Rumors are flying about Coca-Cola considering a move into the marijuana business.
However, according to industry insiders, Coca-Cola and other beverage giants aren’t trying to get you high, but instead looking at drinks infused with CBD. While it might seem like a cop-out for companies to focus on nonpsychoactive cannabis ingredients, it could result in the creation of a new category of beverage.
“The question is: Is it going to be something akin to energy drinks — a new category that is trendy at first, that actually grows into a meaningful long-term business? Or is it going to be sort of a fad?” Duane Stanford, the executive editor of industry publication Beverage Digest, told Business Insider.
Stanford, along with a number of industry analysts, said that the news Coca-Cola was reportedly considering a deal with Canadian marijuana producer Aurora Cannabis didn’t come as much of a surprise. CBD is already a booming, $1 billion business, and it is being used as an ingredient in salves, oils, balms, and beverages, despite continuing legal questions.
“There’s a lot of confusion in the space about which CBD products are legal or not,” Business Insider’s Erin Brodwin reported earlier this year. “That’s made some CBD manufacturers skittish about selling products outside of states where marijuana is legal.”
However, with the legalization of marijuana on the rise, CBD’s reach is growing. For the beverage industry, that means the potential to create a completely new, mainstream category — a welcome opportunity as sales drop for massive soda brands like Coca-Cola and Pepsi.
A deal between Coca-Cola and Aurora Cannabis could “broaden the reach of cannabis-infused beverages into functional wellness categories, enabling KO to potentially one day ‘own’ the nonrecreational cannabis-infused beverage category,” Wells Fargo analyst Bonnie Herzog wrote in a notes to investors.
Insiders theorize that the new category would compete less with alcohol, and more with “functional wellness” beverages like sports drinks, enhanced waters, and energy drinks. Vivien Azer, an analyst at Cowen, proposed that a CBD brand could serve as a “good complement” to PepsiCo’s Gatorade franchise.
Not being involved in a new category is a fate that Coca-Cola and PepsiCo are eager to avoid. The industry giants missed out on getting into energy drinks until it was exorbitantly expensive to do so. By considering investments and partnerships now, the companies can avoid spending millions years down the road after the CBD beverage category has been cemented in the mainstream.
“Nobody wants to get left behind on the next big thing,” Stanford said.