Coca-Cola is eyeing a deal in the marijuana industry, more on the way

Bottles
of Coca Cola sit on a shelf in a market in Pittsburgh, Wednesday,
Aug. 8, 2018.
AP Photo/Gene J.
Puskar

• Coca-Cola is reportedly
  eyeing a deal to produce beverages infused
  with cannabidiol (CBD), a non-psychoactive ingredient in
  marijuana.
• Marijuana industry investors and insiders say it’s a
  sign that major CPG corporations are looking at getting into
  the sector.
• Coca-Cola is the latest in a long line of beverage
  giants to
  pursue deals in the marijuana industry. 

Coca-Cola is
reportedly eyeing a deal to produce beverages infused with
cannabidiol (CBD), a non-psychoactive ingredient in marijuana.

It’s yet another sign that big corporations — and institutional
firms — are warming up the nascent sector as retail investors
snap up cannabis stocks. 

Though neither Coca-Cola nor its reported partner Aurora Cannabis
confirmed a deal was in the works, the beverage giant’s interest
is the latest in a long line of traditional beverage companies
who are looking to marijuana as a way to boost
sluggish soda and beer sales. 

In August, Constellation Brands — the beermaker behind Corona and
Modelo — paid $4 billion for a 38% stake in the Canadian
cultivator Canopy Growth. Lagunitas, Heineken’s
popular California-based brand, recently developed
a hoppy,
THC-infused sparkling water. Molson Coors recently
entered a joint
venture with Hexo, a publicly-traded cultivator, to
produce marijuana-infused beer for the Canadian market,
among other
deals.

“The news that Coca-Cola is
seeking a way to participate in the cannabis beverage market is
not surprising at all,” Jon Trauben, a partner at the
New York City-based Altitude Investment Management, told Business
Insider. “I think the bigger question is the extent to
which all of the major global beverage companies are planning to
participate.”

To that end, Vivien Azer, an
analyst at Cowen, said in a note to clients that she “would not
be surprised” to hear of a deal between PepsiCo and a cannabis
company. CBD, which is known to have anti-inflammatory
properties, would be a “good complement” to PepsiCo’s Gatorade
franchise.

Mitch Baruchowitz, the managing
partner of Merida Capital, a cannabis-focused private equity
fund, said pursuing an “undeveloped space” like CBD-infused
beverages is a “great opportunity to be early, which is not
something Coke sees often.”

Baruchowitz said he expects
Coca-Cola will pursue a joint venture, similar to Molson Coor’s
agreement with Hexo, as the beverage maker has no expertise in
the CBD space.

CPG companies are knocking at marijuana’s door

As more mainstream corporations
signal their interest in marijuana, industry insiders said they
expect more consumer packaged goods (CPG) companies to explore
deals.

“First it was pharma, alcohol,
and tobacco, now we’ll see food and beverage, health and beauty,
over-the-counter and likely every other consumer product players
making moves,” Linda Gilbert, a managing director at BDS
Analytics, a cannabis research firm, said.

Joseph Lusardi, the CEO of Curaleaf, agreed.

“The involvement of an industry
leader like Coca-Cola, with arguably the best-known brand in the
world, both validates and highlights the market potential of the
cannabis industry,” Lusardi said. “We would expect to see similar indications of
interest across the mainstream consumer packaged goods industry,
as these mature companies look to breathe new life into new
brands and expand into new categories.”

Challenges still remain for
corporations looking to jump into marijuana. For one, banks are

unwilling to lend money to companies that deal with
marijuana, as the plant is federally illegal in the
US. 

Coca-Cola would also have a
difficult time marketing a CBD-infused product in the US unless
federal laws change.

“The challenge remains that until
the U.S. government de-schedules cannabis, companies like
Coca-Cola will be hamstrung to produce innovative cannabis
products with American operators,” 
Kevin Murphy, the CEO of Acreage Holdings,
said.  

Coca-Cola.

Paul
Reynolds/Flickr

The fact is, “the legality of
selling CBD products in the US is still murky,” Kris
Krane the president of 4Front Ventures, a firm that
invests and manages a network of marijuana dispensaries across
the US said. 

Perhaps because of marijuana’s federal status in the US,
Coca-Cola’s reported target, Aurora Cannabis, said in a Tuesday
statement that there was “no agreement or understanding” with the
beverage giant yet, but confirmed it has engaged in
“exploratory discussions.”

Coca-Cola said in a statement “we have no interest in marijuana
or cannabis,” but added: “We are closely watching the growth
of non-psychoactive CBD as an ingredient in functional
wellness beverages around the world.” 

CBD’s legal status could change
if Congress passes the 2018 Farm Bill. Senate Majority Leader
Mitch McConnell attached the Hemp Farming Act to the bill, which
would remove low-THC (the psychoactive substance in marijuana)
marijuana from the Controlled Substances Act, effectively
legalizing both hemp and CBD extraction in the US. 

“If the Farm Bill passes, this
market would open up in the U.S. almost overnight, creating
immediate retail opportunities domestically,” Bethany Gomez, the
director of research at Brightfield Group, a cannabis market
research firm, said. 

CBD is linked to a range of health benefits and was
recently approved by the FDA for use in an epilepsy drug.
It’s also become something of a health-food staple as of late,
showing up in products like teas, candies, and beverages. 

To some cannabis industry CEOs, Coca-Cola’s interest in the
sector is a welcome sign that things are just getting started.

“We are seeing high profile
companies, in addition to institutional investors, waking up to
opportunities in the space,” Ben Kovler, the CEO of the
publicly-traded Green Thumb Industries said. “We believe we are
still in the early innings of this industry in the US.”