Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

This MD&A provides additional information on our businesses, current developments, financial condition, cash flows, and results of operations. It should be read in conjunction with our Financial Statements and with our consolidated financial statements and notes included in our 2022 Annual Report. This MD&A is organized as follows:

Overview. This section provides a general description of our business, which we believe is important in understanding the results of our operations, financial condition, and potential future trends.

Strategy. This section provides a description of our strategy and a discussion of global supply chain and COVID-19 related impacts and significant divestitures, acquisitions, and investments.

Results of operations. This section provides an analysis of our results of operations presented on a business segment basis for the three months ended November 30, 2022, and November 30, 2021, and nine months ended November 30, 2022, and November 30, 2021. In addition, a brief description of significant transactions and other items that affect the comparability of the results is provided.

Liquidity and capital resources. This section provides an analysis of our cash flows, outstanding debt, and a discussion of the amount of financial capacity available to fund our on-going operations and future commitments, as well as a discussion of other financing arrangements.

Overview

We are an international producer and marketer of beer, wine, and spirits with operations in the U.S., Mexico, New Zealand, and Italy with powerful, consumer-connected, high-quality brands like Corona Extra, Modelo Especial, the Robert Mondavi Brand Family, Kim Crawford, Meiomi, The Prisoner Wine Company, and High West. In the U.S., we are one of the top growth contributors at retail among beverage alcohol suppliers. We are the third-largest beer company in the U.S. and continue to strengthen our leadership position as the #1 high-end beer supplier and the #1 share gainer across the U.S. beer market. Within wine and spirits, we are making solid progress in refining our brand portfolio to shift to a higher-end focused business to deliver net sales growth and margin expansion. The strength of our brands makes us a supplier of choice to many of our consumers and our customers, which include wholesale distributors, retailers, and on-premise locations. We conduct our business through entities we wholly own as well as through a variety of joint ventures and other entities.

Our internal management financial reporting consists of three business divisions: (i) Beer, (ii) Wine and Spirits, and (iii) Canopy and we report our operating results in four segments: (i) Beer, (ii) Wine and Spirits, (iii) Corporate Operations and Other, and (iv) Canopy. Our Canopy Equity Method Investment makes up the Canopy segment. If the Canopy Transaction is completed, including conversion of our Canopy common shares into Exchangeable Shares, our internal management financial reporting will consist of two business divisions: (i) Beer


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and (ii) Wine and Spirits and we will report our operating results in three segments: (i) Beer, (ii) Wine and Spirits, and (iii) Corporate Operations and Other.

In the Beer segment, our portfolio consists of high-end imported beer brands, craft beer, and ABAs. We have an exclusive perpetual brand license to import, market, and sell our Mexican beer portfolio in the U.S. In the Wine and Spirits segment, we sell a portfolio that includes higher-margin, higher-growth wine brands complemented by certain higher-end spirits brands. Amounts included in the Corporate Operations and Other segment consist of costs of executive management, corporate development, corporate finance, corporate growth and strategy, human resources, internal audit, investor relations, legal, public relations, and information technology, as well as our investments made through our corporate venture capital function. All costs included in the Corporate Operations and Other segment are general costs that are applicable to the consolidated group and are, therefore, not allocated to the other reportable segments. All costs reported within the Corporate Operations and Other segment are not included in our CODM’s evaluation of the operating income (loss) performance of the other reportable segments. The business segments reflect how our operations are managed, how resources are allocated, how operating performance is evaluated by senior management, and the structure of our internal financial reporting.

Strategy

Business strategy

Our overall strategic vision is to consistently deliver industry-leading total stockholder returns over the long-term through a focus on these key pillars:

continue building strong brands people love with advantaged routes to market;
build a culture that is consumer-obsessed and leverages robust innovation capabilities to stay on the forefront of consumer trends; and
deliver on impactful ESG initiatives that we believe are not only good business, but also good for the world.

We will continue to strive for success by ensuring consumer-led decision making drives all aspects of our business; building a diverse talent pipeline with best-in-class people development; investing in data systems, architecture, and infrastructure that enables our business; and exemplifying intentional and proactive balance sheet management. We place focus on positioning our portfolio on higher-margin, higher-growth categories of the beverage alcohol industry to align with consumer-led premiumization trends, which we believe will continue to drive faster growth rates across beer, wine, and spirits. To continue capitalizing on consumer-led premiumization trends, become more competitive, and grow our business, we have employed a strategy dedicated to organic growth and supplemented by targeted investments and acquisitions. We also believe a key component to driving faster growth rates is to invest in and strengthen our leadership position within the DTC and 3-tier eCommerce channels. As a part of our strategy, we have launched Digital Business Acceleration which we believe will enable us to drive results by enhancing our business in key areas including procurement, end-to-end supply chain planning, and marketing optimization. For further information on Third Quarter 2023 and Nine Months 2023 Digital Business Acceleration investments, see the respective “Selling, general, and administrative expenses” within Results of Operations below.

Our business strategy for the Beer segment focuses on upholding our leadership position in the high-end segment of the U.S. beer market through maintenance of leading margins, enhancements to our results of operations and operating cash flow, and exploring new avenues for growth. This includes continued focus on growing our beer portfolio in the U.S. through expanding distribution for key brands, including within the DTC and 3-tier eCommerce channels, as well as continued expansion, optimization, and/or construction activities for our Mexico beer operations. Additionally, in an effort to compete more fully in growing sectors of the high-end segment of the U.S. beer market, we have leveraged our innovation capabilities to create new line extensions behind celebrated, trusted brands and package formats that are intended to meet emerging needs.


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Expansion, optimization, and/or construction activities continue under our Mexico Beer Projects to align with our anticipated future growth expectations. In April 2022, we announced that, with the assistance of the Mexican government and state and local officials in Mexico, we acquired land in Veracruz for the construction of the Veracruz Brewery where there is ample water and we will have a skilled workforce to meet our long-term needs. The design and construction process for the Veracruz Brewery is underway. Additionally, we continue to work with government officials in Mexico in connection with our canceled Mexicali Brewery construction project following a negative result from a public consultation held in Mexico. The remaining Mexicali Brewery net assets have met held for sale criteria as of November 30, 2022.

Our business strategy for the Wine and Spirits segment focuses on higher-end brands, improving margins, and creating operating efficiencies. We continue to refine our portfolio primarily through an enhanced focus on higher-margin, higher-growth wine and spirits brands. Our business is organized into two distinct commercial teams, one focused on our fine wine and craft spirits brands and the other focused on our mainstream and premium brands. While each team has its own distinct strategy, both remain aligned to the goal of accelerating performance by growing net sales and expanding margins. In addition, we are advancing our aim to become a global, omni-channel competitor in line with consumer preferences. Our business continues to progressively expand into DTC channels (including hospitality), 3-tier eCommerce, and international markets, while continuing to grow in U.S. 3-tier brick-and-mortar distribution. In markets where it is feasible, we entered into a contractual arrangement to consolidate our U.S. distribution in order to obtain dedicated distributor selling resources which focus on our U.S. wine and spirits portfolio to drive organic growth. We expect U.S. wine and spirits shipment volume to be generally aligned with depletion volume for Fiscal 2023.

Marketing, sales, and distribution of our products are primarily managed on a geographic basis allowing us to leverage leading market positions. In addition, market dynamics and consumer trends vary across each of our markets. Within our primary market in the U.S., we offer a range of beverage alcohol products across the imported beer, craft beer, ABA, and branded wine and spirits categories, with generally separate distribution networks utilized for (i) our beer portfolio and (ii) our wine and spirits portfolio. The environment for our products is competitive in each of our markets.

We complement our strategy with our investment in Canopy by expanding our portfolio into adjacent categories. Canopy is a leading cannabis company with operations in Canada, the U.S., Germany, and certain other global markets. This investment is consistent with our long-term strategy to identify, address, and stay ahead of evolving consumer trends and market dynamics. Our strategic relationship with Canopy, which will continue through the completion of the Canopy Transaction including the conversion of our Canopy common shares into Exchangeable Shares, is designed to help position it to be successful in cannabis production, branding, and intellectual property. For further information on our plan to convert our Canopy common stock ownership, see “Canopy segment” below.

We remain committed to our long-term financial model of: growing sales, expanding margins, and increasing cash flow in order to achieve earnings per share growth, maintain our target net leverage ratio and dividend payout ratio, invest to support the growth of our business, and deliver additional returns to stockholders through periodic share repurchases. Our results of operations and financial condition have been affected by inflation, changing prices, and reductions in discretionary income of consumers available to purchase our products, as well as other unfavorable global and regional economic conditions, geopolitical events, and military conflicts, such as repercussions from the conflict in Ukraine. We expect some or all of these impacts to continue into Fiscal 2024. We intend to continue to monitor the inflationary environment and the impact on the consumer when we consider passing along rising costs through further selling price increases, subject to normal competitive conditions. In addition, we continue to identify on-going cost savings initiatives, including our commodity and foreign exchange hedging programs. However, there can be no assurance that we will be able to fully mitigate rising costs through increased selling prices and/or cost savings initiatives. Furthermore, to the extent climate-related severe weather events, such as droughts, floods, wildfires, and/or late frosts, continue to occur or accelerate in future periods, it could have a material impact on our results of operations and financial condition.


