Napa Know How…To Make Wine

Napa is apparently a legal scrabble word and is defined as a type of leather made by tanning sheepskin. Though, I suspect, most of us think “full bodied red wine” when we see those four iconic letters. Yes. treated well, leather does improve with time, but… today we will stay focused on wine (and the markets) - which also tend to improve with time.

NAPA will be the new stock symbol for Duckhorn Vineyards which recently announced plans to list via an initial public offering. There are only a handful of publicly traded stocks that focus on beers, distilled spirits and wines (think Constellation Brands, symbol: “STZ”) and to our knowledge there is only one other company (Willamette Valley Vineyards, symbol “WVVI”) that is exclusively focused on wine. So, as far as we can tell NAPA will be the only California based pure play on US wine consumption, which explains why such a descriptive stock symbol was still available. Interestingly, the symbol “NAPA” may lead to some future confusion and mistaken stock purchases because Napa Auto Parts symbol is actually GPC, for their parent company, “General Parts Company”. I think it’s safe to say auto replacement parts and wine serve two different markets. Speaking of GPC, they have increased their dividend for over 60 continuous years. I wouldn’t even expect a modest dividend component from any NAPA investment, but wine for shareholders would be a great idea for a thirst quenchingly special “dividend”.

The Duckhorn portfolio consists of eight wineries including Sonoma based estate Kosta Browne. KB may be the least well-known wine in the portfolio to non-wine enthusiasts, but interestingly represents one of the most sought-after Pinot Noirs in California. Duckhorn’s portfolio is smartly positioned to appeal to a broad range of buyers, from cost conscious to collectors. Last year, according to Wine Spectator, they sold over 1.4 million cases, totaling $270 million in sales. This IPO would allow private equity group, TSG Consumer Partners to exit the business just five years after acquiring it for $600 million. So much for aging!

Winemaking is a costly, evolving and equally risky business. Just think of the one-two-three punch delivered by wildfires, COVID and a move away from “SIN” stocks. Well wait, can a wine maker even be classified a sin stock? Sin stocks usually include alcohol but wine making is considered a noble profession in some parts of the world. Do we think the French or Italians would associate sin with wine making? Hopefully not and anyway, red wine, in moderation is heart healthy.

As a WSET (Wine, Spirit & Educational Trust) Level 3 Candidate (and CFA, CPA) I can say, with firsthand knowledge, mastering wines is much more difficult than mastering finance. The NAPA prospectus is not out yet, so we can’t comment on valuations and suitability for inclusion into your portfolio at this time. However, we can share some streaming shows focused on wine that are entertaining and informative. For simply a great wine related movie, and one that lead to a surge in sales for California Pinot Noir check out “Sideways” starring Paul Giamatti. Don’t miss Somm 1,2 and 3 for a look into the difficult journey of becoming a Sommelier. Staying with the theme NAPA watch the 2008 comedy-drama, Bottle Shock. And lastly, if you are ok with subtitles and like Piedmont wines don’t miss, The Barolo Boys. All films are great, but 100 times better while drinking a glass of your favorite vintage!

Cheers to good health and good fortune!

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