Interesting Article Coke and Pepsi Could Be Cannabis Stocks, Too — if They Join the CBD Craze
Demand for CBD and related products is exploding. Piper Jaffray believes major beverage companies—such as Coca-Cola and PepsiCo —and cannabis producers look poised to benefit from this growth, whether they focus on infused beverages or other products that promote wellness goals.
The back story. Although Canada legalized cannabis in 2017, the road toward acceptance in the U.S. hasn’t been as easy. So far, individual states have taken their own approaches to marijuana legalization.
However, other cannabis-related products have blazed a trail, with last year’s legalization of hemp, and its key ingredient cannabidiol, or CBD. That has opened the door to major retailers selling CBD products, the potential for cannabinoid-based drugs, ongoing expansion for cannabis companies like Aurora Cannabis (ticker: ACB), and plenty of interest from investors. The Food and Drug Administration will be taking CBD under further consideration, too.
What’s new. Piper Jaffray analyst Michael Lavery took a look at the potential for CBD amid rapidly growing demand.
“It is a bit like gluten (consumers are unsure what it is), but the opposite: they know they want it,” he writes.
The FDA is holding a hearing on May 31. While at the moment the FDA doesn’t allow CBD to be added to foods or beverages sold interstate, in-state sales that abide by local law may skate by.
Even if the FDA doesn’t broaden the availability of CBD, Lavery believes big beverage companies like Coca-Cola (KO) and PepsiCo (PEP), which have local bottlers in every state, could easily sell CBD beverages legally. While neither beverage giant has stated it intends to enter the market, CBD is definitely on their radar.
A spokeswoman for Pepsi reiterated the company’s commentary from October, when the company said it was looking at the opportunity, but had “no plans at this point” to enter the cannabis market. Coke didn’t immediately respond for comment Friday.
HEXO Corp. (HEXO) also hinted that it could launch in as many as eight states where it believes CBD-infused products will be legal and in demand.
Looking ahead. Ultimately, Lavery estimates the national market for CBD could be worth between $3 billion and $6 billion in 2020, and as much as $8 billion to $15 billion in five years. Along with more recreational products, like drinks, health-related CBD and other cannabis products are another potentially huge growth area. There are ways for companies to skirt the FDA’s focus on CBD products with unsubstantiated health claims, Lavery notes.
“For example, CBD and melatonin together could be marketed as a sleep aid, as melatonin already supports a claim that it ‘Promotes Relaxation & Sleep,’ as on its packaging now. This likely has similar potential applications with caffeine for energy or glucosamine for joint pain, etc.,” Lavery says.
Lavery believes companies that are making inroads in CBD—such as Tilray (TLRY) and Canopy Growth (CGC)—also look well-positioned to benefit from this growing market, as well as any other companies that “can supply CBD at scale.”
Write to Teresa Rivas at teresa.rivas@barrons.com
https://www.barrons.com/articles/coke-and-pepsi-stock-could-be-cbd-stocks-too-if-they-join-the-craze-51556291348