Molson Coors has been talking for the past several months with a number of Canadian cannabis firms about potential business deals prior to recreational pot being legalized in Canada this fall, according to sources cited by BNN Bloomberg.
Molson Coors has spoken to several Canadian cannabis companies, including Aphria, Inc., and Aurora Cannabis, Inc., BNN Bloomberg said, and a deal could be announced before the end of this year.
These deals could consist of either direct investment or collaboration on cannabis-infused beverages with an eye toward boosting the brewing giant's slumping beer sales. A Molson Coors spokesman declined to comment to BNN Bloomberg.
It's not surprising that Molson Coors might be in serious discussions about entering the cannabis space, especially now that Canada is set to legalize recreational cannabis use on Oct. 17. The company's most recent earnings report showed the maker of Miller Lite and Coors Light posted lower earnings in the U.S., Canada and Europe, with U.S. sales falling 5.8% and volume lagging by 3.8%.
In order to bolster demand and its bottom line, Molson Coors is looking to differentiate and innovate in new directions, so nationwide recreational cannabis legalization in Canada probably couldn't come at a better time. The company has been branching out beyond its core beer product line by recently buying Clearly Kombucha. It also bought Aspall Cyder in January and took a minority stake in Bhakti, a Colorado-based maker of RTD chai tea, last year.
Molson Coors isn't the only beer company intrigued by potential product tie-ups involving cannabis.
Constellation Brands purchased a 9.9% stake in Ontario-based Canopy Growth Corp. last year for $191 million with the goal of developing cannabis-infused beverages without alcohol. The company just upped its investment by buying a third of a $600 million convertible note offering June 15. Last fall, Lagunitas Brewing launched an IPA made with marijuana terpenes, the aromatic compounds of fragrant oils from the cannabis plant, although it doesn't contain tetrahydrocannabinol (THC), the active ingredient that causes the marijuana high.
Until more information is announced, it's not clear whether Molson Coors is considering a direct investment in cannabis production, research and development, and/or ways to blend it with their beers.
One thing that is clear is the vast earnings potential of the cannabis industry. According to a recent report from CIBC Capital Markets cited by BNN Bloomberg, the Canadian recreational cannabis market could be valued at $6.5 billion by 2020, surpassing 2017 spirit sales in that country and coming close to the $7 billion spent on wine. However, it's still less than Canadians spent on beer last year, which was $9.2 billion.
The beer industry is well aware of the threat posed by the cannabis industry. A joint survey last year from IRI and CannaBiz Consumer Group found 5% of adults would quit drinking beer if marijuana were legally available in their state and that recreational marijuana could eat into the beer industry's revenue by 7.1%.
According to IRI analysts, should marijuana be legalized nationwide in the U.S., the beer industry could lose as much as $2 billion. It make sense for the beer industry to establish a bigger presence in the cannabis space given the potential impact it could have on their business — if you can't beat them, join them. There also is potential for developing new products involving cannabis that could spur demand for beverages made by Molson Coors or Constellation Brands.