Hot on the heels of a £3.9bn buyout of Costa Coffee last month, word is that Coca-Cola is currently in “serious talks” with Canadian cannabis producer Aurora Cannabis to develop cannabis-infused beverages.  Now some might be quick to quip that coffee and cannabis signify a big shift in strategy from the soft drink giants, but what we’re actually seeing, assuming the rumours are true, is some very savvy commercial maneuvering.

The stark reality facing Coca-Cola is that the future core of its business invariably lies away from sugary soft drinks and to survive and indeed thrive they need to continue to diversify their portfolio.  With this is mind, the Costa Coffee deal, which whilst it took the market somewhat by surprise, makes perfect sense as it proffers a way into the highly lucrative and burgeoning coffee category.

It makes perfect sense

Yet the whispers that Coca-Cola is now considering entering the cannabis market has certainly ruffled a few feathers, but should it really come as such a shock?  In 2017, cannabis-infused beverage sales recorded $35.6m in just four US states; California, Colorado, Oregon and Washington. Alcohol giants Constellation Brands, Molson Coors and Heineken are already investing heavily in the sector, Constellation to the tune of $4bn.

The crucial difference here lies in the fact that Coca-Cola is approaching the market from a different tack, which could prove very lucrative indeed.  To date the approach has been to leverage THC (tetrahydrocannabinol, in full) as the active ingredient; the constituent of cannabis that produces a high.  Coca-Cola is supposedly exploring CBD (Cannabidiol), the constituent that is typically used for treating various ailments in the form of medicinal cannabis.

A strategic move into health & wellness

This functional, therapeutic approach is far less controversial for a universal brand such as Coca-Cola and aligns closely with its corporate strategy to become a major player in the health and wellness space and would do far less damage to brand equity than a similar foray into the category with a THC proposition.

Either way, assuming the Aurora discussions lead somewhere tangible, Coca-Cola is taking a punt on the future liberalisation of the cannabis sector and whilst it will prove relatively niche and have negligible commercial impact in the short term, the first mover advantage it could gain means it looks like a low risk move that is well worth taking.

Your move PepsiCo…

Categories: Premium FMCG

BY ENGINEER Alex Beattie

alex.beattie@thevalueengineers.com