Molson Coors Brewing (TAP) currently sells for about $55 a share. The beer-maker started the year at $57, rose to $66, and then tumbled right back down to the $50s.
This volatility comes on the heels of a disappointing 2018. Molson Coors’ saving grace could be the fact that the company took a chance on the cannabis market before any other major beer-maker. The company’s cannabis-infused beverages might not ever completely replace its traditional beers, yet the millennial age cohort certainly seems to favor marijuana-related items over regular alcohol.
The Decline of Alcohol
Prospective TAP investors should know alcohol is no longer as popular in the United States as it was years ago. Total alcohol sales volume in the United States decreased by nearly 1% in 2018 alone. This is the third straight year in which sales of alcohol have declined in the country. The bad news for Molson Coors is the brunt of the decline in sales is attributable to the reduced interest in beer. All in all, beer sales declined 1.5% this past year following a 1.1% decline in 2017. The moral of the story is alcohol consumption is declining. Thankfully, Molson Coors has an ace up its sleeve in the form of cannabis-infused beverages.
Molson Coors’ Marijuana Play
The executives at Molson Coors deserve praise for taking a risk on cannabis-infused beverages well before any other major player in the beer market. Though the alcohol industry is certainly declining in the coveted United States market, the cannabis industry is booming (where it is legal). Molson Coors announced a partnership with HEXO this past summer to provide the masses with cannabis-infused drinks. The revenue Molson Coors loses in beer sales will likely be made up with the influx of cash provided by its cannabis-laden drinks. The question is how quickly this phenomenon will occur.
Molson Coors is a Solid Value
Even if you do not use cannabis or alcohol, your pocketbook might stand to benefit from an investment in Molson Coors. Though Wall Street seems to have soured on value stocks, it must be noted TAP has a P/E ratio of a mere 7.9 across the past year of profits. In other words, it appears as though Molson Coors is undervalued. The question is whether we will see even the slightest semblance of an investor migration back to value stocks in the months and years ahead. At the moment, it seems as though few investors are willing to exit their positions in high-flying growth stocks in favor of solid values such as Molson Coors. If Molson Coors can decrease its debt in the years to come and replace lost beer sales with sales of cannabis-laden beverages, this might be a solid play.
About Those Bud Light Super Bowl Ads…
We would be remiss not to mention the fact that Bud Light ran several controversial commercials during this past Super Bowl insinuating Miller Lite beer contains corn syrup. Investors should not let this potential hangup stop them from considering a stake in TAP. Though some corn syrup is used when Miller beer is brewed, a small amount is necessary to feed the yeast. No corn syrup is leftover after the fermentation process takes place. Furthermore, there is a difference between regular corn syrup and the obscenely unhealthy high-fructose corn syrup used in soda and other tasty treats. The high-fructose variety of corn syrup is a top contributor to our nation’s obesity epidemic. Ironically, Bud Light suffered a decline in sales after its Super Bowl commercials aired. Savvy customers quickly learned Bud Light’s advertising strategies were quite misleading.
The Taste Test
Let’s get to what matters most: the taste of Molson Coors’ products. Give a Molson a swig and you will find it goes down smooth, yet does not have the same character as many of the emerging craft brews or the trendy Mexican beers. However, Coors Light will keep your waistline slim while giving you a buzz after a hard day at work. The main problem lies in the fact that Molson and Coors are aging brands likely to cede more market share to up-and-coming beer companies in the years ahead. The rise of the craft beer trend along with the influx of other new beers to the market will make it harder for TAP to grow or even retain its current customer base.
Buy, Sell or Hold?
Hold. Pay close attention to the progress of TAP’s cannabis-infused beverages. If the initial taste tests heap on the praise for its cannabis drinks, a position in TAP might prove prudent. However, the cannabis market is currently limited. It might take a few years for recreational cannabis to be legalized throughout the entirety of the United States and other major markets across the globe.
Regards,
Ethan Warrick
Editor
Wealth Authority
