Coca-Cola (NYSE:KO) is a stable but evolving company that has adapted to changing consumer trends over the years. While its most popular products are its sugary drinks, its business is much more robust, with more than 500 brands around the world. In addition to soft drinks, the company also sells coffee, tea, juice, water, and plant-based drinks.
One offering that could soon be on the horizon for Coca-Cola is cannabis. Although it may seem like a risky move for a fairly conservative company like Coca-Cola, here’s why a move into that industry may be inevitable.
The company is following the consumer
Coca-Cola made a big announcement this year: It’s going to be offering its first alcoholic beverage in decades, a hard seltzer. Through its Topo Chico brand, it plans to launch the new products next year, and the reason is likely no mystery: During the coronavirus pandemic, hard seltzer has been selling incredibly well. Data from analytics company Nielsen shows that hard seltzer sales quadrupled over a 15-week period ending June 13. It’s an incredible, and welcome, opportunity for Coca-Cola to continue growing its business. In 2019, the company reported revenue of $37.3 billion — down 19% from five years ago, when it generated $46 billion.
“We’re going to follow the consumer,” Coca-Cola CEO James Quincey told CNBC in a recent interview when discussing the move into hard seltzer. And if that’s the motivation, it may only be a matter of time before cannabis ends up on the company’s radar as another significant growth opportunity. According to data from Grand View Research, the market for cannabis beverages could reach $2.8 billion by 2025, growing at an annual rate of 17.8%.
There were rumors in the past of Coca-Cola partnering with Aurora Cannabis
In 2018, it appeared that a deal involving Coke and cannabis producer Aurora Cannabis (NYSE:ACB) was right around the corner, with the soft-drink giant looking to make cannabis beverages. Nothing ended up materializing from that, but multiple sources did report it, and it’s possible Coca-Cola did do some kicking of the tires.
If so, it wouldn’t have been the only beverage company to do so. Constellation Brands (NYSE:STZ) , the maker of Corona beer, Svedka vodka, and more, has jumped into the cannabis market with both feet, investing $4 billion in Canadian pot producer Canopy Growth since 2017. And management at Diageo, which makes Guinness, has also said in the past that they’re keeping an eye on the cannabis industry.
Quincey downplayed this possibility in 2018, saying Coke had no plans to get into the cannabis market. But he didn’t outright say that it would never happen. Whether it’s with Aurora or another cannabis company, investors shouldn’t rule out the possibility of something happening in the future involving Coca-Cola. That’s especially true as consumer attitudes on cannabis continue to change; a total of 11 states have already legalized it for recreational use, and another four could do so this year, with New Jersey, Arizona, South Dakota, and Montana voters deciding on whether to permit adult-use pot in November.
What does this mean for investors?
It’s only a matter of time before another big name like Coca-Cola or Diageo joins Constellation Brands with a foray into the cannabis industry. Businesses grow and thrive by evolving and keeping up with consumer trends, and cannabis is rising in popularity. This year’s been a banner year for pot sales, with several states, including Illinois, California, Colorado, and Ohio, reporting record numbers.
As pressure mounts for Coca-Cola and other companies to expand their own sales, cannabis offers an opportunity to broaden product lines and reach more customers. And while the federally illegal status of cannabis in the U.S. could be a deterrent in the short term, the Canadian market is wide open and could serve as a great testing ground.
All that said, this doesn’t mean you should immediately buy shares in Coca-Cola because sooner or later it might invest in the cannabis industry. Investing in pot stocks themselves may be a better strategy. A large company — whether or not it’s Coca-Cola specifically — getting into cannabis could energize the entire industry. The Horizons Marijuana Life Sciences ETF (OTC:HMLSF) has fallen 35% this year and is badly underperforming the S&P 500, which is up 4% over the same period. Even just one big name expressing interest in cannabis could get investors bullish on the industry again.
A pot stock like Aurora Cannabis that’s fallen more than 80% in 2020 could potentially double, even triple, in value on news of a big company from another industry entering the market. Amid a pandemic, it may be awhile before that happens, but investing in pot stocks today could pay off in a few years, especially if marijuana legalization continues to progress in the U.S.
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Car Insurance for Canadian
Car insurance is vital, like snow days and maple syrup. Part of the Canadian experience. Not all countries need insurance policies by regulation as Canada does; the concept of a pay-as-you-go fuel tax has also been used as a substitute for traditional auto insurance in some areas. But, no matter how important it is, investing in the service is never the wrong decision. Insurance will save motorists from the economic burden of the ultimate inevitability of the road: accidents. They’re going to happen to everybody, no matter their experience or ability. Driving, like every other aspect of human life, is naturally a human mistake.
Also, the most experienced driver can be distracted in our current driving climate. With a reputable insurer, financial stability is only one thing to think about. Between the radio, the billboards, and the careless children thrashing around in the back seat, a few minutes on the road will provide more means of diverting someone’s attention than a few hours in front of the TV. All it takes is a misconstrued stop on a slippery day or a neglected shoulder search to cause thousands of dollars of harm to your property or the property of others. If the accident’s cost exceeds the price of the vehicle that caused it, auto insurance will save the driver from financial ruin. The protection in an appropriate strategy protects drivers in ways that the airbag has never been able to do.
