Molson Coors bets on pot with cannabis-drink joint venture

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Toronto-based Molson Coors announced Wednesday that it would be entering into a joint venture with Canadian cannabis company The Hydropothecary Corporation (HEXO) to produce and sell alcohol-free cannabis drinks as marijuana legalization fully engages in the country. The venture will be structured as a standalone company, with an independent board of directors and management team. Molson will own 57.5 percent of the venture, while Hydropothecary holds 42.5 percent.

Hydropothecary would own the rest.

Closing of the transaction, which is targeted to occur before September 30, 2018, is subject to the satisfaction of certain conditions.

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The move follows an announcement previous year by Constellation Brands, which revealed it would will pay CAD 245 million ($191 million) for a 9.9% stake in Canopy Growth Corporation, a Canadian supplier of medicinal marijuana, paving the way for it to launch a series of cannabis-infused alcoholic drinks.

The brewer is the latest to capitalize on Canada's decision to legalize recreational marijuana later in the year, a market industry watchers say could be worth $5 billion to $10 billion.

Molson Coors' foray into the Canadian cannabis market comes about nine months after Constellation Brands purchased a 9.9 percent stake in another Canadian cannabis company, Canopy Growth Corporation (WEED), for $191 million.

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Beer makers may be spurred to pursue deals in the cannabis space as research shows alcohol sales have slumped in U.S. states where marijuana is legal. "Visibly intimidated, insular, and inherently conservative, large parts of the alcohol industry acknowledge and highlight the dangers to their penetration rates and profitability, but largely fail to see the huge potential behind the plumes of hazy smoke". Constellation Brands, the beer giant behind Corona, paid $191 million for a 9.9% stake in Canopy Growth, a Canadian marijuana producer, in October of previous year.

Recreational marijuana is set to become legal in Canada on October 17, but edible products infused with pot - including beverages - will remain illegal until specific government regulations are rolled out in 2019 at the earliest.

The Hydropothecary Corporation works in the medical cannabis space in Canada, and while it now operates with 300,000 sq ft of production capacity a 1,000,000 sq ft expansion is set to be complete by the end of the year.

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Its stock closed up 11.03 per cent or 0.48 cents to $4.83 on the Toronto Stock Exchange. The company reported $1.88 earnings per share for the quarter, beating the Thomson Reuters' consensus estimate of $1.83 by $0.05.