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ESG strategy

We believe our ESG strategy enables us to better meet stakeholder expectations, reflect our Company values, and directly address pressing environmental and societal needs that are important to our communities, consumers, and employees. Specifically, we have focused on areas where we believe we have the greatest opportunities to make meaningful, positive impacts for people and the planet, and we dedicate our resources towards:

Serving as good stewards of our environment and natural resources – Modeling water stewardship for our industry; and reducing GHG emissions through energy conservation and renewable energy initiatives

Enhancing social equity within our industry and communities – Championing the professional development and advancement of women in the beverage alcohol industry and our communities; enhancing economic development and prosperity in disadvantaged communities; and championing an inclusive culture within our organization, characterized by diversity in background and thought, which reflects our consumers and the communities where we live and work

Promoting responsible beverage alcohol consumption – Ensuring the responsible promotion and marketing of our products; and empowering adults to make responsible choices in their alcohol (substance) consumption by supporting fact-based education, engagement programs, and policies

During Third Quarter 2023 we published our 2022 ESG Impact Report and took the following steps to advance our ESG strategy by key area:

Serving as good stewards of our environment and natural resources

employees and community members came together to remove approximately 1,400 pounds of debris and recyclables from local beaches in support of the second year of Corona’s Protect Our Beaches initiative, in partnership with Oceanic Global and United by Blue

Enhancing social equity within our industry and communities

supported employee-designated charitable organizations on GivingTuesday with a special match, in addition to our regular charitable matching program, providing approximately $172,000 in total donations

Promoting responsible beverage alcohol consumption

in collaboration with Responsibility.org, leading up to the U.S. federal holiday, Labor Day, we continued our responsibility education efforts, sharing responsible consumption tips and information on lower-alcohol and non-alcoholic product options on our Company intranet and through our Company social media channels to help our employees and consumers make informed choices during their celebrations
together with the Corona Family of Brands, we partnered with the Washington Regional Alcohol Program and Lyft to provide safe rides home for adults celebrating Halloween in the metro-Washington area

Global Supply Chain and COVID-19 Related Impacts

Fiscal 2023 has been, and is expected to continue to be, impacted by challenges with both global supply chain and transportation which contributed to higher cost of product sold. For example, wine produced in New Zealand and Italy and subsequently shipped to the U.S. for distribution continues to be affected by increased costs of ocean freight shipping. In addition, during Fiscal 2022, we experienced a brown glass purchasing shortage, which impacted certain of our imported beer brands. This supply returned to normal levels in early Fiscal 2023. To the extent these circumstances continue to occur or accelerate in future periods it could have a material impact on our results of operations.

We have seen consumers shift more of their total shopping spend to online channels since the COVID-19 outbreak, which has led to increased eCommerce sales, including DTC, for our business. In response to COVID-19, we have ensured our on-going liquidity and financial flexibility through cash preservation initiatives, capital management adjustments, and cost control measures. We have used opportunities under the CARES Act, afforded to us earlier in the pandemic, to defer some payments including certain payroll taxes. We believe we have


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sufficient liquidity available from operating cash flow, cash on hand, and availability under our revolving credit facility. We expect to have continued access to capital markets and to be able to continue to return value to stockholders through dividends and periodic share repurchases.

Divestitures, acquisitions, and investments

Wine and Spirits segment

2022 Wine Divestiture

In October 2022, we sold certain of our mainstream and premium wine brands and related inventory. Accordingly, our consolidated results of operations include the results of operations of such mainstream and premium wine brands through the date of divestiture. We received cash proceeds of $96.7 million, subject to certain post-closing adjustments. The net cash proceeds from the 2022 Wine Divestiture were utilized primarily to reduce outstanding borrowings. We recognized a net gain of $13.8 million on the sale of business for Third Quarter 2023 and Nine Months 2023. This gain was included in selling, general, and administrative expenses within our consolidated results.

Austin Cocktails acquisition

In April 2022, we acquired the remaining 73% ownership interest in Austin Cocktails, which included a portfolio of small batch, RTD cocktails. This transaction primarily included the acquisition of goodwill and a trademark. The results of operations of Austin Cocktails are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

Lingua Franca acquisition

In March 2022, we acquired the Lingua Franca business, including a collection of Oregon-based luxury wines, a vineyard, and a production facility. This transaction also includes the acquisition of a trademark and inventory. The results of operations of Lingua Franca are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

My Favorite Neighbor acquisition

In November 2021, we acquired the remaining 65% ownership interest in My Favorite Neighbor, a super-luxury, DTC-focused wine business as well as certain wholesale distributed brands. This transaction primarily included the acquisition of goodwill, trademarks, inventory, and property, plant, and equipment. The results of operations of My Favorite Neighbor are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

Our recent divestiture and acquisitions support our strategic focus on consumer-led premiumization trends and meeting the evolving needs of our consumers.

Canopy segment

Plan to convert Canopy common stock ownership

In October 2022, we entered into a Consent Agreement with Canopy pursuant to which we have provided our consent, subject to certain conditions, to the Canopy Transaction. Assuming the completion of the Canopy Transaction and the transactions contemplated by the Consent Agreement and that we elect to convert our Canopy common shares into Exchangeable Shares:

we intend to surrender our November 2018 Canopy Warrants to Canopy for cancellation;
we will only have an interest in Exchangeable Shares, which are non-voting and non-participating securities, and our remaining Canopy Debt Securities (for which we intend to negotiate an exchange of up to the full aggregate principal amount for Exchangeable Shares);
we intend to terminate all legacy agreements and commercial arrangements between ourselves and Canopy, including the investor rights agreement but excluding the Consent Agreement and certain termination agreements;
we will have no further governance rights in relation to Canopy, including rights to nominate members to the board of directors of Canopy, or approval rights related to certain transactions;


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all of our nominees will resign from the board of directors of Canopy; and
as our investment in Canopy common shares makes up our Canopy Equity Method Investment, we expect to no longer:

◦apply the equity method to our investment in Canopy, which we expect to instead be accounted for at fair value with changes reported in income (loss) from unconsolidated investments within our consolidated results; and

◦have a stand-alone Canopy operating segment as Canopy’s financial results will no longer be provided to, or reviewed by, our CODM and will not be used to make strategic decisions, allocate resources, or assess performance.

For additional information, refer to Notes 7 and 13.

Impairment of Canopy Equity Method Investment

We evaluated the Canopy Equity Method Investment as of August 31, 2022, and determined that there was an other-than-temporary impairment. Our conclusion was based on several contributing factors, including: (i) the period of time for which the fair value had been less than the carrying value and the uncertainty surrounding Canopy’s stock price recovering in the near-term, (ii) Canopy recording a significant impairment of goodwill related to its cannabis operations during its three months ended June 30, 2022, and (iii) the uncertainty of U.S. federal cannabis permissibility. As a result, the Canopy Equity Method Investment with a carrying value of $1,695.1 million was written down to its estimated fair value of $634.8 million, resulting in an impairment of $1,060.3 million. This loss from impairment was included in income (loss) from unconsolidated investments within our consolidated results for Nine Months 2023.

Canopy investment

In July 2022, we received 29.2 million common shares of Canopy following the exchange of C$100.0 million principal amount of our Canopy Debt Securities. This exchange did not significantly change our Canopy ownership percentage.

For additional information on these divestitures, acquisitions, and investments refer to Notes 4, 5, 7, and 13.

Results of Operations

Financial Highlights

References to organic throughout the following discussion exclude the impact of the 2022 Wine Divestiture, as appropriate.

Third Quarter 2023 compared to Third Quarter 2022

Our results of operations were negatively impacted by (i) an increase in equity in losses from Canopy’s results, (ii) an increase in Beer media investments, (iii) an increase in Corporate Operations and Other general and administrative expenses, driven by a Third Quarter 2022 reversal of stock-based compensation and Third Quarter 2023 investments in Digital Business Acceleration, and (iv) higher operational and logistics costs within both the Beer and Wine and Spirits segments, partially offset by (i) a decrease in unrealized net loss from the changes in fair value of our investment in Canopy and (ii) improvements within the Beer segment driven by a favorable impact from pricing.
Net sales increased 5%** largely due to an increase in Beer net sales driven primarily by the favorable impact from pricing and shipment volume growth.
Operating income decreased 11%** largely due to (i) an unfavorable change in Comparable Adjustments as compared to Third Quarter 2022, (ii) the increase in Beer media investments, (iii) the increase in Corporate Operations and Other general and administrative expenses, and (iv) the higher operational and logistics costs, partially offset by the improvements within the Beer segment.


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Net income attributable to CBI and diluted net income per common share attributable to CBI remained relatively flat largely due to the items discussed above and higher provision for income taxes as compared to Third Quarter 2022.

