This $2 Marijuana Stock Could Become the “Pepsi of Pot”

lexaria stock
iStock.com/Rex_Wholster

Alcohol Companies Enter Marijuana Market

When a new industry is born, big corporations come knocking—it’s a fundamental law of the business universe. We’ve seen this happen most recently in the marijuana market, where pot stocks are partnering with big alcohol and beverage companies.

One of them could become the “Pepsi of pot.”

Which one, you ask? Well, one of the targets we’ve identified is Lexaria Bioscience Corp (OTCMKTS:LXRP, CNSX:LXX), a biotech company known for marijuana-infused drinks and snacks. LXRP stock is listed on the Canadian Securities Exchange.

Although Lexaria hasn’t closed a deal with a beverage giant (yet), industry pressures suggest that the stock could be worth several times more than its current $1.78.

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For one thing, Lexaria owns patents on “DehydraTECH,” a technology that balances taste and medicinal properties. This makes the product, whether it’s a drink or an edible candy, more effective and enjoyable.

You might think that’s an unremarkable innovation—it isn’t.

Think about all the legendary companies built on patented tastes: The Coca-Cola Co (NYSE:KO), PepsiCo, Inc. (NASDAQ:PEP), and Anheuser Busch Inbev NV (NYSE:BUD). Each one of these stocks has generated a massive return on investment.

Chart courtesy of StockCharts.com

I see marijuana as a natural extension of this market Except there’s one difference: the pot sector is at the start of its growth cycle. So it’s not crazy to think that weed stocks (focusing on the edible and beverage market) could double or triple these gains.

A Look at the Competition

Lexaria isn’t the only company experimenting with marijuana edibles and drinks.

Canopy Growth Corp (NYSE:CGC) was the trendsetter. Last October, it struck a deal with Constellation Brands, Inc. (NYSE:STZ) to bring marijuana beverages into wide distribution. That got the ball rolling across the industry.

More recently, Molson Coors Brewing Co (NYSE:TAP) partnered with Hydropothecary Corp (OTCMKTS:HYYDF, TSE:HEXO) to create a joint venture that will have its own board of directors and management team. That deal is expected to close by September.

Molson Coors CEO Frederic Landtmeters hailed the joint venture as a bold step for both companies, saying:

“While we remain a beer business at our core, we are excited to create a separate new venture with a trusted partner that will be a market leader in offering Canadian consumers new experiences with quality, reliable and consistent non-alcoholic, cannabis-infused beverages.”

(Source: “Molson Coors Canada and HEXO Announce Agreement to Create Joint Venture Focused on Non-Alcoholic, Cannabis-Infused Beverages for the Canadian Market,” Molson Coors Brewing Co, August 1, 2018.)

As more deals are made, a fear of missing out (FOMO) will start to emerge. Rivals of Molson Coors and Constellation Brands could start making tender offers to rivals of Canopy Growth and Hydropothecary. And with each new buyout, FOMO increases.

The buyout targets are probably the big winners in these cases, which is why I am currently looking at Lexaria Biosciences. It is a perfect candidate for acquisition.

Why Canada Is Important to LXRP Stock

It’s important to note that most of these changes are happening north of the border. Why? Because starting October 17, recreational marijuana will be legal across Canada.

Investors have known about this deadline for a while. Last year, Canada’s ruling party promised a vote in parliament on legalization during the summer of 2018. Since the party had a strong majority in parliament, everyone knew it would pass the House. It did.

Nearly 70 cannabis stocks went public on the Canadian Securities Exchange (CSE) during the run-up to the vote.  Lexaria, however, was not one of them. The company has been around since 2013, meaning it predates the current hype around marijuana stocks.

The Canadian listing insulates Lexaria from a ton of regulatory risk in the United States. It gives cover for investors, too, while doing nothing to stop Lexaria from securing patents from the United States Patent and Trademark Office (USPTO). It is, in other words, a sweet deal.

Analyst Take

We often take simple things for granted. For instance, we expect that the drinks we get from a vending machine will be good. That’s because the soda market is fully mature.

The cannabis market is not. There is no Coca-Cola to dominate pot beverage sales, any more than there’s a weed-coated Sara Lee cheesecake that university students can pick up for a party. Lexaria wants to change all that, and it claims to have the secret recipe.

That’s the company’s elevator pitch.

I personally think there’s tremendous upside. Lexaria is stacking up patents really fast, and there’s a dearth of weed-first companies in the space. So, if you take the long-term view, you can see how LXRP stock might become the “Pepsi of pot.”