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Coca-Cola Considering to Venture into Cannabis-Infused Drinks Market

byDenis on September 19, 2018

Coke could make a move into cannabis-infused drinks market.

In a statement delivered on Monday, Coke stated that it was “closely monitoring” the rapid CBD industry growth and it is considering a move into cannabis-infused drinks. This is a non-psychoactive compound found in marijuana, which offers numerous health benefits without causing any undesired effects. The CBD will be used as an ingredient in drinks that Coke referred to as functional beverages. Coke said, “The space is growing quickly, but we have not made any decision yet.”

As mentioned above, CBD is non-psychoactive component and thus it does not make the user “high.” Besides, the compound has been used in the recent years for multiple medical purposes like relieving pain, inflammation and nausea.

Bloomberg was the first to reveal Coke’s interest of moving into cannabis-infused drinks. It stated that Coca-Cola was in discussion with the Canadian cannabis company, Aurora Cannabis. According to reports, the company has also shown interest in venturing into cannabis drinks market. However, neither Coke nor Aurora would say anything about a possible deal.

Heather MacGregor, Aurora spokesperson, said, “There is a lot taking place in the field of cannabis drinks and we also believe that the venture has incredible potential.” “Such stories serve as a proof of the vast global potential in marijuana industry.”

According to reports, the maker of Casa Noble tequila, Corona beer and Svedka Vodka, Constellation Brands (STZ) last month announced that it is pumping an additional $4 billion into Canopy Growth Company, which is a Canadian cannabis company. Moreover, some Canadian cannabis firms, including MMNFF (MedMen Enterprises), Cronos (CRON) are now trading in the US stock exchanges. A number of American firms have taken stakes in the exchange market too.

The brewing giant brand, Heineken has already introduced a THC-infused drink in the market with Lagunitas as the craft label. The cannabis active compound is one of the main ingredients. Unlike CBD, THC is psychoactive compound and thus produces a high. The new THC-infused drink is available at marijuana dispensaries across the state of California.

But it is good to remember that under the U.S federal law both CBD and cannabis are still illegal, although some states have already decriminalized the use of marijuana. However, people are able to use CBD products since its prohibition is not strictly enforced as compared to marijuana. For instance, CBD-based products are available on Amazon (AMZN) from third-party sellers.

However, it is still unlikely to have a popular company like Coca-Cola provide CBD-infused drinks in the U.S until there is a change in the restrictive federal law. This is according to Kris Krane, an expert on cannabis law and president of 4Front, which is a firm that gives legal advice to companies on marijuana. He claimed that he expects Coke would introduce the product in Canada first and develop it while making it ready for the U.S market if the federal law is revised to decriminalize CBD.

Krane said, “I cannot believe they are thinking of venturing into cannabis-infused drinks for only 35 people in the Canadian market, they must be preparing for US market.”

Wells Fargo analyst, Bonnie Herzog believes that Coca-Cola could be in a better position to capture the U.S market share if Marijuana and CBD products are legalized. In a statement to Clients Monday, she claimed that Coca-Cola is placing itself in a better position for the long-term. Bonnie also estimates that CBD-infused drinks could grow to $50 billion that is almost half the total sales of U.S beer in the U.S market, which is $117 billion.

With the health concerns associated with soda, both Pepsico and Coke have been looking for ways to grow the businesses beyond conventional soft drinks since less people take traditional soft drinks. For example, Coke reported a deal to purchase Costa Coffee just last week for $5 billion.

Effects of the announcement on the stock markets

After the news that another giant beverage company could move into the industry, marijuana stocks soared. For instance, the Canada-based marijuana producer, Aurora Cannabis rallied more than 17% in Canadian trading after BNN Bloomberg reported the news that the Company is in talks with Coke to develop cannabis-infused beverages. According to the report, the partnership between the two giants would likely lead to the development of health-focused beverages with the aim of relieving pain, cramping and inflammation.

There was also a gain in other companies in the cannabis market, including Scott Miracle-Gro and Tilray on Monday after the report. Scotts Miracle-Gro climbed 2.99 percent while Tilray added 10.2 percent in U.S trading markets. In Canadian trading, Canopy shares increased by 2.99 percent.

However, the Coca-Cola is not the first giant beverage company to test water by venturing into marijuana industry, though the move in cannabis stocks is mainly headline-driven for now. As mentioned above, Constellation (the Corona beer maker) announced that it was looking to invest an additional $4 billion stake in Canopy Growth. Besides, in August, Molson Coors also stated that it was entering into a deal to introduce cannabis-infused beverages in Canada through its Canadian unit.

“Molson Coors Canada and The Hydropothecary Corporation (HEXO) Canadian cannabis producers are partnering to have a joint partnership to develop cannabis-infused beverages that are non-alcoholic for the Canadian market after the legalization of the use of recreational marijuana,” said the Denver.

Canadian has legalized the use of recreational marijuana with the law set to come into effect in mid-October. However, the use of marijuana is still illegal under the federal laws in the US, but a number of states have decriminalized it. The US FDA (Food and Drug Administration) approved the use of Epidiolex in treatment of epilepsy and it also includes CBD. This made it the first marijuana-based drug to be legally accepted in the U.S, which is a huge sign that the legislation might clear the regulatory hurdles in the future.

The headlines of Coke considering entering the entry have caused the stocks to soar. For instance, in the last one month, the Tilray shares have more than tripled and it only made its debut into the market in July while Canopy shares have doubled in Canada this year.