Molson Coors Brewing Company (TAP) $68.64 has decided that cannabis drinks will be the next big thing. For TAP, formerly known as Adolph Coors Company, one of the largest beer company in the world, to embrace cannabis sends a loud positive signal. A deal with Hydropothecary Corporation ( HYYDF), a small Canadian public company, to supply the source materials has caused its stock to jump 21%. The joint venture to develop cannabis-infused beverages established a long-term flood for alternative cannabis products.
Good news when you consider the unwarranted expectations that the mere growing of marijuana will make you rich.
Our Subjective Probability Model (SPM) forecast in 2014 when various states legalized recreational marijuana would warrant huge demand, only for the industry to facing a glut of cannabis production. Indeed, supply and demand uncertainties had reduced the value of cannabis acreage, with further declines in the foreseeable future. Lofty sales projections had driven pot-stock to unrealistic prices only to crash to earth with billions of dollars in losses.
In less than three months, Canada will be the first industrialized nation in the world to sell adult-use cannabis. That fact caused U.S. investors to pour over $300 million in cannabis projects and public companies. Whether these investment works are less than sure. Significant uncertainties are probable with legalizing adult-use weed in a market as large as Canada. Namely, the supply-and-demand outlook suggest negative cash flow for the next five years and close to zero profits. While demand should be healthy, the consensus is not absolutely sure how much cannabis will be purchased each year. Equally, supply prospects have been unbelievably fluid. With growers expanding as quickly as their balance sheets would allow in the first half of the year, SMP projects oversupply will wreak havoc on the industry by as early as 2020.
You don’t need far to go to determine the negative trends. Marijuana oversupply and harmful margin in California, Colorado, Washington, and Oregon demonstrate that per-gram dried flower prices tend to be commoditized and fall quickly not too long after the substance becomes legal. Marijuana stocks are not worth the paper to print them, with the market caps in the billions of dollars and no likelihood for profitability.
We continue to advise our partners that the focus must remain on alternative cannabis products, which have superior cash flow and profit margins than traditional dried flower crops. Infused beverages, oils, edible and cannabis "trademarked" products.
Molson Coors Brewing Company (TAP) is on the right track and the reason why alternative cannabis products have garnered the full attention of the alcohol industry.