BOSTON BEER CO INC (SAM) Risk Factors

Item 1A. Risk Factors

In addition to the other information in this Annual Report on Form 10-K, the risks described below should be carefully considered before deciding to invest in shares of the Company’s Class A Common Stock. These are risks and uncertainties that management believes are most likely to be material and therefore are most important for an investor to consider. The Company’s business operations and results may also be adversely affected by additional risks and uncertainties not presently known to it, or which it currently deems immaterial, or which are similar to those faced by other companies in its industry or business in general. If any of the following risks or uncertainties actually occurs, the Company’s business, financial condition, results of operations or cash flows would likely suffer. In that event, the market price of the Company’s Class A Common Stock could decline.

Risks Associated with Our Industry

The Company faces substantial competition.

The Beyond beer and Traditional beer markets within the United States (“US Beer Market”) is highly competitive due to the participation of large domestic and international brewers and the large number of regional and local competitors, who distribute similar products that have similar pricing and target drinkers.

The two largest brewers in the United States, AB InBev and Molson Coors, participate actively in the US Beer Market, through numerous offerings including beers, flavored malt beverages, hard seltzers and spirit RTDs. Imported beers, such as Modelo Especial®, Corona®, Heineken®, Guinness®, and Stella Artois®, continue to compete aggressively in the United States and have gained market share over the last ten years. Constellation Brands (owner of the United States distribution rights to Modelo Especial and Corona) and Heineken may have substantially greater financial resources, marketing strength and distribution networks than the Company. The Company anticipates competition will remain strong as existing beverage companies continue adding more SKUs and styles. The potential for growth in the sales of flavored malt beverages, hard seltzers, domestic beers, imported beers and spirits RTDs is expected to increase the competition in the market for Beyond beer and Traditional beer occasions within the United States and, as a result, the Company may well face competitive pricing pressures and the demand for and market share of the Company’s products may fluctuate and possibly decline.

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The Company’s products compete generally with other alcoholic beverages. The Company competes with other beer and beverage companies not only for drinker acceptance and loyalty, but also for traditional retail shelf, cold box and tap space, as well as e-commerce placement and for marketing focus by the Company’s distributors and their customers, all of which also distribute and sell other alcoholic beverage products. Many of the Company’s competitors, including AB InBev, Molson Coors, Constellation, Heineken and Mark Anthony Brands, have substantially greater financial resources, marketing strength and distribution networks than the Company. Moreover, the introduction of new products by competitors that compete directly with the Company’s products or that diminish the importance of the Company’s products to retailers or Distributors may have a material adverse effect on the Company’s business and financial results.

Several large non-alcoholic beverage companies including Coke, Pepsi, Monster and Arizona have entered the alcoholic beverage market directly or through licensing agreements with alcoholic beverage companies to develop alcohol versions of existing traditional non-alcohol brands.

Due to the increased leverage that the larger, alcohol and non-alcohol beverage companies may have in distribution and sales and marketing expenses, the costs to the Company of competing could increase. The potential also exists for these large competitors to increase their influence with their Distributors, making it difficult for smaller beverage companies to maintain their market presence or enter new markets. Also, consolidation in the industry could also reduce the contract brewing capacity that is available to the Company. These potential increases in the number and availability of competing brands, the costs to compete, reductions in contract brewing capacity and decreases in distribution support and opportunities may have a material adverse effect on the Company’s business and financial results.

Changes in public attitudes and drinker tastes could harm the Company’s business. Regulatory changes in response to public attitudes could adversely affect the Company’s business.

The alcoholic beverage industry has been the subject of considerable societal and political attention for several years, due to public concern over alcohol-related social problems, including driving under the influence, underage drinking and health consequences from alcohol and the misuse of alcohol, including alcoholism. More recently, younger generations including Millennials and Gen Z, are embracing moderation or abstinence, influenced by wellness trends and the rise of non-alcoholic alternatives. Some drinkers are embracing the “sober curious” movement, which encourages individuals to question their relationship with alcohol and explore alternatives. As an outgrowth of these concerns, the possibility exists that industry volumes could further decline, advertising by alcoholic beverage producers could be restricted, that additional cautionary labeling or packaging requirements might be imposed, that further restrictions on the sale of alcohol might be imposed or that there may be renewed efforts to impose increased excise or other taxes on beer sold in the United States.

