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Aurora Cannabis (OTCQX: ACBFF) saw its share price rise sharply following the Bloomberg article that it is in serious talks with Coca-Cola (KO). However, why did Coca-Cola choose to speak with Aurora against others? In addition to the obvious reasons we will discuss later, we believe that a factor has been largely ignored by investors so far. It is for this reason that Aurora is the ideal partner for Coca-Cola and we believe that an agreement makes perfect sense for both companies. We will explain how.
(Source: More TV)
Hemp and CBD
The first argument is that most investors have ignored the subtle difference between this rumor and other agreements between a beverage company and a cannabis company, including Canopy (OTC: CGC) / Constellation (STZ) and Hexo (OTCPK: HYYDF) / Molson (TAP). The above agreements all focus on THC infused beverages, which aim to make people "high". The idea makes sense for an existing alcohol producer because people who consume alcohol are also more likely to consume THC-based drinks as a substitute, making them almost necessary for to start cannabis. End customers are looking for excitement and escape through alcohol and THC.
However, the rumor between Aurora and Coca-Cola is different in that the focus seems to be on the development of CBD-infused drinks. Let's take a look at the statement issued by Coca-Cola:
We are not interested in marijuana or cannabis, "Coke said Monday in his press release. "With many others in the beverage industry, we are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages across the globe. The space is changing rapidly. No decision has been taken at this time.
Coca-Cola is interested in CBD, an ingredient that has been applied in medicine and wellness, such as the recent FDA approval of Epidiolex by GW Pharma (GWPH), which contains CBD. This cannabinoid can potentially be used to produce infused drinks that help muscle recovery and relieve pain and pain. Now, Coca-Cola's portfolio included energy drinks such as Monster and Zero Vitamins, and we believe these would be the most likely to be affected by cannabis if CBD became a predominant ingredient for beverages. performance.
Now that we are clear about the difference between THC and CBD, we need to understand how they are produced and why Aurora has a distinct advantage over others here. CBD is found in hemp, which contains little THC, and is different from marijuana plants grown by most licensed producers. For medical and recreational products, most producers produce THC-rich marijuana plants, which in turn produce low levels of CBD. Hemp, meanwhile, would be required for CBD extraction and Health Canada recently authorized the commercial use of the entire plant in Canada before legalization began on October 17 of this year. In other words, producers who focus on high-THC marijuana production will not be able to supply CBD to companies like Coca-Cola, based on what we've heard up to now. ;now.
(Source: "Ministry of Hemp")
Aurora is hemp
As we discussed earlier in our article "What will Aurora Cannabis Next buy?", We reviewed the two offers announced last week. Both transactions are heavily hemp-oriented and, together with Aurora's investment in Hempco (OTC: HMPPF), clearly show that Aurora's strategic focus on hemp is an area for future growth. Why is Aurora so heavily focused on hemp? Hemp, as a plant, has been cultivated by humans for at least hundreds of years and its stem and seeds are used in many areas such as food, health, construction, textiles, etc. . mentioned above, but focuses on CBD and its future applications in medicine and in other areas such as the potential market for CBD-infused drinks.
When we look at Aurora's competitors, we hardly see that a company is focusing so much on hemp. In addition to the fact that Canopy and Hexo are off the list as a potential partner of Coca-Cola, we also found that Aphria (OTCQB: APHQF), Cronos (OTC: CRON), TGOD (OTCQX: TGODF) and CannTrust . ) focus almost entirely on marijuana and THC. Aurora seems to be unique in its early strategic approach to hemp and CBD, which could prove to be essential for ensuring a partnership with Coca-Cola or companies with a similar state of mind. Aurora has superior hemp capabilities through the acquisition of the largest hemp producer in the EU last week, its majority stake in Hempco, a leading hemp producer in Canada, and the upcoming hemp crop at ICC Labs.
Coca-Cola needs Aurora
Coca-Cola is looking for a complementary product to its existing portfolio. The company is not part of THC because it does not sell alcohol (they have recently launched pilot products, but these are still tiny for them). Cola-Cola would be well advised to consider CBD-infused drinks as these could be incorporated into its energy drink portfolio, given the potential benefits of CBD on muscle recovery and pain relief. We believe that it needs a partner who understands the CBD and, more importantly, has the capacity to produce CBD on a large scale. Until now, Aurora is the most viable option given its early strategic positioning in the global hemp market. It would be inconceivable for us that Coca-Cola associates with a producer who produces little hemp because his marijuana production is useless for his product ideas.
Put everything together
Investors need to understand the subtle difference between the Aurora / Coke rumor and the agreements between the liquor and cannabis companies. Coca-Cola is looking for a complementary product infused with CBD that integrates into its corporate image and its existing portfolio. The company has already made it clear that she is not interested in cannabis but rather wants to focus on well-being and non-psychoactive CBD. Aurora seems to be the most logical partner given its unparalleled access to some of the best hemp resources in the world. We are struggling to find another competitor who has the same hemp capabilities while still reaching the scale and market leadership position of Aurora. It would only be plausible for us that Coca-Cola would eventually choose to partner with Aurora if they decide to embark on CBD-infused drinks. If this is the case, we firmly believe that Aurora is best placed to become a partner.
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Disclosure: I / we have no position in the actions mentioned and we do not plan to enter positions in the next 72 hours.
I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I have no business relationship with a company whose stock is mentioned in this article.
Editor's Note: This article discusses one or more securities that are not traded on a major US market. Please be aware of the risks associated with these stocks.
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