Just recently, Canada became the second nation to legalize the use of recreational marijuana after the Senate passed a bill with a vote of 52-29. Shortly after, Justin Trudeau, the prime minister of Canada, tweeted and praised the bill, saying "It's been too easy for our kids to get marijuana and for criminals to reap the profits, today we change that."
With Canada now on the radar for legal marijuana, companies are looking to expand and use that to their advantage. According to Huffington Post, the brewing company Molson Coors (TAP - Free Report) has reportedly been in talks with several cannabis companies in Canada. This is because Molson Coors plans to create marijuana infused beers in order to turn around the company’s declining beer sales.
Since the legalization of marijuana use in states, many people have started substituting cannabis for beer. According to Forbes, the beer industry could lose more than $2 billion in retail sales due to legal marijuana. Now that it is legal in Canada, companies are finding ways to prevent marijuana from outshining beer sales and looking to find ways to equal them out.
Constellation Brands Inc. v Molson Coors
Last year, a similar deal was made between the Corona beer seller, Constellation Brands Inc. (STZ - Free Report) , where it took a 9.9% stake in the Canadian medical marijuana company, Canopy Growth (CGC - Free Report) . The stake was worth $191 million. Rob Sands, the CEO of Constellation Brands, said that their company’s success is the result of identifying early consumer trends. However, according to Fortune, Constellation may plan to sell their drink product in Canada as well. This could mean future competition between the two companies, seeing as they will be releasing similar products in the same market.
However, not only does Molson have the Canadian market under its belt, but it also has the potential to have major exposure in the North American market, seeing as it is the number two beer seller in both Canada and the United States. Although there are risks of combining cannabis and beer industries, Chris Burggraeve, the former chief marketing officer at AB Inbev (BUD - Free Report) , said that companies who don’t include stoners in their marketing are going to be left in the dust.
Looking at the stock movement of Molson Coors and Constellation Brands, it’s clear that STZ has been doing quite better than TAP. Over the past year, shares of STZ have gained around 25% while shares of TAP of have lost over 20% in the same time period. STZ has also performed better than the S&P 500 as well, which has gained about 11.6% in the last year.
Currently, Molson Coors is a #5 (Strong Sell) on the Zacks Rank, with a VGM score of ‘D,’ while Constellation Brands is a #3 (Hold) on the Zacks Rank, with a VGM score of ‘B.’
What Does this Mean for Molson Coors?
Since Molson Coors’ main market is Canada, there could be some competition if Constellation Brands decides to distribute its cannabis infused beer in the same market. Even though a similar product has already been established by another brewing company, if Molson Coors can pull it off right, it will be the first company in Canada to release a cannabis infused beer product.
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