Maggie Chen is a business student at the University of Southern California whose interest in cannabis legality and its implications was sparked after studying abroad in the Netherlands.
Coca-Cola is considering a partnership with Aurora Cannabis to produce cannabis-infused beverages. The company is weighing the option because of the shift in consumer preferences away from sugary beverages toward healthier options, as well as the lucrative potential of the cannabis industry. However, Coca-Cola should not pursue this business opportunity because of the legal technicalities and potentially disastrous effects it could have on the company brand.
CBD has recently experienced a surge in popularity in the beverage industry, and can commonly be seen featured in everything from cocktails to almond milk lattes. The non-psychoactive chemical in cannabis is used for pain relief for a variety of conditions, ranging from inflammation to schizophrenia, all without actually giving users a high. Consumers have quickly jumped on the trend and suppliers are responding to the new demand by carrying more CBD products. But cannabis has remained in regulatory limbo with both federal and state laws to adhere to.
Legality remains gray for cannabis
Coca-Cola sees the cannabis-infused beverage industry as a new market to gain large profits, but it would be unable to do so with current legal restrictions on cannabis. In the U.S., cannabis and CBD are illegal on a federal level. Although several states have legalized marijuana, the law is murky and has been interpreted differently by multiple entities. For example, the Drug Enforcement Administration adamantly declares that CBD is illegal. However, DEA spokesperson Rusty Payne told WTHR last year that it wouldn't be "an appropriate use of federal resources to go after a mother because her child has epileptic seizures and has found something that can help and has helped. Are they breaking the law? Yes, they are. Are we going to break her door down? Absolutely not. And I don't think she'll be charged by any U.S. attorney."
Additionally, multiple third-party sellers on Amazon sell CBD products that have been purchased more than 1,000 times and highly rated with some users happily reviewing the product as "a cure for insomnia and anxiety" and great for arthritis pain. However, as a large and well-known corporation, Coca-Cola shouldn't bet on the government not enforcing the law. In fact, the government could even specifically crack down on Coca-Cola to set a precedent on CBD law enforcement.
The cannabis-infused beverage industry has experienced a large amount of growth. In 2017, sales totaled $35.9 million in California, Oregon, Washington and Colorado. However, this growth is highly fragmented, as it is only in a select few states. Additionally, the trajectory of the industry may stagnate depending on the legal environment and enforcement of cannabis laws. Coffee shop Coffee Dose in Costa Mesa, California was told by inspectors to cease serving CBD drinks; however, inspectors did not issue any fines for Coffee Dose’s previous CBD drink sales or seize any CBD products. Although the cannabis industry is booming, Coke would be unable to capture the full market share as the legality of CBD is not even solidified yet.
Branding and association problems
The manufacturing and distribution of a product associated with cannabis can mar the Coca-Cola brand. The company has carefully cultivated a reputation of being a family-friendly brand that brings people of all cultures together. However, the disconnect between this family-friendly image and active promotion of a cannabis-infused drink could hurt Coca-Cola in multiple aspects. For example, Coca-Cola’s 2016 marketing campaign slogan was "Taste the Feeling," which, according to Chief Marketing Officer Marcos de Quinto, was intended to reinforce the idea that "Coke is for everybody." But that slogan would be viewed with skepticism if cannabis were to be added to Coke's product lineup because it would not appeal to everyone.
The brand would also incur problems when selling to families, as parents could associate other Coca-Cola brands with cannabis as well. Any type of marijuana byproduct use is highly discouraged in young children and teens as it can cause depression, anxiety, memory loss and more. Additionally, the long-term effects and implications of marijuana use among younger individuals are not fully understood yet. The American Academy of Pediatrics maintains a firm stance against marijuana and cannabis use during pregnancy as it can cause stunted fetal neurological development. Thus, mothers, who tend to do the majority of purchasing for their households, may be driven towards a different brand if Coca-Cola releases a cannabis-related product.
Additionally, people may — possibly incorrectly — assume that Coca-Cola uses the same manufacturing and distribution facilities for its regular products, such as Coca-Cola, and its new cannabis drinks. Those who wish to avoid contamination may avoid Coca-Cola altogether and shift towards another beverage brand, such as Pepsi. The switching cost for customers to buy a different soft drink brand would also be virtually nonexistent, as it does not require any large additional investments in time or money on the customer’s side.
Health-conscious doesn't equal CBD
A cannabis-infused drink is not going to be marketed as "healthy" in Coca-Cola’s intended product, and cannot be considered a sustainable solution to the pressing need of beverage companies to cater toward more health-conscious customers. Coca-Cola’s cannabis-infused drink could be marketed for pain alleviation, but the purpose of its product would be limiting. Similar to Advil, the new Coca-Cola beverage would be consumed presumably when the customer is in pain. Unless the drink has some other impetus for customers to purchase it, such as an alluring taste or a low price, the drink has no source of sustained sales for its intended and marketed purpose.
Coca-Cola’s strategy with its brands geared toward health-conscious consumers have experienced great success. The beverage giant owns many brands geared to the health-conscious consumer, such as Honest Tea, Zico Coconut Water, Vitamin Water, Powerade and Dasani. Not only has Coca-Cola invested in different types of products, it has also developed extensions of well-known products, including Coca-Cola Stevia No Sugar, a popular low-calorie version of the original Coca-Cola. Coca-Cola’s new Diet Coke and Zero Sugar brand have been credited with Coca-Cola’s 2% volume growth and 2% sales increase in the third quarter.
The results demonstrate that Coca-Cola’s diversification into different types of products has succeeded. The company is responding to the shift in consumer preferences towards healthier and less sugary beverages by building its other brands. The company introduced a new line of coconut water blends for its Zico brand in March of 2018. Thus, the argument that Coca-Cola needs to look for more opportunities outside of soda is already being effectively addressed by its other brands, and the company can continue building on from these to cater towards the public’s changing tastes.
Many of Coca-Cola’s marketing slogans revolve around sharing a Coke to create international camaraderie and share joy — but sharing a drink that has CBD in it has heavier implications than simply sharing a sugary soft drink.
Marijuana, or any derivative of it, is illegal in many countries and users face heavy societal disapproval. The predicted effects of negative brand association in the American market would be amplified tenfold in a country where marijuana users face such strong censure. Coca-Cola’s decision to produce and sell a cannabis product in one country could have global implications for its brands and sales, not only from individual consumers, but also from national governments. The social stigma that exists in different cultures and demographics regarding marijuana and its byproducts signals that Coca-Cola would be fighting a losing battle even if marijuana was legalized in more countries.
Opinions about cannabis and marijuana highly vary depending on what generation the customer belongs to. It is undeniable that the market for cannabis products has a huge potential for increased revenue, but whether or not Coca-Cola wants its brand to transform into this kind of culture — and if consumers would buy it — is the question at large.