The US Beer Market has experienced a decline in shipments over the last ten years. More recently in 2025 these declines accelerated to an approximate decline of 4% in volume. The Company believes that this decline is due to declining alcohol consumption per person in the population, economic uncertainty, health and wellness trends and increased competition from wine, spirits and other beverage companies. If consumption of the Company’s products in general were to come into disfavor among domestic drinkers, or if the domestic alcohol beverage industry were subjected to significant additional societal pressure or governmental regulations, the Company’s business could be materially adversely affected.

Additionally, many states are considering or have passed laws and regulations that allow the sale and distribution of cannabis and hemp based products. In December 2025, cannabis was reclassified from a Schedule I controlled substance to Schedule III by the federal government, reflecting its recognized medical use and lower potential for abuse. In certain states hemp derived beverages are competing with alcoholic beverages for shelf space and drinkers, despite recent federal regulations which restrict their availability after November 2026. Currently, it is not possible to predict the impact of this on sales of alcohol, but it is possible that legal cannabis and hemp derived beverage consumption could adversely impact the demand for the Company’s products.

The Company is dependent on its distributors.

In the United States, where approximately 94% of its beverages are sold, the Company sells most of its alcohol beverages to independent beer Distributors for distribution to retailers and, ultimately, to drinkers. Although the Company currently has arrangements with over 300 Distributors, sustained growth will require it to maintain such relationships and possibly enter into agreements with additional Distributors. Changes in control or ownership within the current distribution network could lead to less support of the Company’s products.

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Contributing to distribution risk is the fact that the Company’s distribution agreements are generally terminable by the Distributor on relatively short notice. While these distribution agreements contain provisions giving the Company enforcement and termination rights, some state laws prohibit the Company from exercising these contractual rights. The Company’s ability to maintain its existing distribution arrangements may be adversely affected by the fact that many of its Distributors are reliant on one of the major beer producers for a large percentage of their revenue and, therefore, they may be influenced by such producers. If the Company’s existing distribution agreements are terminated, it may not be able to enter into new distribution agreements on substantially similar terms, which may result in an increase in the costs of distribution.

No assurance can be given that the Company will be able to maintain its current distribution network or secure additional Distributors on terms not less favorable to the Company than its current arrangements.

Risks Related to the Company's Business and Operations

There is no assurance that the Company will grow its business in the future or that the Company can adapt to the challenges of the changing competitive environment.

Beginning in the second half of 2021, the market for hard seltzer products experienced decelerating growth trends, which contributed to the Company’s depletion volume decline of 5% in 2022, 6% in 2023 (5% decline on a 52-week comparable basis), 2% in 2024 and 4% in 2025. The slowdown in growth trends greatly impacted the Company's volume of production and shipments, as well as its volume projections for the future. During 2021 through 2024, the volume reductions resulted in increased supply chain related costs. These costs include the destruction of excess inventory, provisions for excess and obsolete inventories, property, plant and equipment impairments, write-offs of third-party production prepayments and provisions for costs associated with the termination of various third-party production contracts.

In 2026, the Company is targeting a percentage change in shipments and depletion volume of between flat and down mid- single digits. The Company’s ability to meet these targets may be affected by an increasing number of competing beverages. The development of new products by the Company to meet these challenges may lead to reduced sales of the Company’s existing brands and there is no guarantee that these new product initiatives will generate stable long term volume. While the Company believes that a combination of innovation, new brand messaging and the use of traditional and social media, and increased investment in sales execution can lead to increased demand, there is no guarantee that the Company’s actions will be successful in maintaining the Company’s historical levels of profitability. Reduced sales, among other factors, could lead to lower brewery utilization, lower funds available to invest in brand support and reduced profitability, and these challenges may require a different mix and level of marketing investments to stabilize and grow volumes. A lower growth environment or periods of sales declines will present challenges for the Company to motivate and retain employees, maintain the current levels of distributor and retailer support of its brands, and fund its current brand investment levels. This could potentially lead to a review of long term organization and capacity needs. Currently, the Company believes it can meet its volume targets in 2026 and return to volume growth in future years, but there is no guarantee its efforts will be successful or profitable.

