CBD Up Close

Cutting through the CBD hype

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CBD May Be Solution to Drug Resistant Infections

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This story is from WebMD and, if the best case scenario turns out to be true, it would be pretty great. The basic gist of the article is that CBD may prove useful in fights against drug resistant infections, also known as “superbugs”.

And there is research being done on this. It’s still very early days for this research but, according to Mark Blaskovich PhD, one of the researchers, “The first thing we looked at is CBD’s ability to kill bacteria. In every case, CBD had a very similar potency to that of common antibiotics.”

How CBD Industry Should Treat Early Stage Research

Tout it but don’t make it a central piece of marketing. The 100% no bullshit truth is that, with one key exception, we just don’t know what CBD can do. It certainly looks like it can help with anxiety and normal aches and pains but, beyond that, we just don’t know.

So, by all means, link to these studies, talk about them, but make sure that you aren’t making any claims off of them just yet.

Massachusetts Department of Agricultural Resources Bans Most CBD Products

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If you are benefitting from CBD products in Massachusetts then you should start exploring other options because the Massachusetts Department of Agricultural Resources just released regulations banning most types of CBD products. From their policy statement:

“The following products are NOT approved for sale:

  • Any food product containing CBD;
  • Any product containing CBD derived from hemp that makes therapeutic/medicinal claims;
  • Any product that contains hemp as dietary supplement;
  • Animal feed that contains any hemp products;
  • Unprocessed or raw plat material, including the flower that is meant for end use by a consumer.”

Couple this with the fact that people can sell consumables with THC and you shouldn’t be surprised to find out that farmers, retail businesses, and consumers are not happy with this decision. From WCVB5 “‘An absurd dichotomy exists in the state today where you can legally produce and sell cannabis consumables, but you cannot legally produce and sell hemp consumables,’ Jim Borghesani, who served as spokesman of the 2016 ballot initiative that legalized marijuana, said.”

Why CBD Bans Continue in Some States

Honestly, I have no clue why this sort of thing happens. Since CBD is not psychoactive, why lower the regulatory boom? One possible reason would be that there are efforts being made by other industries, potentially cannabis, to tap the brakes on the CBD market.

More likely, my guess is that no governmental organization, whether it is the Massachusetts Department of Agricultural Resources or the FDA, wants to take the lead on this. Imagine this: The Massachusetts Department of Agricultural Resources approves CBD consumables and four days after that some kid chokes and dies on a lollipop laced with CBD. Of course the CBD didn’t have anything to do with the untimely death of this fictional child but there will be other people who will automatically point their fingers and cry hysterically about how CBD took this child from us.

Regulators would lose their jobs, they would miss out on any private sector sinecures that they had coming to them, and for what? It’s not like if a regulator drafts regulations that allow for the sale of products that can help people that regulator will reap any rewards from that decision. In other words, there’s not much of an upside for regulators to approve the sale of something new (and controversial) but there certainly is a downside.

What can the CBD industry do about this? Education is the boring yet most likely to succeed option. Keep on educating the public about how CBD, at the very least, doesn’t have any serious side effects and it looks like it does have at least some positive effects on people.

(And by education, we of course mean political leverage. The more people who are for CBD and are willing to base part of their voting decisions on where politicians stand on this issue can have a dramatic impact on CBD policy.)

Facebook CBD Ad Ban

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According to an article on The Verge, if you try to advertise your CBD products on Facebook you are likely to get your ad account disabled (and maybe even your business page completely deleted). For many businesses, that would be a serious blow, so it’s not worth testing the Facebook ad police unless your whole business is about CBD.

And, according to at least one account from The Verge article, Facebook deleted one person’s entire business account: “I tried to log into Facebook, and my entire account was deleted. Like I didn’t just lose ads. They deleted my entire business account — like hit the delete button,” Rudis says. “No warning, no email. No, ‘you’ve screwed up,’ no 30-day slap on the hand, literally hit the delete button, and my entire business account was gone.”

Again, unless your whole business is about selling CBD products, then don’t buy ads on Facebook to promote CBD products. In fact, even if your whole business is about CBD, it still does not make sense to try placing ads on Facebook that have anything to do with CBD. You are better off waiting for Facebook to come around to the times and allow for the advertising of CBD products on its platform. My best guess is that they will enact that change later this year; maybe it will be quick thanks to pressure from bad coverage from places like The Verge or maybe they will make a change to coincide with new regulations from the FDA.

You might be thinking “Why wouldn’t Facebook allow for CBD ads on its platform?” The short answer is that it is making so much money from selling ads that it isn’t going to be hurt by not allowing CBD ads on its platform. Furthermore, since they are under the regulatory microscope, they may be loathe to try anything that might even be the smallest bit out of line. Instead of risking the wrath of a renegade senator who has some personal issue with CBD and happens to also sit on a committee that has some power over Facebook, Facebook would rather wait back until the point when it is 100% legal (at least federally) before opening up the ad flood gates for CBD.

