Earlier this week, The Coca-Cola Co (NYSE:KO) CEO James Quincey said that the company did not have any plans for cannabis-infused beverages, despite the September rumours that the soft drink company was in talks with Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB) about a potential deal.
While the talks were not confirmed by either party, BNN Bloomberg had reported that the discussions were “serious” and past the tire-kicking stages. What has changed since then or why Coke seems to have lost interest is unclear.
Could the company be worried about its image?
Although initially it was suggested that Coke would be looking to produce products with CBD that would offer pain relief, the thought of a wholesome company aligning itself with what’s still an illicit industry in many parts of the U.S. might have given the soft drink giant pause.
Last month, we learned that its rival PepsiCo, Inc. would not be pursuing cannabis-infused beverages either, which seemed a bit odd, especially with the assumption that Coke could be making a big move. We also saw Starbucks Corporation recently say that they didn’t think cannabis would be a good fit for their brand.
We’re definitely in a very grey area in the market. Although pot is legal in many parts of North America, many are strongly opposed to it and view it as not having any value.
Until we see it become more socially acceptable, we’re going to see companies continue to stay away from cannabis, as the additional sales may not be worth the potential impact that it could have on a company’s brand.
Regardless of the legal progress that marijuana has been making, it’s going to take even longer for attitudes to change on the topic, as many people still have a negative connotation in their minds when it comes to the drug.
Should investors be concerned?
Initially, we saw a lot of excitement and fanfare around beverage companies partnering with the cannabis industry, but to date, we’ve seen only a few deals announced, suggesting that there’s still a lot of hesitation from other industries, and seeing big companies step away from it isn’t going to help.
Much will depend on how risk-averse a company’s management is and its willingness to be a bit daring in its strategy. Currently, we aren’t seeing many companies willing to take on that risk, and that might not change anytime soon.
For Aurora investors, this should be a concern because without a deal, the company is now behind the game, especially as its rival Canopy Growth Corp has already secured an agreement and has access to a powerful beer maker to help grow its business.
Over the long term, however, I expect we will see companies get involved in the industry as they see how strong sales are and as attitudes change, but it’s likely going to take a lot more time than investors may have initially hoped or expected it would take.
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Fool contributor David Jagielski has no position in any of the stocks mentioned. David Gardner owns shares of Starbucks. Tom Gardner owns shares of Starbucks. The Motley Fool owns shares of Starbucks. Starbucks is a recommendation of Stock Advisor Canada.