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Oct 3, 2018
On October 2, PepsiCo stated that it doesn’t have any plans for cannabis-infused drinks. This news comes at a time when veteran companies such as Coca-Cola, Constellation Brands, and Molson Coors have all expressed interest or formed partnerships with major cannabis companies to develop cannabis-infused drinks.
Cannabis stocks react
As a result of PepsiCo’s comments, the overall cannabis sector ended in the red. Tilray (TLRY) lost ~16% during the day, while Aphria (APHQF) lost 9.8%. Canopy Growth (WEED) (CGC) was down by 6.4%, while Cronos Group (CRON) was down 5.3% during the day. The overall cannabis sector, which is represented by the Horizons Marijuana Life Sciences ETF (HMMJ), was down 6.2%.
The cannabis sector has attracted many investors in the recent month. Unexpected moves in cannabis stock prices indicate concerns over how they are priced in the current market environment. When a stock drops following a negative news event, it usually means that the market had priced in a high likelihood of that event happening. But the question of market pricing in PepsiCo’s partnership with a cannabis company, while highly likely, is purely speculative in our opinion. We recently published a series on cannabis stock valuations, in which we discussed how valuations look stretched.