Atlanta, GA-based beverage giant Coca Cola Co. (KO) currently has no plans to enter the cannabis industry with marijuana-infused beverages, the company announced during its recent quarterly earnings call on Tuesday morning.
Investors Fear Overheated Cannabis Market
Earlier this year, cannabis investors bulked up on shares of cannabis producer Aurora Cannabis (ACB) following a report from Bloomberg indicating that the international beverage behemoth was in talks with the Canadian company about launching a product containing CBD, a marijuana-derivative. In August, global alcoholic beverage industry leader Constellation Brands Inc. (STZ) announced it was raising its stake in Canadian cannabis company Canopy Growth Corp. (CGC) with a $4 billion investment, sparking excitement about heightened interest in the cannabis industry from deep-pocketed food and beverage industry giants.
In response to the reports in September, Coke told analysts that it has no intention “at this stage to get into the business of cannabis-infused beverages.”
The news comes at a bad time for cannabis stocks, which have suffered through a period of increased volatility. A surge in cannabis stocks earlier this year, following the legalization of recreational marijuana sales across Canada, has sparked fears on the Street regarding a sector bubble.
Alongside doubling down on cannabis stocks directly, many investors have sought to get in on the trend through buying shares of companies that are exploring marijuana products and partnerships, sending shares of less well-known stocks such as New Age Beverages Corp. (NBEV) and India Globalization Capital (IGC) soaring. The high-flying stock prices led to the New York Stock Exchange’s decision on Monday to suspend trading of Bethesda, Maryland-based India Globalization and start the process of delisting the company, citing regulations about investor protection.
Coke Evolves to Meet New Demand
Meanwhile, Coca Cola shares got a boost on Tuesday following better-than-expected earnings results, driven by the strength of its sugar-free Diet Coke business. While sales fell 9% to $8.2 billion, the company attributed weakness to changes among its franchises, posting an adjusted top line growth rate of 6% from the year-ago period. Adjusted earnings of $0.58 per share beat the Street’s estimate for $0.55 per share.
While traditional food and beverage stocks have suffered on changing consumer preferences for healthier, fresher alternatives, Coke bulls applaud the company’s diversification outside of its core beverage offerings. While the firm may not be exploring cannabis just yet, Coca Cola is set to launch its first alcoholic beverage in Japan, an experimental market where it has played with various teas, coffees, and health drinks.
Trading up 1.4% on Tuesday afternoon at $47.09, KO reflects a 2.6% gain YTD, outperforming the broader S&P 500’s 0.4% loss.
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