Dive Brief:

Monster Beverage is looking to expand its portfolio into different categories outside of energy drinks — including alcoholic drinks and nonalcoholic beverages — the company's top executive said at a recent shareholders meeting reported by The Wall Street Journal.

"We do have an appetite to look at alternative brands and to develop more beverages in the nonalcoholic… as well as the alcoholic market," Monster's CEO Rodney Sacks said at the meeting, the newspaper reported.

The energy drink giant also said it is open to exploring cannabis-infused drinks if they becomes federally legal in the U.S., analysts who attended the private meeting told the Journal.

Dive Insight:

It seems like Monster is willing to jump into any category to stay ahead. But this news shouldn't come as a surprise, given all the challenges it has faced recently. Diversifying its portfolio with beverages including alcohol and possibly cannabis is a forward-thinking step as Monster faces an intense wave of competition in energy drinks and a possible future without Coca-Cola as an investor.

Controversy arose for the company recently when Coca-Cola, which has held a minority stake in Monster since 2015, announced the planned release of an energy drink for the better-for-you audience. The terms of the minority stake prohibit Coke from entering the energy drink space in most circumstances. Monster filed for arbitration with Coke to stop the product's release in the United States.

But Coke isn't the only one getting in the energy drink game. From Amazon's private label energy drinks to Keurig Dr Pepper's partnership on Adrenaline Shoc, many big names are getting into the increasingly competitive market. U.S. sales of energy drinks could total about $16.9 billion by 2022, according to Market Research Hub. Total sales were worth close to $11 billion in 2018, a 7.5% jump from the previous year.

With a more competitive category and the possibility of Coke dropping its stake, it makes sense for Monster to look at branching out. At the meeting, Sacks said the company is getting ready to buy nonalcoholic beverage brands outside of energy drinks when its noncompete clause with Coke expires in a year, according to The Wall Street Journal.

Potential M&A in alcohol, which isn't covered by the Coke agreement, might happen soon, according to the Journal. Cannabis could be much further out, since the company based the potential of getting into that market on the FDA's decision to legalize its use in beverages. This stance mirrors that of other big brands, like Mondelez, which have expressed interest conditional on future legalization. The first FDA public hearing to determine regulation of CBD occurred two weeks ago, but analysts have said actual rules are likely still years away.

There will be plenty of challenges for Monster in these new categories. It might be difficult for consumers to associate Monster with beverages other than energy drinks. And the alcohol industry has struggled in recent years as legacy companies have experienced slumping sales with their traditional products. However, studies have shown that millennials and younger generations don't have much loyalty to legacy brands and are willing to try trendy alcoholic beverages, like craft spirits and low-calorie drinks. So if Monster is looking to introduce those types of beverages into its portfolio, it could be a lucrative move.

The company might also consider launching a drink like Four Loko, which combines caffeine and alcohol. That would allow Monster to jump into a new category while keeping the function for which it is known. However, alcoholic energy drinks haven't had the best track record. Four Loko made headlines after dozens of college students nationwide were hospitalized after drinking the beverage, which caused them to quickly get simultaneously intoxicated and wired. The hospitalizations and deaths of some consumers prompted five states to ban the beverage. The controversy led Four Loko to remove caffeine from all of its varieties.

Monster's strategy of leaning on innovation to boost its sales seems to be working so far. The company recently launched a new energy drink called Reign, which was expected to appeal more to the better-for-you consumer. In its most recent earnings report, the company reached net sales of $946 million, which was an 11.2% improvement from the year before.

It could be risky for Monster to venture into other categories where it isn't the leader, but it could prove to be lucrative if the company acquires and launches the right brands.