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IGC’s cannabis-infused energy drink leads to explosive stock gains

Uniting cannabis with beverages has been all the rage in recent months. This industry shift was kicked off when Constellation Brands (NYSE:STZ) invested US$4B into Canopy Growth Corporation (TSX:WEED) (NYSE:CGC) back in August of this year, leading to major stock gains for Canopy as well as other marijuana companies benefiting from the contact highs. Since then, many other cannabis industry players have announced plans to make similar moves into the beverage industry. Better yet, there are rumors of additional major beverage companies eying opportunities to get in on the marijuana action, too.

This week’s company to make headlines for hopping onto the beverage industry bandwagon was India Globalization Capital (NYSE:IGC), a dual cannabis pharmaceutical and heavy equipment rentals company headquartered in Maryland, United States. The company abruptly grabbed investor attention as it jumped 46.34 percent Tuesday as well an incredible 466 percent in past five trading sessions following the September 25, 2018 announcement to enter into the cannabidiol (CBD)-infused energy drink space.

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The announcement states that the company “plans to create a branded, hemp/CBD-infused version of the formulation that addresses market demand for energy drinks with the inclusion of healthy properties derived from hemp including CBD” with their new ‘Nitro G’ energy drink. CBD is a new trend in the cannabis realm due to evidence of its numerous physical and mental health benefits without being psychoactive (a.k.a. It will not get consumers high like THC).

IGC has been traded since May 1, 2006, making them a relatively seasoned marijuana company compared to many other publicly traded cannabis stocks. However, until the past month and a half or so, their stock trading activity has been pretty stagnant and unimpressive since 2012. In fact, the stock has appeared to be slowly dying since 2009 following its major crash in September 2008 (the share value crashed from around US$48 to US$9.00 in a single month).

The share price was only US$0.42 in mid-August, meaning the stock has gone up a whopping 3,000 percent in less than two months. The new upward trend with the stock began with the August 23 news that it would launch Hyalolex, a cannabis-based supplement for treating and managing Alzheimer's patients. Then in the past week, the stock took off due to additional announcements. The first was, of course, the aforementioned announcement of the company entering the beverage industry. The second reason was due to the completion of its at-the-market equity offering programs which commenced on September 25, 2018, and was completed on October 2, 2018. In total, 5.6 million shares of common stock were sold at a weighted average stock price of approximately U$5.30, resulting in raising approximately U$30.0 million in capital for the company. They plan on applying these proceeds to increase sales of both Hyalolex and ‘Nitro G’ energy drink.

Is the future of cannabis in your drink?

According to research done by Grand View Research, Inc., the energy drink market size is projected to reach US$84.80B by 2025 and is currently valued at US$43B. Additionally, CBD is already a US$1B industry and growing as big pharmaceuticals produce CBD-based medicine and companies such as ICG and Constellation enter the marijuana and CBD business. It also doesn’t hurt that the United States Drug Enforcement Administration (DEA) is making pro-CBD decisions such as the recent decision to move the GW Pharmaceuticals PLC (NASDAQ:GWPH) produced CBD-based drug Epidiolex to the least restrictive category.

U.S. energy drinks market revenue by product type, 2014 - 2025 (USD Billion)

Source: Grand View Research

With the growing popularity and acceptance of marijuana and CBD use in social settings globally, it might come to no surprise that beverage companies which are often the center of social gatherings are the first major sector to collaborate with the marijuana market. Especially since CBD does not get users high, there is less of a stigma with the compound as compared to pure marijuana containing euphoria-inducing THC, so beverage companies might see CBD-infused drinks as a less intense entrance into the marijuana industry. Lastly, regulations are lifting faster for CBD than they are for marijuana, so this might help beverage companies capitalize on regulatory shifts quicker.

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There was also news Tuesday that both Coca-Cola (NYSE:KO) and PepsiCo (NASDAQ:PEP) will join the growing list of beverage companies looking to enter the marijuana space, although PepsiCo followed up on those rumors and stated that they actually do not have an intention to make such a shift. Either way, there is plenty of room for more beverage companies to enter to the marijuana industry. This could mean massive gains for cannabis companies that collaborate with the large beverage players as well as for the industry as a whole.

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