It’s a very conservative move but, again, the upside for Facebook at this time is rather limited while the downside, which would be increased scrutiny from politicians and regulators (especially those politicians and regulators who already have an axe to grind when it comes to Facebook, which is just about everyone these days) that could lead to some fairly dire consequences for Facebook.

The downside of this strategy is that because they had uneven enforcement of this “no-CBD ads” policy before, they have opened themselves up to litigation from (one so far) companies that had their accounts disabled for trying to promote CBD. Still, even if they have to pay out tens of millions of dollars to these companies whose accounts they disabled that would be better than having to worry about pissing of someone who might be the deciding vote as to whether or not Facebook should be broken up. And, to be 100% clear, I don’t think Facebook will end up losing much money in any litigation brought forth by a disgruntled company that had their Facebook ads account disabled. It’s better for Facebook to just sit back and wait for 100% clear rules when it comes to CBD.

What can CBD marketers do?

Amazon is an option. You can market and sell your products there. Savvy marketers will make sure to encourage their customers to leave good reviews on Amazon, which is vitally important for these companies since their Amazon page is likely the only way they will communicate with their customers before they buy.

YouTube (currently) allows videos about CBD. While it’s possible for you to create a popular YouTube channel that discusses all of the wonderful things that CBD can do for people, the more useful route would be to work with existing influencers on YouTube to promote your CBD brand. Influencers, for the uninitiated, are people or brands, which is basically the same thing nowadays, who have sway over their niche audience. For example, you can approach a YouTuber with 100,000 followers who gives makeup tips for adults suffering from acne (yes, it can get that niche) and see if you can get them to promote your products. You will probably need to pay those influencers who have a big enough reach but the rewards can be substantial.

An alternative to the YouTube marketing strategy would be to work directly with an influencer with a large enough audience to create a bespoke brand for them. That way, it will be their brand and you would be responsible for fulfillment and all of the other business activities.

Besides Amazon and YouTube, there are other options. Even though Facebook is banning people for buying ads about CBD on their platform, you could still post on its platform. Ditto for Instagram.

And there are also offline marketing strategies as well. End caps are those displays at the end of a grocery store aisle (trust us, they work). You can also pay for placement where people checkout. Another option would be to give talks at senior living centers about the benefits of your CBD products and take orders while you are there.

In other words, just because Facebook is lowering the boom on companies that are advertising CBD products that doesn’t mean there aren’t other, maybe even better, options for advertising CBD products out there. You just have to be a little creative and you will find success.

Kroger To Sell CBD Products Soon

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Another in a long line of traditional retailers, Kroger, will start selling CBD products within the coming weeks. To start, Kroger will not be selling CBD products that you can eat and they will only be selling product in Kentucky.

“‘We will not be selling ingestible at this time. We are offering our customers a highly-curated selection of topical products like lotions, oils, balms and creams that are infused with hemp-derived CBD,’ [Kroger] Louisville division’s spokeswoman Erin Grant said.”

Looking at this cynically (and maybe some of you reading this would substitute that word for “logically”), one could see this as a blatant marketing ploy by one of the largest retailers in the country. Kroger, this cynical person might reason, knows that there isn’t much to substantiate the efficacy of CBD-infused products but since there are no known side effects Kroger is trying to get in on the CBD bandwagon.

And, even though there is mounting evidence that more and more people are finding CBD products helpful for whatever ailment they are facing, that cynical person is at least partially correct. The worst case scenario for the CBD industry is that these retailers are seeing the rapid adoption of CBD products as nothing but a mania.

I think the more likely scenario is that these retailers are seeing the beginnings of a trend. While not certain, it looks like there are some health benefits to taking products infused with CBD and, over time, we may even find out that there are more substantial benefits to using CBD products than with simply helping get rid of acne or helping one calm down.

Looking at it this way, what retailers are doing is essentially buying an option to pursue this customer base. By taking these first, tentative steps into the CBD market, these retailers are communicating to their customers that they have heard what they want and these retailers are taking the CBD marketplace seriously. Starting out with oils, lotions, and ointments these retailers are making an effort to get in the CBD space and, with time, will be open to expanding their offerings.

Or retailers like Kroger could simply be playing follow the leader because they don’t want to get left out on any of the CBD fun.

Either way, I think the old adage about paying more attention to what someone does and not what they say is what we should be going by in this situation. Retailers are carrying CBD products because at the very least they think that the CBD market can become an important part of their business.

The only time to become worried is if retailers start taking CBD products off of their shelves. This would either happen because the laws and regulations turn against CBD products or because there just isn’t enough demand. I think that neither scenario is likely but, of the two, the least likely is the latter. People are already using CBD products in large numbers and, if anything, this marketplace will expand by up to 40 times what it is now by 2022. CBD is a hot market and we don’t think that will abate anytime soon.

Senior Citizens and CBD

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If you think about it for more than a second, it makes complete sense: Senior citizens like CBD products.

