Shares of high-end spirits company Castle Brands Inc. (NYSEMKT:ROX) jumped by as much as 19.9% in trading Thursday after the company announced it had made a strategic investment in a partner. By 1:05 p.m. EDT, shares had settled down somewhat and were trading 11% higher on the day.
Castle Brands announced that it has acquired an additional 20.1% stake in Gosling-Castle Partners Inc., a global exporter of the company's products. This brings its stake to 80.1% of the company. In a related deal, GCP's exclusive distribution agreement with Gosling's Export Limited and Castle Brands has been extended to March 31, 2030.
As power consolidates in the alcoholic beverage business, small players like Castle Brands are going to have to look for distribution deals with other companies to keep from being squeezed out by their much-larger rivals.
While the asset purchase and distribution agreement are incremental positives, they don't fundamentally change the competitive landscape in the spirits business. A small number of giants are eating up most of the market share, and pushing small companies to the sidelines, where Castle Brands still sits now.
While investors might be excited about this stock today, I don't see these moves changing the business much at all. And until we start seeing profitable operations from Castle Brands, I won't be buying into this alcoholic beverage company's recovery.