CANNABIS IN YOUR BEER? MOLSON GETS INTO THE POT-BEVERAGE BUSINESS.

Joins forces with Quebec’s Hydropothecary

TORONTO • A new partnership between Molson Coors Brewing Co. and Canadian pot producer Hydropothecary Corp. comes as beer sales are stagnating, but it also anticipates a potentially “massive” market for cannabis-infused drinks that could pick up the slack.

On Wednesday, Hydropothecary and Molson announced the formation of a joint venture that will work on developing those nonalcoholic, weed-injected beverages. The company is being set up ahead of Canada’s planned legalization of recreational cannabis in October, as well as the expected sales of edible marijuana products next year.

Sébastien St-louis, chief executive and co-founder of Gatineau, Que.-based Hydropothecary, said in an interview that they had yet to place a dollar value on the potential market for cannabis-infused drinks, as they would await forecasts from the joint venture’s management team.

“But this is a material opportunity for both companies,” St-louis said. “And we expect the revenue from adult-use cannabis beverage to be massive.”

The deal could also underscore the overall importance of edibles for Canada’s coming cannabis market. The significance may be even more so for big brewers that were already under pressure from craft competitors, and that now face the introduction of a new legalized substance for consumers to buy: cannabis. Industry group Beer Canada reported previously that national sales volumes “have remained relatively flat,” decreasing 1.5 per cent from 2016 to 2017.

Legal Canadian weed sales, however, look poised to rise. Deloitte estimated in June that Canadians could boost their total cannabis consumption by as much as 35 per cent when the drug is legalized in October. The firm also found that six out of 10 likely cannabis consumers are expected to opt for edibles.

Meanwhile, Molson Coors reported Wednesday that net sales saw a yearover-year decline of 0.2 per cent for its second quarter, to US$3.1 billion. Frederic Landtmeters, president and CEO of Molson Coors Canada, said the deal with Hydropothecary was being formed ahead of an expected increase in the overall acceptance of cannabis by Canadians.

“The decision that we’ve made ... is really to tap into that opportunity of changing consumer needs and preferences,” Landtmeters said in an interview.

Officially, the joint venture between Hydropothecary and Denver-based Molson Coors’s Canadian business will be set up as a “stand-alone” startup with both its own board of directors and an independent management team. Molson would own 57.5 per cent of the venture; Hydropothecary would own the other 42.5 per cent.

“The new company will combine the proven beverage experience of Canada’s leading brewer with a recognized innovator in the fast-growing cannabis sector to explore the highly anticipated consumable cannabis market, which is expected to be legally permissible in Canada in 2019,” a release said.

As part of the transaction, Hydropothecary has also agreed to issue warrants to Molson that are worth 11.5 million common shares of Hydropothecary at a strike

DIFFERENT TASTE AND DIFFERENT DRINK PROFILES.

price of $6 per share, a spokesperson said. If exercised, St-louis said the warrants represent an ownership stake of about five per cent in Hydropothecary.

Sept. 30 is the date targeted for the deal to close, pending certain conditions being met, such as the “execution and delivery of various transaction agreements, including governance documents and R&D and supply agreements,” the release said.

The Hydropothecary-molson partnership is not the first venture between brewers and cannabis growers. U.S. alcoholic beverage company Constellation Brands Inc. bought a minority stake in Smiths Falls, Ont.-based Canopy Growth Corp. last year.

The collaboration does, however, mark another significant milestone for Canada’s cannabis sector. Canaccord Genuity called the tie-up between Hydropothecary and Molson “another banner headline for the industry.”

St-louis said the technology they’ve developed can also make possible a wide variety of flavours for customers. “The JV and JV’S management will be able to really select different taste and different drink profiles for consumer preferences,” he said. “The list of possibilities is truly limitless.”