• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Cannabis

Jim Cramer: The Great Ones Disrupt Their Own

Two companies, PepsiCo and Constellation Brands, are disrupting their own businesses and getting no credit whatsoever for doing so.
By JIM CRAMER
Aug 20, 2018 | 03:41 PM EDT
Stocks quotes in this article: PEP, STZ, SODA, UN, CVS, CGC, CLX, ADBE, AET, AMZN, WMT, JWN, SHLD, JCP, KO

The great ones disrupt their own. If you don't do so you can end up getting crushed by those who do.
 
The problem is that on up days like today you find yourself saying "don't people get what we are trying to do? We are trying to guide our company not for the present, but for the future.
 
Two companies, PepsiCo ( PEP) and Constellation Brands ( STZ) , right now, real time, are disrupting their own businesses and they are getting no credit whatsoever for doing so. That won't always be the case. It's just what's happening in real time, right now, that makes it daunting to disrupt your own company.
 
This morning's $3.2 billion purchase of SodaStream ( SODA) by Pepsico is breathtaking both in its simplicity and its forcefulness.
 
Sodastream used to make cannisters that gave you flavored sodas and by all counts it was a bust.
 
But then a couple of years ago Danny Birnbaum, CEO of SodaStream, realized what the fabled millennials really want. He had recognized that younger people had soured on artificial flavoring. So SodaStream had to go to fizzy water. They are now the largest carbonated company in the world.
 
The reasons for that? I think the millennials have embraced the new SodaStream because it's pretty much everything that PepsiCo isn't. Let's check off the boxes. You don't have to go to the store. The machine and the canisters are all available online just where the millennials want it. Millennials hate dirty labels filled with chemicals. SodaStream has no labels. You use your tap water. Soda at the store comes in plastic. Millennials despise plastic.
 
So consider it a hedge, a hedge on carbonated soft drinks which, even though Pepsico is starting to make inroads against a rejuvenated Coca Cola ( KO) , I would argue that SodaStream is the answer and the price tag isn't all that big given the dominance that SodaStream has worldwide -- Germany does six times that of U.S. in part because if you have ever been to Germany you are a pariah if you don't recycle correctly and use anything but glass.
 
Here you don't even need glass.
 
But there is an issue here and it is an important one and that's how much can you really disrupt. Danny came on Power Lunch a couple of years ago and talked about how plastic bottled water is one of the biggest marketing scams out there. Hmmm. Aquafina and Life WTR are regular and premium waters that would be what Danny's blasting. He ran a three minute ad on Youtube showing how shamed someone should feel if they buy bottled water. It is hilarious because it uses a Game of Thrones theme to be really eye-catching.
 
That said, I think it needs to be taken down pronto unless Pepsico is so wanting to keep the brands separate that almost no one will know the difference.This isn't like when Unilever ( UN) shelled out a billion bucks to buy Dollar Shave Club back in 2016 to disrupt the shaving industry with a subscription model that doesn't require you to track down a salesperson at a CVS ( CVS) who will open a display with a key that takes out a giant piece of plastic that also has a razor or a blade in it.
 
Like Danny Birnbaum, Dollar Shave attacks the competitors head on with its founder and chief wild man Michael Dubin just character assassinating the competition. But Unilever isn't trying to disrupt its own wares, it's disrupting Gillette. Fortunately for PepsiCo Danny's category is complementary as Pepsico isn't known for its sparkling water, except for its new bubbly which has been selling like mad. Perhaps that's one of the reasons this disruptive deal happened so quickly. When I asked Hugh Johnston, PepsiCo's CFO, about why now-thinking that a year ago SodaStream's stock was at $59 and it is now at $144 he said he wanted the proof of concept and it sure came recently in a series of blow-out quarters with the last one being one of the strongest I have seen of any consumer packaged goods stock.
In other words, Pepsico did the right thing. Short-term maybe it's a bear, long term it's a bull.
 
But as revolutionary as this $3.2 billion investment might be, it palls in comparison to the amazing, stunning $4 billion acquisition by Constellation of enough of Canopy Growth ( CGC) to take its ownership stake to 38% on the way to making it a true subsidiary of the company that sells Modelo and Corona among many other spirits.
 
