The Insane Rise Of Coca-Cola

Hello! This is Deep Pockets #27.

On April 16, 1865, a 34-year-old Confederate soldier named John Pemberton was slashed in the chest with a sword during a brutal round of hand-to-hand, horse-mounted combat. Pemberton also suffered a gunshot wound, but the deep cut from the sword would plague him with pain for the rest of his life… and result in a crippling lifelong morphine addiction. Had he not been wearing his money belt across his chest, the sword cut would have been fatal.

To add insult to injury, within days Pemberton and the other combatants of what became known as “the Battle of Columbus” learned that the war had actually ENDED seven days EARLIER when Confederate General Lee surrendered at Appomattox on April 9. Downed telegram lines prevented news of the surrender from reaching a Union General before he ordered a raid that destroyed Columbus, Georgia, and resulted in more than 200 casualties. The soldiers were also unaware that President Abraham Lincoln had been assassinated the previous day.

There was one upside to this debacle. The sword wound, combined with Pemberton’s subsequent morphine addiction, eventually gave birth to America’s most famous invention.

But in yet another cruel fateful sword cut, the family that earned an enormous fortune off this invention was totally unrelated to John Pemberton…

DEEP DIVE: An Empire Built On Cocaine

John Pemberton was born in Knoxville, Georgia, in July 1831. At the age of 19, he earned a medical degree with a specialization in chemistry from the Reform Medical College in Macon, Georgia. From that point on, he went by “Doc” Pemberton.

In 1855, at the age of 24, Doc opened a drugstore in Columbus, Georgia, that specialized in prescribing herbal remedies that (dubiously) promised to remove toxins from the body and alleviate various ailments. While operating the drugstore, he studied on the side to earn a graduate degree in pharmacology.

Upon returning from war with that gaping sword wound, Doc self-medicated with morphine, a highly addictive opium-based pain reliever. And since he was a pharmacist, he had an unlimited supply of morphine. Not a good combination!

Doc Pemberton was not the only soldier suffering from lingering battle wounds and a newfound addiction to morphine. Countless Civil War vets suffered from morphine addiction. Society even coined the term “Soldier’s Disease” or “Army Disease” to describe morphine-addicted vets who, at best, were lethargic, unemployable drug addicts and, at worst, were dying by the thousands from morphine overdoeses and other addiction-caused fatalities.

Combining his medical education, drugstore experience, and the recognition that he was personally on a very unsustainable path, Doc Pemberton set out to concoct a natural, opium-free pain management alternative.

His first recipe was a syrup he called “Dr. Tuggle’s Compound Syrup of Globe Flower,” a name that clearly just rolls off the tongue. The supposed medicinal component of this syrup came from a plant called buttonbush that features a white globe-shaped flower. As it turned out, buttonbush flowers also contain cephalanthin, a toxin that can cause vomiting, convulsion, and paralysis. So, no, Dr. Tuggle’s Compound Syrup of Globe Flower was not a hit.

As Doc was tinkering in Georgia, a chemist in Paris named Angelo Mariani created a drink called “Vin Mariani.” By the mid-1870s, the drink was all the rage in Europe’s most exclusive bars.

Luminaries, including Thomas Edison, Jules Verne, Arthur Conan Doyle, Alexander Dumas, and even Pope Leo XII praised the virtues of Vin Mariani. Pope Leo carried a flask of the drink wherever he went and even awarded Angelo Mariani with a medal in recognition of his amazing creation.

Why did people love Vin Mariani so much? Well, you might also very much enjoy a beverage made by combining a hearty Bordeaux wine with…

.

.

.

.

Cocaine

And not a diluted or narcotic-free coca leaf flavoring, literally just straight-up cocaine.

When word of Vin Mariani’s benefits reached the Doc, who by now was living in Atlanta, he got to work creating his own version.

Pemberton’s knockoff recipe combined the following ingredients:

• Cocaine from the Coca leaf

• Wine

• Caffeine extracted from the Kola nut

AKA, Lindsay Lohan’s dream beverage. Kidding, kidding!

The Doc called his drink “Pemberton’s French Wine Coca.”

As you can see from the original advertisement below, his drink was marketed as “the great restorer of health,” a cure for mental and physical depression, memory loss, sleeplessness, etc., etc.

Read the whole ad, it’s pretty amazing:

As you might imagine, a cocaine-infused, caffeinated wine quickly became a big hit.

Unfortunately, the party ended in 1885 when Fulton County, Georgia (where Atlanta is located), passed temperance legislation that banned the sale of alcohol. The prohibition was on alcohol only. Cocaine was not impacted.

