Does the Aphria Merger Make Sense?
The legal marijuana industry is abuzz with news of partnerships between big alcohol and big pot. The marriage of vices makes a lot of sense on paper. After all, as the adage goes, when you can’t beat ’em, join ’em.
But one potential partnership, between marijuana company Aphria Inc (OTCMKTS:APHQF, TSE:APH) and alcohol company Molson Coors Brewing Co (NYSE:TAP), has spurred a lot of questions. Namely, “Is this a good move?” and “What will the impact be on the Molson Coors stock forecast?”
In my mind, these kinds of mergers are generally a good thing for all parties involved.
On the one hand, you have massive alcohol corporations with huge resource bases to help fund marijuana companies’ development.
On the flip side, the alcohol companies gain entry into a new and exciting market that could otherwise challenge its own future sales and profits.
After all, there is sure to be a drop in alcohol consumption as marijuana becomes legal in more jurisdictions, since some people prefer the green herb to the old fermented wheat and barley.
So there’s definitely reason to be excited about these mergers, especially in terms of the Molson Coors stock forecast.
Compared to other marijuana companies, as shown in the stock chart below, TAP stock has been getting crushed in 2018. It is down about 22% on the year, so a possible deal with Aphria is exactly the type of risk I like to see from a flagging stock.
The stock chart below shows the performance of Canopy Growth stock (in black), Aphria stock (in blue), Constellation Brands stock (in red), and Molson Coors stock (in green).
Chart courtesy of StockCharts.com
Furthermore, with legal marijuana on the rise, many alcohol companies are looking for ways to avoid being too badly hit by the green rush.
The latest Molson Coors earnings report showed a decline of 4.8% in net sales year-over-year, so this partnership might be just what’s needed. (Source: “Molson Coors Reports 2018 First Quarter Results,” Molson Coors Brewing Co, May 2, 2018.)
I may have spoken too soon when I said TAP stock was being crushed, however. Compared to Aphria, Molson Coors looks like a first-place finisher.
Down about 46% year-to-date, Aphria stock needs to swing for the fences in order to remove itself from the funk it has been shrouded in this year.
For APHQF stock, the partnership is worth a try. At this point, almost anything is worth trying, considering how poorly the stock has performed in 2018.
I’m not quite sure how much of an impact the deal will have on the Aphria stock price, but at this point, the company needs to try something in order to turn its stock performance around.
A recent example of a marijuana company teaming up with an alcohol company is Canopy Growth Corp (NYSE:CGC) partnering with Constellation Brands, Inc. (NYSE:STZ). That deal was valued at CA$245.0 million and contained hints that the two companies would work together on cannabis-based beverages.
Canopy Growth and Constellation Brands partnered in late 2017 during a massive marijuana bull rush, so it’s hard to tell how much of a long-term impact the Canopy Constellation partnership has had on Canopy Growth stock.
While TAP stock has been getting killed in 2018, STZ stock has been having a mildly weak year, only down about four percent. While not a great performance by any standard, four percent down is negligible compared to 22%.
It remains difficult to find a clear precedent for how impactful the deal with Molson Coors will be on the Aphria stock price. Regardless, Aphria Inc needs to make a move in order to rescue its stock price, and a deal with Molson Coors may be just the ticket.
With Canada’s marijuana legalization date approaching, Aphria stock already has a major positive news event baked into 2018. The Molson Coors deal may help differentiate Aphria from rival companies and attract investors, but it’s by no means a certainty.
Molson Coors Stock Forecast
If I had to judge which company will benefit more from a partnership between Molson-Coors and Aphria, I’d put my money on Molson Coors.
While Aphria—by nature of its size and the market it operates in—has more potential to see massive growth, it’s also the riskier pick of the two companies. Just take a look at this year’s performance if you need proof.
The Molson Coors stock forecast, meanwhile, will be greatly helped by the company entering the marijuana sector. This may be what it needs to turn its revenue woes around and increase its market share.
Depending on how successful marijuana-infused beverages become, this could be a huge win for the alcohol company.
Furthermore, as I said earlier, Constellation Brands has not faced the difficulties that Molson Coors has in 2018. How much of that is due to the Constellation-Canopy partnership remains to be seen. Still, at this point, it can likely only help.
I’m not particularly bullish on the Molson Coors stock forecast, however—even if an Aphria deal takes place.
Molson Coors operates in a slowing industry that is under threat from the expanding legal marijuana sector. While it is entirely possible that the company turns things around, I’m not sure I’d pull money out of weed stocks for alcohol stocks just yet.
The answer to the question “Does the Aphria merger make sense for Molson Coors?” is a resounding yes.
There are only a few ways this deal could turn bad, but there are many ways it could help the two struggling companies.
But there’s another question worth asking: “Will this be enough to revive the two companies’ stocks?” That answer is less clear.
Both companies have had ample time to stage comebacks in 2018, yet both have been unable to steer out of the months-long skid they’ve been on.
The Molson Coors stock forecast and Aphria stock forecast both would look brighter as a result of a merger, but I’m not sure I’d be too ready to hop on either stock just yet.