Nine Months 2023 compared to Nine Months 2022

Our results of operations were impacted by (i) a decrease in unrealized net loss from the changes in fair value of our investment in Canopy, (ii) an impairment of long-lived assets for Nine Months 2022 in connection with certain assets at the Mexicali Brewery, (iii) improvements within the Beer segment driven by shipment volume growth, and (iv) a decrease in inventory obsolescence within the Beer segment, driven by a slowdown in the overall hard seltzer category in early Fiscal 2022, partially offset by (i) an impairment of our Canopy Equity Method Investment, (ii) an increase in equity in losses from Canopy’s results primarily driven by their goodwill impairment, (iii) higher operational and logistics costs within both the Beer and Wine and Spirits segments, (iv) an increase in Corporate Operations and Other general and administrative expenses, driven by Digital Business Acceleration investments and the Third Quarter 2022 reversal of stock-based compensation, and (v) an increase in Beer media investments.
Net sales increased 11%** largely due to an increase in Beer net sales driven primarily by shipment volume growth and favorable impact from pricing.
Operating income increased 44%** largely due to (i) the impact of the impairment of long-lived assets in connection with certain assets at the Mexicali Brewery for Nine Months 2022 and (ii) improvements within the Beer segment, including the decrease in inventory obsolescence, partially offset by (i) the higher operational and logistics costs, (ii) the increase in Corporate Operations and Other general and administrative expenses, and (iii) the increase in Beer media investments.
Net loss attributable to CBI and diluted net loss per common share attributable to CBI decreased largely due to the items discussed above, partially offset by higher provision for income taxes.

Comparable Adjustments

Management excludes items that affect comparability from its evaluation of the results of each operating segment as these Comparable Adjustments are not reflective of core operations of the segments. Segment operating performance and the incentive compensation of segment management are evaluated based on core segment operating income (loss) which does not include the impact of these Comparable Adjustments.

As more fully described herein and in the related Notes, the Comparable Adjustments that impacted comparability in our segment results for each period are as follows:


	Third Quarter 2023		Third Quarter 2022		Nine Months 2023		Nine Months 2022
(in millions)
Cost of product sold
Settlements of undesignated commodity derivative contracts	$	(14.2)	$	(12.5)	$	(68.8)	$	(24.8)
Net gain (loss) on undesignated commodity derivative contracts	(7.8)		—		25.3		48.1
Flow through of inventory step-up	(2.1)		(0.1)		(4.0)		—
Strategic business development costs	(1.1)		—		(1.1)		(2.6)
Net flow through of reserved inventory	—		11.6		1.2		11.6
Recovery of inventory write-down	—		(1.0)		0.2		(1.0)


Total cost of product sold	(25.2)		(2.0)		(47.2)		31.3


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	Third Quarter 2023		Third Quarter 2022		Nine Months 2023		Nine Months 2022
(in millions)
Selling, general, and administrative expenses
Gain on sale of business	13.8		—		13.8		1.9
Costs associated with the Reclassification	(10.2)		—		(31.5)		—
Transition services agreements activity	(3.5)		(4.5)		(11.4)		(11.7)
Transaction, integration, and other acquisition-related costs	(0.5)		(0.8)		(1.2)		(0.8)
Restructuring and other strategic business development costs	(0.2)		0.2		(2.8)		0.1



Other gains (losses)	2.8		23.2		11.6		22.4
Total selling, general, and administrative expenses	2.2		18.1		(21.5)		11.9

Impairment of brewery construction in progress	—		—		—		(665.9)


Comparable Adjustments, Operating income (loss)	$	(23.0)	$	16.1	$	(68.7)	$	(622.7)

Income (loss) from unconsolidated investments	$	(31.5)	$	(135.5)	$	(1,852.4)	$	(1,430.7)

Cost of product sold

Undesignated commodity derivative contracts

Net gain (loss) on undesignated commodity derivative contracts represents a net gain (loss) from the changes in fair value of undesignated commodity derivative contracts. The net gain (loss) is reported outside of segment operating results until such time that the underlying exposure is recognized in the segment operating results. At settlement, the net gain (loss) from the changes in fair value of the undesignated commodity derivative contracts is reported in the appropriate operating segment, allowing the results of our operating segments to reflect the economic effects of the commodity derivative contracts without the resulting unrealized mark to fair value volatility.

Net flow through of reserved inventory

We sold reserved inventory previously written down following the 2020 U.S. wildfires.

Selling, general, and administrative expenses

Gain on sale of business

We recognized a net gain on the completion of the 2022 Wine Divestiture (Third Quarter 2023, Nine Months 2023).

Costs associated with the Reclassification

We recognized costs primarily related to professional and consulting fees, printing and mailing the associated proxy statement/prospectus, and all filing and other fees paid to the SEC in connection with the Reclassification. For additional information, refer to Note 10.

Transition services agreements activity

We recognized costs in connection with transition services agreements related to the previous sale of a portion of our wine and spirits business.

Other gains (losses)

We recognized other gains (losses) primarily from (i) a gain recognized on the remeasurement of our previously held equity interests to the acquisition-date fair value (Nine Months 2023, Third Quarter 2022, Nine Months 2022), (ii) decreases in estimated fair values of contingent liabilities associated with prior period


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acquisitions (Third Quarter 2023, Nine Months 2023), and (iii) a property tax settlement (Third Quarter 2022, Nine Months 2022).

Impairment of brewery construction in progress

We recognized an impairment of long-lived assets in connection with certain assets at the Mexicali Brewery. For additional information, refer to Note 4.

Income (loss) from unconsolidated investments

We recognized an unrealized gain (loss) primarily from (i) an impairment of our Canopy Equity Method Investment (Nine Months 2023), (ii) equity in earnings (losses) from Canopy’s results, and (iii) the changes in fair value of our securities measured at fair value. For additional information, refer to Notes 4 and 7.

Business Segments

Third Quarter 2023 compared to Third Quarter 2022

Net sales


	Third Quarter 2023		Third Quarter 2022		Dollar Change		Percent Change
(in millions)
Beer	$	1,891.9	$	1,752.6	$	139.3	8	%
Wine and Spirits:
Wine	470.5		506.2		(35.7)		(7	%)
Spirits	74.1		61.8		12.3		20	%
Total Wine and Spirits	544.6		568.0		(23.4)		(4	%)
Canopy	90.2		104.3		(14.1)		(14	%)
Consolidation and eliminations	(90.2)		(104.3)		14.1		14	%

Consolidated net sales	$	2,436.5	$	2,320.6	$	115.9	5	%


	Beer segment	Third Quarter 2023		Third Quarter 2022		Dollar Change		Percent Change
(in millions, branded product, 24-pack, 12-ounce case equivalents)
Net sales		$	1,891.9	$	1,752.6	$	139.3	8	%


Shipments		97.8		95.2				2.7	%


Depletions								5.7	%

The increase in Beer net sales is largely due to (i) $77.0 million of favorable impact from pricing in select markets within our Mexican beer portfolio, (ii) $49.7 million of shipment volume growth within our Mexican beer portfolio, which benefited from continued consumer demand, and (iii) $12.8 million of favorable product mix primarily from a shift in package sizes. Shipment volume growth was muted in Third Quarter 2023 due to a Third Quarter 2022 focus on replenishing product inventories.


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	Wine and Spirits segment	Third Quarter 2023		Third Quarter 2022		Dollar Change		Percent Change
(in millions, branded product, 9-liter case equivalents)
Net sales		$	544.6	$	568.0	$	(23.4)	(4	%)

Shipments
Total		6.9		8.1				(14.8	%)
Organic (1)		6.9		7.9				(12.7	%)

U.S. Domestic		6.0		7.0				(14.3	%)
Organic U.S. Domestic (1)		6.0		6.8				(11.8	%)





Depletions (1)								(5.6	%)

(1)Includes an adjustment to remove volume associated with the 2022 Wine Divestiture for the period October 6, 2021, through November 30, 2021.

The decrease in Wine and Spirits net sales is due to $17.4 million from the 2022 Wine Divestiture and a $6.0 million decrease in organic net sales. The decrease in organic net sales is driven by (i) a $53.5 million decrease in branded wine and spirits shipment volume partially offset by $50.5 million of favorable product mix both of which are attributable to the consumer-led premiumization and mix improvements of our portfolio. The decrease in organic net sales was also affected by an unfavorable impact from pricing, driven by increases in promotional activity, largely offset by price increases and a contractual distributor payment. For the remainder of Fiscal 2023, we expect U.S. depletion volume to exceed U.S. shipment volume.


			Canopy segment 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. Accordingly, we recognized our share of Canopy’s earnings (losses) for the periods (i) July through September 2022, in our Third Quarter 2023 results, (ii) July through September 2021, in our Third Quarter 2022, (iii) January through September 2022, in our Nine Months 2023 results, and (iv) January through September 2021, in our Nine Months 2022 results. Although we own less than 100% of the outstanding shares of Canopy, 100% of its results are included and subsequently eliminated to reconcile to our consolidated financial statements. See “Income (loss) from unconsolidated investments” below for a discussion of Canopy’s net sales, gross profit (loss), selling, general, and administrative expenses, and operating income (loss). This discussion is based on information Canopy has publicly disclosed.

