Molson Coors: Cannabis consumption may hit company’s bottom line

The second-largest beer maker in North America is once again warning its shareholders that the rising tide of legal marijuana could take a bite out of its profits.

Denver-based Molson Coors said a decline in the consumption of its products could result in an adverse effect on its business.

“Although the ultimate impact is currently unknown, the emergence of legal cannabis in certain U.S. states and Canada may result in a shift of discretionary income away from our products or a change in consumer preferences away from beer,” the company noted in a regulatory filing with the U.S. Securities and Exchange Commission last month.

Molson Coors is struggling to compete in Canada, although the company didn’t directly attribute recent woes to legal cannabis.

“If the Canadian beer market continues to decline, the impact to our financial results could be exacerbated due to our significant share of the overall market,” the company noted.

Last year, a Canadian trade group representing 50 beer makers expressed concern that the recreational marijuana market would cut into its profits and asked Canada’s government to boost cannabis taxes.

“The potential for legal marijuana to cannibalize beer (in Canada) is much more significant compared to the U.S. because of our higher beer taxes and high prices,” Luke Harford, president of Beer Canada, told the Canadian Senate last summer.

Molson Coors is among a small number of alcohol makers investing in the cannabis industry.

Last October, the Denver company formed a joint venture with Quebec-based license holder Hexo to develop, produce and market nonalcoholic, cannabis-infused beverages in Canada once the products are permitted.

Molson Coors owns 57.5% of the joint venture.

“Other expense of $22 million in 2018 was primarily driven by charges related to unrealized market-to-market losses on warrants issued in connection with the formation of the Truss joint venture,” the company wrote in its filing.

Molson Coors also said it holds warrants through Oct. 4, 2021, allowing it to purchase 11.5 million common shares of Hexo for 6 Canadian dollars ($4.50) per share.

“The fair value of our warrant asset at Dec. 31, 2018, was $19.6 million.”

Canada is set roll out regulations for edible cannabis, extracts and topicals later this year.

Molson Coors trades on the New York Stock Exchange (NYSE) under the ticker symbol TAP. Hexo trades as on the Toronto Stock Exchange and NYSE as Hexo.

3 comments on “Molson Coors: Cannabis consumption may hit company’s bottom line
  1. jim heffner on

    Adapt or perish. I grew up in the shot and a beer culture of the PA Coal Regions in Schuylkill County , the home of Yuenglings Beer. I quit drinking after my time in Nam(last drink and hard drug 7 January 1976) but I have no problems with somebody else drinking alcohol safely and sanely. I do welcome the development of non alcoholic Cannabis drinks as a variation of Cannabis consumption for recreation.
    Hey, Richie Yuengling. hope you get to read this.

    Reply
  2. Maxcatski on

    Cannabis is much less harmful than alcohol. The alcohol people are right to be afraid.

    It will be a boon to society if cannabis replaces alcohol.

    Reply
  3. Monica Pua on

    The writing on the wall cannot be any more clear, both in basic business and in the alcohol-cannabis arena.

    One the business side, a basic rule is that a company either adapts to changing market conditions, or see their revenue and market share slip away.

    On the other hand, Alcohol has only one molecule: Ethanol (it’s basically water down fuel) and the side effects go from headaches to death (88K die in the US according to CDC in 2010, and 3.3m worldwide. Cannabis on the other hand… well, we all can memorize the number “0”).

    I personally stopped drinking alcohol when introduced to cannabis, and in only rare occasions sip a beer or a glass of wine.

    So indeed friends at Molson-Coors, your business is shrinking and will keep shrinking even further. I personally think it’s wonderful news —but to each its own.

    Reply

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