Coca-Cola was named back in 1885 for its two “medicinal” ingredients: extract of coca leaves and kola nuts. Just how much cocaine was originally in the formulation is hard to determine, but the drink undeniably contained some cocaine in its early days. Over the years, as people began to view cocaine as something other than merely medicinal, chemists, using the technology at their disposal, cut down on the amount of cocaine in Coca-Cola so that there were mere trace amounts leading up to 1929 when it was finally determined to be completely cocaine free.
So, it’s not such a stretch some 130 years later that Coca-Cola has its eye on the cannabis industry, reports Bloomberg. The soft drink giant is reportedly in “serious talks” of launching beverages with Aurora Cannabis. But before people get their beehives too stirred up, the drink is intended to be “medicinal,” infused with cannabidiol, also known as CBD, and not the psychoactive tetrahydrocannabinol, also known as THC, that would provide a “buzz.” The medical benefits of CBD are known to ease inflammation and muscle cramping.
While it’s not completely a done deal, analysts describe the talks as in the middle-to-late innings. It seems more about whether Aurora will be the partner Coke dances with, and not whether or not they ultimately plan to break into the market. Bloomberg calls the talks “a groundbreaking move that would signal a significant foray into the marijuana sector by one of the world’s most iconic consumer brands.” The CBD market was estimated at $202 million in 2015 and is expected to be worth $2.1 billion in 2020.
Beverage companies are enormous consumers of commercial freight services, including trucking. Companies like Ab Inbev, Miller, Coca-Cola, Pepsi, and their peers spend over $8 billion on truckload shipping beverages across the U.S. Tight capacity has led to higher shipping costs, as well as mounting pressures due to tariffs on low-value commodities like aluminum and steel.
At the same time, the beverage industry as a whole is seen as not going anywhere anytime soon, in spite of new efforts and moves to condense, such as FreightWaves covered with the Keurig-Dr Pepper merger and PepsiCo’s acquisition of SodaStream.
Coke is merely diversifying its portfolio. The company can put CBD or THC or whatever they want, and ultimately sell these drinks at a high margin.
However, the cannabis (valuation) bubble of 2018 may very well prove out to be the crypto bubble of 2017. While Coke may end up doing well in this new beverage space, the general cannabis market may be overhyped and overvalued, as Paulo Santos writes for Seeking Alpha.
Producing the underlying agricultural commodities in a highly competitive business, is ultimately a low margin business. What is cannabis once its farming is legalized and widespread? An agricultural commodity. And what are companies like Aurora engaged in? In farming it. So what will happen when everybody can farm it and legalization spreads? Low margins, like all other agricultural industries.
As for end-consumers who just want to mellow out? Well, have a Coke and a smile…or Open Happiness…or Taste the Feeling. Any slogan will do.