The world’s largest burger chain, which owns about 84 per cent of its nearly 850 restaurants in Russia, will take a related non-cash charge of up to $1.4 billion following its sale (all figures US$).

McDonald’s had in March decided to close its restaurants in the country, including the iconic Pushkin Square location in central Moscow — a symbol of flourishing U.S. capitalism in the dying embers of the Soviet Union.

The burger chain’s 1990 entry to the Russian market was spearheaded by George Cohon, who at the time was head of McDonald’s Canada. Its arrival was seen to represent the thawing of Cold War tensions and became a way to sample Western food and spirit for millions of people, even though the cost of a burger was several times bigger than the daily budgets of many city dwellers.

“Some might argue that providing access to food and continuing to employ tens of thousands of ordinary citizens is surely the right thing to do,” CEO Chris Kempczinski said in a letter to employees. “But it is impossible to ignore the humanitarian crisis caused by the war in Ukraine.”

Though a vast majority of the stores in Russia are closed, a few franchised stores have stayed open, cashing in on the skyrocketing popularity of McDonald’s.

Over the weekend, long queues were seen at the restaurant in Moscow’s Leningradsky Station, one of the capital’s only branches that was open, social media footage showed.

The company last year generated about nine per cent, or $2 billion, of its revenue from Russia and Ukraine.

Retains trademark

McDonald’s is looking to sell its restaurants to a local buyer and would not allow the stores to use its name, logo, branding and menu, retaining its trademark in Russia.

“It (trademark) gives them the option longer term to be able to re-enter the market,” Edward Jones analyst Brian Yarbrough said.

The company said it would ensure its 62,000 employees in Russia continue to be paid until the close of any transaction and that they have future jobs with any potential buyer.

McDonald’s restaurants are expected to start reopening under a new ownership in June, a source close to the company in Russia said.

“It is a hit for McDonald’s financially, but it shows that Western companies and brands are calculating that either they cannot do business in Russia or the costs, including reputational costs, are just too high,” Paul Musgrave, a political science professor at the University of Massachusetts, said.

Earlier in the day, French carmaker Renault said it would sell its majority stake in Avtovaz to a Russian science institute, as companies scramble to comply with sanctions and deal with threats from the Kremlin that foreign-owned assets may be seized.

Analysts expect more major brands to follow McDonald’s. Starbucks and Coca-Cola have already paused operations in Russia.

“I would not be surprised to see other companies follow McDonald’s lead of exiting the market,” Edward Jones’ Yarbrough said.

— Reporting for Reuters by Uday Sampath, Praveen Paramasivam and Deborah Sophia in Bangalore.

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Trading was volatile and shares fell more than 12 percent after hours on news of a 3.25 million share offering that includes 3 million shares from selling stockholders.

Proceeds are earmarked to raise funds to expand its manufacturing facilities that are being stretched by booming demand for its meat alternatives. Executives on a call with analysts declined to comment on the offering.

Beyond Meat’s shares have surged over 780 percent since the IPO in May as the company’s meat alternatives entered the menus of restaurants such as Carl’s Jr and on shelves of grocers including Kroger Co.

Plant-based meat alternatives have seen booming interest from consumers and restaurants, supporting startups like Beyond Meat and its competitor Impossible Foods, and even sparking interest from veteran meat companies such as Tyson Foods Inc and Perdue Foods, which now offer meat protein products mixed with plants.

“For another growth stock, the top-line beat and raises would be enough to see a post-market rally, but there are a lot of Beyond Meat investors out there looking for any excuse to sell a stock that has rocketed so much since its IPO,” said Kamal Khan, analyst at financial markets platform Investing.com.

Beyond Meat products are now sold at more than 53,000 retailers and restaurants worldwide, with demand boosted by the grilling season underway, Beyond Meat’s CEO Ethan Brown said on Monday.

At supermarket chain Morton Williams, which owns 16 locations across New York City, some customers are buying Beyond Meat burger patties and sausages by the case, according to Victor Colello, the chain’s director of meat and fish.

“Beyond Meat is really flying off the shelves. My business with it has almost doubled and we’re sold out at times,” Colello said. The latest version of the burgers is made from peas, brown rice, sunflower seeds and mung beans.

Net revenue rose nearly four-fold to $67.3 million in the three months ended June 29, above Wall Street’s estimate of $52.71 million, according to Refinitiv IBES data.

The company said it expects net revenue to rise over 170 percent to $240 million in 2019, up from the prior $210 million it had forecast just last month.

The El Segundo, California-based company reported a net loss of $9.4 million, or a loss 24 cents per share, compared with a loss of $7.4 million, or a loss of $1.22 per share in the year-ago period.

No sign of slowing

Karen Formanski, an analyst at Mintel who authored a consumer research report on plant-based protein, said there were no signs of the meat alternatives market slowing, with 38 percent of U.S. consumers trying to add more plant-based protein to their diet.

“But with growing competition, criticism over processed food and clean eating getting more important, companies will have to adapt and offer more variety than just burgers” Formanski said.

Brown on Monday rejected growing criticism over Beyond Meat’s products being overly processed and unhealthy, saying it was not a question of whether they were processed but how.

The company seeks to further diversify its protein sources without relying on genetic modification, Brown said.

“There are an almost endless amount of crops you can pull from…and it is really important that Beyond is leading the effort of bringing new proteins into the market,” Brown said.

The CEO said he was confident his company could take on competition from Impossible Foods, which relies on genetically modified soy seeds to produce its burger patties, because of consumers hesitancy surrounding those technologies.

Impossible Foods initially planned to roll out to retail stores this fall, but has continuously pushed back plans due to supply shortages.

Analysts during Monday’s call pressed Beyond Meat executives for details on looming supply chain bottlenecks as demand continues to surge.