The Company’s inability to react to changes in demand could have a material adverse effect on the Company’s operations or financial results.

Historically, during periods of growth, the Company has faced challenges in meeting demand. The challenges were both production constraints, primarily resulting from canning and variety pack capacity limitations, and can supply constraints. During these periods of growth, the Company experienced increased inventory obsolescence, and operational, and freight costs, as it reacted.

With a decline in volume over the second half of 2021 through 2025, the Company incurred additional supply chain related costs associated with downsizing its production model to adjust to reduced demand. In recent years, the Company has been able to better match its supply chain to meet demand, but a sudden increase could result in a recurrence of challenges in meeting demand and a sudden decrease could result in other incremental costs. There can be no assurance that the Company will effectively address changing consumer demand or manage increasing product complexity, without experiencing similar issues in the future. Planning failures, operating inefficiencies, insufficient employee training, control deficiencies, or other similar issues could well have a material adverse effect on the Company’s business and financial results. Growth or decline in the Company’s revenues, changes in operating procedures, and increased complexity have required significant capital investment. The Company on an overall basis has yet to see any operating cost leverage from these investments and there is no guarantee that it will.

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The Company has increased the percentage of its domestic volume produced at Company owned breweries from 74% in 2024 to 86% in 2025 and is currently estimating a further increase to over 90% in 2026. Despite these increases, third party-owned production facilities remain a critical part of the Company’s production strategy and the Company is reliant on them, particularly City Brewing Company, LLC, and its subsidiaries, to meet demand.

The Company’s ability to grow and to meet potentially increasing consumer demand will be affected by:

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its ability to meet production goals and/or targets at the Company’s owned breweries and third party-owned production facilities;

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its ability to enter into new production contracts with third party-owned breweries on commercially acceptable terms;

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disruption or other operating performance issues at the Company’s owned breweries or limits on the availability of suitable production capacity at third party-owned production facilities;

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its ability to obtain sufficient quantities of certain packaging materials and ingredients, such as cans, flavorings, cardboard wraps and glass bottles from suppliers; and

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its ability to reduce risk of both over and under supply by improving and automating manual internal processes for demand and production planning.

If the Company were unable to increase supply to meet increased consumer demand for its products, the Company’s business and financial results could well be adversely affected. Alternatively, if there is a sudden decline in demand for the Company’s products, additional costs and inefficiencies could likely result from efforts to adjust the Company’s production model accordingly.

The Company’s advertising and promotional investments may affect the Company’s financial results but not be effective.

The Company has made and expects to continue to make, significant advertising and promotional expenditures to enhance its existing brands and promote new brands. These expenditures may adversely affect the Company’s results of operations in a particular quarter or even for the full year, and may not result in increased sales. Variations in the levels of advertising and promotional expenditures have in the past caused, and are expected in the future to continue to cause, variability in the Company’s quarterly results of operations. During 2025 the Company significantly increased its spending on advertising and promotion by $61.0 million or 13.6% and during 2026 the Company currently estimates it will further increase spending by between $20 million and $40 million. While the Company attempts to invest only in effective advertising and promotional activities, it is difficult to correlate such investments with sales results, and there is no guarantee that the Company’s expenditures will be effective in building brand equity or growing long term sales.

The Company is dependent on key packaging suppliers and an increase in packaging costs could harm the Company’s financial results.

