Under the expectation that consumer acceptance and consumption of cannabis is on the uptick, Molson Coors Brewing Co. has announced its partnership with The Hydropothecary Corporation (HEXO) to produce non-alcoholic cannabis-infused products. The new venture will be a stand-alone start up with a separate board and management team and an interest split between Molson Coors Canada (57.5%) and HEXO (42.5%).
Based out of Gatineau, Quebec, the 300,000 square foot HEXO facility is expected to quadruple in size by the end of 2018 as a result of the newly announced venture. The company is currently trading on the TSE for $4.83 compared to Molson Coors Canada’s $96.01.
President and CEO of Molson Coors Canada Frederic Landtmeters says, “While we remain a beer business at our core, we are excited to create a separate new venture with a trusted partner that will be a market leader in offering Canadian consumers new experiences.”
Molson Coors CEO Mark Hunter believes the product has “really significant potential,” and that the success of the product as well as federal legalization means only good things for the Molson brand. Currently, Molson Coors Canada has no plans to sell their joint-venture products with HEXO to U.S. states that have legalized cannabis.
HEXO has stated that the cannabis plant has great potential beyond intoxication due to its colourless, odourless, and flavourless active substances and as a result isn’t limited to non-alcoholic beer. “We’re going to start with THC but also CBD and then CBG,” says HEXO CEO Sebastien St. Louis. “There’s a lot of these molecules that could do different things so it’s not only about disrupting in the psychoactive market but also in going into wellness markets, appetite control and all sorts of other interesting markets…And so the joint venture’s management will really be free to understand consumer preferences and craft a product offering to respond to them. So you can imagine the possibilities are pretty limitless.”
Current estimates place the global market for legal and illegal marijuana at approximately $150 billion usd ($7.8 billion usd in Canada). Spiros Malandrakis from Euromonitor International says there’s a “paradigm shift” in effect, where cannabis products have the potential to fuel alcohol’s next growth cycle.
Currently, the legalization of cannabis edibles and beverages is not expected until 2019, regardless of the recreational cannabis legalization date set for October 17th of this year. Additionally, not everyone sees the positive side to cannabis legalization and its potential impact on alcohol sales and consumption; some beer and alcohol companies are worried that heightened cannabis use will reduce alcohol sales and, as a result, have brokered distribution deals with various cannabis producers. For example, Southern Glazer’s Wine & Spirits is now Aphria’s exclusive cannabis distributor, while Aurora Cannabis (based out of Edmonton) has announced its intention to purchase 20% of Alcanna Inc. (formerly Liquor Stores N.A. Ltd.), and Canopy Growth Corp. has brokered a deal with Constellation Brands that resulted in the sale of 10% of its company for $245 million.
In June, Deloitte estimated that when cannabis is legalized in Canada, Canadians’ usage could increase by 35%. 60% of cannabis users are predicted to use edibles.
The joint venture deal between HEXO and Molson Coors Brewing Co. is expected to close on September 30th, as long as the “execution and delivery of various transaction agreements, including governance documents and R&D and supply agreements,” is satisfied.
