Molson Coors Canada and HEXO Make A Cannabis-Infused Agreement

Molson Coors Canada and leading Canadian cannabis producer, The Hydropothecary Corporation (TSX:HEXO), announced a joint venture earlier this week. Molson Canada is the Canadian arm of beverage giant Molson Coors Brewing Company (NYSE:TAP)(TSX:TPX), and HEXO is a recognized leader in Canadian medical cannabis. Together they will develop a line of non-alcoholic, cannabis-infused beverages.

The announcement comes just in time for the impending October 17 date for Canadian recreational cannabis legalization. The Molson-HEXO deal is structured as a standalone start-up company, complete with its own management team and board of directors. Molson Coors Canada will retain the majority controlling interest with a 57.5 percent ownership stake.

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The new company combines Molson’s experience in the beverage industry with HEXO’s track record for innovation in the cannabis sector. Indeed, Molson is Canada's leading brewer, and HEXO is a major player in Canadian cannabis. Together, they are set to enter the consumable cannabis market, likely to be legal in Canada in 2019.

Leading up to August, rumors circulated regarding a possible Molson Coors partnership with companies like Aphria and Aurora. Molson has been in serious talks with several Canadian-based cannabis companies. Industry analysts speculated that an August 1 timing might be right for the announcement, and it turns out, they were right on the mark.

President and CEO of Molson Coors Canada, Frederic Landtmeters, issued this statement about the joint venture: “Molson Coors Canada has a unique opportunity to participate in this exciting and rapidly expanding consumer segment. This new venture is consistent with our growth strategy and our commitment to being First Choice for Consumers and Customers by ensuring that Canadians have access to high-quality products that meet their evolving drinking preferences.”

Landtmeters went on to say that while beer will certainly remain as Molson’s core business, the company is thrilled to be creating a separate new beverage venture. They described HEXO as a trusted partner and market leader in offering cannabis to Canadian consumers, citing HEXO’s “robust production capacity, track record of innovation, and, most importantly, shared values when it comes to doing business the right way and earning the trust of consumers.”

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HEXO has been and continues to be an innovator in bringing smoke-free cannabis products to the Canadian market. HEXO shares the same joy about the joint venture, describing their new partner Molson as “an iconic leader in adult beverages.” HEXO co-founder and CEO Sebastien St-Louis described the merger as a meeting of two eras—“bringing together Quebec's oldest, most established company with one of its newest success stories in a truly innovative partnership.”

Molson Coors Canada is headquartered in Toronto and is indeed North America's oldest brewer, with sales that capture about one-third of the total Canadian beer market, selling brands like Coors Light, Belgian Moon, Molson Canadian, and several others. The company has strategic distribution companies with Heineken, among others, and partnership arrangements with large Canadian distributors.

HEXO is one of Canada’s lowest-cost producers of medical cannabis products, and the company is rapidly expanding into the recreational market by expanding their current 300,000 sq. ft. of production capacity by adding 1 million more square feet by year’s end. HEXO is the recreational brand, while the parent company will continue to serve its medical cannabis clients through the well-known Hydropothecary brand.

St-Louis went on to say that the companies share “a track record of excellent practices, as well as respect for law and regulations,” and a relationship built on trust that will develop high-quality, responsible cannabis-infused beverages for Canadians.

The transaction is expected to close before September 30 on the Toronto Stock Exchange. When the closing occurs, HEXO will issue warrants to purchase shares of HEXO to Molson Coors.