One of the world's largest beer companies is jumping into the booming marijuana industry.
Molson Coors Canada announced this week that it is entering a joint venture with The Hydropothecary Corporation to produce non-alcoholic, cannabis-infused beverages.
Molson Coors will retain a controlling interest in the joint venture, and the deal is expected to close before September 30. The venture will be structured as a standalone company, with an independent board of directors and management team.
"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," Frederic Landtmeters, President and CEO of Molson Coors Canada said.
"While we remain a beer business at our core, we are excited to create a separate new venture with a trusted partner that will be a market leader in offering Canadian consumers new experiences with quality, reliable and consistent non-alcoholic, cannabis-infused beverages," he added.
Analysts watching the cannabis and beverage space called the deal a "historic milestone" for the Canadian cannabis industry.
"We believe that the merger of the cannabis and beverage industries hold great potential for investors looking to reap the benefits of innovation in the space," a group of analysts at Beacon Securities, a Toronto-based investment bank, said in a note.
Cannabis is set to be legalized in Canada on October 17, though cannabis-infused edibles and beverages won't immediately be available. Molson Coors expects cannabis beverages to be legal by 2019. The consulting firm Deloitte expects the Canadian cannabis market to exceed $4.34 billion in sales by 2019.
Molson Coors is the latest in a line of beer companies to enter the cannabis market. 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 last year.
A startup based in Nevada, Cannabiniers, is rolling out a line of cannabis-infused beers in Nevada in August.
And Lagunitas, a California-based craft beer company owned by Heineken, recently rolled out a cannabis-infused beverage .
Beer makers may be spurred to pursue deals in the cannabis space as research shows alcohol sales have slumped in US states where marijuana is legal.
Adults in states with legal cannabis binge drink an average of 13% fewer times per month than those in states without legal recreational marijuana, according to Vivien Azer, a cannabis industry analyst at the investment bank Cowen.
"As cannabis access expands, we expect further pressure on alcohol sales, given this notable divide in consumer consumption pattern," Azer said in a note.