By Eric Vengroff, Financial Analyst, Cannabis Daily

Aug 2, 2018 –  The recent announcements a day apart by Manulife (TSX/NYSE/PSE: MFC SEHK: 945), Molson Coors Brewing Company (NYSE: TAP; TSX: TPX), and The Hydropothecary Corporation (“HEXO”) (TSX: HEXO), add continued fuel to the Canadian cannabis arms race and show conclusively what we already know.  Cannabis is on just about every corporation’s radar screen.  But consider the vastly different consumer paths and the widening conundrum Canadian government policy makers and consumers will have to face.

 

Cannabis as Medicine

On Tuesday, Manulife announced it will launch this fall the first medical marijuana program in Canada, in collaboration with Shoppers Drug Mart Corporation. The program will be available as an option for participating Group Benefits plans and individual health insurance plans in Canada. Manulife Financial Corporation is a financial and insurance giant in Canada and the U.S. with over a trillion dollars (CDN) under management.

It was announced that Shoppers Drug Mart, a subsidiary of Loblaw Companies, with over 1,300 drug stores in nine provinces, will have specially trained pharmacists, at an Ontario-based patient care centre, that will support Manulife customers who have been approved for medical marijuana coverage, giving them the guidance they need to have confidence in their choice of treatment. They will advise on the different strains of medical marijuana and the different ways to take it. Manulife customers will be able to have cannabis treatments covered under their Manulife Benefits plan.

Manulife customers will receive ongoing case management with pharmacists from Shoppers Drug Mart’s patient care centre supporting them through education, regular check-ins, counselling, and phone and email support.  More details will be forthcoming.  It will be interesting to see if Manulife will offer, or be able to offer, this benefit on their television commercials for extended health and dental policies, which appear to be directed to an older demographic.

Having many friends and colleagues who are medical cannabis users, and a supporter of what has been the only means that those desperate for legal access can employ in Canada, I would be the last person to resist these types of efforts on behalf of cannabis patients everywhere.   As I have stated in other editorial pieces, I only wish my father would have considered a cannabis option for pain, anxiety relief and appetite improvement during his cancer treatments, rather than relying on opioids that further nauseated him.  Insurance coverage might have been an incentive.   Would one be considered a smoker under such a policy?  Perhaps it will depend on one’s consumption medium.

Due to some of the confusing or delayed roll-outs of adult-use programs in some provinces, medical cannabis access is being suggested as a rational alternative to store or online access through provincially wholesaled retail channels.   I haven’t asked my 70-something G.P. how many weed prescriptions he’s written and for what strains.  Should prove to be an interesting conversation.

 

Cannabis as Entertainment

Yesterday’s statement by Molson Coors Canada, the Canadian business unit of Molson Coors Brewing Company (NYSE: TAP; TSX: TPX), and The Hydropothecary Corporation (“HEXO”) (TSX: HEXO), that they have entered into a definitive agreement to form a joint venture controlled by Molson Coors to develop non-alcoholic, cannabis-infused beverages illustrates another, inspired but seemingly incongruent approach by industry.  Cannabis as a substitute for alcohol. Cannabis as Entertainment.

The joint venture will be structured as a standalone start-up company with its own board of directors and an independent management team. Molson Coors Canada will have a 57.5% controlling interest in the JV, with HEXO having the remaining ownership interest.

The new joint venture will certainly not be about joints.  “Canada is breaking new ground in the cannabis sector and, as one of the country’s leading beverage companies, 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,” said Frederic Landtmeters, President and CEO of Molson Coors Canada.   HEXO is also looking for alternatives to smoking cannabis.  “HEXO continues to lead the way for smoke-free cannabis innovation in Canada. We are excited about this partnership with Molson Coors Canada, an iconic leader in adult beverages, as we embark on the journey of building a brand new market.” said HEXO’s CEO and co-founder Sebastien St-Louis.  A shout-out to each company’s respective legal and regulatory teams followed, along with a commitment to “develop responsible, high-quality cannabis-infused beverages for the consumable cannabis market in Canada.”   The transaction is slated to close before September 30, 2018 and is subject to the satisfaction of various legal and due diligence conditions.

Considering that drinkables aren’t being considered in the current round of legalized access and have not been explicitly noted in the expected round of edible cannabis legalization in 2019, this is a bold move, but one perhaps de-risked by some intel received.  The release states that ‘consumables’ are expected to be legally permissible in Canada in 2019.  Perhaps their directors, influencers, and legal experts will bring pressure to bear with the policy-types on this issue going forward.

Notwithstanding the current lack of standards, product or clarity in the area cannabis beverages, the beverage and cannabis industries seemed destined to link, as the public will demand answers as to whether pain-relief tea, jitter-free coffee, or hangover-free beverages are feasible commercial products.

 

Cannabis as Tobacco

It appears that neither of the above approaches to cannabis square with the government’s interpretation as to what cannabis is.  While recognizing and constitutionally protecting an individual’s right to cultivate and consume for medicinal purposes, and further recognizing that the median age of initiation of use of cannabis in Canada is 17 (meaning 50% start younger than this) the Canadian federal government is determined to keep cannabis out of the hands of young people, so that they don’t engage too early with the product and risk possible mental or physical harm immediately or later in life.   The rationale in treating cannabis as tobacco in order to keep Canadians healthy is commendable but some would argue that the comparison is not justified.  It is also at odds with the notions of the same product being medicinally beneficial and insurable, also fun enough to put into berry-flavoured coolers.  The federal government’s own survey in 2015 indicated past-year cannabis use by 12% of Canadians, which would suggest it is even less mainstream than a getting a garden-variety tattoo. The Deloitte report issued this year suggested 74 percent of them have had prior experience with recreational cannabis, and 41 percent have consumed it in the past five years. Consumption is expected to increase across the board.  The numbers are all over the place.

Now that everyone, from beer companies to pharmacies to insurance companies to coffee chains to mom, pop, and who-knows-who-else is looking for an angle to capitalize on cannabis-related sales, deep pockets and deep thinkers will have to out-think government and your wallet for the future of weed.  A sure a sign as any it’s corporate now.

The information and opinions presented here are that of the analyst and do not represent the thoughts and opinions of this website.  The analyst does not own  and does not represent any of the companies listed in this article and receives no compensation from any party mentioned in this article. Readers are urged to do their own research and due diligence and should seek advice from an independent financial advisor before making any financial investment.

 

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