Molson Coors: Cannabis use could hurt company 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 said a decline in consumption of its products could adversely affect 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 reported 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 recent woes to legal cannabis.
“If the Canadian beer market continues to decline, the impact on our financial results could be exacerbated due to our large 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 reduce its profits and called on the Government of Canada to increase taxes on cannabis.
"The potential for cannibalization of beer by legal cannabis (in Canada) is much greater than in the United States due to our higher beer taxes and high prices," said Luke Harford, president of Beer Canada, in the Canadian Senate last summer.
Molson Coors is one of a small number of alcohol manufacturers investing 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 charges of $ 22 million in 2018 are mainly attributable to charges related to unrealized losses on warrants issued as part of the formation of the Truss joint venture,” the company wrote in its filing.
Molson Coors also said it holds warrants until October 4, 2021, allowing it to purchase 11,5 million Hexo common shares for C $ 6 ($ 4,50) per share.
“The fair value of our warrants as at December 31, 2018 was $ 19,6 million. "
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.