Marijuana: Coca-Cola’s Next Market

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Marijuana: Coca-Cola’s Next Market

Some investors may remain wary of public marijuana companies since the drug is illegal federally in the US, but the ongoing slow-motion legalization of the drug at the state level is starting to touch other industries. For example, there’s liquor company Constellation Brands’ $4 billion investment in Canadian cannabis company Canopy Growth, which we highlighted a few months ago. Then there’s also Molson Coors Brewing’s collaboration with Hydropothecary to also make cannabis-infused drinks.

Now Coca-Cola is in the mix, reportedly in talks with Canadian marijuana company Aurora Cannabis to create marijuana-infused beverages. The idea, however, is not to develop drinks that deliver a high, but rather to relieve pain, inflammation and cramping. How can they do that? Here’s some background:

  • Psychoactive vs Non-Psychoactive Compounds: When people think of marijuana, they typically associate it with the kind that makes people high. Two of the most prominent natural compounds in the plant, however, have different physical effects. The most commonly known is tetrahydrocannabinol (THC) which is the psychoactive compound that produces a high. By contrast, cannabidiol (CBD) is a non-psychoactive compound and does not produce a high like THC.
  • Marijuana vs. Hemp: There is also a difference between marijuana and hemp, which are both subtypes of the cannabis plant. Hemp contains mostly CBD and negligible traces of THC, whereas marijuana has a higher concentration of THC. Senate Majority Leader Mitch McConnell introduced a bill to legalize industrial hemp as an agricultural product this year, which would remove it from the federal list of controlled substances so it can be grown and sold. Until that passes, whether CBD products are legal is a little murky as hemp has traditionally been regulated as a controlled substance like marijuana.
  • Potential Medicinal Properties: Proponents of CBD claim it has many therapeutic benefits without making users high. It has been used to treat everything from seizures, pain/inflammation and nausea to anxiety/stress, depression and migraines, for example. That said, there’s little research to back up these claims. Given that marijuana is classified as a Schedule 1 drug by the DEA, it is not easy to test in labs. Even still, the FDA approved the first prescription medication to use CBD last June called Epidiolex, which treats rare forms of epilepsy.
  • CBD Products: CBD often comes in the form of oil, but the product variety continues to grow. Products with this compound range from food (i.e. chocolate or gummies) and beverages (i.e coffee) to lotions and supplements, etc. I personally saw CBD products on the shelves of Whole Foods this past week in NJ (where recreational marijuana is not yet even legal on a state level), including lotions, toners, face masks and creams.

Bottom line, CBD is a very important market opportunity for companies like KO, where their existing offerings show little growth and consumer preferences continue to shift. Hemp is also much closer to national legalization than cannabis. As such, a spokesman from Coca-Cola told BNN Bloomberg that “along with many others in the beverage industry, we are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world. The space is evolving quickly. No decisions have been made at this time.” In other words, get ready for more deal announcements between beverage and marijuana companies going forward.