I know that Constellation's stock has gone down because of the buy and the cessation of its buyback. I know that CEO Rob Sands is truly playing a Gretzky game, something named after the great Wayne Gretzky because he famously said, "skate to where the puck is going not to where its been."
 
Sands and Canopy's CEO, the equally visionary Bruce Linton, see what's happening: marijuana is going mainstream. It will be legal in Canada and it won't be some backroom store run by a mom and pop cash business where the warnings are there for all to see and you are fearful for crossing state lines with the stuff.
 
No, this is nothing more than a wholesale change in how medicine, whether it be for pain--goodbye opiates-or sleep or anxiety or MS or psoriasis-or pleasure-a terrific (presumably ) high without a hangover or many calories.
 
To not think this is the future worldwide is to have your head in the sand. Now, the fact is that Constellation's beers account for almost all of the total beverage growth in its category. But Sands and Linton know that we might, in this world, experience what may be the end of Prohibition. Sure it is legal in some countries. And it's going to be legal in Canada in the fall. But how can you bet against this taking off.? How can you not want to be there when prohibition ends? How can you risk not owning the best Cannabis refining operation, the best distribution and the best drug equivalents? Sands had to disrupt Constellation to win in what will soon be the new world.
 
It's never easy to disrupt? I remember when Adobe ( ADBE) , the great cloud marketing and commerce company, went to a software-as-a service (SaaS) model. It cratered the stock of a nice company with good aspirations. Now it is a huge subscription business and it makes fortunes for shareholders and is a $122 billion stock. That's incredible.
 
I have seen Clorox ( CLX) take risks buying companies that have to do more with health supplements, far afield from traditional consumer products but I think it is paying off.
 
And I have seen whole companies transform themselves. Consider CVS's gutsy move to buy Aetna ( AET) , totally transformative and necessary in a world where Amazon ( AMZN) might turn their old fashioned drug store business upside down and destroy the margins.
 
Or consider how Walmart ( WMT) and Nordstrom ( JWN) have thrown billions of dollars at digital and having no instant payoff and then, suddenly it all works. But then consider Sears ( SHLD) and JC Penney ( JCP) and how they didn't keep pace.
 
So, I say celebrate the disrupters. Own their stocks when they settle down and the hyper growth seekers go elsewhere. But understand that if they didn't make these gutsy moves the competition will. And that's what disruption is all about.
 
 

 
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Jim Cramer and the AAP team hold positions in PepsiCo, Amazon and Nordstrom for their Action Alerts PLUS Charitable Trust Portfolio . Want to be alerted before Cramer buys or sells PEP, AMZN or JWN? Learn more now.

TAGS: Investing | U.S. Equity | Cannabis | Industrials | Healthcare | Consumer Staples | Technology | Consumer

More from Cannabis

Taking a Hit From Pot Stocks? Harvest Tax Losses Into an ETF

Debra Borchardt
Dec 9, 2019 2:30 PM EST

As the year winds down, many frothed up stocks of cannabis companies dipped -- here's a way to roll up your investments going into the new year.

Canopy Might Have Spotted Its Lucky Star in Constellation Brands

Timothy Collins
Dec 9, 2019 11:56 AM EST

The cannabis company just brought on STZ executive as new CEO, and this move is likely lining up bigger things to come as sector shakes out.

Funko's Not Just Child's Play

Timothy Collins
Dec 5, 2019 12:10 PM EST

The 'toy' company is just too cheap and attractive, right now; plus, those pot stocks are looking to be in a funk.

Cannabis Market Widens With Michigan

Debra Borchardt
Dec 3, 2019 9:30 AM EST

State becomes 10th to sell recreational marijuana.

Cannabis a Rising Star in Morningstar Mag

Debra Borchardt
Nov 25, 2019 3:20 PM EST

Morningstar Magazine offers insight into future growth potential for cannabis industry and stocks.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 10:10 AM EST BOB LANG

    Banking a Big Winner in SRPT, Rolling Up

    Nov. 20 here on the CC, I mentioned buying some Ma...
  • 10:36 AM EST GARY BERMAN

    Fibocall: How High Can Crude Go?

    On crude: I am looking for higher, but please b...
  • 08:20 AM EST BOB LANG

    Webinar Time - Talkin' Calendars, Butterflys

    join me later today after the market close as we t...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2019 TheStreet, Inc., 14 Wall Street, 15th Fl, NY, NY 10005

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login