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Betting against a faux-conservative brand

A version of this post was shared with paid subscribers earlier this week.

On The Phrase “Fake and Gay”

The “gay” in the online phrase “fake and gay” can mean “stupid” rather than “homosexual”, but in the case of our most recent bearish bet, both meanings might apply ("Not that there's anything wrong with that!").

This a consumer staples brand that markets itself to conservatives as a macho alternative to liberal brands in the same category, via gratuitous use of guns, camo, and flag imagery, along with displays of performative masculinity. It turns out, though, that its CEO was sued by one of his male employees, for, among other claims, suggesting they engage in anal intercourse with each other.

The company has been borrowing to grow revenues, has been losing money, and has generally weak fundamentals (for example, a Piotroski F-score of 2). Given its fundamental weakness, and macro headwinds including a likely recession later this year, I would be bearish on it without the scandal, but I believe as word spreads of the scandal, it will erode the company’s brand. And its brand is what differentiates it from numerous competitors.

The Fake

As Revolver noted in 2021, BRC, Inc.’s (BRCC) Black Rifle Coffee Company produces cartoonish ads, with a portrayal of patriotism and masculinity reminiscent of a drag queen’s portrayal of femininity.

The company’s ads are indistinguishable from a parody that would appear in a Grand Theft Auto video game:

Make a list of anything Reddit has considered “manly” over the past decade, and chances are BRCC has marketed with it. Bacon? Yep.

Black Rifle Coffee @blckriflecoffee

Which do you prefer? #brcc #bacon #coffee

Chicks in bikinis? Yep.

Over-the-top heckin’ coolerino shlock like guys with lasers riding sharks? Yours for just $26.99.

In many ways, the imagery that Black Rifle indulges is actively harmful. Male-to-female transsexuals famously have a cartoonish, porn-influenced, stereotypical idea of what being a woman is like. That’s why drag queens have such a garish, over-the-top look. BRCC ads evoke the same idea, but for men. Their target demographic is, in a sense, male-to-male transsexuals. The ads reduce veterans from citizen soldiers to a pantomime of desperate masculinity, guys who need tattoos, whiskey, and twenty-seven different guns to feel like “real men.” BRCC ads are supposed to trigger “snowflake” liberals, but they’d be just as crass and ridiculous to a World War 2 veteran in 1946.

The Gay

A disclosure at the bottom of an article last summer in Black Rifle Coffee Company’s Coffee or Die magazine used anodyne language to describe the lawsuit we alluded to above:

Disclosure: Brandon Roper is a former employee of Black Rifle Coffee Company, the parent company of Coffee or Die Magazine. On Aug. 7, 2018, Roper filed a lawsuit in 3rd District Court of Salt Lake County against Evan Hafer, a Black Rifle Coffee founder, and the company stemming from his concerns about workplace language used in the early days of the firm.

All parties reached a private settlement, and on Jan. 7, 2019, the case was dismissed with prejudice, ending the dispute.

The lawsuit was settled four years ago, but word of it apparently only leaked out relatively recently. You can find a PDF of Roper’s complaint at this link, but here’s a screenshot of some of its more salacious allegations:

When BRCC released its 4th Quarter and annual 2022 financials earlier this month, CEO Evan Hafer (the same Hafer who Brandon Roper alleged proposed engaging in anal sex with him above) said Black Rifle Coffee had become the #4 selling coffee brand at Walmart. I think you can see how, as word of this spreads, it might cause some Black Rifle Coffee drinkers to switch to one of the other coffee brands instead. 

The Trade

I bought the $5 strike, October expiration puts on BRCC for $0.95 earlier this week, and alerted subscribers of the Portfolio Armor trading Substack at the time. 

The Risk 

The last time we exited a bearish options bet, it was for an 80% gain.

Portfolio Armor @PortfolioArmor

In case $RDW rockets higher after earnings tomorrow.

portfolioarmor.substack.comTrade Alert: Out of RDW Puts for a 80% GainExiting ahead of earnings.

But the risk with these sorts of speculative options trades is that we might end up being wrong, and the options could expire worthless. Anything could happen. Maybe Black Rifle Coffee Company will profitably rebrand as gay, like Big Gay Ice Cream? 

Who knows what will happen between now and October. If you decide to place this trade, be sure to only use an amount of money you would be comfortable losing. Think of it this way: if you'd normally put $X in a stock idea, and use a 10% stop loss, don't put more than $0.1X in this trade.