Coca-Cola is in talks to invest in Dirty Lemon, a direct-to-consumer company known for its trendy drinks, and the CEO says the startup is dropping its CBD-infused beverage

Dirty Lemon

Coca-Cola is in talks to invest in direct-to-consumer beverage startup Dirty Lemon.
The company, which offers a line of wellness drinks that have been touted by celebrities and influencers, is currently raising a round of funding which reportedly includes investors like Betaworks and Winklevoss Capital.
Dirty Lemon CEO Zak Normandin tells Business Insider that the company is dropping one of its best-selling items, a CBD-infused beverage, from its offerings.
James Quincey, Coca-Cola's CEO, said on Tuesday that the company does not have any plans "at this stage" to enter the CBD space.

Coca-Cola is in talks to invest in direct-to-consumer beverage startup Dirty Lemon, Business Insider has learned. Multiple people with knowledge of the talks said that Dirty Lemon's discussions with Coca-Cola are ongoing and cautioned that the deal may fall through. A representative for Coca-Cola declined to comment on the talks.

Coca-Cola's potential investment in Dirty Lemon would be a part of its Series A funding round which reportedly includes funding from celebrity backers like Jake Paul's investment fund and the Winkelvoss twins' eponymous venture firm. (Dirty Lemon is no stranger to celebrity interest: its previous $5 million funding round included contributions from Karlie Kloss, Kate Hudson, and Sophia Bush.)

According to an email sent by a company spokesperson earlier this year, the current round was originally scheduled to be announced in late August. As for a delayed close of the round, the spokesperson said, "We wanted to make sure we had the best group possible for the round before closing."

Dirty Lemon's beverages, most of which are named for their signature ingredients like "matcha," "charcoal," or "ginseng," have garnered an avid following among influencers and celebrities online. In September, the company opened a cashier-free retail location in Manhattan where shoppers pay for the $10 bottled beverages using an honor-based system that takes place over text message.

With the closing of its new round of funding, Dirty Lemon will undergo a significant rebranding, the people said. While most of the company's rebranding efforts aren't apparent just yet, Dirty Lemon's CEO Zak Normandin tells Business Insider the company is discontinuing one of its most popular products: its CBD-infused beverage.

dirty lemon

CBD, the faddish cannabis compound that's lately been used in everything from beauty products to dog treats, is technically considered a Schedule I drug by the DEA — meaning that people distributing CBD-infused products across state lines could find themselves in danger of federal prosecution.

Still, even big brands like Coca-Cola have flirted with the notion of capitalizing on the popular cannabis derivative; in September, the company created a stir when Bloomberg News reported that Coca-Cola was in discussions with Aurora Cannabis to develop beverages infused with CBD.

James Quincey, Coca-Cola's CEO, said on Tuesday that the company does not have any plans "at this stage" to enter the CBD space. However, if the 2018 Farm Bill is passed, which would legalize hemp-based CBD, that could change.

One person with direct knowledge of the talks said that Dirty Lemon's plans to pull its CBD product was a direct result of its negotiations with Coca-Cola. But, in an interview with Business Insider, Normandin said that this isn't the case.

"We're going through the process with our legal team," said Normandin. "We're discontinuing sales of the CBD beverage right now because it's illegal. To secure our success, we want to make sure everything is buttoned up."

Normandin also pointed out that the company's CBD-infused beverage is just one of the nine flavors they offer: "We're not a CBD company," he said.

While Normandin declined to comment on the talks with Coca-Cola, he said that the company has received significant interest from a variety of institutional and strategic investors.

Coca-Cola's investment hot streak

In the last quarter alone, Coca-Cola has invested in sports brand BODYARMOR, purchased Australian kombucha maker Organic & Raw Trading Company, bought juice company Tropico, and invested in healthy beverage company Made Group. Coca-Cola also spent $5.1 billion to buy Costa, a coffee chain with almost 4,000 locations.

"We, of course, use M&A for many purposes: to fill gaps in our portfolio, yes; enter emerging categories; or even obtain capabilities or platforms that complement our existing strengths," Quincey said in a call with analysts on Tuesday.

On Tuesday, the company announced the creation of a new group, called Global Ventures, with the purpose of handling acquisitions and partnerships, as well as driving growth for these brands across different markets.

In a post on Coca-Cola's website, Quincey further discussed the company's strategy for investing in certain brands as a means of creating a path toward ownership.

"Historically, some acquisitions haven’t worked out, in part because we moved too far and too fast in integrating a company or brand into our system," the post reads. "We’ve learned that incubation – as opposed to immediate absorption – has proven to be a better approach, even if it’s not the only approach."

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