Gross profit


	Third Quarter 2023		Third Quarter 2022		Dollar Change		Percent Change
(in millions)
Beer	$	989.5	$	958.1	$	31.4	3	%
Wine and Spirits	262.6		269.6		(7.0)		(3	%)
Canopy	2.9		(56.5)		59.4		105	%
Consolidation and eliminations	(2.9)		56.5		(59.4)		(105	%)
Comparable Adjustments	(25.2)		(2.0)		(23.2)		NM
Consolidated gross profit	$	1,226.9	$	1,225.7	$	1.2	—	%


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			The increase in Beer gross profit is primarily due to (i) the $77.0 million favorable impact from pricing, (ii) $24.9 million of shipment volume growth, and (iii) a $6.9 million increase from favorable product mix, partially offset by $79.3 million of higher cost of product sold. The higher cost of product sold is largely due to (i) $52.1 million of higher material costs, including glass, aluminum, malt, cartons, corn, steel, and pallets, driven by inflation and global supply chain constraints, (ii) $15.7 million of increased transportation costs, (iii) an $11.9 million increase in brewery costs primarily driven by increased utilities, maintenance, and administrative costs, and (iv) $3.6 million of higher depreciation resulting from the Mexico Beer Projects, partially offset by $7.9 million of favorable fixed cost absorption related to increased production levels as compared to Third Quarter 2022.


			The decrease in Wine and Spirits gross profit is due to a decrease of $11.8 million from the 2022 Wine Divestiture, partially offset by a $4.8 million increase in organic gross profit. The increase in organic gross profit is attributable to a $40.3 million increase from favorable product mix, partially offset by (i) a $25.6 million decrease in branded wine and spirits shipment volume and (ii) $12.3 million of higher cost of product sold. The increase in cost of product sold was largely attributable to (i) $6.4 million of increased transportation costs, including ocean freight shipping, (ii) $5.5 million related to an out of period inventory adjustment, and (iii) $2.5 million of higher material costs, including glass and packaging materials, partially offset by lower warehousing costs and net favorable fixed cost absorption primarily as a result of the Third Quarter 2022 impact of a late frost in New Zealand.

Gross profit as a percent of net sales decreased to 50.4% for Third Quarter 2023 compared with 52.8% for Third Quarter 2022. This decrease was largely due to (i) approximately 315 basis points and 50 basis points of rate declines from cost of product sold within the Beer and Wine and Spirits segments, respectively, driven by the increase in operational and logistics costs and (ii) an unfavorable change of approximately 95 basis points in Comparable Adjustments, partially offset by (i) approximately 140 basis points of favorable impact from Beer pricing in select markets and (ii) approximately 55 basis points of favorable impact from product mix shift within the Wine and Spirits segment.

Selling, general, and administrative expenses


	Third Quarter 2023		Third Quarter 2022		Dollar Change		Percent Change
(in millions)
Beer	$	279.5	$	234.5	$	45.0	19	%
Wine and Spirits	127.8		125.1		2.7		2	%
Corporate Operations and Other	75.1		44.3		30.8		70	%
Canopy	137.5		114.5		23.0		20	%
Consolidation and eliminations	(137.5)		(114.5)		(23.0)		(20	%)
Comparable Adjustments	(2.2)		(18.1)		15.9		88	%
Consolidated selling, general, and administrative expenses	$	480.2	$	385.8	$	94.4	24	%


			The increase in Beer selling, general, and administrative expenses is driven largely by $41.8 million of increased marketing spend and $3.0 million of increased general and administrative expenses. The increase in marketing spend is due largely to a timing shift for media to the second half of Fiscal 2023 and increased sports-related partnerships to support the growth of our Mexican beer portfolio. We continue to expect marketing spend to range from 9% to 10% of net sales for Fiscal 2023. The increase in general and administrative expenses was driven primarily by (i) higher compensation and benefits, primarily related to incremental headcount to support the growth of our Mexican beer portfolio, and (ii) increased legal expenses, largely offset by (i) favorable foreign currency impact and (ii) decreased demolition costs for the Mexico Beer Projects and professional fees as compared to Third Quarter 2022.


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			The increase in Wine and Spirits selling, general, and administrative expenses is primarily due to $11.3 million of increased general and administrative expenses, partially offset by a $6.2 million decrease in marketing spend. The increase in general and administrative expenses was largely driven by (i) compensation and benefits, primarily related to higher headcount from our continued focus on expanding into DTC channels and higher-end brands as compared to Third Quarter 2022, (ii) expenses associated with an initiative to improve our marketing effectiveness, and (iii) higher travel as compared to Third Quarter 2022, partially offset by favorable foreign currency impact. We continue to expect marketing spend to range from 9% to 10% of net sales for Fiscal 2023.


			The increase in Corporate Operations and Other selling, general, and administrative expenses is largely due to approximately (i) a $14 million increase in compensation and benefits, primarily related to a Third Quarter 2022 reversal of stock-based compensation for a performance award tied to earnings from our investment in Canopy that did not achieve a threshold level of performance and (ii) a $13 million increase in third-party services, driven by Digital Business Acceleration investments.

Selling, general, and administrative expenses as a percent of net sales increased to 19.7% for Third Quarter 2023 as compared to 16.6% for Third Quarter 2022. The increase is largely driven by (i) approximately 125 basis points of rate growth from an increase in the Corporate Operations and Other segment’s selling, general, and administrative expenses, (ii) approximately 95 basis points of rate growth as the increase in Beer selling, general, and administrative expenses exceeded the increase in net sales, (iii) an unfavorable change in Comparable Adjustments, contributing approximately 65 basis points of rate growth, and (iv) 20 basis points of rate growth from the increase in Wine and Spirits’ selling, general, and administrative expenses.

Operating income (loss)


	Third Quarter 2023		Third Quarter 2022		Dollar Change		Percent Change
(in millions)
Beer	$	710.0	$	723.6	$	(13.6)	(2	%)
Wine and Spirits	134.8		144.5		(9.7)		(7	%)
Corporate Operations and Other	(75.1)		(44.3)		(30.8)		(70	%)
Canopy	(134.6)		(171.0)		36.4		21	%
Consolidation and eliminations	134.6		171.0		(36.4)		(21	%)
Comparable Adjustments	(23.0)		16.1		(39.1)		NM
Consolidated operating income (loss)	$	746.7	$	839.9	$	(93.2)	(11	%)


			The decrease in Beer operating income is largely attributable to higher operational and logistics costs and marketing spend, as described above, partially offset by the favorable pricing impact, the shipment volume growth within our Mexican beer portfolio, and the favorable product mix shift.


			The decrease in Wine and Spirits operating income is largely attributable to the decline in branded wine and spirits shipment volume, the increase in cost of product sold, the 2022 Wine Divestiture, and increased general and administrative expenses, as described above, partially offset by the favorable product mix shift and the lower marketing spend.


			As previously discussed, the Corporate Operations and Other increase in operating loss is largely due to increased compensation and benefits, driven by the Third Quarter 2022 reversal of stock-based compensation, and the Third Quarter 2023 Digital Business Acceleration investments.


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Income (loss) from unconsolidated investments

General


	Third Quarter 2023		Third Quarter 2022		Dollar Change		Percent Change
(in millions)

Unrealized net gain (loss) on securities measured at fair value	$	(7.4)	$	(199.7)	$	192.3	96	%
Equity in earnings (losses) from Canopy and related activities	(60.8)		(4.2)		(56.6)		NM
Equity in earnings (losses) from other equity method investees	31.0		32.1		(1.1)		(3	%)

	$	(37.2)	$	(171.8)	$	134.6	78	%


			Canopy segment Canopy net sales decreased to $90.2 million for Third Quarter 2023 from $104.3 million for Third Quarter 2022. This decrease of $14.1 million, or 14%, is largely attributable to lower cannabis sales, partially offset by growth in their BioSteel Sports Nutrition Inc. business. The decline in cannabis sales primarily resulted from decreases in (i) Canadian recreational cannabis sales volume, largely driven by continuing impacts of price compression resulting from increased competition and from Canopy’s strategic decision to shift their focus to premium and mainstream products and (ii) medicinal sales driven by the January 2022 divestiture of C3, an international pharmaceutical business. Canopy gross profit (loss) increased to $2.9 million for Third Quarter 2023 from $(56.5) million for Third Quarter 2022. This increase of $59.4 million is primarily driven by a net decrease in inventory write-downs as compared to Third Quarter 2022, partially offset by (i) decreased net sales and price compression in the Canadian recreational channel, (ii) unfavorable product mix shift, and (iii) a decrease in payroll subsidies received from the Canadian government in Third Quarter 2022 pursuant to a COVID-19 relief program. Canopy selling, general, and administrative expenses increased $23.0 million driven by higher asset impairment charges and restructuring costs as compared to Third Quarter 2022. The combination of these factors were the main contributors to the decrease in operating loss of $36.4 million.

Interest expense

Interest expense increased to $98.7 million for Third Quarter 2023 as compared to $88.0 million for Third Quarter 2022. This increase of $10.7 million, or 12%, is due to higher average borrowings of approximately $640 million and approximately 30 basis points of higher weighted average interest rates, partially offset by an increase in capitalized interest in connection with the Mexico Beer Projects.

(Provision for) benefit from income taxes

The provision for income taxes increased to $131.1 million for Third Quarter 2023 from $99.3 million for Third Quarter 2022. Our effective tax rate for Third Quarter 2023 was 21.5% as compared with 17.1% for Third Quarter 2022. In comparison to prior year, our income taxes were impacted primarily by:

a higher net income tax benefit from stock-based compensation award activity for Third Quarter 2022 from changes in option exercise activity; partially offset by
an increase in the valuation allowance related to our investment in Canopy.

