Pepsi In Then Out Of Cannabis Market

October 2, 2018

In just a matter of 24-hours, Pepsi claimed they were looking at investing in the cannabis market, then did an about-face.

 

"I think we'll look at it critically, but I'm not prepared to share any plans that we may have in the space right now," Chief Financial Officer Hugh Johnston told Jim Cramer and Sara Eisen on CNBC's Squawk on the Street on Tuesday.

 

Corona beer maker Constellation this summer announced an additional $4 billion stake in Canadian cannabis company Canopy Growth, following up on a previous investment in October.

 

Coca-Cola last month said it is "closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages," after reports surfaced it may be eyeing the cannabis-infused drink market.

 

Insiders have been buzzing about PepsiCo considering a move into the cannabis business, following a report that Coca-Cola is eyeing a deal with marijuana producer Aurora Cannabis.

 

However, on Tuesday, the snack-and-beverage giant shot down the rumors during a call with investors. Hugh Johnson, PepsiCo's CFO, said in response to a question on cannabis-infused products that the company looks at everything, but has no plans at this point to enter into the market, due in part to regulatory issues.

 

In late September, analysts said that they saw Coca-Cola's reported interest in CBD as not too surprising, as CBD-infused drinks could be a boon for the beverage giant.

 

CBD is already a booming, $1 billion business, and it is being used as an ingredient in salves, oils, balms, and beverages, despite continuing legal questions. Beverage giants investing in CBD-infused drinks could result in the creation of a new mainstream category of beverage.

 

A deal between Coca-Cola and Aurora Cannabis could "broaden the reach of cannabis-­infused beverages into functional wellness categories, enabling KO to potentially one day 'own' the non-­recreational cannabis-­infused beverage category," Wells Fargo analyst Bonnie Herzog wrote in a note to investors.

 

With the potential of a new category looming, news of PepsiCo's interest in the industry seemed likely to follow.

 

Vivien Azer, an analyst at Cowen, said in a note to clients in late September that she "would not be surprised" to hear of a deal between PepsiCo and a cannabis company, proposing that a CBD brand could serve as a "good complement" to PepsiCo's Gatorade franchise.

 

However, it seems PepsiCo isn't ready to officially signal interest in CBD or cannabis — at least, not yet. Cannabis stocks have been booming, to a degree that has raised concerns among certain investors. Regulation remains murky, and CBD's actual impact is still unknown.

 

 

 

 

 

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