Should Molson Coors Be in Your Cannabis Portfolio?

Molson Coors (TAP) traces its roots back to Montreal in 1786, when John Molson built the largest brewery in Canada. Today’s company is headquartered in Chicago and was the result of the 2005 merger of Molson with the Adolph Coors Co.

TAP’s portfolio is home to some of the most popular beverage brands, including Blue Moon, Coors Light, Fosters, Heineken, Miller Genuine Draft and Red Dog. The company’s newest offering is the ZOA energy drink brand created in partnership with Dwayne “The Rock” Johnson.

Although it has been a longtime staple among beverage industry stock, more recently TAP has been grouped with the cannabis stock sector after the company teamed with HEXO Corp. (HEXO) to create Truss CBD, a standalone entity specializing in cannabidiol (CBD)-infused beverages. The Truss CBD products are available for sale across Canada, while the company’s first U.S.-focused offering, the Verywell line of sparkling ready-to-drink CBD beverages, became available earlier this month for exclusive sale in Colorado.

Here’s how our proprietary POWR Ratings evaluates TAP:

Trade Grade: A

TAP is now trading at $50.68, which is closer to its 52-week high of $61.94 than its 52-week low of $32.11. TAP tumbled with the rest of the market in March when the coronavirus pandemic paralyzed the economy and started rebounded in early April before dropping later in the month following a dismal Q1 earnings report that acknowledged an 8.7% decline in net sales revenue. The stock mostly underperformed until getting a new boost of energy in early November following its Q3 earnings report.

Buy & Hold Grade: C

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The stock’s proximity to its 52-week high is a key factor in our Buy & Hold Grade, but TAP’s flirtation with the 52-week low territory for much of 2020 weighs against it with this measurement.

In its Q3 earnings report, TAP recorded a year-over-year decline in net sales revenue of 3.1% – and while that was disappointing, it was nonetheless an improvement over the 15.15 year-over-year plummet in net sales revenue from Q2. On the plus side, the Q3 Underlying EBITDA was $712.5 million, up 1.4% from the $702.6 million level set one year earlier.

TAP President and CEO Gavin Hattersley acknowledged that 2020 was a rough year for the company, but he insisted that “we met each challenge head on and we never lost sight of our goals or the path we set out on early in the year. Now we are showing what’s possible when we execute that plan and it’s our strategy that will allow us to reach further as we drive toward top-line growth.”

The Q3 earnings coincided with the first anniversary of the company’s revitalization plan, which pursued an aggressive three-pronged approach of building upon its celebrated brands while growing its portfolio and expanding beyond its iconic beer products into new lines – hence, the aforementioned CBD-infused drinks, along with non-alcohol products created by beverage incubator LA Libations LLC, an exclusive agreement with The Coca-Cola Company (KO) to manufacture, market and distribute the Mexican Topo Chico Hard Seltzer in the U.S., and a distribution deal for La Colombe’s line up of ready-to-drink coffees, among other endeavors.  

Peer Grade: B

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TAP ranks #17 of 41 stocks in the Beverages category. Considering the company’s history and portfolio, this ranking might be a tad too low. Nonetheless, it is up against serious competition with equally impressive portfolios and stronger revenue streams during 2020.

Industry Rank: B

The Beverages category is ranked #33 out of 123 stock categories, with an overall POWR Rating average of “B.”

Overall POWR Rating: B

Despite a wobbly stretch of 2020, TAP is on tap for a strong 2021, and it has properly earned the POWR Rating of “B” (Buy).

Bottom Line 

During TAP’s Q3 earnings call, Chief Financial Officer Tracey Joubert declared, “We will continue to be nimble, adapting to the environment to ensure we are achieving the highest possible return on our marketing investments, while supporting strong brand equity … Over the next few years, we plan to prioritize capital investment to include hundreds of millions of dollars to add significant capacity for our innovation, including seltzers and slim can capacity. Given the operating environment, we are very pleased with our third quarter financial performance, making another quarter of progress on our revitalization plan to drive long-term value creation.”

At the moment, this strategy appears to be taking the company on the right path. As the product portfolio stretches beyond the beer aisle, its stock should stabilize and strengthen as the year progresses. 

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TAP shares were trading at $50.67 per share on Thursday afternoon, down $0.47 (-0.92%). Year-to-date, TAP has gained 12.13%, versus a 2.66% rise in the benchmark S&P 500 index during the same period.

About the Author: Phil Hall

Phil is an experienced financial journalist responsible for generating original content on the weekly Fairfield County Business Journal and Westchester County Business Journal, plus their respective daily online news sites, podcasts and video interview series.  He is the winner of 2018, 2019 and 2020 Connecticut Press Club Awards and 2019 and 2020 Connecticut Society of Professional Journalists Award for editorial output. More…

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