And we'll continue to have a look at various capital allocation priorities, run it through our PACC model and make those decisions with our Board. Just very difficult with this uncertainty to give you exactly what we intend to do.

Right. Okay. That's helpful. And then, Gavin, maybe we can discuss your Canada strategy with the Truss Beverage joint venture. First, I'd just love to hear in general, given the size of your business in Canada, do you think legalization of cannabis in Canada has had an impact on beer industry volume first and what that might portend for the U.S. if we move down the path of legalization longer term? But then, b, more importantly, your plans on the beverage side there and your innovation plans going forward and what you're expecting on that front?

Yes. Look, we've been at this now, Dara, as you -- we've been at it for a couple of years. I mean we've entered into the cannabis market in a much different way than some of our competitors. It's certainly been a much lower investment and capital investment approach than perhaps others have done. And we launched our first drops in the second quarter, I think it was. And then we've launched a much fuller portfolio of RTDs more recently, and I think that first one has got into the market in the second quarter. And I think I alluded to the fact earlier on that very quickly, we've got the #1 share position in Québec, which is a big market. And we -- based on the data we're seeing, we think we're very close to being the #1 RTD THC supplier in the whole of Canada. So very excited about the brands that we've launched and how the consumers are reacting to them from a taste profile because that is the #1 -- there's 2 really important things. One is how does it taste? And what is the onset time? And I can't personally attest to either of those, but our experts tell us that we've knocked that out of the park. So I'm feeling pretty good about our cannabis business up in Canada. To your second question, we haven't seen much of an impact. Now intuitively, you would say that it would have had an impact, right, because there's disposable income and you choose to either put it into bear or you put it into THC infused products or you put it into something else. But the work we've done from a research point of view is not suggesting that it's having any meaningful impact on the beer category. So yes, we'll continue to do the work and do the research. But at this point in time, that's what the data is telling us, not in any way, a meaningful impact. As far as the U.S. is concerned, we have launched our first not THC-infused, but our first CBD-infused products in Colorado, it's got the most established laws. It's been -- it's had legalization has been in effect there for much longer than any other state. And so some of the brands we've launched up in Canada from a CBD-infused point of view, we're now launching in Colorado. So that's really early days, and we'll have to see how that plays out. But I think our experiences up in Canada are putting us in a really good position to be really -- if we ever chose to or if it ever became fully legal in the United States for us to follow the same path down here. So as part of our $1 billion growth target, I think our Truss joint venture in both Canada and in the U.S. is going to play a meaningful role in that.

Great. That's helpful. And how big do you think the CBD or THC-infused products could be longer term? Is this a significant piece of what's the existing alcohol industry today, even though it obviously could be incremental? How do you think about that? And also the products you have in the marketplace today, are those sort of close to the end state? Or is there still a lot more work to be done in terms of innovation, taste profile, et cetera, going forward?

I'll take the last part first is, I mean, certainly, we will never stop innovating and perfecting. But based on our technical experts, the products we got in the marketplace now are really good, and they are best-in-class is what our guys would say. But we'll obviously continue to innovate, but we feel good about where we are from that perspective. When cannabis was first legalized, you saw these massive numbers, right? I mean they were just massive of what the market could be in Canada and the U.S. and the extrapolations that made your eyes water. And the approach we took was even if they're 90% wrong, it's still a big market and so it's worth getting into. And I think what the experts would tell you is, yes, those eye watering numbers were too big, and it's much smaller than that, but it is still a very big industry. And we want to be a meaningful player in that industry from an RTD point of view up in Canada and in the U.S., if and when it was ever legalized. So yes, that's how I'd summarize that, Dara.

Great. Well, with that, we're out of time here. So Gavin and Tracey, we really appreciate your time. It's very informative. And it sounds like there are a lot of exciting initiatives of the company at this point in time. So thanks again for your time.

Thanks, Dara.

Thanks for having us, Dara.