Molson Coors: Cannabis use could hurt the company's bottom line
The second largest beer producer in North America warns its shareholders once again that the rising tide of legal cannabis could have a negative impact on its profits.
Molson Coors of Denver stated that a decline in the consumption of its products could have an adverse effect on its business.
"Although the final impact is currently unknown, the emergence of legal cannabis in some US states and Canada could result in a shift in discretionary income from our products or a change in consumer preferences over beer." said the company in a regulatory filing with the US Securities and Exchange Commission last month.
Molson Coors is struggling to compete in Canada, although the company has not directly attributed the recent misfortunes to legal cannabis.
"If the Canadian beer market continues to decline, the impact on our financial results could be exacerbated because of our significant share of the overall market," the company said.
Last year, a Canadian business group representing 50 beer makers expressed concern that the recreational marijuana market would reduce its profits and asked the Government of Canada to raise taxes on cannabis.
"The potential for cannibalization of beer by legal cannabis (in Canada) is much greater than in the United States because of our higher beer taxes and high prices," said Luke Harford, president of Beer Canada, in the Canadian Senate last summer.
Molson Coors is part of a small number of alcohol manufacturers who invest in the cannabis industry.
Last October, the Denver Company formed a joint venture with Quebec licensee Hexo to develop, produce and market non-alcoholic cannabis-based beverages in Canada once these products are licensed.
Molson Coors holds 57,5% of the joint venture.
"Other 22 2018 XNUMX expenses were primarily attributable to unrealized losses on warrants issued as part of the formation of the Truss Joint Venture," writes the company in its filing.
Molson Coors also stated that it holds warrants until October 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 31 December 2018 warrants was 19,6 million dollars."
Canada has regulations on the deployment of edible cannabis, extracts and topical products later this year.
Molson Coors is listed on the New York Stock Exchange (NYSE) under the symbol TAP. Hexo trades on the Toronto Stock Exchange and the New York Stock Exchange under the name of Hexo.