HEXO HEXO Corp

By Jennifer Maloney 

Molson Coors Brewing Co. is turning to cannabis drinks in search of growth as the No. 2 U.S. brewer reported another quarter of weak beer sales.

The company said it is forming a joint venture with The Hydropothecary Corp., a Canadian cannabis producer, to develop non-alcoholic, cannabis-infused beverages for the Canadian market.

The brewer's pivot follows similar moves by Corona brewer Constellation Brands, which last year invested in Canadian cannabis company Canopy Growth with plans to develop beverages, and Heineken NV, whose Lagunitas brand this week launched a cannabis-infused sparkling water in California.

The decline of American light lagers like Miller Light and Coors Light continues to hurt Molson Coors. Its global volumes fell 2.4% in the second quarter, driven by declines in the U.S. and Canada. In the U.S., beer volume dropped 4.8% and revenue decreased 3.1%.

Recreational marijuana use in Canada will be legal in mid-October, and edible and drinkable cannabis products are expected to be legalized there by 2019. Independent research firm Euromonitor International estimates that legal marijuana sales in 2018 will total US$7.5 billion in Canada and $10.2 billion in the U.S.

In the joint venture, Molson will have a 57.5% interest in a standalone startup company with its own board of directors. The Hydropothecary, also known as Hexo, will have the remaining ownership interest.

Frederic Landtmeters, CEO of Molson Coors Canada, said in a news release that the cannabis venture is consistent with its growth strategy of creating "high-quality products that meet [consumers'] evolving drinking preferences."

Meanwhile, the company said it is "aggressively addressing" its beer volumes in North America.

As consumers migrate from beer to wine and spirits, U.S. beer-industry executives have been debating whether legalized marijuana could cannibalize sales of beer. And they've considered ways to invest in cannabis without running afoul of U.S. regulators.

Startup company Cannabiniers in August plans to launch a de-alcoholized, THC-infused-beer brand called Two Roots, in Nevada.

Constellation chief Rob Sands in June said his company is looking closely at the new Lagunitas Hi-Fi Hops brand and examining whether Constellation could bring to the U.S. the cannabis-infused beverages it is developing in Canada.

"There may be things that we can do," he said on a call with analysts. "And we will do them if we can do them [and they are] not violative of federal laws."

Write to Jennifer Maloney at Jennifer.Maloney@wsj.com

(END) Dow Jones Newswires

August 01, 2018 10:28 ET (14:28 GMT)

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