As the global soft-drink and alcohol consumption slows down, a growing number of companies think of cannabis beverages as a new growth vector. However, marketing cannabis-infused products could bring some reputational risks. An effective PR campaign can’t afford to ignore influencers with a well-established authority on this controversial subject. Using our media analytics tools, we found out who shapes the conversation, which are the main topics in the coverage and which brands are mentioned most often.
The news that Coca-Cola is looking at creating a cannabis-infused drink cemented the use of cannabis in beverages as the hottest trend in today’s food and drink industry. The trend has been brewing since the legalisation of recreational marijuana in California and Canada, which prompted the launch of a number of marijuana-infused products.
Analysts at financial services company Canaccord Genuity estimated that cannabis drinks could become a $600 million market in the US within the next four years, outpacing the growth of other categories of retail cannabis products. Beverages containing CBD, the non-psychoactive compound in marijuana, would be worth $260 million by 2022, while those with THC, the principal psychoactive constituent of cannabis, could reach $340 million.
Beer and soda producers have already demonstrated their thirst for the new opportunities – for example, Heineken introduced a range of marijuana sparkling water, while Corona-parent Constellation Brands, the largest beer import company measured by sales, became the largest stakeholder in Canadian pot cultivator Canopy Growth.
But the real buzz in the media was sparked by the news about Coca-Cola, the world’s largest beverage company and one of the world’s most iconic consumer brands, which is also frequently ranked among the top 10 most valuable in the world, usually just behind Apple, Google and Microsoft. Bloomberg reported that Coca-Cola is in talks with Aurora, a leading Canadian marijuana distribution and marketing company, because it’s interested in developing beverages that are infused with CBD.
Coca-Cola is planning to capitalise on CBD’s health benefits, developing drinks easing inflammation, pain and cramping. Bloomberg suggested that “tying itself to cannabis would give Coca-Cola a slightly edgier appearance that would contrast from a company that relies on its iconic labelling and marketing campaigns such as its polar bear ads during the holidays to lure customer interest”.
Many analysts suggest that the search for new beverage concepts might have something to do with Coca-Cola’s 2017 annual revenue of US$35.4 billion, down 15.5% from the previous year. Examples of the company’s diversifying portfolio include the alcoholic drink it launched in Japan and the agreement to buy Costa, UK’s biggest coffee retailer, from Whitbread for $5.1 billion.
“The company has been caught flat-footed in the past in not keeping up with trends in beverages. They missed the energy drink phenomenon, they missed — and then had to buy into — the functional waters like Vitamin Water and coffee,” Ali Dibadj, a senior analyst at AllianceBernstein, commented. “I think what they’re saying is what they should be saying on this very new and emerging beverage.”
However, the positive sentiment about Coke’s new idea was not shared by everyone in the CBD industry – for instance, a CBD products manufacturer said on Twitter: “Coca-cola is thinking about adding CBD into their poison that causes diabetes, cancer and god only know what else. There’s nothing to be excited about. Coke is not a health and wellness company. This is a huge oxymoron and we don’t support this money grab. Who’s next? McDonald’s?”
Analysing the cannabis drinks coverage via our media analytics tools, we identified five main topics:
The use of cannabis in the drink industry as a whole constitutes the subject matter of most articles. Commentators have noticed that large companies are still cautious, especially since cannabis is not yet legalised across all US states, which gives smaller firms the opportunity to explore the market. Many articles draw comparisons with alcohol, emphasising that cannabis drinks don’t give hangovers and lack the high-calorie count of wine or beer. The millennial market, in particular, is looking for low-calorie alternatives, as Jennifer Lee, a cannabis expert at Deloitte, suggested in an interview with CBC.
Martin Landry, managing director of equity research at GMP Securities, said that there’s a growing interest from consumer-packaged goods, and liquor and tobacco firms “to look at cannabis as a new growth vector”, adding that “what’s happening is that the cannabis industry is still in its infancy and there’s not a lot of partners to dance with”.
The growing interest in the new trend brings growing investments, and namely, this is the second major topic in the coverage, with the top trending articles citing financial reports and giving predictions about the development of valuable stocks. The Viridian Cannabis Deal Tracker found that the cannabis market received $1.23 billion in investments in the first five weeks of 2018, up from $178 million in 2017 – a nearly 600% investment growth.
Viridian Capital Advisors’ Vice President Harrison Phillips explained: “Investments in cultivation and retail this year have been driven predominantly by the Canadian player. This has been happening pretty consistently from late 2016 through 2017. This reflects the necessity to scale cannabis businesses, to get some kind of advantage, and to explore strategic opportunities, both through acquisitions and international expansion.”
Meanwhile, Arcview Market Research suggested that consumer spending on legal cannabis in North America is bigger than expected, and projects that retail cannabis sales will grow to about $10 billion this year, a value of $24.5 billion by 2021 at a 28% compound annual growth rate (CAGR). Journalists suggest that this means more beverage companies will get into the business of marijuana. Marc Lustig, CEO of CannaRoyalty, remarked that many beverage companies see their sales decline due to changing consumer behaviour and look at cannabis as a new way to boost their brands. And while California gets the largest slice of media attention, Canada seems to be the focal point of investments.