The Company maintains competitive sources for the supply of packaging materials, such as cans, glass and cardboard. The Company enters into limited-term supply agreements with certain vendors in order to receive preferential pricing. In 2024 and 2025, certain flavorings, crowns, and labels were each supplied by single sources. The loss of any of the Company’s packaging materials suppliers could, in the short-term, adversely affect the Company’s results of operations, cash flows and financial position until alternative supply arrangements were secured. Additionally, there has been acquisition, change in control and consolidation activity in several of the packaging supplier networks which could potentially lead to further disruption in supply and changes in economics. If packaging costs continue to increase, there is no guarantee that such costs can be fully passed along through increased prices. The company's long-term supply agreements have varying lengths and terms and there is no guarantee that the economics of these contracts can be replicated when renewed. The Company’s inability to preserve the current economics on renewal could expose the Company to significant cost increases in future years. Some of these contracts require the Company to make commitments on minimum volume of purchases based on Company forecasts. If the Company's needs decline significantly from its forecasts, the Company would likely incur storage costs for excess production or contractual penalties that might be significant and could have a material adverse impact on the Company's financial results.

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The Company is dependent on key ingredient suppliers, including foreign sources; its dependence on foreign sources creates foreign currency and tariff exposure for the Company; the Company’s use of natural ingredients creates weather and crop reliability and excess/shortage inventory exposure for the Company.

The Company purchases a substantial portion of the ingredients used in its beverages, including its flavorings, malt, hops, apples, and other ingredients, from a limited number of domestic and foreign suppliers. There can be no assurance that the Company would be able to acquire such ingredients from substitute sources on a timely or cost-effective basis, if current suppliers could not adequately fulfill orders or if tariffs significantly increase costs. The loss or significant reduction in the capability or increase of costs of a supplier to support the Company’s requirements could, in the short-term, adversely affect the Company’s business and financial results, until alternative supply arrangements are secured.

The Company’s beverages include many unique and proprietary flavors and combinations of flavors and some of these flavorings are single sourced. Twisted Tea and Truly Hard Seltzer brand beverages are particularly reliant on the use of flavorings and variety of flavors as part of their appeal to drinkers.

The Company purchased most of the malt used in the production of its beer from four suppliers during 2025. The Company is exposed to the quality of the barley crop each year, and significant failure of a crop would adversely affect the Company’s costs.

The Company uses Noble hop varieties from Europe for many of its Samuel Adams beers and also uses hops grown in other areas of Europe, the United States, and New Zealand. Noble hops are grown in several specific areas in Germany and the Czech Republic that are recognized for growing hops with superior taste and aroma properties. The Company stores its hops in multiple cold storage warehouses to minimize the impact of a catastrophe at a single site. The performance and availability of the hops, as with any agricultural product, may be materially adversely affected by factors such as adverse weather or pests and there is no guarantee the contracts will be fulfilled completely. The Company has purchase commitments with seven primary hop dealers and attempts to maintain a one to two-year supply of essential hop varieties on-hand in order to limit the risk of an unexpected reduction in supply and procures hops needed for new beers, based on its best estimate of likely short-term demand. The failure of management’s assumptions regarding future sales growth, product mix and hops market conditions to prove accurate could result in future material losses.

The Company uses special varieties of apples in its ciders that it believes are important for the ciders’ flavor profile. These apples are sourced primarily from European and United States suppliers and include bittersweet apples from France and culinary apples from Italy and Washington state. There is limited availability of these apples and many outside factors, including weather conditions, farmers rotating from apples to other crops, government regulations and legislation affecting agriculture, could affect both price and supply.

The Company’s new product development can also be constrained by any limited availability of the desired ingredients. Growth rates higher than planned or the introduction of new products requiring special ingredients could create demand for ingredients greater than the Company can source.

The Company’s contracts for certain hops and apples are payable in Euros, and therefore, the Company is subject to the risk that the currencies may fluctuate adversely against the U.S. dollar. The Company has, as a practice, not hedged this exposure, although this practice is regularly reviewed. The cost of hops has increased in recent years due to the rising market price of hops and exchange rate changes. The continuation of these trends will impact the Company’s product cost and potentially the Company’s ability to meet the demand for its beers. The Company buys some other ingredients and capital equipment from foreign suppliers for which the Company also carries exposure to foreign exchange rate and tariff changes. Significant adverse fluctuations in foreign currency exchange rates and increased tariffs may have a material adverse effect on the Company’s business and financial results.

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The Company’s reliance on production facilities owned by others and an inability to leverage investment in the Company-owned breweries could have a material adverse effect on the Company’s operations or financial results.

