Coca-Cola (NYSE:KO) could be interested in developing drinks infused with CBD, the non-psychoactive ingredient in marijuana that treats pain but doesn’t get users high. The beverage maker is in talks with Canadian marijuana producer Aurora Cannabis (NASDAQOTH:ACBFF) to develop the drink, according to Bloomberg.
Shares of Aurora surged after the news, but Coca-Cola shares barely budged. That’s because the development of a single new drink (even a cannabis-infused one) probably wouldn’t move the needle for Coca-Cola, though it could significantly juice up Aurora’s revenues.
In a statement to Bloomberg, Coca-Cola spokesman Kent Landers stated that the cannabis market was “evolving quickly” but that “no decisions” had been made about new products. Aurora stated that it occasionally engages in “exploratory discussions” with other companies, but hadn’t established any beverage partnerships yet.
Therefore, it seems like that many headlines about Coca-Cola selling marijuana-infused drinks are premature and misleading. Let’s take a look at why Coca-Cola and other companies would consider selling cannabis-based products, and why investors shouldn’t get too excited about those developments yet.
Pivoting away from slow-growth markets
Coca-Cola’s biggest long-term headwind is the decline of soda consumption rates across the world. Last year, Beverage Digest reported that soda consumption in the U.S. fell to its lowest point in more than three decades.
The same pattern can be seen in many countries, where health-conscious consumers are shunning sodas and other sugary drinks. That downturn was exacerbated by the introduction of soda taxes in a growing number of U.S. cities and overseas markets.
Coca-Cola’s main strategy has been to diversify its beverage portfolio with bottled water, teas, fruit juices, energy drinks, and other beverages. That’s why it bought a large stake in energy-drink maker Monster Beverage, agreed to acquire U.K. coffee chain Costa Coffee, and is reportedly mulling the purchase of GlaxoSmithKline’s malted milk brand, Horlicks. Coca-Cola also introduced new low-sugar and sugar-free versions of its flagship sodas.
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