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Jun 25, 2018

Molson Coors said to be in talks with pot firms as legalization looms

Amanda Lang: Molson has reason to hesitate on cannabis

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Molson Coors Brewing Co. (TAP.N) has been engaged in discussions with several Canadian-based cannabis companies to invest in them and collaborate on future cannabis-infused beverages in a move aimed at stemming the brewer’s declining beer sales, multiple sources familiar with the matter have told BNN Bloomberg.

The tie-up would see another major U.S. player enter the lucrative cannabis market ahead of Canada legalizing recreational cannabis on Oct. 17. Molson Coors has spent the past six months engaged with as many as four separate cannabis companies, including Aphria Inc. (APH.TO) and Aurora Cannabis Inc. (ACB.TO), discussing its plans to enter the marijuana space and the discussions are said to be serious, the sources said. A deal could be announced before the end of the year, one of the sources said.

The sources declined to speak on-the-record with BNN Bloomberg as discussions between the companies and brewer remained private. Colin Wheeler, a spokesman with Molson Coors, said in an email to BNN Bloomberg the company doesn’t comment on rumour or market speculation.

Molson Coors rose 2.30 per cent on Friday for their biggest single-day gain since March 26.

A deal with a marijuana producer would provide Molson Coors with access to a growing market pegged to be worth $6.5 billion by 2020, according to a report published last month by CIBC Capital Markets.

Furthermore, a report released by Cowan & Co. in April said cannabis and alcohol are substitute social lubricants. The report said that binge drinking behaviours – described as consuming at least seven drinks per sitting – accounts for 17 per cent of the U.S. population, but is set to fall as the legalization of recreational marijuana usage widens in North America.



“Our analysis found that adult-use cannabis states also have consumers that report meaningfully lower quantities of alcohol consumed per binge drinking session, relative to medical and non-cannabis states,” said Vivien Azer, a senior analyst covering beverage and tobacco companies at Cowen & Co., who authored the report.

In a report published earlier this month, Azer said Molson Coors’ management told analysts that the company has established a working group to evaluate the Canadian cannabis market, “which should prove helpful given [Molson Coors’] market share losses.” Molson Coors has a 33 per cent share of the Canadian beer market in 2017, down from 40.5 per cent in 2008, according to Cowen & Co.

If Molson Coors strikes a deal with a cannabis partner it wouldn’t be the first alcohol-related company to enter the sector.

Constellation Brands Inc. (STZ.N), the U.S. distributor for Corona beer, disrupted the cannabis industry by taking a 9.9 per cent stake in Canopy Growth Corp. (WEED.TO) in October 2017 for $245 million. Constellation’s stake in Canopy, Canada’s largest cannabis company by market capitalization, is now roughly worth $877 million after the alcohol producer acquired one-third of a $600-million convertible note offering announced on Friday.

Meanwhile, Southern Glazer’s Wine & Spirits LLC announced a partnership with Aphria in May to give the cannabis company additional expertise in promoting its products to retailers and regulators across Canada.

Canopy Growth CEO says makers of sleep aids, painkillers should be 'terrified'

With cannabis legalized and a date set for recreational marijuana sales, Canopy Growth CEO Bruce Linton says this is a critical moment for executives across a variety of sectors. He says the competitive landscape and consumer demand is about to change for beverage companies and pharmaceutical firms, in particular.

“For the most part, if you’re the CEO of a beer company or a spirits company right now, it’s a terrible time, because in your shareholder meetings they’re saying, ‘What’s our cannabis strategy?’ And, for the most part, the big companies are saying, ‘Well, we have a group that’s making a strategy for a strategy,’” said Canopy Growth CEO Bruce Linton in a TV interview with BNN Bloomberg on Wednesday.

One of the sources familiar with Molson Coors’ negotiations said the brewer is seeking “high quality product that isn’t going to embarrass them” and to ensure enough cannabis supply for a potential cannabis-infused beverage. One area of interest for the brewer is to find a cannabis company that can produce marijuana with a fast-infused reaction that can mimic the experience of drinking alcohol in a relatively quick time span, such as 15 to 20 minutes.

“It’s a disruptive industry and an opportunity for a lot of different companies,” said Mike Gorenstein, CEO of Cronos Group (CRON.TO) in a phone interview with BNN Bloomberg. He declined to comment on whether Cronos has engaged in discussions with Molson Coors but said “we do have conversations from time to time with companies we want to build relationships with.”

While two other sources said several other beer and spirit companies are exploring plans in the cannabis space, Molson Coors is a “natural fit” for the cannabis industry as the company has experienced declining sales in its home base of Colorado, where recreational marijuana has been legal since 2012, and Washington state.

“When they move into this sector, they’re going to be in there big. They’re not going to be dipping their toes,” one of the sources said.

Editor’s note: An earlier version of this story indicated Molson Coors has a larger market capitalization than Constellation Brands. That is incorrect. BNN Bloomberg regrets the error. 

 

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