Coke + weed + ? = profit
A view from Jem Fawcus

Coke + weed + ? = profit

Coca-Cola may be embracing the whacky tabacky, but cancel that extra-large pizza order - this is about something much smarter than making it easier for consumers to get high.

Now the smoke has cleared – and zingers about "joint" ventures in a "growth" market have subsided – it has become clear that, if Coca-Cola’s foray into cannabis-infused drinks comes to fruition, it would be anything but a half-baked strategy.

The market for legal cannabis is evolving daily. In the US, state by state, the "war on drugs" is ending, with cannabis for both recreational and medicinal use being gradually normalised. Canada recently went a step further and will legalise it at a federal level next month, prompting a gold rush into firms such as Tilray, which cultivates, processes and distributes cannabis for medicine and research – Tilray's shares have risen by a staggering 1,288% since floating on the Nasdaq two months ago.           

On these shores and across Europe, progress has been slower, although most analysts agree that change can’t be resisted forever. Following the case of Billy Caldwell, a severely epileptic child whose cannabis medicine was confiscated by the Home Office earlier this year, the government is now offering licences on a case-by-case basis – although not with great resolve, it has to be said. The public are overwhelmingly supportive of change, with three-quarters (75%) believing doctors should be able to prescribe cannabis for medical purposes, according to a recent YouGov poll.   

Sentiment is changing, and Coca-Cola tapping into the shift to innovate is prescient, laying the groundwork for an industry yet to come. Similarly to its acquisition of Costa, Coke diversifying into cannabis, at a time when sugary drinks are facing increasing censure from regulators and campaigners, seems wise.   

But, business aside, the move has aligned Coke with one side of a highly polarised debate. Critically, Coke has asserted that it is interested only in the pain-treating properties of cannabis. The plant is made up of more than 100 cannabinoids, each impacting the body differently. The most well-known are THC and CBD. The former gets you high, while the latter has pain-treating properties. Importantly, despite deriving from the same plant, the two substances exist in two vastly different markets.

The THC market is currently dominated by smaller players, although alcohol brands are muscling in. Heineken-owned Lagunitas, for example, has launched an "IPA-inspired, THC-infused sparkling water" – this feels like a good fit for a brand producing alcohol, which is also psychoactive. UK-based alcohol giant Diageo is also reported to be in talks with at least three leading cannabis producers as it considers adding cannabis-infused drinks to its portfolio. Brand-wise, THC and alcohol go hand in hand.

Likewise, tapping the CBD market is a good cultural fit for Coke – it is not a brand associated with intoxication, owning only one nascent alcohol brand, Lemon-Do, in Japan. Coke has clearly been listening to people and watching emerging trends to drive innovation. CBD use among millennials is high and growing. Although CBD is used to treat epilepsy, cancer and multiple sclerosis in some cases, many use the product for issues as disparate as sleep and back pain.

Between 2014 and today, the US CBD market has increased by 374% and it's predicted to increase a further 253% to $1.8bn (£1.36bn) by 2022, according to Statista. Outside of pharmaceuticals, and unlike alcohol-backed THC products, there are seemingly few major companies publicly eyeing the CBD market. Presently, it largely comprises oils and tinctures, edibles and alternative medicine. So why is it such a good fit for Coke?

Here again, Coke is clearly reacting to a changing market, albeit a different one. So-called "drinks with benefits" are an expanding market. For example, Britvic-owned Purdey’s – a soft drink that provides an energy boost from vitamins, as opposed to added sugar or taurine – and Pukka, which blends tea infusions with detoxifying properties and was acquired last year by Unilever, are booming.

Innovation should always be driven by staying attuned to emerging cultural trends. Positioning a mass-market, CBD-infused product in the "drinks with benefits" category could prove prophetic for Coke. Two markets are emerging: one, THC, will be dominated by alcohol brands; the other, CBD, by drinks with benefits. Although such a behemoth throwing its weight behind CBD serves to validate the science while de-stigmatising cannabis use, the task of differentiating it from its dopey cousin will, undoubtedly, mean turning over a new leaf.

Jem Fawcus is the founder and chief executive of Firefish