For additional information, refer to Note 9.

Net income (loss) attributable to CBI

Net income (loss) attributable to CBI decreased to $467.7 million for Third Quarter 2023 from $470.8 million for Third Quarter 2022. This decrease of $3.1 million is largely attributable to (i) higher operational and logistics costs within both the Beer and Wine and Spirits segments, (ii) the increase in equity in losses from Canopy’s results, (iii) the increase in Beer media investments, and (iv) the increases in the provision for income taxes and Corporate Operations and Other general and administrative expenses, partially offset by (i) the decrease


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in unrealized net loss from the changes in fair value of our investment in Canopy and (ii) improvements within the Beer segment.

Nine Months 2023 compared to Nine Months 2022

Net sales


	Nine Months 2023		Nine Months 2022		Dollar Change		Percent Change
(in millions)
Beer	$	5,929.4	$	5,185.9	$	743.5	14	%
Wine and Spirits:
Wine	1,316.6		1,351.1		(34.5)		(3	%)
Spirits	208.8		181.2		27.6		15	%
Total Wine and Spirits	1,525.4		1,532.3		(6.9)		—	%
Canopy	264.7		332.4		(67.7)		(20	%)
Consolidation and eliminations	(264.7)		(332.4)		67.7		20	%

Consolidated net sales	$	7,454.8	$	6,718.2	$	736.6	11	%


	Beer segment	Nine Months 2023		Nine Months 2022		Dollar Change		Percent Change
(in millions, branded product, 24-pack, 12-ounce case equivalents)
Net sales		$	5,929.4	$	5,185.9	$	743.5	14	%


Shipments		310.5		281.0				10.5	%


Depletions								7.8	%

The increase in Beer net sales is largely due to (i) $549.8 million of shipment volume growth within our Mexican beer portfolio, which benefited from continued consumer demand, and (ii) $210.3 million of favorable impact from pricing in select markets within our Mexican beer portfolio, partially offset by $13.1 million of unfavorable product mix primarily from a shift in package types.


	Wine and Spirits segment	Nine Months 2023		Nine Months 2022		Dollar Change		Percent Change
(in millions, branded product, 9-liter case equivalents)
Net sales		$	1,525.4	$	1,532.3	$	(6.9)	—	%

Shipments
Total		21.1		22.2				(5.0	%)
Organic (1)		21.1		22.0				(4.1	%)

U.S. Domestic		18.2		19.3				(5.7	%)
Organic U.S. Domestic (1)		18.2		19.1				(4.7	%)





Depletions (1)								(2.3	%)

(1)Includes an adjustment to remove volume associated with the 2022 Wine Divestiture for the period October 6, 2021, through November 30, 2021.


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Wine and Spirits net sales remained relatively flat as $17.4 million from the 2022 Wine Divestiture was largely offset by a $10.5 million increase in organic net sales. The increase in organic net sales is driven by (i) a $49.2 million increase from favorable product mix and (ii) $10.9 million of favorable impact from pricing, partially offset by a $50.5 million decrease in branded wine and spirits shipment volume. The favorable impact from pricing was driven by price increases and a contractual distributor payment, partially offset by increases in promotional activity. The favorable product mix and decrease in branded wine and spirits shipment volume are attributable to the consumer-led premiumization and mix improvements of our portfolio. The increase in net sales was hindered by global supply chain constraints.

Gross profit


	Nine Months 2023		Nine Months 2022		Dollar Change		Percent Change
(in millions)
Beer	$	3,156.6	$	2,835.8	$	320.8	11	%
Wine and Spirits	698.4		707.6		(9.2)		(1	%)
Canopy	(123.9)		(26.6)		(97.3)		NM
Consolidation and eliminations	123.9		26.6		97.3		NM
Comparable Adjustments	(47.2)		31.3		(78.5)		NM
Consolidated gross profit	$	3,807.8	$	3,574.7	$	233.1	7	%


			The increase in Beer gross profit is primarily due to $298.6 million of shipment volume growth and the $210.3 million favorable impact from pricing, partially offset by $160.7 million of higher cost of product sold and $29.9 million of unfavorable product mix. The higher cost of product sold is largely due to (i) $158.6 million of higher material costs, including aluminum, cartons, glass, pallets, malt, corn, and steel, driven by inflation and global supply chain constraints, (ii) $34.8 million of increased transportation costs, (iii) a $32.9 million increase in brewery costs primarily driven by increased utilities, maintenance, and administrative costs, (iv) $25.2 million of higher depreciation, and (v) $13.3 million of supporting fees, including information technology expenses and increased compensation and benefits, partially offset by (i) $70.8 million of decreased obsolescence primarily from excess inventory of hard seltzers resulting from a slowdown in the overall category in early Fiscal 2022 and (ii) $26.5 million of favorable fixed cost absorption related to increased production levels as compared to Nine Months 2022.


			The decrease in Wine and Spirits gross profit is due to a decrease of $11.8 million from the 2022 Wine Divestiture, partially offset by a $2.6 million increase in organic gross profit. The increase in organic gross profit is driven by (i) $38.9 million of favorable product mix, (ii) $16.9 million of higher non-branded gross profit, (iii) the $10.9 million favorable impact from pricing, and (iv) a $2.6 million favorable foreign currency translation impact, partially offset by (i) $42.5 million of higher cost of product sold, driven by global supply chain constraints and inflation and (ii) a $24.2 million decline in branded wine and spirits shipment volume. The increase in cost of product sold was largely attributable to (i) $32.2 million of increased transportation and warehousing costs, including ocean freight shipping, and (ii) $10.8 million of higher material costs, including glass and packaging materials, partially offset by net favorable fixed cost absorption.

Gross profit as a percent of net sales decreased to 51.1% for Nine Months 2023 compared with 53.2% for Nine Months 2022. This decrease was largely due to (i) approximately 210 basis points and 55 basis points of rate decline from cost of product sold within the Beer and Wine and Spirits segments, respectively, driven by the increase in operational and logistics costs, (ii) an unfavorable change of approximately 105 basis points in Comparable Adjustments, and (iii) 30 basis points related to unfavorable product mix shift within the Beer segment, partially offset by (i) approximately 125 basis points of favorable impact from Beer pricing in select


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markets and (ii) approximately 25 basis points of favorable impact from non-branded product within the Wine and Spirits segment.

Selling, general, and administrative expenses


	Nine Months 2023		Nine Months 2022		Dollar Change		Percent Change
(in millions)
Beer	$	818.2	$	746.1	$	72.1	10	%
Wine and Spirits	373.2		358.7		14.5		4	%
Corporate Operations and Other	218.7		161.7		57.0		35	%
Canopy	1,868.7		481.4		1,387.3		NM
Consolidation and eliminations	(1,868.7)		(481.4)		(1,387.3)		NM
Comparable Adjustments	21.5		(11.9)		33.4		NM
Consolidated selling, general, and administrative expenses	$	1,431.6	$	1,254.6	$	177.0	14	%


			The increase in Beer selling, general, and administrative expenses is primarily due to $53.9 million of higher marketing spend and $18.0 million of increased general and administrative expenses. The higher marketing spend was driven by increased sports-related partnerships and our planned investments to support the growth of our Mexican beer portfolio. The increase in general and administrative expenses was primarily driven by (i) compensation and benefits, primarily related to incremental headcount to support the growth of our Mexican beer portfolio, (ii) higher travel as compared to Nine Months 2022, and (iii) strategic asset relocation, partially offset by (i) favorable foreign currency impact and (ii) decreased legal expenses and professional fees as compared to Nine Months 2022.


			The increase in Wine and Spirits selling, general, and administrative expenses is primarily due to $28.4 million of increased general and administrative expenses, partially offset by $9.7 million of lower marketing spend. The increase in general and administrative expenses was primarily driven by compensation and benefits, primarily related to higher headcount from our continued focus on expanding into DTC channels and higher-end brands as compared to Nine Months 2022, expenses associated with an initiative to improve our marketing effectiveness, and higher travel as compared to Nine Months 2022, partially offset by favorable foreign currency impact.


			The increase in Corporate Operations and Other selling, general, and administrative expenses is largely due to approximately (i) a $40 million increase in third-party services, driven by our Digital Business Acceleration investments, and (ii) a $19 million increase in compensation and benefits, primarily related to a Third Quarter 2022 reversal of stock-based compensation for a performance award tied to earnings from our investment in Canopy that did not achieve a threshold level of performance, partially offset by a decrease of approximately $6 million resulting from the completion of an ERP implementation in Fiscal 2022.

Selling, general, and administrative expenses as a percent of net sales increased to 19.2% for Nine Months 2023 as compared with 18.7% for Nine Months 2022. The increase is driven largely by (i) approximately 55 basis points of rate growth from the increase in the Corporate Operations and Other segment’s selling, general, and administrative expenses, (ii) an unfavorable change in Comparable Adjustments, contributing 35 basis points of rate growth, and (iii) approximately 15 basis points of rate growth from the increase in Wine and Spirits selling, general, and administrative expenses, partially offset by approximately 50 basis points of rate decline as the increase in Beer net sales exceeded the increase in selling, general, and administrative expenses.


