Why You Should Be Careful With These Cannabis-Infused Beverage Stocks

Cannabis has been in the headlines this week after Canada legalized recreational use nationwide on Wednesday.

Canaccord Genuity estimates the global marijuana-infused beverage market could be valued at $600 million in the U.S. by 2022. Several beverage companies, including The Coca-Cola Co KO, Constellation Brands, Inc. STZ and Molson Coors Brewing Co TAP, have either announced partnerships with cannabis companies or have expressed interest in the cannabis beverage market.

Brochstein On Beverages

Alan Brochstein, author of The 420 Investor and foudner of New Cannabis Ventures, joined Benzinga's PreMarket Prep trading show Wednesday to discuss the impact of Canadian legalization.

Brochstein was asked about New Age Beverages Corp NBEV, which unveiled a cannabidiol-infused drink earlier this month. He said the trading action in stocks like New Age Beverage, India Globalization Capital, Inc. IGC and Youngevity International Inc YGYI is reminiscent of the crazy action in marijuana stocks back in 2014.

“You have traders in there, but no analysts are touching them really,” Brochstein said.

“This technology is very difficult. They’re just basically making announcements, doing trials, talking about doing things, but there’s no sales yet and there’s no proof of product yet, so I’d be very careful with those names.”

M&A Potential

When asked about the potential for larger beverage companies like Coca-Cola or PepsiCo, Inc. PEP to acquire smaller cannabis beverage companies, Brochstein said he wouldn’t be surprised to see more M&A in the space. He referenced the deal between Constellation and Canopy Growth Corp CGC as an example.

“I don’t think anybody wants to buy these companies just for Canada,” Brochstein said. “You can go back to the transcript of the Constellation/Canopy Growth call after that second deal was announced. It’s about global opportunities, and specifically it’s about getting into the United States.”

While Brochstein doesn’t necessarily see federal legalization in the U.S. in the near future, he said legalization in individual states and countries like Canada are helping pave the way for the U.S. market as a whole.

Word Of Warning

Finally, Brochstein issued a final word of warning for any investors looking to play the cannabis beverage market.

The science behind the process of infusing cannabidiol or other cannabis ingredients into beverages is an extremely difficult one, he said.

“The takeaway is that people should be very careful when they talk about cannabis beverages. It’s not like you just take some weed and mix it with some water and you have a drink,” Brochstein said.

PreMarket Prep is a daily trading show hosted by prop trader Dennis Dick and former floor trader Joel Elconin. You can watch PreMarket Prep live every day from 8-9 a.m. ET here. The replay can be found on Benzinga's YouTube channel, and the podcast is on iTunes, Google Play, Soundcloud, Stitcher and Tunein.

Related Links:

The '420 Investor' Talks Canada's Legalization, Calls Cannabis Stocks A Crowded Trade Right Now

Cannabis Stocks Largely Down On Canada's First Day Of Legal Leaf