FILE PHOTO: The logo of Dow Jones Industrial Average stock market index-listed company Coca-Cola (KO) is seen in Los Angeles, California, U.S. April 4, 2016. REUTERS/Lucy Nicholson/File Photo
By Uday Sampath Kumar, John Benny, and Martinne Geller
(Reuters) – Coca-Cola Co is closely watching the fast-growing marijuana drinks market as a possible entry that would expand the world’s largest soft drink maker’s ambitions further away from sugary sodas.
Coca-Cola announced its interest in a statement on Monday, responding to a report from BNN Bloomberg that said it was in talks with Canada’s Aurora Cannabis Inc to develop drinks infused with cannabidiol (CBD), the non-psychoactive chemical found in marijuana.
Coke would join a rush by major alcohol makers and a cigarette company to test the cannabis market and find partners ahead of the Oct. 17 launch of legal recreational marijuana in Canada.
Coke and Aurora, in separate statements, each said they were interested in cannabidiol-infused beverages but would not comment on any specifics or talks. Aurora’s stock soared 17 percent, while Coke’s edged up slightly.
The CBD drinks would likely aim to ease inflammation, pain, and cramping, the BNN report said Coca-Cola in talks with Aurora to develop cannabis drinks.
Wells Fargo analyst Bonnie Herzog called the news “an exciting potential development” as it would take Coke into another fast-growing healthier segment following last month’s $5.1 billion deal for Costa Coffee and expand cannabis-infused drinks in the area of functional wellness products.
The CBD products likely would be different from those produced by alcohol makers, which would likely give drinkers a buzz from tetrahydrocannabinol (THC), the main psychoactive chemical in marijuana.
Beer makers Constellation Brands, Molson Coors, and Heineken are all playing in the market for cannabis products. For example, Heineken’s craft beer Lagunitas recently launched Hi-Fi Hops, a beer-flavored sparkling water with THC and CBD.
“The THC beverages probably sit better with the beer makers, and maybe CBD fits better with Coke, in terms of playing off the health trend,” said Liberum analyst Nico von Stackelberg.
Cowen analyst Vivien Azer cited growing consumer interest in CBD and said its properties lend the ingredient well to a sports recovery drink. She said she would not be surprised to hear of a similar deal by PepsiCo for its Gatorade drink. Pepsi did not immediately respond to a request for comment on the cannabis market.
Besides Aurora, she said cannabis companies Tilray and Aphria were likely targets for partnerships with big consumer companies looking to get into the market.
Canada is the first major economy to legalize recreational marijuana, and shares in cannabis producers have rallied in anticipation. New Cannabis Ventures’ global cannabis stock index has risen about 87 percent over the past year.
Several U.S. states have legalized marijuana but it remains against federal law.
Sales in U.S. legal markets should nearly triple to $16 billion by 2020 from $5.4 billion in 2015, according to market research firm Euromonitor International, and Constellation says cannabis globally could be worth $200 billion in 15 years.
“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,” Coke said in its statement on Monday.
Cannabidiol is one of hundreds of molecules found in marijuana plants and contains less than 0.1 percent of THC. It does not cause intoxication.
There are already CBD drinks available in some markets, made by brands such as Dirty Lemon, Sprig, and Kickback.
Moving into this area carries a little reputational risk for Coke, said Liberum’s von Stackelberg.
“If they came out with a THC-infused drink, that’s a different question,” he said.
Aurora’s shares rose 17 percent while U.S-listed shares of fellow Canadian producers Canopy Growth Corp and Tilray Inc were up 2 percent and 9 percent, respectively.
(Reporting by Uday Sampath, Nivedita Bhattacharjee, and John Benny in Bengaluru, Martinne Geller in London; editing by Patrick Graham, Peter Henderson, and Dan Grebler)