On May 8, 1886, Pemberton introduced a wine-free version of his drink. In place of the wine, he added a sugary syrup mixed with carbonated water.

The drink needed a new name. Pemberton’s business partner and bookkeeper, Frank M. Robinson, suggested an alliterative version of the two remaining original ingredients, Coca leaf and Kola nut. I think you know where this is going. To really drive home the alliteration, he replaced the K in “Kola” with a “C” to create…

Coca-Cola

Robinson even hand-drew a potential logo in his version of “Spencerian” font, which was the standard business handwriting of bookkeepers of the era.

The end result is remarkably similar to the logo we all know today. Here’s Frank’s logo as it appeared in an 1887 newspaper ad:

In these early years, it was still only available in Atlanta, exclusively at pharmacies, and was not yet bottled. It was delivered via soda fountains.

Pemberton sold 25 gallons of Coca-Cola in 1886. The following year, he sold 1,049 gallons.

In 1890, 9,000 gallons of Coca-Cola were sold.

In 1900, sales reached 400,000 gallons.

Dr. John Pemberton must have been diving into a Scrooge McDuck-style pool… but instead of being filled with gold coins, filled with Coca-Cola!

Right?!

Unfortunately, no.

Dr. Pemberton was extremely sick and nearly bankrupt during Coca-Cola’s early years. He was suffering from the effects of stomach cancer and had slipped back into a debilitating morphine addiction.

There are varying accounts of what exactly happened over the next two years and the dollar amounts that changed hands. Whatever exactly happened, all roads led to one man:

Asa Griggs Candler.

Asa Candler was a fellow pharmacist in Atlanta. A lifelong sufferer of migraines, Asa found Coca-Cola gave him some relief. After learning of Pemberton’s health problems, Asa decided he wanted to acquire the rights to Coca-Cola.

This is where it gets fuzzy. For example, according to a common account, Pemberton sold Coca-Cola to Candler for a grand total of $300. That’s the number that’s given on Pemberton’s Wikipedia page. Candler’s wiki page says he acquired the rights for $238.98. Neither figure has a credible reference.

From what I was able to dig up, by 1888, Pemberton had already sold off 2/3rds of his company shares to various investors around Atlanta, one of whom was his bookkeeper, Frank Robinson. Between 1886 and 1888, Candler bought up most of those third-party shares.

As he got closer to death, Doc Pemberton encouraged his only child, a 40-year-old son named Charles, to not sell the family’s remaining 1/3rd stake. Unfortunately, Charles did not heed his father’s advice and accepted cash from Asa Candler for the shares. And according to yet another account, Asa Candler approached Pemberton’s widow AT HIS FUNERAL and convinced her to sell him the 1/3 family stake.

Separately from the share purchases, Candler paid an additional $1,200 for Pemberton’s Coca-Cola machinery equipment.

From what I could ascertain, all-in, Candler paid $2,300 to the Pemberton family for their various Coca-Cola assets. That would have been the same as around $100,000 in today’s dollars.

Dr. John Pemberton died on August 16, 1888, at the age of 57. His son Charles Pemberton died six years later from his own opium-related addiction problems.

The Asa Candler Coca-Cola Era

Asa Candler incorporated the Coca-Cola Company in Georgia in 1892. The following year, he trademarked the brand name.

Early on, Asa Candler had a brilliant business revelation. Instead of producing Coca-Cola and shipping it all over the country, Asa saw the power of allowing people in far-away places to bottle the beverage on Coca-Cola’s behalf.

In 1899, Asa introduced a new system of “franchise” bottling rights, where entrepreneurs around the country (and soon the world) could buy exclusive bottling territory rights for a nominal fee of $1. He sold the first bottling franchise rights in July 1899 to two lawyers from Chattanooga, Tennessee. Candler never actually collected the $1 fee.

This is an extremely important advancement that I want to underline. Thanks to bottling franchises, Coca-Cola was no longer in the business of producing, bottling, transporting, marketing, and stocking soda bottles in thousands of stores around the US, it was in the business of selling syrup to a couple dozen franchises. Coca-Cola could sit comfortably in Atlanta and make the syrup with their secret formula while franchise bottlers did the really heavy lifting of bottling, distributing, and marketing the product.

Oh, and at this point in our story, Coca-Cola was still being marketed essentially as a health elixir, and it STILL CONTAINED COCAINE!

