Legalized weed could be the boost beverage giants like Coke and Pepsi need as Americans ditch sugary sodas

Getty Images/Justin Sullivan

Americans are drinking less Coke.

• As rumblings that Coca-Cola is eyeing a deal with a marijuana producer continue, it seems legalized weed could be the boost beverage giants need.
• Americans are drinking less soda, forcing beverage giants to diversify into healthier beverages and snacks.
• If CBD-infused beverages go mainstream, then they could be a new way for Coca-Cola and Pepsi to boost sales as drinkers continue to ditch soda.

With the report that Coca-Cola could be eyeing a deal with marijuana producer Aurora Cannabis, it seems legalized weed could be the boost beverage giants are looking for.

Americans have been consuming less soda in recent years as sugary drinks are increasingly demonized.

In 2006, soda sales by volume declined in the United States for the first time in 20 years. Every year since then, the decline has continued, with Coke and Pepsi brands falling 2% and 4.5%, respectively, by volume in the US in 2017, according to Beverage Digest.

As a result, beverage giants have been forced to diversify outside of soda.

Under the leadership of Indra Nooyi, PepsiCo has spent the last 12 years expanding into the snack and wellness space. By 2016, less than 25% of PepsiCo's sales were from soda, equal to sales from "naturally nutritious" brands like bottled water and unsweetened drinks. That was thanks in part to health-centric acquisitions such as German dairy company Theo Muller Group and lower-calorie soft drink Izze.

MOJO

Coca-Cola recently acquired the company behind MOJO kombucha.

Coca-Cola has more recently made a number of deals the signal a growing interest in health-centric categories. Earlier this week, Coca-Cola announced it had acquired Australian kombucha maker Organic & Raw Trading Co. Other investments include sports-drink brand BODYARMOR, sparkling-water brand Topo Chico, and coconut-water brand Zico.

Now, the next step could be investing in legal marijuana.

As Business Insider's Jeremy Berke reports, legal marijuana is on track to become as big - or bigger - than the soda industry.

If marijuana is made legal nationwide in the US by 2030, the legal weed industry could generate $75 billion in sales by that year. In 2017, the soda industry brought in $76.4 billion in sales, Bloomberg reports.

Notably, Coca-Cola and PepsiCo aren't interested in marijuana as a way to get people high. Instead, they're interested in CBD, an ingredient in marijuana that could offer benefits such as reducing inflammation and promoting relaxation.

A deal between Coca-Cola and Aurora Cannabis could "broaden the reach of cannabis-­infused beverages into functional wellness categories," Wells Fargo analyst Bonnie Herzog wrote in a note to investors. CBD investments are in line with both Coca-Cola and PepsiCo's increasing interest in up-and-coming wellness beverages, like sparkling water and kombucha.

"The question is: Is it going to be something akin to energy drinks - a new category that is trendy at first, that actually grows into a meaningful long-term business? Or is it going to be sort of a fad?" Duane Stanford, the executive editor of industry publication Beverage Digest, told Business Insider.

If CBD-infused beverages are more than a fad, then they could be a way to boost sales as people continue to ditch soda. So, analysts say that Coca-Cola and PepsiCo are very likely to at least consider making deals with marijuana producers.