Coca-Cola (NYSE: KO) is reported to be interested in following in other beverage makers’ footsteps as it looks to partner with a cannabis company to produce a beverage infused with CBD, the non-psychoactive ingredient in marijuana that treats pain but doesn’t get you high.
“We are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world,” Coca-Cola’s spokesman, Kent Landers, said in a statement to Bloomberg News. “The space is evolving quickly. No decisions have been made at this time.”
Constellation Brands partnered with Canopy Growth (NYSE: CGC) last fall and increased its stake in the marijuana giant last month. It was reported early this summer that Molson Coors was looking for a partner in the space. The company recently announced that it was starting a joint venture with Quebec’s Hexo’s Corp.—formerly Hydropothecary Corp.—to develop cannabis-infused drinks.
It’s also rumored that the makers of Guinness and Heineken are also looking to partner up in the space to create their own beverages.
Unlike these other beverage makers, which are planning to make cannabis-infused drinks that give drinkers a buzz, Coca-Cola is likely planning to make a beverage that would ease inflammation, pain, and cramping.
“It’s going to be more of the ‘recovery drink’ category,” a source told BNN Bloomberg.
As consumers’ tastes have changed and people have ditched sugary sodas in favor of more natural and healthy beverage options, Coca-Cola has been trying to diversify into other beverage types and rebrand some of its major products, including Diet Coke.
Late last month, the company acquired the U.K. coffee chain Costa for $5.1 billion, it’s first foray into the highly competitive coffee market, and has expanded into other beverages including tea, juice, and mineral water over the last few years.
A play in the cannabis-infused beverage space would be a groundbreaking moment for one of the world’s most iconic brands, and these two companies look like the most likely candidates for Coca-Cola to partner with.
The stock jumped as much as 23% on Monday after the news broke, and is currently up nearly 48% for the week.
We’ve talked about Aurora Cannabis before, and it’s no wonder why Coca-Cola would consider the company. Aurora Cannabis is expected to produce 570,000 kilograms annually at peak production capacity, making it the biggest producer in Canada and ensuring it has more than enough capacity to attract a major partner like Coca-Cola.
The company has also grown substantially over the last two years through at least 14 acquisitions. These acquisitions have racked up debt amounting to around $160 million, though this debt is offset by cash and equivalents of $223.6 million.
Aurora is also very well positioned with its extensive distribution channels throughout Canada as well as internationally. And it has already shown interest in partnering on a cannabis-infused beverage.
“We’ve said specifically we’re interested in the infused beverage space and we do intend to enter that market,” Aurora’s Chief Corporate Officer Cam Battley said recently. Coca-Cola may well prove to be the right partner for an infused beverage, and the drink maker’s brand recognition could help to make Aurora Cannabis a household name.
While the news this week makes Aurora Cannabis look like the likely partner for Coca-Cola, it’s probably not the only marijuana company on the beverage giant’s shortlist.
Aphria is the third largest producer in Canada in terms of annual production at 255,000 kilograms annually. But what’s particularly interesting about Aphria is that the company has also diversified into oils, vaporizers, and capsules products, and is a leader in all three areas.
And in June, Aphria announced that it plans to spend C$55 million to build a new extraction center in Leamington, Ontario. The new extraction center will produce cannabis concentrates, but could also easily be used for a joint venture with Coca-Cola if an agreement is reached.
Like Aurora Cannabis, Aphria is also exposed to a dozen international markets after its acquisition of Nuuvera earlier this year. The company has also yet to partner with a major player in the beverage, tobacco, or pharmaceutical sectors, which makes it an attractive target.
The cannabis space is constantly evolving, and it’s impossible to predict what might happen next. But Aphria is definitely a stock to keep an eye on, especially as dealmaking in the marijuana field heats up.