It was clear to many people at the time that Constellation Brands (NYSE:STZ) vastly overpaid for Ballast Point Brewing when it acquired the regional craft brewer for $1 billion in 2015. And now, the company is selling Ballast Point off at a presumed significant discount.

Although there are still two other craft brewers in Constellation's beer portfolio, along with its families of Mexican beer, Corona and Modelo, it wouldn't be surprising to see the brewer also shed Funky Buddha and Four Corners eventually, despite management's assurances.

Constellation Brands' misreading of the beer market with the Ballast Point deal could signal the beginning of the end of its foray into craft beer.

A man cringing next to a big mug of beer

Image source: Getty Images.

Putting on its beer goggles

When Constellation paid $1 billion in 2015, it was valuing Ballast Point at over $3,400 per barrel. To put that in perspective, Boston Beer (NYSE:SAM) paid the equivalent of $1,000 per barrel for Dogfish Head Brewing earlier this year, and Anheuser-Busch InBev (NYSE:BUD) is getting a downright bargain on Craft Brew Alliance (NASDAQ:BREW) at less than $500 per barrel.

Of course, the craft beer industry today doesn't look quite as healthy as it did back in 2015, but it's probably safe to say it was never as robust as Constellation's purchase price suggested -- arguably not even in craft beer's heyday.

Yet the conceit of Constellation Brands, and Anheuser-Busch, too, since it scooped up over a dozen craft breweries during the year (though never paying nearly as much as Constellation), was that a popular regional beer could easily be transformed into a national brand.

Swimming against the tide

In the industry's early days, that may have been possible, and it explains the rise of Boston Beer's Samuel Adams. Craft beer was still relatively new, and after decades of drinking largely undifferentiated, mass-produced beer, the strong flavors craft beer offered quickly won over consumers. Sales surged at double-digit rates year after year and grew to account for one-fifth of all beer produced.

Yet craft beer's success was also its undoing, because the explosion of small craft brewers -- there are almost 7,500 breweries in operation today, and most produce fewer than 15,000 barrels annually -- meant consumers had more options than ever. Beer drinkers could regularly sample different styles and never choose the same brewer twice. It soon became apparent that ever-evolving consumer tastes was the new constant.

It didn't help that drinkers also began looking for healthier options to the full-bodied craft beers that were on store shelves. Look no further than the flood of hard seltzers hitting the market to see the change that's under way. Today, Boston Beer produces more of its Truly brand of hard seltzer than it does of its Samuel Adams beer.

One for the road

Constellation Brands trying to take Ballast Point Brewing national also meant it was going against the trend of preference for ever more local beer. It's why craft beer is still growing, albeit at slower rates than in years past. More new breweries are catering to beer drinkers wanting to support businesses closer to home.

There is hope that Constellation will hang onto Funky Buddha and Four Corners, as it has kept them relatively small and regional in nature. Even so, the only real gains Constellation is registering are in Mexican beer, with the Modelo brand driving 15% growth in third-quarter depletions, or sales to distributors and retailers, an industry proxy for consumer demand.

While it was clear that Ballast Point Brewing was damaged goods for Constellation as it had to write down the value of its purchase multiple times, the two remaining craft breweries aren't generating any growth, either. Mexican beer is the only place Constellation Brands is winning, and winning big, so it may decide to focus its efforts there and finally put to rest its craft beer dreams.