Marijuana stock analysts like Canaccord Genuity have proclaimed 2019 to be the year that the cannabis-infused beverage market takes off. This subsector of the overall cannabis market is in its early growth phase, and investors looking for new opportunities may want to take a closer look.
Will the cannabis beverage market outpace the general demand for marijuana products? Will beverages make up 20 percent of the cannabis edibles market by 2022? These are just some of the bold predictions, so let’s take a closer look.
Canaccord projects that in the next four years, the infused beverage industry could become a $600 million market, just in the U.S. CBD beverages alone could be a $260 million market, catching the wave of the rising trend in wellness beverages in general. Likewise, THC-infused beverages could be a $340 million market.
Cannabis companies have taken notice, but so have big mainstream beverage companies. As such, beverage and cannabis companies have begun teaming up to be poised and ready for the market opportunity.
Some analysts have stated that just as cannabis has put pressure on alcohol sales, the same may be true of soda. It might be hard to fathom, but cannabis-infused beverages may become a bigger industry. Suppose that cannabis is legalized in the United States by 2030; if so, the legal cannabis industry is projected to generate $75 billion in annual sales that first year.
Soda companies turn to cannabis to boost sales
Soda consumption is already in decline as consumers turn to alternative drinks like natural sports drinks and other beverages. Big soda companies are watching the emerging sector.
Coca-Cola (NYSE:KO) is expected to make a deal to begin production of CBD-infused beverages. Interestingly, in its early days, the company infused its product with cocaine, so returning to a CBD-infused beverage product line would take the company full circle.
Executives were closely following developments of the farm bill, and now that it has passed, legalization of hemp across the United States creates a green light for Coca-Cola, who is rumored to be eyeing a deal with Aurora Cannabis (NYSE:ACB).
The company was also in talks with Aphria a few months ago, but Bloomberg reported that nothing substantive materialized from those negotiations.
A deal with Aurora makes sense. Coca-Cola already owns over 500 brands, and Aurora is projected to be one of the top, if not the leader, in cannabis production, focused on the medical cannabis business. And, Coke needs a remedy for its declining soda sales.
In addition to the infused beverage industry, the CBD industry by itself will be huge. Market projections are $22 billion by 2022, as outlined by cannabis research firm Brightfield Group.
Aurora may be the answer to Coca-Cola’s sagging North American sales which have been stagnant for several years now. Last year, the company reported a one percent decline in sales, as the growing obesity epidemic has consumers turning away from sugar. An agreement with Aurora could be just what Coca-Cola needs to boost its North American growth.
After hearing about Coca-Cola’s foray, PepsiCo (NASDAQ: PEP) was also rumored to be looking at deals; however, in an early October call with investors, the company flatly denied the rumors. The stock fell 1.4 percent on that news, and the CFO quickly appeared on financial shows later that same day to retract the statement. Instead, Pepsi now says it too is taking a hard look at the cannabis sector.
Be a participant, not a spectator
Many of the Canadian cannabis producers have already struck beverage deals. Constellation Brands (NYSE:STZ) has already taken the plunge. Last summer, the giant beermaker famous for brands like Modelo and Corona forked over $4 billion for a 38 percent share in Canopy Growth, the Canadian cannabis cultivator.
Heineken (OTC:HEINY) has also entered the market by developing a THC-infused sparkling water product under its Lagunitas California-based brand; they are teamed with cannabis company AbsoluteXtracts.
Additionally, HEXO (OTC:HYYDF) and Molson Coors (NYSE:TAP) entered a joint venture to create marijuana-infused beer for the Canadian market. Quebec-based cannabis cultivator HEXO reported just days ago that it would move to the NYSE. Molson Coors CEO Mark Hunter has said that the cannabis market could reach $10 billion in Canada alone, with non-alcoholic cannabis-infused beverages accounting for one-third, or $3 billion, of that market. Hunter has also said that Molson wanted to be a participant rather than a spectator as the market opened up.
Tilray (NASDAQ:TLRY) has also teamed with AB InBev, a Canadian beer brewer, just to study cannabis-infused beverages. Both companies have invested $50 million each to look at non-alcoholic beverages containing CBD as well as THC.
The FDA steps in
Following the signing of the farm bill late last year, FDA Commissioner Scott Gottlieb stepped in to announce that even though hemp was made legal, the agency still considered CBD products illegal. The agency singled out food and drink products containing the compound, telling companies not to sell such products in interstate commerce.
The FDA did acknowledge “the growing public interest in cannabis and cannabis-derived products, including cannabidiol (CBD).”
Moreover, it clarified that they would “treat products containing cannabis or cannabis-derived compounds as [it does] any other FDA-regulated products — meaning they’re subject to the same authorities and requirements as FDA-regulated products containing any other substance.”
As of now, the FDA is open to finding “pathways” to allow for CBD products in food and drink. "We recognize the potential opportunities that cannabis or cannabis-derived compounds could offer and acknowledge the significant interest in these possibilities," Gottlieb said in a statement. "We're committed to pursuing an efficient regulatory framework for allowing product developers that meet the requirements under our authorities to lawfully market these types of products."
Still, cannabis companies should move forward with caution. While the farm bill opened up a world of possibilities, the U.S. is still intent on moving at a draconian pace.