By Nick Giambruno, chief analyst, The Casey Report
His life changed after he drank a mysterious tonic on a layover in Thailand…
Dietrich Mateschitz was a director for a bathroom products company. In 1982, while on a business trip in Bangkok, he sought something to cure his jet lag.
That’s when he discovered a local beverage made of caffeine, taurine, and other stimulating substances. He was hooked…
He quit his job in 1984 and set out to sell these tonics around the world. By 1997, Dietrich was selling a carbonated version of the drink in Europe and the U.S.
The name of the drink?
And it disrupted the soft drink industry…
Red Bull created an entirely new category of products: energy drinks. And it wasn’t long before others followed suit.
Take Monster Beverage, Red Bull’s closest energy drink competitor. Unlike Red Bull, Monster is publicly traded.
Since it introduced its “Monster Energy” drink in 2002, Monster’s share price has skyrocketed by 70,907%. Take a look:
And it’s not just Monster.
In the two decades since Red Bull kicked off energy drinks, the market has exploded.
It’s now valued at over $43 billion worldwide. That’s 4% of the global soft drink industry, which is worth $1.1 trillion.
It goes to show how much money you can make when you invest in new subindustries and categories of products early on.
And today, we are on the cusp of a similar transformation. But this time, we’re talking about a much larger market…
This transformation could disrupt a global market that’s worth $5 trillion… and growing.
I’m talking about the legal cannabis megatrend.
Many new subindustries are being born out of the cannabis industry. If you haven’t yet, let me show you why now’s a great time to get positioned…
Disrupting $5 Trillion in Global Markets
Legal cannabis will make what Red Bull did to the soft drink industry seem like small potatoes.
It’s not going to create just one new subindustry, like energy drinks. It will potentially create dozens.
The illicit recreational market is worth $200 billion globally. Ultimately, this will become a new legal industry with all sorts of subindustries – including dry flower, edibles, oils, vaping, etc.
Like Red Bull in the ’90s, legal cannabis is also going to disrupt the soft drink industry.
But it won’t stop there. It will also disrupt the alcohol, tobacco, and pharmaceutical industries, among others.
Together, we’re talking about a multiyear megatrend that could disrupt $5 trillion in global markets.
You can see this in the table below:
And the key to this is Big Business…
Big Business Is Catching On
Big Pharma, Big Alcohol, and Big Tobacco (among others) are making moves.
It’s clear that Big Business realizes the rewards of getting in on cannabis far outweigh the risks…
As I’ll show you in a moment, large companies are laying a roadmap for other mainstream players to enter the space.
Remember, cannabis is still illegal in most of the world. And Big Business has just barely started to get in. That means the legal cannabis megatrend is closer to its beginning than its end.
In other words, the risk of investing in legal cannabis has gone way down… but the upside is still attractive.
It will be years before the newly created cannabis subindustries and products are fully developed.
But for us, as early investors in the right companies, that means even bigger profits as the rest of the world catches on.
So let’s break down Big Business’ recent moves into the industry…
Pharmaceutical companies have been ramping up their inroads into the cannabis space recently.
Take Novartis, for example. With a market cap of over $200 billion, it’s one of the largest multinational pharmaceutical companies in the world.
Late last year, Novartis became the first Big Pharma company to partner up with a cannabis producer.
The Canadian cannabis company Tilray announced it signed a partnership agreement with Sandoz, a subsidiary of Novartis. Sandoz will help Tilray distribute medical cannabis in legal markets worldwide, over 35 countries in all.
Then there’s Apotex, Canada’s largest generic pharmaceuticals company. Also last year, it announced it’s picking up the pace on its partnership with CannTrust, a Canadian licensed producer.
The agreement covers research and development work that includes the expansion of Apotex’s medical marijuana portfolio and the development of proprietary formulations for cannabis-based medicines.
Finally, in the U.S. last year, the FDA approved a prescription cannabis-based drug for the first time ever.
