PepsiCo, Inc. (PEP) is reluctant to express its interest in the cannabis space, but the company may have no choice but to explore cannabis products, according to experts.
During this morning's earnings presentation company CFO Hugh Johnston was confronted with the cannabis question, as analysts looked to assess whether the company might compete with rival Coca Cola Co. (KO) in the space.
"I think it's fair to say we look at everything but I think that the difficulties in investing in that category particularly in the U.S. where federally these things are still not legal is quite a considerable challenge," he responded. "We look at everything but certainly no plans at this point to do anything."
When prodded by Jim Cramer about "edibles or liquids" on the cannabis foray, Johnson declined to elaborate.
The market did not react well to these comments as the stock, declining 1.8% after the close.
"In the United States, it is still federally illegal at this point, so I will look at it very critically but I'm not prepared any plans in this space right now," Johnson elaborated on CNBC this morning.
The denial was a startling answer for experts and shareholders, who feel the company will have no choice but to enter the burgeoning cannabis trade soon enough.
J. Smoke Wallin, president of Vertical Cos., which helps cannabis companies with compliance, cultivation and retail strategies told Real Money of his disbelief at the reaction from Pepsi.
"I was really surprised at the way [Johnston] answered that question," Wallin said. "It would shock me if they aren't looking into [cannabis] at all. How could they not be?"
He added that given Coke's confirmed interest in cannabis and cannabidiol, Pepsi eschewing the opportunity available would put the company at a severe disadvantage.
"The reality is that they are not going to have a choice," he explained. "They're going to have to look into cannabis, either as a leader or a follower."
His comments echo some of the company's shareholders.
Patrick A. Terrion, principal of Founders Capital Management, a Hartford-based advisory firm that oversees 10,525 shares of PepsiCo said the move will come in time.
"There's no question Pepsi will be experimenting with cannabis, just like everyone else," he said. "It's going to happen."
Flip Flop
To be sure, it could be that Pepsi is simply not ready to talk and disclose the stage of its exploration of cannabis space.
Action Alerts Plus research analyst Zev Fima was forgiving of this muddied opinion, chalking it up to a timing issue.
"Given Johnston's comments regarding cannabis, it seems management hasn't ruled out a cannabis based line of products, likely on par with Coca-Colas' CBD-based ambitions," he explained. They're clearly keeping plans very close to the chest."
He added that this is a smart move given the volatility in the cannabis market as of late and a crucial change in management happening just today.
"With cannabis remaining federally illegal in the U.S., where PepsiCo generates just under 60% of sales, and Indra Nooyi handing over the reins to Ramon Laguarta as of today, it's just not the time to comment on a potential new growth initiative that is so speculative in nature," he said.
Investors will be watchful to find out when the right time is as the market is likely to punish followers more harshly than leaders.