During 2025, the Company produced approximately 86% of its domestic volume at breweries owned by the Company and, as noted above, anticipates producing over 90% of its domestic volume at breweries owned by the Company in 2026. While, on balance, the Company views greater reliance on its own breweries favorably, this reliance on its own breweries exposes the Company to capacity constraints and risk of disruption of supply, as these breweries are operating at or close to current capacity in peak months. As volumes at the Pennsylvania Brewery increase, severe interruptions there would be problematic, particularly during peak seasons. Potential interruptions at breweries include labor issues, governmental action, quality issues, contractual disputes, machinery failures, operational shutdowns, pandemic-related or other staffing shortages, or natural or unavoidable catastrophes. If interruptions were to occur, the Company could face significant delays in starting replacement brewing locations and its operating results could be materially adversely affected.

The Company continues to avail itself of capacity at third-party production facilities. Also as noted above, during 2025, approximately 14% of the Company’s annual domestic shipment volume was produced under production service agreements with City Brewing Company, LLC and its subsidiaries. To the extent that the Company needs to avail itself of a third-party production services arrangement, it exposes itself to higher than planned costs of operating under such contract arrangements than would apply at the Company-owned breweries, potential lower service levels and reliability than internal production, and potential unexpected declines in the production capacity available to it, any of which could have a material adverse effect on the Company’s business and financial results. The use of such third party facilities also creates higher logistical costs and uncertainty in the ability to deliver product to the Company’s customers efficiently and on time.

As the beer industry continues to consolidate and the Company has grown, the capacity and willingness of breweries owned by others where the Company could brew, ferment or package some of its products, if necessary, has become a more significant concern and, thus, there is no guarantee that the Company’s needs will be uniformly met. Should an interruption occur, the Company could experience temporary shortfalls in production and/or increased production and/or distribution costs and be required to make significant capital investments to secure alternative capacity for certain brands and packages, the combination of which could have a material adverse effect on the Company’s business and financial results. A production interruption caused by an acquisition or change of control or bankruptcy of City Brewing Company, LLC, or its subsidiaries, or a simultaneous interruption at several of the Company’s other production locations would likely cause significant disruption, increased costs and, potentially, lost sales.

The Company’s emphasis on owning production facilities requires it to continue to make a significant level of capital expenditure to maintain and improve these facilities and to incur significant fixed operating costs to support them. In an uncertain volume environment, the Company faces the risk of not being able to support the owned brewery operating costs, if volumes were to decline further. At the same time, despite making these expenditures and incurring these costs, if demand were to increase above current volume estimates, the Company could still face the risk of not being able to meet the increased demand.

The Company attempts to mitigate production and distribution risks through a combination of owned breweries and access to third-party contract production facilities, but there is no guarantee that this strategy will be successful, and it might result in short term costs and inefficiencies which could adversely impact our business and financial results.

Turnover in Company leadership or other key positions may lead to loss of key knowledge or capability and adversely impact Company performance.

The Company has an experienced leadership team with an established track record of business success and innovation in the beverage and consumer goods industries.

During both 2024 and 2025 the Company has had transition of its Chief Executive Officer. The Company has and is likely to experience future changes in key leadership or key positions regularly. The departure of key leadership personnel can take from the Company significant knowledge and experience. This loss of knowledge and experience can be mitigated through successful succession planning or external hiring and transition, but there can be no assurance that the Company will be successful in such efforts. Attracting, retaining, integrating and developing high performance individuals in key roles is a core component of the Company’s strategy for addressing its business opportunities. Attracting and retaining qualified senior leadership may be more challenging under adverse business conditions, such as the current declining growth environment the Company is facing. Failure to attract and retain the right talent, or to manage the transition of responsibilities resulting from such turnover smoothly, would affect the Company's ability to meet its challenges and may cause the Company to miss performance objectives or financial

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targets.

The Company has significantly increased its product offerings and distribution footprint, which increases complexity and could adversely affect the Company’s performance and financial results.