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Operating income (loss)


	Nine Months 2023		Nine Months 2022		Dollar Change		Percent Change
(in millions)
Beer	$	2,338.4	$	2,089.7	$	248.7	12	%
Wine and Spirits	325.2		348.9		(23.7)		(7	%)
Corporate Operations and Other	(218.7)		(161.7)		(57.0)		(35	%)
Canopy	(1,992.6)		(508.0)		(1,484.6)		NM
Consolidation and eliminations	1,992.6		508.0		1,484.6		NM
Comparable Adjustments	(68.7)		(622.7)		554.0		89	%
Consolidated operating income (loss)	$	2,376.2	$	1,654.2	$	722.0	44	%


			The increase in Beer operating income is largely attributable to the strong shipment volume growth within our Mexican beer portfolio, favorable pricing impact, and decreased obsolescence, partially offset by higher operational and logistics costs, marketing spend, and general and administrative expenses, as described above, and the unfavorable product mix shift.


			The decrease in Wine and Spirits operating income is largely attributable to the increases in cost of product sold and general and administrative expenses, as described above, the decline in branded wine and spirits shipment volume, and the 2022 Wine Divestiture, partially offset by the favorable product mix shift, increase in non-branded net sales, the favorable pricing impact, and lower marketing spend.


			As previously discussed, the Corporate Operations and Other increase in operating loss is largely due to the Nine Months 2023 Digital Business Acceleration investments and increased compensation and benefits, driven by the Third Quarter 2022 reversal of stock-based compensation, partially offset by the decrease in ERP-related consulting services.

Income (loss) from unconsolidated investments

General


	Nine Months 2023		Nine Months 2022		Dollar Change		Percent Change
(in millions)
Impairment of Canopy Equity Method Investment	$	(1,060.3)	$	—	$	(1,060.3)	NM
Unrealized net gain (loss) on securities measured at fair value	(39.1)		(1,534.8)		1,495.7		97	%
Equity in earnings (losses) from Canopy and related activities (1)	(876.5)		(39.5)		(837.0)		NM
Equity in earnings (losses) from other equity method investees	31.7		32.5		(0.8)		(2	%)

	$	(1,944.2)	$	(1,541.8)	$	(402.4)	(26	%)

(1)Includes $461.4 million of a goodwill impairment related to Canopy’s cannabis operations for Nine Months 2023. Also includes $115.6 million and $70.7 million of costs designed to improve their organizational focus, streamline operations, and align production capability with projected demand for Nine Months 2023 and Nine Months 2022, respectively.

For additional information regarding our equity method investments, refer to Notes 4 and 7.


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			Canopy segment Canopy net sales decreased to $264.7 million for Nine Months 2023 from $332.4 million for Nine Months 2022. This decrease of $67.7 million, or 20%, is largely attributable to lower cannabis sales, partially offset by growth in their BioSteel Sports Nutrition Inc. business. The decline in cannabis sales primarily resulted from decreases in (i) Canadian recreational cannabis sales volume, largely driven by Canopy’s strategic decision to shift their focus to premium and mainstream products and the continuing impacts of price compression resulting from increased competition and (ii) medicinal sales driven by the January 2022 divestiture of C3, partially offset by growth in Canadian THC recreational sales driven by Canopy’s Fiscal 2022 acquisitions including the Supreme Cannabis Company, Inc. Additionally, other consumer products sales in Nine Months 2023 as compared to Nine Months 2022 decreased driven by declines in their Storz & Bickel GmbH & Co. KG and This Works Products Limited businesses. Canopy gross profit (loss) decreased to $(123.9) million for Nine Months 2023 from $(26.6) million for Nine Months 2022. This decrease of $97.3 million is primarily driven by (i) a net increase in inventory write-downs as compared to Nine Months 2022, (ii) decreased net sales and price compression in the Canadian recreational channel, (iii) unfavorable product mix shift, and (iv) a decrease in payroll subsidies received from the Canadian government in Nine Months 2022 pursuant to a COVID-19 relief program. Canopy selling, general, and administrative expenses increased $1,387.3 million largely driven by a $1,353.2 million goodwill impairment related to their cannabis operations, restructuring costs, and asset impairments for Nine Months 2023, partially offset by a continued focus on reducing costs and the closure of certain research and development facilities in Fiscal 2022. The combination of these factors were the main contributors to the $1,484.6 million increase in operating loss.

Interest expense

Interest expense increased to $281.5 million for Nine Months 2023 as compared to $270.5 million for Nine Months 2022. This increase of $11.0 million, or 4%, is due to higher average borrowings of approximately $355 million and approximately 10 basis points of higher weighted average interest rates, partially offset by an increase in capitalized interest in connection with the Mexico Beer Projects.

Loss on extinguishment of debt

Loss on extinguishment of debt primarily consists of a premium payment and the write-off of debt issuance costs in connection with the May 2022 tender offers of our 3.20% February 2018 Senior Notes and 4.25% May 2013 Senior Notes (Nine Months 2023) and make-whole payments in connection with the early redemption of our (i) 3.20% February 2018 Senior Notes and 4.25% May 2013 Senior Notes (Nine Months 2023) and (ii) 2.70% May 2017 Senior Notes and 2.65% November 2017 Senior Notes (Nine Months 2022).

(Provision for) benefit from income taxes

The provision for income taxes increased to $388.9 million for Nine Months 2023 from $217.1 million for Nine Months 2022. Our effective tax rate for Nine Months 2023 was 305.7% as compared with (115.8)% for Nine Months 2022. In comparison to prior year, our income taxes were impacted primarily by:

an increase in the valuation allowance related to our investment in Canopy; and
the effective tax rates applicable to our foreign businesses, including the impact of the Nine Months 2022 long-lived asset impairment of brewery construction in progress; partially offset by
a net income tax benefit recognized from the realization of tax losses related to a prior period divestiture; and
a higher net income tax benefit from stock-based compensation award activity for Nine Months 2022 from changes in option exercise activity.

For additional information, refer to Note 9.

We expect our reported effective tax rate for Fiscal 2023 to be in the range of 73% to 75%. Since estimates are not currently available, this range does not reflect any future changes in the fair value of our Canopy investment measured at fair value and any future equity in earnings (losses) from the Canopy Equity Method Investment and related activities.


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Net income (loss) attributable to CBI

Net loss attributable to CBI decreased to $294.0 million for Nine Months 2023 from $435.8 million for Nine Months 2022. This decrease of $141.8 million, or 33%, is largely attributable to (i) a decrease in unrealized net loss from the changes in fair value of our investment in Canopy, (ii) the impairment of long-lived assets for Nine Months 2022 in connection with certain assets at the Mexicali Brewery, and (iii) the improvements within the Beer segment, partially offset by (i) the impairment of our Canopy Equity Method Investment, (ii) the increase in equity losses from Canopy’s results, and (iii) the increase in the provision for income taxes.

Liquidity and Capital Resources

General

Our primary source of liquidity has been cash flow from operating activities. Our ability to consistently generate robust cash flow from our operations is one of our most significant financial strengths; it enables us to invest in our people and our brands, make capital investments and strategic acquisitions, provide a cash dividend program, and from time-to-time, repurchase shares of our common stock. Our largest use of cash in our operations is for purchasing and carrying inventories and carrying seasonal accounts receivable. Historically, we have used this cash flow to repay our short-term borrowings and fund capital expenditures. Additionally, our commercial paper program is used to fund our short-term borrowing requirements and to maintain our access to the capital markets. We use our short-term borrowings, including our commercial paper program, to support our working capital requirements and capital expenditures, among other things.

We seek to maintain adequate liquidity to meet working capital requirements, fund capital expenditures, and repay scheduled principal and interest payments on debt. Absent deterioration of market conditions, we believe that cash flows from operating and financing activities will provide adequate resources to satisfy our working capital, scheduled principal and interest payments on debt, anticipated dividend payments, periodic share repurchases, and anticipated capital expenditure requirements for both our short-term and long-term capital needs.

The Reclassification required significant cash outlays during Third Quarter 2023. Pursuant to the Reclassification, each share of Class B Stock issued and outstanding immediately prior to the Effective Time was reclassified, exchanged, and converted into one share of Class A Stock and received $64.64 in cash, without interest. The aggregate cash payment to holders of Class B Stock at the Effective Time was $1,500.0 million. We utilized our $1.0 billion three-year term loan facility under the August 2022 Term Credit Agreement and borrowings under our commercial paper program to fund the aggregate cash payment to holders of Class B Stock. In addition, we have incurred $31.5 million of non-recurring costs and expenses for Nine Months 2023 in connection with the completion of the Reclassification. We do not expect the Reclassification to have an ongoing material impact on our liquidity.

We have an agreement with a financial institution for payable services and began to facilitate a voluntary supply chain finance program through this participating financial institution during Third Quarter 2023. The program is available to certain of our suppliers allowing them the option to manage their cash flow. We are not a party to the agreements between the participating financial institution and the suppliers in connection with the program. Our rights and obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted. As of November 30, 2022, the amount payable to this participating financial institution for suppliers who voluntarily participate in the supply chain finance program was $0.2 million and was included in accounts payable within our consolidated balance sheet. The amount settled through the supply chain finance program and paid to the financial institution was $4.3 million during Third Quarter 2023. We account for payments made under the supply chain finance program the same as our other accounts payable, as a reduction to our cash flow from operating activities.


