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Starbucks could be the first big chain to launch cannabis drinks

Cowen estimates the market for non-psychoactive cannabidiol products will conservatively generate more than US$16 billion in retail sales by 2025.

Starbucks Corp. (SBUX) could be the first fast-food chain to roll out cannabis-infused drinks, according to analysts at Cowen. Although, it may be awhile before customers sip CBD-laced lattes from the Seattle-based caffeine giant.

Cowen released more than 100 pages of analysis on the CBD market on Monday. The firm’s consumer, health care, industrials and regulatory teams estimate non-psychoactive cannabidiol products will conservatively generate more than US$16 billion in retail sales by 2025.

Vivien Azer, Cowen’s senior research analyst specializing in the beverage, tobacco, and cannabis sectors, cites a surge in Google search trends, and a four-fold increase in the number of hemp products for sale on Amazon over the past six years, as evidence of growing interest and use.

These days, the wellness-oriented cannabis compound is being infused into everything from coffee to bath bombs.

“In our monthly proprietary consumer survey, we were surprised to see that nearly seven per cent of respondents in January 2019 reported using CBD as a supplement,” Azer wrote in the report. “This strong consumer interest is validated by the growing number of brands and form factors that are now available through increasingly diverse retail channels, including Amazon, Sephora and Neiman Marcus.”

FLUID DYNAMICS

Putting CBD in drinks has become trendy at scores of independent coffee shops and eateries, prompting regulators in several U.S. states to ban CBD as an additive.

Earlier this month, New York City’s health department ordered bars and restaurants to stop selling food and drink containing the compound. U.S. Food and Drug Administration commissioner Scott Gottlieb said in December that his agency is looking for “pathways” to legalize the sale of CBD in food, beverages, and supplements

“The dynamics are fluid, likely delaying adoption from major coffee players like Starbucks in the near term,” Cowen analyst Andrew Charles wrote in the report. “Should the regulation of CBD oil as an additive to food/beverage change or craft/independent coffee shops find a way to comply with the existing regulation, we could envision Starbucks ultimately piloting the ingredient.”

Asked in a late January interview with CNBC host Jim Cramer if Starbucks would launch cannabis menu items, chief executive officer Kevin Johnson said it is not part of the company’s current plan.

 “We’re well aware of what’s happening around CBD, TCH, and all the trends in the industry  . . . We will always stay on top of consumer trends and new ideas,” Johnson said. “I think that there are a lot of issues that we’d have to think through on that. Right now, that’s not on the roadmap.”

Charles said Starbucks is “the most forward-thinking” on beverage innovation compared to peers like Dunkin’ Brands Group, Inc. (DNKN),  Tim Hortons (QSR.TO) and McDonald’s Corp. (MCD). One example being the company’s bold 2017 pilot expansion into beer and wine sales to boost evening store traffic.

Charles notes Starbucks would have scientific, supply chain and regulatory hurdles to clear before a CBD drink launch would be feasible.

“We believe Starbucks would need to better understand the science behind the ingredient, in addition to the standard evaluation of any new SKU around supply chain availability, as well as meeting Starbucks’ high speed of service standards,” Charles wrote.

“Given Starbucks’ heavy reliance on the drive-thru business at more than 50 per cent of sales and 80 per cent of ongoing development, SBUX would need to gain clarity around potential liability this entails around selling cannabis-infused beverages before introduction.”

Starbucks shares edged up 0.06 per cent to $71.34 at 1:16 p.m. ET on Monday.

“Hot chocolate lovers have a tendency to wish it was 1998 a lot of the time.”

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