Cocaine was not removed from Coca-Cola until 1903. Though cocaine would not become illegal until 1920, Candler decided to cut out the drug in response to a growing uproar on the effects of the substance. Not surprisingly, people were literally addicted to drinking Coca-Cola. They were actually referred to as “coke” fiends. Critics were especially concerned about the impact of both cocaine and caffeine on younger consumers.

Candler removed the cocaine and cut the caffeine in half. He also decided that children would not be used in Coca-Cola’s advertisements. To this day, Coca-Cola does not market its products to children under 13.

From this point on, Coca-Cola was no longer marketed as a health elixir but simply as a tasty beverage (for people over 13).

Two small caveats:

1) For decades to come, Coca-Cola continued importing coca leaves and extracting cocaine, selling the narcotic extract to pharmaceutical companies as a side business.

2) Coca-Cola’s secret formula STILL CONTAINS coca leaves (with the cocaine removed). The Coca-Cola Company is the only non-pharmaceutical company in America that has a license to import coca leaves.

Jumping ahead just a bit…

The now-iconic glass Coca-Cola bottle was first created in 1915. In 1920, the bottling franchisees got together and agreed to standardize globally to a 6.5-ounce version of that glass bottle.

In 1916, Asa Candler was elected mayor of Atlanta, so he stepped down from day-to-day management of the company. He transferred his shares in Coca-Cola to his children.

Coca-Cola Is Sold Again

In 1919, against their father’s wishes, Asa’s children sold the Coca-Cola Company to a consortium of investors led by an Atlanta businessman named Ernest Woodruff. The sale price was $25 million. That’s the same as around $450 million in today’s dollars.

Woodruff and his partners chipped in a bit of their own money but mostly borrowed the $15 million cash portion of the purchase price. The remaining $10 million was paid to Candler in the form of preferred stock that paid a 7% interest… essentially an IOU with a 7% annual rate.

A few months after the deal was closed, Woodruff re-incorporated the company in Delaware and then organized an initial public offering. On September 5, 1919, Coca-Cola went public on the New York Stock Exchange under the ticker symbol “KO.”

At the outset, 500,000 shares were offered at $40 a share, instantly giving the company an enterprise value of $20 million. The stock price rose to $172 by 1926, giving the company a market cap of $86 million. Coca-Cola shares actually performed very well during the Great Depression, partly because the beverage was marketed as a cheap treat during difficult times.

If You Bought Coca-Cola Shares at the IPO

If you bought one share of Coca-Cola for $40 at the IPO, after a dozen stock splits, today you would have 9,200 shares. As I type this article, Coke stock trades at around $60 a share so your $40 investment would have grown to be worth $570,000 and would be producing $17,000 per year in dividends.

But that’s not the full picture.

Over the last century, your Coke shares would have generated generous annual cash dividends. Many investors choose to reinvest those dividends.

What would one share be worth today with dividend reinvestment? I don’t know the answer as of today, but I do know the answer as of 2012.

In 2012, Coca-Cola’s investor relations department ran the math to find out how much one share purchased at the IPO would be worth if all dividends over the years had been reinvested back into Coke.

Without dividend reinvestment, one IPO share in 2012 was worth $341,545.

With dividend reinvestment, one IPO share was worth $9.8 million in 2012!

Would you like to know how rich the Woodruff family got???…

The Woodruff Family

Ernest Woodruff had two sons, Robert and George. In a weird twist, Asa Candler was Robert’s Sunday school teacher.

Robert was the rebel. George was the perfect child.

Robert barely graduated high school. He then ENRAGED his father (who pulled strings to secure his acceptance) by dropping out of Emory after a year. This caused a major estrangement between Robert and his father that would last for nearly a decade. Spoiler: the library at Emory, plus a dozen other buildings on campus, would eventually be named after Robert.

Younger brother George, on the other hand, graduated from an elite technical high school and then went to Georgia Tech, where he earned a degree in Mechanical Engineering. Spoiler: Georgia Tech’s Mechanical Engineering school is now named after George.

George enrolled at the Massachusetts Institute of Technology, but his graduate degree efforts were interrupted by World War I.

As a peacemaking offer, in 1923, Ernest made his 34-year-old prodigal son Robert the President of the Coca-Cola Company. A decade later, George joined the business as a director, though for the rest of his life, he never had an official day-to-day working title at the company.

Despite his rough start and lack of formal education. Robert Woodruff turned out to be a talented business leader and, more importantly, a marketing genius.

