Molson Coors to develop cannabis-infused drinks in Canada

Alicia Cross
August 4, 2018

Molson Coors Brewing Company today reported its second-quarter earnings, however the financial results took a backseat to news that its Canadian business division had formed a joint venture with a Quebec cannabis company. Molson Coors Canada will have a 57.5% controlling interest in the JV, with HEXO having the remaining ownership interest.

The deal is expected to close before September 30, just ahead of the proposed legalization of recreational marijuana in Canada. Sales of alcoholic beverages declined significantly in states that legalized medical marijuana, according to research by the University of CT and Georgia State University. However, cannabis-infused edibles and beverages will not be immediately legalized - those products expected to receive approval sometime in 2019. "Our full year underlying cost savings and free cash flow guidance has not changed, despite ongoing industry demand challenges in the U.S. and Canada and inflationary pressures".

In a statement, Molson Coors President and CEO Frederic Landtmeters said the companies will aim to be a "market leader in offering Canadian consumers new experiences with quality, reliable and consistent non-alcoholic, cannabis-infused beverages". Indeed, Molson is Canada's leading brewer, and HEXO is a major player in Canadian cannabis.

"We view this as a historic milestone as the Canadian cannabis industry looks for innovative ways to enter the beverage industry", Beacon Securities analyst Douglas Cooper said in a note.

"There is a paradigm shift underway and cannabis has the potential to provide answers to the alcoholic drinks industry's existential questions", said Spiros Malandrakis, head of alcoholic drinks at Euromonitor. Constellation Brands, the beer giant behind Corona, paid $191 million for a 9.9% stake in Canopy Growth, a Canadian marijuana producer, in October of past year.

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The Hydropothecary Corporation partners with Molson Coors, sending the cannabis company's stock skyrocketing on both the Canadian and American markets today.

And Lagunitas, a California-based craft beer company owned by Heineken, recently rolled out a cannabis-infused beverage.

The Hydropothecary Corporation is ramping up its production capacity in advance of Canada's legalization of recreational-use marijuana on October 17, to more than one million square feet. Worldwide net sales (-0.2 percent) and volume (-2.4 percent) of Molson Coors' products declined in the second quarter.

Revenues for the period ended June 30 slipped to almost US$3.1 billion, slightly below expectations.

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