The Company has significantly increased the number of commercially available flavored malt beverages, hard seltzers, beers, hard ciders, and spirits RTDs that it produces. In the last five years, the Company has developed, introduced and reformulated many new and existing beverage styles under the Twisted Tea, Truly Hard Seltzer, Samuel Adams, Dogfish Head, Angry Orchard, Sun Cruiser and Hard Mountain Dew brands. The Company currently operates nine retail locations where its beverages are sold and consumed on-premise, including six brewery tap rooms, an apple orchard and innovation cidery, a restaurant and a boutique inn.

The Company’s most significant innovations in 2025 were the introduction of new Sun Cruiser styles and packages including Sun Cruiser vodka based lemonade, as well as the launch of Truly Unruly Lemonade Mix Pack, Dogfish Head Grateful Dead Juicy Pale Ale and Sinless Vodka Cocktails, a new spirits RTD brand. In the first quarter of 2026, the Company is planning to expand Sinless Vodka Cocktails into additional states, launch Twisted Tea Extreme Variety Pack, Samuel Adams Cherry Bomb Ale and Dogfish Head Grateful Dead Citrus Daydream Lager. During the rest of 2026, the Company has plans to add new brands, new beverage styles and may reformulate existing styles of beverages.

These additional brands, styles, reformulations and locations, along with the increases in demand for certain existing brands, have added to the complexity of the Company’s product development process, as well as its brewing, fermenting, distilling, packaging, marketing and selling processes, and retail operations. There can be no assurance that the Company will effectively manage such increased complexity, without experiencing coordination issues, operating inefficiencies, supply shortages or control deficiencies. Such inefficiencies or deficiencies could have a material adverse effect on the Company’s business and financial results.

Changes in drinker attitudes on brand equity and reliance on the Company’s founders in the Samuel Adams and Dogfish Head brand communications may adversely affect demand for the Company’s production and results of operations.

The success of the Company's brands depends upon the positive image that drinkers have of those brands and maintaining a good reputation is critical to selling our branded products. Our reputation could be impacted negatively by public perception, adverse publicity, negative comments in social media, or our responses to negative publicity or comments, either by members of the Company or those who may be affiliated with it. There is also no guarantee that the brand equities that the Company has built in its brands will continue to appeal to drinkers. Changes in drinker attitudes or demands, or competitor activity and promotion, could adversely affect the strength of the Company’s brands and the revenue that is generated from that strength. It is possible that the Company could react to such changes and reposition its brands, but there is no certainty that the Company would be able to maintain volumes, pricing power and profitability. It is also possible that marketing messages or other actions taken by the Company could damage its brand equities, as opposed to building them. If such damage were to occur, it would likely have a negative effect on the financial condition of the Company.

In addition to these inherent brand risks, C. James Koch, the founder, Chief Executive Officer and Chairman of the Company, as well as the founders of Dogfish Head brand, Samuel Calagione, Founder and Brewer, Dogfish Head Brewery and Mariah Calagione, Founder and Communitarian, Dogfish Head Brewery, are an integral part of the Company’s history, brand equity and current and potential future brand messaging and the Company relies on the positive public perception of these founders. Mariah Calagione has recently retired from the Company effective during 2025. The role of these founders as founders, brewers, leaders or former leaders of the Company is emphasized as part of the Company’s brand communication and has appeal to some drinkers. If these founders were not available to the Company, this could negatively affect the strength of the Company’s messaging and, accordingly, the Company’s growth prospects. The Company and its brands may also be impacted if drinkers’ perceptions of these founders, including their social or political views, were to change negatively. If any negative changes were to occur, the Company might need to adapt its strategy for communicating its key messages regarding its history, equity, and current and potential future brand messaging. Any such change in the Company’s messaging strategy might have a detrimental impact on the future growth of the Company.

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The Company’s operations are subject to certain operating hazards that could result in unexpected costs or product recalls that could harm the Company’s business.

The Company’s operations are subject to certain hazards and liability risks faced by all beverage companies, such as potential contamination of ingredients or products by bacteria or other external agents that may be wrongfully or accidentally introduced into products or packaging, or defective packaging and handling. Such occurrences may create bad tasting beverages, or pose health risk to the consumer or risk to the integrity and safety of the packaging. These could result in unexpected costs to the Company and, in the case of a costly product recall, potentially serious damage to the Company’s reputation for product quality, as well as product liability claims.

