Just when you thought the marijuana sector was loosing its momentum, Canada became the second country in the world to legalize the drug late last month. And now your favorite beer companies are getting in on the trend.
Last October, the maker of Corona and Modela beers—Constellation Brands (NYSE: STZ)—took a nearly 10% stake in Canada’s largest cannabis company, Canopy Growth Corporation (NYSE: CGC). Together the companies will be developing marijuana-infused beers for the two popular beer brands.
But on June 22, Bloomberg reported that another beer maker may be getting in on the action.
Now that Canada has legalized weed, and as legalization in the U.S. is gaining steam, Molson Coors Brewing (NYSE: TAP) is having talks with several Canadian-based marijuana companies with the intent of collaborating on cannabis-infused beverages.
This should be a good move for Coors as sales of American beers are declining and taking beer-maker stock prices down too. With shipments of beer down 3.5% in the last year, its clear that there just isn’t as much interest in legacy brands like Coors.
But weed-infused offerings could be the spark the company needs to boost sales. According to Charles Taerk, CEO of Faircourt Asset Management in Toronto, the combined medical and recreational marijuana market may be worth as much as $7.7 billion in the next five to seven years in Canada alone, and there are studies that note that sales of cannabis-infused beverages will outdo sales of soft drinks in convenience stores by 2030.
Coors has spent the first half of this year talking with several major marijuana companies—including Aphira Inc. (OTC: APHQF; TSX: APH.TO) and Aurora Cannabis (OTC: ACBFF; TSX: ACB.TO)—about entering the space through a collaboration.
“We have assembled a team in Canada to actively explore the risks and opportunities of entering the cannabis space in that market, where it will be federally legal by this fall,” said CEO Mark Hunter at an investor presentation at the beginning of June.
As the No. 2 beer seller in both Canada and the U.S., Coors would have significant exposure to the North American marijuana market with a deal. And the most attractive targets for the company will be partners of scale to ensure it has enough supply in the market – which Aphira and Aurora Cannabis can both offer.
Let’s take a look at both companies.
“We’ve said specifically we’re interested in the infused beverage space and we do intend to enter that market.” That’s a statement from Aurora Cannabis’ Chief Corporate Officer Cam Battley, so it’s clear the company is eager to break into the space.
The company is already massive and has grown through at least 14 acquisitions in the last two years as it seeks to “create a preeminent global cannabis company.”
One of its most recent acquisitions was of Anandia Laboratories Inc. for $88 million which gives Aurora exclusive rights to some cannabis genetics, plant breeding, and an R&D laboratory in Vancouver with a separate lab and greenhouse in the works in Comox, British Columbia.
“The strength of Anandia’s expert staff, proprietary assets and know-how will provide Aurora with a very significant advantage in developing new cannabis cultivators,” said Aurora and Anandia in their joint statement.
The company also recently purchased Ontario-based MedReleaf in a deal valued at $2.5 billion. With MedReleaf’s annual production of 140,000 kilograms, Aurora’s anticipated annual yield jumps to 570,000 kilograms, which puts it at a production capacity that rivals Canopy Growth Corp.
Aurora has extensive distribution channels in Canada and internationally and boasts phenomenal revenue growth rates, posting roughly 200% year-over-year growth as demand for medical marijuana has exploded.
Aurora is definitely a marijuana stock that should be on your radar.
Aphria is a low-cost producer of medical marijuana in Canada that is poised to dominate the future recreational marijuana market.
The company produces dry cannabis and cannabis oil that are sold through its wholly licensed subsidiary, Pure Natures Wellness.
Its revenue growth is comparatively lower than Aurora Cannabis and Canopy Growth, but it generates strong profits where its peers struggle to break even. Aphria has even delivered ten consecutive quarters of positive EBITDA due to its low cost of production.
And as the company continues to scale up, it should experience economies of scale which will likely further reduce its production costs giving the company a massive advantage over other cannabis companies.
The stock is down nearly 40% year-to-date, which may be a great buying opportunity for investors should Molson Coors partner with the company.
A partnership between the two would significantly increase Aphria’s profile, and could push the stock price past its January highs – or up nearly 120% from today’s prices.