The purported transaction happened on Surrey Street in the city’s downtown core just before 1 p.m.
Police said officers saw a man allegedly pull a clear plastic bag of cocaine from his backpack before getting into a waiting vehicle.
They were then followed by police to a parking lot on Edinburgh Street South where a 20-year-old Kitchener man and a 40-year-old Montreal woman were arrested.
Police said they found the clear bag of cocaine, along with another that was found between the front seats, which amounted to over three grams.
Officers also found almost nine grams of crystal meth and seven tablets of oxycodone, police said.
Police also alleged the man was wearing a $3,500 watch that was reported stolen in Waterloo on Aug. 22.
WATCH: (July 26, 2019) Ontario drug bust sees 11 charged, including 2 Sunwing Airlines employees
© 2019 Global News, a division of Corus Entertainment Inc.