The Company relies upon complex information systems and vulnerabilities or disruptions of these systems could expose us to liability and harm our business and operations.

The Company depends on information technology to be able to operate efficiently and interface with customers and suppliers, as well as maintain financial and accounting reporting accuracy to ensure compliance with all applicable laws. If the Company does not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, the Company could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to intellectual property and proprietary information through security breaches. The Company recognizes that many groups on a world-wide basis have experienced increases in security breaches, cyber-attacks, and other hacking activities such as denial of service, malware and ransomware. As with all large information technology systems, the Company’s systems could be penetrated by outside threat actors intent on extracting confidential or proprietary information, corrupting information, disrupting business processes, or engaging in the unauthorized use of strategic information. Such unauthorized access could disrupt business operations and could result in the loss of assets or revenues, remediation costs or damage to the Company’s reputation, as well as litigation against the Company by third parties adversely affected by the unauthorized access. Such events could have a material adverse effect on the Company’s business and financial results. The Company also relies on third parties for supply of software, software and data hosting and telecommunications and networking, and is reliant on those third parties for the quality and integrity of these complex services. Failure by a third-party supplier could have material adverse effects on the Company’s ability to operate.

We use AI in our business, and challenges with properly managing its use could result in harm to our brands, reputation, business or customers.

The Company has started to implement the use of AI solutions, including machine learning and generative AI tools that collect, aggregate, and analyze data to assist in the development of the Company’s products and in the use of internal tools that support the Company’s business. These applications may become increasingly important in operations over time. This emerging technology presents a number of risks inherent in its use. AI algorithms trained with noisy data may create accuracy issues, unintended biases, and discriminatory outcomes that could harm the Company’s brands, reputation, business, or customers. Additionally, no assurance can be made that the usage of AI will assist the Company in being more efficient.

Further, dependence on AI without adequate safeguards to make certain business decisions may introduce additional operational vulnerabilities by producing inaccurate outcomes, recommendations, or other suggestions based on flaws in the underlying data or other unintended results. The Company’s competitors or other third parties may incorporate AI into their business, services, and products more rapidly or more successfully than the Company, which could hinder the Company’s ability to compete effectively and adversely affect the Company’s results of operations. Implementing the use of AI successfully, ethically and as intended, will require significant resources. In addition, the use of AI may increase cybersecurity and data privacy risks, such as intended, unintended, or inadvertent transmission of proprietary or sensitive information. The technologies underlying AI and their use cases are rapidly developing, and it is not possible to predict all of the legal, operational or technological risks related to the use of AI. While new AI initiatives, laws, and regulations are emerging and evolving, uncertainty will remain, and the Company’s obligation to comply with the evolving regulatory landscape could entail significant costs, negatively affect the Company’s business, or limit the Company’s ability to incorporate certain AI capabilities into the Company’s business.

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An increase in energy costs could harm the Company’s financial results.

In the last five years, the Company has experienced significant variation in direct and indirect energy costs, and energy costs could change unpredictably. Increased energy costs would result in higher transportation, freight and other operating costs, including increases in the cost of ingredients and supplies. The Company’s future operating expenses and margins could be dependent on its ability to manage the impact of such cost increases. If energy costs increase, there is no guarantee that such costs can be fully passed along through increased prices.

The Class B shareholder has significant control over the Company.

The Company’s Class A Common Stock is not entitled to any voting rights except for the right as a class to (1) approve certain mergers, charter amendments and by-law amendments and (2) elect a minority of the directors of the Company. Although not as a matter of right, the Class A stockholders have also been afforded the opportunity to vote on an advisory basis on executive compensation. Consequently, the election of a majority of the Company’s directors and all other matters requiring stockholder approval are currently decided by C. James Koch, who is the founder, Chairman and Chief Executive Officer of the Company, as the holder of 100% of the voting rights to the outstanding shares of the Company’s Class B Common Stock. As a result, Mr. Koch is able to exercise substantial influence over all matters requiring stockholder approval, including the composition of the board of directors, approval of equity-based and other executive compensation and other significant corporate and governance matters, such as approval of the Company’s independent registered public accounting firm. This could have the effect of delaying or preventing a change in control of the Company and makes most material transactions difficult or impossible to accomplish without the support of Mr. Koch. While Mr. Koch is currently the 100% holder of the Company’s Class B Common Stock, there is nothing that prevents Mr. Koch or his heirs from transferring some or all shares of the Class B Common Stock to others.