A conversation I had earlier this week with someone who is getting in on the financial side of this industry was what made me first think of this. The basic premise here is that in certain ways senior citizens benefit more from CBD than other age groups do because, generally speaking, senior citizens suffer from more aches and pains than other groups do.

As we have found out in a couple of studies of CBD users, pain is one of the big reasons people use CBD products and they generally think it is effective. If you are someone who suffers from pain, even low level but recurring pain, you know that it really starts to effect your quality of life. Being able to take a CBD tincture or eat a gummy that relieves the pain, even if only for a little while, can make the difference between an enjoyable day and another day of misery.

What made this topic come to the front of my mind again was an article I saw on Reader’s Digest’s website about the 13 Facts You Need to Know About CBD that got me thinking about the senior citizen and CBD connection again today. Another article I saw today, this one from Yahoo! Finance, also talked about senior citizens and CBD.

One of the things that stuck out to me was that both articles discussed how CBD can be used to replace prescription drugs for pain relief.

CBD as a replacement for prescription drugs is a huge selling point for the industry, especially considering the opioid epidemic. And it’s fairly common for senior citizens to frequently use prescription drugs to relieve their pain. On the plus side for CBD is that you don’t need a prescription to purchase it, it can be cheaper, and there is no evidence that CBD products are addictive. The only catch, of course, is that CBD companies can’t make medical claims.

I’m beginning to think that the demographics for CBD users are going to be bifurcated with the young and the old both using CBD products at a higher rate than people who are middle aged. I could be wrong on this, I haven’t seen anything dispositive on this one way or the other, but that is the sense I’m getting from all of my research into this industry.

CBD Marketing: Old v Young

For the older demographic, they are taking CBD products because they have aches and pains. On the other hand, the younger demographic are using CBD to help alleviate stress.

For marketers, the message here is clear: Stress pain relief for products you are marketing to seniors and stress, well, stress-relief for younger consumers.

Canadian Cannabinoid Company Cronos Plans Expansion Into USA – Markets Rejoice

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Cronos, a Canadian cannabinoid company, is planning on expanding its operations into the United States in the next six to twelve months. Thanks to this news, its stock price spiked over 10% as of this writing at the promise that this expansion holds for the company.

While a 10% bump in a single day is newsworthy, the real gains for this company over he last year happened thanks to the 2018 Farm Bill that passed late last year. Here’s a chart from Google showing the movements in stock price for Cronos over the last year:

Credit: Google

Two stock analysts who monitor Cronos had this to say about the company’s plans: ” “In particular, we would expect CRON to focus on topicals and vapor, initially, given the current regulatory framework,” Cowen analysts Vivien Azer and Steven Schneiderman wrote after attending the CAGNY event. “However, Gorenstein commented that CBD would likely lend itself better to edibles and beverages than THC, and thus we look for CRON to enter these segments once deemed permissible for interstate commerce by the FDA.” “

Publicly traded companies are being careful with how they roll out their expansions. As we have seen with Canopy Growth, they are meticulous with where they are expanding and what they are expanding with. Cronos is no different and they are focusing on the CBD market for the initial rollout because the laws are more favorable for that product. Additionally, the FDA just held hearings on how it plans to regulate CBD, which, at least some people think, was the impetus for Cronos to make this announcement.

Where are the Investment Opportunities?

Everyone has opinions on this. From my perspective, the highest upside play in the CBD/cannabis market would be with a moderately sized venture fund in the neighborhood of $20 million, that invests throughout the value chain for cannabis and CBD (or pick one of the two). That kind of play would provide investors with enough diversification but still expose investors to the upside of investing in early stage companies in the cannabis/CBD industry.

Companies like Cronos and Canopy Growth do provide investors with some upside still, especially considering the explosive growth that is forecast for this industry. Additionally, there is less risk when investing in publicly traded companies versus investing in startups but the tremendous upside is no longer there with the publicly traded companies.

Taking Cronos as an example, one of the analysts from the Business Insider article thinks that the target for that company is $20/share by the end of the year. And that would be great if it performed that well, that would be a more than 20% increase from where it is today. For most investors, the vast majority of investors really, this is the kind of play that makes the most sense.

But, for those investors that have the sophistication to evaluate startups in this space and the means to invest in them, that’s where the real upside is. Of course, investing in startups is also a good way to lose all of your investment capital.

In other words, it depends on what your investment goals are. If you are looking to allocate a portion of your portfolio to investments that can have returns of 100X or more, then you have to go with investing in startups either as an independent investor (angel) or through a venture capital fund (this kind of investing is usually only open to accredited investors). If your looking for something more stable and don’t want to go through the rigamarole of investing in startups then one of these public companies makes the most sense. An even safer option would be to find an equity traded fund (ETF) and invest in that instead.

Or you could go all out and start up your own cannabis/CBD company. That’s always an option and, if the market size explodes like analysts think it will, then there will be some extreme winners in this space. “Fortune favors the bold” and all that.