(This story has been updated to reflect The Hydropothecary Co.’s name change to Hexo.)
Molson Coors Brewing Co. is teaming up with a cannabis company in Canada as beer companies look to fend off competition from North America’s growing marijuana market.
Molson said Wednesday it will form a joint venture with Quebec-based licensed producer The Hydropothecary Corp. to develop nonalcoholic, cannabis-infused beverages for the Canadian market following legalization.
Molson Coors Canada will have a 57.5% controlling interest in the joint venture, and Hydropothecary (now called Hexo) will control the rest.
It is the latest signal that the beer industry is concerned that legal recreational marijuana will cut into its profits and follows moves by Constellation Brands, which owns Corona beer, and Heineken.
As part of the agreement, Molson has the option to take a 5% ownership stake in the Quebec cultivator if Hydropothecary’s stock hits 6 Canadian dollars ($4.61).
Government regulations on infused cannabis products, including beverages and edibles, will become clear in July 2019 at the earliest.
Khurram Malik, a partner with Toronto-based financial advisory firm Jacob Capital Management, said partnering with a company that has the capacity to do research and development, like Molson, is key.
“To develop a beverage from scratch which is actually tasty requires a lot of product development muscle, so for an LP to do it on its own would be tricky,” he said.
Matt Bottomley, an analyst with Toronto-based investment firm Canaccord Genuity, described the partnership as a “perfect fit.”
“You have all these cannabis companies that are really by stifled by regulations,” he said.
“This deal gives Hydropothecary the ability to leverage Molson’s segmented consumer insights, infrastructure, distribution and marketing muscle.”
Some analysts noted the deal does not involve Molson investing directly in Hydropothecary.
“I never bought the ‘beer company buys out a whole cannabis LP’ thesis,” Chris Damas, editor of Barrie, Ontario-based BCMI Cannabis Report, wrote in a note to clients. “Why buy the cow and put shareholders at risk when you can milk any IP the JV can produce?”
It’s a smart move, according to Malik. “A joint venture gives them greater flexibility to work with other people down the road.”
Other cannabis and alcohol companies have also been teaming up.
Canopy Growth, a licensed cannabis producer in Smiths Falls, Ontario, is working with Constellation Brands on cannabis-infused beverages.
Ontario-based MedReleaf – now part of Aurora Cannabis – teamed up with Toronto’s Amsterdam Brewing Co.. to create a “cannabis-inspired beer.”
In addition, Heineken’s Lagunitas Brewing, a craft beer maker based in California, this week released a THC-infused sparkling water.
Matt Lamers can be reached at mattl@mjbizdaily.com
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