When it comes to partnerships, Viridian reported a 55% increase in M&A transactions in the first quarter of 2018, driven by specialised companies rather than bigger players, who are not yet involved due to the illegal status of cannabis on the federal level. An example of a well-documented partnership is the joint venture formed by WeedMD and Phivida, which will create a new cannabis drinks company.
Marijuana-infused food and drink products have been launched since the end of 2017. Apart from Heineken and Constellation Brands, mentioned above, other firms whose activities received media attention include Koios Beverage, which formed a wholly-owned subsidiary to produce cannabis beverages and will target medical cannabis consumers. In addition, Blue Moon Brewing Company introduced a line of cannabis-infused non-alcoholic craft beer beverages.
A smaller segment of articles focused specifically on the effects and health benefits of cannabis-infused drinks, such as the lack of hangovers and high-calorie count. The reason might be that there have not been enough scientific studies on the subject. Most of the coverage on this topic consists of personal stories about how CBD improves mental health.
Brands in the spotlight
We also discovered which brands were mentioned most often in the coverage:
Aurora leads the way partly thanks to the reports on its deal with Coca-Cola, but also because it acquired Agropro UAB, the organic hemp leader in the EU, along with Borela UAB, a major hemp processor and distributor. In addition, it reached a $290 million deal to acquire ICC Labs, which controls about 70% of the market in Uruguay – the first country in the world to legalise cannabis for adult consumer use.
The news about Aurora’s expansions bolstered the Horizons Marijuana Life Sciences Index ETF, which tracks more than 20 cannabis companies in North America – it was up 3% and has gained 23% in 2018.
Canopy was mentioned in industry reports as the world’s largest cannabis company, based on the value of all shares, and as having the most scalable infrastructure in the entire sector. Alongside Cronos and Tilray, it became known as one of the main marijuana stocks to watch on US exchanges in 2018. Meanwhile, California-based Terra Tech entered into a partnership with beverage production company, the Valiente Group to produce a line of cannabis-infused drinks. Koios Beverage got in the news for its plans to market CBD-infused beverages through Direct Store Delivery (DSD) and Direct to Customer (D2C) sales.
Using our Influencer Network Analysis (INA) methodology, we also found out who shapes the conversation:
Chris Miller was widely quoted because he talked not only about his company’s activities but also about the state of the whole sector: “The industry has proven it is going in the direction of cannabis-infused drinks,” he said. “It’s healthier. Nobody wants to smoke anymore. The market for beverages is vast, especially when you consider the ageing population and the demand for medical cannabis among seniors.” He emphasised the health benefits of CBD, referring to its restorative effect on human health.
In contrast, Derek Peterson focused on financial issues: “The momentum in Canadian cannabis stocks is a byproduct of significant institutional demand and limited investable options in the market. Canadian companies like Tilray, are trading at multibillion-dollar market caps while similarly sized U.S. companies are trading at a hundredth of those values. Eventually, when the legal environment changes in the US, we feel domestic companies should respond as favourably considering the US is likely the largest global cannabis market.”
Cannabis entrepreneur Brendan Kennedy said that everyone from investors to pharmaceutical, alcohol, tobacco, food and beverage companies, can’t ignore the $150 billion global opportunities. He added that his company starts with a focus on pharmaceuticals, which will give it a credible scientific basis for upcoming business developments into food and drink products.
Vivien Azer, an analyst at financial services company Cowen, pointed out to a growing consumer interest in CBD and said that easier access to marijuana drinks will harm beer and liquor sales, particularly among millennials. Wendschuh suggested that the beverage industry will adapt the consumption of marijuana to existing social behaviours, like having a drink over a conversation.
For Booth, the interest expressed by beverage giants like Coca-Cola will have a big impact on the cannabis sector: “It was only matter of time that the major beverage companies came in, not only from the alcohol side but also from the Coca-Cola, PepsiCo side of the fence,” he said. “It’s a big impact – it legitimizes what we’re up to. It legitimises this as big global business.”
Brett Cooper, a managing partner and beverage analyst at Consumer Edge Research, also talked about Coca-Cola, and noted that global soft-drink consumption has lagged behind in the past two decades: “We have a consumer that is more demanding of what they’re getting out of food or beverages.”
Cooper said Coca-Cola is looking at all options: “Something as well-established and known as ready-to-drink iced teas, and products more on the fringe — kombucha or cannabis beverages. Obviously, getting into cannabis is a significant step away from adding vitamins.” He added that marketing cannabis-infused products could bring some reputational risks.
Canada is the place to be as the world emerges out of marijuana prohibition, according to CannTrust president Brad Rogers, while Kent Landers and Heather MacGregor were quoted in reports about Coca-Cola’s moves. “We are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world,” said Landers, and MacGregor reported that her company “has expressed specific interest in the infused-beverage space and we intend to enter that market”.
Journalists unanimously write that the market is still in its infancy and investors might experience high volatility. Some compare the current hype to the Bitcoin craze, but unlike cryptocurrencies, which are often under fire from governments, regulators and financial institutions, the marijuana market has already secured some formal acceptance for its medical and recreational uses.
Players wanting a slice in the expanding pie may face some PR difficulties – tying a brand to a subject as controversial as cannabis consumption is a dangerous enterprise from a reputational point of view. It should be done carefully. An effective PR and marketing plan can’t afford to exclude the use of influencers with a well-established authority on this tricky matter.