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CEO: New tariffs could brew extra cost for Keurig Dr Pepper

Keurig Dr Pepper Inc. could face up to $15 million in extra costs to ship its single-serve coffee brewers to the U.S. if a proposed new batch of tariffs on Chinese imports goes into effect, executives said Aug. 8.

The coffee makers, which are made in China before being sent to the U.S., are part of a tranche of tariffs set to take effect Sept. 1 on $300 billion in imports from China. Duties will start at 10%, though President Donald Trump has warned the tariffs could spike to 25% as the U.S. and China continue an ongoing trade spat that has seen both countries place rounds of tariffs upon each other.

Keurig Dr Pepper would have little time to implement steps to offset the tariffs as the company ships most of its coffee brewers during the fourth quarter, Executive Chairman, President and CEO Robert Gamgort said Aug. 8 during a call to discuss Keurig Dr Pepper's second-quarter results with analysts.

The coffee and soda company has already taken steps to diversify its supply chain and is looking for other ways to reduce the impacts of tariffs, Gamgort said.

"We continue to keep a closer eye on the recent news out of Washington regarding additional China tariffs," Gamgort said, adding the trade landscape is "ever-changing."

The prospect of tariffs has given Keurig Dr Pepper plenty of heartburn. In June, lawyers for the company sent a letter of opposition to the Office of the U.S. Trade Representative detailing how tariffs on Chinese goods would drive up the price of Keurig coffee systems and reduce demand for them.

Keurig Dr Pepper did not immediately respond to a request for additional comment from S&P Global Market Intelligence on Aug. 8.

The soda maker also teased a possible entry into the burgeoning market for cannabidiol in the U.S. once regulators allow its inclusion in food and the substance is proven safe for consumers.

"If it gets to that point, we will participate in it, but we're not going to be in the bleeding edge of something that is frowned upon by the government and unsure from a consumer safety standpoint," Gamgort said during the earnings call.

The cannabis-derived compound, also known as CBD, lacks psychoactive effects associated with cannabis. If legalized and proven safe, Gamgort said, CBD could become a common ingredient in food, much like caffeine.

The U.S. Food and Drug Administration is trying to learn more about the safety of CBD and is cracking down on companies hawking CBD in food or other goods that include unproven health claims. Regulatory interest in CBD bloomed after Congress legalized hemp, a strain of cannabis, through the passage of the Agriculture Improvement Act of 2018.

The FDA held a daylong hearing in May to gather public input and data on CBD as the agency attempts to craft regulations for the compound.

Keurig Dr Pepper shares rose 4.3% to $28.80 in afternoon trading on Aug. 8 after the company reported second-quarter earnings above analyst expectations.