As regular readers know, it’s called Epidiolex, and it’s used to treat seizures. Sales of Epidiolex are expected to reach $1.3 billion in the next couple of years… And that’s just one cannabis pharmaceutical product.
As I mentioned before, this is just the beginning. I expect a tidal wave of money from Big Pharma to flow into cannabis as the plant’s true medicinal properties are fully developed.
The biggest story here is Constellation Brands.
With a market cap of over $35 billion, Constellation is the third-largest beer company in the U.S. It owns the popular Corona brand, along with a collection of other household names. It has over 100 brands in total.
Constellation, a Fortune 500 company, has made a name for itself by identifying early-stage consumer trends with strong growth potential.
It was the first large U.S. company to make a major move directly into the cannabis space. It has invested over $4 billion into Canopy Growth, one of the largest publicly traded cannabis companies.
Constellation plans to develop cannabis-infused drinks with Canopy. As Canopy’s CEO put it, “We’re talking about going into a bar and having a Tweed and tonic.”
Tweed is a brand of cannabis his company produces. Canopy is working on possibly dozens of cannabis-infused beverages. They could include any mixture of up to 80 cannabinoids.
It’s reminiscent of what Red Bull did with vodka back in the ’90s, but potentially orders of magnitude larger.
The Constellation-Canopy deal fueled a surge in alcohol-cannabis deals as competitors scrambled to get a foothold in the new space.
Alcohol companies of all kinds, from producers to distributors, are rushing to partner with cannabis companies. These are just some examples:
Molson Coors Brewing announced that its Canadian subsidiary will develop a cannabis-infused drink in Canada. Molson estimates that Canada’s cannabis-infused beverages market could be worth $3 billion. And it hopes to take a meaningful share of that segment.
Anheuser-Busch InBev (the maker of Budweiser) and Tilray announced they will create a joint research partnership. Both companies pledged to invest $50 million into the joint venture. It will focus on researching beverages infused with both THC and cannabidiol (CBD).
(Recall that the cannabis plant contains over 100 cannabinoids. These are chemical compounds that react with receptors in the nervous and immune systems. THC and CBD are the two most prominent cannabinoids in cannabis. THC is the psychoactive component that gets people high. And it also has medicinal properties. CBD has medicinal and therapeutic properties and no intoxicating effects.)
In September 2018, CannTrust partnered with Breakthru Beverage Group. Breakthru is one of the leading alcohol wholesalers, both in Canada and the United States. It will provide sales infrastructure for CannTrust’s cannabis-infused drinks.
Lagunitas, which is owned by beer giant Heineken, is selling a cannabis-infused beverage in California.
Major soft drink companies are showing interest in the cannabis space, too. Specifically, they are looking at non-intoxicating health and wellness beverages infused with CBD.
Take Coca-Cola, the world’s largest beverage company.
Late last year, it suggested it might partner with Aurora Cannabis to produce CBD-infused beverages. These beverages could be used to treat inflammation, pain, and cramping, among other things.
The deal didn’t end up happening. But the fact a company as big as Coca-Cola even considered it is bullish for the industry.
Around the same time, PepsiCo’s CEO said the company was “looking critically” at the market.
Further, former Coca-Cola executive Eugenio Mendez – who was the company’s vice president of global marketing for water, enhanced water, and sport drinks – joined a prominent U.S.-based CBD producer.
Another former Coca-Cola executive, Tim Haas, joined the board of directors of New Age Beverages, a Colorado-based company that develops cannabis-infused drinks.
The trend is clear: Legal cannabis is disrupting today’s biggest industries… and there’s never been a better time to take advantage.
Chief Analyst, The Casey Report
P.S. Legal cannabis is also disrupting the Big Tobacco industry. Right now, Big Tobacco needs to find new sources of growth…
It’s found that source in legal cannabis. And we’ve found the perfect way to take advantage. It’s one of the best ways to earn income from the growing cannabis industry. I just wrote about this opportunity in my latest Casey Report issue.
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