Brown said the company would expand its in-house manufacturing facilities in Missouri, buy new equipment, while continuing to outsource the packaging of its products by adding new partners.

“That’s not to say we won’t have some periodic disruptions that may create temporary shortages,” the CEO said.

Brown said the company currently had a sufficient and continued supply of the protein it needs for its burgers, also thanks to the entry of larger players, including DuPont, into the pea protein market.

Even so, the company has skeptics. Some 46 percent of the company’s publicly traded shares are shorted, according to research group S3. Those investors, owning shares worth $1.1 billion, are betting on the company to miss its targets and the share price to drop.

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The deal represents by far the biggest investment by a major tobacco conglomerate in a cannabis company. It comes after Canada legalized the recreational use of marijuana this year, and several other jurisdictions, including some states in the United States, follow suit.

With the Cronos investment, Altria will get a new opportunity to boost revenue as cigarette smoking continues to decline in the United States. Federal data from November showed cigarette smoking among U.S. adults reached an estimated 14 per cent in 2017, the lowest level ever.

“As a company that operates predominantly in the highly-regulated tobacco industry, we believe Altria has valuable regulatory and compliance experience that could end up being a key competitive advantage for Cronos, as it competes with other licensed producers for what seems to be a growing set of international opportunities,” Canaccord Genuity analysts wrote in a research note.

Altria will buy 146.2 million newly issued Cronos shares at $16.25 per share for a 45 per cent stake. The offer represents a 16 per cent premium to the TSX-traded stock’s Thursday close.

The deal also includes warrants to acquire an additional ownership interest in Cronos at a price of $19 per share over the next four years, which could raise Altria’s stake to 55 per cent.

After the deal is closed, Altria will have the right to nominate four directors, including one independent, to Cronos’ board comprising seven directors in total.

The deal structure was driven by an appetite on Toronto-based Cronos’ part to entertain discussions with other parties, although it is not guaranteed that any future discussions will result in product partnerships or new deals, according to one person familiar with the matter.

“Altria’s experience is very wide-ranging — not just in tobacco, but in adult beverages in different categories and decades of experience in how to bring different products to market,” Cronos CEO Michael Gorenstein said on a call with analysts.

“That experience, we think, is going to be very important as we try to accelerate new product categories.”

Cronos’ Canadian production and marketing operations include fully-owned subsidiaries Peace Naturals, at Simcoe, Ont. and Original BC, based in British Columbia’s Okanagan Valley. Cronos also holds a 21.5 per cent stake in B.C.-based organic producer Whistler Medical Marijuana Co.

Altria’s Cronos investment follows other deals in this space.

In June, London-based tobacco company Imperial Brands took an undisclosed stake in closely held Oxford Cannabinoid. Constellation Brands announced a $3.8 billion investment in Canopy Growth in August, while Coca-Cola said in September it was watching the space for alliances that could potentially help it develop products containing cannabinoid oil.

E-cigarettes

Separately on Friday, Altria said it would discontinue some of its e-cigarette brands, including all of MarkTen and Green Smoke e-vaper products, based on their financial performance and will take a related pretax charge of US$200 million in the fourth quarter.

Altria has invested in e-cigarettes in recent years through its Nu Mark subsidiary, which sells devices such as the MarkTen e-cigarettes in convenience stores and tobacco shops. In 2014, Altria acquired e-cigarette startup GreenSmoke Inc. for US$110 million.

Altria’s products, however, have lost significant ground to e-cigarette maker Juul Labs over the last year, as have e-cigarette brands from other major tobacco companies.

Altria is also in talks to take a minority stake of between 20 and 40 per cent in Juul, sources told Reuters last month.

— Reporting for Reuters by Harry Brumpton in New York and Uday Sampath in Bangalore. Includes files from Glacier FarmMedia Network staff.

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Constellation was among the first major alcohol producers to invest in marijuana production when it pumped about $245 million into Smiths Falls, Ont.-based Canopy last year, but the latest announcement makes it by far the biggest investment in the industry.

Canada, where 4.4 million people reported using the drug in the first half of the year, will fully legalize the recreational use of cannabis in October.

Constellation, Molson Coors and Anheuser-Busch are all using the move by the United States’ northern neighbour to hedge their bets for the future at a time when beer sales, roughly 60 per cent of Constellation’s business, are stagnating, particularly with younger Americans.

Constellation will buy 104.5 million Canopy shares at $48.60 a share, a 51.2 per cent premium to the stock’s Aug. 14 closing price.

The deal will take Constellation’s ownership in Canopy to 38 per cent from the 10 per cent it took last October. Constellation could also increase its ownership to over 50 per cent if it exercises warrants received as part of the deal.

“Over the past year, we’ve come to better understand the cannabis market, the tremendous growth opportunity it presents, and Canopy’s market-leading capabilities in this space,” Constellation CEO Rob Sands said in a statement.

Recreational use is also currently permitted in nine U.S. states and the District of Columbia, and sales in U.S. legal markets should nearly triple to US$16 billion by 2020 from US$5.4 billion in 2015, according to Euromonitor International.

Operating nationwide, however, is more problematic, and Constellation said neither company plans to sell cannabis products in the U.S. until it is allowed to do so at all government levels.

Other alcohol companies are also eyeing the weed market. Molson Coors Brewing earlier this month said its Canadian arm would make cannabis-infused drinks with Hydropothecary Corp.

U.S.-listed shares of Canopy Growth, whose brands include Tweed and Bedrocan, jumped about 37 per cent to US$36.20 in heavy premarket trading. Canopy had a market value of C$7.1 billion as of Aug. 14.

Constellation expects the investment in Canopy to add to earnings in 2021. The deal is expected to close in October.

— Reporting for Reuters by Uday Sampath Kumar.

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