Cannabis is catching a lot of attention this week following the news that even Coca-Cola is considering cannabis-infused drinks. While Coca-Cola isn’t the first company to consider tapping into the increasingly legal market, much like the tobacco company Altria (MO), home of Marlboro cigarettes, it is facing a waning market for its core sugary and artificially sweetened beverages as more consumers embrace healthy and better for you beverages and products that are part of our Clean Living investing theme. In recent months, we’ve seen a flurry of M&A activity as companies look to ride that Clean Living tailwind. Starbucks has taken to promoting its lower-calorie Cold Brew and tea products and is bringing its own kombucha product into its stores.
In some respects, Coca-Cola and Altria are looking to trade one Guilty Pleasure for another, while tapping into a new growth category that is benefitting from growing legalization of cannabis.
We are still in the early innings of the cannabis market, and odds are there will be much M&A activity to be had as those legal barriers continue to fall. If history holds, it means larger companies with the scale and scope to bring national distribution if not the international distribution will be those left standing in the coming years.
Coca-Cola Company is closely monitoring the rapidly growing marijuana-infused drinks market with the goal to take an entry to intensify its efforts to moving away from sugary sodas. This is part of Coca-Cola’s attempts to tap into markets outside its signature fizzy drinks in a bid to associate the brand with healthier options.
Earlier this week, Coca-Cola responded to a BNN Bloomberg report mentioning the company’s talks with Canada-based cannabis producer Aurora Cannabis to develop cannabidiol-infused beverages. Cannabidiol (CBD) is a non-psychoactive chemical present in marijuana.
Both Coca-Cola and Aurora denied sharing any specifics, but expressed their interest to enter the infused beverage market.
Coke isn’t the first beverage maker to notice the potential of cannabis-infused drinks. The constant change in consumer preferences has made the beverage industry look for new options, and cannabis-infused drinks attracted their attention too.
The inclination toward healthier drinks has made soda sales drop to its lowest level in more than 30 years in the United States, according to a Bloomberg report.
According to a report by BDS Analytics, sales of cannabis-infused drinks hit $35.6 million in 2017 across Colorado, California, Washington and Oregon with many states reporting rapid growth. This fast-growing segment of beverage industry bets on the health benefits of cannabidiol.
According to the American Cancer Society, CBD reduces inflammation and pain treats seizures and even inhibits rapid spread of cancer.
As more consumers switch their sodas for cannabidiol-infused beverages, it makes the segment extremely lucrative. Many brewing businesses such as Heineken HEINY-owned Lagunitas Brewing Company, Molson Coors Brewing Company TAP and Corona beer maker Constellation Brands STZ are coming up with variants of marijuana-infused drinks to emerge as the biggest players in the new industry.
After our recent podcast in which we talked with Bill Kelly from AgriCascadia about the cannabis industry, it comes as little surprise to us that Guilty Pleasure company Altria and others in the tobacco industry are “exploring” entry into the cannabis space. From our perspective, Big Tobacco has the manufacturing scale and distribution reach currently lacking in the cannabis industry. Odds are, however, we’ll need to see federal regulations against cannabis be lifted before M&A activity heats up.
Tobacco giant Altria, parent company of Phillip Morris and owner of many popular cigarette brands, is “exploring options” within the cannabis industry, company executives said Wednesday.
At the Barclays Global Consumer Staples Conference in Boston, Billy Gifford, Altria’s vice chairman and chief financial officer, and Murray Garnick, executive vice president and general counsel, fielded several questions from a Barclays analyst as well as an audience member regarding the company’s aims on cannabis.
Interest from mainstream consumer companies in the marijuana industry is at an all-time high, following several high-profile investments. Tobacco industry players have been eyeing marijuana since at least the early 1970s, according to documents unearthed by researchers at the University of California, San Francisco.
But so far, only alcohol-industry giants have gone as far as to invest in cannabis. Constellation Brands, for example, recently took a large stake in cannabis company Canopy Growth Corp.
There is reason to believe the Altria executives may be choosing to be deliberately coy.
Their predecessors recognized marijuana as an “alternate, and perhaps a superior, method of satisfying the needs that cigarette smoking satisfies,” according to an internal Philip Morris memo from 1970.
Since then, the company’s bottom line has been hit hard by public health laws that severely restrict and heavily tax cigarette use.
As Barclays’ analyst noted during Wednesday’s event, the tobacco industry is feeling the pain: Stocks in tobacco firms are down about 20 percent all-around, with Altria’s stock prices down 18 percent.
In 2016, after telling VICE that the company had “no plans to sell marijuana products,” Philip Morris International invested $20 million into Syqe Medical, a Israel-based company that produces 3D-printed cannabis inhalers.