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As of November 30, 2022, the exercise of the November 2018 Canopy Warrants would have required a cash outflow of approximately $5.6 billion based on the terms of the warrants. The exercise price for the November 2018 Canopy Warrants exceeded Canopy’s stock price as of November 30, 2022.

Cash Flows


	Nine Months 2023		Nine Months 2022		Dollar Change		Percent Change
(in millions)
Net cash provided by (used in):
Operating activities	$	2,280.6	$	2,444.1	$	(163.5)	(7	%)
Investing activities	(646.6)		(674.2)		27.6		4	%
Financing activities	(1,645.9)		(1,867.9)		222.0		12	%
Effect of exchange rate changes on cash and cash equivalents	(2.5)		(1.3)		(1.2)		(92	%)
Net increase (decrease) in cash and cash equivalents	$	(14.4)	$	(99.3)	$	84.9	85	%

Operating activities

The decrease in net cash provided by (used in) operating activities consists of:


	Nine Months 2023		Nine Months 2022		Dollar Change		Percent Change
(in millions)
Net income (loss)	$	(261.7)	$	(404.6)	$	142.9	35	%
Unrealized net (gain) loss on securities measured at fair value	39.1		1,534.8		(1,495.7)		(97	%)
Deferred tax provision (benefit)	218.4		58.5		159.9		NM
Equity in (earnings) losses of equity method investees and related activities, net of distributed earnings	845.4		6.0		839.4		NM
Impairment of Canopy Equity Method Investment	1,060.3		—		1,060.3		NM
Impairment of brewery construction in progress	—		665.9		(665.9)		NM
Other non-cash adjustments	523.7		385.7		138.0		36	%
Change in operating assets and liabilities, net of effects from purchase and sale of business	(144.6)		197.8		(342.4)		(173	%)
Net cash provided by (used in) operating activities	$	2,280.6	$	2,444.1	$	(163.5)	(7	%)

The net change in operating assets and liabilities was largely driven by (i) a net income tax benefit recognized from the realization of tax losses related to a prior period divestiture, (ii) accounts payable primarily attributable to the timing of payments for both the Beer and Wine and Spirits segments, and (iii) an exclusivity payment received in connection with distribution arrangements for our U.S. wine and spirits brand portfolio in Nine Months 2022. These changes were partially offset by the timing of collections for (i) recoverable value-added taxes for the Beer segment and (ii) accounts receivable for both the Beer and Wine and Spirits segments. Additionally, net cash provided by operating activities benefited from lower income tax payments in Nine Months 2023 as compared to Nine Months 2022.

Investing activities

Net cash used in investing activities decreased to $646.6 million for Nine Months 2023 from $674.2 million for Nine Months 2022. This decrease of $27.6 million, or 4%, was primarily due to (i) $92.1 million of higher proceeds from sale of business, driven by the 2022 Wine Divestiture, and (ii) $16.4 million of lower business acquisitions, partially offset by $85.1 million of higher capital expenditures for Nine Months 2023.


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Financing activities

The decrease in net cash provided by (used in) financing activities consists of:


	Nine Months 2023		Nine Months 2022		Dollar Change		Percent Change
(in millions)
Net proceeds from (payments of) debt, current and long-term, and related activities	$	1,707.0	$	(159.9)	$	1,866.9	NM
Dividends paid	(441.1)		(430.5)		(10.6)		(2	%)
Purchases of treasury stock	(1,400.5)		(1,390.5)		(10.0)		(1	%)
Net cash provided by stock-based compensation activities	26.2		149.9		(123.7)		(83	%)
Distributions to noncontrolling interests	(37.5)		(36.9)		(0.6)		(2	%)
Payment to holders of Class B Stock in connection with the Reclassification	(1,500.0)		—		(1,500.0)		NM
Net cash provided by (used in) financing activities	$	(1,645.9)	$	(1,867.9)	$	222.0	12	%

Debt

Total debt outstanding as of November 30, 2022, amounted to $12,172.3 million, an increase of $1,755.8 million from February 28, 2022. This increase consisted of:


						Debt repayment						Debt issuance

Bank facilities

In October 2022, we entered into the October 2022 Credit Agreement Amendments which revise certain defined terms and covenants in our credit agreements. These amendments will become effective upon (i) the amendment by Canopy of its Articles of Incorporation, (ii) the conversion of our Canopy common shares into Exchangeable Shares, and (iii) the resignation of our nominees from the board of directors of Canopy.

In August 2022, we entered into the August 2022 Term Credit Agreement. The August 2022 Term Credit Agreement provides for a $1.0 billion three-year term loan facility and is not subject to amortization payments, with the balance due and payable on November 10, 2025.

In April 2022, we entered into the 2022 Restatement Agreement that amended and restated our then-existing senior credit facility. The 2022 Restatement Agreement resulted in (i) the refinance and increase of the


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existing revolving credit facility from $2.0 billion to $2.25 billion and extension of its maturity to April 14, 2027, (ii) the refinement of certain negative covenants, and (iii) the replacement of LIBOR rates with rates based on term SOFR. There are no borrowings outstanding under the 2022 Credit Agreement.

In April 2022, the Company and the Administrative Agent and Lender amended the June 2021 Term Credit Agreement. The principal changes effected by the April 2022 amendment were the refinement of certain negative covenants and replacement of LIBOR rates with rates based on term SOFR.

Senior notes

In May 2022, we issued the May 2022 Senior Notes. Proceeds from this offering, net of discount and debt issuance costs, of $1,837.1 million were used towards a series of cash tender offers, the June 2022 repayment of the 3.20% February 2018 Senior Notes and the 4.25% May 2013 Senior Notes, and for general corporate purposes, including working capital, funding capital expenditures, retirement of debt, and other business opportunities.

General

The majority of our outstanding borrowings as of November 30, 2022, consisted of fixed-rate senior unsecured notes, with maturities ranging from calendar 2024 to calendar 2050, and a variable-rate senior unsecured term loan facility under our April 2022 Term Credit Agreement and August 2022 Term Credit Agreement with calendar 2024 and 2025 maturity dates, respectively.

Additionally, we have a commercial paper program which provides for the issuance of up to an aggregate principal amount of $2.25 billion of commercial paper, inclusive of a $250.0 million increase implemented in December 2022. Our commercial paper program is backed by unused commitments under our revolving credit facility under our 2022 Credit Agreement. Accordingly, outstanding borrowings under our commercial paper program reduce the amount available under our revolving credit facility.

We do not have purchase commitments from buyers for our commercial paper and, therefore, our ability to issue commercial paper is subject to market demand. If the commercial paper market is not available to us for any reason when commercial paper borrowings mature, we intend to utilize unused commitments under our revolving credit facility under our 2022 Credit Agreement to repay commercial paper borrowings. We do not expect that fluctuations in demand for commercial paper will affect our liquidity given our borrowing capacity available under our revolving credit facility.

We had the following remaining borrowing capacity available under our 2022 Credit Agreement:


	November 30, 2022		December 31, 2022
(in millions)
Revolving credit facility (1)	$	1,361.4	$	1,426.3

(1)Net of outstanding revolving credit facility borrowings and outstanding letters of credit under our 2022 Credit Agreement and outstanding borrowings under our commercial paper program.

The financial institutions participating in our 2022 Credit Agreement have complied with prior funding requests and we believe they will comply with any future funding requests. However, there can be no assurances that any particular financial institution will continue to do so.

We and our subsidiaries are subject to covenants that are contained in our 2022 Credit Agreement, the April 2022 Term Credit Agreement, and the August 2022 Term Credit Agreement, including those restricting the incurrence of additional subsidiary indebtedness, additional liens, mergers and consolidations, transactions with affiliates, and sale and leaseback transactions, in each case subject to numerous conditions, exceptions, and thresholds. The financial covenants are limited to a minimum interest coverage ratio and a maximum net leverage ratio, both as defined in our 2022 Credit Agreement. As of November 30, 2022, under our 2022 Credit Agreement, the minimum interest coverage ratio was 2.5x and the maximum net leverage ratio was 4.0x.


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The representations, warranties, covenants, and events of default set forth in our April 2022 Term Credit Agreement and August 2022 Term Credit Agreement are substantially similar to those set forth in our 2022 Credit Agreement.

Our indentures relating to our outstanding senior notes contain certain covenants, including, but not limited to: (i) a limitation on liens on certain assets, (ii) a limitation on certain sale and leaseback transactions, and (iii) restrictions on mergers, consolidations, and the transfer of all or substantially all of our assets to another person.

As of November 30, 2022, we were in compliance with our covenants under our 2022 Credit Agreement, our April 2022 Term Credit Agreement, our August 2022 Term Credit Agreement, and our indentures, and have met all debt payment obligations.

For further discussion and presentation of our borrowings and available sources of borrowing, refer to Note 12 of our consolidated financial statements included in our 2022 Annual Report and Note 8.

Common Stock Dividends

On January 4, 2023, our Board of Directors declared a quarterly cash dividend of $0.80 per share of Class A Stock and $0.72 per share of Class 1 Stock payable on February 22, 2023, to stockholders of record of each class as of the close of business on February 8, 2023.

