I, along with many other Fools, have been pounding the table on Aurora Cannabis (TSX:ACB) stock over the past few months at a time when it lagged the broader basket of marijuana stocks. When compared side-by-side to the likes of Canopy Growth (TSX:WEED)(NYSE:CGC) or Tilray, Aurora sure looked like a complete dud of a trade.
But when you consider the fact that today’s hottest pot stocks already have the most predictable positive developments in the rear-view mirror, one has to think that Aurora has substantially more upside than anything else in the industry.
Well-established behemoths across various industries (alcohol, tobacco, pharmaceuticals, and consumer packaged goods) are likely itching to get a puff out of marijuana to spark a new wave of growth that many of us have never seen.
You’ve probably heard enough about Constellation Brands (NYSE:STZ) and its upped investment in Canopy. It’s been the talk of the town, and the development has been rocket fuel for Canopy stock.
As I’ve mentioned in many previous pieces, investors should be looking to where the puck’s going to be next, not where it’s at right now. Aurora is where I believe the puck is headed next and its “serious talks” with Coca-Cola Company (NYSE:NYSE:KO) could mark the start of a rally that could bring the company back in the race with its biggest rival: Canopy Growth.
Not your classic Coke!
Aurora shares soared nearly 17% in a single trading session on news of Coca-Cola’s interest in teaming up to develop a CBD-infused “recovery” beverage.
Before you get too excited about the thought of getting high off Warren Buffett’s favourite beverage, you should know that CBD (cannabidiol) isn’t the cannabis constituent that gets you high. That’s another compound called THC (tetrahydrocannabinol), and unfortunately for recreational stoners, there have yet to be reports of Coca-Cola’s interest in producing a THC-infused version of Coke.
CBD is a non-psychoactive compound derived from cannabis that’s been known to play a role in the easing pain and inflammation. The potential medicinal applications are remarkable, and while the public may be more focused on THC, I believe we’ll begin to see more buzz concerning other cannabinoids, especially among firms that are focused on the medicinal side of weed.
According to a projection from a report issued by the Hemp Business Journal, the CBD consumer market is projected to grow to US$2.1 billion by 2020. That’s a pretty big market, and while everybody has been focusing on THC, Aurora has stealthily grabbed a front-row seat to the explosive and underrated CBD market with its Hempco Food and Fiber acquisition, which is a perfect fit alongside Aurora’s other medical-focused pot assets.
So, what’s next?
Expect Coca-Cola to sign on the dotted line at some point over the next few weeks.
I think Coca-Cola may be looking to dip its toe in the cannabis waters in the same way that Constellation Brands did, but unlike Constellation, I don’t think Coca-Cola is going to open up its chequebook when it comes to investing Aurora.
Instead, I believe that Coca-Cola is going to create a long-term supply relationship with Aurora, and if the future CBD-infused beverage shows promise (they likely will), Coca-Cola is probably going to double down on cannabis infusion by going for a THC-infused beverage next and a line of THC/CBD hybrid drinks of varying ratios.
While Coca-Cola may be up for a small stake in the future, I don’t think such an investment would make sense given Aurora’s in the business of medicinal cannabis, and would likely be a more compelling target for a pharmaceutical giant looking for a hedge.
Foolish takeaway
The Coca-Cola/Aurora talks are promising. I think a joint venture is going to be announced soon with further supply deals at some point down the road.
While many Coca-Cola fans think that a jump into cannabis could hurt the brand’s image, I think the firm’s pot expedition will do profoundly more good than harm for sales, especially when you consider the fact that Coca-Cola was originally a medicinal beverage derived from Coca leaves, a raw material used in the manufacture of cocaine! After all these decades, Coca-Cola is becoming a medicinal beverage again!
I’d buy both Coke and Aurora, right here.
Stay hungry. Stay Foolish.
Fool contributor Joey Frenette has no position in any of the stocks mentioned.