Roll-up roll-out: High on growth

As the world is rallying to promote greener initiatives, so too do we see the flowering of the cannabis industry. And on a scale we have seldom seen before.

Cannabidiol, or CBD, is popping up everywhere, from skin creams to coffee to prescriptions. One of the key compounds in cannabis plants, CBD doesn’t cause marijuana’s characteristic high but is being touted as a treatment for several kinds of ailments. From CBD water, cooking or massage oils, pills, chewing gum, and alcohol to CBD-infused pillowcases to Yoga classes offering CBD-assisted meditation, new ways to participate in the wellness craze have continued to multiply.

Meanwhile, CBD is already a $1 billion industry, and some on Wall Street think it could reach a dizzying $16 billion – aided in part by a recent change in US law that made some CBD legal. As decriminalisation spreads across North America, more traditional companies seem to be jumping on board, or at least considering it.

Products from Green Growth Brand’s Seven7h Sense. Photo Credit: Green Growth Brand

With retailers ranging from Sephora to Walgreens selling CBD products, interest in the category is high. Green Growth Brands is one such company that has been quick to capitalise on the market. In fact, its products are now stocked in several major clothing and grocery retailers. The firm recently struck a deal with both Abercrombie & Fitch and American Eagle to sell its CBD-infused bodycare products, including lip balms and sugar scrubs, in more than 160 A&F stores and nearly 500 American Eagle stores.

Several of the world’s largest consumer goods companies are also turning to CBD products, meaning captive funds and investors seeking to profit from the early growth have plenty of options to realise value from. Even players in the alcohol industry are starting to capitalise on this segment with Corona beer owner Constellation Brands pouring $4bn into Canada’s top cannabis producer, Canopy Growth, in a deal marking the largest investment in the industry to date.

It feels like post-prohibition. Large-scale bootleggers built criminal empires out of illegal alcohol distribution efforts, and federal and state governments lost billions in tax revenue. When it collapsed, the alcohol business boomed. The cannabis parallel is greater exaggerated by the fact there is no pre-prohibition industry to build upon and it’s from a standing start.

In such an industry that is moving faster than governments can handle, there are some who believe that regulating CBD makes little sense and point to the fact that consuming the compound comes with very few risks – putting it at a contrast to alcohol. There is even legitimacy in the notion that CBD should be treated more like a vitamin supplement, rather than a controlled substance. Such an approach would remove major obstacles for companies that are interested in selling CBD-infused products.

However, lab tests have found that more than half of the most popular CBD oils sold in the UK do not contain the level of CBD promised on the label. In fact, many are sold at such low concentrations that they cannot deliver the calming effects purported by CBD advocates. Simply, the industry hasn’t had enough time or investment yet to really develop robust R&D programmes.

Once the regulatory argument has been resolved, CBD companies will have to nail their distribution channels. The industry is expected to follow one of two models – either the FMCG-model in which branded products are distributed to retailers, or a retail-brand model, in which the seller controls how the brand is produced and presented to the public.

Once distribution has been established, CBD companies will also have to work out their branded point of differentiation. Is it taste? Provenance? Potency? Again, looking to the drinks industry for inspiration, see how marketers manage to differentiate their vodkas with compelling story-telling and clear identities. FMCG will certainly make a natural hunting ground for talent. We’ve seen this happening a lot already – such as when Coca-Cola’s former vice-president of global marketing, Eugenio Mendez, joined CBD wellness specialist Charlotte’s Web in the newly established role of chief growth officer.

Finally, the CBD-ers will then have to work hard to distinguish themselves from aggressive competition in the FMCG industry itself. Marketing and innovation leaders from the very best in the consumer goods industry will use CBD to innovate across their own broad range of products. Their captive funds’ fervent activity in recent times will fuel their innovation pipeline as they plan to incorporate CBD products into their offering.

Dan Bilzarian, CEO of Ignite. Photo Credit: Ignite

Here in the UK, the CBD revolution is already well underway. North American cannabis companies will continue to increase their presence in the UK – giving them access to a market that is anticipated to reach £16.5bn in the next decade. To their advantage, it turns out that the size of the UK CBD market is currently larger than estimated. According to the UK’s Centre for Medical Cannabis, the market is valued at £300m per year, compared to the £100m suggested by market intelligence group, Brightfield – making the CBD market larger than the Vitamin D and Vitamin C market combined. The colourful and charismatic founder of Ignite, Dan Bilzerian, is just one of those to recently announce a UK launch.

Based on the activities of companies like Canopy Growth, the UK is a key market for international CBD brands. The company recently brought UK skincare brand This Works for £43m. The deal adds beauty and sleep products to the Canadian weed producer’s existing portfolio of cannabis oil and hemp. Canopy Growth also plans to strengthen its product offering and credibility through Spectrum Biomedical UK, it’s new company focused on providing access to cannabis-based medicinal products to UK patients. Canopy isn’t alone. Just last month, Canadian cannabis producer Sundial Growers bought Bridge Farm Group, a vast greenhouse located in Lincolnshire.

The regulation hurdles continue however. As it stands, in the UK, CBD may only be legally extracted from the stem and leaves of hemp crops, instead of from the flower, where cannabinoids are produced in the greatest quantities. Furthermore, last week the Home Office entirely revoked the licence of one of the UK’s largest hemp farms, Hempen. Hempen co-founder Patrick Gillett: “Instead of capitalising on the booming CBD industry, the Home Office’s bureaucracy is leading British farmers to destroy their own crops, and millions of pounds’ worth of CBD flowers are being left to rot in the fields.”

Mark Zekulin, CEO of Canopy Growth. Photo cerdit: Canopy Growth

The situation presents a unique challenge in terms of talent. What are the most ideal skills necessary in a growing market that is currently held back by outdated and confusing regulations? Who can martial this kind of chaotic growth? We’ve mentioned alcohol, but the digital world has had to handle explosive growth into unchartered waters, and where legislation has struggled to keep up. Where would you headhunt talent from? I’d certainly be very keen to hear…

There are a lot of unknowns, but one thing is for sure. Whichever CBD businesses do make a success of it in this budding industry, in five years’ time, their talent pool will be in very high demand. | @TheMBSGroup | The MBS Group