Risks Related to Law and Regulations

Changes in tax, environmental and other regulations, government shutdowns or failure to comply with existing licensing, trade or other regulations could have a material adverse effect on the Company’s financial condition.

The Company’s business is highly regulated by federal, state and local laws and regulations regarding such matters as licensing requirements, trade and pricing practices, labeling, advertising, promotion and marketing practices, relationships with Distributors, environmental impact of operations and other matters. These laws and regulations are subject to frequent reevaluation, varying interpretations and political debate, and inquiries from governmental regulators charged with their enforcement. In addition, any delays in federal or state government required approvals caused by federal or state government shutdowns, could prevent new brands or innovations from getting to market on time or at all. Failure to comply with existing laws and regulations to which the Company’s operations are subject or any revisions to such laws and regulations or the failure to pay taxes or other fees imposed on the Company’s operations and results could result in the loss, revocation or suspension of the Company’s licenses, permits or approvals, and could have a material adverse effect on the Company’s business, financial condition and results of operations. Changes in federal and other tax rates could have a significant effect on the Company’s financial results.

The Company has been and expects to continue to be adversely impacted by tariff programs

The Company sources some of its goods and services from countries impacted from the tariff programs announced by the U.S. government and these tariffs have had an adverse effect on the Company’s business and financial results. The Company has reviewed its supply chain and business and based on information currently available, the primary impact of these tariffs is higher costs of packaging, ingredients, promotional materials and capital equipment which are currently sourced from Canada, European Union, China, and Mexico. The Company has reported these costs due to tariffs and the impact to its statement of operations in the amount of $11 million in 2025. In 2026, the Company estimates tariff costs will increase to between $20 million and $30 million, primarily because tariffs were effective for only part of 2025, resulting in a partial‑year impact, while 2026 is expected to reflect a full year of impact if current tariffs remain in place. These tariff cost estimates are based upon tariffs in place prior to the February 20, 2026 Supreme Court ruling. These estimates could materially change and the Company will closely monitor the tariff environment and continue to evaluate and explore opportunities to mitigate these negative impacts but there is no guarantee that these efforts will be effective.

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In addition, 5% of the Company’s revenue is from countries outside the United States with the majority of this revenue in Canada. The Company’s U.S. and international businesses could also be negatively impacted if tariffs result in changes in consumer demand or cause currency related impacts. The Company’s reported amounts and future estimates of the impact of tariff costs do not reflect any potential impacts of tariffs on consumer demand or currency related impacts.

There is no guarantee that the Company will not face litigation that could harm the Company’s business.

The Company has from time to time in the past been involved in material litigation. Claims, whether or not meritorious, could be asserted against the Company that might adversely impact the Company’s results.

Risks Related to General Economic Conditions

The Company’s operating results and cash flow may be adversely affected by unfavorable economic, financial and societal market conditions.

Volatility, uncertainty, and inflation in the financial markets and economic conditions generally may directly or indirectly affect the Company’s performance and operating results in a variety of ways, including: (a) prices for energy, labor, packaging, ingredients, and agricultural products may rise faster than current estimates, including increases resulting from currency fluctuations; (b) the Company’s key suppliers may not be able to fund their capital requirements, resulting in disruption in the supplies of the Company’s raw and packaging materials; (c) the credit risks of the Company’s Distributors may increase; (d) currency fluctuations may impact amounts owed to the Company by distributors that pay in foreign currencies; (e) the Company’s credit facility, or portion thereof, may become unavailable at a time when needed by the Company to meet critical needs; (f) overall alcoholic beverage consumption may decline; or (g) drinkers of the Company’s products may change their purchase preferences and frequency, which might result in sales declines.