Warren Buffett Is Wrong on Cannabis And It's Hurting Coca-Cola's Stock

By CCN: In an interview with Fox Business, Warren Buffett and Charlie Munger of Berkshire Hathaway revealed they would not be a fan of Coca-Cola getting into the cannabis business.

Munger said:

“It would be a big mistake. [Coca-Cola has] got such a wholesome image and cannabis doesn’t. It’s that simple.”

Buffett added:

"There's something in everybody's mind in the world practically about Coca-Cola...I'm not sure that you would want to muddy that image a little bit.”

To a certain extent, that's true.  Just look at this tweet as an example of wholesome brand image:

Even Warren Buffett Can Make a Mistake

Berkshire Hathaway is Coca-Cola stock's largest shareholder, but that doesn't mean that Warren Buffett and Charlie Munger are infallible. They've made many mistakes over the years. Those mistakes include investing way too late in Apple and holding onto IBM's stock for much longer than any rational person would.

Warren Buffett also admitted that he should've invested in Amazon earlier.

Warren Buffett is also wrong that Coca-Cola should not get into the cannabis business.

Coca-Cola Overrun by Competition

For decades, Coca-Cola's stock was king of the mountain. It was driven by a very stable, slow-growing business that had reached into the furthest corners of the world. Coca-Cola, however, stopped innovating.

Coca-Cola stock
Coca-Cola's stock is up less than 4% year-to-date. | Source: Yahoo Finance

That allowed competitors to surge ahead of Coca-Cola because they all had a broader view of the market. All the major competitors were making moves into healthier drinks with less sugar and flavored water beverages while Coca-Cola rested on its laurels.

Coca-Cola stock has been playing catch-up as competitors' stocks have soared. Coca-Cola is been struggling with constantly declining volume. In order for Coca-Cola to stay competitive, it has to innovate along with everyone else. The beverage market is moving increasingly into cannabis and CBD products.

Constellation Brands, for example, invested billions of dollars into cannabis firm Canopy Growth Corporation. Constellation is the home of numerous famous brands of beer, liquor, and other forms of alcohol.

Canada has now legalized recreational marijuana, and multiple states in America have as well. The marijuana lobby is very powerful. It has excellent resources, very deep pockets, and has been winning regulatory and legislative fights both at home and abroad.

Cannabis Cannot Be Stopped

All this sets the stage for increasing acceptance of cannabis products. It's not like Coca-Cola is going to directly infuse marijuana into its flagship beverage. What Coca-Cola can and should do is find ways of working CBD into one or more of its other brands.

Warren Buffett is right that Coca-Cola has a certain brand image and that image is squeaky clean. However, the vast majority of consumers have no idea that they are drinking a beverage owned by Coca-Cola when they drink any of its hundreds of brands, ranging from Bacardi to Vitamin Water.

Reinvent the Tired Coke Brand Already

The Coca-Cola brand name will not be affected at all if the company moves into cannabis products that it combines with some of these beverage brands. Warren Buffett might be right if the company is foolish enough to introduce cannabis products mixed in with its flagship Coke drink. But he misses the fact that increasingly widespread acceptance of cannabis products means Coca-Cola's stock might actually get a boost by incorporating cannabis products into its beverages.

Last modified (UTC): May 3, 2019 10:31 PM

About the author

Lawrence Meyers

Lawrence Meyers has published over 2,500 articles on finance and policy at outlets including Breitbart.com, Investorplace, WyattResearch, LearnBonds, Lifezette.com, TownHall.com, U.S. News & World Report, and The New York Observer. He hails from New York City in the USA.