The security provided by insurance is so vital that it has been obligatory for any Canadian who hopes to get behind the wheel. However, some jurisdictions offer consumers a preference as to who is protected by their auto insurance. Coverage is always mandatory, but the strategy is malleable. The right of motorists to monitor their plans and coverage does not end with the business either. Car insurance premiums are affected by a variety of factors. While some of these items are beyond the control of motorists, such as age and gender, they can still make many choices to lower their prices. Choosing a reliable vehicle, traveling shorter distances, and having fewer tickets are items drivers can do to keep their car insurance premiums as low as possible.
Some drivers, particularly new ones, are wary of individualized rates – paying different amounts for other people. Insurance firms, though, are not swindlers or profit-seekers. They’re just trying to keep auto insurance prices as reasonable as possible. A car that leaves the garage twice a week is less likely to have an accident than a car that goes twice a day. Station wagons are more comfortable to fix than imported sports cars. Every person has different driving habits, so it only makes sense to have a foreign car insurance policy. Acquiring a car insurance policy is more than just making a deal; it is the start of a friendship that will help the driver out in the toughest of times.
Some provinces in Canada, where motorists have too many car insurance options, any additional information could save the insured motorist thousands of dollars. It pays to be updated. The right strategy will keep you safe when anything else doesn’t matter where you’re in Canada.
When it comes to investing, don't believe everything you see on TV – TheChronicleHerald.ca
Interest in investing is hitting new highs. Discount brokers are flooded with applications and trading volumes are surging. Despite this renewed focus, some misunderstandings persist about the realities of investing.
To illustrate, let’s deconstruct an investment conversation that you might have with a friend, colleague, or advisor. It goes like this.
“A guy on TV says the economy is strong and stocks are going up. It seems like a good time to invest. I don’t see much downside so I’m buying high-dividend stocks for my RRSP.”
A guy on TV
Many investors think there are people who know where the market is going. Experts who know something the rest of us don’t. The reality is, they don’t. Their insights may be interesting and unique, but any conclusions related to market timing aren’t worth the cup of coffee you’re drinking. It’s impossible to call the market level a week, month or even year from now with enough consistency to be useful. Stock prices are determined by a myriad of factors, many of which we’re unaware of until after they’ve emerged.
The economy looks good. I’m buying.
At the core of most market calls is an economic forecast. This is unfortunate because the connection between what the economy is doing and where the stock market is going is flimsy at best. It’s true that economic activity affects corporate profits, which ultimately drive stock prices, but the relationship is sloppy and unpredictable. Consider the last decade — we had the slowest economic recovery in history and yet profit margins were at or near record levels throughout, as were stock prices.
It bears repeating. Mr. Market is not paying attention to today’s economic headlines. He’s focusing on what the news might be in 12 to 18 months. The corporations you’re investing in aren’t reading the headlines either. They’re too busy trying to move their businesses ahead.
A good time to invest
For an investor with a multi-decade time frame, anytime is a good time. Some points in time, however, will be more prospective than others. These are periods when returns are projected to be higher based on fundamentals like rising profitability, low valuations and/or extremely negative investor sentiment. To be clear, these factors won’t tell you what’s about to happen, but will provide a tailwind over the next three to five years.
Not much downside
When you own a stock, the range of possible outcomes is always wider than you expect. It’s hard to conceive of a holding going down 20, 30 or 40 per cent, especially when things are going well. Unfortunately, recent price moves have no predictive value, they just provide false comfort.
The future for a stock that has recently done well is just as uncertain as one that hasn’t. Indeed, it may be riskier because its price-to-earnings multiple is higher (if profits haven’t kept up with the stock price), its dividend yield is lower and shareholders’ risk aversion, a necessary ingredient for good returns, has melted into complacency.
The higher the better
We all love dividends, but too many investors choose stocks based solely on yield. This is a problem because yield is not a measure of value for a stock like it is for a bond. A company’s worth is derived from it’s potential to earn profits into the future. Dividends are simply the portion of those earnings that get distributed to shareholders.
Yield-obsessed investors often downplay the importance of the stocks’ second source of return — price appreciation. Ask yourself the question: What would you rather have, a $10 stock yielding five per cent that’s worth $8, or a $10 stock with a three per cent yield that’s worth $12?
If you want to focus on dividend income, start with a list of stocks that have an acceptable yield. From there build a diversified portfolio of holdings that are trading at or below what they’re worth.
In your RRSP?
When asked, “What should I do in my RRSP (or TFSA),” I have only one answer. The most important thing driving your RRSP strategy is the strategy you’re pursuing for your overall portfolio (including other registered accounts, taxable accounts, pensions and income properties). Anything you do in your RRSP has to roll up into your household asset mix. In that vein, RRSP contributions are a wonderful tool for adjusting your overall portfolio because transactions have no tax consequences.
Investing is hard enough without basing decisions on false premises. If you find yourself listening to someone pontificate about where the market is going, try to change the subject or look for an escape.
Tom Bradley is
chair and chief investment officer
at Steadyhand Investment Funds, a company that offers individual investors low-fee investment funds and clear-cut advice. He can be reached at
Copyright Postmedia Network Inc., 2020
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