One of his first strokes of marketing genius was hiring athletes and celebrities to endorse his products and appear in ad campaigns. One of the most famous early endorsers was Georgia-born baseball player Ty Cobb. Robert encouraged Ty to use some of his endorsement earnings to buy shares in Coca-Cola. Ty followed that advice. If you want to know how that turned out… Spoiler: Ty Cobb is the subject of next week’s Deep Pockets 😃 

Coca-Cola became an iconic global brand during World War II. This was Robert’s second stroke of genius.

During WWII, Robert orchestrated an arrangement with the US War Department that provided an endless supply of Coca-Cola for soldiers serving overseas. Because of this arrangement, Coca-Cola was exempted from the strict sugar restrictions put on all other companies back home because Coca-Cola was considered an essential good in the war effort.

Furthermore, Coca-Cola was allowed to build bottling facilities in war-torn areas for pennies on the dollar as the war raged! During the war, Coca-Cola built 64 overseas bottling facilities. By the time the war ended, American soldiers had consumed 5 BILLION bottles of Coke.

Perhaps most importantly of all, Coca-Cola was now seen globally as a symbol of America and freedom.

I’m not going to waste your time explaining that Coca-Cola eventually became a massive global conglomerate. You know this already. Today, the Coca-Cola Company owns hundreds of brands. It generated $45 billion in revenue in 2023 and has a market cap of $270 billion as of this writing.

Let’s talk about the wealth of the Woodruff brothers.

The Fortune

Robert Woodruff died in 1984 at the age of 95. George Woodruff died in 1987 at the age of 91.

During their lifetimes, the brothers donated hundreds of millions of dollars to charity.

In 1979, the brothers donated $105 million worth of Coca-Cola stock to Emory University. It was the single-largest gift ever made to a university up to that point. They would eventually donate another $125 million to Emory. Today, Emory has a dozen buildings and schools named after various Woodruff family members. The main library is the Robert W. Woodruff Library. The Nell Hodgson School of Nursing is named after Robert’s wife.

Outside of the Emory gifts, during their lifetimes, the brothers established five foundations and contributed $100 million worth of Coca-Cola stock to each foundation.

Robert died without children, and his wife preceded him in death. He owned a mansion in Atlanta, a duplex in New York City overlooking Central Park, and a 37,000-acre game preserve in Georgia. Whatever assets remained at the time of his death went to the foundations.

George Woodruff was worth $300 million at the time of his death in 1987. Again, that’s after giving away hundreds of millions in his lifetime.

Separate from his brother, George donated generously to his alma mater, Georgia Tech. In his will, George gifted Georgia Tech $37.5 million. Today the school’s Mechanical Engineering school is named in his honor. There’s also a campus dorm called the Woodruff Residence Hall.

George did leave some of his fortune to his family.

Three months after George’s death, one of his three daughters, Frances, filed a lawsuit seeking to block the distribution of his $300 million estate. The lawsuit exposed that George’s will intended to distribute $150 million to various charities in Georgia and the other $150 million to various family members… excluding Frances.

Under the terms of his will, George’s two daughters, Jane and Irene, were to receive $30 million each, while Frances was left just $200,000. FYI, $30 million in 1987 is the same as around $80 million, and $200 thousand is the same as around $555,000.

As if that wasn’t bad enough, Frances would only receive the $200,000 if she could prove she had become destitute.

Frances and her father apparently had several major fallingouts over the years, including one that resulted in him committing her to a Florida mental institution. Frances had to file a lawsuit and prove she was not insane before finally being released from the institution. Clearly, that strained the relationship.

In his later years, George was convinced Frances and three of her four children were trying to have him killed. That is why he cut them off. Frances’ fourth child was not on his bad list so she was included as an heir to the fortune and, therefore, was actually a named defendant in the mother’s lawsuit!

In the end, Frances received $17 million from the estate.

Asa Candler died in 1929 at the age of 77. During his lifetime, he also donated generously to various charities, including $7 million given to Emory University. He donated the land in Atlanta that became Emory’s current campus. According to a 1992 book called “The Real Ones,” written by his great-great-granddaughter Elizabeth Candler Graham, 10 of Asa’s 22 grandchildren became alcoholics, with six dying from their addiction.

According to a 2011 bank statement, Asa Candler V’s net worth was just $30,000 after the Great Recession caused him to lose $40 million worth of real estate investments to foreclosure.

Raise a glass (of Coke) to Coca-Cola! An empire born in the ashes of opioid addiction and built on the back of cocaine. A true American success story if there ever was one.

FINAL WORD

On the next edition of “Deep Pockets,” we’re going to talk about legendary Coca-Cola investor (and also professional baseball player on the side) Ty Cobb.

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