We currently expect to continue to pay a regular quarterly cash dividend to stockholders of our common stock in the future, but such payments are subject to approval of our Board of Directors and are dependent upon our financial condition, results of operations, capital requirements, and other factors, including those set forth under Item 1A. “Risk Factors” of our 2022 Annual Report as supplemented by the additional factors set forth under Item 1A. “Risk Factors” included in this Form 10-Q.

Share Repurchase Program

Our Board of Directors authorized the repurchase of our publicly traded common stock of up to $3.0 billion under the 2018 Authorization and an additional repurchase of up to $2.0 billion under the 2021 Authorization. The 2018 Authorization was fully utilized during the three months ended May 31, 2022, through a combination of open market transactions and an ASR that was announced in April 2022.

As of November 30, 2022, total shares repurchased under the 2018 Authorization and 2021 Authorization are as follows:


			Class A Common Shares
	Repurchase Authorization		Dollar Value of Shares Repurchased		Number of Shares Repurchased
(in millions, except share data)

2018 Authorization	$	3,000.0	$	3,000.0	13,331,156
2021 Authorization	$	2,000.0	$	836.9	3,463,417

Share repurchases under the 2021 Authorization may be accomplished at management’s discretion from time to time based on market conditions, our cash and debt position, and other factors as determined by management. Shares may be repurchased through open market or privately negotiated transactions. We may fund future share repurchases with cash generated from operations and/or proceeds from borrowings. Any repurchased shares become treasury shares, including shares repurchased under the 2018 Authorization and the 2021 Authorization.


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We currently expect to continue to repurchase shares in the future, but such repurchases are dependent upon our financial condition, results of operations, capital requirements, and other factors, including those set forth under Item 1A. “Risk Factors” of our 2022 Annual Report as supplemented by the additional factors set forth under Item 1A. “Risk Factors” included in this Form 10-Q.

For additional information, refer to Note 17 of our consolidated financial statements included in our 2022 Annual Report and Note 10.

Accounting Guidance

Accounting guidance adopted for Nine Months 2023 did not have a material impact on our Financial Statements.

Information Regarding Forward-Looking Statements

This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those set forth in, or implied by, such forward-looking statements. All statements other than statements of historical fact included in this Form 10-Q are forward-looking statements, including without limitation:

The statements under MD&A regarding:

◦our business strategy, future operations, innovation, and Digital Business Acceleration strategies, new products, future financial position and liquidity, future net sales, expected volume, inventory, and depletion trends, future marketing spend, long-term financial model, including our targeted net leverage ratio, future effective tax rates and anticipated tax liabilities, access to capital markets, and prospects, plans, and objectives of management;

◦anticipated inflationary pressures, changing prices, and reductions in consumer discretionary income as well as other unfavorable global and regional economic conditions, geopolitical events, and military conflicts, such as repercussions from the conflict in Ukraine, and our responses thereto, including potential selling price increases and/or cost savings initiatives;

◦our ESG strategy;

◦the potential impact to supply, production levels, and costs due to global supply chain constraints and transportation;

◦effects of the Reclassification, including its ongoing impact on liquidity;

◦the COVID-19 pandemic;

◦expected or potential actions of third parties, including possible changes to laws, rules, and regulations;

◦the future expected balance of supply and demand for and inventory levels of our products;

◦the refinement of our wine and spirits portfolio;

◦the availability of a supply chain finance program;

◦the manner, timing, and duration of the share repurchase program and source of funds for share repurchases; and

◦the amount and timing of future dividends.

The statements regarding our beer expansion, optimization, and/or construction activities, including anticipated scope, capacity, costs, capital expenditures, timeframes for completion, discussions with government officials in Mexico, and potential future impairment of non-recoverable brewery construction assets and other costs and expenses.
The statements regarding:

◦Canopy’s plans to consolidate its U.S. cannabis assets;

◦the potential completion of the Canopy Transaction, including the Canopy Amendment, and the transactions contemplated by the Consent Agreement and the Exchange Agreement, including


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conversion of our Canopy common shares for Exchangeable Shares, and related results and impacts of such transactions;

◦the potential exchange of our remaining Canopy Debt Securities for Exchangeable Shares;

◦the volatility of the fair value of our investment in Canopy measured at fair value;

◦our activities surrounding our investment in Canopy;

◦Canopy’s expectations and the transaction with Acreage;

◦the timing and source of funds for operating activities and exercises of the November 2018 Canopy Warrants, if any;

◦a potential future impairment of our Canopy Equity Method Investment; and

◦our future ownership level in Canopy and our future share of Canopy’s reported earnings and losses.

The statements regarding the future reclassification of net gains from AOCI.

When used in this Form 10-Q, the words “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. In addition to the risks and uncertainties of ordinary business operations and conditions in the general economy and markets in which we compete, our forward-looking statements contained in this Form 10-Q are also subject to the risk, uncertainty, and possible variance from our current expectations regarding:

water, agricultural and other raw material, and packaging material supply, production, and/or shipment difficulties which could adversely affect our ability to supply our customers;
the ability to respond to anticipated inflationary pressures, including reductions in consumer discretionary income and our ability to pass along rising costs through increased selling prices, and unfavorable global or regional economic conditions, including economic slowdown or recession;
the actual impact to supply, production levels, and costs from global supply chain constraints, transportation challenges, wildfires, and severe weather events, due to, among other reasons, actual supply chain and transportation performance and the actual severity and geographical reach of wildfires and severe weather events;
the actual balance of supply and demand for our products and the performance of our distributors due to, among other reasons, actual raw material and water supply, actual shipments to distributors, and actual consumer demand;
the actual demand, net sales, channel proportions, and volume trends for our products due to, among other reasons, actual shipments to distributors and actual consumer demand;
beer operations expansion, optimization, and/or construction activities, scope, capacity, costs (including impairments), capital expenditures, and timing due to, among other reasons, market conditions, our cash and debt position, receipt of required regulatory approvals by the expected dates and on the expected terms, results of discussions with government officials in Mexico, the actual amount of non-recoverable brewery construction assets and other costs and expenses, and other factors as determined by management;

*•*the duration and impact of the COVID-19 pandemic, including but not limited to the impact and severity of new variants, vaccine efficacy and immunization rates, the closure of non-essential businesses, which may include our manufacturing facilities, and other associated governmental containment actions, and the increase in cyber-security attacks that have occurred while non-production employees work remotely;

the impact of the military conflict in Ukraine and associated geopolitical tensions and responses, including on inflation, supply chains, commodities, energy, and cyber-security;
the amount, timing, and source of funds for any share repurchases or future exercises of the November 2018 Canopy Warrants, if any, which may vary due to market conditions; our cash and debt position; the impact of the beer operations expansion, optimization, and/or construction activities; the impact of our investment in Canopy; and other factors as determined by management from time to time;


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the amount and timing of future dividends which are subject to the determination and discretion of our Board of Directors and may be impacted if our ability to use cash flow to fund dividends is affected by unanticipated increases in total net debt, we are unable to generate cash flow at anticipated levels, or we fail to generate expected earnings;
the fair value of our investment in Canopy due to market and economic conditions in Canopy’s markets and business locations;
the accuracy of management’s projections relating to the Canopy investment due to Canopy’s actual results and market and economic conditions;
the timeframe and amount of any potential future impairment of our Canopy Equity Method Investment if our expectations about Canopy’s prospective results and cash flows decline, which could be influenced by various factors including adverse market conditions or if Canopy records another significant impairment of goodwill or intangible or other long-lived assets, makes significant asset sales, or has changes in senior management;
Canopy’s failure to receive the requisite approval of its shareholders necessary to approve the Canopy Transaction, any other delays with respect to, or the failure to complete, the Canopy Transaction, the ability to recognize the anticipated benefits of the Canopy Transaction and the impact of the Canopy Transaction on the market price of Canopy’s common stock;
completion of the Canopy Transaction and converting our Canopy common shares for Exchangeable Shares on our relationship with and investment in Canopy;
our plans to transition into and exchange our remaining Canopy Debt Securities for Exchangeable Shares;
litigation risks, including risks with respect to the outcome of legal proceedings regarding our sublicense of the trademarks for our Mexican beer brands;
the amount of contingent consideration, if any, received in the divestiture of a portion of our wine and spirits business which will depend on actual future brand performance;
the expected impacts of wine and spirits portfolio refinement activities;
purchase accounting with respect to any transaction, or the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;
any impact of U.S. federal laws on Canopy Strategic Transactions or upon the implementation of such Canopy Strategic Transactions, or the impact of any Canopy Strategic Transaction upon our future ownership level in Canopy or our future share of Canopy’s reported earnings and losses;
the ability to recognize the anticipated benefits of the Reclassification; and
our targeted net leverage ratio due to market conditions, our ability to generate cash flow at expected levels, and our ability to generate expected earnings.

For additional information about risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by our forward-looking statements, please refer to Item 1A. “Risk Factors” of our 2022 Annual Report as supplemented by the additional factors set forth under Item 1A. “Risk Factors” included in this Form 10-Q.


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OTHER KEY INFORMATION			Table of Contents

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