TAPA Molson Coors Brewing Company

By Jennifer Maloney 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 2, 2018).

Molson Coors Brewing Co. is turning to cannabis drinks in search of growth as the No. 2 U.S. brewer reported another quarter of weak beer sales.

The company said it is forming a joint venture with The Hydropothecary Corp., a Canadian cannabis producer, to develop non-alcoholic, cannabis-infused beverages for the Canadian market.

The brewer's pivot follows similar moves by Corona brewer Constellation Brands, which last year invested in Canadian cannabis company Canopy Growth with plans to develop beverages, and Heineken NV, whose Lagunitas brand this week launched a cannabis-infused sparkling water in California.

"The decision we had to make was do we want to be a spectator or a participant?" Molson Coors Chief Executive Mark Hunter said Wednesday on a call with analysts. "We're going to learn a lot and if other markets start to open up...or it becomes federally legal, then we'll be in a good place."

The decline of American light lagers including Coors Light continues to hurt Molson Coors. Its global volumes fell 2.4% in the second quarter, driven by declines in the U.S. and Canada. In the U.S., beer volume dropped 4.8% and revenue decreased 3.1%.

Recreational marijuana use in Canada will be legal in mid-October, and edible and drinkable cannabis products are expected to be legalized there by 2019. Independent research firm Euromonitor International estimates that legal marijuana sales in 2018 will total US$7.5 billion in Canada and $10.2 billion in the U.S.

In the joint venture, Molson will have a 57.5% interest in a standalone startup company with its own board of directors. The Hydropothecary, also known as Hexo, will have the remaining ownership interest.

Meanwhile, the company said it is "aggressively" focused on its beer volumes in North America, particularly Coors Light, which lost market share in the quarter. The company's U.S. business unit, MillerCoors, plans to hire a new chief marketing officer and "the No. 1 job will be Coors Light," MillerCoors CEO Gavin Hattersley said on a call with analysts.

As consumers migrate from beer to wine and spirits, U.S. beer-industry executives have been debating whether legalized marijuana could accelerate the decline of beer sales. And they've considered ways to invest in cannabis without running afoul of U.S. regulators.

"A transition towards a holistic, responsible intoxication model will be the end game," said Spiros Malandrakis, head of alcoholic drinks at Euromonitor, adding that cannabis could provide "answers to the alcoholic-drinks industry's existential questions."

Startup company Cannabiniers in August plans to launch a de-alcoholized, THC-infused-beer brand called Two Roots, in Nevada.

Constellation chief Rob Sands in June said his company is looking closely at the new Lagunitas Hi-Fi Hops brand and examining whether Constellation could bring to the U.S. the cannabis-infused beverages it is developing in Canada.

"There may be things that we can do," he said on a call with analysts. "And we will do them if we can do them [and they are] not violative of federal laws."

Write to Jennifer Maloney at jennifer.maloney@wsj.com

(END) Dow Jones Newswires

August 02, 2018 02:47 ET (06:47 GMT)

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